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New Russia Sanctions; Russian, US Markets Rally; Battle Over Alstom; Pfizer Eyes AstraZeneca; European Stocks Up; Clippers Sponsors Jump Ship; Racism in Sport; NBA's Options

Aired April 28, 2014 - 16:00   ET



RICHARD QUEST, HOST: The market is up, social media and tech stocks took a bit of a drumming. When all was said and done, global payments -- hit the closing bell, do it twice, three. It's three times up, which means it must be, it's Monday, it's April the 28th.

Tonight, a new phase in the sanctions on Russia from the West. Moscow prepares a painful response. We'll have the details.

Also tonight, a transatlantic tug of war. GE and Siemens both want a bit of the same French company.

And cutting loose from the LA Clippers. Sponsors are bowing out big time after the team's billionaire owner was accused of racist remarks. What did he say, and why are they pulling out?

I'm Richard Quest. It's Monday, and I mean business.

Good evening. Strong words tonight from Russia. "Meaningless, shameful, and disgusting." That's their stark response to another wave of sanctions aimed at President Putin's inner circle. And Russia is promising Washington what they're describing as a "painful" response in reply.

The US president on a visit to the Philippines said it's nothing personal against Mr. Putin. He said he's urging the Russian president, walk the walk and find a diplomatic solution over Ukraine.


BARACK OBAMA, PRESIDENT OF THE UNITED STATES: The goal here is not to go after Mr. Putin personally. The goal is to change his calculus with respect to how the current actions that he's engaging in in Ukraine could have an adverse impact on the Russian economy over the long haul, and to encourage him to actually walk the walk and not just talk the talk when it comes to diplomatically resolving the crisis in Ukraine.


QUEST: So the next round of sanctions has been announced, and taking a look a the strategy, it is to tighten the net on President Putin's inner circle. Join me at the super screen and you'll see what I mean.

There, of course, is President Putin. Now, we had the first round of sanctions in March. That first round of sanctions was aimed at people like the president's chief of staff and business allies, such as the chairman of Russian Railways and the personal bank for senior officials.

Now, then you go to -- so, you've got the March sanctions at the outer circle. Then, today, you have an inner circle, which includes Igor Sechin, the president of Rosneft, Russia's biggest petroleum company. So now, you're actually attacking not only people close to President Putin, but also those in the corporate hierarchy of Russia.

You have Dmitry Kozak, the deputy prime minister under Mr. Putin. You have Sergei Chemezov, longtime, long-standing Putin ally, according to the White House. And you have various institutions, like the Invest Capital Bank and SMP Bank.

The White House says that they're controlled by Putin advisors, these particular banks, by advisors Arkady and Boris Rotenberg, and they were already named in phase one. Any assets in the United States will be frozen, and these people and these institutions will be banned from doing business in the United States.

And also, they are tightening up the export restrictions on high-tech equipment which could help the Russian military.

So, as you can see, you have two sets now. You have the March sanctions, you have an inner circle sanctions, and you have corporate sanctions. Our senior White House correspondent, Jim Acosta, is in Manilla. He's with President Obama.

The goal here -- when we look at these sanctions, we see names that we might not be familiar with, institutions we might not know. But they've been very carefully controlled and targeted, haven't they?

JIM ACOSTA, CNN SENIOR WHITE HOUSE CORRESPONDENT: They really have, Richard. And even though you heard the president say this is not really about going after Vladimir Putin personally, this is about getting his attention, don't make any mistake about it.

All of these officials -- nearly all of these officials and these companies that are being targeted by these sanctions have been identified as people who are close to or a part of Vladimir Putin's inner circle.

And so I think what the United States is saying is that Russia, you still have a chance. You still have a chance to take a diplomatic path here, to help deescalate those tensions in eastern Ukraine.

And if you don't, here's what's coming next -- the president was very clear about it -- the sectoral sanctions would be coming next, those sections of the Russian economy that would be hit include the banking industry, the energy industry, the defense industry, and so on.

And so what President Obama is trying to say is look, there's still a chance to resolve this before it gets even more difficult for the Russian economy. At the same time, administration officials, they do hear the noise coming out of Washington that these sanctions just aren't that severe.

They do point out that Russians -- the Russian economy has been downgraded in its credit rating to BBB, one step above junk bond status. And so they sort of feel like they are having an effect on the Russian economy, if it hasn't changed Putin's behavior just yet.

And the president was very frank about that yesterday at a news conference here in Manilla. He knows that Vladimir Putin has not changed his approach as a result of these sanctions.

But Richard, the hope is that over time -- and the president has been very patient about this and almost stubbornly patient in the eyes of many people in Washington -- they're going to let this ratchet up over time, slowly build up over time and see if that --

QUEST: Jim --

ACOSTA: -- cumulative pressure will eventually change the Russia calculus.

QUEST: Have they got the stomach for the fight, or at least the sanctions fight?

