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Four years ago someone got inside one of the
worlds largest stock markets. What happened next
could destroy your faith in the nancial system p40
StruxureWare for Data Centers software enables intelligent
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In terms of
cybersecurity, most
companies are more
like a house than
a bank
p40
Im just wondering if we can
get a reality show and
whether Ethics will allow us
to collect any compensation
from it
p24
Based on the
Twitter attention
it got, Sharknado
is our
Arab Spring
p59
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properties as well a
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Opening Remarks Paid family leave is good for businessjust ask California and New Jersey 8
Bloomberg View The BRICS dont need their own bank Give the Iran nuke talks more time 10
Global Economics
Its what Merkels not doing that worries German economists 12
Homeownership isnt so awesome for millennials 13
A shrinking Japanese farm village becomes a test for an agricultural renaissance 14
The dashboard that guides Janet Yellen 15
Buying your way into the Chinese army 17
Companies/Industries
Do Audi and Mercedes risk tarnishing their brands by going downscale? 19
Pernod Ricard courts a new generation thats drinking local 20
Google and Canon team up to keep frivolous patent suits at bay 21
Rupert Murdoch pursues another deal of a lifetime 21
The regional casino circuit is crowded with aging rock stars 22
Briefs: IBM and Apple pair of; Volkswagen opts for Made in USA 23
Politics/Policy
Cory Booker and Rand Paul are Washingtons it couple 24
The gas tax cant ll the Highway Trust Funds cofers 25
The Pentagon loves to pay top dollar 26
Georgia hates Atlanta but used to hate it more 26
Technology
Shervin Pishevar raised $154 million for his VC rm with a little help from his famous friends 28
The U.S. and Japan coordinate defense systems to thwart a possible Chinese satellite attack 29
Tech giants want to break into cars 30
Innovation: A pocket-size microscope that can diagnose African sleeping sickness 31
Charlie Rose talks to LinkedIn co-founder and CEO Reid Hofman 32
Markets/Finance
The 30 percent rule for housing is useless 34
Junk tastes good to investors craving yield 35
A European Internet darling collapses after a short seller exposes fraud 36
How much will art buyers pay for Motowns masterpieces? 37
Students think twice about debt when they see how much it will cost each month 38
Bid/Ask: Camel and Pall Mall cigarette maker Reynolds America buys rival Lorillard for $25 billion 39
Features
We Almost Lost the Nasdaq A hack reveals how vulnerable the U.S. is to cyber attacks 40
Pitbulls Empire State of Mind The crossover hip-hop star aims to be a billionaire 46
Club Med in Play Andrea Bonomi challenges a Franco-Chinese bid for the troubled resorts 52
Etc.
Sharknado returns for a sequel, and Syfy wants to make money this time 59
Accessories: Sleek chained clutches roomy enough for essentials 62
Rant: How to get ahead by speaking vaguely 63
Grooming: The SPF30 face creams you need to be wearing right now 64
The Critic: Support and Defend proves Tom Clancys empire lives on 66
What I Wear to Work: A Davids Bridal designer who loves the fantasy of wedding dresses 67
How Did I Get Here? Chef Andrew Carmellini on trufe hunting in Italy and earning a Michelin star 68
July 21 July 27, 2014
The cover is about how Russians
hacked the Nasdaq.
Russians!? Oh, how Ive missed Putin!
We can do
classic Putin.
Graphic,
powerful,
pure Putin.
Better yet,
we can do
happy Putin.
Laughing from
his mountain
of glory.
Try this on
for sizea new
avor of Putin.
Soft Putin.
Hes just sayin
thanks, yall to
those nice fellas
who let him steal
all that data.
It seems like youre not aware
that this hasnt been
linked directly to Putin.
I am. Those were for my personal
collection.
How the cover gets made
Cover
Trail
Or sneaky
Putin. Whats
he doing with
that big ol
sack? Oh, hes
stealing the
entire stock
exchange!
2
a
THE ECONOMY S
B A C K B O N E.
CONSI DER OUR
LITTLE SUPPORT.
a
r
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Flanders, Scott 48
Fogel, Jared 60
Ford Motor(F) 19, 30
Fosun Group 54
Four Seasons 54
Freddie Mac(FMCC) 34
Freescale
Semiconductor(FSL) 30
G
Garca, Jenaro 36
Genband 21
Gibson, Debbie 60
Gillibrand, Kirsten 8
Giscard dEstaing, Henri 54
Goldman Sachs(GS) 28
Google(GOOG) 21, 23, 48
Gotham City Research 36
GP Investments(GPIV33:BZ)
54
Grant, Hugh 66
Graves, Tom 25
Greaney, Mark 66
Grossman, Mindy 23
Grupo BTG
Pactual(BBTG11:BZ) 39
Gtech(GTK:IM) 39
Guen, Mounir 54
Guo Guangchang 54
GustBuster 65
H
Hard Rock International 22
Harrahs(CZR) 22
Hatch, Orrin 24
Hirono, Mazie 8
Hoch, Pauline 20
Hofman, Reid 32
Hogshead, Sally 66
HondaMotor (HMC) 19
Hony Capital 39
HSN(HSNI) 23
Huawei Technologies 21
Hyundai Motor(005380:KS)
48, 30
I
IBM(IBM) 23
IHS(IHS) 30
Imperial Tobacco
Group(IMT:LN) 39
Inneon Technologies(IFX:GR)
30
Instagram(FB) 48
Intel(INTC) 30
International Game
Technology(IGT) 39
Intesa Sanpaolo(ISP:IM) 54
Inventergy Global(INVT) 21
Investindustrial 54
IPass(IPAS) 36
JKL
J.C. Penney(JCP) 23
Jay Z 48
Johnson & Johnson(JNJ) 28
Kalinin, Aleksandr 42
Katzenberg, Jefrey 28
Kaufman, Merlin 48
Keogh, Scott 19
Kerry, John 10
Kerzner, Sol 54
Kesha 48
KKR (KKR) 54
Kmart(SHLD) 48
Kodak(KODK) 48
Kodiak Oil & Gas(KOG) 39
Lauer, Matt 60
Lee, Harper 66
Lee, Mike 25
Lets Gowex(GOW:SM) 36
Lil Jon 48
LinkedIn(LNKD) 32
Lockheed Martin(LMT) 29
Longoria, Eva 48
Lopez, Jennifer 48
Lorillard(LO) 39
LOral(OR:FP) 65
M
M&A Auditores 36
Mail.Ru(MAIL:LI) 28
Martin, George R.R. 66
Mayer, Marissa 28
McGrath, Mark 60
Mediatech Capital Partners 21
Medvedev, Dmitry 42
Menlo Ventures 28
Mercedes-Benz(DAI:GR) 19
Merkel, Angela 12
Miami Subs Grill 48
Microsoft(MSFT) 23
Mikulski, Barbara 8
Mille Lacs Corporate Ventures
22
Mills, Marja 66
Mohegan Tribal Gaming
Authority 22
Moodys(MCO) 35
Moskovitz, Dustin 21
Munchery 28
Murdoch, Rupert 21
Murphy, Chris 25
Musk, Elon 28
Muzquiz, Tom 48
MVision Private Equity
Advisers 54
Mylan(MYL) 23, 39
NOP
Nadella, Satya 23
Nasdaq(NDAQ) 42
NBCUniversal(CMCSA) 60
NEC(6701:JP) 29
Neuer, Manuel 12
New York Stock
Exchange(ICE) 42
Newegg 21
Nielsen(NLSN) 48, 60, 66
Nissan Motor(7201:JP) 30
Nokia(NOK) 21
Norris, Michael 66
Norton, Edward 28
Nvidia(NVDA) 30
Obama, Barack 8, 28, 42, 66
Ogilvy & Mather New York 66
Oriel Securities 20
Orix(8591:JP) 14
Osbourne, Kelly 60
Oswalt, Patton 60
Oxford Analytica 54
Panasonic(6752:JP) 21
Paramount Pictures(VIA) 66
Passikof, Robert 60
Paul, Rand 24
Pechanga Development 22
Penguin Random House 66
Penn, Sean 28
PepsiCo (PEP) 48
Perez, Thomas 8
Pernod Ricard(RI:FP) 20
Pishevar, Shervin 28
Pitbull 48
PizzaExpress 39
Playboy Enterprises 48
PortAventura 54
Prakash, Manu 31
Procter & Gamble (PG) 48
Putin, Vladimir 42
QRS
Qualcomm(QCOM) 30
Rajoy, Mariano 36
Reed, Kasim 26
Regal Entertainment
Group(RGC) 60
Reid, Tara 60
Renesas Electronics(6723:JP)
30
Reynolds American(RAI) 39
Rockwood Holdings(ROC) 39
Rogers, Mike 42
Roker, Al 60
Rowling, J.K. 66
RPX(RPXC) 21
Sandals Resorts International
54
Sanders, Jon 20
SAP(SAP:GR) 21
Saudi Aramco 42
Schatz, Brian 8
Schrder, Gerhard 12
Schulman, Eric 21
Shakira 48
Sharkey, Tina 28
Sherpa Ventures 28
SherpaFoundry 28
Siege Technologies 42
Sky Perfect Jsat
Holdings(9412:JP) 29
Sothebys(BID) 37
Stanford, Scott 28
Steel, Danielle 66
Stevens, David 13
STMicroelectronics(STM) 30
Strategic Holdings 54
Subway 60
T
T-Mobile(TMUS) 48
T-Pain 48
Tesla Motors(TSLA) 28
Tifany 60
Time Warner(TWX) 21
Torres, Juan 48
Towerstream(TWER) 36
Toyota(TM) 19
TPG Capital 28
TUI Travel(T7L:GR) 54
21st Century Fox(FOX) 21
Twitter(TWTR) 24, 48, 60
UVW
Uber 28
Ullman, Myron 23
UniCredit(UCG:IM) 54
Universal Music Group
(VIV:FP) 48
URS(URS) 39
Usher 48
Vergara, Soa 48
Volkswagen(VOW:GR) 23, 54
Warby Parker 28
Whiting Petroleum(WLL) 39
Williams, Hank Jr. 22
Williams, Pharrell 48
XYZ
Xi Jinping 17
Yahoo!(YHOO) 23
Yellen, Janet 15, 35
YouNow 48
Zarif, Mohammad Javad 10
Ziering, Ian 60
Zigel, Leslie 48
Zulueta, Fernando 48
Bonomi, Andrea 54
Booker, Cory 8, 24, 28
Brand Keys 60
Braun, Scooter 28
Brown, Chris 48
C
Calderon, Mike 48
Campbell, Luther 48
Canon(7751:JP) 21
Carmellini, Andrew 68
Carnival(CCL) 54
Cars.com 19
Casey, Harry Wayne 22
CFRA 21
Chavez, Charles 48
Chrysler (F:IM) 48
Citic Group 39
Citigroup(C) 23
Club Mditerrane 54
Coca-Cola(KO) 26
Cocker, Joe 22
Cond Nast 28
Cook, Tim 28
Coolibar 65
Cooper, Alice 22
Corker, Bob 25
Corman, Roger 60
Cuomo, Mario 68
Cyrus, Miley 28
DEF
Dannon (BN:FP) 48
Davids Bridal 67
Deal, Nathan 26
DeLauro, Rosa 8
Deloitte 20
Denso(6902:JP) 30
Diageo(DGE:LN) 20
Dick, Andy 60
Dodge 48
Dr Pepper(DPS) 48
DreamWorks Animation(DWA)
28
Dreyfuss, Richard 60
Dropbox 21
EBay(EBAY) 28
EcoloBlue 48
Ericsson(ERIC) 21
ESPN(DIS) 48, 60
Fab.com 28
Facebook(FB) 21, 23, 28
Fannie Mae(FNMA) 34
Farrow, Mia 60
Ferrante, Anthony 60
50 Cent 48
A
Abbott Laboratories(ABT) 39
AbbVie(ABBV) 23
Abe, Shinzo 14
Abu Dhabi Media 48
Added Value 20
Aecom Technology(ACM) 39
Aguilera, Christina 48
Airbnb 32
Airbus(AIR:FP) 23
Alba, Jessica 48
Albemarle(ALB) 39
Alexander, Keith 42
Alten, Brett 21
Amazon.com(AMZN) 66
Anheuser-Busch InBev (BUD)
48
Anthony, Marc 48
Apple(AAPL) 21, 23
Ardian Sarl 54
Asana 21
Assicurazioni Generali(G:IM)
39
Aston Martin Holdings UK 54
Asylum Entertainment 60
AT&T(T) 26
Athenahealth(ATHN) 26
Audi(NSU:GR) 19, 30
AutoTrader.com 19
Aversano, Lou 66
B
Banca Popolare di
Milano(PMI:IM) 54
Bank of America(BAC) 23, 35
Barnowske, Robert 67
Berg, Dave 66
BI-Invest 54
Bibb, Porter 21
Bieber, Justin 28
BMW(BMW:GR) 19, 30
Boeing(BA) 23
Boingo Wireless(WIFI) 36 P
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People/Companies
How to Contact
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Corrections & Clarications
To Keep the Ale Flowing, U.K. Pubs Look to Data
(Companies/Industries, July 14-July 20, 2014) stated
that 20,000 British pubs had closed since 2004; the
correct gure is 10,000. In OK, Maybe the
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older ofce building was the best available space
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ofce spaces at the time.
46
Pitbull
08
Cory
Booker
60
Ian
Ziering 4
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Advancements in technology and the proliferation of Big Data are
changing how companies spearhead progress on sustainability efforts.
The increased transparency provided by new information provides
an opportunity for companies to implement transformative ideas that
address some of their biggest issues and bring change, from creating
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a positive impact in the communities where they operate.
Founded in 1992, BSR helps numerous companies meet some
of their biggest sustainability challenges by helping integrate best
practices into their strategies.
This November, BSRs Conference 2014, with the theme of
Transparency and Transformation, will explore some of these
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sustainability and socioeconomic development. These guidelines
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in the business landscape and provides an opportunity for PTT
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How to
Love Paid
Family
Leave
By Lauren Sandler
California and New Jersey
are proof that giving
employees time offwith
payto care for relatives
is good for business
Americans like to think
they honor and defend
family values. Yet in international
rankings measuring support for fami-
lies, based on the amount of paid leave
to care for a new child or an ailing rel-
ative, the U.S. has sunk to the bottom.
The country is one of only four that dont
even guarantee paid maternity leavethe
others are Liberia, Papua New Guinea,
and Suriname. The two-decade-old Family
and Medical Leave Act allows U.S. workers
to take some time of, but without pay.
According to the
National Partnership
for Women & Families, almost
half of all workers eligible for FMLA
leave have been unable to take time of
because they simply cant aford to go
without income. And according to the
Community Service Society, a charitable
group and research center, the average
minimum wage worker in New York can
aford to take only about eight days of
without pay before his or her life savings
are wiped out. B
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Research, 99 percent of the companies
surveyed found that ofering paid leave
raised morale, and 93 percent found that
it reduced turnover.
Lerner says the main argument
opponents make against paid leave is
that business cant aford it. In fact, the
state programs are funded through the
existing disability insurance structure,
and businesses dont have to pony up a
dime. The gap happens in public per-
ception, she explains. In the federal law
envisioned by Gillibrand and DeLauro,
employees and companies would con-
tribute equally, 2 on every $10 earned,
which averages out to about $2 a week.
The amount would go into a fund that
would work and accrue using the Social
Security system.
At the moment, only four senators
have signed on to support the billCory
Booker of New Jersey, Barbara Mikulski
of Maryland, and Hawaiis two sena-
tors Brian Schatz and Mazie Hirono, all
Democratsthough Gillibrand says more
support is to come. Her explanation for
the lack of endorsement is simple: This
is a womens issue, and the Hill is domi-
nated by men who dont get it.
Political leaders in the U.S. have been
cautious at best when considering the
viability of policies the rest of the world
takes for granted. When asked recently if
it was time to mandate paid leave, Hillary
Clinton replied, eventually. But the
Obama administration is embracing the
cause. At a recent White House summit
on working families, Labor Secretary
Thomas Perez emphasized that prog-
ress doesnt roll in on the wheels of inev-
itability. President Obama said at that
event, There is only one developed
country in the world that does not ofer
paid maternity leave, and that is us. And
that is not the list you want to be onon
your lonesome.
To make that change, we need to
reframe the conversation to include the
fact that better policy is not just whats
good for mothers. Its whats good for
business. Its whats good for all of us.
And by maintaining our place as the only
developed country to position our family
needs against our business needs, were
selling out both.
Sandler is the author of One and Only: The
Freedom of Having an Only Child, and the
Joy of Being One.
What are we
actually valuing in
our family policy?
The usual argument
against granting paid
l eave, i ntoned by
elected ofcials and the
private sector, is simply that its bad for
business. On the other hand, some pro-
ponents of reform continue to frame the
debate around working mothers. But in
reality, paid leave is good for business, no
matter how counterintuitive that might
seem. And its also much more than a
womens issue.
Among the business groups lobby-
ing against paid leave, one of the most
vocal has been the National Restaurant
Association. At its Washington head-
quarters, which resembles a bou-
tique hotel, a wall is inscribed with the
groups mission: to lead Americas res-
taurant industry while enhancing the
quality of life for all we serve. Its hard
to imagine that applies to servers when
talking to Scott DeFife, the associations
executive vice president
for policy and govern-
ment afairs, who says
that paid leave doesnt
really apply to the work-
force in his industry.
He says that out of the
13.5 million people who work in res-
taurants, most are students working
for pocket change, even though three-
fifths of all full-time minimum wage
earners are in the food and service indus-
try, according to the Bureau of Labor
Statistics. The more prescriptive a
mandate is, he says, the less likely it is
to work for everybody.
DeFifes group is among the powerful
interests lining up to block federal legisla-
tion that would make paid leave available
to all workers. There are two Democratic
women pushing paid leave in Congress.
A framed onesie that says NY a the
FAMILY act greets visitors to Senator
Kirsten Gillibrands ofce on the Hill.
With Connecticut Representative Rosa
DeLauro, Gillibrand in December intro-
duced the Family and Medical Insurance
Leave Act, or Family Act. The bill extends
paid leave to care for a newborn or seri-
ously ill relative. Seated under her chil-
drens artwork taped to the wall of
her ofce, Gillibrand says she sees
paid leave as a basic right. To her,
however, this is a mothers
issue, and its the corner-
stone of her womens
economic empower-
ment initiative.
