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Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

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Speaker 2: For a second time, a judge has voided the multi

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Speaker 2: billion dollar pay package awarded by Tesla to Elon Musk

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Speaker 2: in twenty eighteen. The stock options package would be the

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Speaker 2: highest pay package ever for a US corporate executive, worth

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Speaker 2: fifty six billion dollars when Delaware Chancery Court Judge Kathleen

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Speaker 2: McCormick first canceled it in January, and worth one hundred

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Speaker 2: one point five billion when she voided it a second

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Speaker 2: time on Monday. The judge ruled that Tesla's board was

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Speaker 2: improperly influenced by Musk and capitulated to his terms when

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Speaker 2: it adopted the billionaire's plan in twenty eighteen. But not

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Speaker 2: to worry. Even without those billions, Musk is still the

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Speaker 2: wealthiest person in the world. In fact, his wealth hidden

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Speaker 2: all time high last month. Joining me is business law

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Speaker 2: professor Eric Tally of Columbia Law School. Eric, this is

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Speaker 2: the second time she rejected the pay package as excessive.

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Speaker 2: Explain how we got here?

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Speaker 3: Well, Remember, in January twenty twenty four, Chancellor McCormick issued

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Speaker 3: a ruling on the merits after a full blown trial

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Speaker 3: that basically said the twenty eighteen grant of the compensation

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Speaker 3: package to mister Musk was invalid because it breached various

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Speaker 3: types of fiduciary duties and it was not cured by

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Speaker 3: an informed shareholder vote, and at that moment the Chancellor said,

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Speaker 3: this means that the pay package is boyd. However, the

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Speaker 3: case wasn't done yet, because at the end of any

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Speaker 3: of these cases, sometimes they settle, sometimes they make it

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Speaker 3: to a final adjudication on the merits. The lawyers for

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Speaker 3: the plaintiff have to make a fee pedition because most

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Speaker 3: of the time litigation in these areas is not kind

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Speaker 3: of the standard private party litigation, but you actually have

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Speaker 3: to get up an approved feel from the court and

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Speaker 3: that makes it kind of like class action litigation. It's

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Speaker 3: effectively a type of a contingency fee, but it's all

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Speaker 3: up to the court. And so that was the one

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Speaker 3: thing remaining to have happened, and it typically doesn't happen

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Speaker 3: at the same time. So while Chancellor McCormick was waiting

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Speaker 3: for briefing on how much of a fee the lawyers

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Speaker 3: for the plaintiffs should get, that's when Tesla decided that

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Speaker 3: they were going to put the same compensation package up

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Speaker 3: for a revote, which they'd ended up doing in June,

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Speaker 3: just weeks before the hearings on the the allocation was

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Speaker 3: supposed to be conducted, and stockholders in those June meetings

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Speaker 3: voted overwhelmingly both to move the company to Texas and

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Speaker 3: to ratify or re ratify the pay package. So this

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Speaker 3: threw kind of an interesting, you know, kind of wrench

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Speaker 3: in the works with respect to the one thing that

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Speaker 3: was left to have happened, which is a few award,

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Speaker 3: Because now Tesla was saying, hey, this new stockholder vote

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Speaker 3: indicates that, you know, there really wasn't any benefit to

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Speaker 3: this outcome, and in fact, you should revisit the prior

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Speaker 3: holding in the light of the fact that our stockholders

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Speaker 3: have just chimed in again and said, you know, seventy

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Speaker 3: two percent said we we approve it. So that ended

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Speaker 3: up making this more complicated and pushed the release of

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Speaker 3: this opinion into the Monday after Thanksgiving. I'm just going

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Speaker 3: to guess that Chancellor McCormick did not have a leisurely

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Speaker 3: and fundal places giving weekend.

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Speaker 2: Did she revisit her whole opinion from before, or did

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Speaker 2: she just look at the question of whether the second

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Speaker 2: shareholder vote gave grounds for her to reassess her earlier ruling.

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Speaker 3: Yeah, her opinion that she released the most recently. The

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Speaker 3: second opinion kind of did two things. First of all,

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Speaker 3: it had to take on this question about whether this

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Speaker 3: new shareholder vote was going to have any bearing on

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Speaker 3: her original opinion, and if it didn't, didn't have any

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Speaker 3: bearing on the nature and the amount of compensation that

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Speaker 3: she was going to give to the plaintiffs attorneys. And

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Speaker 3: in both cases she basically pushed back on the motions

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Speaker 3: that Tesla had filed, saying, no, this does not cause

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Speaker 3: me to go back and revise my January opinion. In fact,

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Speaker 3: that cow has long been out of the barn, and

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Speaker 3: as of the time it was issued, this fact didn't

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Speaker 3: even exist. So it's not like, oh, we're finding out

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Speaker 3: new information that really should have been part of the

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Speaker 3: original case. This is a response to the original case,

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Speaker 3: and therefore it doesn't affect that outcome.

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Speaker 1: Now.

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Speaker 3: The second thing that she also did, she said, you know,

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Speaker 3: the stockholder vote itself doesn't somehow vitiate the idea that

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Speaker 3: when the plaintiffs brought this case and won it, that

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Speaker 3: they created value for the stockholders and for the company

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Speaker 3: by basically causing what would have been a very large

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Speaker 3: chunk of the company's value to be paid out to

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Speaker 3: Elon Musk. So the first part of the opinion, she

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Speaker 3: basically says that stockholder vote is not going to have

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Speaker 3: an effect on how I decided the original opinion or

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Speaker 3: whether I think the outcome created a benefit to stockholders.

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Speaker 3: And then the second part of the opinion she had

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Speaker 3: to turn to the task which was all along the

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Speaker 3: original task that she was going to have to take on,

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Speaker 3: which is how much to compensate the attorneys for you

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Speaker 3: know what was really kind of an outright win at

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Speaker 3: the trial court level that resulted in, you know, essentially

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Speaker 3: a clawing back or a failure to let go of

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Speaker 3: I guess, you know, just around fifty billion dollars worth

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Speaker 3: of options that we're going to go in the direction

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Speaker 3: of mister Musk.

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Speaker 2: The plaintiff's lawyers wanted billions of dollars. As I recall,

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Speaker 2: how did the judge make that determination?

