The Morning Risk Report: The Shortcut That Allows Risky Startups to Raise Billions From Rookie Investors

Good morning. Risky startups with a flair for digital marketing are using a regulatory exemption that allows them to hype their moonshot products and raise huge sums of money from individual investors, according to the WSJ’s Dave Michaels.

• How it works. Two companies with completely different products—one is designing three-wheel solar cars, the other builds tiny houses that unfold like tents—exemplify this growing segment of the market, known as crowdfunding. Tens of thousands of small investors have poured $170 million into Aptera Motors and Boxabl, but have little to show for it.
   
• Harm to investors. The companies have sometimes misled investors as they burn through tens of millions of dollars, struggle to generate sales, and continue to seek more money, according to people close to the companies, internal documents and whistleblower complaints filed with the Securities and Exchange Commission.

  Aptera has been telling investors for three years that it would soon deliver its first solar-powered car but still hasn’t shipped any. Tiny-house maker Boxabl says its wait list exceeds 175,000 customers, but it has sold only six units this year, according to its most recent disclosures.
   

• A loophole. The SEC approved the exemption nearly a decade ago, as part of an effort to make it easier for smaller companies to raise capital. Known as Regulation A, the technique allows businesses to annually raise as much as $75 million while complying with lighter-touch rules than a traditional initial public offering. These companies have raised billions of dollars from hundreds of thousands of Americans with little oversight.

White House prepares to tap derivatives regulator to oversee FDIC.

The White House is close to naming derivatives regulator Christy Goldsmith Romero to head the Federal Deposit Insurance Corp., replacing the beleaguered banking agency’s longtime chairman Martin Gruenberg.

Gruenberg bowed to pressure to resign from the FDIC in May after an external investigation found widespread sexual harassment and other misconduct at the agency and lawmakers in both parties berated his leadership. He said he would step down after a successor is confirmed by the Senate.

BP tightens rules over office relationships after former CEO’s departure.

BP tightened rules related to workplace relationships among employees, requiring all staff to disclose intimate relationships at work and mandating that senior leaders disclose any such relationships that have occurred in the past three years.

The move followed the high-profile departure last year of former Chief Executive Bernard Looney, who resigned after the oil company said he hadn’t been fully transparent about past personal relationships with colleagues.

• The Food and Drug Administration and Justice Department said Monday they were forming a multiagency task force to crack down on the illegal distribution and sale of e-cigarettes.

Scammers’ new way of targeting small businesses: impersonating them.

Copycats are stepping up their attacks on small businesses.

Sellers of products including merino socks and hummingbird feeders say they have lost customers to online scammers who use the legitimate business owners’ videos, logos and social-media posts to assume their identities and steer customers to cheap knockoffs or simply take their money.

• Dockworkers at America’s East Coast and Gulf Coast seaports canceled labor talks that were due to start this week and raised the possibility of a strike later this year at some of the country’s biggest trade gateways.
   
• Boeing’s factories are populated by new employees, many of them younger than their predecessors and with no experience related to building airplanes.
   
• Investors will obsess Wednesday over whether Federal Reserve officials pencil in one or two interest rate cuts this year. The fixation on the quarterly rate projections obscures remarkable cohesion among rate-setters over their wait-and-see stance.
   
• Wages in the U.K. continued to grow rapidly in the three months to April, a concern for the Bank of England as it prepares for a policy meeting next week.
   
• Australian businesses reported a reacceleration in inflation pressures in May despite the backdrop of a lifeless economy. 
   
• An armada of old tanker ships has sprung up to move sanctioned Russian and Iranian oil, putting sailors in peril and threatening environmental catastrophes.

• Secretary of State Antony Blinken began a three-day tour of the Middle East on Monday, meeting with leaders in Egypt and Israel to push a cease-fire plan promoted by President Biden that has been met with skepticism by Hamas and Israel.
   
• Donald Trump’s proposal to make workers’ tips nontaxable introduces an untested idea to raise take-home pay that would encourage businesses and employees to recharacterize taxed wages as untaxed tips.
   
• Apple on Monday unveiled “Apple Intelligence,” a systemwide update to software on its devices that the company said could offer a personalized version of generative artificial intelligence to users.