WEBVTT - Crypto Showdown & Elon Musk Ultimatum 0:00:03.200 --> 0:00:08.000 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:00:11.400 --> 0:00:14.200 First I got Pinky, then I got Peinky, I got 0:00:14.200 --> 0:00:14.920 peek Pad. 0:00:15.040 --> 0:00:17.160 In your fame week boyd Vanessa catched something. 0:00:17.720 --> 0:00:18.920 Teeny beanie baby items. 0:00:19.360 --> 0:00:22.200 Now at McDonald's, your kids can get teeny beanie babies 0:00:22.200 --> 0:00:24.680 in a happy meal, real tie beanie babies in a 0:00:24.760 --> 0:00:27.880 mini size to toss, talk or just plain love. 0:00:28.320 --> 0:00:32.320 Remember the beanie baby craze, the stuffed animals that became 0:00:32.560 --> 0:00:38.080 all the rage in the nineties and then became collectibles. Well, surprisingly, 0:00:38.400 --> 0:00:41.239 beanie babies were part of the oral arguments in a 0:00:41.280 --> 0:00:45.599 federal case that's important in the SEC's mission to regulate 0:00:45.640 --> 0:00:50.680 the crypto market. Coinbase, the largest US crypto exchange, is 0:00:50.720 --> 0:00:53.680 trying to get a judge to throw out the SEC's 0:00:53.800 --> 0:00:57.800 case against it, and its lawyer said that buying cryptocurrency 0:00:57.880 --> 0:01:02.440 on exchange was more like electing beanie babies then investing 0:01:02.480 --> 0:01:05.440 in a stock or bond. My guest is security is 0:01:05.440 --> 0:01:08.679 attorney Robert him a partner at Tartar, Krinsky and Drogan. 0:01:09.240 --> 0:01:11.880 What's at stake for Coinbase here? 0:01:12.280 --> 0:01:15.400 Well, on Wednesday's oral argument in front of the federal judge, 0:01:15.440 --> 0:01:18.600 in Manhattan. There's a lot of stake in this case, 0:01:18.680 --> 0:01:22.880 particularly for Coinbase as well as the broader crypto industry. Here, 0:01:23.000 --> 0:01:26.600 the judge has to decide whether the cryptocurrencies that traded 0:01:26.720 --> 0:01:31.640 on the coinbase platform are securities under the statutory definition 0:01:31.720 --> 0:01:34.840 and the rules that the SEC enforces, or whether they 0:01:34.920 --> 0:01:37.920 come outside of that statutory framework. And it's really going 0:01:37.959 --> 0:01:41.720 to have a fundamental impact on whether crypto exchanges can 0:01:41.840 --> 0:01:44.640 operate in the United States and under what rules and 0:01:44.640 --> 0:01:46.679 how much regulation they're going to be subject to. 0:01:47.440 --> 0:01:52.360 So is the question whether crypto assets constitute an investment 0:01:52.520 --> 0:01:54.000 contract or something else. 0:01:54.440 --> 0:01:58.320 Yes, under the statute, which was enacted in nineteen thirty three, 0:01:58.480 --> 0:02:01.280 So going back a long time, there's a definition of 0:02:01.320 --> 0:02:04.720 securities in one of the categories in the statute of 0:02:04.760 --> 0:02:08.320 what a security is is called an investment contract, and 0:02:08.480 --> 0:02:11.080 that term is designed to be almost to catch all 0:02:11.200 --> 0:02:14.480 within the statute because it specifically says stocks and bonds 0:02:14.480 --> 0:02:17.800 and then it says investment contracts. So the litigation that 0:02:17.840 --> 0:02:21.639 the SEC brought against Coinbase is really designed and the 0:02:21.720 --> 0:02:25.239 judge has to decide whether the crypto assets that were 0:02:25.360 --> 0:02:29.120 trading on the coin based platform fell within this category. 0:02:29.160 --> 0:02:34.240 Called investment contracts, and Coinbase's entire argument is that on 0:02:34.280 --> 0:02:38.000 the secondary market, there really is no contract in place 0:02:38.280 --> 0:02:42.200 where purchasers of these digital assets and tokens would have 0:02:42.280 --> 0:02:46.200 some contractual right to profits from the blockchain or the 0:02:46.200 --> 0:02:50.919 company that the crypto relates to. And the SEC is arguing, well, 0:02:50.960 --> 0:02:53.960 that's too much of a specific, narrow definition, and that 0:02:54.120 --> 0:02:57.200 generally speaking, the court should go off of what they 0:02:57.360 --> 0:03:00.639 seem to be the expectations of the people buying these 