Tag Archives: Corporate Crime/Legal Action

Biden Administration Blames Hackers Tied to China for Microsoft Cyberattack Spree

WASHINGTON—The Biden administration Monday publicly blamed hackers affiliated with China’s main intelligence service for a far-reaching cyberattack on Microsoft Corp. email software this year, part of a global effort to condemn Beijing’s malicious cyber activities.

In addition, four Chinese nationals, including three intelligence officers, were indicted over separate hacking activity.

The U.S. government has “high confidence” that hackers tied to the Ministry of State Security, or MSS, carried out the unusually indiscriminate hack of Microsoft Exchange Server software that emerged in March, senior officials said.

“The United States and countries around the world are holding the People’s Republic of China (PRC) accountable for its pattern of irresponsible, disruptive, and destabilizing behavior in cyberspace, which poses a major threat to our economic and national security,” Secretary of State

Antony Blinken

said. The MSS, he added, had “fostered an ecosystem of criminal contract hackers who carry out both state-sponsored activities and cybercrime for their own financial gain.”

The U.K. and European Union joined in the attribution of the Microsoft email hack, which rendered an estimated hundreds of thousands of mostly small businesses and organizations vulnerable to cyber intrusion. But the public shaming did not include punitive measures, such as sanctions or diplomatic expulsions, a contrast with how the administration recently punished Russia for a range of alleged malicious cyber activity.

The U.S.-led announcement is the most significant action from the Biden administration to date concerning China’s yearslong campaign of cyberattacks against the U.S. government and American companies, often involving routine nation-state espionage and the theft of valuable intellectual property such as naval technology and coronavirus-vaccine data.

The Microsoft hack made an estimated hundreds of thousands of mostly small businesses and organizations vulnerable to cyber intrusion.



Photo:

Steven Senne/Associated Press

The Justice Department made public Monday a grand jury indictment from May that charged four Chinese nationals and residents working with the Ministry of State Security of being engaged in a hacking campaign from 2011 to 2018 intended to benefit China’s companies and commercial sectors by stealing intellectual property and business information. The indictment didn’t appear directly related to the Microsoft Exchange Server breach, but accused the hackers of stealing information from companies and universities about Ebola virus research and other topics to benefit the Chinese government and Chinese companies.

Attributing the Microsoft hack to China was part of a broader global censure Monday of Beijing’s cyberattacks by the U.S., the European Union, the U.K., Canada, Australia, New Zealand, Japan and the North Atlantic Treaty Organization, or NATO. While statements varied, the international cohort generally called out China for engaging in harmful cyber activity, including intellectual property theft. Some accused the MSS of using criminal contractors to conduct unsanctioned cyber operations globally, including for their own personal profit.

U.S. authorities have accused China of widespread hacking targeting American businesses and government agencies for years. China has historically denied the allegations. A spokesman for the Chinese Embassy in Washington didn’t immediately respond to a request for comment.

The Exchange Server hack was disclosed by Microsoft in March alongside a software patch to fix the bugs being exploited in the attack. Microsoft at the time identified the culprits as a Chinese cyber-espionage group with state ties that it refers to as Hafnium, an assessment that was supported by other cybersecurity researchers. The Biden administration hadn’t offered attribution until now, and is essentially agreeing with the conclusions of the private sector and providing a more detailed identification.

The attack on the Exchange Server systems began slowly and stealthily in early January by hackers who in the past had targeted infectious-disease researchers, law firms and universities, according to cybersecurity officials and analysts. But the operational tempo appeared to intensify as other China-linked hacking groups became involved, infecting thousands of servers as Microsoft worked to send its customers a software patch in early March.

Also on Monday, the National Security Agency, Federal Bureau of Investigation and Cybersecurity and Infrastructure Security Agency jointly published technical details of more than 50 tactics and techniques favored by hackers linked to the Chinese government, the official said. The release of such lists is common when the U.S. exposes or highlights malicious hacking campaigns and is intended to help businesses and critical infrastructure operators better protect their computer systems.


