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QUEST MEANS BUSINESS

Fear And Regulation; Social Media Stocks Keep On Sliding, And The Bosses Continue To Be Grilled On Capitol Hill; Les Moonves Is Mulling An Exit From CBS A Month After Sexual Misconduct Allegations Against Him Became Public; South Africa's Central Bank Governor Says Investors Should Not Put His Country In The Same Category As Turkey Or Argentina; The United States Is Heading Towards A Trade War On Multiple Fronts; Trump Blasts Opinion Piece By Unnamed Senior Official; Congress Grills Kavanaugh For The Third Day; India's Supreme Court Repeals Anti-LGBT Law; Actor Burt Reynolds Dies at 82; Theranos Shutting Down as Founder is Accused of Silicon Valley's Biggest Fraud; U.S. DOJ Charges A North Korean Programmer In Cyber Attacks; WOW Air Launches New Routes to New Delhi; New App Puts Advertisements Into Text Chat. Aired: 4-5p ET

Aired September 6, 2018 - 16:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


RICHARD QUEST, CNN INTERNATIONAL HOST: Closing bell ringing on Wall Street. Very strange order of the day, the Dow eking out a small gain, having been

down but that doesn't really tell the whole story because the tech stocks have been very sharply lower throughout the session. Yes, sir, one, two,

three. Excellent. Trading with a robust gavel is now concluded. It is Thursday, it's September the 6th.

Fear and regulation, social media stocks keep on sliding, and the bosses continue to be grilled on Capitol Hill. A ground-up view of the trade war.

Two business leaders explain the real costs of global tariffs. And flights to India on a shoe string. Wow, the CEO is with us during this hour. I'm

Richard Quest, live from the world's financial capital, New York City, where even on a down day or an up day or a middling sort of day, I mean

business.

Good evening. Some of the biggest names in tech have been caught up in a selling spiral today and while the chorus of questions from Congress may

have stopped, the selling has most definitely not. Social media stocks have certainly taken a strong hit. Look at the numbers. You'll see

Twitter, Facebook, Google, and Snap all off very sharply. By the way, for those of you who are interested in my Snap holding, you'll be pleased to

know that my Snap holding is now down some 64 percent.

Let's put it together and show you what's been happening in the trading post. This is what happens when you do a bit of traveling, come back with

a bit of a chesty throat. Now, the tech sector has been hit the hardest with all the major indexes falling. You've got the Dow that wasp by - Dow

was up, the S&P was down. The NASDAQ is down. We call that a red day today, please. Red even though the Dow is up. It's outweighed by the

other two. The NASDAQ is now off some 2 percent over the past week. There are still fears of regulation for technology companies.

On last night's program, we showed you how Facebook and Twitter executives were forced to defend their platforms and their business models in front of

members of Congress.

(BEGIN VIDEO CLIP)

SHERYL SANDBERG, COO, FACEBOOK: When bad actors try to use our site, we will block them. When content violates our policies, we will take it down.

And when our opponents use new techniques, we will share them so we can strengthen our collective efforts.

JACK DORSEY, CEO, TWITTER: We don't believe that we can create a digital public square for people if they don't feel safe to participate in it in

the first place, and that is our number one and singular objective as a company is to increase the health of this public space.

(END VIDEO CLIP)

QUEST: But those are still worries about the NASDAQ that continue to pull it down, and I think you really do see this closely. The Dow ekes out a

smallish gain, just barely. Boeing pulled it up. Boeing was the best performer in the Dow. The S&P is down, but the NASDAQ loses the best part

of 1 percent. Teddy Weisberg from Seaport Securities joins me from the New York Stock Exchange.

Yesterday and today, the tech stocks were being hurt, but what's the reason? What's behind it? What are you worried about in the market?

TEDDY WEISBERG, FOUNDER, SEAPORT SECURITIES: Well, you know, nothing lasts forever, and it's certainly not over for the tech stocks, but clearly you

can go back to when Facebook reported their earnings two or three weeks ago and they were somewhat disappointing, and that stock was down 22 percent in

one day.

Now since then, you've had a bunch of tech stocks make new all-time highs, but the fact is the sector is just simply out of favor, probably for a

couple of reasons, not the least of which is when you've got the government breathing down your back no matter what the issue, it does create a bit of

a cloud over a sector.

But overall, we've just seen a shift, if you will, sector rotation out of the techs, you know, into the broader market, and from the standpoint of

the overall stock market, Richard, that's actually not so - that's not a bad sign, that's actually healthy.

QUEST: So whilst the rotation continues or at least holds its own - but nobody would ever suggest for a moment that one has to stay away from tech

because at the end of the day, it is the Amazons, it's the Googles, it's the Apples, the Microsofts that are driving the economy and driving the

success of so many other companies.

WEISBERG: Well, clearly they have been the bellwether sector for four or five years without skipping a beat, but you know, things just can reverse

and go the other way and there clearly are issues, and there are issues.

[16:05:02]

WEISBERG: It doesn't mean that the growth both bottom and top line is still not there in the tech area, but for the moment, they quite frankly,

are just out of favor, and you know, it happens, and I don't think it's - I don't think I would abandon the sector for a heartbeat, you know, but you

just have to be a little careful for the moment.

