1
00:00:03,200 --> 00:00:08,000
Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

2
00:00:10,520 --> 00:00:15,360
Speaker 1: It's a stunning, perhaps unprecedented decision that puts Donald Trump's

3
00:00:15,360 --> 00:00:19,360
Speaker 1: business empire at risk of dissolution and strips control of

4
00:00:19,480 --> 00:00:23,200
Speaker 1: key properties from the former president. Judge Arthur and Goren

5
00:00:23,280 --> 00:00:27,160
Speaker 1: ruled that Trump repeatedly committed fraud by inflating the value

6
00:00:27,200 --> 00:00:30,840
Speaker 1: of his assets by billions of dollars on financial records

7
00:00:30,840 --> 00:00:35,760
Speaker 1: submitted to banks and insurers. He wrote scathingly about Trump's defenses,

8
00:00:35,880 --> 00:00:39,720
Speaker 1: saying they were a fantasy, not reality. The documents do

9
00:00:39,840 --> 00:00:42,600
Speaker 1: not say what they say. There is no such thing

10
00:00:42,760 --> 00:00:46,720
Speaker 1: as objective value. Essentially, the court should not believe its

11
00:00:46,760 --> 00:00:50,520
Speaker 1: own eyes, even quoting a famous line from the Marx

12
00:00:50,560 --> 00:00:58,200
Speaker 1: Brothers Movieyes. The judge concluded by saying that New York

13
00:00:58,240 --> 00:01:02,160
Speaker 1: Attorney General Letitia James is now entitled to a court

14
00:01:02,280 --> 00:01:07,240
Speaker 1: order dissolving any certificates issue to Trump's LLC's, putting his

15
00:01:07,319 --> 00:01:11,839
Speaker 1: ability to continue operating his sprawling Manhattan based company at risk.

16
00:01:12,120 --> 00:01:15,400
Speaker 1: Joining me is former federal prosecutor Robert Mintz, a partner

17
00:01:15,480 --> 00:01:23,120
Speaker 1: Maccarter and English. Would you say this decision is unprecedented, rare, uncommon,

18
00:01:23,319 --> 00:01:25,200
Speaker 1: how would you describe it?

19
00:01:25,200 --> 00:01:28,360
Speaker 2: It certainly is a rare decision. There is not a

20
00:01:28,400 --> 00:01:30,200
Speaker 2: lot of history in the New York State of a

21
00:01:30,360 --> 00:01:36,319
Speaker 2: judge actually dissolving a company under these circumstances. Usually companies

22
00:01:36,720 --> 00:01:40,280
Speaker 2: tivily die in bankruptcy cases. So this is something where

23
00:01:40,280 --> 00:01:42,280
Speaker 2: there is not a lot of precedent, and it has

24
00:01:42,400 --> 00:01:45,920
Speaker 2: spawned a lot of confusion, not only by people who

25
00:01:45,959 --> 00:01:48,520
Speaker 2: are looking at this case from the outside, but even

26
00:01:48,560 --> 00:01:51,160
Speaker 2: by the lawyers who are involved in the case. There

27
00:01:51,160 --> 00:01:53,640
Speaker 2: are a lot of questions as to exactly how the

28
00:01:53,640 --> 00:01:56,000
Speaker 2: court is going to try to implement this decision.

29
00:01:56,400 --> 00:01:59,480
Speaker 1: Let's talk about the substance of the decision. Tell us

30
00:01:59,560 --> 00:02:02,640
Speaker 1: why the judge decided that Trump had committed fraud.

31
00:02:03,200 --> 00:02:06,880
Speaker 2: The essence of the judge's decision is that Donald Trump

32
00:02:07,520 --> 00:02:11,680
Speaker 2: and his two oldest sons and his businesses orchestrated what

33
00:02:11,720 --> 00:02:15,880
Speaker 2: the judge called a persistent and repeated fraud in which

34
00:02:15,880 --> 00:02:20,120
Speaker 2: they vastly exaggerated the extent of the former president's wealth

35
00:02:20,560 --> 00:02:24,320
Speaker 2: to procure favorable loans. And they did that in order

36
00:02:24,400 --> 00:02:28,959
Speaker 2: to try to benefit the financially these companies and get

37
00:02:28,960 --> 00:02:32,560
Speaker 2: these very favorable loans based upon collateral ements that the

38
00:02:32,639 --> 00:02:34,800
Speaker 2: judge found was highly inflated.

