Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 1: First I got Pinky, then I got Peinky, I got
Speaker 1: peek Pad.
Speaker 2: In your fame week boyd Vanessa catched something.
Speaker 3: Teeny beanie baby items.
Speaker 4: Now at McDonald's, your kids can get teeny beanie babies
Speaker 4: in a happy meal, real tie beanie babies in a
Speaker 4: mini size to toss, talk or just plain love.
Speaker 1: Remember the beanie baby craze, the stuffed animals that became
Speaker 1: all the rage in the nineties and then became collectibles. Well, surprisingly,
Speaker 1: beanie babies were part of the oral arguments in a
Speaker 1: federal case that's important in the SEC's mission to regulate
Speaker 1: the crypto market. Coinbase, the largest US crypto exchange, is
Speaker 1: trying to get a judge to throw out the SEC's
Speaker 1: case against it, and its lawyer said that buying cryptocurrency
Speaker 1: on exchange was more like electing beanie babies then investing
Speaker 1: in a stock or bond. My guest is security is
Speaker 1: attorney Robert him a partner at Tartar, Krinsky and Drogan.
Speaker 3: What's at stake for Coinbase here?
Speaker 2: Well, on Wednesday's oral argument in front of the federal judge,
Speaker 2: in Manhattan. There's a lot of stake in this case,
Speaker 2: particularly for Coinbase as well as the broader crypto industry. Here,
Speaker 2: the judge has to decide whether the cryptocurrencies that traded
Speaker 2: on the coinbase platform are securities under the statutory definition
Speaker 2: and the rules that the SEC enforces, or whether they
Speaker 2: come outside of that statutory framework. And it's really going
Speaker 2: to have a fundamental impact on whether crypto exchanges can
Speaker 2: operate in the United States and under what rules and
Speaker 2: how much regulation they're going to be subject to.
Speaker 1: So is the question whether crypto assets constitute an investment
Speaker 1: contract or something else.
Speaker 2: Yes, under the statute, which was enacted in nineteen thirty three,
Speaker 2: So going back a long time, there's a definition of
Speaker 2: securities in one of the categories in the statute of
Speaker 2: what a security is is called an investment contract, and
Speaker 2: that term is designed to be almost to catch all
Speaker 2: within the statute because it specifically says stocks and bonds
Speaker 2: and then it says investment contracts. So the litigation that
Speaker 2: the SEC brought against Coinbase is really designed and the
Speaker 2: judge has to decide whether the crypto assets that were
Speaker 2: trading on the coin based platform fell within this category.
Speaker 2: Called investment contracts, and Coinbase's entire argument is that on
Speaker 2: the secondary market, there really is no contract in place
Speaker 2: where purchasers of these digital assets and tokens would have
Speaker 2: some contractual right to profits from the blockchain or the
Speaker 2: company that the crypto relates to. And the SEC is arguing, well,
Speaker 2: that's too much of a specific, narrow definition, and that
Speaker 2: generally speaking, the court should go off of what they
Speaker 2: seem to be the expectations of the people buying these
Speaker 2: tokens and whether or not they have an expectation of profit,
Speaker 2: regardless of whether it's in the form of a written
Speaker 2: contract or not.
Speaker 1: I'm a little confused, not knowing much about crypto, but
Speaker 1: don't people who own crypto have the expectation that has
Speaker 1: the value of the token goes up, they'll profit from it.
Speaker 2: Yeah, And this is an important distinction between trading that
Speaker 2: occurs on the secondary market, like that's an issue here
Speaker 2: in the Coinbase case versus the primary sales and Coinbase
Speaker 2: made an interesting analogy in court where it compared the
Speaker 2: digital assets and the crypto the beanie babies, you know,
Speaker 2: the phenomena in the eighties and nineties where and collectibles
Speaker 2: is a broader category, and Coinbase's point is that there's
Speaker 2: a lot of different things that people invest in with
Speaker 2: the expectation of a profit, including beanie babies, including baseball cards,
Speaker 2: and not all those things are securities. So just because
Speaker 2: someone has the expectation that one day their purchase will
Speaker 2: be more valualuable in the future does not convert that
Speaker 2: over to a security. And the SEC seemed to have
Speaker 2: a little bit of a problem coming back from that argument,
Speaker 2: because the SEC is taking a very broad view of
Speaker 2: what constitutes security and what comes under its jurisdiction. And
Speaker 2: I think those arguments from coinbase were really resonating with
Speaker 2: the trial judge because she was concerned that she doesn't
Speaker 2: want to overly broaden the definition of security and include
Speaker 2: these things like collectibles and other things that are clearly
Speaker 2: intended to be outside the statute.
Speaker 1: I was stunned that beanie babies came into the conversation.
Speaker 1: Reminded me of beanie baby mania years ago. Was there
Speaker 1: a reason that the judge really honed in on the
Speaker 1: idea of collectibles. Was it because Coinbase brought it up
Speaker 1: or is it a good analogy?