In our conversation,
Gillibrand spoke in terms
of mothers as primary
caregivers and fathers as
secondary ones. (Her male
chief of staf is currently taking
his six allowed weeks of sec-
ondary leave; new mothers in the
ofce get three months. Gillibrand pays for
both primary and secondary leave.) But as
much as the bill could be a great service
to all families (after all, its equally avail-
able to all workers of both genders and
parental status), framing it as womens
aid, as Gillibrand does, not only limits its
potential but also impedes its very prog-
ress through Congress.
The bills co-sponsor, DeLauro, argues
that to succeed, the fght for paid leave
needs a broader constituency. When it
comes to family leave, she insists, We
dont talk about it in terms of women!
Why would we? Were not tying our hands
like that. Relegating working parents to
the pink ghetto of womens issues, rather
than treating them in economic terms,
has allowed the restaurant association
and other groupswhat some wonks call
organized businessto simply ignore
the need for change.
Beyond Washington, evidence that
paid leave is good for both business and
employees continues to accumulate.
California has a decade to refect upon;
New Jersey has had fve years; and in 2013
Rhode Island became the third state to
mandate paid leave. In a 2011 survey of
250 California businesses by the Center for
Economic and Policy Research, 87 percent
thought ofering paid leave had no nega-
tive efect on costs. In fact, 9 percent said
it reduced costs.
Sharon Lerner, a senior fellow at
the public policy organization Demos,
has spent the past year interviewing a
diverse sample of New Jersey employers
about the efect of paid leave. Those who
admitted theyd feared being deluged by
workers abusing the policy said theyd
learned such fears were unfounded. None
of the employers in the survey reported
that paid leave had negatively afected
their companys productivity, profit-
ability, or turnover, and some reported
improved morale. In the California poll
by the Center for Economic and Policy
Opponents say business
cant aford it, but companies
dont pony up a dime in
existing state programs
9
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Even though both sides in the negotiations over Irans nuclear
program remain far apart, its valuable to extend talks past the
deadline for a few more months to keep working toward a deal.
The world has been better of since the temporary six-month
agreement took efect on Jan. 20. Iran has complied fully with
requirements that it halt production of uranium enriched to
20percent, and has converted 80 percent of its stock of the
fuel to less threatening forms. As a result, Iran is further from
breakout capacity, or being able to build a bomb faster than
the U.S. could mount a preemptive response.
The harder question is whether more time can produce a
deal. In the past half year, negotiators have by all accounts made
progress, but at least three crucial questions remain unresolved:
How much uranium enrichment capacity should Iran be allowed
to have? For how long should that capacity be limited? And how
intrusive should the inspection regime be?
Iranian Foreign Minister Mohammad Javad Zarif proposed on
July 15 that Iran freeze its enrichment capacity at current levels,
so long as it could expect to eventually be treated as a normal
nuclear power. That approach ignores the history of Iranian
deception that made these talks necessary. In just a few years,
Iran would not yet be a normal nuclear power, yet it would
be able to produce weapons-grade fuel for one or more bombs
in a matter of weeks.
The U.S. and its partners in the so-called P5+1China, France,
Germany, Russia, and the U.K.should focus on securing an
aggressive inspection regime. As Secretary of State John Kerry
has noted, the talks with Iran are not meant to build trust (thats
a pipe dream); theyre meant to establish verifcation.
Any deal was always going to be tough to negotiate. Critics
should acknowledge that not even harsher sanctions or airstrikes
could guarantee that Iran never gets the bomb. Talks that freeze
Irans enrichment program for now, and that could in the long
term minimize the prospect of a nuclear-armed Iran, are surely
worth a few more months.
The BRICS Dont Need
A Bank of Their Own
Give the Iran Nuke
Talks More Time
Theyve been treated unfairly, but
there are better uses of their time
Everyone knows it was never going
to be easy
Leaders of the worlds biggest emerging economiesBrazil,
Russia, India, China, and South Africa, known as the BRICS
approved the creation of a new currency reserve fund and
development bank on July 15 at their summit in Brazil. Neither
invention is much needed, but for the inventors, this is beside
the point.
The fve governments agree on one thing: Theyve been denied
a proper say in running institutions such as the World Bank and
the International Monetary Fund, and in global economic gover-
nance more generally. They are correct to think so. Their mistake
is to believe that the new bodies will put things right.
The new development bank is expected to be fnanced with
relatively modest startup capital of $100 billion, with the fve
members contributing equally. Once its up and running, it
will support investment in infrastructuredams, roads, energy
generation, and the like. Such projects are already fnanced by
the much larger World Bank and other ofcial lenders, to say
nothing of the global market for private capital. In fact, cross-
border private capital is so readily available for good emerging-
market borrowers that even the World Bank has to explain why
its needed any longer.
The proposed currency reserve fund is no easier to justify.
Its expected to start with a joint commitment of $100 billion,
with $41 billion contributed by China. The total pool will be
equivalent to 2 percent of the BRICS joint reserves. The idea
is that the countries would be able to tap this fund if they run
into balance-of-payments problems. Fine, but because the IMF
already exists for that purpose, whats the point?
That leaves the underlying grievance: The five nations
have sufficient weight in the world economy to justify a
much bigger say in running the existing multilateral agen-
cies. Rich-country governments have acknowledged this for
yearsyet, to their shame, they have let the injustice persist.
For instance, they continue to use their voting weight to
defend the convention that a European nominee leads the
IMF and a U.S. nominee leads the World Bank. The BRICS
are right to find that insulting as well as anachronistic.
Yet they could press their case much more efectively if they
would act in concert when it counts. They failed to agree on a
candidate to lead the IMF in 2011 and the World Bank in 2012.
And they remain divided on goals and negotiating strategies
for global trade talks at the World Trade Organization.
Developing a collective agenda is bound to be difcult for a
group whose members have little in common and, except for a
desire to be treated with respect, few shared interests. Creating
the new institutions, though, adds little to that endeavor and
will involve needless expense of time and efort. To win their
fght for the status they deserve, the BRICS must choose their
targets more shrewdly.
To read A. Gary Shilling
on slow-growth
forecasts and Mac
Margolis on Brazilian
leadership, go to
Bloombergview.com
10
We saved enough energy to bring a new
middle school off the drawing board.
Loudoun County Public Schools Superintendent Dr. Edgar B. Hatrick
NAME: Loudoun County Public Schools, Virginia
IMPROVING ENERGY PERFORMANCE BY: Earning EPAs
ENERGY STAR
The Obama
admin istration urged Congress to crack
down on U.S. companies moving their head-
quarters overseas to avoid taxes. The call to
action came hours after AbbVie and Mylan,
two U.S. pharmaceutical makers, announced
plans to merge with foreign partners and
move abroad.
The second-quarter
decline in display-ad
revenue at Yahoo! The
price of the companys
banners is dropping as
advertisers ock to
Facebook and Google.
CEO
Wisdom
A few months ago on a
call with investors, I
quoted Nietzsche and
said that we must have
courage in the face of
reality. Even more
important, we must
have courage in the
face of opportunity.
Satya Nadella, CEO,
Microsoft
Mindy Grossman, HSN
CEO, reportedly turned
down the top job at
J.C. Penney. The
struggling chain has
been looking for a new
chief; former CEO Myron
Ullman returned to the
job in April 2013.
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6.9%
23
Companies/Industries
July 21 July 27, 2014
Their parties hate each other, but Rand Paul and Cory Booker are nding common ground
He doesnt want to be trapped in the box of one party so much, and Im the same way
A Very Washington
Love Story
Ivy League-educated Rhodes Scholar,
beloved by progressives, who built his
political career in the postindustrial
wasteland of Newark, where he was
a councilman and then mayor. Im
worried whos Felix and whos Oscar,
Booker joked at the Newseum event,
organized by Politico and hosted by
Mike Allen, the capitals chief gossip.
In recent weeks the freshman legis-
lators have established a close working
relationship that harks back to a long-
ago era of political cooperation on
Capitol Hill. In June they teamed up to
ofer an appropriations amendment
that would prohibit the Department of
Justice from spending money to pursue
users of medical marijuana
in states where its legal.
This month they announced
a plan to introduce joint
legislation, the Record
Expungement Designed to
This is going to be sick, a Senate
stafer gleefully told his compan-
ion as they settled in to watch two of
Washingtons most junior senators
speak at the Newseum across from the
U.S. Capitol. Prison reform, the topic
of the discussion, is a noble cause for
sure, but thats not what flled the seats
on a recent stormy summer night. As
one lobbyist in the hall announced,
they were just here for the show:
the frst joint appearance by Cory
Booker, Democrat of New Jersey, and
Rand Paul, Republican of Kentucky,
Washingtons newest odd couple.
The two politicians appear to have
little in common except, perhaps, the
ambition to be president someday. One
is a Texas-reared libertarian and long-
time antitax activist who built a thriv-
ing ophthalmology practice before
becoming a
standard-bearer of the
Tea Party movement. The other is an
Enhance Employment Act, or Redeem,
that would limit the solitary confne-
ment of minors, restore some felons
eligibility for government benefts, and
make it easier for people to clear their
criminal records.
Both men are iconoclasts whose
celebrity makes it easier for them to
transcend the boundaries of parti-
san politics. Neither have the com-
mittee assignments that come with
seniority, but they have what every
senator wants: regular attention from
national media, robust followings on
Twitter, and committed support net-
works beyond the borders of their
home states. That sets them free to
pursue the points of overlap
between their otherwise diver-
gent ideologies.
I think they share kind of a
libertarian bent, says Ben Karp,
a friend of Bookers from Yale.
The
sele
24
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in Georgia 26
The $640 toilet
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In Newark, Booker drew crit-
icism from liberal allies for
embracing charter schools and
voucher programs advocated
by libertarians. He also cham-
pioned enterprise zones, a
free-market approach to solving urban
blight credited to the late Jack Kemp, a
hard-core supply-sider and occasional
Republican presidential contender
who helped raise money for Bookers
frst mayoral campaign. Paul has been
willing to depart from the conservative
agenda to highlight the toll decades of
harsh criminal penalties have had on
blacks and Latinos. I think he doesnt
want to be trapped in the box of one
party so much, Paul says, and Im the
same way.
Their alliance dates to Bookers
swearing-in last October, after he
won a special election for the Senate
seat left vacant by the death of Frank
Lautenberg in June 2013. Although
Paul actively campaigned for Bookers
Republican opponent, Booker says that
once he arrived in Washington, Paul
was one of the frst people to shake his
hand. He said something to me like,
I heard you mention me during your
campaign around drug policy issues,
you know, so we should talk about
working together, Booker recalls.
For Booker, an attention-grabbing
partnership with an idiosyncratic
Republican is a good way to estab-
lish himself as a serious politi-
cian. Kemp isnt his only hero in the
GOP: Two days after the Redeem
Act was announced, Booker spotted
his colleague Orrin Hatch, the Utah
Republican, in the Capitol building
and told reporters and bystanders how
much he admired Hatchs long history
of collaboration with Democrats
on issues such as providing health
insurance to children. What he did
with Ted Kennedy is legendary,
Booker declared.
Redeem ultimately may beneft Paul,
widely expected to run for president
in 2016, more than Booker. One of the
provisions in the bill would partially
roll back the 1996 welfare reform bills
ban on extending benefts for those
with past drug convictions. I think
the Republican Party hasnt done very
well with African American voters,
and I want to change the image of the
party, Paul says. The bill is
tailored to appeal to Pauls
base of white voters, too. I
can go to the most conser-
vative Christian evangeli-
cal audience and say, Look,
our religion is about redemption. You
know, why shouldnt the law allow
people a second chance? Rather
than restricting companies use of
background checks in considering job
applicants, as some cities have done,
Redeem restricts what information the
government can provide on peoples
backgrounds. Booker says the bill was
absolutely crafted to make it easier
to win over conservatives.
The pair may author a standalone
bill addressing prosecution of medical
marijuana users, and Paul says they
hope to soon introduce a piece of leg-
islation that would make certain non-
violent crimes misdemeanors rather
than felonies. Whatever the legislative
outcome, they both intend to exploit
any opportunities their partnership
can ofer. Im just wondering if we can
get a reality show, Paul joked at the
Newseum event, and whether Ethics
will allow us to collect any compensa-
tion from it. Josh Eidelson
The bottom line Rand Pauls and Cory
Bookers bipartisan alliance is eliciting gufaws
and attracting political attention.
back on the billions of dollars it gives
states for road and bridge construction
projects. By the end of the month, the
balance will be zero.
Although the problem has been
looming for months, Congress waited
until the last minute to start working on
a solution. On July 15 the House passed
a bill to rescue the fund by tapping tax
receipts from corporate pension plans
and diverting money meant to fx leaky
underground storage tanks at old gas
stations. The Senate is set to vote on
the bill later this month. The stopgap
measure would raise about $11 billion,
or enough to last through May. Over
the next decade the fund has a pro-
jected shortfall of $170 billion. The
White House is pushing a plan that
would generate four years of highway
funds in part by closing some corporate
tax loopholes. Republicans strongly
oppose the idea.
Raising the federal gasoline tax,
which provides the bulk of federal
highway revenue, would seem to be
the obvious solution. First passed in
1956 to pay for the more than 40,000
miles of road in the Interstate Highway
System, its been stuck at 18.4 a
gallon since 1993the longest its ever
gone without an increase. As a result,
revenue from the gas tax has remained
almost unchanged. In the Senate,
Tennessee Republican Bob Corker and
Connecticut Democrat Chris Murphy
have co-sponsored a bill to raise the
national gas tax by 12 over the next two
years and then index it to infationa
plan that might prevent Congress from
having to vote on raising it ever again.
The problem? Even that approach
wouldnt permanently fx the Highway
Trust Fund shortfall. In the past
15 years, federal highway spending has
increased from $33 billion a year to
$53 billion. The sharp increase in costs
is driven in part by the deterioration of
the federal highway system, which was
mostly completed by the early 1980s.
Most of that pavement was intended
to last 50 years, and that was 50 years
ago, says Robert Poole, director of
transportation policy at the Reason
Foundation. Last year, Poole estimated
what it would cost to rebuild crum-
bling interstates and widen congested
stretches. The number he came up
with: $983 billion. Theres basically
Transportation
The Highway Trust
Fund to Hell
The gas tax wont cover the cost
of xing crumbling highways
Most of that pavement was
intended to last 50 years
This summer, Congress will probably
do what it does best: narrowly avert
disaster by passing a quick fx to a big,
long-term problem. This time the issue
isnt raising the debt ceiling or funding
a budget. Its keeping the countrys
Highway Trust Fund from going bust.
By early August the account will be so
low on funds that the Department of
Transportation will have to start cutting
I can go to the
most conservative
Christian
evangelical
audience and
say, Look, our
religion is about
redemption.
Rand Paul
25
zero chance of that being paid for,
says Poole.
Even if it were raised, the gas tax will
never be the source of cash it once was.
Americans are driving fewer miles and
doing so in increasingly fuel-efcient
cars. Less gas consumption means less
gas-tax revenue. With cities growing
faster than suburbs and federal
fuel standards set to rise more than
40 percent by 2020, revenue from the
tax will continue to decline. Its time to
let go of the gas tax as the main source
of funding, says Susanne Trimbath, an
economist and corporate consultant on
transportation and infrastructure issues.
One idea is to end the federal gov-
ernments role in funding highway con-
struction and give authority back to
the states, which, along with cities,
generally cover about 75 percent of
road and bridge spending in the U.S.
Thats what the Tea Party wants. In
the House, Georgia Republican Tom
Graves has sponsored a bill to lower
the federal gas tax to 3.7 and transfer
almost all funding authority to states
over fve years. Utah Republican Mike
Lee has authored a companion bill in
the Senate. States are already increas-
ing their transportation budgets. Since
In 2012 the Defense Department agreed to pay $13.4 million for parts supplied by Bell Heli-
copter. The DOD watchdog says they should have cost $4.4 million. Audits are planned. If
its an isolated case, thats one thing, Under Secretary Frank Kendall said on July 10. If its
systemic, thats a much bigger deal. Tony Capaccio and Jonathan D. Salant
Military The Pentagon Loves to Pay Top Dollar
In a cost analysis of 35 parts, the average
overpayment rate was 392 percent
According
to the
militarys
inspector
general
Helps control
ight
2013 lawmakers in a handful of states
including Maryland, Vermont, and
Wyominghave raised their state gaso-
line taxes. Virginia eliminated its gas tax
and replaced it with a higher sales tax.
Other states have considered taking
another approach to handling the
paradox of the gas tax: Rather than
taxing the fuel people buy, transpor-
tation economists advocate taxing
drivers based on the miles they travel.
That would more accurately account
for drivers use of the roads and charge
them the same whether theyre in a
Prius or a Ford F-150. This approach is
gaining traction in the West, where an
11-state consortium has pledged to study
a mileage-based road tax.
Oregon is the furthest along. Next year
the state will start a pilot program for
5,000 volunteers, who will pay a 1.5 tax
for every mile they drive on Oregon
public roads. (The state plans to reim-
burse participants for Oregon fuel taxes.)
The program has been in the works since
2001, when lawmakers began study-
ing alternatives to the gas tax; the trick
has been fguring out how to charge
drivers. An earlier version of the pilot
relied solely on GPS systems, but the
encroachment on privacy didnt go over
well. As soon as we said GPS, people
got nervous, says James Whitty, who
manages the program for Oregons trans-
portation department. Drivers will now
have three options for reporting mileage:
installing an odometer reader, having a
GPS device track their location so they
only pay for miles driven on Oregon
roads, or choosing a device that switches
between the two.
Fans of the mileage tax say the ben-
efts outweigh the privacy concerns. Its
very efcient, because youre charging
people based on their usage, says Rick
Geddes, director of the Cornell Program
in Infrastructure Policy. Others point
out that a lot of new cars come with
GPS systems, and almost everyone has
a cell phone with them in the car. The
Man already knows where you are,
says Oregon Democratic Representative
Earl Blumenauer, who has proposed a
national mileage tax.
