WEBVTT - Blood Farming: Purdue Pharma, empty voting and frozen heads 0:00:03.120 --> 0:00:08.360 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:11.119 --> 0:00:14.040 Hello and welcome to the Money Stuff Podcast. You're a 0:00:14.080 --> 0:00:17.840 weekly podcast where we talked about stuff related to money. 0:00:18.360 --> 0:00:20.320 I'm Matt Levine and I write the Money Stuff column 0:00:20.320 --> 0:00:21.239 for Bloomberg Opinion. 0:00:21.600 --> 0:00:24.079 And I'm Katie Greifeld, a reporter for Bloomberg News and 0:00:24.120 --> 0:00:25.760 an anchor for Bloomberg Television. 0:00:26.360 --> 0:00:27.640 What are you telling about today, Katie? 0:00:27.840 --> 0:00:30.640 We're going to be talking about Purdue Pharma and non 0:00:30.680 --> 0:00:34.080 consensual third party releases. We're going to be talking about 0:00:34.120 --> 0:00:38.080 empty voting, and then we're going to talk about cryogenics. Yeah, 0:00:38.440 --> 0:00:39.120 the blood Farman. 0:00:39.400 --> 0:00:46.360 Yeah. But before that, there's only one piece of news 0:00:46.400 --> 0:00:46.680 this week. 0:00:46.960 --> 0:00:50.280 Yeah, come on, let's go. You gotta puppy. Tell us 0:00:50.760 --> 0:00:53.239 about this puppy. I've seen a ton of pictures and 0:00:53.320 --> 0:00:55.320 I want to hear you describe her for the audience. 0:00:55.440 --> 0:00:58.040 She is extremely cute. She is a wheat and terrier. 0:00:58.400 --> 0:01:03.080 She's eleven weeks old, is like mostly brown, like whetons 0:01:03.080 --> 0:01:05.040 are sort of beige when they grew up, but when 0:01:05.080 --> 0:01:08.280 they're babies, they're mostly brown, with like a black nose 0:01:08.319 --> 0:01:10.800 and black paws and a little white spot on her tummy. 0:01:11.080 --> 0:01:14.000 Yeah, it's pretty good man. Yeah, she has that cute 0:01:14.120 --> 0:01:16.679 dark face though, oh yeah, does she keep that? Like, 0:01:16.720 --> 0:01:18.000 how does it work with wheatons? 0:01:18.360 --> 0:01:21.280 All of their fur lightens and it becomes more uniform, 0:01:21.319 --> 0:01:23.880 but sometimes their muzzle is darker than the rest of them, 0:01:23.880 --> 0:01:24.840 but it won't stay black. 0:01:25.080 --> 0:01:27.760 Okay. Interesting because my parents have an Irish wolf found 0:01:28.240 --> 0:01:30.080 and we got her as a puppy. They did. I 0:01:30.120 --> 0:01:34.440 don't live with my parents, and she started out much 0:01:34.520 --> 0:01:37.160 darker and like her face was a bit darker and 0:01:37.200 --> 0:01:40.480 then she lightened out. So you're physically here, but I 0:01:40.520 --> 0:01:44.320 feel like you're probably thinking about the puppy I'm thinking about. Yeah, 0:01:44.360 --> 0:01:45.880 but you know what else we're thinking about? 0:01:46.280 --> 0:01:50.680 Non consentual third. Yes, Wow, we stuck transition. 0:01:50.960 --> 0:01:54.280 You were so right Purdue Pharma. This decision actually came 0:01:54.360 --> 0:01:55.680 down a little bit ago. 0:01:56.160 --> 0:01:58.120 Yeah, it's in the news this week and I read 0:01:58.160 --> 0:02:01.040 about it this week because they went back to bankruptcy 0:02:01.080 --> 0:02:03.320 court and they keep doing stuff. But basically if Perdue 0:02:03.320 --> 0:02:10.200 Pharma opioid manufacturer make Toxi Content responsible for untold devastation 0:02:11.120 --> 0:02:14.520 owned by the Sackler family and it went bankrupt a 0:02:14.520 --> 0:02:18.919 few years ago to basically deal with like fairly paying 0:02:18.960 --> 0:02:22.680 out the opioid claims from you know, victims and victims 0:02:22.680 --> 0:02:25.880 families and also like state attorney generals and as part 0:02:25.880 --> 0:02:28.040 of the bankruptcy, you know, basically like there's not that 0:02:28.120 --> 0:02:31.399 much money left in Purdue, although what's left is basically 0:02:31.440 --> 0:02:33.600 like we're going to continue to sell exi content and 0:02:33.639 --> 0:02:35.720 give the proceeds to the people who became addicted to 0:02:35.760 --> 0:02:39.880 oxy content. Right, they reached this deal to pay out 0:02:40.120 --> 0:02:43.000 the victims where they would take what's left of Purdue 0:02:43.040 --> 0:02:45.880 and give them, you know, money out of the continuing business. 