0:03:00.680 --> 0:03:04.560 tokens and whether or not they have an expectation of profit, 0:03:04.680 --> 0:03:06.760 regardless of whether it's in the form of a written 0:03:06.800 --> 0:03:07.560 contract or not. 0:03:08.160 --> 0:03:12.000 I'm a little confused, not knowing much about crypto, but 0:03:12.160 --> 0:03:16.359 don't people who own crypto have the expectation that has 0:03:16.440 --> 0:03:20.960 the value of the token goes up, they'll profit from it. 0:03:21.840 --> 0:03:25.400 Yeah, And this is an important distinction between trading that 0:03:25.480 --> 0:03:28.120 occurs on the secondary market, like that's an issue here 0:03:28.160 --> 0:03:32.799 in the Coinbase case versus the primary sales and Coinbase 0:03:32.800 --> 0:03:35.720 made an interesting analogy in court where it compared the 0:03:36.040 --> 0:03:38.880 digital assets and the crypto the beanie babies, you know, 0:03:38.920 --> 0:03:42.600 the phenomena in the eighties and nineties where and collectibles 0:03:42.800 --> 0:03:46.000 is a broader category, and Coinbase's point is that there's 0:03:46.360 --> 0:03:48.400 a lot of different things that people invest in with 0:03:48.440 --> 0:03:52.520 the expectation of a profit, including beanie babies, including baseball cards, 0:03:52.520 --> 0:03:55.800 and not all those things are securities. So just because 0:03:55.840 --> 0:03:59.520 someone has the expectation that one day their purchase will 0:03:59.520 --> 0:04:02.000 be more valualuable in the future does not convert that 0:04:02.080 --> 0:04:04.960 over to a security. And the SEC seemed to have 0:04:05.000 --> 0:04:07.840 a little bit of a problem coming back from that argument, 0:04:07.920 --> 0:04:10.920 because the SEC is taking a very broad view of 0:04:10.960 --> 0:04:14.480 what constitutes security and what comes under its jurisdiction. And 0:04:14.520 --> 0:04:17.719 I think those arguments from coinbase were really resonating with 0:04:17.880 --> 0:04:21.040 the trial judge because she was concerned that she doesn't 0:04:21.080 --> 0:04:24.679 want to overly broaden the definition of security and include 0:04:24.680 --> 0:04:27.440 these things like collectibles and other things that are clearly 0:04:27.480 --> 0:04:29.400 intended to be outside the statute. 0:04:29.560 --> 0:04:33.000 I was stunned that beanie babies came into the conversation. 0:04:33.480 --> 0:04:37.840 Reminded me of beanie baby mania years ago. Was there 0:04:37.839 --> 0:04:41.279 a reason that the judge really honed in on the 0:04:41.360 --> 0:04:46.039 idea of collectibles. Was it because Coinbase brought it up 0:04:46.279 --> 0:04:48.200 or is it a good analogy? 0:04:48.960 --> 0:04:51.040 Well, it is a good analogy, and this is one 0:04:51.080 --> 0:04:54.040 of the centerpieces of Coinbase's argument is that the SEC 0:04:54.279 --> 0:04:58.040 is taking an overly expansive view of its own jurisdiction 0:04:58.279 --> 0:05:02.360 and over the types of instruments it has regulatory authority 0:05:02.440 --> 0:05:06.479 over and under our system, Congress has to pass a 0:05:06.520 --> 0:05:10.280 statute and delegate specific powers to the SEC of what 0:05:10.320 --> 0:05:13.280 it can and can't regulate, and Coinbase this whole argument 0:05:13.440 --> 0:05:16.440 is that these crypto assets are not covered in the 0:05:16.480 --> 0:05:20.640 statute and therefore the SEC has no ability to regulate 0:05:20.680 --> 0:05:24.359 them until Congress chooses to amend the statute. And so 0:05:24.480 --> 0:05:28.200 Coinbase brought up the example of collectibles and beanie babies 0:05:28.279 --> 0:05:31.880 and saying that once you go down the slippery slope 0:05:31.880 --> 0:05:35.200 of going outside of what really is defined in the statute, 0:05:35.240 --> 0:05:38.960 almost anything that people buy, like a collectible, could be 0:05:39.000 --> 0:05:42.000 a security. And the judge was particularly concerned about that 0:05:42.120 --> 0:05:45.400 because she was concerned about opening the doors to a 0:05:45.400 --> 0:05:50.240 lot more litigation and specifically mentioned class actions where these 0:05:50.279 --> 0:05:52.920 class action lawyers could seize on a ruling in the 0:05:52.960 --> 0:05:55.719 SEC's favor on this point and try to argue almost 0:05:55.760 --> 0:05:58.800 anything could be a security and start suing companies that 0:05:58.880 --> 0:06:00.480 create and promote collects. 