Transitioning from a gas tax to a
national mileage tax would take years,
if not decades. The hope is that after
the midterm elections, Congress can
come up with a solution that lasts
longer than 10 months. One option,
of course, is to simply do nothing and
allow highway spending to fall in line
with current gas-tax revenue. In which
case those potholes may be permanent.
Matthew Philips
The bottom line The federal Highway Trust
Fund will face a $170 billion shortfall over the
next decade.
Inner swashplate
cap
$412.12
$2,355.85
472%
Fluid lter
body
$566.99
$2,851.44
403%
Wear
sleeve
$50.14
$249.52
398%
Sleeve
spacer
$7.49
$29.95
300%
Fair price
Contract price
Overpay percentage
Part name
Demographics
A Reversal in Georgias
Long War With Atlanta
Urban revival is drawing investment
from the rest of the state
Businesses are moving
in a nontraditional direction
For 25 years the historic Sears building
stood vacant just north of downtown
Atlanta. It was a symbol of the city as an
abandoned, unsafe place. This year the
nine-story structure is scheduled to open
as the Ponce City Market, a residential
and commercial project that embodies
the city in renaissance. Atlantas popu-
lation has increased 6.6 percent since
2010, more than twice the growth in the
rest of Georgia. Many of the arrivals are
Why the Gas Tax Falls Short
DATA: U.S. DEPARTMENT OF TRANSPORTATION
Shouldered
shaft
$1,221.15
$5,857.26
380%
18 mpg
12 mpg
15 mpg
1960 2012
Average fuel
efciency
3.5m
0.5m
2m
Total miles
traveled
Less gas used means less revenue
Politics/Policy
26
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Edited by Allison Hofman
Businessweek.com/politics-and-policy
DATA: U.S. DEPARTMENT OF DEFENSE INSPECTOR GENERAL
young professionals drawn by compa-
nies moving back into the city, including
Coca-Cola and AT&T. Jobs and invest-
ment used to head for the suburbs. Not
anymore. Businesses are moving in a
nontraditional direction, says Mayor
Kasim Reed, a Democrat. Its not one or
two. Its decision after decision.
Changing demographics may help
ease the racial and political tensions
between the capital and the rest of the
state. The Atlanta region is home to half
the states population and accounts for
71 percent of its economy. But conser-
vative rural and suburban law makers
have long looked to starve Atlanta of
funding for infrastructure and squash its
liberal social policies. Georgians outside
the city sometimes refer to Atlantans
as Yankees, says George Hooks, a
Democrat from a rural district in south-
ern Georgia who retired from the state
Senate in 2011. They dont understand
how peaches are grown, or peanuts.
In January 2005, when Republicans
took control of Georgias state
government after more than a
century of Democratic domi-
nance, one of their frst orders
of business was a proposal to
nullify an Atlanta ordinance
supporting domestic benefts for gay
and lesbian couples. Lawmakers then
stopped the city from raising wages
paid by city contractors. Since then
they have tried repeatedlywithout
successto wrest control of Hartsfeld-
Jackson Atlanta International, the
worlds busiest airport, from the city.
Of the 5.5 million people living in
the 28-county Atlanta region, only
447,841 reside in the city itself, which
is 54 percent black, according to U.S.
Census data. Sixty percent of Georgias
10 million residents are white, and
the majority vote Republican. White
fight from the city decades ago helped
fuel the sprawl in surrounding coun-
ties, whose residents have consistently
opposed eforts to revive Atlantas
urban core.
Nowhere is that more visible than
in the politics of the Metropolitan
Atlanta Rapid Transit Authority. Its
rail lines dont go beyond the border
of the two counties that make up the
city of AtlantaFulton and
DeKalbbecause white sub-
urbanites refused to let the
system, known as Marta,
extend outside the city. Metro
Atlanta racialized public
transit, says Christopher Leinberger,
an expert in urban development at the
Brookings Institution in Washington.
People said it stood for Moving
Africans Rapidly Through Atlanta.
Marta is the only major U.S. transit
system with no dedicated state
funding, yet Georgias legislature
still requires it to submit a budget for
review every year and restricts how it
spends its revenue. Suburban voters
killed a 2012 regional tax referen-
dum that would have provided about
$4 billion to widen roads in their own
communities in part because it allo-
cated a similar amount to city transit
improvements. Mayor Reed says that
defeat was the most recent, most
powerful example of the challenge of
being a blue city inside a red state.
Reed, a former state legislator, is
working to bridge the divide with state
lawmakers. Earlier this year he proved
instrumental in helping Republican
Governor Nathan Deal successfully
lobby the Obama administration to
support a port expansion in Savannah,
Ga. The historic animosity between
the city and the rest of the state may
continue to ease as the city changes.
When Ponce City Market opens, one
of its tenants will be Athenahealth,
a medical-technology company that
is moving from Alpharetta, 26 miles
away, bringing 177 jobs and adding 500
more. The Atlanta hate talk has def-
initely diminished, says City Council
President Ceasar Mitchell. Weve
still got a lot of work to do, though.
Margaret Newkirk
The bottom line As the Democratic-controlled
city gentries, Republican state lawmakers
may nd something to love.
Bell is the maker of
the OH-58 Kiowa,
as well as the H-1
The Pentagon was
undercharged for
two parts, a hydraulic
module and a reservoir
assembly. Estimated
savings: $230,967
Eighty crown
couplings
were ordered.
Final bill:
$591,987
Crown
coupling
$435.79
$7,399.83
1,598%
Straight-headed
pin
$36.08
$492.17
1,264%
Sleeve
bushing
$25.72
$295.57
1,049%
Shim
$25.86
$237.51
818%
Pylon
support
$409.47
$3,580.73
775%
Bevel
gear
$445.06
$8,123.50
1,725%
The U.S.
government is
receiving a fair and
reasonable price
for commercial
items acquired by
our company.
Bell Helicopter
spokesman Robert
Hastings
What were seeing is
a pattern that we missed,
and the pattern is an
insufcient culture of safety.
Dr. Tom Frieden, director of the Centers for Disease Control
and Prevention, at a congressional hearing on July 16 on lapses
in anthrax handling at CDC headquarters.
Quoted
Politics/Policy
27
July 21 July 27, 2014
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Six Degrees of Shervin
An Iranian-born entrepreneur is using his vast connections to start his own VC rm
He has an immigrants mentality. Hell do whatever it takes to be successful
His exuberance and ubiquity have
come at a price, though. The gossip
website Valleywag once referred
to him as a humble-bragging,
attention-grabbing startup fnancier
and suggested hes obsessed with being
liked and famous. Pishevar admits
that a rival investor once called him
a clown to his face.
SherpaVentures is Pishevars
bid to graduate from
angel investor into a full-
fedged venture capi-
talistand prove those
naysayers wrong. He
has teamed up with Scott
Stanford, 44, the former managing
director of Goldman Sachs global
Internet investment banking divi-
sion, and is targeting companies that,
like Uber, operate at the inter section
of the Web and the gritty physical
world. SherpaVentures recently
invested $25 million in Munchery, a
San Francisco startup that cooks and
delivers ready-to-eat meals.
Pishevars route to Silicon Valley
was circuitous. His father, a success-
ful TV executive in Iran in the 1970s,
fed the country when Pishevar was 5.
The family followed two years later,
settling in the Washington, D.C., area.
After graduating from the University of
California at Berkeley, Pishevar founded
WebOS in 1997, a frm that created a
computer- operating system tailored for
the Internet. A decade later he started
Social Gaming Network, a maker of
iPhone apps. He sold both companies
for modest gains and used his winnings
to bet on the budding wave of tech com-
panies. Pishevar joined the VC frm
Menlo Ventures in 2012 for a two-year
stint that was remarkable primarily
because he steered the frm into Uber
an early bet that has since produced
exponential returns. He has an immi-
grants mentality, says Douglas Carlisle,
a Menlo managing director. Hell do
says. Pishevar inspires people to give
and does it in a way that is not icky.
Pishevar, in case its not already
clear, is one of the most excessively
networked guys in Silicon Valley.
The former tech-entrepreneur-
turned- investor has backed Uber,
e-tailer Fab.com, and eyeglass pur-
veyor Warby Parker, among
other startups. Now hes running
his own venture capital frm,
SherpaVentures, which has
raised $154 million from a group
of investors that includes Cond
Nast and the private equity
frm TPG Capital. In
the process, he has turned
himself into one of the
most visible members of
the California technol-
ogy and media scene,
frequently showing up
onstage at tech confer-
ences and backstage at
Hollywood awards shows.
When Obama met with a select
group of technology executives
last December to discuss reve-
lations about National Security
Agency surveillance, Pishevar was
at the White House, standing Zelig-
like next to tech luminaries, includ-
ing Tim Cook and Marissa Mayer.
Pishevar, 40, embodies a new kind of
venture capitalist, bringing con-
tacts and visibility to his start-
ups in addition toor perhaps
instead ofoperational or
technical know-how. A tire-
less self-promoter who prefers
a Los Angeles-style hug over a
handshake, hes based in fashion-
able San Francisco instead of the stufy
sub urban enclave of Menlo Park, the
traditional cradle of the VC industry.
Hes also known for his public displays
of enthusiasm: He once shaved the
initials of several of his portfolio com-
panies into his hair.
Heres what happens when you set out
to profle Silicon Valley venture capital-
ist Shervin Pishevar.
On Monday, July 7, Scooter Braun,
Justin Biebers manager, calls at
Pishevars request to attest that the
Iranian-born entrepreneur has brought
him several high- profle invest-
ment opportunities and had a
hand in introducing him to
his future wife. On Tuesday,
DreamWorks Animation
Chief Executive Ofcer
Jefrey Katzenberg rings to
praise Pishevar as a great
networker and says, There
is nobody more loyal.
On Wednesday, Elon Musk, founder
of electric-car company Tesla Motors,
is on the phone recounting how the
pair traveled to Cuba last year with
Sean Penn and ended up negoti-
ating (unsuccessfully) with the
Castro government for the release
of an American impris-
oned there. On Thursday,
its Edward Norton, who
says Pishevar advised
the actor and his wife on
building their charitable-
giving website, CrowdRise,
and later persuaded Norton
to make an investment in the
booming ride-sharing startup Uber.
Finally, on Friday, New Jersey junior
Senator Cory Booker calls to
explain how Pishevar has become
a crucial link between Washington
and Silicon Valleybundling
donations for President Obamas
reelection campaign and spearhead-
ing an efort to create a new
kind of startup visa for
foreign entrepreneurs.
There are guys that can
write big checks, and
there are guys that can
bring people together to
write checks, Booker
28
Innovation: A paper
microscope to help
diagnose disease 31
Qualcomms and
Intels newfound love
for cars 30
Intelligence
Stalking the Satellite
Stalkers
The U.S. and Japan are gearing up
for a Chinese attack
Destroying someones satellite
is an act of war
In May 2013 the Chinese government
conducted what it called a science
space mission from the Xichang
Satellite Launch Center in southwest
China. Half a world away, Brian
Weeden, a former U.S. Air Force ofcer,
Shervin Pishevar
wasnt buying it. The liftof took
place at night and employed a
powerful rocket as well as a truck-
based launch vehicleall quite unusual
for a science project, he says.
In a subsequent report for the Secure
World Foundation, the space policy
think tank where he works, Weeden
concluded that the Chinese launch was
more likely a test of a mobile rocket
booster for an antisatellite (ASAT)
weapon that could reach targets in geo-
stationary orbit about 22,236 miles
above the equator. Thats the stomping
grounds of expensive U.S. space-
craft that monitor battlefeld
movements, detect heat from the
early stages of missile launches,
and help orchestrate drone feets.
This is the stuf the U.S. really
cares about, Weeden says.
The Pentagon never commented
in detail on last years launchand the
Chinese have stuck to their story. U.S.
and Japanese analysts say China has
the most aggressive satellite attack
program in the world. It has staged at
least six ASAT missile tests over the
past nine years, including the destruc-
tion of a defunct Chinese weather sat-
ellite in 2007. Its part of a Chinese bid
for hegemony, which is not just about
controlling the oceans but airspace
and, as an extension of that, outer
space, says Minoru Terada, deputy
secretary-general of Japans ruling
Liberal Democratic Party.
Besides testing missiles that can
intercept and destroy satellites, the
Chinese have developed jamming tech-
niques to disrupt satellite communica-
tions. In addition, says Lance Gatling,
president of Nexial Research, an aero-
space consultant in Tokyo, the Chinese
have studied ground-based lasers that
could take down a satellites solar
panels, and satellites equipped with
grappling arms that could co-orbit and
then disable expensive U.S. hardware.
To defend themselves against China,
the U.S. and Japan are in the early
stages of integrating their space pro-
grams as part of negotiations to update
their defense policy guidelines. In May,
Washington and Tokyo discussed ways
to coordinate their GPS systems to
better track whats going on in space
and on the oceans. A recent Japanese
cabinet decision eased long-standing
whatever it takes to be successful.
At a tech conference in 2012, Pishevar
met Stanford, who arranged Goldmans
investments in Facebook and Russian
Internet giant Mail.Ru. With the ear-
nestness that characterizes many of
his proclamations, Pishevar says,
we fell in love with each others
brains. The pair acknowledges
theres already a food of
capital sloshing around
Silicon Valley, but they think
they can ofer not just advice
to founders but full access to
their formidable connections in L.A.
and Washington. Very rarely is tech
alone a sustainable competitive advan-
tage, Stanford says.
Pishevar and Stanford also want
to open up their networks to big
companies in New York and Hollywood
that covet a place at Silicon Valleys
movable feast. So theyve created a
separate frm running out of the same
ofce, called SherpaFoundry. Its
mission is to help corporations develop
and in some cases spin of digital assets
that may be under nourished inside
their massive
organizations.
SherpaFoundry
members pay regular
dues and include EBay,
DreamWorks, and Cond
Nast, says SherpaFoundry
CEO Tina Sharkey, a
high-tech veteran who ran
BabyCenter, a Johnson
& Johnson website for
parents.
Pishevar knows that to
be taken seriously
as an investor and
adviser he needs
to tidy his public
image. Earlier this
year, Stanford per-
suaded him to cease
his prodigious post-
ings on social media.
Pishevar was averag-
ing more than 13 tweets a day and
in the process drawing fak for fre-
quently posting pictures of the stars he
hobnobs with, such as Bieber and Miley
Cyrus. I made the mistake of sharing
too much, he says.
Its unclear whether he can stay of
social media for good, but Pishevars
reputation, at least, looks to be improv-
ing. That guy who called him a clown?
Pishevar says he recently e-mailed,
asking for a job. Brad Stone
The bottom line Investors have committed
$154 million to Shervin Pishevars new venture
capital rm.
Charlie Rose talks
to LinkedIn CEO
Reid Hofman 32
Ex-girlfriend
Tyra Banks
29
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Microprocessors
Tech Giants Struggle to
Break Into Cars
Reliability standards for chips are
a hurdle for newcomers
We cant say Oops, we didnt do
that right
Hyundai Motors 2015 Genesis luxury
sedan is brimming with semiconduc-
tors that do everything from automatic
braking to detecting blind spots. Chips
pop open the trunk when they sense
the owners arms are full and snif for
carbon dioxide to determine if the cabin
needs more fresh air. The companies
that pioneered semiconductors for use
in computers and phones produce few
of the thousands of micro processors
in the Genesis. Intel contributed only
a handful, and Qualcomm just one
chipset; Nvidia chips dont even make
the list.
Those three companies are struggling
to break into the market for auto-
motive chips, which is projected to grow
6.1 percent this year, to $27.9 billion, says
researcher IHS. The cost of the semicon-
ductors inside a new car model averages
$329 per vehicle, according to a June 23
report by Bloomberg Industries; by com-
parison, the chips inside the iPhone 5
add up to less than $20. The business of
supplying chips to automakers is domi-
nated by a small group of manufacturers
whose relationships with their custom-
ers go back years: The top fveRenesas
Electronics, Infneon Technologies,
STMicroelectronics, Denso, and
Freescale Semiconductorhave
almost 43 percent of the market, accord-
ing to data compiled by Bloomberg
Industries. Intel, Qualcomm, and Nvidia
dont even fgure in the top 10.
For newcomers, one barrier to entry
is the car industrys safety and reliabil-
ity standards, which far exceed those
for computers or phones. Chips in con-
sumer electronics are designed so they
dont fail more than 10 percent of the
time; for autos the rate is zero, accord-
ing to a 2013 PricewaterhouseCoopers
study of the semiconductor industry.
We dont get a beta test with our prod-
uctsthey have to work from the frst
one, says Mike OBrien, Hyundais U.S.-
based vice president of product plan-
ning. We cant say, Oops, we didnt do
that right.
In autos, integrated circuits also have
to withstand temperatures as low as
-40C or as high as 160C. And because
the life of a car is measured in decades,
suppliers cant retire a part after only
one year, as Qualcomm often does with
the chips it makes for smartphones.
Experience in automotive is something
that you dont grow in one day, says
Luca De Ambroggi, an analyst at IHS.
In-vehicle technology is the top selling
point for 39 percent of car buyers today,
vs. the 14 percent who say their frst con-
sideration is traditional performance
measures, such as power and speed,
according to a study released by con-
sulting frm Accenture in December.
Consumers expect their cars to improve
at the same rate as their smartphones,
tablets, and laptops, but it can take years
to work out the kinks in some of the
automated driver-assistance features.
limits on the military forces ability to
come to the aid of allies under attack.
The U.S. is most vulnerable to a
Chinese attack because 43 percent of
all satellites in orbit belong to the U.S.
military or U.S. companies, according
to a Council on Foreign Relations
report in May by Micah Zenko. Japan
has four spy satellites in service, and
a consortium of Japanese com panies
led by Sky Perfect Jsat Holdings and
NEC is building two additional com-
munication satellites that will trans-
mit encrypted data. The U.S. has about
30 spy satellites in orbit.
Both countries have sunk billions
of dollars into a sophisticated missile
defense system that relies in part on
data from U.S. spy satellites. Thats why
strategists working for Chinas Peoples
Liberation Army have published numer-
ous articles in defense journals about
the strategic value of chipping away at
U.S. domination in space. How many
missile defense tests have Americans
carried out? says Yue Gang, a retired
PLA colonel who worked on ASAT tech-
nologies. China has only conducted
a couple of tests, and thats enough to
make them unable to sit still.