0:02:46.320 --> 0:02:49.400 And they would also take six billion dollars give or 0:02:49.440 --> 0:02:52.480 take from the Sackler family who had owned Perdue, who 0:02:52.520 --> 0:02:54.280 had taken a lot of money out of Purdue over 0:02:54.320 --> 0:02:56.959 the years because it was this profitable company that made 0:02:56.960 --> 0:03:00.400 them billionaires, and they reached this deal with it. Sacklers 0:03:00.440 --> 0:03:02.840 would kick in six billion dollars and in exchange for that, 0:03:02.880 --> 0:03:04.760 the bankruptcy court would say, no one can sue the 0:03:04.760 --> 0:03:08.120 Sacklers anymore over opio It's their liability is capped at 0:03:08.120 --> 0:03:11.120 the six billion dollars they're putting back into the predy bankruptcy. 0:03:11.280 --> 0:03:16.560 And this was a controversial thing in bankruptcy law, where 0:03:16.760 --> 0:03:19.919 some bankruptcy courts thought you can do this. You can say, 0:03:19.919 --> 0:03:22.160 we're going to do what are called non consensual third 0:03:22.160 --> 0:03:25.720 party releases. We're going to say everyone's lawsuits against these 0:03:25.720 --> 0:03:27.800 people who are not in bankruptcy but are like connected 0:03:27.840 --> 0:03:31.640 to the bankruptcy, everyone's lawsuits are extinguished forever, and the 0:03:31.680 --> 0:03:34.400 bankruptcy court is just sort of like a powerful arbiter 0:03:34.480 --> 0:03:37.600 or a fairness could extinguish those claims. And this was 0:03:37.680 --> 0:03:40.480 controversial at the time and eventually went to the Supreme Court, 0:03:40.720 --> 0:03:43.040 and last month the Supreme Court said, no, you can't 0:03:43.040 --> 0:03:47.080 do that. Only essentially the company that's in bankruptcy can 0:03:47.120 --> 0:03:50.080 have all of its lawsuits terminated, so the sacklers can't 0:03:50.120 --> 0:03:53.920 get this sort of like universal release from liability. And 0:03:54.000 --> 0:03:56.720 so one thing that means is like the deal is 0:03:56.760 --> 0:03:59.400 off the sacklers. We're going to kick in six billion 0:03:59.440 --> 0:04:01.520 dollars of their mon It's not like sitting in a 0:04:01.560 --> 0:04:04.000 bank account. It's like in these trusts, it's overseas. It's 0:04:04.040 --> 0:04:06.880 like it'd be hard to get that money without them 0:04:06.920 --> 0:04:09.200 voluntarily giving it to you. And they said, we'll give 0:04:09.200 --> 0:04:11.200 you the six billion dollars. We'll still be rich. I 0:04:11.440 --> 0:04:12.600 keep a lot of the money who took out of 0:04:12.600 --> 0:04:15.920 Purdue over the years. But this way you'll certainly get 0:04:15.920 --> 0:04:17.640 the six billion dollars, which is better than you do 0:04:17.640 --> 0:04:19.119 if you had to try to sue US and foreign 0:04:19.160 --> 0:04:21.560 courts and all this stuff. And now that deal is 0:04:21.560 --> 0:04:23.960 off because the Supreme Court said the Sacklers can't get 0:04:23.960 --> 0:04:25.960 what they want from that deal. They can't get a 0:04:26.000 --> 0:04:29.279 total release from claims, and so now it's sort of 0:04:29.320 --> 0:04:31.560 in this limbo. And the thing that happened this week 0:04:31.680 --> 0:04:33.440 is that you know, it's back in the bankruptcy court, 0:04:33.960 --> 0:04:38.920 and the Purdue creditors, the people who are trying to 0:04:38.960 --> 0:04:42.280 get money out of Purdue, basically said they're going to 0:04:42.320 --> 0:04:44.760 file a lawsuit or they are seeking permission to file 0:04:44.760 --> 0:04:47.760 a lawsuit against the sacklers, trying to get money from 0:04:47.760 --> 0:04:50.440 the sacklers to kick back into the bankruptcy estate. Because 0:04:50.440 --> 0:04:52.320 that's kind of like how this goes. When the Supreme 0:04:52.320 --> 0:04:54.719 Court says you can't do this universal sediment, the next 0:04:54.720 --> 0:04:57.960 thing that happens is that Purdue itself sues the Sacklers 0:04:58.000 --> 0:04:59.359 to try to get some money out of them. 0:05:00.440 --> 0:05:04.320 Raises the question of what does this mean for other 0:05:04.360 --> 0:05:07.320 bankruptcy cases, if you don't have non consensual third party 0:05:07.360 --> 0:05:11.440 releases just practically or pragmatically speaking, whatever you want to 0:05:11.480 --> 0:05:14.520 say it, that seems like it would get pretty messy 0:05:14.560 --> 0:05:15.200 pretty quickly. 