‘Failure to sanction any PRC-affiliated actors has been one of the most prolific and baffling failures of our China policy that has transcended administrations.’


— Dmitri Alperovitch, Silverado Policy Accelerator

Cybersecurity experts have been pressing the Biden administration for months to respond to China’s alleged involvement in the Microsoft email hack. Cybersecurity expert

Dmitri Alperovitch,

with the Silverado Policy Accelerator think tank, said the coordinated global condemnation of China was a welcome and overdue development.

“The Microsoft Exchange hacks by MSS contractors is the most reckless cyber operation we have yet seen from the Chinese actors—much more dangerous than the Russian

SolarWinds

hacks,” said Mr. Alperovitch, referring to the widespread cyber-espionage campaign detected last December that, along with other alleged activities, prompted a suite of punitive measures against Moscow.

Mr. Alperovitch criticized the lack of any sanctions being levied against China and said it raised questions about why Beijing appeared to be evading harsher penalties, especially compared with those slapped on Russia.

“Failure to sanction any PRC-affiliated actors has been one of the most prolific and baffling failures of our China policy that has transcended administrations,” Mr. Alperovitch said, referring to the People’s Republic of China. Monday’s public shaming without further punishment “looks like a double standard compared with actions against Russian actors. We treat China with kid gloves.”

The senior administration official said the Biden administration was aware that no single action was capable of changing the Chinese government’s malicious cyber behavior, and that the focus was on bringing countries together in a unified stance against Beijing. The list of nations condemning China on Monday was “unprecedented,” the official said, noting it was the first time NATO itself had specifically done so.

“We’ve made clear that we’ll continue to take actions to protect the American people from malicious cyber activity, no matter who’s responsible,” the official said. “And we’re not ruling out further actions to hold the PRC accountable.”

The new indictment said that members of a provincial branch of China’s intelligence service in the southern Hainan Province created a front company that described itself as an information security company and directed its employees to hack dozens of victims in the U.S., Austria, Cambodia and several other countries.

The defendants, three of whom are described as intelligence officers, aren’t in U.S. custody. Some cybersecurity experts have said indictments against foreign state-backed hackers often have little impact, because the accused are rarely brought before an American courtroom. U.S. officials have defended the practice, saying it helps convince allied governments, the private sector and others about the scope of the problem.

The group is accused of hacking into dozens of schools, companies, and government agencies around the world, ranging from a research facility in California and Florida focused on virus treatments and vaccines, to a Swiss chemicals company that produces maritime paints, to a Pennsylvania university with a robotics engineering program and the National Institutes of Health, to two Saudi Arabian government ministries. The companies and universities aren’t named in the indictment.

The hackers allegedly used fake spear-phishing emails and stored stolen data on GitHub, the indictment said. They coordinated with professors at a Chinese university, including to identify and recruit hackers for their campaign, it said. The alleged NIH breach dates to August 2013, the indictment said.

The Microsoft Hack

More WSJ coverage of Exchange Server cyberattack, selected by the editors.

Write to Dustin Volz at dustin.volz@wsj.com and Aruna Viswanatha at Aruna.Viswanatha@wsj.com

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Facebook Seeks Recusal of FTC Chair Lina Khan in Antitrust Case

WASHINGTON—

Facebook Inc.

sought the recusal of Federal Trade Commission Chairwoman Lina Khan from the agency’s deliberations on whether to file a new antitrust case against the company, arguing she couldn’t be impartial because of her long history of criticizing it and other big-tech firms.

“Chair Khan has consistently made public statements not only accusing Facebook of conduct that merits disapproval but specifically expressing her belief that the conduct meets the elements of an antitrust offense,” the company said Wednesday in a formal recusal petition filed with the FTC.

“When a new commissioner has already drawn factual and legal conclusions and deemed the target a lawbreaker, due process requires that individual to recuse herself,” Facebook said in the petition.

An FTC spokeswoman didn’t immediately respond to a request for comment. Ms. Khan has said previously that she would consult with FTC ethics officials if recusal questions arose.