Weeden says the U.S. is exploring
other ways to mitigate the perceived
threat from China, including dispatch-
ing a feet of smaller, mobile satellites
that would be harder for adversaries
to fnd and destroy. Enabling satellite
transmitters to quickly hop between
frequencies could address the Chinese
jamming threat, Gatling says.
In June the U.S. Air Force awarded
Lockheed Martin a $914 million
contract to build a ground-based
radar system that will track objects as
small as a baseball, which could help
identify a satellite attack as its happen-
ing. Destroying someones satellite is
an act of war, says Dave Baiocchi, an
engineering professor at the Pardee
RAND Graduate School. You need
to know whats going on up there.
Brian Bremner, with Isabel Reynolds,
Maiko Takahashi, and Ting Shi
The bottom line The U.S. and Japan are
integrating their space programs to ward of
China in the sky.
Kinetic kill
China destroyed
a weather satellite
in 2007 with a
multistage rocket
that had a hardened
warhead.
Joining forces
The U.S. is exploring
a tie-up with Japan
to create more
redundancy in its
satellite networks.
Another idea:
launching smaller
satellites that are
harder to target.
Jamming
Security analysts
say the country has
developed jammers
that disrupt
radio frequencies
used by U.S. GPS
satellite receivers.
Frequency hopping
Equipping satellites
with the ability to shift
radio frequencies
rapidly would make
it harder to jam
communications.
Lasers
PLA strategists
have looked at
using ground-based
lasers to damage
a satellites optical
sensors or disable
the solar panels that
power the spacecraft.
Early warning
Identifying a satellite
attack as it happens
might deter China.
The U.S. is building a
ground-based radar
system that can track
objects in space as
small as a baseball.
Chinese Space Invaders
Attack
Modes
Counter-
measures
30
Technology
Edited by Cristina Lindblad
Businessweek.com/technology
Innovation
Foldscope
Try explaining to a
kid who has never
seen anything
microscopic why
he should wash
his hands.
Form and function
A pocket-size microscope for diagnosing
diseases in the developing world. Partslenses
includedare laid out on a single sheet that can
be perforated and folded to assemble the instru-
ment. Approximate cost to manufacture: $1.
Innovator Manu Prakash
Age 34
Title Assistant professor
of bioengineering
at Stanford University
2
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Among the most contentious questions in the Detroit bankruptcy is whether the Detroit
Institute of Arts should be forced to liquidate its collection to help pay creditors. In
preparation for a trial in August, DIA and the city hired Artvest, an art investment rm, to
value the museums collection. Its report, made public on July 9, illuminates some of the quirks of the art
market. Comments have been edited for punctuation and to correct typographical errors. Karen Weise
Bankruptcy What Are Motowns Masterpieces Worth?
William Merritt Chase
Portrait of a Lady
in Black
c. 1895, oil on canvas
Very rarely do the
large portraits sell,
especially when they
are women wearing
BLACK. In this case, she
is at least attractive.
John Singer Sargent
Madame Paul Poirson
1885, oil on canvas
Young women in white
dresses are amongst
the most salable of
Sargents portraits.
Albert Bierstadt
The Wolf River, Kansas
c. 1859, oil on canvas
This would be sought after in the current market,
where Western paintings are strong due to the
strength of the oil industry.
Asher Brown Durand
View of Rutland, Vermont
1840, oil on canvas
Like Summer Afternoon,
which sold for $68k in
2008 at Sothebys, but
without huge cows
which is a detriment in
the market.
Giovanni Battista
Tiepolo
Saint Joseph and the
Christ Child
1767/1769, oil on canvas
The subject matter,
because it is religious,
is less desirable.
In a forced sale, the
museum wouldnt
realize the collections
full value. Legal
uncertainties would
spook buyers, and the
paintings would hit
the market at one time,
depressing prices.
A signicant segment
of DIAs collection
is in areas that have
fallen out of favor with
collectors.
Rather than being
a source of cash to
creditors, the DIA is the
single most important
cultural asset the city
currently owns for
rebuilding the vitality
of the city. Artvest
Henry Fuseli
The Nightmare
1781, oil on canvas
For this artist, the stranger the subject, the more
interesting and valuable the work. The DIA picture
ts this bill nicely. A beautiful woman sprawled
on a bed, goblins, blind horse. A work lled with
symbolism and mystery.
Jan Baptist Weenix
Still Life With a
Dead Swan
c. 1651, oil on canvas
The subject matter,
dead birds, is difcult to
sell. The value of such
works is considerably
lower than other
subjects (genre
pictures, portraits,
etc.). Although
BEAUTIFULLY painted,
this is quite out
of fashion today.
Diego Rodrguez de
Silva y Velzquez
A Man
1623/1630, oil on canvas
Strange example
of his work.In
addition, the sitter
is an older gentleman
with perhaps a
wandering eye.
Diego Rivera
Edsel B. Ford
1932, oil on canvas, mounted on masonite
The similar-size Barbara portraitsold in 2011 for
$242k. But due to the importance of the sitter, a
wider estimate on the upside is appropriate.
$2.8b-$4.6b $850m-$1.8b
Estimated
value of
collection
Estimated
take at
auction
Markets/Finance
$1.5m-$2.5m
$3m-$5m
$100k-$150k
$300k-$500k
$200k-$400k
$4m-$7m
$150k-$250k $2m-$3m
$3m-$4m
Great buy!
Classy!
Detroit history!
Small cows!
Giovanni Battista
Tiepolo
Girl With a Mandolin
c. 1755/1760, oil on
canvas
Paintings of bare-
breasted beautiful
women always have
a strong market
presence.
$6m-$8m
Ooh la la!
Kinky?!
Canaletto
The Piazza San Marco
c. 1739, oil on canvas
A classic, desirable
view of Venice by the
best-known Venetian
vedutista of the 18th
century.If this had
been a water view, with
boats, it would have a
higher evaluation.
$3m-$5m
37
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contact with the
student where they
can say, I dont
want this or I
want less, says
Jim Kennedy, asso-
ciate vice president
and director of
fnancial aid at the
Indiana system.
If they know at
all times their debt
and the repayment, it helps with a lot
of planning.
Studies have shown that many stu-
dents, some as young as 17 when they
frst borrow, fail to understand loan
terms and fnd themselves in fnancial
straits when they have to begin repay-
ment years later. A Federal Reserve Bank
of New York report last month found
that fewer than half of survey respon-
dents with student debt had high loan
literacy. Less than a third were aware
that the government can garnish wages
or tax refunds to recover defaulted debt.
Federal law requires colleges to provide
counseling to borrowers only at the
beginning and end of their studies.
Natalie Cahill, 22, who is about to
start her fnal year at Indianas fag-
ship Bloomington campus, says that
after receiving the letter she decided to
search for more scholarships, and she
will use earnings from a summer hospi-
tal job to help cover costs. When you
take out loans for the year, you just see
a smaller number than the grand total,
says Cahill, who has taken out about
$22,600 in loans. Seeing the letter def-
nitely put things into perspective.
The level of education debt in the
U.S., now $1.2 trillion, surpassed that
of credit card debt four years ago.
The most recent federal data show
14.7 percent of student borrowers
defaulting during the first three years
they are expected to make payments.
That compares with 5.4 percent a
decade ago, when the rate was mea-
sured over two years.
Rising default rates at
Indiana also sounded
alarms among the
universitys leaders,
Kennedy says. On
the Bloomington
campus, the most
recent default
rate for students
required to start
repayment in 2010
14.7%
Share of borrowers
who default on
federal loans during
the rst three years
payments are due
Student Loans
You Mean I Have to
Pay That Back?
The more students know, the less
they borrow
The letter denitely put things
in perspective
Troubled by an increase in student
loan defaults, Indiana University
decided to tell prospective borrow-
ers what their monthly payment would
be after graduation and how much
they would owe. That information had
a dramatic efect on students willing-
ness to borrow: Federal under graduate
Staford loan disbursements at the
public university dropped 11 percent,
or $31 million, in the nine months that
ended March 31 from a year earlier,
according to U.S. Department of
Education data. We are having more
the Deusto Business
School. But at the end
of the day, the core
failure is the lack of
honesty and ethics by
the entrepreneur.
Garca said in an interview in 2013
that he trained as a futures trader and
worked as an asset manager before
founding Gowex in 1999. In 2010 he took
the company public. Its market value
jumped by almost 40 times, peaking at
1.9 billion on April 3. Gowex reported a
sevenfold increase in revenue over three
years, reaching 183 million in 2013.
Clues suggesting earnings manipula-
tion were available. Gotham started with
the com panys auditor. Gowex paid M&A
Auditores 68,500 in 2013, when it had
a purported 182.6 million in revenue.
The price seemed too low for the work
involved. Wi-Fi companies Boingo
Wireless and iPass spent 1 percent to
1.6 percent of annual sales for audit-
ing, Gotham found. Gowex spent
0.04 percent.
M&A Auditores is located in a resi-
dential apartment complex on a tree-
lined street in central Madrid. Reached
by phone after Yus report appeared,
Gowexs auditor, Jos Antonio Diz,
denied Gotham Citys claims and made
jokes about Batman. Garcas wife,
Florencia Mat, was investor relations
manager at Gowex and signed of on
fnancial statements, which added to
questions about the numbers, Gotham
said in its report. Chief Financial Ofcer
Francisco Martnez had ties to com-
panies cited in the prospectus as being
two of Gowexs biggest customers.
Mat and Martinez didnt respond to
calls seeking comment. Judge Pedraz
named Diz, Mat, Martnez, and Javier
Solsona, a member of the Gowex board
and director of corporate development,
as suspects, according to a court ofcial
who asked not to be identifed, citing
ofcial policy.
As an example of exaggerated sales,
Gotham focused on Gowexs asser-
tion that it generated more than
100 million from roaming charges
billed to other car riers for using its
network. Gowex says it rents more than
half its hotspots from a U.S. company
called Towerstream, Yu notes.
Since Towerstream says it made only
$1 million in 2013 renting its network
to other companies, Yu says, its highly
unlikely that Gowex managed to
realize more than 100 times that much
revenue from services it provides using
Towerstreams infrastruc-
ture. How can you mint
lemons at 1 each and sell
them for $10? Yu said.
It made no sense.
Gotham says that when it met with
Garca, he wouldnt provide specifc
numbers, saying that a Harvard Business
Review report showed that opaque busi-
nesses work better in the stock exchange
than transparent ones. The Reviews
communications department says the
closest thing to such an article would be
one from 2006 called The Unexpected
Benefts of Sarbanes-Oxley that argues
in favor of, not against, transparency.
Rodrigo Orihuela, Manuel Baigorri,
Greg Farrell, and Jesse Drucker
The bottom line Lets Gowex, which had a
market value of $2.6 billion on April 3, reported
fake nancial results for years.
Garca
38
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Finance
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By Evan Applegate
Edited by Eric Gelman
Businessweek.com/markets-and-nance
$6.2b
$5.3b
$4.7b
$4b
$3.8b
$1.7b
$1.5b
Albemarle acquires the worlds top lithium supplier.
Predicting high battery demand, the chemical company
will pay a 13 percent premium for Rockwood Holdings.
To cut taxes, Mylan forms a new pharmaceutical
company. Mylan will merge with an Abbott Laboratories
generic-drugs unit and relocate to the Netherlands.
Italys Gtech purchases a fellow gambling company.
Acquiring Las Vegas-based International Game
Technology will increase its share of the U.S. slots market.
Aecom Technology buys URS. The enlarged
construction and engineering company will have
95,000 employees operating in 150 countries.
Whiting Petroleum is king of the Bakken. After buying
Kodiak Oil & Gas, the driller will become the top crude
producer in the Bakken shale formation.
Grupo BTG Pactual gets a private bank. Adding the Swiss
private-banking business of Assicurazioni Generali will
almost double BTG Pactuals assets under management.
Hony Capital buys a British restaurant chain. The
Chinese private equity rm outbid Citic Group for
Londons PizzaExpress, which has more than 500 stores.
Reynolds American lights up for a takeover. The maker of Camel
and Pall Mall cigarettes agreed to buy rival Lorillard, combining the
second- and third-largest tobacco companies in the U.S. To head
off potential antitrust challenges, Reynolds plans to sell a portfolio
of brands, includ ing Kool and Blu e-cigarettes, to the U.K.s Imperial
Tobacco Group.
$25b
was 6.4 percent, up from 3.4 percent
a year earlier, according to Education
Department data.
Indiana began sending the letters,
mostly by e-mail, during the 2012-13
academic year as part of an efort to
expand students fnancial aid literacy.
The university, which has 95,000 under-
graduates on its seven campuses, also
started a personal fnance course, intro-
duced peer-to-peer advising, and added
more information to the school website.
Undergraduate borrowing at Indiana
through the Staford program, the
most popular federal loan, dropped
to $249 million in the nine months
through March from $279.6 million a
year earlier, according to Education
Department data. That 11 percent
decline compares with a 2 percent
drop in Staford borrowing at four-
year public schools nationally, mostly
because of lower enrollment. Financial
aid needs and enrollment at Indiana
remained constant during that time,
Kennedy says. Tuition and fees at
Bloomington increased 1.8 percent
for in-state students, to $10,208, and
2.8 percent for those from outside
Indiana, to $32,350.
By the 2012-13 school year, all
seven campuses also began requir-
ing returning students to confrm on
their schools website that they want to
take out loans, rather than just flling
out an online federal form for student
fnancial aid. Indianas undergrad-
uate Staford loan outlays dropped
8 percent that year. We added more
stopping points in the process,
Kennedy says. Students have to step
back and really understand how much
loan debt theyre taking on.
Seeing the cumulative amount of debt
hes acquired made Rigo Hernandez
hesitant to borrow more. The 21-year-
old chemistry major at Bloomington
says hes cutting expenses, avoiding
purchases such as a new mobile phone,
and contributing more to tuition from
his summer job. Hes taken out $5,535
and would pay $2,091 in interest on that
under a 10-year term, according to his
letter. When I saw the grand total,
he says, it was eye-opening as to how
much I borrowed, and eventually Ill
have to pay that. Janet Lorin
The bottom line Undergraduate borrowing
fell $31 million, or 11 percent, when Indiana
University specied monthly payments.
39
Markets/Finance
42
In October 2010, a Federal Bureau of Investigation system mon-
itoring U.S. Internet trafc picked up an alert. The signal was
coming from Nasdaq. It looked like malware had snuck into
the companys central servers. There were indications that the
intruder was not a kid somewhere, but the intelligence agency
of another country. More troubling still: When the U.S. experts
got a better look at the malware, they realized it was attack
code, designed to cause damage.
As much as hacking has become a daily irritant, much more
of it crosses watch-center monitors out of sight from the public.
The Chinese, the French, the Israelisand many less well known
or understood playersall hack in one way or another. They
steal missile plans, chemical formulas, power-plant pipeline
schematics, and economic data. Thats espionage; attack code
is a military strike. There are only a few recorded deployments,
the most famous being the Stuxnet worm. Widely believed to
be a joint project of the U.S. and Israel, Stuxnet temporarily
disabled Irans uranium-processing facility at Natanz in 2010.
It switched of safety mechanisms, causing the centrifuges at
the heart of a refnery to spin out of control. Two years later,
Iran destroyed two-thirds of Saudi Aramcos computer network
with a relatively unsophisticated but fast-spreading wiper
virus. One veteran U.S. ofcial says that when it came to a digital
weapon planted in a critical system inside the U.S., hes seen it
only oncein Nasdaq.
The October alert prompted the involvement of the National
Security Agency, and just into 2011, the NSA concluded there
was a signifcant danger. A crisis action team convened via
secure videoconference in a briefng room in an 11-story ofce
building in the Washington suburbs. Besides a fondue restau-
rant and a CrossFit gym, the building is home to the National
Cybersecurity and Communications Integration Center (NCCIC),
whose mission is to spot and coordinate the governments
response to digital attacks on the U.S. They reviewed the FBI
data and additional information from the NSA, and quickly
concluded they needed to escalate.
Thus began a frenzied fve-month investigation that would
test the cyber-response capabilities of the U.S. and directly
involve the president. Intelligence and law enforcement agen-
cies, under pressure to decipher a complex hack, struggled to
provide an even moderately clear picture to policymakers. After
months of work, there were still basic disagreements in difer-
ent parts of government over who was behind the incident and
why. Weve seen a nation-state gain access to at least one of
our stock exchanges, Ill put it that way, and its not crystal clear
what their fnal objective is, says House Intelligence Committee
Chairman Mike Rogers, a Republican from Michigan, who agreed
to talk about the incident only in general terms because the
details remain classifed. The bad news of that equation is, Im
not sure you will really know until that fnal trigger is pulled.
And you never want to get to that.
Bloomberg Businessweek spent several months interviewing
more than two dozen people about the Nasdaq attack and its
aftermath, which has never been fully reported. Nine of those
people were directly involved in the investigation and national
security deliberations; none were authorized to speak on the
record. The investigation into the Nasdaq intrusion is an ongoing
matter, says FBI New York Assistant Director in Charge George
Venizelos. Like all cyber cases, its complex and involves evi-
dence and facts that evolve over time.
While the hack was successfully disrupted, it revealed
how vulnerable fnancial exchangesas well as banks, chemi-
cal refneries, water plants, and electric utilitiesare to digital
assault. One ofcial who experienced the event frsthand says
he thought the attack would change everything, that it would
force the U.S. to get serious about preparing for a new era of
confict by computer. He was wrong.
On the call at the NCCIC were experts from the Defense,
Treasury, and Homeland Security departments and from the
NSA and FBI. The initial assessment provided the incident team
with a few sketchy details about the hackers identity, yet it only
took them minutes to agree that the incursion was so serious
that the White House should be informed.
The conference call participants reconvened at the White
House the next day, joined by ofcials from the Justice and State
departments and the Central Intelligence Agency. The group
drew up a set of options to be presented to senior national
security ofcials from the White House, the Justice Department,
the Pentagon, and others. Those ofcials determined the ques-
tions that investigators would have to answer: Were the hackers
able to access and manipulate or destabilize the trading plat-
form? Was the incursion part of a broader attack on the U.S.
fnancial infrastructure?
