The Journal. - The Billionaire Keeping TikTok on Your Phone

Episode Date: September 28, 2023

TikTok had hardly any friends in the U.S. government when, earlier this year, the Biden administration and Congress threatened to ban the Chinese-owned video giant. WSJ’s Stu Woo profiles financier Jeff Yass, who made a big bet on the app and is a top donor to lawmakers opposing a ban.   Further Listening: - What’s Up With All the TikTok Bans?  - Exclusive: TikTok’s CEO on the App’s Future in the U.S.  - How TikTok Became the World’s Favorite App  Further Reading: - The Billionaire Keeping TikTok on Your Phone  Learn more about your ad choices. Visit megaphone.fm/adchoices

If you've got TikTok on your phone, it is reading your emails, it is looking at your photos, it is accessing your content list, and it is making that information available to the Chinese Communist Party. Period. That's Senator Josh Hawley, a Republican from Missouri. He's one of several lawmakers who've been trying to ban TikTok over possible ties with the Chinese government. TikTok, for its part, says it doesn't share user data with China. The social media platform could be banned in the U.S. Your phone will have one less social media app, TikTok. This has to be the sixth or seventh bill that is going after TikTok.

So at some point, one of these, you imagine, is going to get across the finish line. U.S. lawmakers stepping up the push to ban TikTok. Earlier this year, TikTok didn't have many friends in Washington. President Biden and members of both parties in both houses were calling for restrictions on the social media platform. were calling for restrictions on the social media platform. But then there was a shift, and the legislation that seemed to have momentum started to stall. Slowly, there was this trickle of Republicans who started making noise about how we shouldn't ban TikTok.

And those Republicans had something in common. They're sort of libertarian leaning. Our colleague Stu Wu started looking into what was going on. And I thought, oh, this is a neat story just about how libertarians have developed this little power base in Washington. And the more I dug into this, we realized, oh, there's something else that links them, which is funding from this guy, Jeff Yaz. which is funding from this guy, Jeff Yaz. Welcome to The Journal, our show about money, business, and power.

I'm Kate Leinbaugh. It's Thursday, September 28th. Coming up on the show, Jeff Yaz. Who exactly is he? And is he thwarting Congress's efforts to ban TikTok? Because the Skip app saves you so much time by delivering stuff like your favorite cool treats, groceries, and bevies, you get more time to have the best summer ever. Like riding roller coasters. Learning to water ski. Applying sunscreen to your dad's back.

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Ow. And then they put it in the mixing bowl. TikTok is owned by a Chinese company called ByteDance. And back in 2012, before TikTok was even created, ByteDance got money from a U.S. investment firm founded by a man named Jeff Yaz. Who is Jeff Yaz? Jeff Yaz is one of the richest people in America. He's a billionaire who runs a financial firm that

trades stock options and other securities. And he is a bona fide libertarian. He's been on the board of libertarian groups. His donation record has been really consistent. He's also one of the biggest political donors in the country. Have you ever met him? I have not. He's super secretive. He's given very few interviews. What is his interest in TikTok? His firm, Susquehanna, owns 15% of TikTok's parent company. Now, based on recent valuation, that could be a stake that's worth more than $40 billion. And he personally owns 7%, and that makes up most of his network. He'd be a billionaire either way, but that's a lot of his net worth.

Yaz is 65 years old. He grew up in Queens and went to SUNY Binghamton. While he was there, he also got into gambling. Like, seriously into gambling. He and his classmates played poker and went to racetracks. There's this really specific bet where you have to choose how seven horses finish in three different races. Oh yeah, what's that called?