Speaker 2: Well, it is a good analogy, and this is one
Speaker 2: of the centerpieces of Coinbase's argument is that the SEC
Speaker 2: is taking an overly expansive view of its own jurisdiction
Speaker 2: and over the types of instruments it has regulatory authority
Speaker 2: over and under our system, Congress has to pass a
Speaker 2: statute and delegate specific powers to the SEC of what
Speaker 2: it can and can't regulate, and Coinbase this whole argument
Speaker 2: is that these crypto assets are not covered in the
Speaker 2: statute and therefore the SEC has no ability to regulate
Speaker 2: them until Congress chooses to amend the statute. And so
Speaker 2: Coinbase brought up the example of collectibles and beanie babies
Speaker 2: and saying that once you go down the slippery slope
Speaker 2: of going outside of what really is defined in the statute,
Speaker 2: almost anything that people buy, like a collectible, could be
Speaker 2: a security. And the judge was particularly concerned about that
Speaker 2: because she was concerned about opening the doors to a
Speaker 2: lot more litigation and specifically mentioned class actions where these
Speaker 2: class action lawyers could seize on a ruling in the
Speaker 2: SEC's favor on this point and try to argue almost
Speaker 2: anything could be a security and start suing companies that
Speaker 2: create and promote collects.
Speaker 1: So tell me what you think of the SEC argument
Speaker 1: from Patrick Costello that securities differ from purchases of collectibles
Speaker 1: like baseball cards or beanie babies. When they buy this token,
Speaker 1: they're investing into the network behind it. One cannot be
Speaker 1: separated from the other.
Speaker 2: Well, I really don't think that the SEC's argument is
Speaker 2: all that meritorious in that particular point, because when you
Speaker 2: look at collectibles and you look at beanie babies, the
Speaker 2: people and the companies that create, for instance, the Beanie Babies,
Speaker 2: you know, they're very astute in terms of releasing special
Speaker 2: edition beanie babies or limiting the supply or having particular promotions.
Speaker 2: So it's not just like beanie babies took off on
Speaker 2: their own, so to speak, a lot of thought and
Speaker 2: marketing and other things that you could consider to be,
Speaker 2: you know, kind of an enterprise. You know, we're in place.
Speaker 2: So the SEC's attempt to distinguish a collectibles market from
Speaker 2: a securities market really wasn't persuasive in that instance. But
Speaker 2: I think the SEC's brought and stronger argument is that
Speaker 2: the Securities Act of nineteen thirty three, even though it's old,
Speaker 2: has a lot of flexibility built into it. And when
Speaker 2: Congress passed. That Act has been able to be adopted
Speaker 2: to new types of investment products over the years, like
Speaker 2: real estate investment trust and complex sorts of financing instruments.
Speaker 2: And the SEC's argument is that that was exactly what
Speaker 2: this Act is designed to do, and that crypto fits
Speaker 2: within that sort of category of a new financial investment,
Speaker 2: that it is comfortably within the concept of an investment contract.
Speaker 1: So was it mentioned that if the SEC doesn't regulate crypto.
Speaker 3: Who will.
Speaker 2: Yes, that came up, and that was something where the
Speaker 2: judge specifically had another concern with in terms of she
Speaker 2: categorized it as she needs to stay in her lane
Speaker 2: with respect to she's supposed to be there to apply
Speaker 2: the law and interpret its definitions. And one of Pointbase's
Speaker 2: arguments is centered around on a principle called the major
Speaker 2: questions doctrine, which is a key part of administrative law,
Speaker 2: which says that agencies like the SEC, which are administrative agencies,
Speaker 2: are limited and Congress cannot delegate to them questions that
Speaker 2: have major economic or political significance. Those have to be
Speaker 2: decided by Congress through debate and elections and democratic processes,
Speaker 2: not delegated to an unelected commission. So yes, that issue
Speaker 2: came up. The judge seemed to indicate some skepticism with that.
Speaker 2: She didn't feel like she would really need to get
Speaker 2: to that point. She termed it the nuclear option in
Speaker 2: the oral argument. So, I think the judge has every
Speaker 2: intent to rule the more narrow question about whether the
Speaker 2: crypto assets fall within the definition of a security under
Speaker 2: the statute or not.
Speaker 1: And do you agree with our Bloomberg Intelligence senior litigation
Speaker 1: analyst Elliott Stein, who predicts the judge will back coinbase
Speaker 1: and dismiss the sec suit.
Speaker 2: Yeah, I do. I think that there's a very high
Speaker 2: likelihood of that happening, and I think in certain respects
Speaker 2: what the judge could do is say that trading on
Speaker 2: the secondary market, like what happened on the coinbase platform,
Speaker 2: is not a security because people are trading among themselves
Speaker 2: and the blockchain companies don't get that money. They're just
Speaker 2: you know, aftermarket purchasers that are buying and selling among
Speaker 2: themselves and still keeping those investor protections for when those
Speaker 2: tokens are initially issued, like for instance, an initial coin offering,
Speaker 2: you know, those could be securities because the company is
Speaker 2: getting the money from that offering. They're using it to
Speaker 2: build out a platform, they're using it to make the
Speaker 2: product more valuable. So it's a much stronger case to
Speaker 2: say that that's a security than the after market trading.