0:06:00.800 --> 0:06:02.960 So tell me what you think of the SEC argument 0:06:03.120 --> 0:06:08.240 from Patrick Costello that securities differ from purchases of collectibles 0:06:08.279 --> 0:06:11.720 like baseball cards or beanie babies. When they buy this token, 0:06:11.760 --> 0:06:15.279 they're investing into the network behind it. One cannot be 0:06:15.440 --> 0:06:16.640 separated from the other. 0:06:17.080 --> 0:06:20.200 Well, I really don't think that the SEC's argument is 0:06:20.320 --> 0:06:23.680 all that meritorious in that particular point, because when you 0:06:23.680 --> 0:06:26.560 look at collectibles and you look at beanie babies, the 0:06:26.640 --> 0:06:29.719 people and the companies that create, for instance, the Beanie Babies, 0:06:29.760 --> 0:06:33.480 you know, they're very astute in terms of releasing special 0:06:33.600 --> 0:06:39.520 edition beanie babies or limiting the supply or having particular promotions. 0:06:39.600 --> 0:06:42.760 So it's not just like beanie babies took off on 0:06:42.800 --> 0:06:45.320 their own, so to speak, a lot of thought and 0:06:45.480 --> 0:06:48.279 marketing and other things that you could consider to be, 0:06:48.360 --> 0:06:50.680 you know, kind of an enterprise. You know, we're in place. 0:06:50.760 --> 0:06:54.280 So the SEC's attempt to distinguish a collectibles market from 0:06:54.279 --> 0:06:58.040 a securities market really wasn't persuasive in that instance. But 0:06:58.520 --> 0:07:01.800 I think the SEC's brought and stronger argument is that 0:07:02.279 --> 0:07:05.799 the Securities Act of nineteen thirty three, even though it's old, 0:07:06.040 --> 0:07:09.040 has a lot of flexibility built into it. And when 0:07:09.160 --> 0:07:12.800 Congress passed. That Act has been able to be adopted 0:07:12.840 --> 0:07:15.680 to new types of investment products over the years, like 0:07:15.760 --> 0:07:20.400 real estate investment trust and complex sorts of financing instruments. 0:07:20.440 --> 0:07:23.920 And the SEC's argument is that that was exactly what 0:07:24.000 --> 0:07:27.640 this Act is designed to do, and that crypto fits 0:07:27.680 --> 0:07:31.480 within that sort of category of a new financial investment, 0:07:31.600 --> 0:07:35.320 that it is comfortably within the concept of an investment contract. 0:07:35.640 --> 0:07:41.440 So was it mentioned that if the SEC doesn't regulate crypto. 0:07:40.840 --> 0:07:41.360 Who will. 0:07:42.000 --> 0:07:45.080 Yes, that came up, and that was something where the 0:07:45.160 --> 0:07:48.320 judge specifically had another concern with in terms of she 0:07:48.560 --> 0:07:51.360 categorized it as she needs to stay in her lane 0:07:51.680 --> 0:07:54.080 with respect to she's supposed to be there to apply 0:07:54.160 --> 0:07:58.240 the law and interpret its definitions. And one of Pointbase's 0:07:58.320 --> 0:08:01.720 arguments is centered around on a principle called the major 0:08:01.840 --> 0:08:05.680 questions doctrine, which is a key part of administrative law, 0:08:06.120 --> 0:08:10.560 which says that agencies like the SEC, which are administrative agencies, 0:08:10.600 --> 0:08:14.320 are limited and Congress cannot delegate to them questions that 0:08:14.360 --> 0:08:18.680 have major economic or political significance. Those have to be 0:08:18.760 --> 0:08:23.440 decided by Congress through debate and elections and democratic processes, 0:08:23.800 --> 0:08:27.760 not delegated to an unelected commission. So yes, that issue 0:08:27.800 --> 0:08:31.360 came up. The judge seemed to indicate some skepticism with that. 0:08:31.560 --> 0:08:33.920 She didn't feel like she would really need to get 0:08:33.960 --> 0:08:36.880 to that point. She termed it the nuclear option in 0:08:36.960 --> 0:08:39.360 the oral argument. So, I think the judge