I think it's called the super bet. So basically, if no one nails that bet, I mean it's really hard to pick how seven horses finish in three different races, right? If no one wins that bet, the jackpot rolls over to the next day and then keeps on rolling until someone wins it. It's like the lottery, right? It gets bigger when no one wins it. He figured out eventually that if he and his buddies pooled their monies

together, they could buy every single combination of that bet once a jackpot got big enough and make a lot of money off it. And that's exactly what they did. They did it so well that eventually the racetrack banned them. After college, Yaz and his friends decided to level up. They went into finance, a move that made them billionaires. In 1987, they started Susquehanna International Group. It was one of the earliest companies to use computers for rapid-fire stock option trading. Susquehanna later expanded into investing in startups, and one of those startups was ByteDance. Back in 2012, they invested $2 million in ByteDance,

and that was the year it was founded. It was still based in an apartment in Beijing back then, in a tiny little apartment with, I don't know, a couple dozen employees and a chef. ByteDance launched the app in 2016. Two years later, TikTok started taking off with hundreds of millions of downloads globally. And this was like the first social media platform from China that really took off in the U.S. Yeah, that's right. I can't think of another Chinese app or product that has been so popular, just even outside China. I mean, it's fair to say that TikTok is China's most successful tech export. When did it start raising concerns? In 2019, some senators, including Marco Rubio,

started raising concerns about TikTok's Chinese ownership. They're headquartered in Beijing. TikTok's Chinese ownership. They're headquartered in Beijing. And the concern was that they're afraid that under Chinese national security law, the Chinese government could ask TikTok to spy on American users or determine what videos they watch. But TikTok has always rejected this accusation that it shares American user data with the Chinese. So how does that idea start gaining steam? This picks up traction with the Trump administration. And in 2020, he tries to ban downloads of TikTok. So TikTok sues to try to stop that. And eventually the judges, two judges said President Trump overstepped his authority. After Trump lost his reelection bid, it wasn't clear what would happen to TikTok. President Biden comes in, there's a reset.

And eventually, they kind of reached the same conclusion, which is we think TikTok's a national security risk. And they basically asked TikTok to sell itself to an American owner or face a potential ban. Now, the problem was that they had the same issue as the Trump administration. They might not have the authority to ban TikTok. So they started working with senators, a bipartisan group of senators, to pass legislations that would give them more authority to ban TikTok. Late last year, Congress passed a bill that prohibits the downloading of TikTok on most federal government devices. This year, a handful of new bills targeting the app were floated in Congress. There was the No TikTok on United States Devices Act, the Data Act, the Restrict Act.

And a House committee summoned TikTok CEO, Shou Chu, to testify. Our witness today is Mr. Shou Chu, Chief Executive Officer of TikTok. You're recognized for five minutes. Thank you. Chair Rogers, Ranking Member Pallone, members of the committee, thank you for your time. I am Shou Qiu. TikTok decided we need to be more aggressive. We need to be out there in the public showing what we've been trying to do to gain the trust of the American government. So TikTok CEO, who's based in Singapore, decides, OK, I'm just going to go and make my case to the American people. ByteDance is not owned or controlled by the Chinese government.

It's a private company. 60% of the company is owned by global institutional investors. So one of the things that really struck me when I watched that congressional hearing was how bipartisan the hatred towards TikTok was. If you watched his testimony, you would have thought that Congress was going to ban TikTok for sure, you know, in the following months. Is there a corporation that has any authority above TikTok? TikTok is a subsidiary of ByteDance, which is founded by a Chinese founder.

And ByteDance is a Chinese company? Well, ByteDance owns many businesses that operate in China. Is it or is it not a Chinese company? Congressman, the way we look at it, it was founded by Chinese entrepreneurs. No, no, no, I'm not asking you how you look at it. Fact, is it a Chinese company or not? I knew Republicans wanted to ban TikTok. I wasn't quite sure how many Democrats wanted to,

but that hearing made it clear that, oh, this is like a bipartisan effort to ban this app in the U.S. But in the following months, none of those bills passed. They didn't even get a vote. That's next. Summer is like a cocktail. It has to be mixed just right.

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Air Mile. Just days after the heated testimony of the TikTok CEO, Senator Rand Paul gave a speech on the chamber floor. He spoke out in favor of TikTok. I hope center minds will reflect on which is more dangerous, I hope center minds will reflect on which is more dangerous, videos of teenagers dancing or the precedent of the U.S. government banning speech. He was unequivocal. For me, it's an easy answer. I will defend the Bill of Rights against all comers, even if need be, from members of my own party. I object. Did Rand Paul's support for TikTok surprise you?

