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Modern Board: Why Intelligentsia Coffee and its board decided to go K-cup

Recently, Intelligentsia Coffee Inc., one of specialty coffee’s most pioneering and innovative brands, launched two types of K-cups for the new Keurig models. If you’ve tried Keurig coffee before, perhaps you’d agree it’s not the full-bodied cup of joe served at specialty cafés across the country. Specifically, the lightly roasted, methodically poured coffees from Intelligentsia.

So, why then would Intelligentsia pick K-cups as its next move? Demand.

America loves convenience, and coffee drinkers are no different. And while hesitant at first, curiosity led Intelligentsia’s expansion into the new format.

“[We thought], if we can get into the K-cup format with a cup of coffee that we’re proud of, it allows us to get in front of so many more customers and go back to the farmers we work with and buy a lot more coffee,” Intelligentsia’s CEO James McLaughlin tells Fortune. “For us, a lot of good comes from it.”

As leaders of what is considered the third wave of coffee, Intelligentsia prioritizes sourcing, paying a premium rather than a commodity price for its beans, and roasting with purpose. With retail products and 14 cafés across five cities, its coffee is meticulously calculated and full of flavor and nuance. Its name on a K-cup had to do the same. After seven years of thorough research, development, and collaboration with Keurig, Intelligentsia crafted a K-cup of which it and its board are proud.

From café to K-Cup

Since Intelligentsia was founded by Doug Zell and Emily Mange in 1995 in Chicago, it has empowered coffee drinkers to experience their morning coffee ritual in more reflective ways. And throughout the decades, the company has relied on innovation to pave that path. For example, its foray into the instant coffee resurgence or its Pasadena, Calif., location that recently transitioned to the Illumination Bar. There you’ll find an instant espresso component among other playful flourishes, like a machine called Wall-E that steams milk and a beaker on a magnetic stir plate that rehydrates a shot of espresso.

In 2015, Peet’s Coffee (a partner brand of Keurig Dr. Pepper) acquired a majority stake in Intelligentsia. Some loyal customers scoffed at this, but its core tenets remained the same. In fact, the board encourages and supports expansion and innovation within the limits of the Intelligentsia values, which sees quality as its North Star.

“We know who we are and what we want to be,” says McLaughlin on the pressures to evolve and modernize. “And as long as we have our values clearly defined as a brand, company, and organization, it makes conversations with the board or investors a lot easier.”

Intelligentsia Coffee’s Light Roast K-Cup Pods for Keurig brewers.

Courtesy of Intelligentsia

The K-cup discussion began after a study conducted by Peet’s revealed Intelligentsia customers—who are often discerning coffee intellects; hence the name—yearned for accessibility to a Keurig-type home brewing system. However, despite demand, consumers often offer a lot of opinions with a move like this. In the case of K-cups, apprehensions brewed over the quality of coffee made from this sort of mechanism, along with the environmental responsibility around K-cups. Intelligentsia’s board and innovators also posed those questions.

“We needed to have those answered before we felt comfortable launching this product or even partnering with Keurig,” McLaughlin admits, explaining they eventually found the sweet spot through years of work and research. “Ultimately, I think we produced a product that that is the best K-cup out on the market. Hands down.”

Innovating a commodity

Coffee is a commodity, after all. And innovating upon a common commodity takes a knack for doing what the consumer wants and/or knowing what the consumer doesn’t realize it wants. The third wave illustrated this: Rather than settling for an average drip coffee, it took drinkers through different terroirs and tastes, giving farmers fair prices, and celebrated roast.

Bailey Manson, Intelligentsia’s director of innovation, is reaching 10 years with the company. In college, he double-majored in Biblical studies and theology. And while those subjects aren’t directly applicable to his job title, they certainly inform how he approaches his work. “Specifically in Christian theology, you have to think in contradictions,” he says. “When it comes to topics like Intelligentsia and Keurig, for a lot of people that looks like a contradiction. But my background made [this partnership] exciting for me, because I could navigate it in a unique way.”

When Manson and his team first embarked into K-cup research and development, they quickly realized the types of coffee Intelligentsia uses in its cafés and retail didn’t perform well in a K-cup because Keurig has a limited brewing environment. “It’s percolation, like a V60 or a Chemex, but it’s a different bed shape, more like a Kalita Wave. It’s tiny, and the vessel for the cup becomes full of water, and that water is hotter than it would be in a manual pour-over,” Manson continues. “And the cup is under a small amount of pressure. And the whole brew happens very fast. And there’s no bloom. And you can only change the grind so much. And the grind quality is way better and more uniform than any home grinder or even commercial grinder in a coffee shop.”

Needless to say, getting there from a conception perspective wasn’t as convenient as the push of the button on the final product.