has every 0:08:39.400 --> 0:08:43.800 intent to rule the more narrow question about whether the 0:08:43.880 --> 0:08:47.080 crypto assets fall within the definition of a security under 0:08:47.080 --> 0:08:48.040 the statute or not. 0:08:48.800 --> 0:08:52.280 And do you agree with our Bloomberg Intelligence senior litigation 0:08:52.360 --> 0:08:56.840 analyst Elliott Stein, who predicts the judge will back coinbase 0:08:56.960 --> 0:08:58.720 and dismiss the sec suit. 0:08:59.200 --> 0:09:01.120 Yeah, I do. I think that there's a very high 0:09:01.200 --> 0:09:04.800 likelihood of that happening, and I think in certain respects 0:09:04.840 --> 0:09:08.520 what the judge could do is say that trading on 0:09:08.559 --> 0:09:12.280 the secondary market, like what happened on the coinbase platform, 0:09:12.720 --> 0:09:16.240 is not a security because people are trading among themselves 0:09:16.440 --> 0:09:20.000 and the blockchain companies don't get that money. They're just 0:09:20.240 --> 0:09:23.400 you know, aftermarket purchasers that are buying and selling among 0:09:23.480 --> 0:09:27.880 themselves and still keeping those investor protections for when those 0:09:28.000 --> 0:09:31.920 tokens are initially issued, like for instance, an initial coin offering, 0:09:32.080 --> 0:09:34.880 you know, those could be securities because the company is 0:09:34.920 --> 0:09:37.200 getting the money from that offering. They're using it to 0:09:37.200 --> 0:09:39.480 build out a platform, they're using it to make the 0:09:39.520 --> 0:09:43.080 product more valuable. So it's a much stronger case to 0:09:43.080 --> 0:09:46.160 say that that's a security than the after market trading. 0:09:46.679 --> 0:09:49.439 And I think the other really good point that Coinbase 0:09:49.559 --> 0:09:52.720 brought up was that the SEC allowed Coinbase to go 0:09:52.920 --> 0:09:56.600 public just three years ago in twenty twenty one. So 0:09:57.000 --> 0:10:01.120 Coinbase filed their forms with the SEC, describe the business 0:10:01.160 --> 0:10:04.959 model the platform was operating, and the SEC approved the 0:10:05.320 --> 0:10:08.880 IPO three years ago. So how can the SEC come 0:10:08.920 --> 0:10:12.160 back three years later after approving the IPO and say, well, 0:10:12.559 --> 0:10:15.600 your business was an illegal enterprise, you know, all along, 0:10:15.880 --> 0:10:18.480 going back to twenty nineteen when you first started it, 0:10:18.520 --> 0:10:21.360 even though we approved it to be offered to the public. 0:10:21.480 --> 0:10:22.680 You know, in twenty twenty one. 0:10:23.120 --> 0:10:27.400 The question of whether digital tokens our securities has divided courts. 0:10:27.960 --> 0:10:31.440 So another Manhattan Federal judge, an Alisa Torrez, ruled in 0:10:31.520 --> 0:10:36.640 July that exchange sales of Ripple Labs token weren't subject 0:10:36.679 --> 0:10:41.520 to SEC jurisdiction, while Manhattan Federal Judge jed Rakoff, I 0:10:41.520 --> 0:10:43.960 think he just sits a floor apart from her, that 0:10:44.120 --> 0:10:47.960 same month reached the opposite conclusion in the SEC's case 0:10:48.040 --> 0:10:52.360 against terrorform labs. So how much influence will the decision 0:10:52.440 --> 0:10:54.080 here by Judge polkv. 0:10:54.360 --> 0:10:57.040 Well, that's a really good point, youne, because there are 0:10:57.080 --> 0:10:59.640 a lot of decisions coming out of the Manhattan Fellow 0:10:59.679 --> 0:11:02.520 Court as well as other courts that are contradictory and 0:11:02.640 --> 0:11:06.959 judges taking different approaches, and the judge in the coinbase case, 0:11:07.000 --> 0:11:10.360 whatever way she ultimately rules, is going to be one 0:11:10.440 --> 0:11:12.800 more decision in that mix. It's not going to be 0:11:12.880 --> 0:11:16.520 definitive answer either way. And I suspect that at some 0:11:16.640 --> 0:11:19.400 point the either the appellate courts in New York or 0:11:19.440 --> 0:11:22.120 even the Supreme Court is going to have to issue 0:11:22.120 --> 0:11:25.520 a decision on this point because there have been contradictory rulings. 