The SEC Has Its Eye on AI

Plus: Such a nice couple, but Cigna and Humana call it quits ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌

December 11, 2023

Read in Browser

TOGETHER WITH

Good morning and Happy Monday.

Yakyu, as the Japanese call baseball, has been very good to Shohei Ohtani.

Over the weekend, the Los Angeles Dodgers secured the outfielder/pitcher with a record 10-year, $700 million deal, far surpassing the previous record of $426.5 million given to Los Angeles Angels center fielder Mike Trout in 2019. Deals the size of an island nation's gross domestic product are only becoming more commonplace in the wider world of sports: Kansas City Chief Patrick Mahomes is making $45 million per year over 10 seasons, and although details are still limited, heavyweight MMA fighter Francis Ngannou could make $10 million per bout in the Professional Fighter League. Now excuse us while we step out to work on our curveball.

Morning Brief

•

The world farms too much meat, but also not enough.

•

Gary Gensler wants to stay one step ahead of AI.

•

This insurance marriage wasn't meant to be.

Geopolitics

UN Agency Wants More Meat Production, Less Climate Impact

(Photo Credit: Tommao Wang/Unsplash)

The United Nations has a beef with rich nations.

At the COP28 climate summit in Dubai, the UN Food and Agriculture Organization (FAO) called for meat production to be ramped up for poorer countries to address widespread malnutrition, while at the same time saying developed nations should cut back on animal protein to curb carbon emissions. The double standard will likely be a tough road to navigate, the Financial Times reported.

Meat in the Middle

The World Food Programme — a humanitarian group within the UN — says roughly 60% of the planet's hungriest people live in just a handful of countries, including the Democratic Republic of the Congo, Afghanistan, and Ethiopia. People there often lack the protein, fats, and carbohydrates easily found in meat and dairy. But the UN's Maximo Torero told the FT that while some countries need more meat and dairy, others should consider slimming down. He suggested nations like the Netherlands and New Zealand bolster livestock farming and boost exports to malnourished countries. But all of this seemingly flies in the face of the UN's climate goal of reducing greenhouse gases.

Though transportation and fossil fuels often take the blame for being the biggest carbon emitters, the global agricultural sector accounts for a third of all greenhouse pollution, with most of it coming from livestock. Some countries, including the Netherlands, have told their farmers to reduce livestock quantities or leave the industry to halve the nation's nitrogen levels by 2030, a move that unsurprisingly has farmers worrying about their livelihoods.

Torero and the FAO say the world can limit food-based emissions while also boosting meat production, but environmental groups and even other UN agencies think that's a bad idea:

•

Alex Wijeratna of the non-governmental organization Mighty Earth told the FT, "It's essential that we transition to producing less meat rather than more."

•

In another report, the UN's Environment Programme said lab-grown meat and dairy is the solution to reducing the agricultural industry's climate impact. While the FAO sees some value in that approach, it asserted lab-grown animal products are not nutritional substitutes for the real thing.

Just Keep Drilling? The beef brouhaha is just the latest example of the UN's inconsistent messaging on climate change. Early in the summit, COP28 President Sultan Ahmed al-Jaber said there was "no science" behind calls for a phase-out of fossil fuels. Maybe the Abu Dhabi National Oil Company he runs needs better scientists.

- Griffin Kelly

Artificial Intelligence

The SEC Probes AI Use at Investment Advisory Firms

In SEC Chair Gary Gensler's version of The Terminator, Arnold Schwarzenegger is armed with a pitchbook.

As the world of high finance ushers in an era of artificial intelligence, the SEC has begun investigating how investment advisory firms use the rapidly developing technology, according to a Wall Street Journal report this past weekend.

The Robots of Wall Street

Wall Street hasn't exactly been shy about its interest in AI — or its superhuman ability to detect market trends and patterns. In fact, the industry is in the midst of a talent war over hiring the best AI specialists, according to a recent Fortune report. "If you're a bank and don't have an AI strategy, then you don't have a strategy," Wells Fargo analyst Mike Mayo said during a recent Bloomberg Television interview. "AI is here to stay."