ACOSTA: I do think the president has the stomach for the fight. I'm not sure the top officials of the this administration have the stomach for this fight. They realize that this is going to be very difficult, that it is somewhat embarrassing to ratchet things up and then not see the desired effect.

There are administration officials who have told me that inside the White House, the treasury secretary, Jack Lew, is somewhat uncomfortable with this. They know full well that their European allies are not fully onboard with sectoral sanctions. In fact, that's part of the reason why you haven't seen them up until this point, Richard.

And at the same time, what we heard yesterday from this president is that when you bring up whether or not your foreign policy is having an effect, sir, it does sort of open up a testy exchange from this president. He's been on the defensive on several occasions during this Asia trip, where he has defended his policy, not only in Russia, but against Syria and so on.

And you heard the president sort of testily say yesterday that many of his critics maybe have forgotten the lessons of the last ten years after the Iraq War and that perhaps they're under some sort of mysterious illusion that by sending arms to the Ukrainians that that would somehow deter the entire Russian army. He was pretty defensive about this yesterday, but he's confident that this policy eventually will work.

QUEST: Jim Acosta, who is in Manilla, where if it's anything like Kuala Lumpur last week, I imagine it's rather warm and toasty, even though it's the middle of the night. Jim, many thanks, indeed.

Russian investors appear to have shrugged off the sanctions we're talking about. They were, indeed, expecting far worse. The MICEX staged a rally, somewhat perversely and maybe rather worryingly -- well, worryingly for the president with his sanctions -- up 1.5 percent at 1299, albeit from a low level.

The US markets also rallied. The Dow Jones Industrials was up 87 points. There was this one middle blip during the course of the early afternoon before a strong rally to the end of the day.

Interestingly, if you look at why the market -- or the areas of the market that were down sharply, today it was social media that felt the full wrath of investors, and particular some like Weibo, the Chinese internet company or social media company, which is now dangerously back towards -- it fell 10 percent and is now dangerously back towards its IPO price of a couple of weeks ago. The markets as they stand.

When we come back, there is a fascinating potential transatlantic merger battle. Who's going to finally get a French company? Will it be the Germans or the Americans? I'm not being xenophobic. We'll have the details after the break.



QUEST: Now part of the French company Alstom is for sale, and there's a potential transatlantic battle over who will finally get hold of it. Alstom is one of France's biggest employers, and what it makes, of course, is the big things, the expensive things. High-speed trains, for instance, and very large power turbines. It's the energy part -- it's the energy part, the turbine bit, that is up for sale.

Now, who wants to buy Alstom? This is where the battle comes from. Because on the one side, on the one hand, you have General Electric of the United States, which is offering about $13 billion for the power business. The companies have reportedly been in talks for months. And so, you get a GE and an Alstom which seems to make quite a nice bit of sense.

But then over the weekend -- move to the other arch and you see French governments are now urging Alstom to consider Alstom plus Siemens, a German offer instead. Siemens is reportedly offering part of its rail business for the Alstom energy business.

This is an interesting potential dispute, which goes to the heart of transatlantic business. Will it be GE? Will it be Siemens that finally get Alstom? Both camps held separate meetings with the French president, President Hollande. Here you see the GE boss, Jeffrey Immelt, and the Siemens chief exec, Joe Kaeser, leaving the Elysee Palace.

Immelt was also supposed to meet the French economy minister. That is a meeting which has been postponed. The minister says the deal with Siemens is more in line with France's interests.


ARNAUD MONTEBOURG, FRENCH ECONOMY MINISTER (through translator): French businesses are not prey. On the other hand, we are open to alliances that help to equip us for globalization.

We have arranged the possibility for France and for Alstom to give itself the choice. The choice is that we don't have just one solution, but many, and that these solutions grant taking into account the national industrial interests of the country.


QUEST: Fascinating. There you have it, lined up in a sentence, the national industrial relations of a country. And staying with that, a second US company is looking to take over a US -- European rival.

Pfizer, of the US, is having another go at buying AstraZeneca after a failed attempt in January. Shares in AstraZeneca are up more than 14 percent in London. CNN's Jim Boulden on the latest in the pharma wars.


JIM BOULDEN, CNN INTERNATIONAL CORRESPONDENT (voice-over): As drug deals go, this would be one of the biggest: US pharma giant Pfizer has gone public with its desire for a marriage with UK number two drug firm, AstraZeneca.

Despite the deal being worth nearly $100 billion, AstraZeneca has rejected Pfizer's proposal twice. Astra's official response on Monday said the original offer from January had significantly undervalued Pfizer, and it has not seen anything in the new proposed bid to change its mind or to renew talks.

This proposed merger comes in the midst of Q1 reporting season. German health care and drugs giant Bayer reported steady growth Monday. Its CEO, Marijn Dekkers, is not surprised by all the talk of mergers and acquisitions.

MARIJN DEKKERS, CEO, BAYER: If you look at the cycle of M&A in the pharmaceutical industry, every five to seven years, there is an increased activity in M&A. And this time around, I think there are still similar issues as we have seen a number of years ago.