QUEST: OK, which always begs the question, Ted, is this the classic buy on the dips? When you've got Amazon with its 52-week high at $2,024.00 now

maybe languishing at, what? $1,800.00 or whatever and you've got the same with Netflix, down 4 percent or 5 percent on a day, is this the moment

when, if you wanted to, or were minded to, you would start thinking about picking something up?

WEISBERG: Well, I think that's a fair question, and I think the answer is probably yes, but because in the past, if you had bought the weakness in

the tech sector - and we've seen periods like this before with tech stocks, it's turned out to be the right thing to do, and the overall direction for

the market continues to be positive, and I think that until that changes, you know, you want to buy - you want to buy the weakness. It's just a

timing issue, not so much, you know, when you buy them, it's really just timing.

QUEST: Good to see you, sir. Thank you. Ted Weisberg at the stock exchange.

WEISBERG: My pleasure.

QUEST: He's in the floor. Now, staying with the markets, shares of CBS closed up more than 3 percent. Les Moonves is mulling an exit from CBS a

month after sexual misconduct allegations against him became public. Now, Moonves is credited with building CBS into a massive empire. You know the

hit shows "NCIS," "CSI", "60 Minutes," "Big Brother," Moonves is also known for his bitter fight - it's extremely complicated - with his corporate

owner Shari Redstone's "National Amusements" and we're certainly not going to get into that in too much detail.

But Moonves and CBS have sued to block a merger with Viacom. CBS and National Amusements are now reportedly trying to resolve the dispute.

CNN's Media Correspondent, Brian Stelter is with me.

Brian, at the end of the day, forget the disagreements. He would be leaving because of why?

BRIAN STELTER, CNN MEDIA CORRESPONDENT: Because of the harassment and assault allegations that were leveled against him in the "New Yorker"

magazine. That was about six weeks ago, that was Ronan Farrow's reporting with some women on the record and you'll remember, at the time Moonves

admitted to making some mistakes in his past, but also vowed to fight. He did not step down. He was not suspended.

Now all the lawyers are involved and oftentimes when the lawyers get involved, you get to this point we're at now where there's talk of a very

lucrative exit package.

QUEST: I saw the figure of $200 million being quoted.

STELTER: Yes, he's owed about $200 million according to his contract that goes through 2021.

QUEST: But he's certainly not going to leave before that. Why would he?

STELTER: Willingly, why would you? So if they fire him one day for no good reason, that's how much he's owed. If they fire him because he was

allegedly harassing women in his past, then it's a lot more complicated, right? Then you're firing him for cause and it's going to be a big

negotiation and that's where we are now.

QUEST: We've always said that there would be a moment when a line would be drawn and people would say, "Look, that was bad behavior, but it doesn't

merit losing the person from the post." If what you're saying is true, then Moonves is not in that moment.

STELTER: I do think we're in a new phase of #MeToo, though, where it's more complicated. This is a CEO. There's an incredible amount of money on

the line and so he did not leave right away. It's been a battle and the battle continues. I mean, I know I spoke with one of Moonves' friends who

confirmed, yes, he is talking about leaving, but he may well be fighting this every step of the way and we don't yet know how this exactly this will

end.

QUEST: I have to ask you, I'm delighted to have you here so I'm going to throw anything I can.

STELTER: Oh, boy.

QUEST: OK, here you go. "The New York Times" article, the anonymous op- ed.

STELTER: Yes.

QUEST: How significant is it for the - because you used to - you were at the "Times" - to do an anonymous op-ed?

STELTER: It's only happened a few times in the paper's history and normally it's because the person's life is in danger, the person's life is

at risk. In this case, it's because the person's job is at risk. This person apparently wants to stay in the government, trying to be one of the

good guys, protecting the country from Trump, and so the "Times" did grant an anonymity for that reason.

It's not an uncontroversial decision, obviously, but I do think the "Times" is standing by it today. Meanwhile, its phone lines are burning up. The

White House Press Secretary urged the public to call and complain to "The New York Times."

QUEST: And finally, the President calls it constantly the failing "New York Times."

STELTER: Right.

QUEST: Is it failing?

STELTER: It couldn't be anything - I bet it couldn't be anything opposite from the truth. The paper is succeeding, partly thanks to the Trump age.

People are tuning in. People are reading. People are subscribing. Let's remember what Trump called the "New York Times" back in 2016, an American

crown jewel. He is not saying that today though.

QUEST: Good to see you, sir.

STELTER: You too.

QUEST: Thank you, Brian Stelter with us at the moment. South Africa's Central Bank governor says investors should not put his country in the same

category as Turkey or Argentina.

[16:10:07]

QUEST: He told the "Financial Times" those comparisons were unfair as the country gets clobbered by the emerging markets selloff. Now, if you look

at the emerging markets selloff, investors are worried. Investors indeed are worried - there we go - about "the herd" mentality, and that's really

what we're talking about here, the herd mentality of the market where everybody sees the direction and follows towards the door.

