Good morning. Andrew here. The Epstein fallout has claimed its latest high-profile casualty: Brad Karp, a consigliere to many powerful C.E.O.s, has stepped down from his longtime role as chairman of the law firm Paul Weiss. Karp’s position had grown increasingly precarious after a highly contentious settlement with the Trump administration — a move pushed largely by Scott Barshay, the firm’s star rainmaker. Now Barshay is set to lead Paul Weiss, symbolizing a shift at the firm that was once defined by an elite litigation department and is now defined by a huge corporate M.&A. shop. We also take a look at Alphabet’s earnings and big — as much as $185 billion — A.I. spending plans, as well as cracks in the private credit market, which I’ve been worried about for a while. More below. (Was this newsletter forwarded to you? Sign up here.)
Epstein ties cost a top lawyer his jobThe Justice Department’s latest release of files related to the convicted sex offender Jeffrey Epstein has led to the downfall of a senior British politician, spurred an examination of an N.F.L. team co-owner and raised questions about the U.S. commerce secretary. They have now also cost Brad Karp, one of corporate America’s top legal advisers, his job, as the world continues to scrutinize Epstein’s ties throughout Wall Street, Silicon Valley and beyond. Karp resigned suddenly last night as chairman of Paul Weiss, a major law firm. (He’ll be replaced by Scott Barshay, the firm’s top M.&A. rainmaker, though he will continue to advise corporate clients.) The move came after the Epstein file release revealed that Karp had been a guest at the convicted sex offender’s New York mansion and had exchanged several emails with Epstein. Karp had also asked for help getting his son a job on a Woody Allen movie. At Paul Weiss, some lawyers expressed anger and embarrassment about the revelations, The Times reports. Senior partners had deliberated for hours about the consequences of the revelations before Karp announced his resignation as chair, according to The Financial Times. Karp had already drawn criticism last year over a deal with President Trump to have Paul Weiss sidestep an executive order punishing some law firms seen as adverse to the president. The fallout from the Epstein files continues. Another email exchange between Epstein and Kathy Ruemmler, now Goldman Sachs’s general counsel, raised questions about what she knew about the financier’s activities, The Financial Times reports. (Goldman has defended Ruemmler; a representative for Ruemmler told The FT that she didn’t know about Epstein’s crimes.) The release also shed more light on Paul Barrett, the trader who managed Epstein’s money in his later years. Silicon Valley is reckoning with its own ties to Epstein, who networked at events like TED talks and forged relationships with prominent investors and entrepreneurs, The Times’s Ryan Mac, Erin Griffith and Matthew Goldstein report. Among his connections:
Epstein also met with Masha Bucher (then known as Masha Drokova), a P.R. specialist who eventually became an investor, to connect with tech journalists from Forbes, The Times and other publications.
Bitcoin plunges after Scott Bessent rules out a rescue. The cryptocurrency dropped below $70,000 this morning, the first time since 2024, after Bessent, the Treasury secretary, said at a House hearing yesterday that he didn’t have the authority to invest U.S. tax dollars in the token. Bitcoin has lost about 40 percent of its value since breaking $120,000 in October, as investors moved to precious metals and other safe-haven assets. The Washington Post cuts almost 40 percent of its journalists. The newspaper laid off about 30 percent of its staff, including 300 of its 800 journalists, and will shutter its books and sports sections. The cuts underscore how Jeff Bezos, who has owned the publication since 2013, has failed to stem years of financial losses; Bezos has drawn criticism for his recent oversight of the company, including the blocking of an endorsement of Kamala Harris before the 2024 election. A federal agency accuses Nike of discriminating against white workers. The Equal Employment Opportunity Commission said it was investigating “systemic allegations of D.E.I.-related intentional race discrimination” against white employees and job applicants at the sportswear maker. It appears to be the first time that the commission has said that diversity, equity and inclusion practices can amount to workplace discrimination, a stance in line with President Trump’s claims of “reverse racism” in American business and education. Google opens its walletNot even Google is immune to market worries about an artificial intelligence bubble. Shares in Alphabet, the tech giant’s parent, fell as much as 7 percent in after-hours trading yesterday, despite it beating expectations for its bottom line. The reason: Google announced plans to keep investing heavily in A.I. infrastructure, even taking on significant debt to do so, raising questions about whether the effort will pay off. The latest: Alphabet’s fourth-quarter revenue rose 18 percent year-on-year, to $113.8 billion, while net income grew 30 percent, to $34.5 