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Speaker 3: That was itself kind of an interesting dance off because

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Speaker 3: in Delaware there's there's traditionally this this approach to saying okay,

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Speaker 3: look we've got to figure out what is fair compensation

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Speaker 3: to lawyers, and there are kind of two ways to

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Speaker 3: do it. One way is just to figure out, okay,

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Speaker 3: what's a good hourly fee for lawyers, and then just

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Speaker 3: figure out how many hours they worked and give them

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Speaker 3: the multiplication or the product of those two things. And

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Speaker 3: that's what's known as a load storm approach. And Delaware

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Speaker 3: has long resisted that, I think in part because they

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Speaker 3: don't want to create incentives to just work like crazy

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Speaker 3: on very very low value lawsuits and say, well, here's

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Speaker 3: our hourly rate and we've got a success. You know,

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Speaker 3: we won a dollar and fifty cents, and we should

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Speaker 3: get you know, our full hourly fees to do it.

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Speaker 3: So what Delaware has largely opted for is what's known

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Speaker 3: as a percentage of the benefit approach, you know, and

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Speaker 3: it's a monetary payment, it would be a percentage of that.

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Speaker 3: In this case, it was a cancelation of an options

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Speaker 3: package worth around fifty billion dollars at least it has

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Speaker 3: measured at the time of the litigation. And so that's

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Speaker 3: kind of where, you know, as clear as she was

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Speaker 3: going to have to head. But the problem is that

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Speaker 3: this was such a large magnitude event, right, the avoiding

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Speaker 3: of around a fifty billion dollar pay package. That when

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Speaker 3: you kind of plug that into the usual and customary

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Speaker 3: formulas for how much should plane's attorney get, it was

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Speaker 3: going to yield something, you know, probably around eighteen to

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Speaker 3: twenty billion dollars for the plaintiffs because they saw it

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Speaker 3: all the way through to the very end, and that's

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Speaker 3: when you get the most attractive type of compensation. So

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Speaker 3: even the plane's attorneys realized that that probably was not

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Speaker 3: going to have legs and was going to get beat back.

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Speaker 3: So they kind of did a little bit of sort

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Speaker 3: of self flagellation of their own to try to you know,

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Speaker 3: beat that number down into something that was at least

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Speaker 3: a little closer to what we've seen historically, which has

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Speaker 3: never been in the billions of dollars. And they came

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Speaker 3: up with a figure of about five and a half

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Speaker 3: billion dollars that was still huge, in an order of

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Speaker 3: ninety tude more than we'd seen in any other case

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Speaker 3: in Delaware. And that's even after you know, sort of

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Speaker 3: tying their hands behind their back, you know, tying bean

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Speaker 3: bags to their legs, and you know, kind of weighing

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Speaker 3: themselves down, and they still only got it down to

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Speaker 3: about five billion dollars, and obviously Tesla was resisting that heavily.

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Speaker 3: They tried to argue that the stockholder boat in the

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Speaker 3: summer was further evidence that there wasn't any value from

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Speaker 3: the cancelation, and the court pushed back on that, but

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Speaker 3: it then sort of gave rise to this hard dilemma

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Speaker 3: about whether you go with that five billion dollars, and

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Speaker 3: Chanceer McCormick sort of post holes in the plaintiffs attorney's

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Speaker 3: theory about how to get there, because you know, she said, look,

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Speaker 3: they're clearly trying to get themselves to a smaller number

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Speaker 3: that's more palatable, but the way that they're getting there

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Speaker 3: just seems kind of arbitrary. But then the defendants, from

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Speaker 3: from their perspective, Tesla was offering some other approaches that

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Speaker 3: seemed a little bit ad hoc to Chancellor McCormick as well.

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Speaker 3: And so at the end what she had decided to

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Speaker 3: do is she ended up kind of doing something interesting.

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Speaker 3: She said, Look, what I'm going to do is I'm

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Speaker 3: going to base only for the attorney compensation part. I'm

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Speaker 3: going to base that on what as of the date

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Speaker 3: of the grant of the options back in twenty eighteen,

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Speaker 3: kind of the best estimates at that period of time

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Speaker 3: are going to yield, which is sort of in the

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Speaker 3: low two billions, like two point three billion dollars. And

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Speaker 3: then she said, and then I'm going to apply kind

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Speaker 3: of the low end of the standard percentages as you

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Speaker 3: get from that, which is fifteen percent, and that out

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Speaker 3: landed her on a number of three hundred and forty

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Speaker 3: five million dollars. Now, the way that she got there,

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Speaker 3: you know, even other parts of her opinions that you

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Speaker 3: shouldn't be reaching back to the grant date to figure

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Speaker 3: out stuff. But it turns out that if you did

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Speaker 3: that and got that number and took fifteen percent of

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Speaker 3: it and got three hundred and forty five million dollars,

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Speaker 3: that puts you in the ballpark of some of the

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Speaker 3: larger fee awards that have been on the books. It's

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Speaker 3: within spitting distance of a bunch of them. So the

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Speaker 3: number at least under the finger and the wind approach

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Speaker 3: kind of looks closer than what either the plaintive attorneys

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Speaker 3: or the defendant attorneys were offering up as alternatives.

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Speaker 2: So let me ask you this about her decision as

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Speaker 2: a whole. Was she saying that no matter what the

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Speaker 2: second vote was, no matter how it was conducted, that

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Speaker 2: it wouldn't change her opinion, or was she saying that

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Speaker 2: there was a problem with the second vote, that shareholders

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Speaker 2: were given misleading information. I mean, which was it?

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Speaker 3: As much as I disliked this statement, June, it's yes.

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Speaker 2: And so.