The U.S. Secret Service pushed to be the lead investigative
agency. Its representatives noted that they had already gone
to Nasdaq months earlier with evidence that a group of alleged
Russian cybercriminals, led by a St. Petersburg man named
Aleksandr Kalinin, had hacked the company and that the two
events might be related. The Secret Service lost the argument
and sat the investigation out.
When the FBI notifed Nasdaq of the intrusion, it turned
out the company had detected anomalies on its own but had
yet to report the attack. After negotiations over privacy con-
cerns, Nasdaq agreed to let U.S. ofcials into its networks.
Investigation teams arrived at the companys headquarters
at One Liberty Plaza in New York City and its data center in
Carteret, N.J., where they found multiple indications of an
intelligence agency or military.
The hackers had used two zero-day vulnerabilities in com-
bination. A zero day is a previously unknown faw in computer
codedevelopers have had zero days to address itthat allows
hackers to easily take remote command of a computer. Its a
valuable commodity, sometimes selling for tens of thousands
of dollars in underground markets. The use of one zero day
indicates a sophisticated hacker; more than one suggests gov-
ernment. Stuxnet deployed foura sign that the codes authors
had done advanced reconnaissance and knew precisely how
various systems worked together.
Whoever hit Nasdaq had done similar prep work and had
similar resources. The clincher was the hackers malware pulled
from Nasdaqs computer banks. The NSA had seen a version
before, designed and built by the Federal Security Service of the
Russian Federation (FSB), that countrys main spy agency. And it
43
was more than spyware: Although the tool could be used to steal
data, it also had a function designed to create widespread dis-
ruption within a computer network. The NSA believed it might
be capable of wiping out the entire exchange.
In early January, the NSA presented its conclusions to top
national security ofcials: Elite Russian hackers had breached
the stock exchange and inserted a digital bomb. The best case
was that the hackers had packed their malware with a destruc-
tion module in case they were detected and needed to create
havoc in Nasdaq computer banks to throw of their pursuers.
The worst case was that creating havoc was their intention.
President Obama was briefed on the fndings.
Later in the investigation, some U.S. ofcials questioned
whether the NSA had pushed the evidence too far. Malware often
changes handsits sold, stolen, or shared. And the technical dif-
ferences between attack code and something less destructive can
be surprisingly small. At the time, NSA Director Keith Alexander
and his agency were locked in a fght with government branches
over how much power the NSA should have to protect private
companies from this new form of aggression. Such a brazen
attack would certainly bolster its case.
As the probe deepened inside Nasdaqs headquarters and its
data center, investigators had to reconstruct the path of world-
class hackers whose job depended on being untraceable. The
team was surprised at how vulnerable a sophisticated operation
such as Nasdaq could be. Our assumption was that, generally
speaking, the fnancial sector had its act together much more,
says Christopher Finan, a former cybersecurity expert in the
Obama White House. It doesnt mean that theyre perfect,
but on a spectrum theyre near the top.
What the investigators found inside Nasdaq shocked
them, according to both law enforcement ofcials and private
contractors hired by the company to aid in the investigation.
Agents found the tracks of several diferent groups operating
freely, some of which may have been in the exchanges networks
for years, including criminal hackers and Chinese cyberspies.
Basic records of the daily activity occurring on the companys
servers, which would have helped investigators trace the hackers
movements, were almost nonexistent. Investigators also discov-
ered that the website run by One Liberty Plazas building man-
agement company had been laced with a Russian-made exploit
kit known as Blackhole, infecting tenants who visited the page
to pay bills or do other maintenance.
What one investigator referred to as the dirty swamp
of Nasdaqs computer banks made following the trail of the
Russian malware excruciatingly slow. The agents fgured the
hackers frst broke into Nasdaqs computers at least three
months before they were detected, but that was just a guess.
There were indications that a large cache of data was stolen,
though proof was scarce, and it was hard to see what was
spirited out. If someone breaks into your house, trying to
fgure where they went and what they took is pretty difcult
because, unlike a bank, you dont have cameras in your house,
you dont have motion sensors, says Jason Syversen, chief
executive ofcer of Siege Technologies, a security frm in Man-
chester, N.H. In terms of cybersecurity, most companies are
more like a house than a bank.
The agencies left it to Nasdaq to characterize the attack for
its customers, regulators, and the public, which it did in a brief
company statement on Feb. 5 and again in a regulatory fling
a few weeks later. The breach couldnt have come at a worse
time for Nasdaq. It was on the verge of trying to acquire the
New York Stock Exchange for $11 billion.
Nasdaqs e-mailed statement gave no indication the attack was
serious. The company said the malware had been discovered
during a routine scan and that the incursion was limited to
a system called Directors Desk, which more than 230 compa-
nies used to share fnancial information among board members.
We have no information anything was taken, the statement
said. In an interview for this article, Nasdaq spokesman Joseph
Christinat says: Our own forensics review of the issue conducted
in close cooperation with the U.S. government concluded no
proof of exfltration of data from our Directors Desk systems.
Importantly, 2010 was a watershed moment in our companys
commitment to cybersecurity resulting today in an enhanced
ability to detect and protect the integrity of our systems, our
technology, and market participants.
Meanwhile, the investigation into who was behind the attack
took a dramatic turn. Unlike a bomb or missile, malware can
be reused. Left behind in networks, it can be grabbed by other
hackers, reverse-engineered, and redeployed in the computer
banks of subsequent victims to muddy the trail, like a killer
using someone elses gun. As investigators began examin-
ing data on other hacks of government and military comput-
ers, there was evidence that the Russians malware was being
used by a sophisticated Chinese cyberspy also known to have
a thriving criminal business on the side. This hacker could
have been given the Russian malware or pinched it from inside
another computer network and used it to disguise his identity.
Some evidence inside Nasdaq supported that theory as well.
Obama was briefed again as the probe turned toward Asia.
As investigators followed the new leads, more teams fanned
out across the country. The Treasury Departments Ofce of
Critical Infrastructure Protection and Compliance Policy drew
up a list of 10 major banks and U.S. stock exchanges that might
be targets for a broader campaign. Not all the companies agreed
to cooperate with the investigation. In those that did, agents
began scouring computer logs and examining servers, aided
by the companies security teams.
The agents found little evidence of a broader attack. What
they did fnd were systematic security failures riddling some
of the most important U.S. fnancial institutions. It turned out
that many on the list were vulnerable to the same attack that
struck Nasdaq. They were spared only because the hackers
hadnt bothered to try.
The Asia connection didnt pan out. Investigators turned
back to Russia as the most likely suspect but kept stumbling
over questions of motive. The hackers had been free to move
around the Nasdaq network unmolested for several months.
The exchange itself is isolated from other parts of the companys
network. Its hard to access, but theres no evidence that the
hackers made the attempt.
Pushing for answers, the White House turned to
44
the CIA. Unlike the NSA, which gathers intelligence solely
by electronic means, the CIA is an all source intelligence
unit and relies heavily on people. The CIA began to focus on
the relationships between Russias intelligence agencies and
organized crime. Someone in the FSB could have been running
a for-proft operation on the side, or perhaps sold or gave the
malware to a criminal hacking group. More analysis on the
malware showed that its capabilities were less destructive than
earlier believed. It couldnt destroy computers like a wiper
virus, but it could take over certain functions in order to cause
a network disruption.
If the hackers motive was proft, Nasdaqs Directors Desk,
the Web-based communication system where they frst entered
the network, ofered amazing possibilities. Its used by thou-
sands of corporate board directors to exchange confdential
fnancial information about their companies. Analyst reports
are passed to the board of a company using the system a day
before theyre made public; whoever got their hands on those
could accumulate an instant fortune.
In Washington, an FBI team and market regulators ana-
lyzed thousands of trades using algorithms to determine if
information in Directors Desk could be traced to suspicious
transactions. They found no evidence that had happened,
according to two people briefed on the results.
National security ofcials revised the theory of the break-in
once again. With encouragement from the CIA, White
House ofcials began to conclude it was an elaborate act of
cybercrime. The conclusion represented a certainty of only
about 70 percent, according to one ofcial, but there was little
choice. The NSA was operating under a special authority known
as a Request for Technical Assistance, or RTA, and the clock on
the RTA was running out. After Obama was briefed for a third
time, two people say, the intelligence establishment stood down,
and by early March, the case was left in the hands of the FBI.
The bureaus agents noticed that the hackers appeared to
focus their attention on 13 servers containing Nasdaqs most
critical technology. That technology is sophisticated enough
that the company has a side business licensing it to other stock
exchanges around the world.
The timing of the attack had always been one of the pieces
that didnt ft. In 2008, Dmitry Medvedev had succeeded Vladimir
Putin as Russias president, and Putin stepped into the less pow-
erful role of prime minister. If anything, relations with the West
were warming, and aggression against the global fnancial system
didnt make sense.
Russia might have been interested in Nasdaq for other
reasons. In January 2011, Medvedev traveled to the World
Economic Forum in Davos, Switzerland, to roll out a grand
Russian vision for transforming Moscow into a global fnancial
hub. The next month, Moscows two underperforming stock
exchanges, the Micex and RTS, announced they would merge
into what operators dreamed would be a world-class platform,
the jewel in the crown of the globes newest fnancial capital.
To Russias senior leaders, the countrys national security and
the success of the exchange were linked. Russian companies now
mostly list on major Western exchanges, making them more vul-
nerable to U.S. and European economic leverage. When Putin
returned to the presidency in 2012, he pressured Russian com-
panies to list solely on the new exchange. At the same time, he
poured billions of rubles into a fnancial hub in central Moscow
that included Europes tallest building.
By mid-2011, investigators began to conclude that the Rus-
sians werent trying to sabotage Nasdaq. They wanted to clone it,
either to incorporate its technology directly into their exchange
or as a model to learn from. And they dispatched an elite team
of cyberspies to get it.
Without a clear picture of exactly what data was taken from
Nasdaq and where it wentimpossible given the lack of logs and
other vital forensics informationnot everyone in the govern-
ment or even the FBI agreed with the fnding, but one investiga-
tor directly involved in the case says it was the most convincing
conclusion. There were other pieces of the puzzle that didnt ft.
Were the malwares disruptive capabilities meant to be used as a
weapon or something else? If they hadnt been interrupted, what
else would they have done? Asked to comment on the Nasdaq
incident, Russian Embassy spokesman Yevgeniy Khorishko says,
It is pure nonsense that it is not even worth commenting on.
In a speech last January, amid the scandal over the NSAs
collection of data on millions of Americans, Obama obliquely
referred to the NSAs ability to intercept malware that targets a
stock exchange as one reason he opposed stripping the agency
of its ability to intercept digital communications.
For some U.S. ofcials, however, the lessons of the incident
are far more chilling. The U.S. national security apparatus may
be dominant in the physical world, but its far less prepared in
the virtual one. The rules of cyberwarfare are still being written,
and it may be that the deployment of attack code is an act of war
as destructive as the disabling of any real infrastructure. And
its an act of war that can be hard to trace: Almost four years
after the initial Nasdaq intrusion, U.S. ofcials are still sorting
out what happened. Although American military is an excellent
deterrent, it doesnt work if you dont know whom to use it on.
If anybody in the federal government tells you that theyve
got this fgured out in terms of how to respond to an aggressive
cyber attack, then tell me their names, because they shouldnt
be there, says Rogers, the intelligence committee chairman.
The problem is that whatever we do, the response to it wont
come back at the government, itll come back at the 85 percent
of networks in America that are in the private sector. And they
are already having a difcult time keeping up.
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48
itbull, born Armando Prez, self-titled
Mr. Worldwide, and often known
simply as Pit, slides into his seat at
a hotel restaurant about 25 minutes
inland from South Beach. The place
is well outside the Miami party scene
and its paparazzi, and is either pur-
posefully retrodeco chairs, white
tablecloths, a waitress who must be
80 wearing bright coral lipstickor
hasnt been updated in 50 years. Its
empty save for one of the biggest pop stars in the world and a
group of his associates, all wearing suits, and clustered at two
tables. Pitbull taps his water glass, and the waitress hurries over
to fll it. His lawyer, Leslie Zigel, hands him an agenda, which
ofers topics like Endorsement Deal Matters, Investments,
and, in capital letters, DISRUPTION.
Zigel and Pitbull started working together in 2010, after Pitbull
closed his frst major sponsorship deal, with Dr Pepper, which
Zigel was representing at the time. He told me he appreciated
my approach to dealmaking and asked if I would consider joining
his team, says Zigel. Im a jazz bass player, and he liked that
I thought like a musician, not a typical lawyer. Zigel looks like
Stanley Tucci and speaks to Pitbull encouragingly, like a cheer-
ful high school gym teacher.
After discussing a few of Pitbulls investmentsa restaurant
chain called Miami Subs Grill thats undergoing storefront reno-
vations and a water fltration system called EcoloBlue that Pitbull
believes will be a game changerthe rapper moves down to
Meetings and says, Lets do Bitcoin.
Zigel slides over a stack of articles about Bitcoin and mentions
a possible sitdown with Merlin Kaufman, who runs a $7.5 million
Bitcoin investment fund focused on the hardware that runs the
currency. Pitbull fips through the pages quickly, not displaying
much interest. In public, Pitbull is rarely seen without an enor-
mous pair of aviator-style sun glasses, but hes left them of for
this meeting. His exposed eyes are ocean-colored, surround-
ed by little-girl lashes. Freckles dot his nose. Theres a Twitter
joke that compares a picture of Pitbull to Lord Voldemort, and
while uncharitable, theres something to it, with that crowded,
leonine smile and menacing cannonball-like head.
I still want to know, what exactly is Bitcoin? Pitbull says.
How real is it? Is it going to be adopted and be disruptive?
The people who are going to adopt it are young, Zigel
replies. If its something they decide they want to do, its going
to be a force to be reckoned with.
What makes this real money?
Zigel, looking unsure, glances quickly at the articles Pitbull
has shoved back toward him. Its very speculative right now,
he says. Theres nothing thats holding it together.
Pitbull is dubious. No gold, no nothing?
No banks behind it, no.
Are they having problems with the streets?
Zigels eyebrows rise. Pitbull may be referring to the fnancial
markets, or he may be referring to streets of a grittier variety.
Pitbull, 33, spent much of his life navigating them, as hes quick
to mention. Hes a frst-generation American whose parents came
to Miami from Cuba, his mother in the 1960s as part of Opera-
tion Pedro PanMiamis efort to get children out of the com-
munist countryand his father in 1980. Armando Sr. was a low-
level criminal and drug dealer; he met Pitbulls mother while
she was what Pitbull calls a burlesque dancer. By the time
Pitbull was a teenager and trying to make it as a musician, hed
dropped out of school and was dealing drugs. In 2001 he hooked
up with successful rapper Lil Jon and producer Luther Camp-
bell, the frontman for 2 Live Crew, and in 2004 released his frst
album, M.I.A.M.I. It featured the single Culo, which peaked at
No.32 on the Billboard Hot 100. Culo, which translates, roughly,
to ass, is whats referred to as reggaetonan upbeat sound
that combines hip-hop, Jamaican dancehall, and more tradi-
tional Latino music such as salsa. In it, Pitbull raps in English
and Spanish, and his style is hypnotizingly monotone, making
it an ideal counterpart for a great hook.
In the decade since, Pitbull has become ubiquitous and is
moving into the territory of empire builder, along the lines of
50 Cent or Jay Z. His publicist, Tom Muzquiz, a peppy man with
spiky hair whos lingering at the next table, promised to fgure
out the perfect day for us to spend together to help me under-
stand his bosss reach and ambition. And it didnt involve a
yacht or a crazy night out in South Beach or anything to do with
his outsize lifestyle. Exciting for Pitbull, now, is thinking about
things other than partying, studio time, and ladies. (He has six
children with an undisclosed number of women.)
This hotel restaurant isnt just where Pitbull asked to meet
on this day, its where he conducts business; he doesnt have a
normal ofce, so he holds meetings here, sometimes jumping
from one table to the other. The location is perfect for Pitbull,
as its private enough but doesnt deny him the pleasure of a
Greek chorus of Yes Men. He asks that I keep it a secret. If it
gets out, Muzquiz says, it could create problems. Along with
Zigel and Muzquiz, the group consists of Pitbulls manager, Mike
Calderon, and a few large, intimidating men whose purpose
seems to be laughing when Pitbull tells a joke. At one point
someones phone goes of. The ringtone is Timber, Pitbulls most
recent No.1 hit, which features Kesha singing, Its going down,
Im yelling Timber! Pitbull rolls his eyes.
Even if you dont know who Pitbull is, you do. Youve danced
to a Pitbull song at a wedding or seen him in a commercial.
Hes sold more than 5 million albums worldwide in an era
when people hardly buy albums, and his YouTube videos have
exceeded 5 billion views. Hes had nine top 10 singles interna-
tionally, including No.1 hits such as 2011s Give Me Everything,
featuring the R&B artist Ne-Yo. Hes sold out numerous world
tours and is teaming up in the fall with Enrique Iglesias. Hes
an endorsement machine, chalking up deals with Dodge, Bud
Light, and Kodak. Like many hip-hop stars, he owns a vodka
brand. His is called Voliits low-calorie.
15m 10m 5m 0
P. Diddy
Jay Z
Dr. Dre
Nicki Minaj
Birdman
Kanye West
Lil Wayne
Wiz Khalifa
Ludacris
Pitbull
$50m
$29m
$20m
$16m
$11m
$12m
$14m
Twitter followers
$43m
$40m
$21m
Social Media and
Real Money
2013
earnings
49
His songs are contagious, the kind of poppy club tunes that
DJs play to get everyone on the foor. On his own, hes OK, but
Pitbulls real success comes from collaborations with other
artistssong co-headliners include Usher, Chris Brown, T-Pain,
Marc Anthony, Jennifer Lopez, Christina Aguilera, and Pharrell
Williams, among others. They sing the hooks, Mr. Worldwide
raps through the bridge, and suddenly everyones hands are
in the air. He is expert at gathering up talent, and then pack-
aging and producing the fnal product. Pitbulls got this thing
of yelling Dale! during his songs, which means, Go ahead!
or Do it! or Give it! Its become a rallying cry for his fans,
a kind of F-U to music snobs who might discount the rappers
slightly pedestrian rhymes. People want to have fun. Pitbull
knows how to deliver it.