Gensler, meanwhile, has spent the year warning of AI's "systemic risks" and a "nearly unavoidable" financial crisis within the next decade due to the "herding effect" of multiple firms relying too much on single AI models. In July, the regulatory agency proposed rules specifically over concerns that AI could prioritize a firm over its clients.

But the world moves quickly, leaving the SEC to figure out just how — and how much — AI is being used:

•

In a process known as a "sweep," the SEC has requested information from various firms seeking responses to prompts on 26 topics, such as how algorithmic models are used to manage client portfolios and what contingency plans exist for system failure, according to the WSJ, which obtained a copy of an SEC letter sent to a firm.

•

A sweep doesn't mean the SEC is investigating misconduct, but that it's collecting information ahead of possible rule changes or new regulations.

The problem is that the machine has, you know, already risen. "The use of these kinds of technologies is already so widespread that I think it would be quite difficult for the commission to put the brakes on," Amy Jane Longo, litigation and enforcement practice partner at law firm Ropes & Gray, told the WSJ.

EU and AI: The EU also wants to pump the brakes on AI. Over the weekend, the group agreed to terms on legislation that would create the world's most restrictive environment for commercial AI systems across industries. Included in the rules is a ban on using AI systems that "manipulate human behavior to circumvent their free will." With a final vote still looming, the robots and their human lobbyists still have a chance to sway lawmakers.

- Brian Boyle

Sponsored by Semafor

What Does Elon Musk have Planned for 'X' (formerly Twitter)?

If you're reading this, it's a topic you are likely interested in.

With Semafor Business — the newsletter from one of Wall Street's best-sourced reporters, Liz Hoffman — that's exactly what you'll get.

Liz writes a twice-weekly newsletter that gives readers scoops, analysis, data dives, and ephemera from the world of big money — CEOs navigating a risky world, investors seeking fortunes and the watchdogs keeping both in line.

Other recent pieces include investigation into the federal probe of 777 partners, and how small banks are losing the leg race.

Sign up for Semafor Business right here.

M&A

Cigna and Humana Call Off Their Merger

Like celebrity marriages, some company tie-ups aren't meant to last.

Following reports of merger discussions just two weeks ago, health insurance players Humana and Cigna are walking away from what would've been the largest deal of the year, according to a report Sunday from The Wall Street Journal. Of course, Cigna had an insurance plan.

Cold Feet

When The Wall Street Journal reported on merger talks at the end of November, the logic behind a deal was simple: Cigna (market cap: $83 billion) would absorb Humana (market cap: $62 billion), and its huge Medicare business alongside Cigna's massive pharmacy-benefit unit. Together, the two would elbow their way into the big kids' table with insurance supermajors like United Health and CVS.

But not everyone was on board. Cigna investors quickly balked at the deal. And now Cigna is trying to make it up to them:

•

Following last month's reports, both companies' market caps plunged, with Cigna's share price falling by roughly 10% as investors quickly soured on the planned deal.

•

With the deal scuttled, Cigna is planning an additional $10 billion in stock buybacks. That brings its buyback total to over $11 billion this year, with a plan for another $5 billion of buybacks in the first half of 2024, according to the WSJ.

Sellout: Humana owns the second-biggest Medicare business in the industry, and a deal would've brought Cigna deeper into the increasingly lucrative space. Instead, Cigna is now looking to divest its own relatively small Medicare unit in a deal that could be worth several billions of dollars. It couldn't marry into Medicare so it's quitting.

- Brian Boyle

Extra Upside

•

Too hot to handle: Government agency sues moving company that boasts young and svelte employees for age discrimination.

•

Bird up: 'The Boy and the Heron' reaches No. 1 at North American box office, a first for legendary Japanese director Hayao Miyazaki.

•

Is Your Financial Advisor Worth Their Salt? Rainbook has the answer — they'll assess your current advisor, for free, on 6 vital factors 一 from portfolio performance to fees to credentials. In mere minutes, you'll have radical transparency on the merits of your financial advisor, and crystal clear visibility on the costs you are paying at every level. Don't settle, take control of your financial health with Rainbook.*

*Partner.