California man charged in elaborate Chinese spy operation

United States attorney David L. Anderson holds an SD memory card as he speaks during a news conference on September 30, 2019 in San Francisco, California. The U.S. attorney’s office of the Northern District of California announced a criminal complaint against Xuehua Peng, also known as Edward Peng, for acting as an illegal foreign agent that allegedly delivered classified U.S. national security information to the government of the People’s Republic of China’s Ministry of State Security.

Justin Sullivan | Getty Images

A California man has been charged with acting as an illegal foreign agent as part of an elaborate FBI sting operation targeting Chinese intelligence operatives working in the U.S., the Justice Department said Monday.

Xuehua “Edward” Peng was caught acting as a courier for China’s Ministry of State Security (MSS) after the U.S. launched a “double agent operation” in March 2015, according to a criminal complaint filed in the Northern District of California and obtained by NBC News.

As part of the investigation, a confidential FBI source met with MSS intelligence officers, provided them with classified information relating to national security concerns, and received financial payments in return, the criminal complaint says.

On six separate occasions, Peng showed up to collect packages left at hotels in California and Georgia, the criminal complaint says. In four of the cases, the parcels contained SD cards containing classified information, and Peng left behind a total of $70,000 for the source who dropped them off, the complaint says.

Peng, a naturalized U.S. citizen from China, is believed to have been “instructed in spycraft, practiced it, and knew that he was working for intelligence operatives of the People’s Republic of China,” the complaint says. He was arrested at his home in the city of Hayward last Friday.

“His arrest exposes and disrupts an operation by those Chinese intelligence officers to collect such information without having to step foot in this country,” said Assistant Attorney General of National Security John C. Demers.

The operation began after a March 2015 meeting in China which an MSS intelligence officer set up a trial run for passing along classified information that involved placing an SD card in a book, wrapping it in a bag marked for “Ed” and leaving it at the front desk of a hotel in Newark, Calif.

Peng showed up in a silver Mercedes to collect the empty package on the day of the planned drop-off, June 13, 2015, the criminal complaint says.

Then, on Oct. 8, the source emailed his handler saying he would be traveling to San Francisco for sightseeing on Oct. 24 – a coded message indicating the source would be conducting a dead drop at the same hotel on that day, the complaint says.

The source left a parcel with an SD card for “Ed” with a receptionist at 8:30 a.m. Peng was observed entering the hotel less than an hour later and leaving with the package in hand, the complaint says.

He flew to China the next day but returned to the U.S. and collected other packages at hotels in California and Georgia over the next few years, the complaint says.

The last drop-off took place on June 30, 2018. After a coded conversation with an MSS agent, Peng showed up at a hotel in Columbus, Ga., where he taped a white envelope containing $20,000 to the shelf of a drawer inside a room, the complaint says.

He left the hotel and drove to a nearby shopping center about 8:30 a.m. Roughly an hour later, the source entered the room, removed the envelope, taped the SD card to the top of the drawer and then left the hotel, the complaint says.

Peng returned to the room, grabbed the SD card and left the hotel. Two days later, the complaint says, his wife dropped him off at the San Francisco International Airport, where he boarded a flight for Beijing.

Peng, who is believed to have been working as a sightseeing tour operator in the San Francisco area for Chinese students and visitors, arrived in the U.S. on a temporary business visa but became a naturalized citizen in Sept. 2012. He has a degree in mechanical engineering and is trained in traditional Chinese medicine, according to the complaint.

Following his arrest last week, Peng appeared in court and was ordered held without bond. If convicted, he faces up to 10 years behind bars.

“The conduct charged in this case alleges a combination of age-old spycraft and modern technology,” said U.S. Attorney David L. Anderson for the Northern District of California.

Facebook employee suicide being investigated by law firm for family

Jaap Arriens | NurPhoto | Getty Images

A law firm representing the family of the Facebook employee who committed suicide this month announced it is conducting an investigation into the circumstances of the death.