0:11:25.600 --> 0:11:28.360 But ideally is the judges pointing out that this is 0:11:28.520 --> 0:11:31.839 more an issue for Congress in terms of trying to 0:11:31.920 --> 0:11:35.679 pass a legislative framework for crypto that defines, you know 0:11:35.720 --> 0:11:38.520 what people have to do, you know how to regulate it, 0:11:38.600 --> 0:11:42.080 which agency should be responsible for it, because right now 0:11:42.200 --> 0:11:47.120 you have this SEC, you have the CFTC which regulates commodities, 0:11:47.400 --> 0:11:50.520 and other agencies at the state level are all kind 0:11:50.520 --> 0:11:54.200 of start jurisdiction over crypto, and it's very harmful for 0:11:54.320 --> 0:11:58.240 the industry, and it's hindering innovation and development because there 0:11:58.280 --> 0:12:02.240 really is not a clear regulatory framework. So ideally Congress 0:12:02.280 --> 0:12:04.839 would act, but I don't have high hopes for that 0:12:04.880 --> 0:12:06.360 in this political climate. 0:12:07.160 --> 0:12:09.920 Unfortunately, I have to agree with you there, Bob, thanks 0:12:09.920 --> 0:12:13.400 so much. That's Robert him, a partner at Tartar, Krinsky 0:12:13.520 --> 0:12:18.040 and Drogan. Coming up next. Elon Musk wants more Tesla 0:12:18.160 --> 0:12:21.320 stock or he's walking I'm June Grosse when you're listening 0:12:21.360 --> 0:12:25.360 to Bloomberg. Elon Musk is leaning on Tesla's board to 0:12:25.400 --> 0:12:29.080 give him another massive stock award that would nearly double 0:12:29.120 --> 0:12:32.200 his current shares. In a series of posts on x, 0:12:32.280 --> 0:12:37.080 the Tesla chief executive says he would be quote uncomfortable 0:12:37.160 --> 0:12:40.520 growing Tesla to be a leader in AI and robotics 0:12:40.800 --> 0:12:45.200 without having twenty five percent control, enough to be influential, 0:12:45.520 --> 0:12:48.760 but not so much that I can't be overturned. And 0:12:48.800 --> 0:12:52.760 then the not so veiled threat. Musk writes. Unless that 0:12:52.920 --> 0:12:56.280 is the case, I would prefer to build products outside 0:12:56.280 --> 0:12:59.640 of Tesla. Musk previously held a stake of more than 0:12:59.640 --> 0:13:03.440 twenty percent in Tesla. But now owns around thirteen percent 0:13:03.480 --> 0:13:06.840 of the company's stock after selling billions of dollars of 0:13:06.880 --> 0:13:10.160 shares in twenty twenty two, partly to help finance his 0:13:10.360 --> 0:13:13.840 forty four billion dollar purchase of Twitter. Joining me is 0:13:13.880 --> 0:13:17.520 business law expert Eric Talley, a professor at Columbia Law School. 0:13:17.920 --> 0:13:21.280 So the latest, although, to say, what's the latest on 0:13:21.520 --> 0:13:25.360 Elon Musk is very dangerous because he's in the news 0:13:25.440 --> 0:13:29.840 all the time. But he's pressuring Tesla's board to arrange 0:13:30.080 --> 0:13:34.320 another massive stock award for him, And he wrote that 0:13:34.480 --> 0:13:38.320 unless he has roughly twenty five percent voting control of Tesla, 0:13:38.840 --> 0:13:43.320 he'd preferred to build artificial intelligence and robotics products elsewhere. 0:13:43.800 --> 0:13:44.800 Is this a real threat? 0:13:45.280 --> 0:13:47.640 It's really hard to tell. And you know, Elon Musk 0:13:47.720 --> 0:13:49.679 is in so many news stories now that they all 0:13:49.760 --> 0:13:52.319 kind of blend together, and maybe they're just all part 0:13:52.880 --> 0:13:55.600 of the same narrative. First of all, I guess it's 0:13:55.640 --> 0:13:59.160 kind of interesting that Elon Musk decided to take his 0:13:59.360 --> 0:14:04.160 case for a raise. I guess, not to the Tesla board, 0:14:04.320 --> 0:14:08.640 but to the to the viewers of his ex slash 0:14:08.679 --> 0:14:12.360 Twitter feed to essentially make his case in the court 0:14:12.400 --> 0:14:14.960 of public opinion. Which is kind of a bizarre thing. Now, 0:14:15.200 --> 0:14:17.600 it may well be the case that mister Musk has 0:14:18.000 --> 0:14:21.400 already put forward this request and has ended up not 0:14:21.760 --> 0:14:23.840 having it received as well as he would want