39
00:02:35,280 --> 00:02:40,560
Speaker 1: Trump's penthouse in Manhattan that's been used as an example

40
00:02:40,680 --> 00:02:42,880
Speaker 1: of the exaggeration or inflation.

41
00:02:43,560 --> 00:02:47,359
Speaker 2: In that case, the judge found that former President Trump

42
00:02:47,400 --> 00:02:51,960
Speaker 2: had engaged in fraud by repeatedly claiming that his penthouse

43
00:02:52,040 --> 00:02:56,880
Speaker 2: at Trump Power, which according to most records, is slightly

44
00:02:57,000 --> 00:03:00,640
Speaker 2: under eleven thousand square feet. According to the judge, former

45
00:03:00,680 --> 00:03:04,320
Speaker 2: President Trump and his businesses would assert that the apartment

46
00:03:04,400 --> 00:03:07,840
Speaker 2: is nearly three times bigger than it was in reality.

47
00:03:08,120 --> 00:03:11,280
Speaker 2: The judge said that Trump's annual statements of financial condition

48
00:03:11,560 --> 00:03:16,200
Speaker 2: used this false square footage to inflate its network by

49
00:03:16,240 --> 00:03:19,400
Speaker 2: as much as two hundred and seven million dollars in

50
00:03:19,440 --> 00:03:22,240
Speaker 2: twenty twelve, when Trump valued the penous that is staggering

51
00:03:22,280 --> 00:03:25,120
Speaker 2: one hundred and eighty million dollars. According to the judge,

52
00:03:25,280 --> 00:03:28,040
Speaker 2: no apartment sold in New York City had ever approached

53
00:03:28,080 --> 00:03:31,320
Speaker 2: that price, and the judge essentially said that while there

54
00:03:31,320 --> 00:03:35,760
Speaker 2: may be some subjectivity in terms of evaluating the square

55
00:03:35,800 --> 00:03:38,960
Speaker 2: footage and the value of an apartment, this was on

56
00:03:39,080 --> 00:03:41,880
Speaker 2: an order of magnitude that, in his mind, showed a

57
00:03:41,960 --> 00:03:46,480
Speaker 2: clear attempt to simply inflate numbers and a knowing violation

58
00:03:46,640 --> 00:03:49,960
Speaker 2: of the law, and the judge found that former President

59
00:03:49,960 --> 00:03:53,400
Speaker 2: Trump had fraudulently inflated the value of this department to

60
00:03:53,480 --> 00:03:54,800
Speaker 2: a staggering degree.

61
00:03:55,120 --> 00:03:59,240
Speaker 1: The judge's tone was scathing. He wrote, at one point

62
00:03:59,560 --> 00:04:03,040
Speaker 1: in defense tenants world rent, regulated apartments are worth the

63
00:04:03,080 --> 00:04:07,200
Speaker 1: same as unregulated apartments. Restricted land is worth the same

64
00:04:07,240 --> 00:04:11,960
Speaker 1: as unrestricted land. Restrictions can evaporate into thin air. And

65
00:04:11,960 --> 00:04:15,000
Speaker 1: then he said that is a fantasy world, not the

66
00:04:15,000 --> 00:04:16,080
Speaker 1: real world.

67
00:04:16,200 --> 00:04:19,479
Speaker 2: Well, the judge was clearly incensed by the conduct here

68
00:04:19,760 --> 00:04:23,479
Speaker 2: and did go through numerous examples of where he thought

69
00:04:23,600 --> 00:04:27,400
Speaker 2: that the conduct was simply not tethered to reality. He

70
00:04:27,440 --> 00:04:30,960
Speaker 2: even went so far as to sanction the lawyers for

71
00:04:31,080 --> 00:04:34,479
Speaker 2: making some arguments on behalf of former President Trump on