“We’re trying to sort through all the information to secure the truth,” Qiaojing Ella Zheng, senior counsel at Sanford Heisler Sharp, told CNBC on Monday.

Sanford Heisler Sharp represents the family of Qin Chen, the Facebook employee who committed suicide at the company’s Menlo Park, California, headquarters on Sept. 19. Zheng said the firm has spoken with community members and has met with Facebook and its attorneys.

Sanford Heisler Sharp is currently running ads on Facebook that are being shown to users in California encouraging anyone with information about the death to reach out.

“We’re looking for anybody who might have relevant information,” Zheng said. “That could be Facebook employees or community members. Anyone with information we welcome them to contact us.”

Facebook confirmed Chen’s death was a suicide in a statement after numerous people gathered outside the company’s headquarters on Thursday to demand “justice for Qin.”

Facebook declined to comment on the Sanford Heisler Sharp investigation. There are rumors that Qin may have endured bullying at Facebook, said Bill Young, who was one of the volunteers that organized the protest. However, Young was not an employee, and he said most of the protesters were not Facebook employees either.

“We are saddened by the tragic news that we lost one of our employees, Qin Chen, to suicide last week at our Menlo Park headquarters,” a Facebook spokeswoman said in a statement. “And, we are doing everything we can to support his family and loved ones during this time.”

WATCH: Here’s how to see which apps have access to your Facebook data — and cut them off

New York judge dismisses blue state suit over SALT tax deductions

U.S. Treasury Secretary Steven Mnuchin talks to reporters about cryptocurrency in the Brady Press Briefing Room at the White House July 15, 2019 in Washington, DC. Mnuchin said the Treasury is very concerned about Facebook’s Libra cryptocurrency and that he wants the government to “make sure that the U.S. financial system is protected from fraud.”

Chip Somodevilla | Getty Images

On Monday, a federal judge dismissed a lawsuit filed by four states against the IRS, thwarting four blue states’ challenge against a new $10,000 cap on the deduction for state and local taxes, also known as SALT.

Those states — New York, New Jersey, Connecticut and Maryland — sued the Treasury Department, Treasury Secretary Steven Mnuchin and the IRS, among others, in July 2018.

They alleged that the new limit on the SALT deduction, part of the Tax Cuts and Jobs Act of 2017, was “an unconstitutional assault on states’ sovereign choices.”

In the dismissal, U.S. District Judge J. Paul Oetken in Manhattan said the plaintiff states ultimately failed to show that the SALT cap was unconstitutionally coercive or that it imposed on their own sovereign rights.

“[The] SALT cap simply requires the states to either exercise sovereign powers — howsoever they wish — to avert or assuage the cap’s effects or else suffer the uncertain budgetary effects of doing nothing,” Oetken wrote in his opinion.

Meanwhile, the states plan to fight back.

“There is no doubt in my mind that President Trump’s unfair tax policy targets New York and other blue states by funding tax cuts for corporations and the rich on the backs of New Yorkers,” New York Gov. Andrew Cuomo, a Democrat, said in a statement.

“The bottom line is this policy is unprecedented, unlawful, punitive and politically motivated — and it must be stopped,” he said. “We disagree with the court’s decision and are evaluating all options including appeal.”

In 2016, New Yorkers writing off state and local taxes took an average SALT deduction of $21,779, according to the Tax Policy Center.

Meanwhile, in New Jersey and Connecticut the average deductions were $18,092 and $19,563, respectively.

Two tracks

This development puts the ball back in Congress’s court, said Michael D’Addio, principal at Marcum in New Haven, Connecticut.

“You know that the federal law is effective and it won’t be overturned because this case has been dismissed,” he said. “Unless you pressure your senators and representatives, there won’t be a solution other than a congressional one.”

Litigation against the federal government over the SALT deduction is following two tracks, according to Jared Walczak, director of state tax policy with the Center for State Tax Policy at the Tax Foundation.

One track — including the case that was just dismissed on Monday — argues that the SALT cap itself is unconstitutional.