Accordingly, Pitbull is rich. Estimates of his wealth range
from $10 million to $20 million, most of that coming from
endorsement deals with huge American companies. Corpora-
tions have decided that hes the answer to landing Latino cus-
tomers. In 2012 the Latino population in the U.S. was 53 million,
a 50 percent increase from 2000, according to the Pew Research
Center. Latinos now account for 17 percent of the U.S. popula-
tion and collectively spend more than $1.3 trillion each year,
according to Nielsen. In the past month, brands such as Hyundai,
ESPN, and Corona have unveiled national ads entirely or partly
in Spanish. Colombian actress Sofa Vergara is now one of Amer-
icas best-paid endorsers, with high-profle deals with Kmart,
Diet Pepsi, and CoverGirl. Singer Shakira, also from Colom-
bia, appears in ads for Dannon, Pepsi, and T-Mobile, and just
signed a deal with Oral-B and Crest. Actresses Eva Longoria and
Jessica Alba star in far more commercials than their middling
careers suggest they should. Companies are scrambling to win
this demographic, and Pitbull is eager to help them.
Being Mr. Worldwide does take a toll, though. In his
restaurant ofce, hes constantly downing water. When the
glass is empty, his eyes get manic. Hes jittery, jangly, as if hes
always about to jump up and run away. He looks 10 years older
than he should, and his Miami Vice-inspired clothes dont help.
For performances and public appearances, Pitbull wears black
or white suits, sometimes with a tie, always with those avia-
tors. Today hes in a blue pinstripe jacket and blue vest, the
buttons straining a bit against his stomach.
He gets up, returns, is ready to discuss the next thing,
younow.com, a video startup, somewhere between Twitter and
YouTube, that allows users to comment on videos as they watch
them. His many partnerships and deals are brought to him,
he says, by everyonehis team, his investors, himself. Some
people have amazing ideas, but nobody knows about them,
he says. I partner with companies and say, You get here, then
well step on the gas. He says he takes a rigorous approach
to evaluating these possibilities. He does market-testing with
children. I get these companies to go to the schools and say to
the kids, What do you think about this? Do you think its cool?
Then theyll start using it, and say, Did you think about this?
He says he wants to be a billion-dollar brand in the next three
years. Thats a long shotneither Jessica Simpson nor the Kar-
dashians are worth that much, though they both claim to be.
Pitbull and Zigel discuss his YouNow appearance on May 28,
when he announced his partnership with entertainment and TV
production company Endemol. This is what Pitbull excels at:
using one of his businesses to promote another. Zigel says the
test went well and user engagement was high. Pitbull has
16.9 million followers on Twitter and more than a million
Pitbull gets micd up for a July 7 interview on Univison
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on Instagram, believes in his own promotional power, and has
had, as much as anyone in the pop-culture landscape, success
in convincing others of it, too.
In 2013, Chrysler signed Pitbull to help launch its latest entry
in the compact-car segment, the Dodge Dart. Pitbull did two
commercials for the car, one in English, one in Spanish, featur-
ing him driving and ofering the monumental swagger that has
become his trademark. (In an ad for Bud Light, he makes an art
form of merely walking through a crowd, capped of by what
might be described as an epic lowering of a pair of sunglasses,
followed by an historic grin.)
Juan Torres, head of multicultural advertising for Chrysler
Group, says Pitbull draws two diferent kinds of consumers:
millennials and Hispanics. Hispanics are not only brand- loyal
consumers but are loyal to this particular car segment. So in
that case, the strategic alignment with Pitbull made sense, he
says. And when you start to peel back the layers, you see that
43 percent of millennials are multicultural, and so you have this
incredible artist who resonates with all these diferent demo-
graphics. Torres says that since the commercials aired, the Dart
has steadily gained market share, with 20 percent of its buyers
consisting of multicultural consumers.
Zigel and Pitbull move on to a proposed book, which they
hope will create a bidding war among publishing houses. The
title will likely be From a Negative to a Positive. Its based on my
motto, explains Pitbull. Since my mother started playing Tony
Robbins when I was in the ffth grade, Ive applied that to my life
and career. Its not only a business strategy, its for everything.
The book is just the frst piece, ofers Zigel. Theyre think-
ing of a self-help lifestyle brand, with Pitbull in the Robbins role.
He and Zigel discuss the possibility of investing in Vevo, the
video hosting service thats co-owned by Universal Music Group,
Google, Sony Music, and Abu Dhabi Media. Zigel has made Pitbull
a fowchart of online streaming revenue, showing how artists and
labels make money of video views. Pitbull studies it, squinting.
Finally, he says, I dont understand this. I see a lot of f---ing arrows,
and only two f---ing arrows to the artist. Somethings wrong.
Next up: a premium sake called Rock Sake, which aims to
make the Japanese rice wine coollike, bottle-service cool.
Pitbulls interested, but he wants to get Playboy Enterprises,
with whom he has a strategic partnership, involved. Playboys
wafing. Scott isnt necessarily on board, says Zigel, referring
to Playboy Chief Executive Ofcer Scott Flanders.
Flanders, who ran Macmillan Publishers and Columbia House
before joining Playboy in 2009, anointed Pitbull the compa-
nys artist-in-residence last year. First we did our own brand
tracking, and he had the lowest negative scores of any super-
star that was in our constellation of consideration, says Flan-
ders, whose mission is to turn Playboy into a lifestyle brand that
appeals to millennials. We were quite surprisedanyone with
a rapper background will have passionate fans but also detrac-
tors. Playboy brought in PR and research frm Edelman to do
an independent study on the stars appeal. They found that
the overlap of attributes that people associated with Pitbull and
Playboy was signifcant, and we got a forceful recommendation
to proceed with striking a relationship.
The seven-fgure deal grants Pitbull fees as a brand ambas-
sador as well as a substantial percentage of revenue from
any licensed products. So far, Flanders is thrilled with the col-
laboration. The interest from licensees has been staggering,
he says. We had no idea how hot he is in countries like India,
where were now doing deals. I talked to him about that, and
he said, Oh yeah, Im hot there, and South America, too. So
we went to Mexico.
Zigels time is up. He stands, shakes hands all around, and
goes back to the table of associates, where he does a kind of
tag-team maneuver with Calderon, whos next in line.
Calderon is small and smiley, with a Latin accent and a suit
that looks about two sizes too big for his skinny neck. As Pit-
bulls manager, he handles logistics and general tasks as well
Endorsements Products Partnerships
Hes Touched Down Everywhere
Investments
Alcohol
A partner in Voli, billed
as the rst low- calorie
vodka. Flavors include
Raspberry Cocoa and
Espresso Vanilla.
Food
Has a signicant
equity stake in the
Miami Subs Grill
sandwich chain,
which ofers items
such as the Big
Havana Burger.
Water Filters
Investor in
EcoloBlue, a
startup that manu-
factures a ltration
system that
claims to create
water from air.
Fragrances
Launches mens and
womens scents in 2013.
Cologne has notes of
warm spices of carda-
mom and sage.
Hot Girls
Strikes up a strat-
egic partnership with
Playboy Enterprises,
features the mansion in
his Wild Wild Love video.
Cars
In a series of
Spanish and
English ads for the
Dodge Dart. En
Espaol: Cmo
hacer un auto.
Soda
Appears in a
Dr Pepper TV ad
titled Dream,
about making it as
an immigrant. Im
Pitbull, and Im one
of a kind.
Beer
Stars in two Bud
Light ads as part of
a multicultural cam-
paign. Both spots
take place in a club
and feature his song
Bon Bon (Dont stop
the paaaarty!).
51
as other business ventures. Everyone who surrounds Pitbull
ends up in charge of one company or another. Calderon and
Pitbull go over security for Pitbulls performance at the World
Cup in Brazil. There would be a helicopter and Navy Seals
protecting him. Pitbull is pleased with this, which Calderon
acknowledges with a small grin. Calderon also runs a site called
shoppitbull.com, and he has numbers to report.
The frst day broke $13 grand, which is great, says Cald-
eron. Because there wasnt any advertisement for it, only on
Twitter and Instagram.
Wow! says Pitbull, before downing another glass of water.
You really need to keep an eye on that bad boy. Thats your
call to action! Now we come back and say, Look, our people,
we know how to move em, and this is the kind of things we can
do. Congrats on that.
With Pitbulls shiny tie and fuzzy, rapper-turned- entrepreneur-
speakeverythings a call to action, a no-brainer, or has to do
with monetizing something or otherits easy to underestimate
him. But Pitbulls longtime music manager, Charles Chavez, says
the smartest thing about Pitbull is that he knows what he doesnt
know. Hes gotten opportunities because of his music and has
surrounded himself with advisers. And he keeps making more
money. Hes just more intelligent than the average artist, says
Chavez. Hes always watching Bloomberg TV! Its an ego-driven
business, and most artists, its all about them. He understands
he cant do everything himself, and he soaks everything in.
Calderon is done; next arrives Fernando Zulueta, a barrel-
chested, deep-voiced businessman who works with Pitbull on
his Miami charter school project. Zulueta has gray hair, a deep
tan, and a large glass of red wine. Pitbull will be running his
own New Years Eve special on Fox, and Zulueta suggests hiring
the Black Eyed Peas for the night. They move on to a startup,
a kind of Spanish-language YouTube, which Zulueta promises
will be like Pitbulls own TV station. Pitbull considers this and
waves at the waitress for more water. The look on his face sug-
gests hes about to say something profound, and he delivers.
Culture is generation. Generation is power.
Explain that to mebecause you use generators to make
power, right? Zulueta laughs with a loud bark.
Pitbull continues, straight-faced. When you become a
generationsay, the MTV generationthats where you create
your power.
Zulueta purses his lips, trying to understand.
The content fed the culture, the culture fed the generation.
Everyone says content is king. But culture is everything. Content
creates a culturethe Kardashians created a culture.
I got it, says Zulueta, though it seems like he might not.
Pitbull has already moved on. In a few hours, hes due to
get an honorary degree from Miamis Doral College and has
to deliver an inspirational speech. Zulueta hands over a draft.
Its about 20 pages, and the type is huge. Even so, Pitbull is dis-
pleased. This is too long, he says, fipping through. This isnt
me. I need this to be the real me. Zulueta assures him he can
do whatever he wants to the speech, and at that Pitbull goes
upstairsto a room? an ofce?to edit the speech with Muzquiz.
Over the next two hours, one by one, Pitbulls associates leave,
until its just me and the ancient waitress.
When Muzquiz fnally comes down, hes apologetic but explains
the speech needed work. We head to the college. Instead of an
Escalade or limo, theres just a regular midsize sedan. Pitbull, sun-
glasses fnally on, gets in, and a cloud of cologne flls the small car.
He hammers away on his BlackBerry. Its just me and the presi-
dent who use these now, he jokes. Hes rereading his speech on
the phone and seems a little nervous.
Its silent except for when he gives his driver directions in
Spanish and tells one of his guys that hes ready for his iced
cofee. As we near the school in central Miami, Pitbull starts
spraying himself with more cologne. First his Pitbull fragrance,
then a bit of Tom Ford, then some Pitbull again. He explains, I
mix it, and then depending on how the women react, I either
mix the same ones again or try a diferent combination.
On arrival at Doral, Pitbull is whisked away to don his gradua-
tion robes. His appearance is supposed to be a surprise, though
some members of the local Miami press have found out. They
always dohes their most famous son right now, and the city
loves him. Reporters line up at the back door, waiting.
Doral is both a charter high school and a tiny college, and
there are probably 300 attendees in the auditorium, parents
and grandparents fanning themselves with programs. Intros
are made, and a very sweet high schooler gives a speech about
how this isnt the end, its just the beginning. Then Zulueta
gets up to introduce the mystery guest and recipient of Dorals
frst honorary degree.
He speaks of this persons generosity and business acumen,
and when he talks about his status as an international pop star,
the crowd begins to buzz. Younger siblings elbow each other,
and grandmothers sit up straighter. Pitbull comes out in his
robe, waving and beaming, and everyone screams and whistles
and whoops. He prances around the stage, enjoying it, his robe
fowing behind him as he paces. The crowd fnally quiets, and
his speech begins.
I did what they said I couldnt. I became what they said I
wouldnt, and because of very special people in my life who
believed in me, thats why Im on this stage tonight. Applause.
So with that said, I want to say thank you to my mother. More
applause, mostly from the women. Shes someone who had
to raise a man, a woman who made a man. But shes someone
who taught me the No.1 lesson in life, which is: how to survive.
On paper, its inspirational gibberish. But Pitbulls delivery
the neat pauses between each clause, his staccato cadence
transcends the clichd subject matter. The crowd is in it with
him, rising and falling as he slows down and speeds up: Hes
turned it into a radio-worthy rap. The 20-minute oration cul-
minates in a rousing call to let loose: I know youre going to
get of the chain, of the glass, of the fip, of the rip, of the
everything, yall going to turn it up. Theres a term in electronic
dance music called dropping the bassits that moment when,
after a brief let up, the beat returns full force, and everyone goes
insane. The audience is waiting for him to fnish, waiting for the
bass to drop. And then it comes. Yall go to all the parties you
want to go to, and Im sure theres going to be plenty of them.
But theres no party like this, right here, right now. He is theirs,
and they are his.
I partner with companies
and say, You get here,
then well step on the
52
Mr.
Fun
He saved Ducati and is rescuing Aston Martin,
maker of James Bonds ride. Now, Andrea Bonomi
is storming the beaches of Club Med
By Vernon Silver and Elisa Martinuzzi
Photograph by Robin de Puy
54
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ndrea Bonomi had
72 hours to put together
a billion dollars. It was
Friday, May 23, and the
49-year-old heir to one
of Italys old industrial
families had received an ultimatum from
Frances market regulator, the Autorit
des Marchs Financiers: Make a formal
bid for Club MditerraneClub Medor
be barred for six months from attempting
a takeover while another investor group
and the current management tried to take
the company private.
Through his investment fund, Strategic
Holdings, Bonomi had been amassing
shares in the famed all- inclusive resort
chain, and the AMF wanted him to declare
his intentions. As his stake approached
10 percent, Bonomi had become the
single biggest shareholder, putting him
in position to derail the separate takeover
efort, already in the works and backed
by the Club Med board. The put-up-or-
shut-up gives you three days, Bonomi
says. Three daysSaturday, Sunday,
and Monday, which was a bank holiday
in the U.K. and Memorial Day in the U.S.
to decide whether you want to make a bil-
lion-dollar transaction.
Until that afternoon, Bonomi hadnt
intended a takeover. They made us,
he says, shrugging. Hes relaxed, sitting
in his ofce in Lugano, Switzerland, an
Italian-speaking enclave an hours drive
from Milan. His windows open over a
colonnaded street of watch shops and
ofer views of Lake Lugano. Hed started
buying Club Med shares, Bonomi says,
with the sole intention of spurring a
turnaround of the unique brand of late-
20th century leisure that had managed
to combine a vision of care-free, tropical
escapes, social egalitarianism, and free sex
under one thatched roofand had been in
decline for more than a decade. Despite
receiving 1.3 million members last year
at 66 properties (and on one cruise ship),
Club Med lost 11 million ($15 million)
for the 2013 fscal year, and revenue was
29 percent below its 2001 level. Its hit a
bad spot, says Vanessa Rossi, global eco-
nomics adviser to Oxford Analytica, a con-
sulting frm based in Oxford, England.
What the ultimatum made clear
to Bonomi was that even though hed
acquired more of the companys shares,
he could lose his shot at shaping its future.
So Bonomi worked through the weekend.
As he juggled calls, two Italian banks
Intesa Sanpaolo and UniCreditagreed
to lend money for the deal, as much as
240 million of debt. He went to his roster
of investors, which includes Ivy League
college endowments and pension funds.
They, too, agreed to chip in on the ofer
through the private equity frm he runs,
Investindustrial. By the end of Monday,
May 26, Bonomi made the deadline,
armed with letters of intent and ready to
lay siege to Club Med.
In the days that followed, executives
from his frm fanned out to visit Club Med
resorts in Sicily and Portugal and exam-
ined the companys books. Real estate
consultants who visited nine resorts
found the underlying properties held
more value than theyd been given credit
for. On June 30, Bonomi made it ofcial:
He ofered 21 a share, topping the com-
peting management-backed proposal of
17.50 that has been pending since last
year. The bid valued the company at
about $1.1 billion. Club Med is an old-
mentality business, says Bonomi. If you
run out of ideas, you must pass the baton
to the next guy.
Bonomi has had mixed results being
that next guy. He had an undeniable
success restoring Italys Ducati motorcycle
company. He didnt do as well attempting
to transform a Milan cooperative bank. In
any event, Bonomis move on Club Med
is the highest-profle deal of his career
and his biggest battle. It pits him against
Club Meds chairman and chief executive
ofcer, Henri Giscard dEstaing, whose
father was Frances president from 1974
to 1981, and Chinese billionaire Guo
Guangchang, chairman of the $48 billion-
asset Fosun Group, whose other overseas
investments include New Yorks 60-story
One Chase Manhattan Plaza. Together,
Guo and Giscard dEstaing have been
spearheading Club Meds strategy of
cultivating newly mobile Chinese tour-
ists as clients and concentrating on the
companys more expensive fve-star, or
5-Trident, resorts.
Bonomis bid for Club Med amounts to a
counterintuitive bet that recession-rattled
Europeans still need to spend their ample
vacation time somewhere. Instead of
leaning on China for growth, he proposes
a focus on the Americas and Europe as
well, especially in France, where he
wants to open a store in Paris. Instead of
pulling back on cheaper resorts, he pro-
poses maintaining the 3-Trident destina-
tions, where beds can be simple wooden
frames with a mattress and no box spring,
and room rates can cost a third of those
at a 5-Trident. In all, his plan would bring
150 million of additional investment and
add 5,000 beds, for a total of 20,000. As
a result of the expense, hes warned that
shareholders who dont surrender their
shares in his ofering shouldnt expect
any dividends for the next seven years.