billion. But investors focused on the tech giant’s announcement that spending on capital expenditures would double in 2026 to $175 billion to $185 billion, largely because of A.I. expenses. Sundar Pichai, Alphabet’s C.E.O., defended increased spending as being supported by a rise in profits in its advertising and cloud computing arms. “Our capex spend this year is an eye towards the future,” he said, adding that the demand for its services was “exceptionally strong” — as was the need to keep investing in A.I. Big Tech is going into debt. Alphabet sold $25 billion in corporate bonds in November, and its long-term debt quadrupled year-on-year in 2025 to $46.5 billion. Morgan Stanley expects so-called hyperscalers to invest $3 trillion in A.I. infrastructure by the end of 2028, much of it funded by debt. (More on the growth of A.I.-related debt fears below.) Profits aren’t enough. The reaction to Google’s earnings is similar to what happened to Microsoft last week. Investors also appear to have changed their mind about Meta, whose stock initially rose after disclosing huge spending plans last week because the company was able to draw a direct line between A.I. investments and its core advertising business. Shares in Meta have fallen since then and are now close to flat. This is potentially ominous for smaller tech companies like Oracle, which are looking to raise huge sums of debt and equity to keep up in A.I. without the huge profit streams of Alphabet, Meta and Microsoft.
Chart of the day: software slams private creditThe sell-off in software stocks has been swift and brutal, as concerns about the potential disruption of artificial intelligence tools like Anthropic’s Claude erased hundreds of billions in market value. Now those worries have spread into the credit market, Niko Gallogly writes. Yesterday, the price of the average software loan fell to its lowest point this year, to 90.5 cents on the dollar from 94.7 on Jan. 1, according to PitchBook. It shows how A.I. fears are spreading into other parts of the market. Loans are typically considered less risky than stocks because debt holders are repaid before equity investors. As of late January, $25 billion of loans traded on the Morningstar LSTA US Leveraged Loan Index were considered distressed. All of this is alarming for private credit investors, who are heavily exposed to software. (Private credit, loans made by nonbank institutions, has been growing rapidly in recent years.) About 17 percent of investments from so-called business development companies — publicly traded investment funds that are mostly managed by private credit firms — are in software companies, according to PitchBook.
Shares in many publicly traded players in private credit have been hammered lately: those in Blue Owl Capital, a major lender, are down 16 percent over the past five days. The pain could also trickle down. Retail investors are increasingly buying into private credit after regulatory changes lowered barriers for individuals. “Your mom and grandma and your friend from high school” could be caught up in this, Finian O’Shea, an analyst at Wells Fargo, told DealBook. State budget officials push back against ICEDemocrats are proposing conditions for continuing to fund the Department of Homeland Security, including restrictions on federal agents carrying out President Trump’s immigration crackdown. But pushback on the aggressive tactics used by Border Patrol and ICE agents has also come from a more surprising group: state fiscal officers. A group of state treasurers, auditors and comptrollers — all Democrats — from 15 states sent a letter to Trump yesterday, expressing their “outrage and alarm” over the enforcement actions. They argued that ICE crackdowns were bad for local businesses and tax revenues, The Times reports. The officials said that forcing them to absorb the fiscal effect of the enforcement activities was “ not acceptable.” They added that many of their states sent more tax dollars to Washington than they had received in federal support. Here’s an excerpt from the letter: The economy fundamentally depends on people producing goods, providing services and participating in commerce as workers, consumers and business owners. For an economy to function, people must feel safe to go to work, operate businesses, travel to commercial districts and engage in everyday economic activity. When fear disrupts these basic conditions, production slows, consumption declines and the economic system that supports public revenues begins to break down. Our responsibilities require us to safeguard state fiscal health, manage public funds prudently and ensure the economic stability our budgets depend upon. The enforcement operations currently underway across multiple states threaten to produce economic harm that directly undermine these obligations. Tom Homan, the White House border czar, said yesterday that the federal government would withdraw 700 law enforcement officers from Minnesota, leaving about 2,000 officers. We hope you’ve enjoyed this newsletter, which is made possible through subscriber support. Subscribe to The New York Times.
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