The other track defends the different workarounds that the blue states have created to allow their residents to write off their state and local income and property taxes beyond the $10,000 limit.

‘Workaround’ lawsuit

New York Governor Andrew Cuomo.

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A second lawsuit filed in July 2019 by New York, New Jersey and Connecticut in the Southern District of New York is still ongoing.

This time, the three states are suing to protect workarounds they built to permit taxpayers to claim deductions beyond the $10,000 SALT cap.

The three states passed legislation that would permit municipalities to establish charitable funds to pay for local services and offer property tax credits to incentivize homeowners to give.

This way, the taxpayers could write off the payment as a charitable deduction on their federal tax returns.

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In June, the IRS and Treasury blocked this strategy, saying that the receipt of a state or local tax credit in return for making this contribution would be a “quid pro quo.”

The new blue state “workaround” programs aren’t the only ones that would be affected by the new IRS rules.

There are more than 100 existing state charitable tax-credit plans in 33 states, according to a research paper authored by a group of tax law professors. They range from private school tuition scholarships to conservation easements.

Earlier this year, some of those programs — including the Alabama Opportunity Scholarship Fund and the Exceptional SC program in South Carolina — reported a slowdown in contributions due to ambiguity around whether the IRS would permit taxpayers to deduct the full amount donated.

Alabamans and South Carolinians contributing to those scholarship programs are eligible for a dollar-for-dollar tax credit on their state return.

Whether the final rule will ultimately deter people from donating to these funds remains to be seen.

“If you’re really passionate about private school vouchers in Georgia, you donate and you still get 100% of your donation back,” Carl Davis, research director at the Institute on Taxation and Economic Policy, told CNBC earlier. “You just won’t get a federal tax deduction on top of it.”

iOS 13.1.2 fixes camera and other bugs

Tim Cook announces the iPhone 11 at a launch event in Cupertino, Calif on Sept. 10, 2019.

Source: Apple

Apple on Monday released iOS 13.1.2, the third update since it began rolling out iOS 13 on Sept. 19.

It fixes more bugs, so you should install it, particularly if you’ve found some features on your iPhone are acting weird.

iOS 13.1.2 fixes an issue where the iPhone’s camera might not work at all. It also addresses a “bug where the progress bar for iCloud Backup could continue to show after a successful backup,” according to the changelog. The release also patches bugs related to the flashlight not opening properly, display calibration issues, a problem related to running shortcuts on the HomePod and a bug where the iPhone’s Bluetooth connection could be lost in some cars.

You can install iOS 13.1.2 by opening Settings > General > Software Update on your iPhone.

Here’s why the Forever 21 bankruptcy means really bad news for malls

A Forever 21 bankruptcy was not on U.S. mall owners’ wish lists ahead of this holiday season.

The teen apparel retailer on Sunday night announced it was filing for Chapter 11 bankruptcy, planning to close nearly 200 locations in the U.S. Forever 21 has 815 stores globally, and expects to exit most of its locations in Asia and Europe.

Forever 21’s filing comes amid a wave of announced store closures in the U.S., many of them in shopping malls, which are set to eclipse a record this year. So far in 2019, major retailers announced plans to shutter 8,558 stores in the U.S., while opening 3,446, according to a tracking by Coresight Research. Last year, there were 5,844 closures and 3,258 openings, Coresight said. The firm is anticipating announced closures could top 12,000 this year.

Multiple retail real estate analysts who spoke with CNBC agree, however, that Forever 21 store closures could cause mall owners like Simon Property Group and Macerich more trouble than when other apparel retailers shut down.

The average Forever 21 store is close to 40,000 square feet but there are some locations that span more than 100,000, which is more like the size of a traditional department store. Larger locations can prove to be much more difficult to fill. Landlords are already dealing with the aftermath of a Sears bankruptcy filing last October, with store closures continuing to drip out, and empty Toys R Us locations, which have been vacant for more than a year.