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Speaker 3: There was a part of her opinion that said, look,

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Speaker 3: the idea that even if this was a fully you know,

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Speaker 3: sort of coherent and solid stockholder vote, the idea that

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Speaker 3: you would put this forward after we've had a full

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Speaker 3: adjudication on the merits just doesn't make sense from the

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Speaker 3: standpoint of Delaware law, first of all, or really no

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Speaker 3: procedural precedents for you know, putting the toothpaste back in

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Speaker 3: the tube with later occurring facts like a later shareholder's vote,

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Speaker 3: And the only sort of situations where that has actually

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Speaker 3: happened that you can find in Delaware law often relate

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Speaker 3: to facts that existed at the time of trial, but

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Speaker 3: somehow they didn't make it into the record, and maybe

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Speaker 3: there was some kind of a defect in discovery or

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Speaker 3: someone's withholding facts or something like that. And so there

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Speaker 3: are some precedents that will essentially say, Okay, we're going

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Speaker 3: to revisit the holding because we learned something later on.

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Speaker 3: But it's always been something that you could have known

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Speaker 3: at the time of trial, and this is something that

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Speaker 3: didn't occur until five months at least after the opinion

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Speaker 3: came out. The other thing is that this idea of

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Speaker 3: a stockholder vote basically helping to fix a fiduciary duty issue.

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Speaker 3: That's what's known amongst lawyers as an affirmative defense, and

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Speaker 3: what that means is planets are going to come forward

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Speaker 3: with whatever claim they're going to have, and then you

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Speaker 3: can bring this forward to basically say, yeah, that might

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Speaker 3: have happened, but we got this stockholder vote and that

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Speaker 3: should either protect us or in some cases immunize us

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Speaker 3: from having to bear liability. And therefore it's kind of

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Speaker 3: an interesting thing with an affirmative defense. It's up to

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Speaker 3: the defendants to put forward that defense at the time

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Speaker 3: of trial, and you've got to do it in a

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Speaker 3: timely way, and historically, if you don't raise it at

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Speaker 3: the time of trial, can't raise it later on. And

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Speaker 3: so she said, look, this is something that didn't even

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Speaker 3: happen at the time or before trial. It happened five

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Speaker 3: months after trial. You obviously didn't and couldn't raise it

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Speaker 3: at the time, and now you're doing this thing and

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Speaker 3: raising it five months later. But it wasn't part of

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Speaker 3: your defense of the trial itself, and therefore it doesn't

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Speaker 3: really count. And then the last reason why, she sort

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Speaker 3: of said, look, you know, independent of whether it was

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Speaker 3: a misleading or not, the best a stockholder vote can

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Speaker 3: do in this case, because remember her original opinion found

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Speaker 3: that mister Musk was a controlling stockholder. It turns out,

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Speaker 3: under Delaware law, stockholder approval of some transaction with a

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Speaker 3: controlling stockholder doesn't get you completely out of the woods

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Speaker 3: of sort of the most intensive standard of review, it's

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Speaker 3: sometimes known as the entire fairness doctrine. It helps you

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Speaker 3: a little bit, it'll flip a burden in that case,

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Speaker 3: but it's not going to basically be caused to dismiss

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Speaker 3: the action. So based on just kind of pretty standard

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Speaker 3: approaches under what's known as the ratification doctrine, none of

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Speaker 3: these things really worked. And then adding on top of it,

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Speaker 3: she said, look, in this new vote in June, there

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Speaker 3: were problems with that as well. Right, the original vote

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Speaker 3: back in twenty eighteen, she said didn't count because there

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Speaker 3: were not adequate disclosures to the stockholders. Well, she went

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Speaker 3: through this new set of disclosures, this new set of

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Speaker 3: proxy materials from the spring of twenty twenty four and

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Speaker 3: said that the way that the vote was being characterized

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Speaker 3: to stockholders was just just inaccurate. That it would fix

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Speaker 3: or it would cure or it would remedy the prior

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Speaker 3: finding of a breach of the duciary duty. And it

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Speaker 3: doesn't under Delaware law right as I said earlier, it

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Speaker 3: only flips the burden. If anything, I mean, it may

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Speaker 3: not have any effect at all. So you know, she

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Speaker 3: basically used the first part of that section to say

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Speaker 3: this has no effect, and then when you made a

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Speaker 3: disclosure to stockholders saying this would have complete effect, you

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Speaker 3: were actually materially misstating law. So she ends up also

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Speaker 3: saying that the proxy materials themselves were also inaccurate and misleading.

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Speaker 2: Coming up next, but will Elon Musk get his pay

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Speaker 2: package anyway? This is bloomberg. For the second time, a

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Speaker 2: Delaware Chancery Court judge has voided the multi billion dollar

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Speaker 2: pay package awarded by Tesla to Elon Musk. I've been

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Speaker 2: talking to Columbia Law School professor Eric Tally. Tesla's board

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Speaker 2: says it will appeal the ruling to the Delaware Supreme Court.

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Speaker 2: Do you think her decision will stand up on appeal?

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Speaker 3: Well, it's an interesting thing. Look everything about Chancellor McCormick's

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Speaker 3: original decision, you can justify it, right, it's on reasonably

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Speaker 3: solid ground. Yeah, a lot of people been talking about

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Speaker 3: this case, and you know, there's definitely room for disagreement

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Speaker 3: on some of the issues in that January twenty twenty

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Speaker 3: four liability opinion. But you know, the factual findings that

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Speaker 3: she made are going to be very hard for the

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Speaker 3: Supreme Court to unseat. So it's really a question about

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Speaker 3: whether she adequately described the law or whether the Delaware

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Speaker 3: spreing Court decides they want to change the precedent on

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Speaker 3: the occasion of this case. I think in terms of

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Speaker 3: kind of you know, articulating Delaware law, for the most part,

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Speaker 3: she kind of stuck the landing in this January twenty

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Speaker 3: twenty four opinion. There's new stuff in the newest opinion,

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Speaker 3: and particularly you know the question of whether the stockholder

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Speaker 3: vote has any effect and would cause a judge under

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Speaker 3: Delaware law to have to go back and revisit the

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Speaker 3: liability finding. And so there's a possibility that the Dellar

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Speaker 3: Spreme Court could reverse some component of the original There's

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Speaker 3: probably two or three places where I would expect to

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Speaker 3: push on that original holding, and then they might push

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Speaker 3: once again on this question of whether a later occurring

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Speaker 3: stockholder vote can somehow kind of you know, get us

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Speaker 3: back to the future as it were, and be treated

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Speaker 3: as a contemporaneous stockholder vote. Their possibility, quite frankly, is

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Speaker 3: that Tesla, now that it's a Texas company, they just

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Speaker 3: submit to the stockholders a proposal that, out of gratitude,

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Speaker 3: we should give mister Musks formally voided compensation award back

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Speaker 3: and have yet a third vote. To the extent that

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Speaker 3: that gets challenged, it would have to be challenged. In Texas.