0:05:15.920 --> 0:05:18.640 Yeah, this is an unusual case, and that the sacklers 0:05:18.640 --> 0:05:20.880 are so personally identified with this and like they have 0:05:20.960 --> 0:05:23.719 a lot of money. But right, there are a lot 0:05:23.760 --> 0:05:26.560 of these what are called best toward bankruptcies where it's 0:05:26.560 --> 0:05:29.320 not just like a company owes money and like doesn't 0:05:29.320 --> 0:05:30.560 have enough money to pay it back, but it's like 0:05:30.600 --> 0:05:34.120 aspestos and tobacco, like the company does something dramatically harmful 0:05:34.279 --> 0:05:36.280 and ends up owing much more money than it ever made, 0:05:36.480 --> 0:05:38.320 and it's like people are looking around for third parties, 0:05:38.320 --> 0:05:40.560 often who made a lot of money running those companies, 0:05:40.800 --> 0:05:42.480 and if you can't get the third party release, then 0:05:42.520 --> 0:05:45.599 like those people are less likely to contribute to the bankruptcy. Now, 0:05:45.600 --> 0:05:47.880 it's an unusual case here because the sacklers took so 0:05:47.960 --> 0:05:51.160 much money out of who do and are quite rich, 0:05:51.560 --> 0:05:54.560 and so getting their money is like really important to 0:05:54.600 --> 0:05:56.240 the bankruptcy. There are a lot of other cases where 0:05:56.240 --> 0:05:58.400 it's like the company itself is the main source of 0:05:58.440 --> 0:06:00.880 money and so like you can still really claims against 0:06:00.880 --> 0:06:03.320 the company. That's what bankruptcy is, right, Like, the bankruptcy 0:06:03.360 --> 0:06:06.840 process is designed to end all lawsuits against Purdue and 0:06:06.880 --> 0:06:08.800 sort of parcel out the money among everyone who had 0:06:08.800 --> 0:06:11.919 a claim. But it's just that's Purdue, right, Purdue is 0:06:11.920 --> 0:06:12.920 in bankruptcy pre. 0:06:12.880 --> 0:06:15.719 Due pharma, perdue pharma, as we've been instructed to call it. 0:06:15.880 --> 0:06:18.719 Yes, right, when I wrote about this, I did occasionally 0:06:18.760 --> 0:06:20.760 call it Purdue, and I got an email from a 0:06:20.800 --> 0:06:23.839 student at Pretty University saying it is not the same thing. 0:06:24.279 --> 0:06:25.560 Please call it predy. 0:06:25.320 --> 0:06:28.000 Far school allegiance just runs deep. 0:06:28.240 --> 0:06:30.480 It's fair. You don't want to be associated with bad stuff. 0:06:30.480 --> 0:06:33.200 But anyway, you know that here, like most of the 0:06:33.200 --> 0:06:36.560 money went out to the sacklers, and so it's particularly 0:06:36.560 --> 0:06:38.400 important to have their contributions. 0:06:38.560 --> 0:06:41.000 So those two numbers, there are eleven billion dollars what 0:06:41.120 --> 0:06:45.680 the sacklers took from Purdue Pharma and six billion dollars 0:06:45.720 --> 0:06:49.080 what they've agreed to give to the victims. If they 0:06:49.160 --> 0:06:52.480 had agreed to give ten billion dollars, if their eleven 0:06:52.480 --> 0:06:55.480 billion dollars, do you think that we'd be having this conversation. 