Deep-pocketed investors are growing wary of plowing money into the Trump-backed proposal for US ownership of TikTok because of possible massive civil liabilities from a likely flood of lawsuits over the deal, On The Money has learned.
Top law firms have alerted several potential investors that they might need some sort of an indemnification from the White House if they play in the proposed Oracle takeover from the Chinese-owned video-sharing app. At issue: Litigation alleging that the deal falls short of legislation, and a subsequent SCOTUS ruling, that some say calls for a deal that amounts to total divestiture from Beijing and big penalties for any violations, according to people with knowledge of the matter.
“Our lawyers are worried,” said one Wall Street executive involved in the deal.
TikTok’s emergence, mostly with the youth of America, has been haunting Silicon Valley, Wall Street and Washington for more than five years. Donald Trump, during his first term, sought to ban the app over concerns that it siphons user data and hands it to its owners in Beijing to assist the ruling Chinese Communist Party with spying on the US citizenry. Others worry the company’s addictive algorithm pushed pro-China and anti-American propaganda.
TikTok has long denied the charge, but that hasn’t stopped a bipartisan push to remove it from US app stores, culminating in the No TikTok on Government Devices Act. It was signed into law last year by President Biden, and after a lengthy court battle, upheld by the Supreme Court days before Trump took office.
Trump, ever the wild card, then went rogue after the election and said he wanted to preserve TikTok because he believes for all the spying concerns and charges it warps young minds with anti-US propaganda, enough pro-Trump videos surfaced on the app that it helped him win votes in the 18 to 24 crowd that dominates its user base.
Upon taking office, he set a 75-day grace period to find a deal, which expires on April 5.
As I’ve been reporting, the White House has been scrambling to find a deal since the time clock started. As it stands now, it wants tech giant Oracle involved. The tech giant currently has the app in its cloud, and it will impose additional safeguards on TikTok’s new structure because even if a so-called “new co” is created with US investors that is legally separate from its owners, the Chinese tech firm ByteDance will still own its all-important algorithm that controls user preferences and is the conduit for any possible spy craft.
As I’ve also reported, Republicans like Sen. Tom Cotton, the powerful senator from Arkansas, have doubts any of this is enough to meet the conditions of legislation that demands a clean break from the Chinese.
Another complicating factor being discussed in recent days is that of the legal liability that equity investors might be faced with if the deal doesn’t meet legislation’s standards.
Both Cotton and Congressional staffers have raised the liability issue with potential investors, On The Money has learned, and the “civil penalties” section of the legislation lays out the grim reality. “An entity that violates subsection (a) shall be subject to pay a civil penalty in an amount not to exceed the amount that results from multiplying $5,000 by the number of users within the land or maritime borders of the United States determined to have accessed, maintained, or updated a foreign adversary controlled application as a result of such violation,” it reads.
You do the math: TikTok has an estimated 170 million users in the US, which means even a cash-rich company like Oracle doesn’t want to be on the hook for something that large, which might be why Oracle hasn’t yet publicly expressed interest in owning TikTok or being an equity player, just housing the company and its Chinese-owned algo in its cloud.
An Oracle rep had no comment.
Again, none of this is settled law. The legislation itself talks a lot about the president determining if the Chinese no longer control the algo; and Trump could say Oracle (run by his good friend, its co-founder Larry Ellison) is doing just that.
But that might not stop some litigious state AG with a Trump animus (think New York’s Letitia James) from filing a suit against all involved, and it’s easy to see how James might find a court to agree.
And even the most deep-pocketed tech or private equity investor can afford to foot that bill.
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