Speaker 2: And I think the other really good point that Coinbase
Speaker 2: brought up was that the SEC allowed Coinbase to go
Speaker 2: public just three years ago in twenty twenty one. So
Speaker 2: Coinbase filed their forms with the SEC, describe the business
Speaker 2: model the platform was operating, and the SEC approved the
Speaker 2: IPO three years ago. So how can the SEC come
Speaker 2: back three years later after approving the IPO and say, well,
Speaker 2: your business was an illegal enterprise, you know, all along,
Speaker 2: going back to twenty nineteen when you first started it,
Speaker 2: even though we approved it to be offered to the public.
Speaker 2: You know, in twenty twenty one.
Speaker 1: The question of whether digital tokens our securities has divided courts.
Speaker 1: So another Manhattan Federal judge, an Alisa Torrez, ruled in
Speaker 1: July that exchange sales of Ripple Labs token weren't subject
Speaker 1: to SEC jurisdiction, while Manhattan Federal Judge jed Rakoff, I
Speaker 1: think he just sits a floor apart from her, that
Speaker 1: same month reached the opposite conclusion in the SEC's case
Speaker 1: against terrorform labs. So how much influence will the decision
Speaker 1: here by Judge polkv.
Speaker 2: Well, that's a really good point, youne, because there are
Speaker 2: a lot of decisions coming out of the Manhattan Fellow
Speaker 2: Court as well as other courts that are contradictory and
Speaker 2: judges taking different approaches, and the judge in the coinbase case,
Speaker 2: whatever way she ultimately rules, is going to be one
Speaker 2: more decision in that mix. It's not going to be
Speaker 2: definitive answer either way. And I suspect that at some
Speaker 2: point the either the appellate courts in New York or
Speaker 2: even the Supreme Court is going to have to issue
Speaker 2: a decision on this point because there have been contradictory rulings.
Speaker 2: But ideally is the judges pointing out that this is
Speaker 2: more an issue for Congress in terms of trying to
Speaker 2: pass a legislative framework for crypto that defines, you know
Speaker 2: what people have to do, you know how to regulate it,
Speaker 2: which agency should be responsible for it, because right now
Speaker 2: you have this SEC, you have the CFTC which regulates commodities,
Speaker 2: and other agencies at the state level are all kind
Speaker 2: of start jurisdiction over crypto, and it's very harmful for
Speaker 2: the industry, and it's hindering innovation and development because there
Speaker 2: really is not a clear regulatory framework. So ideally Congress
Speaker 2: would act, but I don't have high hopes for that
Speaker 2: in this political climate.
Speaker 1: Unfortunately, I have to agree with you there, Bob, thanks
Speaker 1: so much. That's Robert him, a partner at Tartar, Krinsky
Speaker 1: and Drogan. Coming up next. Elon Musk wants more Tesla
Speaker 1: stock or he's walking I'm June Grosse when you're listening
Speaker 1: to Bloomberg. Elon Musk is leaning on Tesla's board to
Speaker 1: give him another massive stock award that would nearly double
Speaker 1: his current shares. In a series of posts on x,
Speaker 1: the Tesla chief executive says he would be quote uncomfortable
Speaker 1: growing Tesla to be a leader in AI and robotics
Speaker 1: without having twenty five percent control, enough to be influential,
Speaker 1: but not so much that I can't be overturned. And
Speaker 1: then the not so veiled threat. Musk writes. Unless that
Speaker 1: is the case, I would prefer to build products outside
Speaker 1: of Tesla. Musk previously held a stake of more than
Speaker 1: twenty percent in Tesla. But now owns around thirteen percent
Speaker 1: of the company's stock after selling billions of dollars of
Speaker 1: shares in twenty twenty two, partly to help finance his
Speaker 1: forty four billion dollar purchase of Twitter. Joining me is
Speaker 1: business law expert Eric Talley, a professor at Columbia Law School.
Speaker 1: So the latest, although, to say, what's the latest on
Speaker 1: Elon Musk is very dangerous because he's in the news
Speaker 1: all the time. But he's pressuring Tesla's board to arrange
Speaker 1: another massive stock award for him, And he wrote that
Speaker 1: unless he has roughly twenty five percent voting control of Tesla,
Speaker 1: he'd preferred to build artificial intelligence and robotics products elsewhere.
Speaker 3: Is this a real threat?
Speaker 4: It's really hard to tell. And you know, Elon Musk
Speaker 4: is in so many news stories now that they all
Speaker 4: kind of blend together, and maybe they're just all part
Speaker 4: of the same narrative. First of all, I guess it's
Speaker 4: kind of interesting that Elon Musk decided to take his
Speaker 4: case for a raise. I guess, not to the Tesla board,
Speaker 4: but to the to the viewers of his ex slash
Speaker 4: Twitter feed to essentially make his case in the court
Speaker 4: of public opinion. Which is kind of a bizarre thing. Now,
Speaker 4: it may well be the case that mister Musk has
Speaker 4: already put forward this request and has ended up not
Speaker 4: having it received as well as he would want it,
Speaker 4: but it's kind of an interesting thing to decide he's
Speaker 4: going to put it. You know, he's going to crowdsource
Speaker 4: people's opinions about whether he should get a raise or
Speaker 4: should have his ownership stake increased to twenty five percent. Now,
Speaker 4: the guy is, you know, clearly an iconoclast who has
Speaker 4: a huge following all over the place. Some of the
Speaker 4: following follows him into the stock markets as well. So
Speaker 4: I think if you're sitting on the board of Tesla,
Speaker 4: you probably don't want, you know, Elon Musk becoming sour
Speaker 4: and sort of, you know, unhappy about his situation at Tesla.