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Speaker 3: We don't know an awful lot about the brand new

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Speaker 3: Texas business courts, but one thing that's been true about

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Speaker 3: the courts is they've been courting Elon Musk, and so

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Speaker 3: it may well be that he's got a more friendly

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Speaker 3: venue and that will be allowed to go through. And

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Speaker 3: you know, quite frankly, even under Delaware law, I think

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Speaker 3: it's arguably the case that if they put this in

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Speaker 3: front of the stockholders as a brand new package as

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Speaker 3: opposed to an attempt to fix a previously invalidated package,

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Speaker 3: they're not going to be putting toothpaste back in the tube.

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Speaker 3: It's just a brand new transaction. If they did it right,

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Speaker 3: even under Delaware law. My sense is that they probably

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Speaker 3: could manage to make it enforceable.

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Speaker 2: That sounds easier, So why appeal. Then?

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Speaker 3: The two downsides I guess from Tesla's and mister m

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Speaker 3: perspective is that the tax treatment won't be the same.

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Speaker 3: Right when you award an options package at the time

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Speaker 3: of the original grant, the tax treatment of it and

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Speaker 3: the valuation of it, it's going to be much lower

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Speaker 3: in terms of its valuation. When you do it after

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Speaker 3: it's realized all of the benefit, it's going to be

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Speaker 3: a much larger tax hit. And the other thing is

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Speaker 3: that if they decided to do that, then that would

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Speaker 3: leave alone the attorney the award, which in this case

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Speaker 3: is you know, almost three and fifty million dollars. That's

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Speaker 3: a big award. It's not as nearly as big as

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Speaker 3: the planets had asked for, so you know, It could

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Speaker 3: be that the test the board just asides, all right,

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Speaker 3: maybe will appeal this. It depends on how much we

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Speaker 3: just don't want the attorneys to be receiving anything in

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Speaker 3: this case, in which case they may continue to fight back.

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Speaker 2: Do you have any doubt that the board is going

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Speaker 2: to get Musk the pay package he wants one way

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Speaker 2: or another.

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Speaker 3: It seems given the nature of the vote in the

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Speaker 3: summer that that it's likely they're going to be able

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Speaker 3: to get it, whether they do it as a new

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Speaker 3: transaction or to try to go back and you know,

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Speaker 3: and appeal. The issue of whether a retroactive vote after

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Speaker 3: an invalidated grant can somehow reach back and fix the

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Speaker 3: infirmities at the beginning, I think that latter course, and

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Speaker 3: you know, it's conceivable the Delaware Supreme Court might go

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Speaker 3: in that direction. But it does seem to me that

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Speaker 3: at least on that issue, Chancellor McCormick has a decent

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Speaker 3: amount of precedent and kind of logic on her side that,

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Speaker 3: you know, like litigation would basically just never end if

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Speaker 3: every time you've got an adverse judgment, you could just

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Speaker 3: have yet another stockholder vote, And if that was problematic,

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Speaker 3: then have another stockholder vote on that. It's kind of like,

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Speaker 3: I guess, it's not turtles all the way down, it's

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Speaker 3: stockholder votes all the way down. So I think she

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Speaker 3: makes a pretty powerful point in the opinion that this

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Speaker 3: would not be the best way to design a system

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Speaker 3: of adjudication. But you know, they proposed this as a

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Speaker 3: brand new package. I can see putting that together in

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Speaker 3: ways that are fully informed and make it completely enforceable.

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Speaker 3: And like I said, it wouldn't even now be under

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Speaker 3: Delaware law. If it or a brand new paypack is

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Speaker 3: it would be granted pursuing to the laws of the

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Speaker 3: state in which Tesla is currently incorporated, which is Texas,

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Speaker 3: outside of.

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Speaker 2: Musk I know that you know Texas is putting on

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Speaker 2: a push with these business courts. Do you see a

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Speaker 2: lot of companies changing their incorporation to Texas from Delaware?

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Speaker 3: Well, certainly there's a lot of kind of puffer fishing

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Speaker 3: about it, right, sort of saying, look, we're going to

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Speaker 3: leave Delaware. It's an odd situation, however, because one of

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Speaker 3: the things that is tough about this case, this specific case,

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Speaker 3: is that you got the CEO of the company who

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Speaker 3: is clearly an iconoclastic and well known and in many

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Speaker 3: ways quite idiosyncratic person who you know, was you know,

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Speaker 3: basically sort of saying, look, I'm just going to bargain

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Speaker 3: with myself and the usual rules of Delaware law shouldn't

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Speaker 3: apply to me, and Chancellor McCormick kind of applied the

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Speaker 3: usual rules of Delaware law to him, and you know,

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Speaker 3: arguably that maybe even more than arguably that precipitated their

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Speaker 3: departure from Delaware. If you were to take a different

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Speaker 3: CEO who was in it is exceptional and quite as

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Speaker 3: idiosyncratic as Elon Musk. There actually may be some value

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Speaker 3: to having some of the some of the strings that

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Speaker 3: Delaware attaches to things like compensation packages or other conflicted

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Speaker 3: sorts of transactions, because almost all these more lesser light

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Speaker 3: CEOs and boards are going to have to be going

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Speaker 3: out and getting investments from people, and they're going to

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Speaker 3: have to be talking people into parting with their money

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Speaker 3: and investing it in this company. And to the extent

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Speaker 3: that those prospective investors are you know, looking into their

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Speaker 3: magic eight ball and saying, well, look, in the future,

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Speaker 3: you know, Delaware law actually does impose some requirements on

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Speaker 3: you that may make them more willing to invest and

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Speaker 3: lock up their money for an extended period of time

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Speaker 3: because of those strings. And so, you know, there is

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Speaker 3: a sense that if Delaware were trying to kind of

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Speaker 3: get it right, so to speak, it's not going to

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Speaker 3: get it right for every company, but it may make

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Speaker 3: a lot of sense to try to get it right

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Speaker 3: for most of the companies that it has, you know,

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Speaker 3: over one hundred years of you know, effectively adjudicating their claims.