BOULDEN: Those issues are driven by massive cost pressures, how to deliver new drugs with long patent protection, keep research and development budgets healthy but bring costs down while governments pay less for new drugs.

DEKKERS: That pressure just makes it tougher and tougher to, in a way, justify these very, very high expenses in R&D. And companies coming together, sometimes with more focus on what they're really good at in the portfolio, makes it easier to continue to significantly invest in R&D for new drugs.

BOULDEN: Britain's largest pharma firm, GSK, and Swiss giant Novartis, have come up with a novel non-merger plan. They've announced a deal to swap assets to better focus on certain sectors inside health care.

ANDREW WITTY, CEO, GLAXOSMITHKLINE: I've always said I'm not very keen on doing the traditional big merger. Why? Because by doing those mergers, of course you can bring into your company some of the things you want, but you always end up with things you don't want. And that drives distraction and risk and the like.

BOULDEN: But mergers do mean parts are sold off, many times, demanded by regulators. And that provides new acquisition targets.

DEKKERS: If right opportunities come along, we'll definitely take a very good look at it. We're very alert of what's going on in the industry.

BOULDEN: It's only April, and according to deal logic, $128 billion worth of pharma M&A has been announced, and that's without Pfizer's $100 billion marriage proposal. This could be the year that drug deals hit historic heights.

Jim Boulden, CNN, London.


QUEST: Now, with such enormous money being spent and the potential for more, it's not surprising the markets in Europe closed higher as well. Stocks on the merger and acquisition moved in pharmaceutical sector. There were strong results from Germany's Bayer, you heard the chief exec there. And despite jitters over new Western sanctions against Russia, that's the way the markets performed.

When we come back, this extraordinary battle. Americans -- advertisers, I beg your pardon, are abandoning the Los Angeles Clippers after a racist tirade that's attributed to the team's owner. It all happened over the weekend, and the sponsors have been heading for the door today. In a moment.


QUEST: The Los Angeles Clippers' sponsor backlash is well and truly underway. Just look at the list of sponsors that have decided to abandon the sports team. You've got Amtrak, Virgin America, CarMax, who've ended their relationship. And State Farm, the insurance company, which is saying it's taking a pause. I'm guessing they're buying time while they decide what they really want to do.

Quite a remarkable and quite a speedy reaction from corporate America to the weekend report from TMZ Sports, which released audio of a phone conversation allegedly between the Clippers team owner Don Sterling and his then-girlfriend. Have a listen, even if you are of weak disposition.


V. STIVIANO (via telephone): People call you and tell you that I have black people on my Instagram, and it bothers you.

DONALD STERLING, OWNER, LOS ANGELES CLIPPERS (via telephone): Yes, it bothers me a lot that you want to broadcast that you're associating with black people. Do you have to?


QUEST: Well, what more can one say after that, except the National Basketball Association is investigating. Don Riddell joins us from CNN Center. I mean, what does one say after that, Don?

DON RIDDELL, CNN SPORTS CORRESPONDENT: Well, it's quite astonishing. I mean, this has prompted even President Barack Obama, who's on a state visit to Malaysia on the other side of the world, almost 10,000 miles away, to weigh into this debate. And Richard, to that point, what does one say? He said, you just have to let people like this speak and the ignorance speaks for itself.

Of course, the focus, now, very much on the NBA and what exactly it does about it. They have yet to actually authenticate that Donald Sterling is the voice on this tape.

But you can see from the reaction around the league, from the other players, from corporate America, that they absolutely believe this is Donald Sterling. But the NBA will update us all on their investigation on Tuesday just before the Clippers play Golden State Warriors in game five of their playoff series. The Clippers have just had the best season in franchise history --


QUEST: Yes, but Don --

RIDDELL: -- and now they're embroiled in this at the worst possible time.

QUEST: I'm just -- I just want to jump in here because what options do they have? If he owns the -- can they force him to sell the team?

RIDDELL: Well, that is the question now being asked. It's very, very difficult. It's very easy to sanction or punish a player or a coach who's stepped out of line, but how do you force someone to sell their business? As one pointed out, it's like asking someone to leave a party when they own the building.

It's very, very tricky, and this is something that the NBA's new commissioner, Adam Silver, who's only been in the job a short period of time, is going to have to figure out. We'll learn more on Tuesday for sure.

QUEST: And on the wider question of racism in sport, it's not the first incident, it's not the last, but we've had telling reminders over the weekend.

RIDDELL: Yes. In Spain, the focus Villarreal versus Barcelona. Quite astonishing video of a banana being thrown at Dani Alves, the Barcelona player. And instead of ignoring it, he quite incredibly picks it up and eats it before continuing with his game.

It was a spontaneous action which has really sparked off quite a show of solidarity from footballers, Richard, all over the world. After the game, Alves tweeted that video clip, along with a remark, a humorous remark saying that his father always taught him he should eat bananas to avoid cramp.