Facebook’s request comes two weeks after a similar recusal petition was filed by

Amazon.com Inc.,

which is facing multiple investigations at the FTC, and is the latest sign that giant technology companies are favoring aggression over a conciliatory approach with Ms. Khan, who built her career advocating for bold antitrust action to rein in the dominant players in Silicon Valley.

President Biden installed Ms. Khan as the head of the FTC last month, part of a growing administration effort to restrain corporate power.

Twitter CEO Jack Dorsey and Google CEO Sundar Pichai stopped short of endorsing changes proposed by Facebook CEO Mark Zuckerberg to Section 230, a law that spells out who is legally responsible for content on the internet. Photo: C-SPAN

The FTC soon must decide whether to file a new antitrust lawsuit against Facebook after a judge threw out the FTC’s previous complaint as legally insufficient. Because of the approaching deadlines in the case—the judge’s June 28 ruling gave the FTC 30 days to file an amended lawsuit—it could force Ms. Khan to confront the recusal issue on an accelerated timeline.

Ms. Khan has been a prolific writer about antitrust issues, especially as they related to big tech companies. She previously worked for a progressive antitrust advocacy group and was a key staffer on a congressional antitrust panel that conducted a 16-month investigation of large online platforms and last year recommended that lawmakers take steps to rein them in.

The FTC’s vote on a new Facebook lawsuit is likely to be a divided one. Democrats hold a 3-2 commission majority; if Ms. Khan sat out, there likely wouldn’t be a majority to sue Facebook again. The commission’s two Republican commissioners voted against the first lawsuit the FTC filed against Facebook in December.

The FTC, along with 46 states, had alleged Facebook was engaged in illegal monopolization, including by buying up other companies such as WhatsApp and Instagram to prevent them from challenging Facebook’s market position. The company denied the allegations, saying it competed fairly and achieved success because its services are popular with consumers.

In last month’s ruling, U.S. District Judge

James Boasberg

in Washington dismissed the FTC’s case at the outset of pretrial proceedings, saying the FTC didn’t plead enough allegations to support monopolization claims against Facebook. He also said the FTC didn’t have a valid challenge to Facebook’s policy of refusing to grant interoperability permissions to competing apps. The judge gave the commission 30 days to file a new lawsuit that attempts to make more detailed allegations.

Under the governing legal standards for recusal, a company seeking a commissioner’s disqualification on the grounds of prejudgment must show that a disinterested observer could conclude that the commissioner had already judged both the facts and the law in advance of a proceeding.

Ms. Khan gets to decide in the first instance how to address Facebook’s request for her disqualification. Past FTC practices show that, at least in some circumstances, the whole commission can weigh in.

Disqualification requests haven’t seen much success in modern times, but there are older court rulings that vacated FTC enforcement actions on the grounds that a commissioner should have been disqualified.

Write to Brent Kendall at brent.kendall@wsj.com

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Elon Musk Defends Purchase of SolarCity in Court

WILMINGTON, Del.—

Tesla Inc.

TSLA 4.46%

Chief Executive

Elon Musk

on Monday defended the electric-vehicle maker’s purchase of SolarCity Corp. in court, telling a Delaware judge that he didn’t act improperly during the negotiating process.

The case dates back to 2016, when Mr. Musk was chairman of both the then-unprofitable companies. His solution to improve their outlook: combine them in a roughly $2.1 billion tie-up to establish a single clean-energy business. Plaintiffs, which include several pension funds that owned Tesla stock, have characterized the deal as a scheme to benefit himself and bail out a home-solar company on the verge of insolvency.

Mr. Musk was the opening witness called in Delaware Chancery Court in a nonjury trial that is expected to run about two weeks. The attorneys for Mr. Musk have framed the acquisition as an opportunity to realize his long-held goal of creating a vertically integrated sustainable energy company.