0:06:56.360 --> 0:06:58.560 First of all, they say all these public statements that 0:06:58.640 --> 0:07:00.480 a lot of that money they didn't really take out 0:07:00.480 --> 0:07:02.640 eleven billion dollars, it's like a lot of money when 0:07:02.640 --> 0:07:05.440 to paying taxes and so like. Really the six billion 0:07:05.480 --> 0:07:07.000 is much closer to all of the money that they 0:07:07.000 --> 0:07:08.680 took out than it is to half of the money 0:07:08.680 --> 0:07:10.520 that they took out or the No one thinks they're 0:07:10.520 --> 0:07:13.320 going to be poor after this, Yeah, but uh no, 0:07:13.400 --> 0:07:16.040 I mean the answer is no. The Supreme Court decided 0:07:16.160 --> 0:07:18.600 not a fairness question, but a legal question. I think 0:07:18.600 --> 0:07:20.680 it's tainted by the fact that people are really angry 0:07:20.720 --> 0:07:22.160 at the Sacklers. And I think there are a lot 0:07:22.160 --> 0:07:25.080 of other bankruptcy cases where the third party release was 0:07:25.160 --> 0:07:28.280 less controversial and like was clearly useful to getting a 0:07:28.280 --> 0:07:30.920 deal done, and like the Supreme Court took a case 0:07:30.960 --> 0:07:34.240 where the third party is particularly unsympathetic, where it's these 0:07:34.240 --> 0:07:36.320 billionaires who like sort of cause the help gide epidotg. 0:07:36.680 --> 0:07:38.600 But if you just like read the reasoning of the 0:07:38.640 --> 0:07:40.600 Supreme Court case, it has nothing to do with Rather, 0:07:40.640 --> 0:07:43.080 the settlement is fair and had they kicked in one 0:07:43.120 --> 0:07:44.960 hundred percent of their money and agreed to work for 0:07:45.040 --> 0:07:46.880 the victims for the rest of their lives, it's still 0:07:46.960 --> 0:07:48.720 they wouldn't get a third party release. 0:07:48.520 --> 0:07:52.160 So so no, we could talk about the descent. 0:07:52.840 --> 0:07:54.880 Yeah, I mean, like, I just it's a hard case. 0:07:54.920 --> 0:07:57.280 Like I think that bankruptcy is this weird area of 0:07:57.320 --> 0:07:59.120 law where it's like the bankruptcy court has a lot 0:07:59.120 --> 0:08:01.880 of power to kind of craft the deal that seems 0:08:01.920 --> 0:08:03.920 fairest to it, right, Like, it really is the case 0:08:03.920 --> 0:08:07.040 that bankruptcy gets rid of all of the lawsuits against Perdue, right, 0:08:07.040 --> 0:08:09.360 Like everyone has claims against Perdue, and the bankruptcy court says, 0:08:09.440 --> 0:08:12.000 all those claims are gone forever, and in exchange, you 0:08:12.040 --> 0:08:14.240 get whatever you get from the bankruptcy settlement, which could 0:08:14.240 --> 0:08:16.760 be pennies on the dollar, could be nothing. It extinguishes 0:08:16.800 --> 0:08:18.680 all the claims. Like that's what bankruptcy is. It's like 0:08:19.080 --> 0:08:21.720 dividing up and ending all the claims against the company. 0:08:22.200 --> 0:08:25.240 And because of that, bankruptcy courts are really in the 0:08:25.280 --> 0:08:29.360 business of like trying to craft fair deals and then 0:08:29.480 --> 0:08:32.600 like sort of imposing them on people who are making 0:08:32.600 --> 0:08:36.240 everyone unhappy. Basically like imposing a deal on everyone even 0:08:36.240 --> 0:08:39.360 if they object. And it's sort of natural for the 0:08:39.400 --> 0:08:42.000 bankruptcy court to say, well, in order to get the 0:08:42.040 --> 0:08:44.640 fair deal that like works the best. We need to 0:08:45.120 --> 0:08:47.000 not only end claims against Purdue, but we have to 0:08:47.080 --> 0:08:49.600 end these claims against the sacklers. And because that's part 0:08:49.640 --> 0:08:52.960 of like achieving our goal of fairness, it's like sort 0:08:53.000 --> 0:08:55.520 of part of our powers. But the Supreme Court said 0:08:55.520 --> 0:08:57.120 it's not really part of your powers, right, Like you 0:08:57.160 --> 0:08:59.960 only have jurisdiction over the bankruptcy, not over the you know, 0:09:00.040 --> 0:09:02.040 everyone else who comes into contact with it, and so 0:09:02.040 --> 0:09:03.960 it's not part of your powers. And I think there's 0:09:03.960 --> 0:09:05.720 like a good argument for that. It's just like a 0:09:05.760 --> 0:09:08.760 matter of law. But yeah, it was a five to 0:09:08.760 --> 0:09:11.200 four decision in the Supreme Court, and Justice Kavanaugh wrote 