Despite Bonomis Eurocentric plan,
Club Meds French management has
reacted as if Bonomi is violating its
national sovereignty. Giscard dEstaing
claimed the resort company needs
French anchorage. In an interview
with the newspaper Le Figaro published
on July 4, he backed the lower, French-
Chinese ofer, which would guarantee a
French majority. Any change that is not
based on a real and profound knowledge
of Club Med, its business, and its values
would be dangerous for him, Giscard
dEstaing said, adding that Bonomi only
wants to take control. In an e-mail to
Bloomberg Businessweek, he added
that it would be a colossal mistake to
deprive ourselves of this unique advan-
tagereferring to the partnership with
Guo. Bonomi, who says he still wants to
work with management, cant even bring
himself to call the bid hostile. Its non-
friendly, he says. Competitive.
Theyre fghting over an institution that
helped defne post-World War II leisure
among Europeans and then became the
mold from which much of the worlds
resort and package tourism is derived.
It began in 1950 when a Belgian water
polo champion set up huts and army
tents on the Spanish island of Mallorca.
He opened an ofce in Paris, and in the
frst years Club Med was an actual club
with dues-paying members and run as a
nonproft association. In a culture that
largely survives today, the staf became
known as GOs, or gentils organisateurs
(kind organizers), and mingled, ate, and
played with guests, who were known as
GMs, or gentils membres.
Even after the company went public in
1966, an egalitarian vibe permeated the
villages, as the resorts are known. Meals
were taken at communal tables. GOs and
GMs addressed each other in the familiar
French tu. The introduction of bar
beads for use instead of cash for
A
In Da Club
A diferent kind of
swingingtrapeze lessons
in the Bahamas, 1986
The spirit of the 80s lives
on at a 2012 aqua gym
class in Turks & Caicos
Learning to sail in Corsica
Lunch at the La Caravelle
club in Guadaloupe, 1974
On the links at Club Med
Guilin in South China, 2013
Singing in the wine
shower: A Club Med
rite from the 70s
Sunning behind the Iron
Curtain in Roussalka,
Bulgaria, in the 70s
Foam parties, like this one
in Tunisia, became popular
in the 2000s
56
premium items (e.g., alcoholic beverages)
removed signs of status from the outside
world. (Ironically, the interlocking beads
did become a status symbol, like a ski lift
ticket on a parka zipper, when worn as a
bracelet back home.)
As the club expanded into a global
resort chain in the 1970s, tales of
after-hours escapades stirred the pub-
lics imagination, culminating in the 1978
cult comedy Les Bronzs. Titled French
Fried Vacation in English, it depicted one
GOs attempt to seduce a record number
of women. In reality, the company was
evolving to cater to both singles and fam-
ilies at diferent locations. Parents could
drop off kids at supervised activities
while they hit the beach or the slopes. In
Europe, Club Med became a place where
families felt safe sending teenagers on
their frst vacations with friends.
The all-inclusive concept became so
popular that by the 1990s several compet-
itors had copied the idea, some at cut-rate
prices. In the Caribbean, Jamaica-based
Sandals Resorts International built a chain
that provided an all-inclusive experience
without the quirky Club Med culture. The
rise of cruising buoyed companies such as
Carnival, which became the go-to choice
for holidaymakers who wanted limitless
food. In the U.K., the windows of High
Street travel agencies flled with ofers
from companies such as TUI Travel that
made Club Med look expensive.
The global tourism slump that followed
the Sept. 11, 2001, terrorist attacks pushed
Club Med to the brink. Revenue, which was
1.99 billion in 2001, hasnt hit that mark
again. Carnival, by contrast, has increased
its revenue more than threefold since.
When Giscard dEstaing became chair-
man in 2002, he began a recovery strate-
gy focused on a wealthier clientele, closing
some of the cheaper 3-Trident villages and
opening top-end 5-Trident resorts. Despite
his eforts, Club Med has had a net loss in
all but four years since 2001.
The recovery shouldnt be taking this
long and points to deeper challenges for
Club Med, from the rise of Internet travel
sites to a brand-name associated with a
region in fnancial crisis, says Oxford
Analyticas Rossi. What seemed like a
good formula 20 years ago has gone a bit
stale, she says.
Enter Guo, 45. Using Warren Bufett
as a model, hes amassed a fortune
estimated at $5.5 billion by the Bloom-
berg Billionaires Index. Club Med became
Fosuns frst overseas deal in 2010, when
it built a stake of about 10 percent. Six
months after Fosuns original invest-
ment, Club Med opened its frst resort
in China. The management plans to
have opened fve resorts in the country
by 2015, making China the companys
largest market outside France. Last year,
with Giscard dEstaings support, Guo
joined French shareholder Ardian Sarl
the former Axa Private Equityin the bid
to take Club Med private.
To Bonomi, the strategy is another
instance of Club Med getting it wrong
like the time in 2001 when it expanded
into French health clubs. The latest
fad theyre following is China, he says.
Bonomi is at pains to avoid being per-
ceived as provincial. His blue shirt is
monogrammed on its torso with Chinese
characters in red thread, a touch from
his Hong Kong shirtmaker. He says hes
willing to form a partnership with Fosun
if it drops its bid, and he wouldnt give
up on China. Despite Giscard dEstaings
claims to the contrary, Bonomi says his
bid refects greater fdelity to the compa-
nys roots. Club Med DNA originated in
Europe and is perfect in Europe, he says.
Turning around Club Meds businesses
in Europe would certainly be cheaper
than breaking new ground abroad, says
Ron Adner, a professor of strategy and
entrepreneurship at the Tuck School
of Business at Dartmouth College in
Hanover, N.H. The appeal of Europe is
that its a smaller fx, he says. There
was a day in which Club Med was an it
brand. The challenge is to revive the
properties as well as the cachet.
One trend Club Med latched on to is
chasing luxury dollars. This, too, was
misguided, Bonomi says. To illustrate his
point, he cracks open a Club Med catalog
and points to pictures that resemble Four
Seasons knockofs. There are beach beds
in dark wood and ivory-colored fabrics
and a plate of tall fooda seared scallop
or maybe a veal medallion atop vegeta-
bles, all held together with a wooden
skewer. For a resort known for its bufets,
this fancy stuf makes no sense, he says.
The moment you move it up and you
try to picture more, like this, he points
to the catalog, then youre competing
with everybody.
For the takeover ofer, he corralled
industry expertise to advise his bidding
group, dubbed Global Resorts, of which
his Investindustrial owns 91 percent. One
partner is South African billionaire Sol
Kerzner, known for building the Atlan-
tis resorts in the Bahamas and Sun City
in South Africa, which was a target of
anti-apartheid protests in the 1980s. The
others are Brazilian private equity frm
GP Investments and the management
of PortAventura, a Spanish amusement
park company that itself is undergoing
a Bonomi turnaround and of which hes
already sold 49.9 percent to New York-
based private equity frm KKR. Bonomi
says Club Med could learn from the
amusement park, which uses fexible
pricing to manage its revenue. When
we arrived, Club Med changed their price
twice a year. We change our price twice a
day at PortAventura, he says. You have
to be dynamic.
The most striking thing about Bonomis
Swiss ofce isnt the lake view, but the
contemporary photography that hangs
on the walls of the two-level space.
The collection, the work of a younger
brother who has a gallery in Milan that
specializes in photography, includes a
foor-to-ceiling print by Andy Warhol
protg David LaChapelle, depicting
people in a fooded cathedral.
The conference room is also hung
with photographs: one, of a Brazilian
favela, is actually a composite of build-
ings that dont exist; another is a trompe
loeil of a jungle through a hole in what
looks like a parking garage. Bonomi chose
the images carefully, because manage-
ment comes here and tells us all kinds of
stories, these are only fake things.
There was a time when Bonomis
family had the kind of power that inspired
plots against it. His great-grandfather, an
architect, built the foundations in real
estate, followed in the 1950s by his grand-
mother, Anna Bonomi, who became
known in Milan as Lady Finance as she
diversifed into chemicals, banks, insur-
ance, and mail order. Andrea was born in
Club Med is an old-mentality business.
If you run out of ideas, you must pass the
baton to the next guy
57
C
O
U
R
T
E
S
Y
D
U
C
A
T
I
Bonomi (second from left) looks on as Pope
Benedict is presented with two Ducatis in 2010
New York in 1965, while his father, Carlo,
worked for banks there, training to take
over the business. Today, Bonomi holds
only a U.S. passport.
When the family returned from
America, kidnappings in Italy had made
the country dangerous for a high-profle
heir. Bonomi was 8 years old when he
left for a boarding school near Cannes.
When he was 14 he moved to London, at-
tending a French school and living with
three servantsand no family members
in a house on Eaton Square. It was safe,
he says.
For college, Bonomi landed at New
York University. His French baccalaureate
diploma counted toward his frst year, and
he shaved of a second by going to summer
school. In 1985, at 19, he graduated with
a degree in business administration. The
day after graduation he started at Lazard
Frres, the small but powerful investment
bank. They were training me, he says,
to return to Milan, take various jobs in the
family business, and then eventually lead
it. It didnt work out that way. I lost my
jobmy prospective jobin my frst year
of training, he says.
In August 1985 the family conglom-
erate, BI-Invest, fell prey to Italys frst
hostile takeover. We lost power and got
money, Bonomi says. The conglomer-
ate shriveled into a family ofce as the
companies that remained were sold over
the following years. In 1990 he began the
transformation of the businesss remains
by founding Investindustrial. Over the
past 23 years, Investindustrial has placed
2 billion of equity in 49 deals, yielding
proceeds of 3 billion. The investments
its exited have generated an internal
rate of return of 34 percent a year, the
company says.
Some aspects of his current turn-
arounds are taking place in-house. In
2012 he bought 37.5 percent of Aston
Martin Holdings UK, maker of the sports
cars Agent 007 drives in James Bond
flms. Walking through his Lugano ofce,
Bonomi points out a scrum of men chat-
ting at the top of a steel staircase. The
employees include an engineer. Bonomi
says theyre working on an Aston Martin
SUV, part of his plan to expand the
product line.
Along with the Agnellis of Fiat, who
ventured beyond their borders and now
control Chrysler, Bonomi embodies the
fourth phase in Italys fnancial history,
says Andrea Colli, economic history pro-
fessor at Milans Bocconi University. An
Italian investor on the global stage.
In that public role, Bonomi balances
a salesmans openness with a cagey side
beftting a Swiss banker. Without hesi-
tation, Bonomi volunteers that he lives
in Switzerland with his German wife
and three teenage children and that as
a licensed jet pilot hes traveled to Ken-
tucky to fy gyrocopters and to Russia,
where he piloted a Soviet-era fghter jet.
Yet when asked what, if any, aircraft he
owns, Bonomis face goes stony for the
only time in a two-hour interview, and
he declines to comment.
The same goes for discussing his per-
sonal fnances. A back-of-the-envelope
calculation indicates that he and his
family are billionaires, though he wont
confrm this. Bonomi invests through two
main vehicles: Investindustrial, which in-
cludes outside investors, and Strategic
Holdings, which is mostly family money.
The two arms are part of an umbrella
company, BI-Invest, that has assets under
management of 4.4 billion. Subtract out
the roughly 3.1 billion of Investindustri-
al funds, and you arrive at a fortune of at
least 1 billion. Bonomi allows only that
its not exactly one minus the other.
With his own money on the line for
Club Med, Bonomis other ventures
may provide the best guide to how hell
fare. In 2012 he made almost three times
his investment in Ducati, selling it to
Volks wagens Audi for 860 million. In
the deals, hes taken on minimal debt.
Theyve never pushed the envelope on
leverage, and that helped them greatly
during the crisis, says Mounir Guen,
CEO of MVision Private Equity Advisers
in London, which helps frms, including
Investindustrial, raise money. Their
approach stems from their old industrial
heritage.
Bonomis stumbled in pushing to
get his way. In 2011 he tried to reorga-
nize Banca Popolare di Milano, a bailed-
out lender rooted in Italys wealthy
Lombardy region. Buying a big stake
didnt give him enough power, because
shareholders were entitled to one vote
regardless of how much stock they
owned. Bonomi resigned as chairman
last year and sold out in January.
To win Club Med, he needs to con-
vince shareholders, especially in France,
that he can strike a balance between what
he calls his Anglo-Saxon approach to
management and his desire to pin growth
on the quintessentially French character
of Club Meds brand. In a crucial next
step, the board will decide by the end
of July whether to bless the interlopers
bid (and could announce its recommen-
dation sooner).
Gi scard dEstaing continues to
campaign against him. I spent these
past few weeks trying to see if it would
be possible to include Bonomi in the
project that weve been developing, he
said in his e-mail. He didnt see it, which
underscores the irony of Club Meds
crossroads. On one hand, its French lead-
ership sees growth abroad while adding a
tepid sop to maintain an assertive stance
in France, as Giscard dEstaing puts it.
On the other hand, its the American-born
citizen of the world who has zeroed in on
the companys continental roots as an
unexploited opportunity.
Europe needs to be shaken up,
Bonomi says. The other guys arent
waiting for us.
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MEDIA PARTNER
#sharknado
LOL
Shark tornado #fail
Syfys social media hit is returning with a
sequel this month. Will the networks plan for B-movie
domination work? By Claire Suddath
TOM CLANCY
LIVES A CHEFS SUCCESS TALE
SAY GOODBYE TO
SUNBURNS
TINY
PURSES
YOU CANT ESCAPE
SHARKNADO
Illustration by Steph Davidson
Watch out!
#tarareid
Better than the
rst!
Etc. Entertainment
T
here arent any sharks on the New York
City set of Sharknado 2. Of course there
arentmovie monsters, especially those
that swirl up in a tornado, are made on
computers. The only fshy thing in sight
on this cold February day is a lone shark
tooth hanging of Ian Zierings necklace. You know, cause of
what happened in the last movie, he says. Ziering, 50, whos
best known for playing the curly-haired jock Steve Sanders on
the original Beverly Hills, 90210, is the hero of Syfys Sharknado
franchise, the second of which premieres on July 30. In the
frst installment, which aired last July, Zierings character rid
the world of a menacing tornado of sharks. But, as they say,
just when you thought it was safe to go back in the water
In the scene thats flming today, Ziering is supposed to be
scavenging the streets of Manhattan for weapons before his fnal
shark battle. So far, all hes done is emerge from a restaurant with
a bunch of knives and pizza slicers. He then meets his co-star,
former Sugar Ray frontman Mark McGrath, who contributes a
grocery bag full of Super Soakers. They compare weapons, look
up at the sky, and frown. A stagehand leans over and explains
theyre pretending to gaze at the sharks. Its so brilliant! says
the director, Anthony Ferrante, after the second take.
The average budget for a Syfy flm is about $1.5 million, and
though the network says Sharknado 2 ran a bit higher (it wont
disclose the actual fgure), it still cost a tenth of a typical action
movie. The flms extras do their own makeup, the catering
tent has only weak cofee and sad-looking pastries, and the
stars are trailerlessMcGrath gets so cold between takes that
he shoves hand warmers in his mittens. The movie takes place
in the summer, so when it starts snowing in the middle of a
scene, we just wrote it into the script that the weird weather
is caused by the sharknado, Ferrante laughs.
According to Nielsen, only 1.5 million people watched the
frst Sharknado, which is standard for most Syfy movies. But
for reasons that no one fully understands, the flm became a
social media phenomenon. At one point during the broadcast,
an estimated 5,000 people were tweeting about it every minute.
ESPNs ofcial Twitter account asked the San Jose Sharks to
change their name, Red Cross Oklahoma promised to respond
to all sharknado alerts, and everyone from Richard Dreyfuss to
Mia Farrow was commenting along with the onscreen insan-
ity. The network capitalized on the buzz with repeat view-
ings, which got the audience up to 2.1 million on the third try.
Within a month, Regal Entertainment Group was showing the
flm in 200 of its theaters across the country. As comedian
Patton Oswalt put it, Based on the
Twitter attention it got, Sharknado
is our Arab Spring.
Syfy, which i s owned by
NBCUniversal, has been around
since 1992 and has a pro-
gramming list that includes
fantasy, horror, para normal,
mystery, and reality TV.
In between its original
seriessuch as Defance,
Ziering, McGrath,
and other cast members
cower at CGI sharks
A crew member holding
an essential prop
P
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61
Etc.
Director Ferrante, left,
and behind the camera
also an im
m
ersive
online gam
ethe
network likes to air
supercheesy flicks. It
used to buy the rights to air pre-
existing B m
ovies from
studios; in 2002 Syfy started m
aking
them
itself. W
e did it because we had to. W
e couldnt fnd
anything to buy, says Thom
as Vitale, Syfys executive vice
president for program
m
ing and original m
ovies. The genre
m
arket had com
pletely dried up. Syfy reached out to legends
such as Roger Corm
an, the independent director and producer
whos m
ade m
ore than 400 flm
s, including The Little Shop of
Horrors and The Fast and the Furious (the original, from
1955).
Corm
an is now one of Syfys top producers, having given it
Dinocroc, Sharktopus, Dinoshark, Dinoshark vs. Supergator, and
this sum
m
ers Sharktopus vs. Pteracuda, all of which he says are
separate m
ovies with com
pletely diferent plots. W
hen our
m
arket went away, Syfy really picked up the slack, Corm
an
says. The network now airs two original m
ovies a m
onth and
enlists several production com
panies and directors, includ-
ing Ferrante, who had been m
aking low-budget horror m
ovies
until getting his big Sharknado break.
Syfy has a pretty balanced m
ale-to-fem
ale audience
and an average age of 52, according to Horizon
M
edia, though its m
ovie audience
skew
s younger, usually
within the 18- to
48-year-old target audience. The ComicCon crowd is our
[movie] crowd, says Michael Engleman, the networks executive
vice president of marketing, digital, and global strategy.
Vitale wont reveal how much Syfy made of the frst flm
nor what it expects to of the second, though its probably not
very much. Even if they made a quarter of a million dollars
proft, that wouldve been a lot, says Robert Passikof, founder
and president of Brand Keys, a media and branding research
frm. If they made a million dollars of this new one, Im sure
theyd be thrilled. The real point of Sharknado 2, he says, is
to garner publicity and increase the strength of the brand.
The network knows its movies are awful. Were in on the
joke, Vitale says. Still, there are rules to making a Syfy flm.