But it's interesting to see the response from around the world. A lot of other top players, like Neymar, all stepping in to support him. Villarreal say they've identified the fan in question. He was a season ticket holder. They've banned him for life. But sadly, the response in Spain was rather muted. There, they don't think that this kind of thing is that big a deal.

QUEST: Don Riddell, CNN Center, thank you, Don. It's not the first time -- back to Don Sterling, not Don Riddell, Don Sterling -- it's not the first time he's been accused of racism.

In 2009, the Clippers general manger, Elgin Baylor, said Sterling underpaid him and treated him as a token because of his race. In 2003 and again in 06, Sterling and his housing company faced lawsuits alleging they discriminated against minorities.

Thurl Bailey is vice chairman of the National Basketball Retired Players Association, former NBA player. Mr. Bailey joins me now. Good to see you, sir. Thank you for joining us. In a sentence, before we talk about the hows and the whys, what do you believe, assuming these allegations are proved, is the correct sentence and punishment for them?

THURL BAILEY, VICE CHAIRMAN, NATIONAL BASKETBALL RETIRED PLAYERS ASSOCIATION: Well, your last guest, Don Riddell, was talking about that fan in Spain being banished. I would not be surprised if that, personally, if that was used in Commissioner Silver's decision.

And I know we're going to hear -- they have a press conference tomorrow, obviously, but I don't know what else you can do. Don talked about you're at a party and the guy who owns the building. Well, if that guy who owns the building is a racist, who would want to be at that party?

QUEST: Right.

BAILEY: So, there's a lot of spillover here, and I'm not sure that anything short of banished from being involved in the NBA would cut it.

QUEST: Right. But is there a danger that the NBA and Commissioner Silver drags this out? You have a hearing, and you have an appeal, and you have a -- now, I'm not suggesting Mr. Sterling isn't entitled to due process, but simply -- and he may ultimately win, whichever way, backwards of forwards - - but from the NBA's point of view, do they not need to be seen to act forcefully and quickly?

BAILEY: They do. They do. And I think that will happen. I think there is a period where you have to make sure -- we talk about authentication -- well, I think without it, with others saying OK, it's been authenticated, we know that it's his voice. But you have to go through those --

QUEST: Right.

BAILEY: -- through that process. You have to know what the bylaws state as being an owner. Can we do this? Are we allowed to do that? But it has to be swift, and it has to be something lasting.

This is not, again, not like a player who's being banned for illegal substances, where he -- this is -- this goes far beyond just the Clippers. Far beyond the NBA. This is national impact. This impacts our national society.

QUEST: And do you think that is why we are seeing the sponsors -- look. We've all -- we all know, corporate money is both the fastest to leave the room and the weakest to get them to stand up for a matter of principle. Getting corporations to stand up for what they believe in is almost impossible sometimes. But here, they've wasted no time. Are you surprised at that?

BAILEY: No, I'm not really surprised. I think what you see happening is because money talks. I think we all know that. It's -- a lot of it is about the corporate sponsors, it's about their brands being attached to something that they know they don't want to be attached to.

But the danger of that also is that some of these sponsors that are associated with the Clippers are associated with the NBA, and it just -- Commissioner Silver, I believe, just will not let that interfere with what his mission is going to be. And along with our organization, the retired NBA players, and also the active NBA players --

QUEST: Right.

BAILEY: -- it has to be swift. Because what you don't want to happen is spillover into the whole organization if the decision hasn't been made swiftly and it hasn't sent a message.

QUEST: Thurl Bailey, thank you for your insight, sir. Good to see you and giving us some perspective on it.

BAILEY: Thank you.

QUEST: We appreciate it. Now, when we come back in just a moment, the sanctions against Russia over Ukraine. Too little too late, or a correct targeting that's designed to ratchet up the pressure? We'll discuss it after the break.



QUEST: Hello, I'm Richard Quest. There's more QUEST MEANS BUSINESS in just a moment. This is CNN, and on this network, the news always comes first.

President Obama has announced expanded sanctions against Russia. He's taking aim at President Vladimir Putin's inner circle and technology that could be useful to Russia's military. Moscow has called the sanctions "meaningless, shameful, and disgusting."

Violent clashes between pro-Russian and pro-Ukrainian demonstrators in the city of Donetsk. Elsewhere in the region, a Ukrainian soldier was killed when a homemade bomb exploded, according to the Defense Ministry in Kiev.

An Egyptian court has recommended death sentences for hundreds of supporters of the banned Muslim Brotherhood after a hearing that lasted less than an hour. A total of 683 people could be executed, including the group's spiritual leader.

South Korea's coast guard has released new video from the rescue operation at he sunken ferry, including footage of the captain getting pulled off the ship. Divers have fond the body of a 189th victim in the ferry wreckage. There are 113 people who are still missing.

Tornadoes have cut a path, a swath of devastation through the central United States killing at least 18 people. Searchers in the state of Arkansas are going door to door in storm-ravaged communities looking for people who might be trapped amidst the rubble.