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Speaker 3: There's you know, kind of a reason Delaware became the

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Speaker 3: dominant locus for incorporations because of the predictability of their

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Speaker 3: judges and the expertise of their judges. And I'm not

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Speaker 3: aware of any state that at least yet can claim

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Speaker 3: either of those. It takes a long time to build

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Speaker 3: up enough precedent to be predictable, and the expertise is

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Speaker 3: a very hard thing to come by as well. And

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Speaker 3: the location of Delaware kind of situated right between New

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Speaker 3: York and DC and Philly, kind of makes it a

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Speaker 3: reasonably good hub for that type of locational setting for judges.

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Speaker 3: So I don't know how much flight we're going to

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Speaker 3: see out of Delaware based on the merits loan you

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Speaker 3: add to it June. The fact that, look, I've been

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Speaker 3: at this gig for almost three decades, and I've been

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Speaker 3: teaching corporate law.

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Speaker 1: The entire time.

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Speaker 3: I pretty much have taught tens of thousands of students

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Speaker 3: corporate law under the Delaware model. And that's that's just me, right,

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Speaker 3: and that's probably true of just about every other corporate

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Speaker 3: law professor in the country. So there are legions, there

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Speaker 3: are armies of lawyers out there that are trained by

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Speaker 3: one of us who know Delaware law really really well,

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Speaker 3: may know a little bit of another state's law, and

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Speaker 3: that's about it. And so just the you know, the

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Speaker 3: almost like the network effects right of Delaware being kind

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Speaker 3: of a focal point, I think you're going to make

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Speaker 3: it difficult to break that juggernaut. And you know, when

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Speaker 3: it gets to the point where you've gone beyond just

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Speaker 3: kind of doing the sort of pufferfish you know, threats,

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Speaker 3: there will be some companies that will leave. Some of

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Speaker 3: them may quietly come back to the state when they

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Speaker 3: realize it's harder to raise capital in their new and

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Speaker 3: not terribly predictable jurisdiction. And you know, my guess is

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Speaker 3: we'll probably see some experimentation with that over the next

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Speaker 3: few years.

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Speaker 2: Also the body of law that Delaware has, as well

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Speaker 2: as the expertise of the judges. I mean, Texas's business

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Speaker 2: courts are basically just like a startup at this point.

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Speaker 3: You know, another thing that for a long time been

436
00:23:02,440 --> 00:23:05,919
Speaker 3: kind of a small table topic is this question of,

437
00:23:06,280 --> 00:23:09,240
Speaker 3: you know, whether corporate law should become more of a

438
00:23:09,280 --> 00:23:13,440
Speaker 3: federal issue than a state issue. Right, should the sec

439
00:23:14,040 --> 00:23:17,840
Speaker 3: or the FTC or something like that play more of

440
00:23:17,880 --> 00:23:22,480
Speaker 3: a role in federalizing corporate law. Now, mister Musk has

441
00:23:22,680 --> 00:23:25,919
Speaker 3: episodically been in favor of that, but of course to

442
00:23:25,960 --> 00:23:28,719
Speaker 3: do that, you're going to have dramatically increase the bloat

443
00:23:28,760 --> 00:23:32,200
Speaker 3: of the federal government, and he's simultaneously trying to decrease

444
00:23:32,480 --> 00:23:34,400
Speaker 3: the blow to the federal government. I don't know which

445
00:23:34,440 --> 00:23:37,280
Speaker 3: one wins that pedal war. My guess is state law

446
00:23:37,320 --> 00:23:39,399
Speaker 3: is going to continue to be pretty much the center

447
00:23:39,440 --> 00:23:43,119
Speaker 3: of massive most corporate law unlessen until a company is

448
00:23:43,119 --> 00:23:45,320
Speaker 3: publicly traded, and then it's kind of a you know,

449
00:23:45,400 --> 00:23:47,840
Speaker 3: both federal securities law and state corporate law kind of

450
00:23:47,880 --> 00:23:51,080
Speaker 3: share the burden of regulating various types of governance.

451
00:23:51,400 --> 00:23:55,320
Speaker 2: I'm betting on corporate law not being federalized. Of course

452
00:23:55,320 --> 00:23:58,400
Speaker 2: I've been wrong before. Thanks so much, Eric, That Professor

453
00:23:58,520 --> 00:24:01,600
Speaker 2: Eric Tally of Columbia Laws coming up next on the

454
00:24:01,640 --> 00:24:05,320
Speaker 2: Bloomberg Law Show. Federal prosecutors have brought a two hundred

455
00:24:05,400 --> 00:24:09,960
Speaker 2: fifty million dollar bribery case against Gautamadani, but first they

456
00:24:10,000 --> 00:24:13,120
Speaker 2: have to extradite him from India, and they are illegal

457
00:24:13,119 --> 00:24:16,280
Speaker 2: and political hurdles to that. I'm June Grosso and you're

458
00:24:16,359 --> 00:24:22,040
Speaker 2: listening to Bloomberg. Gautam Adani, one of the world's richest

459
00:24:22,080 --> 00:24:26,280
Speaker 2: people and India's most powerful businessman, has been charged by

460
00:24:26,320 --> 00:24:30,240
Speaker 2: Brooklyn federal prosecutors with helping to drive a two hundred

461
00:24:30,280 --> 00:24:35,000
Speaker 2: and fifty million dollar bribery scheme. Prosecutors alleged that Adanie

462
00:24:35,040 --> 00:24:38,280
Speaker 2: and seven other defendants promised to pay more than two

463
00:24:38,400 --> 00:24:42,480
Speaker 2: hundred fifty million dollars in bribes to Indian government officials

464
00:24:42,920 --> 00:24:47,120
Speaker 2: to win solar energy contracts and conceal the plan as

465
00:24:47,160 --> 00:24:50,680
Speaker 2: they try to raise money from US investors. But right

466
00:24:50,720 --> 00:24:54,040
Speaker 2: now the main question is whether prosecutors can get a

467
00:24:54,160 --> 00:24:58,040
Speaker 2: Doni into a Brooklyn courtroom to face the charges, and

468
00:24:58,119 --> 00:25:02,639
Speaker 2: the answer is uncertain, involving legal and diplomatic hurdles in

469
00:25:02,680 --> 00:25:07,360
Speaker 2: the extradition process. Joining me is Bloomberg Legal reporter David Voriakis.