Now, it started, indeed, with Turkey. It spread to South Africa, China, and Indonesia with stocks falling, Argentina, and Brazil, their currencies

are falling. In all the different cases, we can pass a different reason, we can suggest an underlying difference between them, but the end result

remains the same. The herd mentality pushes them to the door.

Andres Velasco is Chile's former Finance Minister. He is in London tonight. Do you spot - do you believe the herd mentality now is well and

truly taking hold?

ANDRES VELASCO, CHILE'S FORMER FINANCE MINISTER: I think, Richard, the answer is yes. You see countries with very weak fundamentals, countries

that actually have pretty strong economies, but when the word on Wall Street and in London is sell, all the emerging markets begin to look alike

and I think we are in the middle of something that may be looking like a panic. The last two days haven't been quite as bad as the days before, but

some pretty reasonable economies are getting punished for the sins of others.

QUEST: What's the reason behind it? I know we could arguably say that it's because, for example, U.S. interest rates are going up higher, rising

higher, and U.S. growth is higher, therefore, better rates of returns in the United States versus currency risk. But that seems a bit simplistic

for why people would pull out of emerging markets?

VELASCO: I think it's a combination of psychological factors and real factors. Among the real factors, first of all, is what you just mentioned.

If you look at history, every time there's been a crisis in emerging markets, whether it's the Latin American debt crisis of the 1980s or the

Tequila crisis of 1994 or the Russian crisis of 1998, every time you had a spike in U.S. interest rates.

Of course, right now, we're beginning from very low interest rates in the U.S., but maybe what matters is the direction of change and that direction

is up.

QUEST: And do you see --

VELASCO: In addition, you've got at least two other things. One is a trade war and Trump's unpredictability and the other one, for a number of

countries, particularly in Latin America, is lower commodity prices. For a country like Brazil or Argentina, the price of wheat, the price of orange

juice, the price of soy; for Chile, the price of copper, those things are looking down and that matters a great deal as well.

QUEST: Well, let's stay with that. The commodity prices are down for, again, for a variety of reasons. Some of them currency related, some of

them trade related with tariffs as well, but the economies of Argentina and Brazil are in trouble to a larger or lesser extent for different reasons,

though, aren't they?

VELASCO: I think so. Today, I think they look pretty different. Brazil is sitting on about $350 billion of reserves, so nobody is expecting Brazil

to tank. What brazil is facing is a very, very uncertain election with a man who's leading in the polls locked up in jail for 12 years on corruption

counts, and a great deal of uncertainty as to who will be able to run in the end and who may win that election in October.

Argentina is a different story. Argentina, of course, is a country with a very long history of financial crisis, and one should begin by saying that

Argentina today has a pretty able government and is much better run than it has been in the past. However, you know, it is short of reserves. It did

have to go to the IMF for an emergency loan, and once markets get nervous, they begin selling and that's exactly what we're seeing.

QUEST: Right, and as you go around, whether it be Turkey, Argentina, Brazil - each may have its individual problems that creates this herd

movement predicated by an external event, say, for example, rising U.S. interest rates, but what breaks the herd mentality? What - so that

individually, you say, well, that country is worth going back into?

VELASCO: Well, if one knew exactly what the one trigger is for going back in, you know, we wouldn't be so nervous. The short answer is we don't

know. Once you begin expecting that everybody else will sell, the reasonable answer is, well, you sell as well, and that's exactly what's

been happening in Turkey, in South Africa, and in Argentina.

It gets to a point, of course, when you think that maybe in Argentina today, the currency is very much undervalued. It is beneath its fair value

so it may be time to go back in. And over the last couple of days, a bit of that been happening. Last week, the Argentine peso was trading at over

40 pesos to the dollar. Today it came down to 38.

[16:15:16]

VELASCO: So maybe we're getting to the point where people say this has gone on for too long, I will go back in. But truth of the matter is, it is

very hard to know exactly when the time will be.

QUEST: And I suspect if we could know when that time is, and could time it exactly, you and I wouldn't be doing what we're doing, we'd be going off

and doing it.

VELASCO: Well, we are having a lovely conversation, but yes, we would be sitting in front of a screen trading, and of course it's very hard to know.

I should say also that in the case of Argentina, I think the punishment exceeds the crime.

QUEST: Right.

VELASCO: It is true that Argentina made some mistakes in the recent past. It is true that Argentina has a fiscal deficit of about 5 percent of GDP,

but there are plenty of other countries in the world with similar fiscal deficits and you don't see the kind of market attack that Argentina has

been going through.

QUEST: Good to see you, sir. Come back again, please. We'll talk more about it. Thank you.

VELASCO: Thank you, my pleasure.

QUEST: As we continue, Tyrannous has crashed and burned, a little later in this hour. I'll be talking live to the journalist who took a hard look at

the company caught up in Silicon Valley's biggest court. A proof where journalism succeeds, later in the show.

The United States is heading towards a trade war on multiple fronts. We've talked about it often enough here on "Quest Means Business." Time is

running out to find a solution. Key deadlines are approaching fast, for example, tariffs on around $200 billion worth of Chinese goods could come

as early as tomorrow, Friday, certainly next week.