it, 0:14:23.880 --> 0:14:25.960 but it's kind of an interesting thing to decide he's 0:14:25.960 --> 0:14:27.520 going to put it. You know, he's going to crowdsource 0:14:27.560 --> 0:14:30.360 people's opinions about whether he should get a raise or 0:14:30.400 --> 0:14:34.080 should have his ownership stake increased to twenty five percent. Now, 0:14:34.320 --> 0:14:38.640 the guy is, you know, clearly an iconoclast who has 0:14:38.720 --> 0:14:41.000 a huge following all over the place. Some of the 0:14:41.040 --> 0:14:44.720 following follows him into the stock markets as well. So 0:14:44.800 --> 0:14:47.360 I think if you're sitting on the board of Tesla, 0:14:47.440 --> 0:14:51.160 you probably don't want, you know, Elon Musk becoming sour 0:14:51.280 --> 0:14:55.840 and sort of, you know, unhappy about his situation at Tesla. 0:14:56.240 --> 0:14:59.080 By the same token, there's a real sense in which 0:14:59.400 --> 0:15:02.840 the types of of reasons that mister Musk gave in 0:15:02.920 --> 0:15:06.960 his fairly long tweet they don't really quite pass the 0:15:07.040 --> 0:15:09.360 smell test. I think, you know, sort of the main 0:15:09.440 --> 0:15:11.880 one that he gave was that he needs that level 0:15:11.920 --> 0:15:16.040 of control so that he has enough influence and power 0:15:16.200 --> 0:15:19.720 to help direct things at Tesla. He's only sitting at 0:15:19.720 --> 0:15:23.000 thirteen percent now, which by the way, is an amount 0:15:23.040 --> 0:15:25.480 that he brought himself down to, having shed a bunch 0:15:25.480 --> 0:15:27.600 of his Tesla shares so that he could afford his 0:15:27.640 --> 0:15:30.640 Twitter acquisition. And he doesn't feel like he has the 0:15:30.680 --> 0:15:33.720 influence he wants. And I don't really know of anyone 0:15:33.760 --> 0:15:37.440 who actually believes that even as a thirteen percent shareholder. 0:15:37.840 --> 0:15:41.560 You know, it's obvious to me that most retail investors, 0:15:41.560 --> 0:15:45.280 and almost certainly that board is hanging on every single 0:15:45.320 --> 0:15:48.400 word that Elon Musk sets. So you know, to claim that, 0:15:48.520 --> 0:15:50.360 you know, if I don't have twenty five percent, I'm 0:15:50.360 --> 0:15:54.400 not going to have enough influence at Tesla, it just 0:15:54.760 --> 0:15:56.920 doesn't add up to me on some level. 0:15:57.680 --> 0:15:59.600 Well, he doesn't need the money, does he. 0:15:59.680 --> 0:16:03.480 I mean, he's now after being the first person to 0:16:03.720 --> 0:16:06.600 ever raise two hundred billion dollars from their net worth 0:16:06.840 --> 0:16:09.720 more than a year ago, he's now again the richest 0:16:09.920 --> 0:16:12.760 person in the world, worth an estimated two hundred and 0:16:12.800 --> 0:16:14.600 six point one billion dollars. 0:16:15.040 --> 0:16:16.480 So he doesn't need the money. 0:16:16.880 --> 0:16:19.280 Well, I guess that's one conclusion you can reach. It's 0:16:19.320 --> 0:16:22.000 important to realize that the vast majority of his wealth 0:16:22.120 --> 0:16:26.640 is on paper and takes the form of shares of Tesla, right, 0:16:26.680 --> 0:16:28.520 so if he's going to access that, he would have 0:16:28.560 --> 0:16:31.640 to sell more, and that you know, comes with all 0:16:31.760 --> 0:16:35.840 kinds of adverse implications, not just tax implications, but also 0:16:36.120 --> 0:16:39.840 you know, implications about his you know, waning control over 0:16:39.960 --> 0:16:42.720 the company. And so there may be a sense that, 0:16:42.840 --> 0:16:45.080 you know, if you tie all these different things together, 0:16:45.360 --> 0:16:47.000 you know, one of the things that may be worrying 0:16:47.040 --> 0:16:50.320 mister Musk, and maybe he's trying to think his way through, 0:16:50.440 --> 0:16:53.400 is what kind of financial strain is he going to 0:16:53.400 --> 0:16:57.960 be under over at X, which he notoriously overpaid for 0:16:58.040 --> 0:17:00.520 a year a month ago, And so you know, that 0:17:00.600 --> 0:17:02.880 may be part of what's going on here. It's pretty 0:17:02.920 --> 0:17:05.200 clear that we don't