Earlier Keurig models used one needle for water flow, but the newer K-Supreme and K-Supreme Plus employs “MultiStream technology,” a system that directly stemmed from Keurig consumers seeking a stronger, fuller flavored cup of coffee. This technology was key in Intelligentsia’s K-cup journey. Rather than one needle, it uses five that “showers” hot water through the entire K-cup (instead of just the middle). “This results in a more even extraction of the coffee and a higher extraction yield overall,” Manson says. Extraction percentages are vital in coffee recipe development: Fruity and acidic notes are extracted first, followed by sweetness and balance, and finally bitterness. And while the pods fit in older models, they are best brewed in the newer versions with MultiStream tech.

Additionally, Keurig added QR codes to the K-cups, allowing the machine to reference individual brew specifications. “[Intelligentsia] prescribed a customized brew setting through brew time, temperature profile throughout the brew, and flow rate for each of their brand varieties to bring out the fullest flavor in every cup,” says Annie Oh, the vice president of Keurig Connected. The final K-cup is a consistently balanced, full-bodied brew inspired by a pour-over offered from any Intelligentsia brick-and-mortar. This, to the board, innovation team, and executive team, is the work of seven years.

“We’re still growing and we’re still getting our chance to introduce ourselves to the world and showcase what coffee can and should be,” McLaughlin says. “And whether you go into one of our coffee bars and have a perfectly brewed cup of coffee, if you take a bag of coffee home, or buy K-cups, you’re experiencing something different.”

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Wall Street hit with $2 billion in fines over employees using WhatsApp and other unauthorized messaging apps

U.S. regulators reached settlements with a dozen banks in a sprawling probe into how global financial firms failed to monitor employees’ communications on unauthorized messaging apps, bringing total penalties in the matter to more than $2 billion. 

The Securities and Exchange Commission announced $1.1 billion in fines and the Commodity Futures Trading Commission disclosed $710 million in penalties in separate statements Tuesday. Those levies — against firms including Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. — combined with JPMorgan Chase & Co.’s $200 million in fines from December, bring the total to $2.01 billion, making them the biggest penalties ever against US banks for record-keeping lapses. 

“Finance, ultimately, depends on trust. By failing to honor their record-keeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust,” SEC Chair Gary Gensler said in the agency’s statement. “As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications.”

Tuesday’s announcements cap months of discussions between regulators and the banks. Morgan Stanley said in July it was nearing a settlement that would see it pay a $200 million fine, with other major banks also disclosed setting aside similar figures as part of their second-quarter results without specifying the reason.

JPMorgan had been the only bank until now to reach a settlement with the regulators, and was the first to report the fines, in December. Even managing directors and other senior supervisors at the largest US bank had skirted regulatory scrutiny by using services such as WhatsApp or personal email addresses for work-related communication, regulators said at the time.

Finance firms are required to scrupulously monitor communications involving their business to head off improper conduct. That system, already challenged by the proliferation of mobile-messaging apps, was strained further as firms sent workers home shortly after the start of the Covid-19 outbreak.

In the SEC probe, eight firms agreed to penalties of $125 million each: Barclays Plc, Bank of America, Citigroup, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs, Morgan Stanley and UBS Group AG. Jefferies Financial Group Inc. and Nomura Holdings Inc. agreed to pay $50 million apiece, and Cantor Fitzgerald LP agreed to pay $10 million.

Bank of America had the biggest CFTC penalty, at $100 million, followed by Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS at $75 million each. Nomura was fined $50 million, Jefferies $30 million and Cantor Fitzgerald $6 million.

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Ray Dalio says the U.K.’s policies ‘suggest incompetence’ and warns other governments not to make the same mistakes

Ray Dalio added his name to a growing list of critics of the U.K.’s new spending plan, unveiled last week by Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng.

The billionaire investor—who founded what is now the world’s largest hedge fund, Bridgewater Associates, in 1975—argued the plan’s aggressive tax cuts will raise the U.K. debts to an unsustainable level and cripple the pound.

“Investors and policymakers: Heed the lesson of the UK’s fiscal blunder,” Dalio wrote in a Tuesday tweet. “The panic selling you are now seeing that is leading to the plunge of UK bonds, currency, and financial assets is due to the recognition that the big supply of debt that will have to be sold by the government is much too much for the demand.”

On Monday, in response to Truss’ new spending plan, the U.K.’s bond market experienced the largest one-day sell-off in its history, pushing the total losses in the country’s stock and bond markets since Truss’ appointment as prime minister on Sept. 5 to over $500 billion. Meanwhile, the pound sank to a record low of $1.05 against the U.S. dollar on Monday morning, and although it has since risen to $1.07, the currency remains near a 40-year low vs. the dollar. 