NAFTA negotiations with Canada have already blown past a self-imposed deadline, several of them. And a new set of trade negotiations is about to

start with EU leaders in Brussels. Leaders are trying to find solutions. Companies, though, have to compete and cope within the new trade landscape.

U.S. whiskey producers, for example, have been targeted with tariffs from the EU, China, and Mexico. That's the tit for tat, of course, for the

steel and aluminum.

Australian wine makers saw their products held up in Chinese ports as political tensions between Australia and China simmered. As for my next

guest, he's the CEO, chairman of international beverage giant, Pernod Ricard. He is Alexandre Picard, he joins me now. Good to see you, sir.

ALEXANDRE PICARD, CEO AND CHAIRMAN, PERNOD RICARD Very good to see you.

[16:20:03]

QUEST: We have - before we talk about your own individual company of which you very kindly brought some samples, we have to talk about this trade war.

How worried are you that you're getting tariffed at one, not at the other? It's becoming more complicated.

PICARD: Well, it is complicated in these days where we would qualify the environment as a new world order, where you do have geopolitical

uncertainty and also monetary uncertainty. For a business like ourselves, who operates in 86 different market across all continents, based on an

origins based business so all of our products come from Delaware - for sure, it's something we need to cope with.

QUEST: Are you being affected at the moment? Where are you being hit at the moment, if at all?

PICARD: Well, for the time being, we're not being hit. That being said, currencies do fluctuate. over the last 12 months, basically currencies have

weighed on our results.

QUEST: So when you get, for example, the dollar, which has appreciated, largely on the back of the trade war and the better economic performance in

the U.S.. The U.S. is a large market for you so you gain because you're earning in dollars. The problem of course is when you repatriate into the

results that you seem to have lost.

PICARD: Yes, from the dollar on one side is good, but weak emerging market currencies on the other side is not good.

QUEST: Right. We've been talking about emerging markets with our previous guest. So, tell me how that affects you.

PICARD: Well, we are exposed to emerging markets; 40 percent of our business is derived from emerging markets just like China, India, Latin

America, and Africa. That's where you see weakening currencies that aren't good for our reporting business.

QUEST: Strip away the financialese, if you like, of it. What's the actual core underlying business doing? Because I saw your 2018 results, up 6

percent and you were very happy with margins you were receiving even allowing for currency.

PICARD: It's absolutely true. We have had a very strong year over the last fiscal. Principally driven by all regions and that's great news.

It's diversification of the sources of our growth, coming from the U.S., by the way, but also China and India, for instance.

QUEST: So, consolidation within the large drinks groups has been one of those things that's happened again and again over many years. Have we

reached a point where further consolidation isn't feasible or reliable?

PICARD: Now what you're probably going to see in the coming months and years is what you've seen over the last few years as well, which is

targeted acquisitions, bolt on acquisitions within the industry, and basically buying new start-ups as well.

QUEST: And as for your products, which is your favorite?

PICARD: Well, one of my personal favorites is Jameson.

QUEST: Anything else?

PICARD: Which comes from Ireland, but I also am a big fan of Absolut.

QUEST: Right, the British champagne never goes amiss and good old cognac just before we finish. Can't leave without - I don't know what it is, but

we better keep it over here.

PICARD: That's tequila.

QUEST: Tequila to finish off. Right, well, I don't know about you, but thank you very much for coming.

PICARD: Pleasure.

QUEST: Just leave them where you see them, thank you. Now, it's not just the foreign nationals and multinationals that are feeling the trade heat

that was put so beautifully there by Alexandre Ricard. No, no. In Donald Trump's U.S. heartland of Missouri, manufacturers are laying off workers as

they labor under crippling steel tariffs.

Our next guess is the general operations manager of the largest producer of nails in the U.S. mid-continent, it's called Mid Continent Nail. He warned

that without a resolution, his company could close its doors by the end of this month. He is Chris Pratt. He joins me now from there. Good to see

you, sir.

CHRIS PRATT, GENERAL OPERATIONS MANAGER, MID CONTINENT NAIL: Good to see you. Good afternoon.

QUEST: How realistic is this crisis that you are facing? I saw you said - I mean, when I say, for example, that you could be out of business in a few

weeks or whatever, months, whatever, some will say, "Oh, he's just saying that."

PRATT: Well, you know, this is a dire need for our company. This hit us on June 1st, 25 percent increase on our raw materials that we can't compete

with import nails and our company is losing money month in and month out since June and it's just a matter of time if we do not receive the

exclusions that we filed for, our company can only lose money so long.

QUEST: OK, so, the President's answer has always been, get people to buy American, make America. So why can't you buy the wire and steel that you

need for your nails from American sources, then you wouldn't have the problem of the tariffs.

PRATT: Well, that's a double edged sword there. Two reasons; number one, currently, the U.S. industry does not have the capacity to supply me my

monthly needs at this point. I have been in contact with several of the U.S. manufacturers of my raw materials --

[16:25:13]

PRATT: -- and none of them have been able to commit to me that they can supply material. Number two --

QUEST: Now, that's half the problem, that they can't supply your need, you can go for an exclusion or a waiver, but there, there are thousands, tens

of thousands, and it's taking months to get that, is that right?