And so our top story tonight. New sanctions against Russian businessmen and companies, and two British-owned global energy giants with links to Russia will be looking to minimize damage to their businesses and it could be a costly, complicated headache. BP says it plans to remain a long-term investor of Russia's leading petroleum company, Rosneft, and yet Rosneft's chief exec is on the list of sanctions. BP owns nearly 20 percent of Rosneft which is not itself subject to restrictions. And Shell -- Royal Dutch Shell -- says it will respond appropriately to ensure it complies with all applicable international sanctions. It has joint operations with Gazprom which again wasn't named in today's sanctions list. But the net gets ever tighter.

I'm joined now by Juan Zarate, former assistant secretary for the treasury for terrorist financing and financial crimes. And his book here -- he's the author of "Treasury's War" which reveals how financial warfare is now part of American foreign policy. When we look at the sanctions, they seem to those of us that aren't necessarily familiar with the people involved and the mechanisms, they seem sort of -- well let's hit a few old cronies. But if I read your book right, the government knows what it's up to. It's doing it in a very surgical manner, is that right?

JUAN ZARATE, FORMER TREASURY ASSISTANT SECRETARY, TERRORIST FINANCING & FINANCIAL CRIMES: I think so, Richard, and thank you for having me on and thank you for mentioning the book. I think what the Obama administration is trying to do is to find tailored ways of injecting uncertainty in doing business with the Russian economy. And so you've seen not just the naming of individuals but the naming of particular businesses that you mentioned - - Rosneft not named as a designated party but its chief executive named. That injects uncertainty into the dealings of other oil companies and in the list designated today, there are an assortment of companies -- everything from a soft drink company to a construction company. And so what you see is the Treasury Department injecting uncertainty into the markets which then makes companies in the West, including in Europe, have to think twice about doing business with Russian counterparts.

QUEST: Right, so it's as much -- and, again, your book talks about this. It's as much a psychological, a surgical and a strategic weapon in that sense coming from the Treasury, rather than just hitting them over the head with a piece of wet fish.

ZARATE: Right. I think hitting them over the head with a blunt trade sanction, the kind we've seen traditionally over the last few decades would be something like to ban all dealings with the energy sector or to ban all dealings with the banking sector. That's the kind of thing that's being held over the head like a sort of Damocles over the Russian economy. But what you see the administration actually doing is actually targeting particular individuals and sectors of the market that begin to inject this reputational risk which is really at the heart of this new brand of financial warfare. And that's what I think the administration's banking on that will really cost the Russian economy dearly in the long term.

QUEST: This is fascinating, sir, absolutely fascinating, because it's going to be very hard for the rest of us to judge the success of these sanctions because if you take the sector ones, it's quite easy. You suddenly get a BP saying we're not going to do business with Rosneft even though it will be difficult. But if you're talking about this creating an air of uncertainty, you don't know the deals that were done and you don't know the meetings that didn't take place. It's much more difficult to gauge. ZARATE: Well I think that's right. I think you can start to look at some numbers, and Richard, you do this well on your show -- the amount of capital outflow or capital that ends up in other developing economies like Turkey as opposed to the Russians. So you've seen the administration point to some of those numbers as evidence of some success. But ultimately the question especially when you're talking about the use of financial tools and suasion in national security, the question is does it affect the behavior of the targeted regime, and in this case, does it affect Vladimir Putin's attempts to deal with Ukraine? And the question there is really still at play, and I think that's the ultimate question for the Obama administration to answer.

QUEST: Delicately and beautifully switched off your phone --

ZARATE: Sorry, I thought it was off.

QUEST: -- listen, that could've been President Putin telling it that it was not relevant. Final question, sir -- do you think that the Treasury has got pretty good at this? Or are they still -- the U.S. Treasury -- are they still finding and learning their way about how to use this psychological weapon of sanctions?

ZARATE: I think they've gotten very good at it over the last decade to 12 years. I think the challenge is really -- two ways. One, what are the limits to the use of this power? Russia's not Iran, it's not North Korea, it's a major economy with major relationships in Europe. So, how do these tools apply in the context of a Russia where you want them to be a partner and not necessarily a long-term target? And I also think the question of how Europe responds to this is critical, and you have yet to see the next round of sanctions from Europe. If they begin to parallel or mimic what the Treasury is doing, these'll --

QUEST: Right.

ZARATE: -- be much more effective.

QUEST: Sir, thank you for that. I'm looking forward to reading the book on my holiday coming up. You have to admire anybody who starts part of his book off, "In 2006 after I arrived at the White House." Sir, many thanks indeed for joining us. Coming up after the break -- well, Snapchat is for teenagers to get rid of the risque, and the ribald. What about for the corporate sector where you don't want all that you've sent to be revealed? (RINGS BELL).