0:09:11.200 --> 0:09:13.560 this the sense saying, you know, this is a shiny 0:09:13.600 --> 0:09:15.679 example of the bankruptcy process. Right. The point of the 0:09:15.720 --> 0:09:18.640 bankruptcy is to get as much money as you can 0:09:18.720 --> 0:09:21.240 for the victims. And they did that, and they did 0:09:21.280 --> 0:09:24.760 it here by a sort of compromise that made everyone unhappy, 0:09:24.840 --> 0:09:27.360 but kind of like achieved the rough justice of getting 0:09:27.360 --> 0:09:29.560 as much money as possible for the victims. And then 0:09:29.600 --> 0:09:31.480 the Supreme Court says, no, you can't do that, and 0:09:31.520 --> 0:09:34.400 so now it's sort of in this limbo where probably 0:09:34.440 --> 0:09:35.720 the victims will get less money. 0:09:36.160 --> 0:09:38.760 Yeah, in that descent you wrote, because some victims or 0:09:38.760 --> 0:09:42.080 creditors may hold out for any potential future settlement for 0:09:42.240 --> 0:09:44.520 any one of those reasons and instead still sue, the 0:09:44.520 --> 0:09:48.000 Sacklers are less likely to settle with anyone in the 0:09:48.080 --> 0:09:50.480 first place. Maybe the clouds will part, but in a 0:09:50.520 --> 0:09:54.720 world where non consensual, non debtor releases are categorically impermissible, 0:09:55.120 --> 0:09:58.280 any hope for a new deal seems questionable. So we'll see. 0:09:58.520 --> 0:10:02.080 Yeah, And I wrote on Thursday that they're trying for 0:10:02.080 --> 0:10:04.599 a new deal, right, Yeah. The biggest claims against the 0:10:04.640 --> 0:10:08.320 Sacklers don't belong to like individual victims. They belong to Purdue. 0:10:08.480 --> 0:10:08.640 Right. 0:10:08.880 --> 0:10:11.280 The biggest claim against the Sackler is they took all 0:10:11.320 --> 0:10:14.640 this money out of Purdue, and Purdue has, like in 0:10:14.720 --> 0:10:17.120 bankruptcy claims that they should give the money back, and 0:10:17.160 --> 0:10:20.160 so they will bring those cases against the Sacklers, and 0:10:20.559 --> 0:10:22.760 they will hope that the Sacklers will settle those claims 0:10:22.760 --> 0:10:24.560 and we'll say, you know, we're not going to get 0:10:24.800 --> 0:10:27.120 released from all the other creditors, but we'll get released 0:10:27.120 --> 0:10:29.280 from Purdue, and that's like the biggest thing. So we're 0:10:29.280 --> 0:10:31.120 going to settle that. But will they settle that for 0:10:31.160 --> 0:10:34.400 six billion dollars. There's some chance that it is, in fact, 0:10:34.400 --> 0:10:35.880 if you're a fantasy that will get any money out 0:10:35.880 --> 0:10:36.240 of them. 0:10:36.320 --> 0:10:53.200 So watch this space. Let's talk about empty voting and 0:10:53.480 --> 0:10:57.840 politan versus Massimo, which you've described as a long, weird 0:10:57.880 --> 0:10:58.480 proxy fight. 0:10:58.520 --> 0:11:00.760 Okay, here's how weird it is. I suppose this company, 0:11:00.760 --> 0:11:03.000 it's like a health tech company. They like sued Apple 0:11:03.040 --> 0:11:06.040 over Apple Watch, like they're you know, they through something. Yeah, 0:11:06.160 --> 0:11:07.840 health pulls something. 0:11:08.040 --> 0:11:10.520 It was a big deal, like a year ago. 0:11:10.720 --> 0:11:14.679 Yeah. So anyway, but there's a company, public company, and 0:11:15.200 --> 0:11:18.440 Polotan is a hedgehund that ran a proxy fight complaining 0:11:18.440 --> 0:11:21.160 about how they run their business and one and got 0:11:21.200 --> 0:11:22.920 two seats on the board of directors, which has like 0:11:22.920 --> 0:11:25.480 five members. And so they're on the board and they're 0:11:25.559 --> 0:11:27.960 running another proxy fight to get more directors because they're 0:11:28.000 --> 0:11:31.120 like this company is still stonewalling us, like they're having 0:11:31.160 --> 0:11:34.000 three two board votes where like the Polotan guys lose 0:11:34.040 --> 0:11:36.000 out on the vote and they claim they're not getting 0:11:36.080 --> 0:11:37.960 enough information