470
00:25:08,119 --> 00:25:10,639
Speaker 2: David tell us a little about a Donnie.

471
00:25:10,960 --> 00:25:15,240
Speaker 1: A Donnie is Asia's second richest man and has created

472
00:25:15,280 --> 00:25:20,320
Speaker 1: this enormous conglomerate that took a hit in January twenty

473
00:25:20,359 --> 00:25:25,320
Speaker 1: twenty three when short seller Edinburgh Research published a report

474
00:25:25,400 --> 00:25:30,000
Speaker 1: that alleged fraud and corporate governance issues in his conglomerate,

475
00:25:30,720 --> 00:25:37,239
Speaker 1: and the company had largely rebounded from that before this

476
00:25:37,400 --> 00:25:40,320
Speaker 1: indictment by federal prosecutors in Brooklyn.

477
00:25:41,080 --> 00:25:43,320
Speaker 2: So tell us what he's charged with.

478
00:25:43,920 --> 00:25:49,760
Speaker 1: He is accused of joining a bribery plot. He is

479
00:25:50,160 --> 00:25:55,719
Speaker 1: actually charged with a couple of fraud counts, but not

480
00:25:56,240 --> 00:26:00,520
Speaker 1: a violation of the US Foreign Corrupt Practice is Act.

481
00:26:01,040 --> 00:26:06,080
Speaker 1: He's charged with securities fraud and conspiracy to commit securities

482
00:26:06,119 --> 00:26:10,800
Speaker 1: fraud and conspiracy to commit wire frauds. The prosecutors alleged

483
00:26:10,800 --> 00:26:14,800
Speaker 1: that he met with a government official in India to

484
00:26:14,960 --> 00:26:20,240
Speaker 1: advance this fride scheme, in which prosecutors alleged that people

485
00:26:20,320 --> 00:26:23,919
Speaker 1: around A Donnie paid more than two hundred and fifty

486
00:26:23,960 --> 00:26:28,720
Speaker 1: million too officials in India to help A Donnie Green

487
00:26:29,400 --> 00:26:33,960
Speaker 1: with its solar energy project. And they also alleged that A.

488
00:26:34,080 --> 00:26:38,399
Speaker 1: Donnie and others to frauded US investors by not telling

489
00:26:38,440 --> 00:26:43,159
Speaker 1: them the full story about the bribery plot and the

490
00:26:43,240 --> 00:26:46,600
Speaker 1: company's anti corruption efforts.

491
00:26:46,800 --> 00:26:49,240
Speaker 2: So how many are charged altogether?

492
00:26:50,040 --> 00:26:53,040
Speaker 1: The total of eight people who are charged, none of

493
00:26:53,080 --> 00:26:55,959
Speaker 1: them are in the United States. This now sets up

494
00:26:56,000 --> 00:26:59,199
Speaker 1: the process of whether they will be extradited to the

495
00:26:59,280 --> 00:27:02,840
Speaker 1: United States to face charges in federal court in Brooklyn.

496
00:27:03,160 --> 00:27:06,199
Speaker 2: Can you explain what the Foreign Corrupt Practices Act is

497
00:27:06,440 --> 00:27:09,080
Speaker 2: and do we know why he was in charge with that?

498
00:27:09,920 --> 00:27:13,240
Speaker 1: The Foreign Corrupt Practices Act, which is enforced by the

499
00:27:13,400 --> 00:27:17,840
Speaker 1: Justice Department and the Securities in Exchange Commission, bans the

500
00:27:17,880 --> 00:27:21,480
Speaker 1: payment of money or anything of value to foreign officials

501
00:27:21,520 --> 00:27:26,680
Speaker 1: to obtain or retain business or gain an improper advantage.

502
00:27:26,880 --> 00:27:29,760
Speaker 1: The prosecutors say that it applies in this case because

503
00:27:29,760 --> 00:27:33,160
Speaker 1: of Donnie Green raised money in the US to support

504
00:27:33,200 --> 00:27:37,560
Speaker 1: as solar energy project that gives it a nexus in

505
00:27:37,600 --> 00:27:43,399
Speaker 1: the United States. It's not clear why Donnie was not

506
00:27:43,680 --> 00:27:47,399
Speaker 1: charged as others were in the case with violating the

507
00:27:47,440 --> 00:27:52,240
Speaker 1: Foreign Corrupt Practices Act, but prosecutors do say that he

508
00:27:52,400 --> 00:27:55,200
Speaker 1: supported the bribery scheme tell us.

509
00:27:55,119 --> 00:27:57,960
Speaker 2: About extradition and whether the US has a treaty in

510
00:27:58,000 --> 00:27:59,959
Speaker 2: place with India.

511
00:28:00,040 --> 00:28:04,119
Speaker 1: Tradition is the legal process by which one country ass

512
00:28:04,160 --> 00:28:07,919
Speaker 1: another to surrender a person for prosecution or to service

513
00:28:08,000 --> 00:28:11,800
Speaker 1: sentence after conviction. The US needs to have a treaty

514
00:28:11,840 --> 00:28:15,880
Speaker 1: in place with the country they're seeking extraditions from. They

515
00:28:15,920 --> 00:28:20,399
Speaker 1: have a treaty with India, and they sign that treaty

516
00:28:20,400 --> 00:28:25,240
Speaker 1: in nineteen ninety seven. And so what will happen now

517
00:28:26,000 --> 00:28:29,679
Speaker 1: is that the US will make its requests to India,

518
00:28:29,760 --> 00:28:33,040
Speaker 1: and the Indian government will deal with that request and

519
00:28:33,200 --> 00:28:38,040
Speaker 1: decide how to proceed under its own law. And one

520
00:28:38,080 --> 00:28:42,840
Speaker 1: of the factors is whether the crimes that are charged

521
00:28:43,200 --> 00:28:47,240
Speaker 1: match up with Indian law, so that there are comparable

522
00:28:47,520 --> 00:28:52,040
Speaker 1: crimes under Indian law. And then there's also certain political

523
00:28:52,080 --> 00:28:56,960
Speaker 1: considerations that will come into play, and it could be

524
00:28:57,040 --> 00:29:02,480
Speaker 1: that the Trump administes, which is of course coming into

525
00:29:02,480 --> 00:29:06,880
Speaker 1: place in late January, may decide that this is not

526
00:29:07,280 --> 00:29:11,680
Speaker 1: in the US interest, to speak, extraditions of one of

527
00:29:11,720 --> 00:29:15,040
Speaker 1: the most powerful businessmen in Asia, and so they may

528
00:29:15,480 --> 00:29:18,360
Speaker 1: decide to drop the request back.