QUEST: U.S. Homeland Security is wanting people not to use Internet Explorer as Microsoft tries to fix a major security flaw, an issue discovered over the weekend, means one click on the wrong link could give hackers control of your computer if you're using Explorer version 6 through 11. It's complicated -- wait 'til we get through with this. In a segment released this morning, the Computer Division of Homeland Security says, (RINGS BELL) "Consider employing an alternative web browser until an official update is available." CNN's Jose Pagliery joins us now. I can't think of a more damaging, devastating criticism to have the U.S. government say 'don't use your product.' I mean, that's pretty damning.

JOSE PAGLIERY, CNNMONEY.COM: It is and they're right. I mean, the best advice that even I as a tech reporter can give the folks out there is just ditch Internet Explorer for now and use something else. You can use Google Chrome, you can use Safari for Apple -- just don't use Internet Explorer right now because the issue here is that there's a bug in Internet Explorer that if you go to the wrong kind of website, it can worm its way into your computer and hijack it.

QUEST: Right.

PAGLIERY: The hacker will get complete control of your computer.

QUEST: Hang on -- wrong type of website. What's a wrong type of website? It's it one of those scantily-clad websites?

PAGLIERY: Sorry, we're not talking about, you know, Google, and Microsoft and, we're talking about really weird links that you might get in a phishing e-mail perhaps, right? You've seen them -- these spam e-mails that look like they came from your friend but they really didn't, right? And so don't click on weird links. I mean, that's good advice all around.

QUEST: OK, but, come on, my memory is a bit tired having just come back from Kael, but what was the app -- what was the -- two weeks ago we had a -- the heart bleed one?

PAGLIERY: We're talking -- right -- you're talking about the heart bleed.

QUEST: Well come on, with the heart bleed and then the -- this and then the that and then the other -- I mean, there's one every day. Which ones do we take seriously?

PAGLIERY: Frankly, all of them. You know --

QUEST: You never switch a computer on.

PAGLIERY: Well, that's, I mean -- the thing is we've got to realize that the physical world and the digital world are essentially merging, right? I mean, the digital world's becoming more real than it ever has before. Our online communication is extremely important with work and friends. Banking -- we all do that online too. Social media -- you reveal secrets to your friends, you upload photos of your family, you put your address in your e- mails. I mean, the digital world is --

QUEST: Right.

PAGLIERY: -- extremely sensitive, right? And so we've got to start treating it with the same sort of respect and seriousness that we do with the physical world.

QUEST: So, are we better off to try and deal with avoiding them -- which of course is always better -- prevention is better than cure -- or the other way around? There's an entire industry going to grow up helping us deal with the consequences when inevitably we're going to afoul of identity theft, viruses and the like.

PAGLIERY: Well it's interesting you asked that because the cybersecurity sector right now is experiencing explosive growth. If you're a firm whose job it is to protect the cyber assets of another firm, you are in for big money right now. So, that itself shows how important this is. We're sort of experiencing a wakening right now. We're realizing that the infrastructure of the internet and the way we communicate online has not been paid as much attention to as it should be.

QUEST: Jose, you'll have to come up to my office or I'll come down to your office and actually show me just why I'm doing so badly at all of this. Thanks for joining us, many thanks. Now, a new app is trying to let businesses keep their correspondence entirely secret. Confide is similar to Snapchat -- messages disappear after they have been read. For extra privacy the app also covers words with colors. Users must swipe the screen to briefly reveal the message. It makes it difficult to take screen shots. Confide launched on Android this week. Regulators are worried about transparency. John Brod is the president and co-founder of Confide. Good to see you, sir.

JON BROD, PRESIDENT AND CO-FOUNDER, CONFIDE: Great to be here, thank you.

QUEST: If you've uncovered all the words, --

BROD: Yes.

QUEST: -- can you take a screen shot of it, a picture of it?

BROD: The great thing about the thing we call the "wand" is you can only uncover only about 20 to 25 characters at any time. So if you were to attempt to take a screen shot, you'd only get one or two words of the total message. That's one of the ways we prevent screen shots.

QUEST: Who is this geared towards?

BROD: It's the professionals, right, so thing --

QUEST: But what purpose does it serve?

BROD: Right, sure. Any time -- any time someone sends an e-mail that says 'Confidential, don't forward' or, you know what -- let's -- 'give me your phone number, I'll call you' or 'let's take this off the work server.' So, think job references, job referrals, think HR issues, think of deal points on major deals, think conjecture on sensitive issues, and maybe even some good-natured office gossip.

QUEST: Fine. What about the e-mail that says, 'Buy Quest stock, they've got a great announcement coming tomorrow -- don't tell anybody but buy it before the bell'?

BROD: Don't use our app if you're going to send that e-mail.

QUEST: Oh, come on, don't be naive --

BROD: No --

QUEST: -- yours is exactly (RINGS BELL) the app you use if you're going to send that e-mail (RINGS BELL.)

BROD: It's 100 percent against our terms of use and it's absolutely not --

QUEST: Oh, I can hear people frightened all the way to --

BROD: -- and that's not why we -- importantly, that's not why we started the business, right.

QUEST: It may not be but you have to have an answer to that.