A primary question in the case is whether Mr. Musk, who owned roughly 22% of Tesla at the time, controlled the transaction. Proving that claim is a challenge because Mr. Musk was a minority shareholder of Tesla and the company’s shareholders approved the acquisition. Lawyers for Mr. Musk have said that SolarCity was worth more than Tesla paid for it and the electric-vehicle maker’s board members, who included Mr. Musk’s brother, Kimbal Musk, acted independently.

Other issues before the judge include whether Tesla board members were conflicted and whether vital information about the deal was withheld from shareholders. Mr. Musk said Monday that an independent director handled the negotiation and that Tesla’s directors even overruled his proposal that Tesla provide temporary financing to SolarCity before the deal went through.

Members of the media on Monday gathered outside the justice center in Wilmington, Del., where Elon Musk testified in a nonjury trial.



Photo:

Matt Rourke/Associated Press

An attorney for the plaintiffs,

Randall Baron,

later questioned Mr. Musk, asking why SolarCity’s performance varied significantly from the projections that Tesla gave to shareholders in 2016. Mr. Musk blamed the decline in solar-panel installation and market share to Tesla’s pressing need to focus on developing its Model 3 car in 2017 and 2018. Tesla at the time was struggling to bring the car to market.

More recently, Mr. Musk said, the coronavirus pandemic impacted Tesla’s ability to get permits for residential solar installations.

If Mr. Musk loses, he could be asked to make Tesla whole. That payment could equal the value of the SolarCity transaction if the presiding judge finds that the solar firm wasn’t worth anything when Tesla agreed to buy it.

The trial has been delayed for more than a year because of the pandemic. Mr. Musk is the lone board member being sued. Tesla’s other board members at the time of the SolarCity tie-up agreed to settle last year for a combined $60 million, paid by insurance. The board members, some of whom had interests in both Tesla and SolarCity, denied wrongdoing.

Mr. Musk has built a reputation as an unusual and sometimes combative chief executive. He has already flashed some of that in the case, making for a confrontational witness in a 2019 deposition, repeatedly goading Mr. Baron, whom he called “reprehensible” for “attacking sustainable energy.”

“SolarCity I think would have done just fine by itself and Tesla would have done fine by itself, but in the long-term, they are better together. And that is what the future will show,” Mr. Musk said in the deposition.

Mr. Musk brought the proposed deal to Tesla’s board in early 2016, court records show. The plaintiffs describe SolarCity as having been in severe financial distress leading up to the deal, at risk of tripping a debt covenant and without other fundraising options. Shareholders weren’t fully informed of the company’s condition, they say.

Founded in 2006 by Mr. Musk’s cousins, SolarCity generated net losses of $769 million and $375 million in 2015 and 2014, respectively.

Attorneys for Mr. Musk have said SolarCity was solvent and could have pursued other fundraising options.

When Mr. Musk testifies, he is likely to be asked about how much involvement he had in the deal with SolarCity, said Lawrence Hamermesh, executive director of the Institute for Law and Economics at the University of Pennsylvania’s Carey Law School. “One of the things the plaintiffs are going to want to show is whether he had his fingers all over the negotiations and development and timing of the deal,” Mr. Hamermesh said ahead of the trial.

Electric car maker Tesla Motors Inc. says it has reached a deal to acquire solar-energy company SolarCity, which is also chaired by Tesla chairman Elon Musk. The WSJ’s Lee Hawkins discusses the details. Photo: Getty (Video from 8/1/2016)

That information will help the court decide whether the Tesla chief executive controlled the company’s consideration of the merger, as will testimony about some directors’ conflicts of interest and whether they made their decisions independently.

If Vice Chancellor Joseph Slights III, the presiding judge, finds Mr. Musk didn’t control the deal, the case is likely over for the plaintiffs, Mr. Hamermesh said. Case law in Delaware generally defers to the business judgment of independent and properly motivated directors. On the other hand, if the evidence points to control, the court would assess whether the deal process and price were fair and, if not, whether Mr. Musk should be ordered to pay money back to Tesla, Mr. Hamermesh said.

“The theory would be that Tesla has been damaged and Musk is the responsible party,” he said. “He would have to make Tesla whole.”