72
00:04:34,520 --> 00:04:38,120
Speaker 2: the Trump organization, arguments that he said had already been

73
00:04:38,400 --> 00:04:43,000
Speaker 2: discredited and were simply frivolous. That the judge clearly was

74
00:04:43,080 --> 00:04:45,720
Speaker 2: not at all accepting of the defenses that were being

75
00:04:45,720 --> 00:04:49,040
Speaker 2: put forward by the Trump organization, and wrote a very

76
00:04:49,160 --> 00:04:53,760
Speaker 2: very aggressive decision here, going through in great detail examples

77
00:04:53,800 --> 00:04:57,039
Speaker 2: of what he felt was conduct that was clearly fraudulent.

78
00:04:57,680 --> 00:05:02,560
Speaker 1: Bob that seventy five hundred dollars sanctioned for Trump's lawyers

79
00:05:03,080 --> 00:05:07,279
Speaker 1: for making arguments he'd previously rejected. I mean, don't lawyers

80
00:05:07,440 --> 00:05:11,240
Speaker 1: repeat arguments that have lost in court all the time?

81
00:05:11,680 --> 00:05:14,600
Speaker 2: Yeah, that is a bit of an unusual ruling. Usually

82
00:05:14,720 --> 00:05:18,560
Speaker 2: judges do give defense lawyers latitude to make arguments, which

83
00:05:18,560 --> 00:05:21,680
Speaker 2: they do repeatedly. Sometimes, if a lawyer finds that they

84
00:05:21,720 --> 00:05:24,560
Speaker 2: make an argument that's unsuccessful, they try to make it

85
00:05:24,600 --> 00:05:27,040
Speaker 2: in a slightly different way to give the judge another

86
00:05:27,080 --> 00:05:30,640
Speaker 2: opportunity to perhaps rule differently, so to thanks to them

87
00:05:30,640 --> 00:05:33,240
Speaker 2: for making an argument simply on the basis that they

88
00:05:33,279 --> 00:05:35,520
Speaker 2: had previously made it to something that you do not

89
00:05:35,640 --> 00:05:36,640
Speaker 2: see very often.

90
00:05:36,880 --> 00:05:38,080
Speaker 1: What was the defense.

91
00:05:38,800 --> 00:05:41,440
Speaker 2: The heart of the defense by the Trump organization and

92
00:05:41,520 --> 00:05:45,679
Speaker 2: by former President Trump's lawyers was that the banks in question,

93
00:05:45,839 --> 00:05:48,080
Speaker 2: including Deutsche Bank in this case, these are the banks

94
00:05:48,080 --> 00:05:53,040
Speaker 2: that made the loans allegedly based upon these inflated valuations

95
00:05:53,040 --> 00:05:55,920
Speaker 2: of the collateral. The defense argued that these banks were

96
00:05:55,960 --> 00:05:59,160
Speaker 2: not defrauded at all, because all of the loans were

97
00:05:59,200 --> 00:06:01,599
Speaker 2: ultimately repaid and the banks in fact made quite a

98
00:06:01,600 --> 00:06:04,520
Speaker 2: bit of money on those loans. The judge did not

99
00:06:04,680 --> 00:06:07,640
Speaker 2: buy that argument, saying that it's not fair to suggest

100
00:06:07,680 --> 00:06:10,600
Speaker 2: that no harm had been done to these banks when

101
00:06:10,640 --> 00:06:13,800
Speaker 2: they loan money to the Trump organization. The judge pointed

102
00:06:13,839 --> 00:06:18,200
Speaker 2: out that the first principle of loan accounting is that

103
00:06:18,279 --> 00:06:22,000
Speaker 2: as the risk rises, so to the interest rates. So essentially,

104
00:06:22,000 --> 00:06:24,240
Speaker 2: what the judge was saying is that while in this

105
00:06:24,400 --> 00:06:27,200
Speaker 2: case the loans were repaid and the banks in fact

106
00:06:27,240 --> 00:06:30,040
Speaker 2: did make money on loaning money to the Trump organization,

107
00:06:30,440 --> 00:06:33,360
Speaker 2: had they known what the real value of the collateral was,