Speaker 4: By the same token, there's a real sense in which
Speaker 4: the types of of reasons that mister Musk gave in
Speaker 4: his fairly long tweet they don't really quite pass the
Speaker 4: smell test. I think, you know, sort of the main
Speaker 4: one that he gave was that he needs that level
Speaker 4: of control so that he has enough influence and power
Speaker 4: to help direct things at Tesla. He's only sitting at
Speaker 4: thirteen percent now, which by the way, is an amount
Speaker 4: that he brought himself down to, having shed a bunch
Speaker 4: of his Tesla shares so that he could afford his
Speaker 4: Twitter acquisition. And he doesn't feel like he has the
Speaker 4: influence he wants. And I don't really know of anyone
Speaker 4: who actually believes that even as a thirteen percent shareholder.
Speaker 4: You know, it's obvious to me that most retail investors,
Speaker 4: and almost certainly that board is hanging on every single
Speaker 4: word that Elon Musk sets. So you know, to claim that,
Speaker 4: you know, if I don't have twenty five percent, I'm
Speaker 4: not going to have enough influence at Tesla, it just
Speaker 4: doesn't add up to me on some level.
Speaker 3: Well, he doesn't need the money, does he.
Speaker 1: I mean, he's now after being the first person to
Speaker 1: ever raise two hundred billion dollars from their net worth
Speaker 1: more than a year ago, he's now again the richest
Speaker 1: person in the world, worth an estimated two hundred and
Speaker 1: six point one billion dollars.
Speaker 3: So he doesn't need the money.
Speaker 4: Well, I guess that's one conclusion you can reach. It's
Speaker 4: important to realize that the vast majority of his wealth
Speaker 4: is on paper and takes the form of shares of Tesla, right,
Speaker 4: so if he's going to access that, he would have
Speaker 4: to sell more, and that you know, comes with all
Speaker 4: kinds of adverse implications, not just tax implications, but also
Speaker 4: you know, implications about his you know, waning control over
Speaker 4: the company. And so there may be a sense that,
Speaker 4: you know, if you tie all these different things together,
Speaker 4: you know, one of the things that may be worrying
Speaker 4: mister Musk, and maybe he's trying to think his way through,
Speaker 4: is what kind of financial strain is he going to
Speaker 4: be under over at X, which he notoriously overpaid for
Speaker 4: a year a month ago, And so you know, that
Speaker 4: may be part of what's going on here. It's pretty
Speaker 4: clear that we don't have a lot of his ability
Speaker 4: into the finances at X, but it looks like a
Speaker 4: lot of the investors that do have to, you know,
Speaker 4: periodically mark their positions to market value are now sort
Speaker 4: of reflecting that their investment in Twitter is a fraction
Speaker 4: of what it used to be worth. The company itself
Speaker 4: is heavily leveraged. It's got a lot of debt obligations
Speaker 4: coming to and they're going to have to meet those
Speaker 4: in an environment that's looking incredibly and progressively less friendly.
Speaker 4: So you know, maybe part of what's going on here
Speaker 4: is an attempt to get a little bit more liquidity
Speaker 4: to patch up the holes and the dike over over
Speaker 4: at X and possibly even you know, buy out some
Speaker 4: of these debt holders at a fraction of what they
Speaker 4: are carrying their own debt ut So these two things
Speaker 4: could be tied together. And while yes it's the case
Speaker 4: that he is still an incredibly wealthy person, the use
Speaker 4: of those shares to juggle other business commitments that mister
Speaker 4: must has maybe you know, critically important, and it may
Speaker 4: be important for him to get himself back up into
Speaker 4: the mid twenties in terms of ownership shares. All of
Speaker 4: this is perfectly fine and good to think about from
Speaker 4: mister Musk's perspective, I guess one worries a little bit
Speaker 4: if you're just an ordinary Tesla's shareholder. Is this good
Speaker 4: news or is this bad? Dude? You've got this charismatic
Speaker 4: CEO who's essentially now dangling a threat to walk away
Speaker 4: and take his ball with him, including a bunch of
Speaker 4: potential growth opportunities for the company that you know, quite frankly,
Speaker 4: the valuation in Tesla in the market is part its
Speaker 4: cars and part its batteries and part its solar roofs.
Speaker 4: But I think a lot of it is prospect that
Speaker 4: it's going to be moving into a bunch of exciting
Speaker 4: new fields over the next few years. And so, you know,
Speaker 4: on some level, the statement by mister Musk was a
Speaker 4: shot across the bow about those growth opportunities for Tesla.