For Mr. Musk, who now ranks among the wealthiest people on the planet, the optics of a loss likely would be more meaningful than any court-ordered financial judgment, said

Seth Goldstein,

an analyst for Morningstar Research Services LLC.

“You could see the board become extra diligent with regard to acquisitions that aren’t in Tesla’s current, existing industries,” Mr. Goldstein said.

Mr. Musk is no stranger to court appearances. In 2019, he was called to the stand in a case in which a British cave explorer accused him of defamation. The jury found him not guilty.

The prior year, the Securities and Exchange Commission sued Mr. Musk and Tesla over claims that he misled investors through his tweets. Mr. Musk and Tesla settled the lawsuit by each paying $20 million, and Mr. Musk agreed to have certain of his tweets reviewed by Tesla’s lawyers before publishing them.

Tesla’s SolarCity Deal: From the Archives

Write to Dave Michaels at dave.michaels@wsj.com and Rebecca Elliott at rebecca.elliott@wsj.com

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Bitcoin Fraud Concerns Draw Scrutiny From Regulators

Regulators are signaling they want more control over an expanded cryptocurrency universe that has pushed further into Wall Street activities without the investor and consumer protections that apply to traditional securities and financial services.

The catch: no single regulator inspects crypto exchanges or brokers, unlike in the securities and derivatives markets. Regulators step in only when they believe U.S. law applies to a particular cryptocurrency or transaction, based on the way the asset was sold or traded.

Once a quirky asset that required navigating special exchanges to buy, cryptocurrencies can now be easily purchased on mobile apps from PayPal Holdings Inc., Square Inc.’s Cash app and Robinhood Markets Inc.

“A lot more money is being put into it, there is a lot of trading and the uses seem to be expanding,” said Dan Berkovitz, a commissioner on the Commodity Futures Trading Commission. “I see a concern about whether we have a shadow financial system developing, and that should be a question for all of the regulators.”

Securities and Exchange Commission Chairman Gary Gensler has told House lawmakers that investor protection rules should apply to crypto exchanges, similar to those that cover equities and derivatives. Regulated exchanges are required by law to have rules that prevent fraud and promote fairness. But crypto exchanges face no such standard, Mr. Gensler said at the Piper Sandler Global Exchange and FinTech conference last month.

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Facebook, Twitter, Google Threaten to Quit Hong Kong Over Proposed Data Laws

HONG KONG—

Facebook Inc.,

FB 0.09%

Twitter Inc.

TWTR 1.60%

and

Alphabet Inc.’s

GOOG 1.86%

Google have privately warned the Hong Kong government that they could stop offering their services in the city if authorities proceed with planned changes to data-protection laws that could make them liable for the malicious sharing of individuals’ information online.

A letter sent by an industry group that includes the internet firms said companies are concerned that the planned rules to address doxing could put their staff at risk of criminal investigations or prosecutions related to what the firms’ users post online. Doxing refers to the practice of putting people’s personal information online so they can be harassed by others.

Hong Kong’s Constitutional and Mainland Affairs Bureau in May proposed amendments to the city’s data-protection laws that it said were needed to combat doxing, a practice that was prevalent during 2019 protests in the city. The proposals call for punishments of up to 1 million Hong Kong dollars, the equivalent of about $128,800, and up to five years’ imprisonment.

“The only way to avoid these sanctions for technology companies would be to refrain from investing and offering the services in Hong Kong,” said the previously unreported June 25 letter from the Singapore-based Asia Internet Coalition, which was reviewed by The Wall Street Journal.

Tensions have emerged between some of the U.S.’s most powerful firms and Hong Kong authorities as Beijing exerts increasing control over the city and clamps down on political dissent. The American firms and other tech companies last year said they were suspending the processing of requests from Hong Kong law-enforcement agencies following China’s imposition of a national security law on the city.

Jeff Paine, the Asia Internet Coalition’s managing director, in the letter to Hong Kong’s Privacy Commissioner for Personal Data, said that while his group and its members are opposed to doxing, the vague wording in the proposed amendments could mean the firms and their staff based locally could be subject to criminal investigations and prosecution for doxing offenses by their users.