108
00:06:33,720 --> 00:06:35,919
Speaker 2: they would have raised the interest rates and the banks

109
00:06:35,960 --> 00:06:38,640
Speaker 2: would have made even more money. So that's where they

110
00:06:38,640 --> 00:06:41,800
Speaker 2: were victimized here, and the judge's eyes, the banks were

111
00:06:41,839 --> 00:06:44,520
Speaker 2: misled in order to make a loan at a lower

112
00:06:44,600 --> 00:06:47,000
Speaker 2: rate than they should have made it if the true

113
00:06:47,040 --> 00:06:49,039
Speaker 2: value of the collateral were known to them at the

114
00:06:49,040 --> 00:06:51,400
Speaker 2: time that the loan was extended to the Trump organization.

115
00:06:51,760 --> 00:06:55,799
Speaker 1: A lawyer for Trump, Christopher Keyes, said that he would

116
00:06:55,839 --> 00:06:59,120
Speaker 1: likely appeal the decision that's expected, which he called out

117
00:06:59,279 --> 00:07:03,359
Speaker 1: rageous and completely disconnected from the facts and governing law.

118
00:07:03,640 --> 00:07:06,599
Speaker 1: He said the judge ignored an early appeals court ruling

119
00:07:06,680 --> 00:07:10,840
Speaker 1: and also ignored basic legal accounting and business principles. Do

120
00:07:10,840 --> 00:07:12,440
Speaker 1: you think they have a good chance on appeal?

121
00:07:13,000 --> 00:07:15,600
Speaker 2: Well, this is an aggressive decision, so it's going to

122
00:07:15,640 --> 00:07:18,200
Speaker 2: be interesting to see what the appeals court does. One

123
00:07:18,200 --> 00:07:20,280
Speaker 2: thing we can know for sure that once they file

124
00:07:20,360 --> 00:07:23,600
Speaker 2: us appeal, it will likely stay the judges ruling, which

125
00:07:23,640 --> 00:07:26,320
Speaker 2: means that nothing will really be done for quite a while,

126
00:07:26,400 --> 00:07:29,040
Speaker 2: could be even years, while the appeals court takes this

127
00:07:29,160 --> 00:07:32,800
Speaker 2: decision up. In the meantime, the judges' decision does require

128
00:07:32,840 --> 00:07:35,680
Speaker 2: the appointment of a receiver, so we'll see whether that

129
00:07:35,760 --> 00:07:37,680
Speaker 2: proceeds even while the appeal is pending.

130
00:07:38,320 --> 00:07:42,200
Speaker 1: So describe the remedy that the judge has ordered or

131
00:07:42,240 --> 00:07:44,240
Speaker 1: the punishment. I'm not sure what we call it.

132
00:07:44,640 --> 00:07:48,840
Speaker 2: Well, the judges sweeping decision ordered that several of Trump's

133
00:07:48,840 --> 00:07:52,480
Speaker 2: businesses be dissolved, and he ordered that a receiver be

134
00:07:52,680 --> 00:07:56,720
Speaker 2: appointed to help in the dissolution of these entities. A

135
00:07:56,720 --> 00:07:59,840
Speaker 2: lot of the decision is not entirely clear because the

136
00:08:00,000 --> 00:08:04,000
Speaker 2: Trump organization itself is really just a shell organization, and

137
00:08:04,080 --> 00:08:09,280
Speaker 2: it's composed of about five hundred various LLC's, all holding

138
00:08:09,320 --> 00:08:13,280
Speaker 2: different properties and serving different purposes, and so exactly what

139
00:08:13,320 --> 00:08:15,720
Speaker 2: the impact of the judge is ruling on these various

140
00:08:15,920 --> 00:08:20,760
Speaker 2: LLC's is unclear. The Trump organization's lawyers, for example, raised

141
00:08:20,800 --> 00:08:24,880
Speaker 2: the fact that former President Trump's two sons, Donald Junior

142
00:08:24,920 --> 00:08:28,280
Speaker 2: and Eric live in homes which are in fact owned

143
00:08:28,360 --> 00:08:31,920
Speaker 2: by these LLC's, and so the question was do they