Speaker 4: And you know, I'm not so sure that as a
Speaker 4: stockholder you'd be feeling one hundred percent comfortable in either
Speaker 4: direction either. On the one hand, you know, he does
Speaker 4: take his ball and goes home. On the other hand,
Speaker 4: he end up giving a large fraction of the value
Speaker 4: back to Elon Musk. You know, maybe he you know,
Speaker 4: he turns things once again in the strong direction of stockholders,
Speaker 4: but he clearly is attempting to exact a price in
Speaker 4: order to do so.
Speaker 1: But is this a great time to be pressuring Tesla
Speaker 1: with the carmaker off to the worst start to any
Speaker 1: year it's been a public company.
Speaker 4: Yeah, how do I put this? Definitely this is a
Speaker 4: terrible time to be pressuring Tesla. But you know, if
Speaker 4: anyone could do it, possibly it is mister Musk. I
Speaker 4: mean first and foremost realize that we are sitting in
Speaker 4: You know, everyone like myself who teaches corporate law, has
Speaker 4: been sitting and waiting for a decision involving mister Musk's
Speaker 4: own compensation package that was awarded to him five and
Speaker 4: a half years ago that ended up paying him almost
Speaker 4: sixty billion dollars worth of Tesla stock. He does not
Speaker 4: take a salary, He gets paid exclusively in Tesla stock,
Speaker 4: and they have not re upped a new compensation package
Speaker 4: for him because we don't know what the decision is
Speaker 4: going to be in the previous one in which he
Speaker 4: was sued by shareholders saying that that compensation package was
Speaker 4: outrageously large in a breach of the new Sherry duties.
Speaker 4: So you know, to the extent that we don't know
Speaker 4: how that decision is going to come out of Chancellor
Speaker 4: McCormick's chambers. Suppose she comes back and she says, yeah,
Speaker 4: the shareholders have a point here. You know, the procedures
Speaker 4: he used to pay himself this exorbitant amount of money.
Speaker 4: I'm more unfair. That may mean that the cast flowers
Speaker 4: have to go in the reverse. He's got to give
Speaker 4: back to some of this money that he's already been paid,
Speaker 4: or some of the value he's already been paid, or
Speaker 4: shares that he's received. So while the decision on this
Speaker 4: is waiting in the offing, it's already kind of a
Speaker 4: sketchy time to be saying, oh, let's just roll this up,
Speaker 4: reload this same package, or maybe even a richer package,
Speaker 4: when we don't even know what the legal status of
Speaker 4: the existing one was going to be. Second, one of
Speaker 4: the things that has become clear even at the very
Speaker 4: first month of twenty twenty four is that the electric
Speaker 4: vahicle space is both getting crowded by new entrants and
Speaker 4: foreign competition, and you know, sort of a kind of
Speaker 4: an inflection point about how heavily people are going to
Speaker 4: be diving into additional purchases of electric vehicles versus hybrids,
Speaker 4: versus you know, internal combustion vehicles versus some combination of
Speaker 4: all of them. So the growth trajectories for the EV
Speaker 4: sector as a whole, I think, you know, people are
Speaker 4: trying to reassess what that looks like, and the fact
Speaker 4: that it's getting so crowded that's going to make Tesla
Speaker 4: probably face even more of an uphill battle itself. So
Speaker 4: you've got this CEO who's saying I want you to
Speaker 4: basically double my stake in the company, or else I'm
Speaker 4: going to start directing business outside of Tesla. It's not
Speaker 4: a great look and it's not a great moment for
Speaker 4: that to happen. You know, I guess to play Devil's
Speaker 4: advocate on it. Maybe this is the moment where Tesla
Speaker 4: absolutely needs stability and they need to keep him around,
Speaker 4: and so they're willing to say yes to almost anything,
Speaker 4: and that's certainly a possibility.
Speaker 1: You know.
Speaker 4: There's another interesting question about this June is that if
Speaker 4: I'm a CEO of a company that is not just
Speaker 4: a car company, but it's basically a vast technology company,
Speaker 4: part of my duties are to make sure that if
Speaker 4: there are ideas and new business prospects that fit within
Speaker 4: that company's line of business, that I don't sort of
Speaker 4: pull them out and pursue them on my own, but
Speaker 4: that I direct them into the company that I'm a
Speaker 4: fiduciary of. This is a well known part of corporate law.
Speaker 4: It's called the corporate opportunities doctrine. And you know, it's
Speaker 4: a situation where if you are a CEO and you say, well,
Speaker 4: I'm just going to plan to pole business that is
Speaker 4: firmly within the line of this company out. Well, you
Speaker 4: might be inviting yet another lawsuit. So the timing is
Speaker 4: not particularly great. And even if the timing were great,
Speaker 4: you know, you would kind of think, well, maybe this
Speaker 4: is the type of situation where you want to approach
Speaker 4: the board quietly. That has clearly not been the strategy
Speaker 4: that mister Musk is pursuing here. So we'll see how
Speaker 4: it shakes down. You know that at very least it
Speaker 4: gives you and me something to talk about.