That would represent a “completely disproportionate and unnecessary response,” the letter said. The letter also noted that the proposed amendments could curtail free expression and criminalize even “innocent acts of sharing information online.”

The Coalition suggested that a more clearly defined scope to violations be considered and requested a videoconference to discuss the situation.

A spokeswoman for the Privacy Commissioner for Personal Data acknowledged that the office had received the letter. She said new rules were needed to address doxing, which “has tested the limits of morality and the law.”

The government has handled thousands of doxing-related cases since 2019, and surveys of the public and organizations show strong support for added measures to curb the practice, she said. Police officers and opposition figures were doxed heavily during months of pro-democracy protests in 2019.

“The amendments will not have any bearing on free speech,” which is enshrined in law, and the scope of offenses will be clearly set out in the amendments, the spokeswoman said. The government “strongly rebuts any suggestion that the amendments may in any way affect foreign investment in Hong Kong,” she said.

Representatives for Facebook, Twitter and Google declined to comment on the letter beyond acknowledging that the Coalition had sent it. The companies don’t disclose the number of employees they have in Hong Kong, but they likely employ at least 100 staff combined, analysts estimate.

China’s crackdown on dissent since it imposed a national security law a year ago has driven many people in Hong Kong off social media or to self-censor their posts following a spate of arrests over online remarks.

While Hong Kong’s population of about 7.5 million means it isn’t a major market in terms of its user base, foreign firms often cite the free flow of information in Hong Kong as a key factor for being located in the financial hub.

The letter from the tech giants comes as global companies increasingly consider whether to leave the financial center for cities offering more hospitable business climates.

The anti-doxing amendments will be put before the city’s Legislative Council and a bill is expected to be approved by the end of this legislative year, said Paul Haswell, Hong Kong-based head of the technology, media, and telecom law practice at global law firm Pinsent Masons.

The tech firms’ concerns about the proposed rules are legitimate, Mr. Haswell said. Depending on the wording of the legislation, technology companies headquartered outside Hong Kong, but with operations in the city, could see their staff here held responsible for what people posted, he said.

A broad reading of the rules could suggest that even an unflattering photo of a person taken in public, or of a police officer’s face on the basis that this would constitute personal data, could run afoul of the proposed amendments if posted with malice or an intention to cause harm, he said.

“If not managed with common sense,” the new rules “could make it potentially a risk to post anything relating to another individual on the internet,” he said.

Corrections & Amplifications
Doxing was prevalent during protests in Hong Kong in 2019. An earlier version of this article incorrectly said the year was 2109. (Corrected on July 5)

Write to Newley Purnell at newley.purnell@wsj.com

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Robinhood Agrees to Pay $70 Million to Settle Regulatory Investigation

WASHINGTON—Robinhood Financial LLC has agreed to pay nearly $70 million to resolve sweeping regulatory allegations that the brokerage misled customers, approved ineligible traders for risky strategies and didn’t supervise technology that failed and locked millions out of trading.

The enforcement action is a blow to the fast-growing online brokerage, which was launched in 2014 and has won over users with commission-free trades and its sleek mobile app. The company took on millions of new customers and attracted more scrutiny this year as many investors accessed Robinhood to speculate on so-called meme stocks such as GameStop Corp. and AMC Entertainment Holdings Inc. Its forthcoming initial public offering is one of the most anticipated of the year.

Robinhood’s growth has continued, with its biggest source of revenue, stemming from customer trading, more than tripling in the first quarter, even as many customers complained about its technology snafus and limited customer service. It enraged clients earlier this year when it restricted trading in some popular stocks that had become so volatile that Robinhood’s clearinghouse told the brokerage to post billions of dollars in additional collateral.

The Financial Industry Regulatory Authority, the front-line inspector of broker-dealers, unveiled the settlement Wednesday. Robinhood neither admitted nor denied the claims.