Forever 21 had been aggressive with its real estate expansion, often scooping up locations left vacant by department stores. In 2008, Forever 21 and Kohl’s won a bid to take over some of California-based Mervyns’ locations, after the department store went bankrupt. Forever 21 ultimately moved into more than a dozen of Mervyns’ massive shops, offering it more space to house its party dresses, jeans, graphic tees and crop tops.

The following year, Forever 21 and Macy’s won a deal to take over some of Gottschalk’s real estate after the department went bankrupt.

“There are outcomes that could be very detrimental to the mall REITs,” Vince Tibone, a lead retail analyst for Green Street Advisors’ retail team, said in a recent interview. Because of the size of some of their stores, some Forever 21 closures in malls could trigger co-tenancy clauses, he added, which means surrounding retailers would then have the ability to either break their leases or try to negotiate rents, leading to more of a ripple effect.

At one point, two of Forever 21’s largest landlords, Simon Property Group and Brookfield Property Partners, were trying to come up with a restructuring deal where they would take a stake in the company to keep it afloat. It would’ve been similar to when Simon and GGP, which is now owned by Brookfield, bought teen apparel retailer Aeropostale out of bankruptcy back in 2016. But talks between Forever 21 and its landlords fell through, according to a person familiar with the talks.

Simon and Brookfield are listed in court papers as two of Forever 21’s biggest unsecured creditors. Simon is owed $8.1 million, while Brookfield is owed $5.3 million, and Macerich $2.7 million.

According to Simon’s latest quarterly report, Forever 21 was its seventh-largest tenant in terms of how much rent it brings in, with 99 stores. Simon said Forever 21 takes up 0.8% of total square feet of its U.S. properties.

Macerich’s latest annual report shows Forever 21 as its second-largest tenant in terms of percentage of rent, only behind L Brands, with 30 stores. It lists eight of those as anchor stores.

Brookfield in its latest annual report lists Forever 21 as its fifth-biggest tenant in terms of rent exposure, accounting for 2.2% of minimum rents.

Taubman’s latest annual report lists Forever 21 as the No. 1 tenant in terms of square footage, with 17 stores.

Representatives from Simon, Brookfield, Macerich, Taubman, CBL, Pennsylvannia REIT, Washington Prime Group and Unibail-Rodamco-Westfield didn’t immediately respond to CNBC’s request for comment.

Forever 21 also operates 15 Riley Rose stores, which sell beauty products, according to court documents. It’s unclear if any of those locations will be closing. The company hasn’t yet released a master list of store closures.

A spokeswoman said in an email to CNBC: “Forever 21’s restructuring will focus on maximizing the value of our U.S. footprint and shuttering certain international locations … and we do not expect to exit any major markets in the U.S.”

Macerich shares were down nearly 2% on Monday morning, while CBL shares were down about 2%, Taubman shares were down more than 2%, Simon shares were falling nearly 1% and Washington Prime shares were unchanged.

Many have blamed the bankruptcy on not only the fact that Forever 21 grew too large but also that consumers began to think that the quality its clothing deteriorated over time.

“I think [Forever 21] is more a victim of people not wanting their clothes to fall apart,” said Bill Read, executive vice president of leasing, acquisitions and business development at Birmingham, Alabama-based Retail Specialists. “But I think they can survive if they right-size the ship and keep their better stores.”

— CNBC’s Lauren Hirsch contributed to this reporting.

‘Imagine what kind of fraud is behind these companies’

Kyle Bass

Mark Neuling | CNBC

Chinese companies do not deserve to be listed on the U.S. stock exchange if they don’t adhere to the same standards as every American company, said hedge fund manager and Hayman Capital Management founder Kyle Bass.

With about $1 trillion of U.S. capital moving into China by 2021 and around $2 trillion worth of Chinese entities listed in the U.S., Bass said the U.S. needs to crack down on the “insane” nature of U.S.-China business standards.

“Imagine what kind of fraud is behind these companies,” Bass told CNBC’s “Squawk on the Street” on Monday. “All of the U.S. money that goes into Chinese companies, it goes into companies that don’t operate under a rule of law.”