Speaker 1: Well, even those of us who do not teach corporate
Speaker 1: law are wondering what is taking the Chancery Court Judge
Speaker 1: McCormick so long? I mean, even if it's a complicated decision,
Speaker 1: how long has it been?
Speaker 4: Yeah, the stakes are huge in this This case has
Speaker 4: been hanging around for a long time, and realizing that
Speaker 4: the chance for McCormick has basically been hofloating all things
Speaker 4: Musk in the state of Delaware, right she was sitting
Speaker 4: on the Twitter acquisition deal as well. This case actually
Speaker 4: preceded that this was a complaint that one of her
Speaker 4: predecessors actually was hearing before he ended up leaving the
Speaker 4: bench and so she ended up taking over this case.
Speaker 4: The case is involved from a corporate law perspective because
Speaker 4: it entails all kinds of crisscrossing questions of does Musk
Speaker 4: own enough shares of Tesla to actually make him a
Speaker 4: controlling shareholder even at the time, I think he was
Speaker 4: sitting like twenty two to twenty three percent of the company,
Speaker 4: but not a majority. That's a tough question in and
Speaker 4: of itself. There's questions about what was the appropriate set
Speaker 4: of comparables to look at. Was this a reasonable compensation
Speaker 4: package when it was passed, because it looked like it
Speaker 4: was so high in the sky that none of these
Speaker 4: benchmarks were going to pay off, and then it turns out,
Speaker 4: you know, all of them paid off basically. So I
Speaker 4: think there are a lot of balls that are in
Speaker 4: the air in this one opinion. I know people who
Speaker 4: are sort of students of the Delaware chancewer Recurt, they're
Speaker 4: waiting on this spinion. You're going to you know, pick
Speaker 4: it apart almost immediately. So I would be inclined to
Speaker 4: give Chancellor McCormick a runway to get this thing out
Speaker 4: because it could end up giving rise to you know,
Speaker 4: all kinds of different uses once it is out there.
Speaker 4: And I think you know this recent fora may suggest
Speaker 4: that the import of her decision is even greater. Right, So,
Speaker 4: for all we knew she was about to issue the opinion,
Speaker 4: and then we get hit with the tweets. You've got
Speaker 4: to make sure that is going to hold Lotter against
Speaker 4: whatever new attention grabbing headline is out there. That having
Speaker 4: been said, most people are anticipating that we are going
Speaker 4: to see an opinion come out of the Chance Recurt
Speaker 4: pretty soon, probably within the nex.
Speaker 1: All right, something else to talk about. And also in
Speaker 1: one of his tweet or ex'es or one of his posts,
Speaker 1: he mentioned how long ago the trial was so waiting
Speaker 1: for that as well. So now turning to another area
Speaker 1: involving Elon Musk, the Wall Street Journal had an article
Speaker 1: describing his history of recreational drug use, saying he's used LSD, cocaine, ecstasy,
Speaker 1: and psychedelic mushrooms, often at private parties, and there's an
Speaker 1: ongoing use of ketamine. I mean, I'm not sure anyone's
Speaker 1: surprised at this, but what impact does it have?
Speaker 4: Yeah, I mean there's this old joke in Wall Street.
Speaker 4: You know, stock price didn't move on announcement, right, things
Speaker 4: that are not terribly surprising, And I think that was
Speaker 4: literally the case here that you know, the stock price
Speaker 4: of Tesla was moving for other reasons, but I'm not
Speaker 4: so sure that this moved the needle itself. You know,
Speaker 4: I don't think people were incredibly surprised by this by
Speaker 4: the same token, you know, I think that particularly at
Speaker 4: a company that's heading into what maybe a tougher landscape,
Speaker 4: since you're not the only kid on the block in
Speaker 4: terms of electric vehicle production. You know, both world politics
Speaker 4: and the economy have facing bumpier roads ahead. You know,
Speaker 4: I think that on some level people really do want
Speaker 4: stability out of their leaders, and for any generic CEO,
Speaker 4: I think this could actually spell either doom or something
Speaker 4: close to doom. Isn't less clear to me that that's
Speaker 4: the case with Musk, simply because I just don't think
Speaker 4: too many people were surprised by that. But what it
Speaker 4: does give rise to is, you know a little bit
Speaker 4: of a sense of well, you know, when mister Musk
Speaker 4: says something, is this part of a larger just kind
Speaker 4: of erratic type of personality. And that's I think that's
Speaker 4: a concern generally by the same token. You know, I
Speaker 4: think his personality type has been one that's been you know,
Speaker 4: not only good for Tesla, but it's been pretty good
Speaker 4: for the American economy as well. His iconoclastic style, which
Speaker 4: maybe you know, part and parcel with the rest of this,
Speaker 4: has also caused him to be one of the more
Speaker 4: or risk tolerant and entrepreneurs out there, which I think
Speaker 4: has been all in regardless of what you think about
Speaker 4: him as a person, has been you know, not a
Speaker 4: terrible thing for industry. So, you know, I don't know
Speaker 4: where this is going to go. It's it's It's obviously
Speaker 4: an issue that was concerning enough that it not only
Speaker 4: gave rise to a Wall Street Journal inductory, but a
Speaker 4: lot of other people have been, you know, trying to
Speaker 4: figure out what the implications of it are. On some level.