PRATT: That's correct. We filed our exclusions on June 18th, and here we are September 6th and we don't have an answer yet.

QUEST: So, if you can't get an exclusion and you need the ware, you could pay the tariffs and put up the prices or you could eat the margins on the

prices. What about that?

PRATT: Well, that's what we're doing right now. We're eating the margin. I mean, we're losing money every month. Our company has made a commitment,

and we're all in. We believe that our administration will fix this problem and use the tool that is built into the 232 tariff to actually do what we

need, which is give us the exclusions and save these 500 jobs in Missouri.

QUEST: So, when we pull it all together, can you still support the President and the administration's actions in introducing these tariffs,

bearing in mind it could send you bust?

PRATT: Well, I mean, of course there are good things and bad things. Right now, the problem is it's a misguided policy, and it's picking winners

and losers. You know, the whole intent of tariffs is to save American jobs, and right now, this 232 tariff is actually putting finished goods

manufacturing jobs in dire jeopardy of leaving the U.S., because there's no - 232 tariff does not cover finished goods coming in from countries like

China, Malaysia, Korea, and things of that nature, so when I have to raise my price 25 percent, we didn't even raise it 25 percent. We raised it 19

percent. They don't have to do that, and our customers can get their nails from imports.

QUEST: Right. Sir, Chris, I just - I need to ask, please, come back in the future. We want to follow closely what happens over the next few

weeks, which sounds like it's going to be critical for your company. So please, sir, I invite you to come back again and brief us and update us.

Will you do that?

PRATT: Yes, I will. Thank you for the opportunity this afternoon.

QUEST: Thank you, sir. As we will most definitely follow this, because this is economics in action. We talk about the numbers. We show you the

markets. We go through all the details but when you hear a CEO or an operation operations manager like that telling you they're about to go bust

or close to going bust because of a policy, it doesn't matter which are the politics behind it. That's when it really becomes clear what we're all

about.

Now, the rise and fall of a Silicon Valley darling, it's another example of the real life of business for owners, had powerful investors like Rupert

Murdoch, big ambitions, and it all unraveled spectacularly because of the report of one reporter. After the break.

[16:30:16] (COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest, there's more QUEST MEANS BUSINESS in just a moment. And the chief executive of WOW Air joins me to talk about their

new flights to India and the packing basement prices, how long could that continue?

And when you put ads on your text messages, yes, and think about it, you say no, but maybe you would if you got some money back. We'll talk to the

company that wants you to do just that. This is CNN, and on this network, the facts always come first.

Donald Trump is calling for the "New York Times" to reveal who in the White House wrote a scathing opinion piece about his presidency. The anonymous

author is described as a senior official who claims to be part of an internal resistance, the right to call the president immoral and reckless.

The White House is also pushing back at the allegations made in the Bob Woodward new book. Brett Kavanaugh is back on Capitol Hill for his third

day of Senate hearings to be a U.S. court -- Supreme Court Justice. A day dominated today by questions regarding the abortion law.

Earlier, Senator Cory Booker purposefully broke the rules of the Senate by releasing some of the nominee's confidential e-mails about racial

inequality. India's Supreme Court has struck down a law dating back more than 150 years that criminalized gay sex. There were cheers and tears from

LGBT activists when the decision was announced.

As one said, finally, we've been recognized by this country. The actor Burt Reynolds known for his leading roles in movies such as "Smokey and the

Bandit" and "Boogie Nights" and "Deliverance" has passed away. His agent told CNN, Reynolds passed away after suffering from a cardiac arrest, he

was 82 years old.

Theranos is finally shutting down or at least would appear to be. The start-up never recovered after federal prosecutors filed criminal charges

against the founder Elizabeth Holmes. Now, Theranos of course was the blood-testing company, it was accused of Silicon Valley's largest fraud.

Some big names lost huge sums because they would put Murdoch in the family of the U.S. Treasury Secretary Betsy DeVos. Each sinking more than a $100

million into the biotech. The "Wall Street Journal's" John Carreyrou exposed the collapse of Theranos. He wrote a book about it called "Bad

Blood" and he joins me now. Good to see you, sir.

JOHN CARREYROU, INVESTIGATIVE JOURNALIST, WALL STREET JOURNAL: Thanks for having me.

QUEST: So the whole thing starts from 2015 right about, three years on and the company looks like it's going out of business. Do you take vindication

or shy away from that?

CARREYROU: There's definitely a certain amount of vindication as I recount in my book. The company put up a big fight, and you know, came after me

and my employer, the "Wall Street Journal". My confidential sources were threatened with litigation, we were followed.