In the latest development of the U.S.-China trade war, reports on Friday said the White House is weighing some restrictions on U.S. investments in China. The discussion includes delisting Chinese companies from American stock exchanges and preventing U.S. government pension funds from investing in the Chinese market.

U.S. trade representative Peter Navarro told CNBC’s “Squawk on the Street” that the reports were “fake news” on Monday. And over the weekend, a Treasury spokeswoman said “the administration is not contemplating blocking Chinese companies from listing shares on U.S. stock exchanges at this time.”

“Forget about delisting we should deregister these companies,” said Bass.

China signed a memorandum with the U.S. in 2013 that exempts Chinese companies from submitting to U.S. audits and Dodd Frank laws, which Bass said should immediately be corrected.

Bass, known across Wall Street for his bets against subprime mortgages during the financial crisis in 2008, is also a noted China bear.

“This doesn’t have anything to do with imposing pain on anyone,” said Bass. “Lets raise Chinese companies’ standards up to ours just so that U.S. investors are protected in the long run.”

Bass praised Marco Rubio’s “Equitable Act” which contemplates a delisting Chinese companies if they can’t adhere to U.S. audit standards.

Small firms may have a new way to offer 401(k) plans to their workers

If your employer doesn’t offer a retirement plan, a new option might change that.

A federal rule now in effect allows companies to team up through certain employer groups and professional organizations to offer a shared 401(k) plan to their workers. The rule, which aims to expand the use of so-called multiple-employer plans, comes as a similar — but broader — proposal continues to idle in the Senate as part of the Secure Act.

“Both go to the same issue, which is how do we get plans to more workers,” said Bradford Campbell, a partner in the Washington, D.C., office of law firm Drinker Biddle and an expert in employer-sponsored retirement plans.

Jason York | Getty Images

The target is the 38 million employees who don’t have a workplace retirement plan, according to figures from the Labor Department, which issued the new federal rule in late July. Lack of access is more pointed among small businesses: In 2018, 53% of workers at companies with fewer than 100 workers had access to one, compared with 85% of workers at larger companies.

Small-business owners have cited cost and administrative headaches as reasons they don’t offer retirement plans of their own to their workers. The new Labor Department rule aims to reduce those issues by making regulatory changes to allow local or state associations of employers — i.e., chambers of commerce — to sponsor a 401(k) plan that members can offer to their employees. Companies located far apart that want to band together would need to be in the same industry.

In addition to being offered through employer associations, these plans could also be offered through specific firms that handle human resources tasks for their business clients.

The Secure Act, meanwhile, includes a provision to allow companies to join a multiple-employer plan regardless of their membership in a professional organization or their industry. In other words, their only commonality would be their participation in a shared 401(k) plan for their workers. The measure also would allow financial-services firms to offer those expanded multiple employer plans to their business customers, Campbell said.

It’s uncertain how many organizations may end up sponsoring a plan under the Labor Department rule.

“I think it has potential value in the marketplace, but it will probably be smaller in scale than the [Secure Act provision] would be,” Campbell said.

There has been some interest among state and local chambers of commerce in making retirement plan available under the new rule, said Chantel Sheaks, executive director for retirement policy at the U.S. Chamber of Commerce.

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While the national group wouldn’t qualify to offer a retirement plan to members, Sheaks said, it is serving as an educational resource for state and local chambers interested in learning more about offering a retirement plan to its members.

“If you’re interested, I’d suggest reaching out to your local chamber to see if they’ll sponsor one,” Sheaks said.

The Las Vegas Metro Chamber of Commerce is already on the case. The group, which set up a 401(k) plan in advance of the new rule taking effect, is prepared to sign up the 56 employers — representing 2,000 workers — that have expressed interest in “taking it to the next step,” said Joe Caldera, a wealth advisor with Las Vegas-based Caldera Wealth Management Group, which will be handling the administration of the plan.

The annual management fee for participants is just under 1% of assets managed. On top of that, participants will pay fees charged by the underlying investments they choose.