Rand Paul is a pretty well-known libertarian. So I wasn't surprised. That was one senator, and I thought, what's one senator going to do? But then more and more started popping up. Republicans like Thomas Massey, Warren Davidson, Rick McCormick, and Harriet Hageman. And now there's this little block of people in Congress who oppose a ban, and that kind of really killed momentum. That's when the story got more interesting.

If it were just one senator, like, whatever, who cares? One senator who's voted, you know, for free speech issues, you know, his whole life, whatever. But now there's like a real powerful block with a lot of money behind them. And there was something in what these Republicans were saying that got Stu thinking. It sounded a lot like the talking points that TikTok has itself. And that's kind of when it struck me. It's how much are these guys coordinating? How much lobbying is going on?

I mean, it looked like something that TikTok, the company itself, would say. Stu dug in and found out that one of Rand Paul's largest donors is Jeff Yaz, the investor in TikTok. He and his wife have given Senator Rand Paul $24 million over the past decade, either directly to him as a candidate or to committees that support Rand Paul. Yaz's donations go beyond just Paul. He and his wife were the fourth biggest political donors in the last election cycle, giving almost $50 million to Republicans and Republican-affiliated groups.

And many of those lawmakers who Yaz has supported have recently come to TikTok's defense. When you look at the Republicans who have come out publicly and said, we don't want to ban TikTok via this bill, something that binds them together is that they all receive political backing from Jeff Yaz, either directly from political donations from Yaz and his wife, or through this political committee, the Club for Growth, which he's a big supporter of. What is the Club for Growth?

Yeah, so Club for Growth is this influential conservative political committee. And over the past decade and a half, Jeff Yaz has been their second biggest donor. He's given about 25% of their funds, according to federal records. So that's more than $60 million. How did these politicians respond when you asked them if there was a connection between the money they got from Yaz and their rejection of a ban on TikTok? They said that this is entirely consistent with our libertarian beliefs, that we want to protect free speech. This is not about paying a donor back or anything like that. We've been libertarians our entire career, and we protect free speech. This is not about paying a donor back or anything like that. We've been libertarians our entire career,

and we defend free speech. And if you ban TikTok, that would be harming free speech. A spokesperson for Rand Paul said the senator opposes censorship. Quote, anyone who asserts that his positions are mercantile hasn't been paying attention. The Club for Growth has also donated to lawmakers who've pushed for a TikTok ban, including Senators Josh Hawley and Marco Rubio.

And is it clear that Yaz is lobbying to prevent a ban on TikTok? It's not clear. It's clear that he opp a ban on TikTok? It's not clear. It's clear that he opposes banning TikTok. He told us that. We don't exactly know what kinds of conversations he's had directly with politicians. We do know that the Club for Growth

also opposes banning TikTok. They've made that public and is asking candidates, what's your position on TikTok ban? So you can consider that a form of influence by itself. But we don't exactly know whether Yaz has had direct conversations with lawmakers about the TikTok ban. But he has said he opposes the ban.

That's correct. He opposes banning TikTok and he says that's entirely consistent with his libertarian beliefs. It's also good for his wallet. Oh, definitely. I mean, his 7% stake in TikTok's parent company could be worth $20 billion or more. And banning TikTok would make it worth a lot less.

Oh, yeah. I mean, the U.S. is TikTok's most important market. I mean, the U.S. is TikTok's most important market. And where does TikTok stand at this moment in terms of this backlash against them and the national security concerns? TikTok's in this limbo right now because the Biden administration has said, you know, we want you to be sold to an American company or face a ban. There's a bunch of Democrats and Republicans who want to ban TikTok, but there's no political will right now. A lot of people I talked to in Congress said, you know, the moment's kind of passed. And with the election coming up, nobody really wants to talk about banning this thing that 150 million Americans use. So I think it kind of suits them. They get to continue operating, they get more popular, people are still downloading TikTok every day. And then we'll

see what happens after the election. Is there going to be a new president that's going to be more aggressive about banning TikTok? I don't see anything happening until at least, you know, next November or beyond. So Yaz has won for now. For now. That's all for today, Thursday, September 28th. The Journal is a co-production of Spotify and The Wall Street Journal. Additional reporting in this episode by John McKinnon. Thanks for listening. See you tomorrow.