One in particular, Tyler Shultz; the grandson of the former Secretary of State George Shultz was put through a real ordeal. My story was finally

published after nine months of investigation in October 2015 and which by the way is almost three years ago, and yet, it's taken three years for this

company to close down --

QUEST: Right, and why was it that long, do you think? Because the criminal activity had taken place --

CARREYROU: Right --

QUEST: And yet, the company still sort of --

[16:35:00] CARREYROU: Right --

QUEST: I mean, the thing didn't work, the thing didn't do what it was supposed to do, why has it taken three years for its death --

CARREYROU: Right, so I think a normal, an entrepreneur, you know, with a sense of right and wrong -- once my story came out three years ago would

have said the game is up, you know, our shenanigans have been exposed. We still have more than $400 million in the bank, let's return that money on a

pro rata basis to investors and let me apologize to patients especially whom I put in harm's way and that's the end.

But what Elizabeth Holmes did instead is she dug in her heels and she used the more-than $400 million she still had to pay for lawyers to hide the

ball and try to ward off lawsuits. And it enabled her to, you know, keep postpone the federal charges and all the final fallback until now, but it

still has come to play.

QUEST: Right --

CARREYROU: Come to pass --

QUEST: When I read the stories of course, and followed it, I was never sure whether Theranos didn't work or couldn't work.

CARREYROU: So Theranos definitely worked on proprietary blood-testing devices altogether. There were about three durations of the machine, but

the latest one was years, really half decade or more from being ready and being reliable. It was called the Mini Lab.

And they went live nonetheless with their advantage finger-stick test, and so they were half decade from having something that was reliable.

QUEST: What's the lesson from this? Because biotech is still -- I mean, obviously, but you know, the issue of biotech has been a bubble within the

market. Put biotech -- it's been like that, put in block chain before your name now --

CARREYROU: Right --

QUEST: But biotech was the bubble. And what's the lesson we learned as investors from this?

CARREYROU: Right, so I wouldn't necessarily put Theranos in the biotech bucket, biotech to me are drugs that are very risky to develop and that

often fail. Theranos was more of a diagnostics company that said it was very much a medical company. It was a company with medical product in the

heart of Silicon Valley.

And I think Elizabeth Holmes' huge mistake was conflating those two things. Because Silicon Valley traditionally has been computers, computer hardware

and software and more recently smartphones, but it hasn't been medicine. And she conflated medicine and a diagnostics product with the culture of

Silicon Valley which has been fast and loose, fake until you make it.

The term was coined in the early '80s, vaporware, you can't do vaporware in medicine. Unfortunately, that's what they did.

QUEST: Good to see you, sir, thank you, thank you for coming in.

CARREYROU: Yes, thanks very much.

QUEST: A U.S. prosecutor have announced cyber-hacking charges against a North Korean computer programmer. The Justice Department says Park Jin

Hyok is linked to the Sony breach in 2014 and various other criminal intrusions. The Justice Department also says there have been no

communications with Pyongyang about Park or indeed any efforts to capture him.

CNN's Laura Jarrett joins me from Washington. Which begs the question, and you know, I can see a certain law enforcement reason for doing -- for

bringing the charges, but nothing is going to come of it.

LAURA JARRETT, CNN CORRESPONDENT: Well, Richard, we don't know, right now, the hacking conspiracy that several prosecutors revealed today against

Hyok, the computer programmer involved here with a wide-ranging and appears to have gone on for years.

We all remember that Sony hack in particular was a disaster for the entertainment company with embarrassing leaked e-mails and threats to

moviegoers surrounding the release of the studio's provocative film in 2014, the interview which involved that assassination plot against North

Korean leader Kim Jong-un.

And the Obama administration later imposed sanctions against North Korea in retaliation for the hack. But today, broad to light, the first criminal

charges, and that's important. And the Trump administration also slapped fresh sanctions on the programmer as well as Chosun Expo, joint venture;

the company that he worked for.

And we're told the investigation remains ongoing, but the timing is worth noting as just this morning, President Trump praised North Korea's leader

on Twitter saying Kim Jong-un of North Korea proclaims unwavering faith in President Trump, thank you, Chairman Kim, we will get it done together.

Richard?

QUEST: Thank you, bringing us up-to-date on that story. Long haul and low cost, a great way to get a budget vacation or your idea of health. WOW Air

is pushing the model even further, and it raises the issue how much further can it go? After the break.

[16:40:00] (COMMERCIAL BREAK)

QUEST: Disney world to Dublin for $150, you can go Detroit to New Delhi for about $200, extraordinarily low prices. From the Iceland Airline, WOW,

which is now launching new routes longer than we would normally expect from a low-cost carrier, I saw for myself, the idea of a low-cost carrier and

how Iceland is now becoming the hub for much of this change.

(BEGIN VIDEOTAPE)

QUEST (on camera): Icelandic WOW continued the world travel tradition of low-cost airlines, choosing silly names to brand the carrier. Hello?

UNIIDENTIFIED FEMALE: Hi!

QUEST: Hi --

UNIDENTIFIED FEMALE: Welcome on board --

QUEST: Thank you.

UNIDENTIFIED FEMALE: I love WOW, they have the best prices --

QUEST: This was a good way to get to London, was it?

UNIDENTIFIED FEMALE: We'll find out.

UNIDENTIFIED MALE: Pretty good, low screen and that's my new bum until you get the noble space here.

QUEST: Very good.