Meanwhile, a handful of states have taken steps to address the lack of retirement plans among small businesses as well. Some of those initiatives require employers of a certain size to participate in a state-run retirement option if they don’t already offer one to their workers.

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Apple, Bed Bath & Beyond

Check out the companies making headlines before the bell Monday:

Apple — An analyst at J.P. Morgan raised his price target on Apple to $265 per share from $243, implying a 21% gain from Friday’s close of $218.82. The analyst anticipates stronger iPhone sales and expects “investor sentiment on AAPL shares to improve materially given the firm’s ability to drive upward revision to volume expectations.”

Bed Bath & Beyond — Bed Bath & Beyond shares climbed more than 4% after an analyst at Wedbush upgraded the retailer to “outperform” from “neutral.” The analyst says he sees a “good chance of stabilization” in the company’s earnings over the next two years.

AB InBev — The beer giant’s Asia unit rose in its Hong Kong debut overnight, gaining more than 4%. Budweiser APAC CEO Jan Craps said: “We are focused on growth, growth is what we set out to do … Asia, of course, is the largest beer market in the world.”

Rio Tinto — The Wall Street Journal reported on Saturday the mining giant will scrap sales plans for its iron-ore unit in Canada. The report, which cited people familiar with the matter, said Rio Tinto was not able to find an agreeable price with prospective buyers.

Sempra Energy — Sempra Energy agreed to sell its assets in Peru for $3.59 billion to China Yangtze Power International. The sale is expected to close in the first quarter of 2020.

Bristol-Myers Squibb — The company said about 40% of patients who received opdivo and yervoy as an initial treatment to lung cancer were alive after two years, outperforming patients who received chemotherapy as a first-line defense.

Blackstone — The private-equity giant announced its Real Estate Partners IX affiliate will acquire Colony Industrial from Colony Capital for $5.9 billion.

Fire at Saudi high-speed train station injures at least five

A fire broke out in the Haramain high-speed rail station in Saudi Arabia’s coastal city of Jeddah, injuring at least five people, authorities said on Sunday.

The fire, which caused plumes of black smoke to rise from the roof of the station after fire erupted at 12:35 p.m. (0935 GMT), was brought under control about 12 hours later, the civil defense service said.

A cooling process was underway, it said. Civil defense fought the fire with air support, al-Ekhbariya state television footage showed.

Five people were transported to the hospital with injuries, the official Twitter account of the Mecca region reported. It said 16 medical teams were at the scene.

Al-Ekhbariya said four people were treated on-site and traffic on the railway line had been suspended until further notice for safety reasons.

The 450-km (280-mile) Haramain Railway linking the two holiest cities in Islam, Mecca, and Medina, with the Red Sea city of Jeddah, was opened in 2018 and cost 6.7 billion euros ($7.3 billion).

The station is part of efforts to boost tourism revenue as the country seeks to shed its dependence on oil exports.

CVS suspends sales of Zantac brand and generic heartburn drug during safety review

Zantac tablets

Source: Wikipedia

CVS Health said on Saturday it will discontinue sales the popular Zantac heartburn treatment and its own generic ranitidine products from its pharmacies after traces of a known carcinogen were found in some of the products by the U.S. Food and Drug Administration.

The FDA said earlier this month that some of the pills contained small amounts N-nitrosodimethylamine (NDMA), which has also been found in some widely used blood pressure medicines, leading to shortages of those drugs.

CVS said the move to suspend sales of the over-the-counter heartburn drug was taken out of caution while the FDA continues to review if low levels of NDMA in ranitidine — the active ingredient in Zantac — poses a health risk to patients.

“Zantac brand products and CVS brand ranitidine products have not been recalled, and the FDA is not recommending that patients stop taking ranitidine at this time,” CVS said in a statement.

Novartis’ Sandoz unit said last week it was halting distribution of Zantac in all its markets, including the United States and Canada, following safety review of the drug by U.S. and European drug regulators.