529
00:29:18,240 --> 00:29:20,320
Speaker 2: To the magistrate for a moment, he's going to be

530
00:29:20,440 --> 00:29:24,520
Speaker 2: looking at also the strength of the prosecution's case, but

531
00:29:24,720 --> 00:29:26,120
Speaker 2: who makes a final call.

532
00:29:26,520 --> 00:29:30,280
Speaker 1: The final call is ultimately up to the Indian government.

533
00:29:30,520 --> 00:29:33,680
Speaker 1: But the magistrate is going to review the case and

534
00:29:33,840 --> 00:29:39,080
Speaker 1: see whether it's subject to the Indian Extradition Act this case,

535
00:29:39,360 --> 00:29:43,040
Speaker 1: and so that's a process that's going to take some time,

536
00:29:43,880 --> 00:29:48,720
Speaker 1: and then there will be some potentially diplomatic wrangling to

537
00:29:48,800 --> 00:29:53,400
Speaker 1: determine whether ultimately a Donnie should be extradited to the US.

538
00:29:53,880 --> 00:29:59,040
Speaker 2: Are there implications for Indian business and politics in general?

539
00:29:59,400 --> 00:30:03,400
Speaker 1: Well, the Adani Group and the Indian government are seen

540
00:30:03,440 --> 00:30:06,960
Speaker 1: as an important ally in the US efforts to check

541
00:30:07,080 --> 00:30:12,960
Speaker 1: Chinese hegemony, and so if the US were to pursue

542
00:30:13,000 --> 00:30:17,120
Speaker 1: this case and follow through, they could lose that important

543
00:30:17,200 --> 00:30:21,400
Speaker 1: ally in their efforts to check China's power and influence

544
00:30:21,440 --> 00:30:22,040
Speaker 1: in the region.

545
00:30:22,680 --> 00:30:26,040
Speaker 2: And speaking of politics, as the leader of India's opposition

546
00:30:26,160 --> 00:30:31,680
Speaker 2: party demanded parliamentary probe, but I assume that hasn't happened yet.

547
00:30:32,480 --> 00:30:37,080
Speaker 1: I believe that there will be a local investigation of

548
00:30:37,200 --> 00:30:42,720
Speaker 1: potential crimes in India which would then put on pause

549
00:30:42,840 --> 00:30:47,520
Speaker 1: the extradition process. That's a process that could take some time,

550
00:30:47,920 --> 00:30:52,160
Speaker 1: and my understanding is that that would supersede the request

551
00:30:52,240 --> 00:30:55,080
Speaker 1: by the US to extradise these individuals.

552
00:30:55,280 --> 00:30:59,520
Speaker 2: Extradition can take years. Tell us about that Ukrainian businessman.

553
00:31:00,080 --> 00:31:05,600
Speaker 1: There's a Ukrainian businessman who was indicted in Chicago more

554
00:31:05,640 --> 00:31:10,239
Speaker 1: than a decade ago, who is still in Austria and

555
00:31:10,320 --> 00:31:13,040
Speaker 1: has not been extracted yet and has been fighting at

556
00:31:13,040 --> 00:31:15,560
Speaker 1: every step of the way. He just had the tenth

557
00:31:15,640 --> 00:31:21,800
Speaker 1: anniversary of his case and his lawyers have asked the

558
00:31:21,880 --> 00:31:25,160
Speaker 1: US government to drop the case. It has not happened yet,

559
00:31:25,680 --> 00:31:29,280
Speaker 1: So it's a process that can be quite prolonged if

560
00:31:29,840 --> 00:31:31,840
Speaker 1: the facts and circumstances are right.

561
00:31:32,240 --> 00:31:34,840
Speaker 2: And what could a Donnie do or say to fight

562
00:31:35,000 --> 00:31:36,959
Speaker 2: extradition to the US.

563
00:31:37,000 --> 00:31:40,840
Speaker 1: Well, he could say that this case is politically charged,

564
00:31:41,080 --> 00:31:45,200
Speaker 1: which is frowned upon under Indian law. He could say

565
00:31:45,200 --> 00:31:48,440
Speaker 1: that it's charges that the US alleged does not match

566
00:31:48,520 --> 00:31:52,000
Speaker 1: up with Indian laws, and I guess he can make

567
00:31:52,120 --> 00:31:55,480
Speaker 1: a political argument to the central Indian government.

568
00:31:56,280 --> 00:31:59,520
Speaker 2: What happens if he travels to another country.

569
00:31:59,520 --> 00:32:03,440
Speaker 1: If there is an Interpol red notice, which we expect

570
00:32:03,480 --> 00:32:06,640
Speaker 1: will be in place, he could be arrested, which would

571
00:32:06,720 --> 00:32:11,560
Speaker 1: then put him under the jurisdiction of the country that

572
00:32:11,680 --> 00:32:16,880
Speaker 1: arrests him and that would trigger a whole new extradition process.

573
00:32:17,240 --> 00:32:22,840
Speaker 1: There are several individuals criminal defendants in recent years who've

574
00:32:22,840 --> 00:32:26,160
Speaker 1: been arrested in Spain, which is seen as a very

575
00:32:26,240 --> 00:32:30,080
Speaker 1: favorable country for US extraditions, and have been sent to

576
00:32:30,160 --> 00:32:33,040
Speaker 1: the US to face criminal charges in the US courtrooms.