(END VIDEOTAPE)

QUEST: OK, now, low cost and long haul low cost which is coming in is not in, but it's the way in which WOW is linking everything through its

Reykjavik hub, that is interesting. Others have done something similar because the key here is Iceland, and WOW Air is growing rapidly.

The first flight to Paris was only six years ago, now it's forecast to carry 3.5 million passengers this year. And if you take those very long

flights, for example, the West Coast to India, well, what you're really doing of course is going up to Reykjavik and then straight the way down

across to New Delhi or indeed Tel Aviv.

The argument being people are prepared to do it to shorter whole places like London, Amsterdam, and they're prepared to do it for long haul. Skuli

Mogensen is WOW Air's founder and chief executive. Good to see you, sir, again, thank you very much indeed. And so you --

SKULI MOGENSEN, CHIEF EXECUTIVE OFFICER, WOW AIR: Thank you.

QUEST: It -- I guess people have always had to change somewhere. The question is you know, whether it was in the old days of London, Frankfurt

or Amsterdam, now you're basically saying, you can change in Reykjavik and do it for less.

MOGENSEN: Correct, I think it's quite obvious that if you draw the line, the shortest flight from Delhi to East Coast, North America, you actually

go straight over Iceland.

[16:45:00] So to use Iceland as a connecting hub makes perfect sense, it allows shorter flight time, less fuel burn, cheaper tickets.

QUEST: Does it destroy your model and the model of low cost carriers which is same aircraft, which of course you can't really do on these -- you have

to have larger aircrafts. Transfer of bags, all the different things that should keep low cost, low cost which could be destroyed by what you're

doing.

MOGENSEN: No, I think the fundamental idea was low cost, it's also to offer the best possible price and that's what the consumer wants. So all

we have to do is to operate a more efficient airline on the routes that we fly to than the main competition.

So if we can do that, we have a sustainable model to offer better prices, and that's what it's all about.

QUEST: How worried are you about Brexit? I mean, it's getting quite close. You're obviously coming under the umbrella for the EU. But from the U.K.,

what will you do if there's no deal in place?

MOGENSEN: I would be shocked if there's no deal in place when it comes to aviation. I think it would -- it's just a fundamental part of the global

community, and to see England becoming isolated in that regard is just -- I can't even imagine that.

QUEST: What's the underlining now current stake in place? You've got EasyJet with a new CEO, refining its product. You've got Michael Ryan

there, problems with the unions, problems -- but getting the fundamentals of costs right, and you've got the legacies all moving in, whether it's be

level, whether it's Euro wings, you've got the legacies all encroaching.

Where -- how does this play out?

MOGENSEN: So I think that's a testimony too that we have the right model. And so I think for us, it's key to continue to execute on the strategy, go

further east, further west to use Iceland as a hub, but also very importantly, to continue to innovate on the Icelandic(ph) revenue.

So our strategy from day one has always been -- we think the bear fare is becoming a commodity, so airlines have to innovate to make money from other

things beyond just the seat.

QUEST: Right, and I know you have a premium product, the -- well, of course, the yield is much greater, is that something you develop further or

do you just basically recognize, no, we've got a premium economy seat that's better than the box -- product that we're offering.

We aren't going to push towards life -- like banks.

MOGENSEN: No, I think you're absolutely right. So it's all about keeping it simple, we're offering our premium seats, it's becoming very popular the

-- especially the longer routes, and naturally so. And we still have a fantastic price point. So you get a premium seating with WOW, that is

maybe 50 percent less, 70 percent less than other premium products in the market.

So I think that's going to be very well received, and the key again is to keep it simple.

QUEST: Keep it simple and don't over extend. The world of aviation is littered with carcasses of airlines that thought they could fly everywhere.

MOGENSEN: Yes, well, we settled with Asia, North America and Europe.

QUEST: Oh, it's most of the world, thank you sir, good to see you, good to see --

MOGENSEN: Thanks --

QUEST: Skuli as always --

MOGENSEN: Thanks very much.

QUEST: I'll call you after the break, we spend our lives buried in phones. Well, farther way into advertise when you have text message, which means

just the thought of getting a text message and either before reading it or sending it, actually seeing an advert, a text, a commercial is nothing

sacred.

[16:50:00] (COMMERCIAL BREAK)

QUEST: Welcome back. The first-ever text message was received over 25 years ago, and it said Merry Christmas and was said to the director of

Vodafone. Now more than 60 billion texts are being sent worldwide. And that includes WhatsApp, Facebook Messenger and the like.

For the first time, some of those texts will carry advertisements if you download an app called SlamAd, it's really rather simple you think about

it. What it does is it joins a text message exchange, small targeted ads automatically appear within the chat. The sender is paid every ad up to

$50 a month.

The app clause will be used to make announcement from product launches and offer discounts. It's fascinating, but will it work? And do you and I

really want to have our texts interrupted with commerce of this sort. Joining me is the chief -- joint chief, again, good to see you, sir.

LEONARD BUTTERMAN, CHIEF FINANCIAL OFFICER, SLAMAD: Good to see you --

QUEST: Thank you sir --

STEVEN BROWN, CHIEF EXECUTIVE OFFICER, SLAMAD: Good to see you.

