Partnership Fund portfolio company and fintech alum Digital Reasoning aims to stop market manipulation

Resource Type: Fund News, News, Partnership Fund

From MarketVoice

“This past March, a group of venture capital firms and banking organizations led by BNP Paribas invested $30 million into Digital Reasoning, a privately held company based in Nashville that is emerging as one of the leaders in using artificial intelligence to analyze human communications.

The funding round, which also included Barclays, Goldman Sachs and Nasdaq, is the latest example of the growing collaboration between AI and Wall Street. Banks, trading firms and exchanges are exploring ways to use this technology to enhance the ways they process data and make decisions. And they are partnering with specialist firms that can apply the techniques of AI to the particular characteristics of financial markets.

In the case of Digital Reasoning, the application is in the area of surveillance. The company works with natural language processing, or NLP, a form of artificial intelligence that interprets human language. DR’s approach goes beyond words and their direct meaning; its software interprets the context around language and detects the intentions embedded in human communications. When those intentions are problematic—for example when two traders make plans to manipulate a market—the software can alert supervisors and prevent a crime before it occurs.

The company’s original focus was military intelligence, working with the U.S. Army and intelligence agencies to sift through enemy communications and anticipate attacks. The company’s technology also has been used to improve healthcare and combat human trafficking. In 2012 the company expanded into the financial sector, working with some of the top names on Wall Street to help enhance their surveillance of trader conduct.

This is an urgent problem for the banking industry. Since the financial crisis in 2008, regulators have imposed billions of dollars in fines on investment banks for rigging Libor and other forms of trading misconduct. In many cases, the regulators used the emails and chat conversations among traders as evidence of the wrong-doing. The banks are now using AI to scan those same internal communications searching for signs of rogue traders and other types of problematic activity.

So how does this new technology work? How do machines understand the jargon of the trading desk and detect the intentions behind the words? Digital Reasoning provided a window into this new field at a recent meeting of the Commodity Futures Trading Commission. On Feb. 14, Tim Estes, the company’s founder, gave a 30-minute presentation at a meeting of the CFTC’s technology advisory committee. The committee is an industry-driven panel that makes recommendations for CFTC policymakers and helps the agency make sense of technology trends. It is often through the TAC that the CFTC is first introduced to new financial technologies.

Estes explained that Digital Reasoning’s software specializes in unlocking the nuances of internal communications. Rather than search for specific words and terms, as current “lexicon-based” systems do, Digital Reasoning’s software looks for familiar patterns or tell-tale anomalies and makes inferences from the context. The technology can take chunks of communication and, by comparing it to past conversations, “figure out what’s similar even when none of the words match,” he said.

Estes, who started the company in 2000 when he was still a student at the University of Virginia, noted that common frauds such as price fixing and manipulation typically are not carried out by one person. Digital Reasoning’s technology “can find very subtle indicators of intent” inside communications and pre-empt nefarious activity. “It’s a very unusual thing for an action to happen before someone expresses intention,” he told the advisory committee.

One of the most important sources of data for Digital Reasoning’s system was the archive of enforcement actions at the CFTC, Estes said. By making a large volume of trader communications public, those enforcement actions have provided Digital Reasoning with many examples of bad behavior. Another important source actually predates the financial crisis; Estes said one of its best databases for bad behavior came from Enron, the energy company that collapsed amid accounting fraud in 2001.

During his presentation, Estes displayed several examples of trader communications from CFTC records to demonstrate his company’s capabilities. He showed how his technology can sift through the texts, make inferences, and detect signs of boasting, deception and collusion. Even seemingly innocent statements such as “Ok, but what sort of level do you want to push it to?” can trigger an alert, he said. He added that one of the remarkable patterns of behavior in these cases is that people will do something problematic and then brag about it in their conversations with other people.

Many banks already have large teams of surveillance analysts scanning their internal communications, but AI-based solutions are vastly more scalable. This is critically important given the amounts of email, chat and other communications happening every day in a major banking organization. Another advantage is that these systems have infinitely scalable memory, Estes said. Anything that the system learns is available forever because unlike humans these systems never forget. “When this works the way it should, almost nothing that happened in the past that is a problem should happen again,” he said. The software “should see with perfect recall what has happened in the past” and alert compliance officials that it is recurring.

Military intelligence and trader surveillance are not the only areas where the company is applying its software. Healthcare is another area with massive amounts of human communications. Digital Reasoning is working with several healthcare systems to combine data from many sources, including patient records and handwritten medical notes, and build a comprehensive picture of individual patients. That can help health care professionals assimilate more data and improve their decision making.

The company is also working with Thorn, a non-profit organization, to combat human trafficking. Its software is helping law enforcement agencies in the U.S. to sift through huge amounts of online ads, photos and other publicly available data to generate intelligence about victims of trafficking and the individuals and networks involved in trafficking. Instead of searching for certain keywords, Digital Reasoning’s software can extract information from the context, seeing past the efforts of human traffickers to avoid certain words or deliberately distort the spelling. The software makes it far easier for law enforcement officers to identify trafficking victims and help stop abuse.”