144
00:08:31,920 --> 00:08:34,440
Speaker 2: have to be removed from the homes? Do those homes

145
00:08:34,480 --> 00:08:37,920
Speaker 2: have to be liquidated? They also asked whether mister Trump

146
00:08:37,920 --> 00:08:41,600
Speaker 2: would have to sell assets including Trump Tower and forty

147
00:08:41,640 --> 00:08:45,040
Speaker 2: Wall Street, which is a downtown commercial property, or whether

148
00:08:45,080 --> 00:08:48,480
Speaker 2: those properties could be managed by an independent receiver rather

149
00:08:48,600 --> 00:08:51,520
Speaker 2: than being dissolved and have to be sold. So there's

150
00:08:51,559 --> 00:08:54,839
Speaker 2: lots of unanswered questions here as to how this order

151
00:08:54,880 --> 00:08:57,960
Speaker 2: will be implemented, and even the judge acknowledged that he

152
00:08:58,040 --> 00:09:00,880
Speaker 2: was not entirely certain as to how his order would

153
00:09:00,880 --> 00:09:03,320
Speaker 2: be implemented and wanted to take more time in order

154
00:09:03,360 --> 00:09:05,720
Speaker 2: to evaluate the implementation of its own order.

155
00:09:06,480 --> 00:09:10,560
Speaker 1: Doesn't that point to a successful issue on appeal for Trump?

156
00:09:10,559 --> 00:09:14,920
Speaker 1: If the judge himself, if this order is so novel

157
00:09:15,160 --> 00:09:17,520
Speaker 1: that the judge himself doesn't know how it's going to

158
00:09:17,520 --> 00:09:21,040
Speaker 1: be implemented, that the lawyers are confused. There are more

159
00:09:21,160 --> 00:09:22,559
Speaker 1: questions here than answers.

160
00:09:22,760 --> 00:09:24,920
Speaker 2: Yeah, there are a lot of unanswered questions. I mean,

161
00:09:24,960 --> 00:09:28,560
Speaker 2: I think it's clear from the judges ruling that he

162
00:09:28,760 --> 00:09:32,480
Speaker 2: is not intending or ordering that mister Trump's company be

163
00:09:32,640 --> 00:09:35,680
Speaker 2: dissolved completely. But what it does do is it affects

164
00:09:35,760 --> 00:09:39,760
Speaker 2: these LLC's, and by taking away the business certificates, it

165
00:09:39,800 --> 00:09:43,160
Speaker 2: will make it impossible for those various LLC's to operate,

166
00:09:43,360 --> 00:09:46,679
Speaker 2: which ultimately can have a crippling effect on the Trump organization.

167
00:09:47,080 --> 00:09:50,760
Speaker 2: So this is a very significant decision. It's highly controversial.

168
00:09:51,000 --> 00:09:53,320
Speaker 2: It's going up on appeal, and we'll have to see

169
00:09:53,320 --> 00:09:55,599
Speaker 2: what the appeals court does here. I think there is

170
00:09:55,640 --> 00:09:59,280
Speaker 2: certainly a possibility that the appeals court may overturn this decision,

171
00:09:59,480 --> 00:10:02,480
Speaker 2: just because it's so unprecedented and because the effects of

172
00:10:02,520 --> 00:10:06,240
Speaker 2: this decision are so sweeping on a major organization like

173
00:10:06,280 --> 00:10:09,320
Speaker 2: the Trump organization, which employs hundreds of people on holds

174
00:10:09,360 --> 00:10:12,480
Speaker 2: millions and millions of dollars in real estate, not only

175
00:10:12,520 --> 00:10:14,440
Speaker 2: in New York State but also around the world.

176
00:10:14,880 --> 00:10:18,120
Speaker 1: Apparently trial is starting next week. What's left to try.

177
00:10:19,000 --> 00:10:22,000
Speaker 2: The essence of the judge's decision was that no trial

178
00:10:22,120 --> 00:10:25,960
Speaker 2: was needed to determine that the Trump organization had fraudulently

179
00:10:26,040 --> 00:10:30,320
Speaker 2: secured favorable terms on loans and insurance deals. But what

180
00:10:30,559 --> 00:10:33,640
Speaker 2: exactly is left for the trial is not entirely clear.