BROD: The answer is be -- that people can use any method of technology to do that. They can use the phone to do that which also is a private and impermanent communication vehicle. That's -- you know -- that is, so yes, could bad people use this utility poorly? Yes. It's not why we started the company.

QUEST: No, I didn't think for a moment it was designed for nefarious means or illegal means, but in era when everyone is talking about Libor --

BROD: Right.

QUEST: -- and now we have a massive investigation into foreign exchange rigging and every benchmark seems to be rigged. This app is a rigger's charter.

BROD: Here's what we're doing. This private, impermanent discussions happen all the time in the off-line world, right? Phone calls, cups of coffee with colleagues, you know, discussion over the water cooler, hallway chatter. All we're doing is taking that time-tested, tried and true method and bringing it online with the efficiency of asynchronicity, where we both don't need to be available for a phone call on Thursday at 4 o'clock, we can use this app, it disappears, it's purely confidential, and it's great to foster genuine unfiltered conversation among professionals and business people.

QUEST: I think I might -- before we came on air and I asked you whether your keep a track of it.

BROD: Yes.

QUEST: I think I might have more sympathy for that view if I felt that -- if law needed to know what was said ex post facto, there was a way they could find out. But if it comes down to he sent me a Confide details -- no I didn't -- yes I did -- no I didn't -- would -- you see where I'm going?

BROD: Sure -- and it's, again, -- it's not dissimilar to a conversation that you and I can have in the hallway after this session.

QUEST: So, how popular is this proving out to be?

BROD: Incredibly popular. We launched about 100 days ago on IOS, we're used in over 110 countries now, so this is not just U.S. appeal -- it's global appeal. We launched Android on Thursday which we're really excited about. We've raised $2 million in capital from the best early-stage investors in the industry without a pitch deck, which gives you a sense of the appeal of this. And it's been an incredible ride and we're looking forward to a journey of, you know, four or five, six years and really changing the face of professional communication.

QUEST: It's fascinating, absolutely fascinating. And then tonight you'll sell out.


BROD: We will focus on building a product and delighting our consumers. We're working on the entrance at this point, not the exit strategy.

QUEST: Good answer, sir.

BROD: My pleasure. Thank you.

QUEST: Come back again.

BROD: Confide. OK, thanks.

QUEST: Oh -- has to get the last word in. Stay where you are. We haven't finished with you yet. Right. Tom Sater is at the World Weather Center. That's a splendid Windsor knot that you have on your tie, Mr. Sater. Have I (ph) keeping the standards of the program -- if I say so?

TOM SATER, METEOROLOGIST FOR CNN INTERNATIONAL: (LAUGHTER). Thank you, Richard, yes the standards are high. The problem is is, we've been rolling our sleeves up back in the Weather Center because in the U.S., what was a quiet start to the severe weather season has come to an abrupt end. And it took lives yesterday. The latest in the season the U.S. has ever had a tornado fatality. Sixteen lives yesterday. This was the first photograph taken by a student -- a college student -- from Mississippi State University chasing these storms. What was a quiet day turned into a violent afternoon -- cars tossed like toys, homes destroyed and the number of tornados is growing into the second day now. This area of low pressure spinning out of Colorado has not moved much. It's in Nebraska now.

So what is happening is during the heat of the day, with the moisture from the Gulf with the cold air dropping down from Canada along the Rockies, snow's on the top. Look at 10, 20 centimeters in parts of the Dakotas. This was yesterday -- 29 million under the threat and then of course the high risk right in parts of Arkansas. Into Monday a high risk now in parts of Mississippi, very rare to get a high risk. We've got 50 million people that are looking at the threat, and that'll continue into Tuesday. So, again, this multi-day event here where tornado watches are getting blasted across the U.S. map where in each community hundreds of thousands of millions that are now almost in really in -- and in some parts -- in fear as these will continue into the night-time hours for many as you see what is going on for the next 24 hours.

Now, let me show you -- back you up what happened yesterday. All of these little icons here are tornados. Fourteen fatalities in the state of Arkansas, one in Iowa, one in Oklahoma. The first tornado-related fatalities in the U.S. -- the latest in the season we have ever seen. The saturated ground is going to lead to numerous flash flood watches becoming warnings. There will be flooding and unfortunately this will take lives too. We're looking at 100 to 150 millimeters in some cases. To show you what's been happening in just the last hour, tornados -- the more violent ones -- are in the state of Mississippi, and for those of our international viewers -- Tupelo -- that's the birthplace of Elvis Presley -- 135,000 live there -- a large tornado just missing the metropolitan area right now as we've been watching these tornados fire up during the heat of the day. This will continue as mentioned into the nighttime hours, and then will do it again tomorrow. So, it's a violent time of year in the U.S.