Partnership Fund portfolio company Lodo Therapeutics forms multi-target strategic collaboration with Genentech

Resource Type: Fund News, News, Partnership Fund

“Lodo Therapeutics Corporation, a drug discovery and development company focused on identifying and producing unique, bioactive natural products directly from the microbial DNA sequence information contained in soil, today announced that it has formed a strategic drug discovery collaboration with Genentech, a member of the Roche Group.

Under the terms of the agreement, Genentech will utilize Lodo Therapeutics’ proprietary genome mining and biosynthetic cluster assembly platform to identify novel molecules with therapeutic potential against multiple disease-related targets of interest to Genentech. Lodo will receive an undisclosed upfront payment and is eligible to receive research, development and commercialization milestone payments up to $969 million based on achievement of certain predetermined milestones. In addition, Lodo is eligible to receive tiered-royalties on sales of certain products resulting from the collaboration.

Read the full release here

In Business Insider, Maria Gotsch discusses growth of NYC biotech. Fund portfolio company Celmatix also featured.

Resource Type: Fund News, News, Partnership Fund

From Business Insider:

“Maria Gotsch, president and CEO of Partnership Fund for New York City, who’s been working to promote the biotech scene in New York for the past 15 years, sees other challenges for the city apart from real estate, including a lack of a biotech ecosystem like you might see in Cambridge’s Kendall Square and dearth of seed funding for early-stage companies.

The shortage of space for biotechs in New York, Gotsch said, is a relatively recent occurrence. Until recently, weren’t even enough biotech companies who chose to remain in the city with most founders choosing to relocate to the West Coast. “They weren’t even starting here,” she said.”

Read the full story at Business Insider

Partnership Statement on Cost & Benefit of East Side Access

Resource Type: News, Press Releases, Statements

“Although the costs of bringing the Long Island Railroad into Grand Central Station have escalated to $11.2 billion, the East Side Access project will create economic development benefits for the city and region that exceed $18 billion.  Using methodology developed by Boston Consulting Group for a study published by the Partnership for New York City in 2004, we can project that East Side Access will generate economic development benefits at least 1.61 times its cost. The project will significantly enhance utilization and access to the midtown transit hub, resulting in new development, increased employment and expanded commercial activity in the city and, potentially, in Long Island as well.  There are also clear transportation benefits of the project, which will increase the capacity of the LIRR and reduce commuting time for thousands of passengers. Reform of MTA procurement and contracting procedures is certainly necessary to reduce construction costs of major projects—and the MTA has already demonstrated a commitment to begin this process. But it is clear that the value generated by investments in transit are enormous and need to be factored into any cost-benefit analysis, said Kathryn Wylde, President & CEO of the Partnership for New York City.

Partnership Fund Portfolio Company and FinTech Alum Kasisto wins Celent’s Best Digital Bank award for DBS Bank partnership

Resource Type: Fund News, Partnership Fund

Celent, a global research and advisory firm for the financial services industry, recently announced that DBS digibank won their prestigious Model Bank award for Best Digital Bank. DBS Bank was recognized for its partnership with Partnership Fund portfolio company Kasisto and its KAI platform, which resulted in the most comprehensive, forward-thinking deployment of conversational AI in the finance industry.

Read the full release here

Partnership Fund portfolio company New York Business Development Corporation will participate in City’s “WE Fund: Growth” initiative

Resource Type: Fund News, Partnership Fund

Mayor Bill de Blasio today announced a first-of-its-kind targeted loan program that will make more than $5 million in affordable capital accessible to women entrepreneurs seeking to grow their businesses. WE Fund: Growth is designed to overcome barriers faced by women seeking to grow their businesses.

Partnership Fund portfolio company New York Business Development Corporation is partnering with the City of New York to help disperse loans between $25,000 and $125,000.

Read the release here

Testimony on New York City Council Int. 723 requiring sightseeing bus operators to submit operating plans to the DOT

Resource Type: News, Testimony

The following testimony was submitted on behalf of Kathryn Wylde, President & CEO of the Partnership for New York City.

Thank you Chair Espinal and members of the committee for the opportunity to testify on Int. 723, sponsored by the Speaker. The Partnership for New York City represents the city’s business leaders and largest private sector employers working to enhance the economy of the five boroughs of New York City and maintain the city’s position as the pre-eminent global center of commerce, innovation and economic opportunity.

The Partnership recognizes the important contributions of the tourism industry to New York City. At the same time, we question the economic value of sightseeing buses, specifically in Manhattan south of 60th Street, during the business week. In December, 2017, the Partnership released a study of the cost of traffic congestion that identified $20 billion a year in economic losses and costs due to congestion that is largely generated by traffic to and from the central business districts of Manhattan. While our study did not quantify the extent to which tour buses contribute to the congestion problem, there is ample anecdotal evidence that their negative impact is substantial. Moreover, there is no credible, independent study that has determined that tour buses are a net contributor to the city economy.