181
00:10:34,000 --> 00:10:37,000
Speaker 2: Even the state's lawyers had not worked out what was

182
00:10:37,080 --> 00:10:39,560
Speaker 2: needed to go to trial at this point. But what

183
00:10:39,600 --> 00:10:41,920
Speaker 2: we do know is that the judge will have to

184
00:10:41,960 --> 00:10:44,960
Speaker 2: determine the extent of the fine he's going to order.

185
00:10:45,320 --> 00:10:47,480
Speaker 2: The Attorney General has asked for as much as two

186
00:10:47,559 --> 00:10:50,720
Speaker 2: hundred and fifty million dollars. The judge could also decide

187
00:10:50,760 --> 00:10:53,520
Speaker 2: a trial whether to borrow the former president and his

188
00:10:53,600 --> 00:10:56,440
Speaker 2: sons from running a business in the state. Ever again,

189
00:10:56,760 --> 00:10:58,960
Speaker 2: those seem to be the issues that are remaining, but

190
00:10:59,000 --> 00:11:01,840
Speaker 2: that will have to be worth out by the state lawyers,

191
00:11:01,840 --> 00:11:03,280
Speaker 2: the defense, and the judge.

192
00:11:03,480 --> 00:11:07,320
Speaker 1: Putting aside the financial consequences of this decision. For Trump,

193
00:11:07,720 --> 00:11:12,319
Speaker 1: this attacks his persona, his brand, you know, being the

194
00:11:12,360 --> 00:11:15,800
Speaker 1: billionaire real estate magnet. It's what he's all about.

195
00:11:16,520 --> 00:11:20,400
Speaker 2: In pre trial hearings before this ruling, one of former

196
00:11:20,480 --> 00:11:24,040
Speaker 2: president trump lawyers told the judge that former President Trump

197
00:11:24,120 --> 00:11:26,880
Speaker 2: is an investment genius and probably one of the most

198
00:11:26,920 --> 00:11:31,319
Speaker 2: successful real estate developers in the country. Clearly, this judge

199
00:11:31,320 --> 00:11:36,240
Speaker 2: disagreed and actually said that he's a genius only in

200
00:11:36,280 --> 00:11:38,559
Speaker 2: a fantasy world. So one of the things that's really

201
00:11:38,600 --> 00:11:42,240
Speaker 2: an issue here is the Trump brand, is the perception

202
00:11:42,440 --> 00:11:45,560
Speaker 2: of the Trump organization and the question of whether it

203
00:11:45,640 --> 00:11:49,760
Speaker 2: is really one of the great successful real estate empires

204
00:11:49,800 --> 00:11:52,520
Speaker 2: in Manhattan and even in the United States and around

205
00:11:52,559 --> 00:11:55,760
Speaker 2: the world, or whether it was built on a basis

206
00:11:55,880 --> 00:11:59,320
Speaker 2: of fraud and fraudulent statements, and in fact, as the

207
00:11:59,400 --> 00:12:03,600
Speaker 2: judge said, the empire is really simply a fantasy based

208
00:12:03,679 --> 00:12:08,000
Speaker 2: upon false information that was provided to give favorable loans

209
00:12:08,000 --> 00:12:11,240
Speaker 2: to which the Trump organization was ultimately not entitled.

210
00:12:11,440 --> 00:12:14,400
Speaker 1: It's also interesting that everyone's been paying attention to the

211
00:12:14,480 --> 00:12:19,120
Speaker 1: criminal cases against Trump, but significant punishment was meted out

212
00:12:19,160 --> 00:12:20,800
Speaker 1: here in a civil case.

213
00:12:21,559 --> 00:12:24,880
Speaker 2: In the array of criminal and civil charges that former

214
00:12:24,920 --> 00:12:28,319
Speaker 2: President Trump is facing, this is the first actual penalty

215
00:12:28,520 --> 00:12:30,880
Speaker 2: that's been imposed upon him, and now we'll have to

216
00:12:30,920 --> 00:12:33,800
Speaker 2: see whether it actually stands up on appeal, and we'll.