have a lot of his ability 0:17:05.240 --> 0:17:07.399 into the finances at X, but it looks like a 0:17:07.440 --> 0:17:11.000 lot of the investors that do have to, you know, 0:17:11.119 --> 0:17:15.200 periodically mark their positions to market value are now sort 0:17:15.200 --> 0:17:19.280 of reflecting that their investment in Twitter is a fraction 0:17:19.440 --> 0:17:22.080 of what it used to be worth. The company itself 0:17:22.200 --> 0:17:25.160 is heavily leveraged. It's got a lot of debt obligations 0:17:25.160 --> 0:17:27.560 coming to and they're going to have to meet those 0:17:27.600 --> 0:17:31.720 in an environment that's looking incredibly and progressively less friendly. 0:17:31.880 --> 0:17:33.960 So you know, maybe part of what's going on here 0:17:34.200 --> 0:17:36.280 is an attempt to get a little bit more liquidity 0:17:36.640 --> 0:17:39.680 to patch up the holes and the dike over over 0:17:39.760 --> 0:17:42.800 at X and possibly even you know, buy out some 0:17:42.880 --> 0:17:45.920 of these debt holders at a fraction of what they 0:17:46.520 --> 0:17:49.200 are carrying their own debt ut So these two things 0:17:49.200 --> 0:17:52.200 could be tied together. And while yes it's the case 0:17:52.280 --> 0:17:55.920 that he is still an incredibly wealthy person, the use 0:17:55.960 --> 0:17:59.640 of those shares to juggle other business commitments that mister 0:17:59.760 --> 0:18:02.960 must has maybe you know, critically important, and it may 0:18:02.960 --> 0:18:05.159 be important for him to get himself back up into 0:18:05.200 --> 0:18:08.840 the mid twenties in terms of ownership shares. All of 0:18:08.880 --> 0:18:11.680 this is perfectly fine and good to think about from 0:18:11.720 --> 0:18:14.560 mister Musk's perspective, I guess one worries a little bit 0:18:14.840 --> 0:18:18.680 if you're just an ordinary Tesla's shareholder. Is this good 0:18:18.720 --> 0:18:21.679 news or is this bad? Dude? You've got this charismatic 0:18:21.760 --> 0:18:24.960 CEO who's essentially now dangling a threat to walk away 0:18:24.960 --> 0:18:27.639 and take his ball with him, including a bunch of 0:18:27.640 --> 0:18:31.280 potential growth opportunities for the company that you know, quite frankly, 0:18:31.760 --> 0:18:35.440 the valuation in Tesla in the market is part its 0:18:35.560 --> 0:18:38.960 cars and part its batteries and part its solar roofs. 0:18:39.000 --> 0:18:41.280 But I think a lot of it is prospect that 0:18:41.320 --> 0:18:43.440 it's going to be moving into a bunch of exciting 0:18:43.480 --> 0:18:46.560 new fields over the next few years. And so, you know, 0:18:46.600 --> 0:18:49.320 on some level, the statement by mister Musk was a 0:18:49.359 --> 0:18:53.240 shot across the bow about those growth opportunities for Tesla. 0:18:53.760 --> 0:18:56.119 And you know, I'm not so sure that as a 0:18:56.160 --> 0:18:59.400 stockholder you'd be feeling one hundred percent comfortable in either 0:18:59.440 --> 0:19:01.880 direction either. On the one hand, you know, he does 0:19:01.920 --> 0:19:04.040 take his ball and goes home. On the other hand, 0:19:04.480 --> 0:19:07.200 he end up giving a large fraction of the value 0:19:07.240 --> 0:19:09.320 back to Elon Musk. You know, maybe he you know, 0:19:09.359 --> 0:19:14.399 he turns things once again in the strong direction of stockholders, 0:19:14.760 --> 0:19:17.879 but he clearly is attempting to exact a price in 0:19:18.000 --> 0:19:18.679 order to do so. 0:19:19.160 --> 0:19:22.240 But is this a great time to be pressuring Tesla 0:19:22.560 --> 0:19:25.920 with the carmaker off to the worst start to any 0:19:26.000 --> 0:19:27.640 year it's been a public company. 