The Manhattan central business districts should be off-limits to tour buses since the streets do not have capacity to handle them. There is inadequate curbside space and nowhere for these buses to park on weekdays, from 7 a.m. to 7 p.m. There are plenty of alternative means of transportation for visitors seeking to move around Manhattan, including MTA transit, new ferry and bike services, as well as taxies, liveries and for-hire vehicles.

Conditions in Manhattan streets are not suited to sightseeing bus activity. The average speed of vehicular travel in the central business district is only 6.8 miles per hour – a situation that gets worse every year. The sidewalks that buses use for passenger waiting, loading and unloading are equally as congested as the streets.

There are serious safety and air quality concerns associated with sightseeing buses, which regularly stop at unauthorized locations and are often seen idling at the curb. The common practice of “stacking” buses at popular sites takes up multiple lanes on overcrowded streets. These problems are most acute in neighborhoods with a confluence of tourist attractions, a high density of people and vehicles, and narrow streets and sidewalks. Int. 723 is a first step toward assessment of the value of the tour bus industry, hopefully paving the way for stricter regulation of its activity. If passed, it would require the Department of Transportation (DOT) to authorize where buses can stop. DOT would be empowered to collect bus location data to help with these decisions and could attach conditions to the authorization of stops. Violations could be grounds for license revocation.

Governor Cuomo’s Fix NYC panel, which recommended better traffic management and congestion pricing, specifically identified the need to study the negative contribution of tour buses to the high cost of traffic congestion. We suggest such a study be undertaken and that, in the interim, there be a reduction of authorized buses navigating Manhattan south of 60th Street during weekday business hours. The Partnership looks forward to working with the Council on this issue.

Thank you.

Partnership Fund Portfolio Company Digital Reasoning Raises $30 Million Led by BNP Paribas

Resource Type: Fund News, News, Partnership Fund

Digital Reasoning, a leader in Artificial Intelligence (AI) that understands human intentions and behaviors, today announced that it has raised $30 million in new funding. BNP Paribas led the round and Angel Rodriguez-Issa, Global Head of Strategic Investments, Global Markets at BNP Paribas, has joined Digital Reasoning’s board of directors.

The Partnership Fund made an additional investment in Digital Reasoning as part of this round.

Read the full release

Statement from Kathryn Wylde, President & CEO of the Partnership for New York City, At the Gateway Program Development Corporation Regular Meeting

Resource Type: News, Statements

“The Partnership for New York City represents the city’s business leaders and largest private sector employers. We work together with government, labor and the nonprofit sector to promote economic growth and job creation in New York.

Cross Hudson access is a critical issue for the New York City business community. Half of the jobs in the city are at companies with more than 500 employees. Virtually all these large companies have business operations and employees who live on both sides of the Hudson River. Based on our analysis, every hour delay on New Jersey Transit costs New York business $5.9 million. The economic consequences of a failure in the 100 year old tunnels would be enormous for both the affected businesses and for our entire region.

The recurring delays and problems with current cross-Hudson access are evidence the North River Tunnels cannot handle the 100 percent ridership increase that is expected by 2040. This is a national issue because our region generates 9 percent of the economic output for the entire country.  The Hudson tunnels connect the nation’s most important financial and commercial center with the rest of America.

The elected leadership of New York and New Jersey, our Congressional delegations, transit advocates and business leaders are committed to doing everything in their powers to move the Gateway project forward. Hopefully, the White House and Congress will agree to a new national infrastructure initiative that is aggressive enough to fund critical projects, including Gateway. We are prepared to mobilize the expertise and private capital needed to launch a national rebuilding program, assuming the White House and Congress can agree on its terms. This is clearly a necessity for America’s future as a global economic power and should be the top priority of the federal government in 2018.”

The Partnership Fund and Accenture release report “Mind the Gap: Addressing Challenges to Fintech Adoption”

Resource Type: Fund News, Partnership Fund

“After nearly a decade of growth for the fintech sector, it has taken a foothold in financial services. The ability to quickly adopt external innovation is creating competitive advantages for financial services companies. Entrepreneurial fintechs decreasingly see themselves as competitors with large financial institutions, but rather as partners in a large, highly regulated marketplace. Financial institutions and entrepreneurs all stand to benefit if they get the interaction right. The fast pace of technology advancement only underscores the importance of getting fintech adoption right.

It is also apparent, however, that collaboration between financial institutions and fintechs remains a challenging and time-consuming process. Tactical hurdles are slowing smooth and efficient technology adoption by established financial service providers. The questions are: Why? What’s occurring? And what can be done to increase alignment to realize mutual benefits?

To learn the answers, the fintech innovation lab took advantage of its unique window into both the major financial companies who serve as Lab sponsors and the entrepreneurs who have gone through the mentoring program.

Read the Full Report