217
00:12:33,720 --> 00:12:36,800
Speaker 1: See what happens at the trial next week. Thanks so much, Bob.

218
00:12:37,280 --> 00:12:41,240
Speaker 1: That's former federal prosecutor Robert Mintz, a partner Maccarter and English.

219
00:12:41,559 --> 00:12:45,880
Speaker 1: Coming up next, elon Musk's many lawsuits. I'm Jrean Grosso

220
00:12:45,920 --> 00:12:50,520
Speaker 1: and you're listening to Bloomberg. Elon Musk's leadership at Twitter

221
00:12:50,559 --> 00:12:54,040
Speaker 1: and Tesla is the subject of three major face offs

222
00:12:54,120 --> 00:12:57,320
Speaker 1: coming up in the Delaware Chancery Court next month. It's

223
00:12:57,360 --> 00:13:00,280
Speaker 1: been a year since Musk, after months of court room

224
00:13:00,320 --> 00:13:04,800
Speaker 1: and social media drama, purchase Twitter now renamed as X

225
00:13:05,080 --> 00:13:08,560
Speaker 1: for forty four billion dollars. That deal allowed him to

226
00:13:08,600 --> 00:13:12,319
Speaker 1: avoid a trial in the country's premiere venue for corporate litigation.

227
00:13:12,880 --> 00:13:15,320
Speaker 1: But October will be a busy month for Musk. In

228
00:13:15,360 --> 00:13:18,760
Speaker 1: that Delaware court. He'll face suits from a stockholder and

229
00:13:18,880 --> 00:13:23,600
Speaker 1: pension funds questioning his lavish Tesla pay package, and further

230
00:13:23,720 --> 00:13:26,960
Speaker 1: legal fallout from his Twitter By joining me to sort

231
00:13:27,000 --> 00:13:30,320
Speaker 1: it all out? Is business law expert Eric Talley, a

232
00:13:30,400 --> 00:13:34,520
Speaker 1: professor Columbia Law School. Let's talk first about his record

233
00:13:34,559 --> 00:13:38,440
Speaker 1: breaking pay package of fifty five billion dollars.

234
00:13:38,960 --> 00:13:41,640
Speaker 3: Yeah, that's good work if you can get it, isn't it.

235
00:13:41,760 --> 00:13:43,800
Speaker 3: I'm going to conjecture June that if either you or

236
00:13:43,840 --> 00:13:46,800
Speaker 3: I had a fifty five billion dollar pay package, this

237
00:13:46,800 --> 00:13:48,199
Speaker 3: call wouldn't be happening right now.

238
00:13:48,360 --> 00:13:50,320
Speaker 1: You are definitely right on that one.

239
00:13:50,600 --> 00:13:52,840
Speaker 3: So, yeah, this is an interesting case. It's a case

240
00:13:52,840 --> 00:13:55,800
Speaker 3: that was brought years and years ago and was you know,

241
00:13:55,880 --> 00:13:59,480
Speaker 3: essentially taken over by Chancellor McCormick. It ended up in

242
00:13:59,520 --> 00:14:03,600
Speaker 3: a hearing some months ago. There definitely is a doctrine

243
00:14:03,640 --> 00:14:08,480
Speaker 3: out there about, you know, fiduciary duties and whether exorbitant

244
00:14:08,559 --> 00:14:12,960
Speaker 3: pay packages have the effect of breaching fiduciary duties, and

245
00:14:13,000 --> 00:14:16,720
Speaker 3: this is sort of within that cluster of cases. The

246
00:14:16,840 --> 00:14:20,560
Speaker 3: hard part about this is that, you know, in many respects,

247
00:14:20,680 --> 00:14:25,400
Speaker 3: Elon Musk's compensation package, as it was fashioned back in

248
00:14:25,720 --> 00:14:29,440
Speaker 3: you know, twenty seventeen or whatever, it was a lottery ticket,

249
00:14:29,680 --> 00:14:32,360
Speaker 3: and who knew whether that lottery ticket was going to

250
00:14:32,400 --> 00:14:34,920
Speaker 3: pay off and by how much it paid off? And