Speaker 4: It really just moved it up into our mental inbox
Speaker 4: because I think a lot of people sort of were
Speaker 4: vaguely aware of some of this track record already.
Speaker 1: There's the possibility that shareholders could sue over this, you know,
Speaker 1: there is.
Speaker 4: A possibility, I guess there turn out to be a
Speaker 4: you know, a budge of different ways that shareholders can
Speaker 4: file a lawsuit. Sometimes they can sue because the CEO
Speaker 4: or the corporate fiduciary has done something greedy. It's possible
Speaker 4: under some circumstances, shareholders could sue because the CEO or
Speaker 4: fiduciary has done something stupid or something foolish or something
Speaker 4: thought less. It turns out, for better or worse, that
Speaker 4: is a much harder lawsuit to win. You can very
Speaker 4: easily sue someone for being too greedy, but it's much
Speaker 4: harder to sue someone for not thinking about what they're doing.
Speaker 4: It's possible, but it's a harder thing to do. So,
Speaker 4: you know, shareholders might sort of say, well, look, this
Speaker 4: type of behavior suggests that you're not behaving in good
Speaker 4: faith in discharging your duties, that you're abdicating your duties,
Speaker 4: that you're basically treating this like a plaything. And there
Speaker 4: have been lawsuits, many lawsuits in the past that have
Speaker 4: made those types of allegations. But you really have to
Speaker 4: have a pretty extreme case in order to show that,
Speaker 4: and so much so that you know the company's worth
Speaker 4: nothing anymore. Well, if if you were to open up
Speaker 4: the Wall Street Journal today, you would not see that
Speaker 4: that Tesla is worth nothing at this point in time,
Speaker 4: So you know, I think it's certainly something a matter
Speaker 4: that may be of some concern, maybe a matter that
Speaker 4: at least in part caused mister Musk to think, oh boy,
Speaker 4: you know, if some of my shareholders turn against me,
Speaker 4: maybe it would be better for me to have twenty
Speaker 4: five percent of the stock rather than thirteen percent of
Speaker 4: the stock. So maybe there's something that this has to
Speaker 4: do with. But I think that the civil exposure for
Speaker 4: under you know, sort of corporate law principles is still
Speaker 4: pretty small. That doesn't mean that illicit drug use doesn't
Speaker 4: give rise to certain types of legal obligations, but they're
Speaker 4: usually not at the hands of irate shareholders.
Speaker 1: SpaceX doesn't seem to have the problems that Tesla does well.
Speaker 4: One of the things that's kind of interesting to think
Speaker 4: about here is that while SpaceX has been in the news,
Speaker 4: they have not been in the news for bad things happening.
Speaker 4: Right as a general matter, most of the news that's
Speaker 4: been hitting with SpaceX, as far as I can tell,
Speaker 4: has been good and has been along the lines of
Speaker 4: enhancing its its footprint and enhancing its business operations. So,
Speaker 4: you know, I guess one of the issues that came
Speaker 4: up in the executive compensation lawsuit as well, this question
Speaker 4: of how do you deal with a person that's got
Speaker 4: a finger in every pine is prone to being kind
Speaker 4: of like a distracted laboratory or retriever, right like, you know,
Speaker 4: and this was one of the arguments that Tesla made,
Speaker 4: is like, we had to pay him that much because
Speaker 4: if we didn't, he was just going to get distracted
Speaker 4: into a bunch of other things. And you know, maybe
Speaker 4: there's a you know, a sense in which a tweet
Speaker 4: that he issued was you know, sort of trying to
Speaker 4: ring up that same type of logic or that same
Speaker 4: type of reasoning. And there are things that he is
Speaker 4: engaged in that seemed to be doing decently well. In
Speaker 4: SpaceX I think is sort of top of that list.
Speaker 1: Thanks so much, Eric, I'm sure we'll be talking again
Speaker 1: about mister Musk. That's Columbia Law School professor Eric Tally
Speaker 1: coming up next on the Bloomberg Law Show. The workplace
Speaker 1: is not the right place for heated debates on politics
Speaker 1: or world events, but how do employers keep political disagreements
Speaker 1: out of the workplace while respecting free expression. That's up
Speaker 1: next on the Bloomberg law show the workplace is not
Speaker 1: the right place for heated debates on politics or world events.
Speaker 1: But with primary season in full swing and traumatic events overseas,
Speaker 1: how do employers keep political disagreements out of the workplace
Speaker 1: while respecting free expression? Joining me is Dominique Camacho Moran,
Speaker 1: a partner in the labor and employment practice at Faroh Fritz.
Speaker 1: Are you finding that employers are contacting you because there's
Speaker 1: a lot of political disagreements in the workplace?