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Trump Organization and CFO Allen Weisselberg Expected to Be Charged Thursday

The Manhattan district attorney’s office is expected to charge the Trump Organization and its chief financial officer with tax-related crimes on Thursday, people familiar with the matter said, which would mark the first criminal charges against the former president’s company since prosecutors began investigating it three years ago.

The charges against the Trump Organization and Allen Weisselberg, the company’s longtime chief financial officer, are a blow to former President Donald Trump, who has fended off multiple criminal and civil probes during and after his presidency. Mr. Trump himself isn’t expected to be charged, his lawyer said. Mr. Weisselberg has rejected prosecutors’ attempts at gaining his cooperation, according to people familiar with the matter.

The defendants are expected to appear in court on Thursday afternoon, the people said.

The Trump Organization and Mr. Weisselberg are expected to face charges related to allegedly evading taxes on fringe benefits, the people said. For months, the Manhattan district attorney’s office and New York state attorney general’s office have been investigating whether Mr. Weisselberg and other employees illegally avoided paying taxes on perks—such as cars, apartments and private-school tuition—that they received from the Trump Organization.

If prosecutors could show the Trump Organization and its executives systematically avoided paying taxes, they could file more serious charges alleging a scheme, lawyers said.

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Tencent Executive Held by China Over Links to Corruption Case

An executive at Tencent Holdings Ltd. , China’s most valuable publicly listed company, has been held by Chinese authorities, part of a probe into a high-profile corruption case involving one of the country’s former top law-enforcement officials, people familiar with the matter said.

Zhang Feng has been under investigation by China’s antigraft inspector since early last year for alleged unauthorized sharing of personal data collected by Tencent’s social-media app WeChat, the people said. They said Mr. Zhang was suspected of turning over WeChat data to former Vice Public Security Minister Sun Lijun, who is being investigated by Beijing for undisclosed violations of Communist Party rules.

Investigators are looking at what type of data Mr. Zhang allegedly might have shared with Mr. Sun and what Mr. Sun might have done with it, the people said.

Hong Kong-listed Tencent, which has a market capitalization of about $900 billion, confirmed Thursday that Mr. Zhang is under investigation. The case “relates to allegations of personal corruption and has no relation to WeChat or Weixin,” a spokesman said in a statement to The Wall Street Journal. Weixin is WeChat’s sister app for the Chinese market.

Mr. Zhang was referred to as a Tencent vice president in a statement released by the municipal government of Zhangjiakou, a city near Beijing, in which he was described as having met the city’s mayor in October 2018.

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McKinsey Agrees to $573 Million Settlement Over Opioid Advice

Consulting giant McKinsey & Co. has reached a $573 million settlement with states over its work advising OxyContin maker Purdue Pharma LP and other drug manufacturers to aggressively market opioid painkillers, according to people familiar with the matter.

The deal, reached with 47 states and the District of Columbia and expected to be publicly announced Thursday, would avert civil lawsuits that attorneys general could bring against McKinsey, the people said. The majority of the money will be paid upfront, with the rest dispensed in four yearly payments starting in 2022.

McKinsey said last week it is cooperating with government agencies on matters related to its past work with opioid manufacturers, as state and local governments sue companies up and down the opioid supply chain. At least 400,000 people have died in the U.S. from overdoses of legal and illegal opioids since 1999, according to federal data.

The consulting firm stopped doing opioid-related work in 2019 and said in December its work for Purdue was intended to support the legal use of opioids and help patients with legitimate medical needs.

While some companies have reached deals with individual states to avoid trials, the McKinsey settlement marks the first nationwide opioid pact to come from the flood of litigation that began in 2017. A much larger, $26 billion deal with three drug distributors and Johnson & Johnson has been in the works for more than a year but is still being negotiated.

The Wall Street Journal reported last week that McKinsey was close to a settlement with states and that a deal could be worth hundreds of millions of dollars. The negotiations occurred as hundreds of exhibits describing McKinsey’s work to boost OxyContin sales were made public in recent months during Purdue’s chapter 11 bankruptcy case in White Plains, N.Y.

