OpenAI has significantly reduced the time and resources allocated to testing the safety of its advanced artificial intelligence models. This shift has sparked concerns among critics and industry experts who fear that the groundbreaking technology may be deployed hastily, without adequate safeguards. Advocates for responsible AI development worry that such a fast-tracked approach could lead to unforeseen consequences.

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In todays edition, we delve into several critical topics:

• Arizonas transformative changes in legal regulations
• The escalating legal battle facing Byjus founders
• UBS chairs critique of proposed capital regulations
• The intriguing possibility of Big Law becoming private equitys next major investment

The growth of the private equity (PE) industry, which has reached a staggering valuation of $4 trillion, has been a boon for law firms that have benefitted from the multitude of deals facilitated annually. Beyond the initial transactions, the lifecycle of private equity deals often requires extensive follow-on work. This includes financing through debt, the management of additional acquisitions, adept handling of tax strategies, as well as litigation and sometimes navigating bankruptcy proceedings, collectively referred to as liability management exercises.

As private equity firms look to expand their horizons, they are now eyeing the potential for monetizing legal services as their next frontier. This innovative approach relies on intricate legal changes in several U.S. states, allowing PE firms to utilize savvy tactics similar to those employed in consolidating emergency rooms, dental practices, and accounting firms.

Arizona has become a pivotal testing ground for these changes, as it is the first state to lift the ban preventing non-lawyers from sharing in fees or profits derived from legal work. Other states, including Texas, Utah, and Washington, are contemplating similar legislative modifications.

Notably, smaller private equity firms such as Charlesbank Capital Partners have already begun to capitalize on this regulatory shift. Last year, they acquired a majority stake in Aprio, an Atlanta-based accounting and consulting firm. This acquisition is now being integrated with Radix Law, a legal practice located in Arizona. This collaboration is set to enable the consultancy to offer legal services under a newly established alternative business structure framework, potentially laying the groundwork for private equitys next significant consolidation strategy.

Moreover, other private equity groups like AlpineX are exploring a more potent model. Through its subsidiary, Briefly, AlpineX has acquired back-office assets from three law firms, subsequently charging these firms for various services. This arrangement mirrors structures seen in the accounting field, where over a third of Americas largest accounting firms have sold interests to private equity companies. Generally, these transactions allow the audit practices to remain under the control of the original partners while enabling private equity owners to extract value through service agreements that charge the practices for essential services, including technology support.

The appeal of these strategies extends to veterinary clinics and emergency healthcare facilities, with the theoretical possibility of applying such models to prestigious law firms in the near future. As Seth Deutsch, the founder of advisory group Samson Partners, points out, The legal industry is the only sector that has not yet harnessed this potential at scale, and this is certain to instigate profound changes.

Despite being in the nascent stages of development, the industry is abuzz with speculation on who will ultimately navigate this uncharted territory successfully.

If you have insights or comments regarding these developments, please reach out to the Big Reads authors at sujeet.indap@ft.com and stephen.foley@ft.com.

Meanwhile, in an equally dramatic twist, creditors of Byjus, once a celebrated Indian edtech startup, are intensifying their legal efforts against the companys founders in the United States. Once valued at a staggering $22 billion during its peak in 2022, Byjus attracted significant investments from leading financial institutions like BlackRock, Tiger Global, and the Qatar Investment Authority. This influx of capital enabled the company to embark on an ambitious acquisition spree.

However, the turning point came with the tightening of monetary policy by central banks after the COVID-19 pandemic, which led to a sharp decline in investment valuations, with stakeholders writing off hundreds of millions of dollars in losses. The ensuing court disputes have yielded bizarre and complex claims, including an initial battle over the proceeds from a $1.2 billion term loan that disappeared into the coffers of an obscure Florida fund linked to an American pancake chain.

Now, as reported by the Financial Times, a group of lenders has accused Byju Raveendran, the companys CEO, alongside his wife Divya Gokulnath and Chief Strategy Officer Anita Kishore, of executing an ongoing illegal scheme to misappropriate and conceal $533 million of loan proceeds. The couple, who once sponsored the Indian national cricket team and provided educational services to millions, have vehemently denied these allegations, dismissing the lawsuit as completely baseless and a part of a conspiracy to undermine their control over Byjus. Notably, Raveendran previously asserted that all loan funds had already been utilized.

The prospects of recovering any substantial amount from the couple, who have taken residence in Dubai, remain unclear. Furthermore, the creditors' attorneys have indicated in court documents that the cost of recovering the funds could render any potential victory a Pyrrhic one.

In another significant development, tensions have escalated between UBSs leadership and Swiss regulators regarding proposed reforms to the banks capital requirements. UBS Chair Colm Kelleher has openly criticized these proposed regulations, labeling them as extreme, indicating they could necessitate a 50 percent increase in the capital that UBS must hold. Kelleher revealed these concerns during UBS's annual general meeting, stressing that the Swiss Financial Market Supervisory Authority (Finma) and the Swiss National Bank's additional capital mandates could burden the financial institution significantly.

In light of UBSs recent history, particularly its involvement in the bailout of Credit Suisse, regulators are keen to prevent a recurrence of similar financial crises. However, UBS argues that the new proposals may hinder its competitive edge on the global stage. With UBS already adhering to some of the strictest capital requirements internationally, they contend that these additional stipulations could hamper their operations.

Moreover, the new regulations would directly affect UBS alone, as it remains the sole lender in Switzerland deemed systemically important. Executives at UBS are gearing up for a lobbying and public relations campaign to counter the impending regulations. As Kelleher emphasized, Let me be crystal clear: overregulation in Switzerland poses a significant risk to UBS's long-term success.

In job-related news, HSBC has appointed Richard Blackburn as the new group chief risk and compliance officer after two decades with the bank. Additionally, Bayview Asset Management has announced the hiring of Michael Timms and Colin Doherty to spearhead the launch of a fund finance investment business, with Timms having most recently worked at 17Capital and Doherty coming from JPMorgan Chase.

For those interested in broader market dynamics, the Financial Times reports on the tumultuous fluctuations in equity markets, highlighting that these violent swings are not limited to the elite but are impacting everyday investors on Main Street. Furthermore, Harvard Law School professor John Coates articulates a call to action for American businesses, particularly large law firms, to defend the rule of law amidst rising political criticism directed at them.

Lastly, in reports from Bloomberg, the fallout from the recent failure of a software company named Synapse has left some users without access to funds in FDIC-insured accountsraising questions about the robustness of safety nets in the financial sector.

In summary, the business landscape is marked by evolving challenges and opportunities across various sectors, underscoring the need for vigilance and adaptability in an ever-changing environment.

In brief, here are some other noteworthy developments:

• EY has been fined 4.9 million over audit failures related to Thomas Cook before its 2019 collapse.
• BlackRock has backed a $750 million private bond issue for Adani.
• Barclays has joined other lenders in reducing mortgage rates to below 4%.
• Abu Dhabi is ramping up investments in U.S. gas as it anticipates a boom in the industry.
• Tesco has warned of a potential dip in profits amid intensifying price competition.
• The government has put forward an offer to purchase coal for British Steel as negotiations continue.