and they're sort of they're keeping the board 0:11:37.960 --> 0:11:40.640 in the dark. So it's this very like awkward boardroom 0:11:40.720 --> 0:11:43.960 tension where like the activist and the company's chairman are 0:11:44.000 --> 0:11:46.280 both in the boardroom at the same time and apparently 0:11:46.320 --> 0:11:49.199 still vehemently dislike each other. But anyay, they're running a 0:11:49.200 --> 0:11:51.120 proxy fight. So they're company is holding a shareholder meeting 0:11:51.120 --> 0:11:53.440 at the end of July to vote on whether the 0:11:53.480 --> 0:11:56.960 company's nominees or the Polyotan nominees will get elected. And 0:11:57.080 --> 0:12:02.600 Polotan just filed this letter saying that the company is 0:12:02.640 --> 0:12:06.720 doing some empty voting. So empty voting is like in theory, 0:12:06.760 --> 0:12:10.240 it's like you own one percent of the stock or whatever, 0:12:10.640 --> 0:12:14.040 and you get the votes for like ten percent of 0:12:14.080 --> 0:12:17.400 the stock. So like classically you like buy eleven percent 0:12:17.440 --> 0:12:19.959 of the stock, you short ten percent of the stock, right, 0:12:20.000 --> 0:12:22.720 so you're like long eleven percent, short ten percent. You're 0:12:23.040 --> 0:12:25.160 net long one percent, So you only own one percent 0:12:25.160 --> 0:12:27.000 of the stock, but you have eleven percent of the 0:12:27.080 --> 0:12:31.000 votes and then you vote way out of proportion to 0:12:31.000 --> 0:12:32.960 your economic interest. This is the thing that people like 0:12:33.000 --> 0:12:35.760 talk about as a concept a lot and you rarely 0:12:35.800 --> 0:12:39.160 see like actual cases of it, and here I'm not 0:12:39.200 --> 0:12:41.400 sure you see actual cases of it. But like Polytan says, 0:12:41.400 --> 0:12:43.080 you know, we got like the voting records and it 0:12:43.080 --> 0:12:46.840 seems like this one brokerage firm voted a lot of shares, 0:12:46.880 --> 0:12:48.600 like a lot more than it owned a week before 0:12:48.640 --> 0:12:50.680 the record date and a lot more than it owned 0:12:50.679 --> 0:12:52.959 a week after the record date. So what they think 0:12:53.000 --> 0:12:56.760 happened is essentially it borrowed that stock from other shareholders 0:12:57.160 --> 0:12:59.160 just around the record date for the vote, so that 0:12:59.160 --> 0:13:01.240 it would own ze point nine percent of the stock 0:13:01.880 --> 0:13:03.760 just at the vote, and then it got rid of 0:13:03.760 --> 0:13:06.160 that stock afterwards, so it never had the economic exposure. 0:13:06.600 --> 0:13:09.160 They say it's a brokerage firm affiliated with an investor 0:13:09.160 --> 0:13:11.400 who's a friend of the chairman of the company, and 0:13:11.440 --> 0:13:13.760 so it's like they called it a favor and like 0:13:13.840 --> 0:13:14.720 just got a lot of votes. 0:13:14.800 --> 0:13:18.880 How do you prove friendship? I mean, do they have 0:13:18.920 --> 0:13:19.880 a podcast together? 0:13:20.880 --> 0:13:25.280 What is this? It doesn't matter. Like if someone actually 0:13:25.600 --> 0:13:27.960 borrows ten percent of the stock to vote it and 0:13:27.960 --> 0:13:30.040 then that gets rid of it the next day, then 0:13:30.400 --> 0:13:33.280 that's weird. Yeah, that's weird. And then you know, like polytimes, 0:13:33.320 --> 0:13:34.920 I always should investigate it, right, and like if it 0:13:34.960 --> 0:13:36.720 turns out that the chairman of the company was like 0:13:37.040 --> 0:13:38.959 emailing the guy being like, hey, borrow ten percent of 0:13:39.000 --> 0:13:41.000 the stock so you can vote then that's bad, whether 0:13:41.080 --> 0:13:42.400 or not they have a podcast together. 0:13:42.640 --> 0:13:44.760 I was going to ask you that is it bad. 0:13:45.120 --> 0:13:47.880 They're alleging that this happened, et cetera, But is this 0:13:48.000 --> 0:13:48.680 not allowed? 