577
00:32:33,320 --> 00:32:36,320
Speaker 2: How much time does he face? I mean this is

578
00:32:36,440 --> 00:32:39,000
Speaker 2: years down the road. Obviously, if there is a trial

579
00:32:39,040 --> 00:32:39,560
Speaker 2: and he's.

580
00:32:39,440 --> 00:32:45,400
Speaker 1: Convicted, he faces twenty years on each of three counts.

581
00:32:45,440 --> 00:32:50,320
Speaker 1: Although the reality is the way that white collar cases

582
00:32:50,440 --> 00:32:53,840
Speaker 1: go is that someone rarely gets the maximum that they

583
00:32:53,920 --> 00:32:58,440
Speaker 1: face under the statute. There's generally a number of factors

584
00:32:58,520 --> 00:33:02,080
Speaker 1: that would reduce a sentence, so it's unlikely he would

585
00:33:02,080 --> 00:33:06,160
Speaker 1: face the ultimate maximum that he's looking at, but it

586
00:33:06,200 --> 00:33:09,920
Speaker 1: could be a serious amount of time if he's ultimately

587
00:33:09,920 --> 00:33:11,640
Speaker 1: brought to the US and convicted.

588
00:33:12,120 --> 00:33:14,280
Speaker 2: Is the SEC also investigating this?

589
00:33:15,200 --> 00:33:18,200
Speaker 1: Yes, the SEC has also brought a case, a civil

590
00:33:18,280 --> 00:33:22,800
Speaker 1: case that generally takes a back seat to the criminal proceedings.

591
00:33:23,240 --> 00:33:27,680
Speaker 1: That's typically how these types of cases go. But nothing

592
00:33:27,720 --> 00:33:29,640
Speaker 1: has really happened on that case yet.

593
00:33:30,280 --> 00:33:32,840
Speaker 2: I take it a Donnie has denied the charges.

594
00:33:33,800 --> 00:33:37,320
Speaker 1: He's denied the charges and denied wrongdoing the other. He

595
00:33:37,400 --> 00:33:41,720
Speaker 1: has not made a formal appearance in the case in

596
00:33:42,000 --> 00:33:45,720
Speaker 1: US court where he would plead not guilty, so he's

597
00:33:45,760 --> 00:33:49,720
Speaker 1: not entered a formal legal plea to the charge, but

598
00:33:49,880 --> 00:33:52,360
Speaker 1: he has denied wrongdoing.

599
00:33:53,120 --> 00:33:56,520
Speaker 2: Will the US try to seek extradition of the other defendants?

600
00:33:56,600 --> 00:33:59,840
Speaker 1: Yes, they're seeking extradition of all eight defendants.

601
00:34:00,480 --> 00:34:03,400
Speaker 2: David, do you know why this was brought by the

602
00:34:03,800 --> 00:34:05,800
Speaker 2: Brooklyn U s Attorney's Office?

603
00:34:06,320 --> 00:34:09,680
Speaker 1: The Brooklyn US Attorney's Office has a history of bringing

604
00:34:09,920 --> 00:34:13,640
Speaker 1: Foreign Corrupt Practices Act cases, and they have a lot

605
00:34:13,680 --> 00:34:17,400
Speaker 1: of experience and a lot of seasoned white collar prosecutors.

606
00:34:17,760 --> 00:34:22,440
Speaker 1: There's questions about venue where the Act took place, but

607
00:34:22,520 --> 00:34:24,960
Speaker 1: those who be litigated if the case were to move

608
00:34:25,000 --> 00:34:28,160
Speaker 1: to a US courtroom and the defense starts to put

609
00:34:28,200 --> 00:34:30,200
Speaker 1: on its challenges to the government's case.

610
00:34:31,080 --> 00:34:35,400
Speaker 2: It's sort of an unusual time in US attorney's offices

611
00:34:35,600 --> 00:34:38,719
Speaker 2: because when Trump comes in, they're all going to be replaced,

612
00:34:38,719 --> 00:34:42,279
Speaker 2: and many of them are leaving sooner rather than wait

613
00:34:42,360 --> 00:34:42,560
Speaker 2: for that.

614
00:34:43,200 --> 00:34:46,520
Speaker 1: A Donnie was indicted before the election and they didn't

615
00:34:46,600 --> 00:34:49,840
Speaker 1: unfeel it for a month. It's not crystal clear to

616
00:34:49,920 --> 00:34:52,719
Speaker 1: us why they unsealed it when they did. And you know,

617
00:34:52,800 --> 00:34:56,040
Speaker 1: there's a phenomenon of the so called name and chame

618
00:34:56,160 --> 00:35:02,120
Speaker 1: cases where they indict someone without a realistic expectation of

619
00:35:02,160 --> 00:35:05,200
Speaker 1: them showing up in a US courtroom. I mean, this

620
00:35:05,239 --> 00:35:08,200
Speaker 1: has happened through the years in hacking cases, you know,

621
00:35:08,239 --> 00:35:12,560
Speaker 1: where they were Russian or Eastern European hackers. It happened

622
00:35:12,600 --> 00:35:14,920
Speaker 1: to an extent in the Mueller case. I mean, none

623
00:35:14,960 --> 00:35:17,640
Speaker 1: of those Russian defendants showed up, and.

624
00:35:17,680 --> 00:35:19,759
Speaker 2: It seems like this is going to be one of

625
00:35:19,800 --> 00:35:24,799
Speaker 2: those challenging cases for extradition. Thanks so much, David. That's

626
00:35:24,800 --> 00:35:28,560
Speaker 2: Bloomberg Legal reporter David Voriakis, and that's it for this

627
00:35:28,719 --> 00:35:31,440
Speaker 2: edition of the Bloomberg Law Show. Remember you can always

628
00:35:31,440 --> 00:35:34,360
Speaker 2: get the latest legal news on our Bloomberg Law podcast.

629
00:35:34,640 --> 00:35:37,680
Speaker 2: You can find them on Apple Podcasts, Spotify, and at

630
00:35:37,840 --> 00:35:42,879
Speaker 2: www dot Bloomberg dot com, slash podcast Slash Law. I'm

631
00:35:42,960 --> 00:35:45,400
Speaker 2: June Grosso, and you're listening to Bloomberg