0:19:28.440 --> 0:19:30.080 Yeah, how do I put this? Definitely this is a 0:19:30.160 --> 0:19:33.679 terrible time to be pressuring Tesla. But you know, if 0:19:33.680 --> 0:19:36.200 anyone could do it, possibly it is mister Musk. I 0:19:36.240 --> 0:19:39.040 mean first and foremost realize that we are sitting in 0:19:39.119 --> 0:19:42.199 You know, everyone like myself who teaches corporate law, has 0:19:42.200 --> 0:19:46.200 been sitting and waiting for a decision involving mister Musk's 0:19:46.240 --> 0:19:49.800 own compensation package that was awarded to him five and 0:19:49.800 --> 0:19:53.160 a half years ago that ended up paying him almost 0:19:53.200 --> 0:19:56.600 sixty billion dollars worth of Tesla stock. He does not 0:19:56.760 --> 0:20:00.439 take a salary, He gets paid exclusively in Tesla stock, 0:20:00.760 --> 0:20:04.200 and they have not re upped a new compensation package 0:20:04.200 --> 0:20:06.760 for him because we don't know what the decision is 0:20:06.800 --> 0:20:09.000 going to be in the previous one in which he 0:20:09.119 --> 0:20:12.520 was sued by shareholders saying that that compensation package was 0:20:12.560 --> 0:20:14.959 outrageously large in a breach of the new Sherry duties. 0:20:15.119 --> 0:20:17.639 So you know, to the extent that we don't know 0:20:17.720 --> 0:20:19.720 how that decision is going to come out of Chancellor 0:20:19.760 --> 0:20:22.720 McCormick's chambers. Suppose she comes back and she says, yeah, 0:20:22.760 --> 0:20:25.520 the shareholders have a point here. You know, the procedures 0:20:25.560 --> 0:20:28.119 he used to pay himself this exorbitant amount of money. 0:20:28.320 --> 0:20:31.280 I'm more unfair. That may mean that the cast flowers 0:20:31.320 --> 0:20:32.680 have to go in the reverse. He's got to give 0:20:32.720 --> 0:20:36.159 back to some of this money that he's already been paid, 0:20:36.240 --> 0:20:37.800 or some of the value he's already been paid, or 0:20:37.840 --> 0:20:40.359 shares that he's received. So while the decision on this 0:20:40.480 --> 0:20:42.919 is waiting in the offing, it's already kind of a 0:20:43.000 --> 0:20:45.760 sketchy time to be saying, oh, let's just roll this up, 0:20:45.840 --> 0:20:48.680 reload this same package, or maybe even a richer package, 0:20:48.760 --> 0:20:50.840 when we don't even know what the legal status of 0:20:50.880 --> 0:20:53.720 the existing one was going to be. Second, one of 0:20:53.720 --> 0:20:56.400 the things that has become clear even at the very 0:20:56.440 --> 0:20:59.720 first month of twenty twenty four is that the electric 0:20:59.840 --> 0:21:03.760 vahicle space is both getting crowded by new entrants and 0:21:03.880 --> 0:21:07.320 foreign competition, and you know, sort of a kind of 0:21:07.359 --> 0:21:10.199 an inflection point about how heavily people are going to 0:21:10.200 --> 0:21:15.240 be diving into additional purchases of electric vehicles versus hybrids, 0:21:15.359 --> 0:21:19.760 versus you know, internal combustion vehicles versus some combination of 0:21:19.800 --> 0:21:22.520 all of them. So the growth trajectories for the EV 0:21:22.680 --> 0:21:25.119 sector as a whole, I think, you know, people are 0:21:25.119 --> 0:21:26.920 trying to reassess what that looks like, and the fact 0:21:26.960 --> 0:21:29.640 that it's getting so crowded that's going to make Tesla 0:21:29.960 --> 0:21:32.800 probably face even more of an uphill battle itself. So 0:21:32.840 --> 0:21:35.240 you've got this CEO who's saying I want you to 0:21:35.280 --> 0:21:37.720 basically double my stake in the company, or else I'm 0:21:37.720 --> 0:21:41.520 going to start directing business outside of Tesla. It's not 0:21:41.640 --> 0:21:43.879 a great look and it's not a great moment for 0:21:43.960 --> 0:21:46.240 that to happen. You know, I guess to play Devil's 0:21:46.280 --> 0:21:48.600 advocate on it. Maybe this is the moment where Tesla 0:21:48.720 --> 0:21:51.520 absolutely needs stability and they need to keep him around, 0:21:51.560 --> 0:21:53.680 and so they're willing to say yes to almost anything, 0:21:54.160 --> 0:21:56.399 and that's certainly a possibility. 0:21:56.560 --> 0:21:56.720 You know. 0:21:56.720 --> 0:21:59.360 There's another interesting question about this June is that if 0:21:59.400 --> 0:22:03.520 I'm a CEO of a company that is not just 0:22:03.600 --> 0:22:07.920 a car company, but it's basically a vast technology company, 0:22:08.320 --> 0:22:11.080 part of my duties are to make sure that if 0:22:11.119 --> 0:22:14.359