After the new Truss spending plan was announced, the U.K. Debt Management Office said that it will raise its debt issuance by 72.4 billion pounds for the current fiscal year to 234.1 billion pounds.

The new spending plan will also push the U.K.’s debt to GDP ratio to around 101%, the highest level of debt the U.K. has held since 1962, according to Deutsche Bank.

Deutsche Bank, UK Office of Debt Management

In Ray Dalio’s view, this rapid increase in debt, coupled with the lack of demand for the pound on the global stage, is a recipe for disaster.

“That makes people want to get out of the debt and currency. I can’t understand how those who were behind this move didn’t understand that. It suggests incompetence,” Dalio said. “Mechanistically, the U.K. government is operating like the government of an emerging country, it is producing too much debt in a currency that there is not a big world demand for.”

The investor went on to argue that this should be a teaching moment for governments around the world to not increase their debts to unsustainable levels.

“I hope, but doubt, that other policymakers who are doing similar things…will recognize that they are risking a similar outcome—and that investors will see this too,” he said.

Analysts are also worried that the U.K.’s new spending plan, which was designed to spur economic growth and help alleviate the effects of high energy prices in the short term, could end up exacerbating inflation in the U.K. overall. And consumer prices already jumped 9.9% from a year ago in August.

“The government is trying to balance support for consumers and businesses with measures that might trigger further inflation, whilst also trying to reinvigorate a stagflationary economy,” Giles Coghlan, chief market analyst at global Forex broker HYCM, told Fortune. “Such a large fiscal package could contribute to elevated prices in the medium to long term that could inflict further damage to an economy and currency that are already on their knees.” 

The potential inflationary impact of the new spending plan has increased calls for the Bank of England (BoE) to dramatically hike interest rates, with some economists even calling for the U.K.’s base interest rate to move from 2.25% to as high as 6% next year

That’s bad news for the U.K.’s homeowners. Monthly mortgage rates will increase immediately for 2 million people on tracker or variable interest rate plans if the BoE follows through with its next rate hike. And another 1.8 million homeowners with fixed-rate deals will also be forced to pay significantly higher rates next year, according to U.K. Finance.

With the U.K. facing more interest rate hikes ahead, rising government debts, a sinking pound, and a European energy crisis, Deutsche Bank’s chief economist, David Folkerts-Landau, said he now believes the country will experience a severe recession that lasts three to four quarters.

“We’re thinking in terms of a recession that will be deep and long,” he told Bloomberg on Tuesday. “It’s the price we have to pay for financial stability and for getting on the right track.”

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Russian billionaire Petr Aven used estate management companies as a personal ‘piggy bank’ British authorities say

Petr Aven does not have a bank account himself, authorities say.  

Instead, he has been using his wife’s account, and that of other estate management firms, as his personal “piggy bank” to support his lifestyle, lawyers for the National Crime Agency (NCA), a British law enforcement agency, told Bloomberg Tuesday.

The Russian oligarch is under investigation for allegedly routing nearly £3.7 million from an Austrian trust into the U.K. hours before Europe imposed sanctions on him following Russia’s invasion of Ukraine in late February. British authorities are now accusing Aven of using the funds of his companies for personal expenses, with no personal bank account of his own.

The Kleptocracy Unit, a new team within the NCA created to monitor sanctioned Russian oligarchs, says it was alerted to the last-minute fund transfer by Monzo Bank and HSBC Holdings. Authorities ultimately froze £1.5 million of the funds linked to the billionaire, Bloomberg reported. 

Aven has said that the transfer was meant to pay for things like security at his Surrey mansion and London property, Bloomberg reported. He is worth $4.98 billion, per the Bloomberg Billionaire Index

In a lower court hearing, a judge relaxed some of the restrictions on Aven’s estate accounts, allowing him to pay for “basic needs.” Lawyers representing Aven’s estate companies suggested that the NCA was looking for criminality in the money transfer by tying it to sanction evasion. Lawyers for Aven’s companies are now challenging the decision to keep his accounts frozen in London’s High Court, Bloomberg reported. 

Adrian Waterman, a lawyer for the companies that manage Aven’s household, told Bloomberg Tuesday that the NCA painted a “muddled factual picture.”

Waterman did not immediately return Fortune’s request for comment. 

Aven, along with his business partner, Mikhail Fridman, made a considerable amount of his wealth from oil-related investments, especially after selling stakes in TNK-BP to the state-owned Rosneft in 2013. The duo also built a banking and financial services empire in Russia. They served on the boards of Alfa-Bank, Russia’s largest private bank and Luxembourg-based investment firm LetterOne, stepping down from their directorial roles days after they were sanctioned.

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