In Europe, well just about five days ago, we had some tornados in Italy, about four or five of them. Nothing violent right now, in fact, just the opposite. You got some scattered showers but quiet and tranquil. Twelve in Paris, Vienna's at 13, Berlin 16. Look for high temperatures again to be in the low 20's. I think from Berlin to Kiev to Warsaw, you may see 21, 22 as we get into Tuesday. So the warm air mass stays in place as we'll have some unsettled weather drop down a little bit toward the Adriatic, because that area of low pressure will spin down to the south into the southeast.

Now, elsewhere. Let's take a look at our temperatures for Tuesday. Here you go -- 20 in Bucharest, Istanbul 16, Athens 21, Rome 18, scattered showers there as we'll watch our area of low pressure drop that rainfall a little bit more to the south. I do want to mention, after two and a half days of suspended work near Jeju, the divers may be able to get into the waters. The violent storm system moving directly over the Yellow Sea and the Korean Strait is going to slowly move out. So, again, a family is just -- the turmoil that is going through their days here while the divers could not enter the water because of their own safety -- this area of low pressure, Richard, finally after two and a half days, may be lift. But we're going to watch the winds, unfortunately, I think, kick up those currents for about another 12 hours. Of course sunrise coming there very shortly, if it's not already happening now. We'll continue to monitor that for you as well. Back to you.

QUEST: Well, thank you, Tom. A hundred and thirteen people remain missing in the ferry disaster. We'll be back in a moment.


QUEST: E.T. has been discovered living in a New Mexico landfill, quite literally. Over the weekend a documentary film crew unearthed a 30-year-old trove of E.T. game cartridges. It was part of a dump outside Alamogordo. In 1982, Atari rushed to build the game to coincide with the release of E.T., the movie. Now, the movie became a classic. As for the video game, some say it was so bad, it contributed to the downfall of the company. "The New York Times" reported that on a night in 1983 -- this is classic -- Atari dumped 14 truckloads of unsold cartridges in the landfill. Now, that story was thought to be an urban legend until now. The search will be featured in the documentary produced by Microsoft Xbox Entertainment Studios.

Howard Scott Warshaw was E.T.'s designer. He's now the staff psychotherapist in Silicon Valley. He was at this weekend's dig. He joins me now. Sir, you have the dubious distinction of which I know you are proud -- the title of having arguably created the worst game in history.

HOWARD SCOTT WARSHAW, E.T. GAME DESIGNER: Indeed. Indeed. I enjoy the title frankly because distinction is distinction, and is it really the worst game of all time? Probably not. But, I also created another game called Yars' Revenge which is frequently cited as one of the best games. So between the two of them, I figure I have the greatest range of any designer in history.

QUEST: As Dan Quayle said, "I wear your badge of scorn as a badge of pride." Indeed, sir, why did they dump the cartridges?

WARSHAW: Well, why they dropped the cartridges is quite a question. And a lot of it seems to point to the fact that it was just to clear out some inventory. There were very good-selling cartridges as well as some E.T.s that we actually found in the dump, so it wasn't really about E.T. But then again, when you have something like the toppling of a billion dollar industry, putting a face on it is a good idea, and I think E.T. turned out to be that face.

QUEST: You had five weeks to design, test and get this game up and running. Now, --

WARSHAW: Correct.

QUEST: -- give me an idea of what would be a reasonable time to get a game designed, tested and up and running.

WARSHAW: At that time, no game had really been completed in less than five or six months, and typically eight or nine months. So to do the game in five weeks was quite an aggressive challenge. And in point of fact, I was the only person who was really willing to undertake that challenge.

QUEST: When you now look back and you look at E.T. now, and if you were to look at it again, what's your feelings about that moment of your life?

WARSHAW: Well I have to say over this weekend it was very interesting. I've never really had the experience of literally standing by and seeing my past dug up.


WARSHAW: But the truth is, the overwhelming feeling that I had this weekend was satisfaction. Because when I first started to do these games, the whole point of this was to create entertainment -- to create some sort of special moment for people. And what I saw this weekend when those games started to come up out of the ground, was people were excited, everyone who was there was anticipating something and created a real moment in video game history. And to have been at the genesis of that 30 years ago was just fabulous.

QUEST: How wonderful, sir, that you can put it in that great perspective for us and come on and talk about it tonight. I much appreciate it, sir. Thank you.

WARSHAW: Richard, thank you, it was my pleasure.

QUEST: Thank you. Now, when we come back after the break, a "Profitable Moment."


QUEST: Tonight's "Profitable Moment." There is something deliciously appealing about Confide and the idea of the communication that just disappears before your very eyes, except when it comes into the world of business. There's a difference between teenagers passing risque, pictures between each other then disappear and traders using technology to avoid proper scrutiny.

And that's, frankly, what Confide stands to be for. Oh, of course there can be legitimate reasons why you might want your communication to disappear, but when Libor, foreign exchange and so many scandalers are out there, surely the question needs to be how to prevent things like Confide for transparency -- not the other way 'round. And that's "Quest Means Business" for tonight. I'm Richard Quest in New York. Whatever you're up to in the hours ahead, (RINGS BELL) I hope it's profitable. Join me tomorrow.