Memos McKinsey sent Purdue executives in 2013 that have been made public in bankruptcy court filings included recommendations that the company’s sales team target health care providers it knew wrote the highest volumes of OxyContin prescriptions and shift away from lower-volume prescribers. McKinsey’s work became a Purdue initiative called “Evolve to Excellence,” which the U.S. Justice Department described in papers released last year in connection with a plea agreement with Purdue as an aggressive OxyContin marketing and sales campaign.

According to bankruptcy court records, McKinsey sent recommendations to Purdue in 2013 that consultants said would boost its annual sales by more than $100 million. McKinsey recommended ways Purdue could better target what it described as “higher value” prescribers and take other steps to “Turbocharge Purdue’s Sales Engine.”

Stamford, Conn.-based Purdue pleaded guilty in November to three felonies, including paying illegal kickbacks and deceiving drug-enforcement officials. The drugmaker filed for chapter 11 protection in 2019 to address thousands of opioid-related lawsuits brought against it. Purdue said in a lawsuit filed last week against its insurers that creditors have asserted hundreds of thousands of claims in the bankruptcy case and collectively seek trillions of dollars in damages.

McKinsey also advised other opioid makers on sales initiatives. The firm’s work for

Johnson & Johnson

came up in a 2019 trial in a case brought by Oklahoma against the drug company for contributing to the opioid crisis in the state through aggressive marketing of prescription painkillers. The trial ended with a $572 million verdict against Johnson & Johnson, which was later reduced to $465 million and is still on appeal.

The vast majority of the money McKinsey will pay in the settlement will be divided among the participating states, with $15 million going to the National Association of Attorneys General to reimburse it for costs incurred in the investigation, one of the people familiar with the deal said.

The settlement also includes some nonmonetary provisions, like requiring McKinsey to create a repository of documents related to its work for opioid makers, the person said.

The holdout states include Nevada, which said Wednesday night that its investigation into the consulting giant continues “and we are conversing with McKinsey about our concerns.”

Purdue has been negotiating with creditors, which include states, since filing for bankruptcy, but finalizing a deal has been slowed by demands from some states that the company’s owners, members of the Sackler family, contribute more than the $3 billion they have agreed to.

States have been keenly focused on ensuring any settlement money from the opioid litigation goes toward helping alleviate the impact of the crisis, including through beefing up treatment programs and helping overstretched law enforcement. The states are looking to avoid the outcome of the 1990s tobacco litigation, when a $206 billion settlement was often spent to fill state budget holes. The McKinsey settlement documents say the money is intended for abatement, the person familiar with the deal said, though state laws differ widely on how settlement funds can be earmarked.

Write to Sara Randazzo at sara.randazzo@wsj.com and Jonathan Randles at Jonathan.Randles@wsj.com

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Apollo CEO Leon Black to Step Down Following Review of Jeffrey Epstein Ties

Leon Black plans to step down as chief executive of Apollo Global Management Inc. after an independent review revealed larger-than-expected payments to disgraced financier Jeffrey Epstein that it nevertheless deemed justified.

The monthslong review by Dechert LLP found no evidence that Mr. Black was involved in the criminal activities of the late Epstein, who was indicted in 2019 on federal sex-trafficking charges involving underage girls, according to a copy of the law firm’s report that was viewed by The Wall Street Journal.

In its report, Dechert found the fees that the billionaire had paid Epstein were for legitimate advice on trust- and estate-tax planning that proved to be of significant value to Mr. Black and his family. Mr. Black paid Epstein a total of $148 million, plus a $10 million donation to his charity—far more than was previously known.

Mr. Black wrote in a letter to Apollo’s fund investors that he would cede the role of CEO to co-founder Marc Rowan on or before his 70th birthday on July 31 while retaining the role of chairman. In the letter, a copy of which was viewed by the Journal, Mr. Black detailed other governance changes he is recommending to the board, including the appointment of more independent directors and the elimination of Apollo’s dual-class share structure.

Mr. Black also pledged to donate $200 million of his family’s money to women’s initiatives.

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