QUEST: Put this into perspective. The idea of doing this. You must think that there are people who will have their texts interrupted.

BROWN: Absolutely. We have gotten a great response from the app, it's popular, you're getting paid for what you're already doing. So if you're

texting, it's the app that pays.

BUTTERMAN: So the apps are placed imbedded inside the texting bubble and the user gets paid to see those ads.

QUEST: Right, but the ads have to be targeted. How do you do that in the sense of -- I mean, if I'm writing to my friend, you know, nice day today,

what are you going to do tonight, and there's nothing that obviously targets.

BUTTERMAN: Well, in that case, nothing will target right then and there. But let's say you and I are trying to meet for coffee, what time do you

want to meet for coffee, all of a sudden a Starbucks ad will come up and possibly say buy one, get one free at Starbucks.

So our ads are targeted towards our users, and our users want these ads.

BROWN: Correct.

QUEST: How come --

BUTTERMAN: OK, so --

QUEST: Nobody says users want these ads.

BUTTERMAN: Our quite demographic is 13 to 34 --

BROWN: Right --

BUTTERMAN: And our trial run and our proof of concept, we had 35,000 users sign up in three weeks, they want our ads and they want them all the time.

BROWN: And Richard, they're relevant to the age group. So what's happening is, these ads are -- they're going to punch through for certain

things that they enjoy.

QUEST: Now, I can certainly see, but this is where it gets really clever because the 30-second ad playing video that you see on a Web site just

pisses us all off and makes you click somewhere else. But if you get an ad that says 15 percent off X this movie tonight, well, that will be worth it.

BROWN: Absolutely, because you're -- you could be at that pizza place, you could be at that coffee, you know, restaurant or a location. And what's

going to happen is it knows where you are, it knows what you like.

QUEST: OK, now, this also requires my communication to go via your app.

BROWN: That's correct.

QUEST: Which of course, to be able to target that, it means you know what I'm sending and what I'm not, which raises questions of privacy. You are

effectively building up an entire database of what all your users are texting.

BUTTERMAN: OK, so we're analyzing what they say, but we're not doing any data mining.

QUEST: Right --

BUTTERMAN: We're taking what they say and we are targeting ads specifically towards that user.

QUEST: Now, you've got -- I hear what you say, but you will accept that the trust issue now becomes the onuses on you to prove that there will be

no misuse of the data or an unwarranted commercial use of the data. Would you accept that?

BUTTERMAN: Yes --

[16:55:00] BROWN: Yes, but remember, people love to get paid for what they already do. So they're willing to sacrifice some of that when they're

getting rewarded for something they're already doing. Like being able to put -- you know, a young man or woman can put money in a savings account or

--

QUEST: No, I don't deny, I'm not arguing that there's a compromise. I'm talking about you have a duty in terms of where you allow the data to go

and the safeguarding of the data and the privacy of the data.

BUTTERMAN: Yes, so we developed -- when we developed this technology which is patent pending in the United States and worldwide, we're patent-pending

right now. We developed this with privacy in our concern. So we made sure that our users opt in and they agree to all the privacy. And they want the

ads --

QUEST: Check --

BUTTERMAN: And they want the rewards.

QUEST: Final question, what have we come to? What have we come to when even my app, my texts have an ad?

BROWN: Well, wouldn't you like to --

QUEST: Did you make money off it, you make money off it more than I do.

BUTTERMAN: Oh, yes --

BROWN: We share that with you, yes.

QUEST: Generous of you.

(LAUGHTER)

BUTTERMAN: Yes, and we will be profitable at the end of the year --

BROWN: All right --

BUTTERMAN: Based on our -- so, we would be one of the only text start-ups that would be profitable at the end of the year.

QUEST: IPO next.

BUTTERMAN: You got it, that's next --

BROWN: Thank you so much.

QUEST: IPO, make off with the money and let's celebrate this. This --

BUTTERMAN: Yes --

QUEST: Excellent one --

BROWN: Thank you --

BUTTERMAN: Serious b (ph).

QUEST: Right, honesty leads your confidence, but better than that. We'll have our profitable moment after the break.

(COMMERCIAL BREAK)

QUEST: Tonight's profitable moment, just two more days, today and tomorrow of you and me being together at this time because from Monday next week,

QUEST MEANS BUSINESS moves an hour earlier. That means here in the U.S., it will be 3:00 in the afternoon and we'll be going into the final hour of

trade.

We're going an hour earlier because we've decided that last hour is crucial to understand the close and what comes next. So starting from Monday,

please set the clocks and we'll be -- you and I will be together a full hour earlier which will be 9:00 until 10:00 in Europe -- 8:00 until 9:00 in

Europe, in the U.K., and you can work out from the rest of the world.

And we'll enjoy the drama of the final hour of trade. I promise you, you wouldn't want to miss it, that starts on Monday. And that ends QUEST MEANS

BUSINESS for tonight, I am Richard Quest in New York. Whatever you're up to in the hours ahead, I hope it's profitable. But what will we do with

the walking and the stairs? You'll find out.

END