0:13:48.840 --> 0:13:50.679 I don't know. I don't know. No one knows, right, 0:13:50.720 --> 0:13:52.160 I mean, like, this is the thing that people talk 0:13:52.160 --> 0:13:54.000 about and people like write papers about because I think 0:13:54.000 --> 0:13:57.800 it's interesting. It seems like it should be bad, right. 0:13:57.840 --> 0:14:00.840 It seems like the point of shareholder voting is that 0:14:01.200 --> 0:14:05.080 you own a portion of the company and you care 0:14:05.160 --> 0:14:09.360 about the company being good because it's like your stock, right, 0:14:09.400 --> 0:14:10.640 So you want the stock to go up, you want 0:14:10.720 --> 0:14:13.520 the company to be profitable, all those things, and so 0:14:14.240 --> 0:14:16.520 your votes are in proportion to your economic interest in 0:14:16.559 --> 0:14:19.920 the company. And if you find a way to get 0:14:19.960 --> 0:14:22.280 votes that are not in proportion to your economic interest, 0:14:22.640 --> 0:14:27.840 that seems like it's wrong and not how voting is 0:14:27.880 --> 0:14:31.680 supposed to work. But there's no actual rule that says 0:14:31.680 --> 0:14:34.240 your voting has to be in proportion to your economic interest. Then, 0:14:34.280 --> 0:14:36.520 you know, we've talked a lot about like the Paramount deal, 0:14:36.640 --> 0:14:38.320 where like the whole point of the Paramount deal is 0:14:38.320 --> 0:14:41.000 that Cherry Redstone owned like ten percent of the stock 0:14:41.080 --> 0:14:43.200 and had you know, seventy five percent of the votes, right, 0:14:43.680 --> 0:14:46.240 So it's not like a love of nature or as 0:14:46.240 --> 0:14:48.000 far as I can tell, a rule of the SEC 0:14:48.280 --> 0:14:49.920 that you need to have votes in proportion to your 0:14:49.960 --> 0:14:52.080 economic interest. Like I just don't think there's a rule 0:14:52.120 --> 0:14:53.920 that says, like if you own ten percent of the 0:14:53.960 --> 0:14:56.960 stock and then do a swap with a bank where 0:14:56.960 --> 0:14:58.520 you're short ten percent of the stock and so you 0:14:58.520 --> 0:15:01.160 have no net exposure and rule says you can't vote. 0:15:01.640 --> 0:15:04.920 I do wonder, like what the incentive for this brokerage 0:15:04.960 --> 0:15:08.160 firm associated with an investor who is a friend of 0:15:08.560 --> 0:15:11.560 the Massimo chairman. What is their incentive to do this 0:15:11.720 --> 0:15:14.640 beyond their friendship? You know, I have a lot of friends, 0:15:14.640 --> 0:15:17.520 and there's not a lot I would do for them. 0:15:17.800 --> 0:15:19.600 I feel like if I had a lot of money 0:15:19.760 --> 0:15:22.200 and someone was like, would you empty vote for me 0:15:22.240 --> 0:15:24.280 in a proxy fight, I would say yes, just because 0:15:24.360 --> 0:15:27.000 it's like a cool legal precedent. Yeah, Like I don't know, 0:15:27.320 --> 0:15:30.600 like you get it, yeah exactly, but no, I mean, 0:15:30.760 --> 0:15:32.320 like what's in it for them? But it's unclear how 0:15:32.360 --> 0:15:34.520 much it costs them, right, because like you do have 0:15:34.560 --> 0:15:35.920 to do it right, it's. 0:15:35.800 --> 0:15:38.680 Like the pain, Yeah, I mean the effort alone. 0:15:38.840 --> 0:15:41.640 There's some transaction costs. Loosely speaking, what you're doing is 0:15:41.680 --> 0:15:43.880 borrowing the stock for a couple of days, which is 0:15:43.920 --> 0:15:46.160 like you pay a stock borrow a fee, which is 0:15:46.240 --> 0:15:51.120 like for like most liquid stocks, it's like, yeah, on 0:15:51.160 --> 0:15:53.040 the order of twenty five basis points per anum, so 0:15:53.080 --> 0:15:55.800 it's like not that much, but it's yeah, little cost. 0:15:56.120 --> 0:15:58.400 But probably you're not literally just paying a stock biffy. 