The title comes frst (Sharknado, Mansquito), and the plot
comes later. There must be a gruesome attack scene in the
frst few minutes, so people wont get bored and channel-
fip. When possible, boost audience interest by hiring stars
who are past their prime; thats how 1980s pop star Tifany
came to be eaten by an enormous alligator as Debbie Gibson
watched from a helicopter in the 2011 flm Mega Python
vs. Gatoroid. Not every former celebrity wants to submit
to such humiliation. We had a really hard time casting
Zierings character. A lot of people turned us down, saying,
No, no, itll kill my career, Ferrante says. At frst, Ziering
was one of them: I got the script, and I said, No way.
Sharks? No. He agreed only because his wife was preg-
nant and he needed the actors union health insurance.
Zierings more enthusiastic about Sharknado 2, with
its slightly larger budget, increased star powerthere
are cameos by Kelly Osbourne and Andy Dick; you were
expecting Clooney?and big promotional campaign,
including a lead-up Sharknado Week of programming
on Syfy. When I got the call, I felt like it was Martin
Scorsese calling me! McGrath says, only nine-tenths
joking. On July 30, Syfy will air the movie simultane-
ously in all 86 countries where its carried, so everyone
will be tweeting about it at the same time. Matt Lauer
and Al Roker, who appear in the flm, have some-
thing planned for the Today show. Theres a lot of
cross-platform promotion, Engleman says, includ-
ing Subway ads featuring spokesman Jared Fogel
eating a sandwich-size shark and a s oon-to-be
released iPhone and iPad video game. An
Indiegogo campaign raised an extra $50,000
and gave fans a chance to appear in the flm.
Random House has released a book full of
Sharknado survival tips. And Ziering is star-
ring in an unrelated Las Vegas Chippendales
show timed to the movie.
People dont necessarily want to watch two
movies about shark-flled tornadoes, but then
again, many people tweeting about the frst
Sharknado didnt see it. The second is sleeker,
funnier, and more entertaining, including a
meme-worthy scene featuring Tara Reid and a
buzz saw. According to Asylum Entertainment,
the production house that worked with Syfy,
the profit margin on a typical TV movie can
be as much as 50 percent. This time it could be
much more. If the PR blitz works, Syfy may have its
frst successful flm franchise. Like a movie studio,
the network doesnt know when to stop. There are
already plans for a Sharknado 3.
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C
ontractors intimidate me
because they make things
and I cannot. Whenever
I speak to one, I wind up
asking lots of questions
that make me seem pow-
erless, such as Where
exactly is my attic? And so
last week, when a contractor came
by to ofer advice on renovating the
bathrooms, I panicked.
Fortunately, a study called Using
Abstract Language Signals Power,
published this month in the Journal
of Personality and Social Psychology,
shows that projecting power is
incredibly simple. Just communi-
cate in abstractions. Details convey
weakness. In one of the seven exper-
iments, participants read quotes
from a politician who described an
earthquake as killing 120 and injur-
ing 400; later, when he simply said
it was a national tragedy, subjects
thought he was a better leader.
Based on this information, I told my
contractor I wanted to maintain the integ-
rity of the houses original architecture.
He seemed to respect that. I have no idea
if that means he wont overcharge me or if
he now thinks Im a superpowerful dude
with tons of cash.
Theres an easy way to try this at
workdeemphasize verbs. When I dialed
Cheryl Wakslak, an assistant professor
at the University of Southern California
Marshall School of Business, lead author
on the study, her frst piece of advice was
not to use words such as dialed. Instead
of focusing on active words, she suggests
end-related statements. You could say, I
dialed her number. Or you could say, I
did research for a story. I didnt just do
research, though. I did a deep-delve into
one of the central human power dynam-
ics of our time.
Wakslak also cautions against mean-
ingless business jargon, words such as
ideaate and deliverables that some
workers resort to when trying to seem
impressive. Being completely vague will
just make you sound stupid, she explains.
Bulls--- is best when it has a kernel of
truth in it.
Being abstract isnt about saying
nothing. It may even force you to say
something more meaningful, if less
informed. This way of speaking is efec-
tive because it implies you have a grand
thought on a specifc theme. It also deliv-
ers a judgment. Its basically every TED
talk, minus that one minute in the middle
with actual information.
Wakslak started researching this idea
by asking people how they expected the
powerful to communicate, and most sug-
gested big-picture perspectives. It seems
obvious, but so often people arent doing
that, she says.
Especially when they make speeches.
Think of every State of the Union this
century. People assume a wonkish,
Clintonian mastery of details shows power.
In actuality, a Reaganesque overall direction
makes you seem more in control. Similarly,
if youre running a meeting, dont try to
impress people with how much informa-
tion youve amassed. Instead, transform all
that data into a straightforward story.
Abstraction may even work on
your boss. I frst found out about this
study when my editor sent an e-mail
asking if Id write 600 words on it.
I said Id think about it for a day,
so Id have time to read the results
and learn the techniques. When we
fnally talked, I thought, Id try them
out on her.
For our call, I crafted an adjective-
heavy, big-picture speech. This
sounds superinteresting, I began.
Because it speaks to how people
are making more snap judgments
in an information-flled, noisy social
media world. More information can
actually be less information. She
liked that idea. I could not believe
how well this was working, so I said
Id need more space for the article.
At the end of the conversation, we
upped my word count to 800. The
fnal article is more like 630, though,
because I didnt account for some-
thing: Shed cut out all the bulls---.
Rant Etc.
COULD YOU EXPLAIN
IT LESS CLEARLY?
The scientifcally proven power of abstract speaking. By Joel Stein
P
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Fig. 2: Winner
My Big Idea
Fig. 1: Loser
My Big Idea
64
Etc. Grooming
SUNS OUT,
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R
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A
J
A
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A
N
G
U
M
;
P
H
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T
O
G
R
A
P
H
B
Y
S
A
M
A
N
T
H
A
C
A
S
O
L
A
R
I
F
O
R
B
L
O
O
M
B
E
R
G
B
U
S
I
N
E
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S
W
E
E
K
If You Walk
Borrow from the Japanese: Commit
to a UV parasol, which ofers SPF 50+ (vs.
a regular umbrellas SPF 15). For men,
Colbert recommends GustBusters
silver-black SunBlok ($60). Wraparound
sunglasses arent cute, but they shield
delicate skin around the eyes. Plus, less
squinting means less crows feet,
Gerstner adds. Kayleen Schaefer
Etc.
NEVER USE A SPRAY AGAIN
Coveted Lotions
Coola Organic
Baby SPF 50
$36
La Roche-Posay
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$30
Babies
Gluten-free adults;
Goop readers
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natural environmental shield
Formulated for
optimal skin tolerance
D
e
s
i
g
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d
f
o
r
T
h
e
b
r
a
n
d
A
d
o
r
e
d
b
y
M
i
n
o
r
c
o
m
p
l
a
i
n
t
D
u
b
i
o
u
s
c
l
a
i
m
The French
Fashion people;
Amazon fends
Very drippy
Aerosol sunscreen was born in the new millennium and quickly became the
preferred block of lazy teenage girls, moms chasing sandy toddlers, and men who cant
stretch to reach their shins. But it doesnt take a bright red streak across your
forehead to know that spraying isnt exactly preciseits impossible to see whether
microparticles of SPF land on your skin. Most fll the air or your own lungs,
which is a waste of product and potentially harmful, per an FDA review currently under
way. (Also scary: In 2012 a man went up in fames after using a Banana Boat
spray and wandering near a barbecue.) Spray is awful for the environment, at least
compared with lotions that come in longer-lasting bottles and rub
in pretty easily. You can even ask someone to help. Just not a colleague.
Comparing this seasons two chicest sunblocks (yes, sunblocks can be chic)
Dont Get Burned by Your Commute
If You Drive
Apply SPF 30 a half hour before
leaving on your neck, arms, and ears,
because UVA raysthe ones that create
wrinkles and brown spotspenetrate
a cars windows. Gervaise Gerstner, a
LOral dermatologist, suggests Bloxsun
gloves ($40) made of a fabric with SPF,
plus a hat if theres a sunroof.
If You Bike
You dont need something water-
resistant unless you get soaked in
sweat. Choose a full-spectrum mineral
sunblock and apply 30 minutes
before leaving, says dermatologist
Anne Chapas. Or throw on a rash
guard, like one by the sun-protective
clothing line Coolibar (from
$59.50) to protect arms and torso.
FOR PROBLEM SKIN
Ling Skincare
Sun Shield SPF 30
The throwback bottle
contains simple
active ingredientszinc oxide
and vitamin E
that dont clog pores.
$48
FOR QUICK TOUCH-UPS
Caudalie SPF 20
Anti-Wrinkle Protect Fluid
A thin liquid rich with
antioxidants, it spreads
quickly and renews skin
while neutralizing
environmental toxins.
$49
FOR RICH WOMEN
Orlane Paris Extreme
Anti-Wrinkle Care SPF 30
The thickest of the
bunch, this velvety balm
forms a barrier against
the sun while helping to repair
skin and reduce lines.
$200
S
P
F
3
0
: THE ONLY
NUMBER YOU R
E
A
L
L
Y
NEED
Many face creams ofer SPF 15, but the American
Academy of Dermatology recommends double that.
SPF 30 provides 97 percent protection against UVB
the rays that make you burnwhile SPF 50 provides
a single percent more. For the extra-cautious, SPF 50+
is the biggest number out there; the U.S. Food
and Drug Administration recently decided any bottle
claiming a higher rating misleads consumers.
If You Take the Train
Even a few blocks walking
in bright sun causes damage, says
David Colbert, founder of New York
Dermatology Group, so use a daily
face moisturizer thats at least SPF 15.
Then layer an antioxidant on top, such
as SkinsCeuticals CE Ferulic ($105),
to protect against urban air pollutants.
66
Etc.
L
ike the assassin-dodging, terrorist-
disrupting protagonists in his spy
novels, Tom Clancy is defying death
in improbable ways. On July 22,
Penguin Random House will publish
Support and Defend, the second
novel to land in bookstores since
the author passed away almost nine
months ago.
Mark Greaney, a prolifc spy novelist
whos teamed up with Clancy on three
prior novels, is technically the author of
Support and Defend, though you wouldnt
necessarily grok that from glancing at
the books cover. Tom Clancy sprawls
over the top half in jumbo font, dwarfng
everything else below, including the title,
Greaneys byline, and the silhouette of a
submachine gun. The design leaves no
doubt whos the top gun.
Inside, Support and Defend shows
of much of the same tense storytelling,
special forces-trained characters, and
fussy descriptions of military equipment
that have hooked millions of readers since
Clancys 1984 debut, The Hunt for Red
October. The new book continues Clancys
so-called Campus series and stars Dominic
Caruso, the nephew of Jack Ryan, the CIA-
operative-turned-U.S.-president who is
Clancys most famous character and the
basis for Paramount Pictures Jack Ryan
flm franchise.
Here we fnd Caruso carrying on the
family business of thwarting terrorists
in this case, a rogue ex-U.S. intelligence
ofcer armed with a microdrive of dip-
lomatic secrets. Such is pulse-racing
military suspense in the age of Edward
Snowden. The tale is well-paced, cleanly
written, and competently told. The plot
tends to dissuade any impulse to slow
down and inspect the fner moldings of
the prose. The casual Clancy reader will
likely fnd it largely indistinguishable in
style or efect from the Clancy novels
of yore.
Which, of course, is what Penguin
Random House wants. Clancys first
posthumous novel, Command Authority,
also penned with Greaney, has sold
303,000 copies since its publication in
December, according to Nielsen. Expect
Support and Defend to achieve similar
levels of ubiquity.
Given the current, sickly state of the
industry, its perhaps appropriate that
one of the biggest books of 2014 is coming
from a recently deceased writer. Michael
Norris, an independent book i ndustry
analyst, says major publishers are more
dependent on blockbuster-style series
by established writers with big back
catalogsauthors such as J.K. Rowling
(Harry Potter), George R.R. Martin (Game
of Thrones), and Clancy. Penguin Random
Houses other major book in July is A
Perfect Life by Danielle Steel, the 93rd
novel of her paleohistoric career.
For many years, Norris says, publish-
ers relied largely on bookstoreswith
their knowledgeable stafs, public read-
ings, and acres of display shelvesto
introduce readers to lesser-known talent.
With the rise of Amazon.com, its now
unbelievably tough to introduce a new
author and new characters to a book
audience, Norris says. From a market-
ing standpoint, its much easier to rein-
troduce the familiar than to introduce
something that is genuinely new.
And so Penguin Random House is now
completing the important task of trans-
forming Tom Clancy, deceased spy nov-
elist, into Tom Clancy, the brand. Theres
plenty of precedent. Several adventur-
ous characters, such as James Bond
and Sherlock Holmes, went on to rich
and productive careers after their cre-
ators passed away. And publishers have
long managed to successfully expand
series based on popular books, from
The Wonderful Wizard of Oz to Dune to
The Bourne Identity, by subbing in new
writers in place of deceased authors.
Lou Aversano, the chief executive
ofcer of Ogilvy & Mather New York,
points out that such franchises tend to
be marketed around the characters, not
their creators. So dont be surprised, he
says, if Jack Ryan begins to eclipse Tom
Clancy. Thats something the Clancy
estate needs to think about if they want
the business to continue.
GHOST WRITER
With a second posthumous novel,
Tom Clancys legacy lives on. By Felix Gillette
The Critic
I
L
L
U
S
T
R
A
T
I
O
N
B
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V
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T
O
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H
A
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H
M
A
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G
NICE TO
KNOW YOU
READ, SKIM,
SKIP
READ SKIM
SKIP
The Mockingbird
Next Door
By Marja Mills
A biography of reclusive
author Harper Lee, whos
still alive but hasnt
published a book since To Kill
a Mockingbird. The writer
befriended her, moved next
door, and now tells Lees
story, down to every insult
hurled at Truman Capote.
Behind the Curtain
By Dave Berg
A tell-all of Jay Lenos
reignwritten by his
co-producerwith enough
dirt to interest those who
never watched his show.
Anecdotes on getting
Hugh Grant to confess for
his sins and booking
President Obama are ripe for
beach reading.
How the World Sees You
By Sally Hogshead
Based on the authors
decade of research, this
handbook by a veteran of
the public-speaking circuit
tries to prove that people
will like you better if you act
more like yourself. It fails to
explain the best course of
action if youre naturally a
terrible person.
67
Burning question: Why
are most gowns strapless
when many women look
terrible in them?
Strapless is still our
No.1 best-selling style.
Even when we ofer
variations, the strapless
inevitably sells.
P
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F
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Etc. What I Wear to Work
Interview by Arianne Cohen
ROBERT
BARNOWSKE
47, vice president of design for bridal,
Davids Bridal, New York
Tell me about
your sneakers.
Theyre black suede
Vans. Theyre slip-
ons, which I like
because theyre very
clean and go with
everything.
Is that a stickpin?
Yes, I have a whole
collection. This one
is from a fea market
in Paris.
MARNI
Whats it like
being a guy who
designs dresses?
Bridal is fun, because you
can really let your cre-
ativity bloomyou can
do a fanciful dress that a
woman would not wear
in her normal life.
What do you do?
I oversee design for our seven
diferent collections. We have
sample fttings almost every
day, and we work on concepts
and fabric development and
embroidery ideas.
Whats your ofce
fashion strategy?
I only wear gray, black,
navy, and white. But I
always make sure I have a
blazer, because you never
know if youre going to an
impromptu meeting.
Whats best to
wear to a summer
wedding as a guest?
More often than not,
the bride will be in a
strapless dress, so for
women, its nice to
have a more covered
neckline. And dont go
too short in the skirt.
VANS
CALVIN KLEIN
GAP
Whats popular for
brides this summer?
Alternative necklines are
trending, like V-necks or
tank-necks or anything
with sleeves. And soft,
draped chifon styles, and
also more tailored, 1950s-
type fuller skirts.
68
1987
Breksville Catering
1988-89
Line cook,
Chez Franois
1989-91
Personal chef for
Mario Cuomo
1991-92
Line cook,
San Domenico
1993-96
Line cook, Lespinasse
1997-98
Sous-chef, Jean Georges
Le Cirque
1998-2005
Chef de cuisine, Caf
Boulud
2006-08
Executive chef and
partner, A Voce
2009
Opens Locanda Verde
2011
Opens the Dutch
2013
Opens Lafayette
2014
Opens Bar Primi
1. Life is more about attitude than skills. 2. Dont think about what you shouldve done diferently. Just learn from it and move forward. 3. My biggest fe
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Im from
Seven Hills, Ohio.
I call it the Yonkers
of Cleveland.
You can be a chef without
culinary school. Even if youve
only worked at an Applebees, I
could train you to make pasta or
how to butcher a lamb.
I was the guy in the white
shirt whod give you a
choice between pierogies
and chicken.
Its the best French
restaurant in northern Ohio.
They were cooking with
live lobsters and making fancy
sauces. I thought, I want
to do that.
I answered an ad for
a private chef. They said,
Come to this address,
and it turned out to be
the governors mansion.
Im still friends with
the Cuomos.
In 2006,
A Voce earned a
Michelin Star
M
y
p
a
r
t
n
e
r
,
L
u
k
e
O
s
t
r
o
m
,
a
n
d
I
s
i
g
n
e
d
d
e
a
l
s
t
o
d
o
a
h
o
t
e
l
w
i
t
h
J
a
y
Z
a
n
d
o
p
e
n
a
r
e
s
t
a
u
r
a
n
t
o
n
1
0
t
h
S
t
r
e
e
t
,
b
u
t
t
h
e
n
t
h
e
e
c
o
n
o
m
y
c
o
l
l
a
p
s
e
d
.
My most amazing
day ever was when we
went trufe hunting in
Italy. We got like 15 white
trufes, which today
would be about $3,500.
At San
Domenico in
the early 90s
With Robert
De Niro at
Locanda Verde
in 2009
With the staf
at Lespinasse
in 1993
I never wanted to own
my own restaurant.
At the time, I just wanted
to run Daniel Bouluds
restaurants for him.
They never tell you
in cooking school
how to sign a lease or
talk to a lawyer.
I traveled around
France for a year. I learned
how to make cheese;
I stufed ducks for foie gras.
I came back to New York
with negative $30,000
to my name.
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