Speaker 5: So, I think a lot is an interesting phrase. Employers
Speaker 5: are preparing for what we expect will be a very
Speaker 5: robust window during the election cycle of debate. Those issues
Speaker 5: have candidly been popping up periodically since the pandemic. It
Speaker 5: started with issues surrounding the summer of George Floyd. It
Speaker 5: was resurrected again in the fall around the issues in Israel.
Speaker 5: So employers are men managing a lot of what I
Speaker 5: would call not contentious, but robusts debate in the workplace
Speaker 5: that can lean feelings hurt on any side of the conversation.
Speaker 1: And so I assume that the Israeli Palestine issue has
Speaker 1: come up already.
Speaker 5: It absolutely has come up with employers and businesses trying
Speaker 5: to navigate a scenario where they can be compassionate to
Speaker 5: their own views and to the people who share those views,
Speaker 5: but also address the issue of if your business is
Speaker 5: not the business, then we need to make sure that
Speaker 5: we're moving forward, and we need to make sure that
Speaker 5: those conversations are not negatively distracting folks within the workplace.
Speaker 1: Before we get to what you should do, there's been
Speaker 1: a lot of talk about various law firms and businesses
Speaker 1: not wanting people who don't support Israel. Say there's a
Speaker 1: discussion and it gets seated, does the employer have a
Speaker 1: right to fire someone whose speech he or she disagrees with.
Speaker 5: I want to be careful about getting to the ultimate
Speaker 5: question of can you fire someone for something you don't
Speaker 5: agree with? Because the answer is yes, but yes, but
Speaker 5: we have to make sure that we're being consistent and
Speaker 5: that we're not discriminating against a particular group based on
Speaker 5: their ethnicity, or their national origin, or their religion. And
Speaker 5: so while an employer does not have to tolerate a
Speaker 5: viewpoint they don't agree with, there are all of these
Speaker 5: caveats to It's important that we comply with the law
Speaker 5: regarding discrimination and all of the categories that are protected
Speaker 5: under both federal, state, and local law, and sometimes that
Speaker 5: crosses the line.
Speaker 1: Tell us what employers should or shouldn't do to avoid conflicts.
Speaker 5: Really important that employers go back to their policies and
Speaker 5: take another look. Are we making sure that we are
Speaker 5: asking people, for example, to use email appropriately and for
Speaker 5: work related interests. One of the things that can happen
Speaker 5: is that an employee can start circulating opinion pieces about
Speaker 5: political and or other kinds of topics that divide as
Speaker 5: opposed to unite people within the workplace. Important that the
Speaker 5: employer knows what their policy is about the use of
Speaker 5: the email system and that that's clearly articulated. The same
Speaker 5: is true for making sure that there's an understanding and
Speaker 5: perhaps explicitly that this is not the place for the
Speaker 5: conversations around religion or politics. That's an appropriate thing for
Speaker 5: an employer to decide. The key, though, is once an
Speaker 5: employer decides that that's the policy, it's consistent. Enforcement can't
Speaker 5: be we're only going to take this position when someone's
Speaker 5: talking about Donald Trump, or we're only going to take
Speaker 5: this position if you're talking about Joe Biden. The need
Speaker 5: needs to be that we're going to be consistent in
Speaker 5: how we go about applying the rules.
Speaker 1: Let's say that this leads to a discussion that gets heated,
Speaker 1: what do you recommend that employers do?
Speaker 5: So, employers need to train their managers and supervisors to
Speaker 5: stop those kinds of conversations before they start in the workplace.
Speaker 5: There is rarely elongated window of time for that kind
Speaker 5: of conversation to get truly heated. But when there is
Speaker 5: an issue, employers need to step in and have their
Speaker 5: managers and supervisors trained to say, look, we appreciate that
Speaker 5: everybody has a viewpoint, but we're trying to make widgets
Speaker 5: and right now we need everybody focused on how to
Speaker 5: make the widgets.
Speaker 3: What are the big issues are employers facing.
Speaker 5: I think the other big issue that we're facing is
Speaker 5: what about outside of workplace con us that has the
Speaker 5: potential to negatively impact an employer? And I think from
Speaker 5: there it really depends on the position. But those who
Speaker 5: are in leadership roles need to understand that just because
Speaker 5: their conduct is outside of the workplace doesn't mean that
Speaker 5: it doesn't negatively impact the workplace.
Speaker 4: And so there's got.
Speaker 5: To be a dialogue amongst leadership that says, this is
Speaker 5: what our expectation is and it's important that we speak
Speaker 5: with the same message. That doesn't mean people can have
Speaker 5: differing opinions, but everybody needs to understand that when conduct
Speaker 5: becomes very public, it can impact the workplace.
Speaker 1: A lot for employers to think about. Thanks so much, Dominique.
Speaker 1: That's Dominique Camacho Moran of faral Fritz, and that's it
Speaker 1: for this edition of the Bloomberg Law Podcast. Remember you've
Speaker 1: can always get the latest legal news by subscribing and
Speaker 1: listening to the show on Apple Podcasts, Spotify, and at
Speaker 1: Bloomberg dot com, slash podcast, Slash Law. I'm June Grosso
Speaker 1: and this is Bloomberg