0:15:58.480 --> 0:16:00.880 Probably you're like doing something sort of thing where you're 0:16:00.920 --> 0:16:04.040 like buying the stock and simultaneously shorting it, or like 0:16:04.280 --> 0:16:06.200 buying the stock and doing a derivative. So you're playing 0:16:06.280 --> 0:16:09.240 some transaction costs. So it costs you money. It doesn't 0:16:09.240 --> 0:16:11.480 cost you like as much money as buying ten percent 0:16:11.480 --> 0:16:13.400 of the company, but it costs you some money. What's 0:16:13.440 --> 0:16:16.080 in it for them? I mean like literally one possibility 0:16:16.120 --> 0:16:19.120 is like there's no allegation they weren't a shareholder, right, 0:16:19.480 --> 0:16:21.040 And so if you're like a one percent sharehold of 0:16:21.120 --> 0:16:24.680 the company, and you think one side here is clearly 0:16:24.760 --> 0:16:26.800 right and one side is wrong and it's better for 0:16:26.840 --> 0:16:30.160 the company for Massimo to win this proxy fight, then 0:16:30.720 --> 0:16:32.920 doing this empty voting costs you a little bit of money, 0:16:33.120 --> 0:16:35.720 but it gets you the right result in the proxy fight, 0:16:35.800 --> 0:16:37.880 and then you're one percent stake is worth more. Right, 0:16:37.920 --> 0:16:39.960 So that's a possible explanation. 0:16:39.680 --> 0:16:41.560 Right, I mean that, but that comes back to the 0:16:41.560 --> 0:16:44.360 point you made that like in activist hedge fund, like 0:16:44.400 --> 0:16:47.680 they would want to have the economic exposure as well. 0:16:48.000 --> 0:16:50.040 Yeah, it's hard to know, right, Like loosely speaking, if 0:16:50.040 --> 0:16:51.760 you're an activist, you can own more than ten percent 0:16:51.800 --> 0:16:55.160 of a company's stock without like running into complicated issues 0:16:55.200 --> 0:16:58.400 around trading. Some people do, but it's like often activists 0:16:58.400 --> 0:17:00.960 will sort of cap themselves at nine point nine. A 0:17:00.960 --> 0:17:03.640 lot of activists will run proxy fights owning less than 0:17:03.680 --> 0:17:06.600 nine point nine percent because they're not that huge a 0:17:06.680 --> 0:17:09.360 fund and the company is big, right, Like you have 0:17:09.440 --> 0:17:11.720 you know, like the Engine number one proxy fight at 0:17:11.720 --> 0:17:13.720 Excellent where they own like essentially zero, but you know 0:17:13.760 --> 0:17:15.840 they own a tiny fraction of one percent of the 0:17:15.840 --> 0:17:17.720 company because they were a little hedge fund and xcelln 0:17:17.720 --> 0:17:20.399 A is a giant company, right, and so maybe they 0:17:20.400 --> 0:17:22.880 would have liked to own ten percent, but they didn't 0:17:22.920 --> 0:17:24.720 have that kind of money, and so they owned a 0:17:24.720 --> 0:17:27.600 lot less. It's a lot cheaper to buy votes than 0:17:27.600 --> 0:17:29.359 it is to buy stock. Right. I don't know how 0:17:29.400 --> 0:17:31.200 much cheaper, because it depends on the stock proa costing 0:17:31.240 --> 0:17:33.679 exactly how you structure the transaction, but like, yeah, it's cheaper. 0:17:34.080 --> 0:17:36.800 And so if you are an activist and like you 0:17:36.840 --> 0:17:39.720 are sort of capped out economically at like one or 0:17:39.760 --> 0:17:41.600 two percent of a company, you might want to get 0:17:41.640 --> 0:17:43.760 to ten percent of the company just to win the vote, right, 0:17:43.880 --> 0:17:46.280 just in empty voting. Now that's an interesting case because 0:17:46.320 --> 0:17:49.679 that's like, clearly your motivations there are good, you're just 0:17:49.680 --> 0:17:51.760 buying votes, right, but like you want the stock to 0:17:51.760 --> 0:17:53.880 go up, and you do have economic exposure to the stock. 0:17:54.160 --> 0:17:56.399 The really interesting case is like what if your motivations 0:17:56.440 --> 0:17:57.680 are to tank the stock? 0:17:57.760 --> 0:17:57.840 Right? 0:17:57.920 --> 0:17:59.800 I mean, like I wrote about this and people email me, 0:17:59.920 --> 0:18:02.480 like what if you're actually short, Like you're a short 0:18:02.520 --> 0:18:04.480 seller you want the stock to go down, right, you're 0:18:04.520 --> 0:18:07.560 short one percent of the stock. Why not get long 0:18:08.640 --> 0:18:10.760 eight percent of the stock and short nine percent of 0:18:10.760 --> 0:18:12.600