251
00:14:35,240 --> 00:14:38,040
Speaker 3: you know, he essentially did the billionaire's version of hitting

252
00:14:38,080 --> 00:14:41,400
Speaker 3: the powerball on this lottery ticket. It paid off almost

253
00:14:41,560 --> 00:14:44,800
Speaker 3: to its maximal amount. And you know, I think part

254
00:14:44,840 --> 00:14:47,600
Speaker 3: of the issue in the case, and probably what's going

255
00:14:47,680 --> 00:14:50,600
Speaker 3: to feed into the opinion is, you know, to what

256
00:14:50,760 --> 00:14:55,520
Speaker 3: extent should we or should we not use that sort

257
00:14:55,560 --> 00:14:59,520
Speaker 3: of you know, twenty twenty hindsight to try to get

258
00:14:59,560 --> 00:15:01,760
Speaker 3: a sense of whether everyone knew that this was going

259
00:15:01,840 --> 00:15:04,720
Speaker 3: to be a a powerball ticket that paid off, or

260
00:15:05,000 --> 00:15:07,320
Speaker 3: it really just turned out that, you know, the fortunes

261
00:15:07,360 --> 00:15:11,520
Speaker 3: of Tesla outshine just about any conceivable picture that anyone

262
00:15:11,600 --> 00:15:14,800
Speaker 3: would have painted at the time. Musk agreed to a

263
00:15:14,920 --> 00:15:18,400
Speaker 3: lower fixed component of his salary for this lottery ticket

264
00:15:18,480 --> 00:15:21,560
Speaker 3: version and it paid off. That's clearly the argument that

265
00:15:21,640 --> 00:15:24,680
Speaker 3: Musk is going to make that in fact, incentive contracts

266
00:15:24,680 --> 00:15:27,200
Speaker 3: are there for a reason this happened to hit the

267
00:15:27,200 --> 00:15:30,480
Speaker 3: powerball lottery, but at the time there was no reason

268
00:15:30,560 --> 00:15:32,040
Speaker 3: to expect that it would.

269
00:15:32,640 --> 00:15:36,000
Speaker 1: Does it even factor in that they claim he's essentially

270
00:15:36,040 --> 00:15:40,360
Speaker 1: a part time leader with other companies to run, strengthened

271
00:15:40,400 --> 00:15:42,040
Speaker 1: by the fact that he seems to be spending a

272
00:15:42,040 --> 00:15:43,760
Speaker 1: lot of time at X.

273
00:15:44,640 --> 00:15:46,680
Speaker 3: He kind of has to now, right, because that's a

274
00:15:46,720 --> 00:15:50,760
Speaker 3: particularly thorny situation he's in having closed that deal. Here's

275
00:15:50,800 --> 00:15:54,880
Speaker 3: the interesting thing about this compensation litigation or dispute is

276
00:15:54,920 --> 00:15:59,760
Speaker 3: that there have effectively been two defenses that Tesla has

277
00:15:59,800 --> 00:16:03,160
Speaker 3: made to try to justify this package. One is the

278
00:16:03,160 --> 00:16:05,280
Speaker 3: lottery ticket version. Right that we didn't know at the

279
00:16:05,280 --> 00:16:07,360
Speaker 3: time whether this is going to pay off big or

280
00:16:07,360 --> 00:16:08,880
Speaker 3: not pay off at all, and if it went the

281
00:16:08,920 --> 00:16:12,000
Speaker 3: other direction, then Musk ends up walking away with a

282
00:16:12,000 --> 00:16:14,800
Speaker 3: pretty minuscule salary. So that's one part of it. The

283
00:16:14,920 --> 00:16:17,800
Speaker 3: other part of it, though, Tesla's argument is that they

284
00:16:18,200 --> 00:16:20,360
Speaker 3: kind of the board had to give him a high

285
00:16:20,400 --> 00:16:25,000
Speaker 3: powered incentive contract to keep his attention because he's sort

286
00:16:25,000 --> 00:16:28,480
Speaker 3: of as distractable as a six month old labrador puppy,

287
00:16:28,600 --> 00:16:31,000
Speaker 3: and if you don't keep his attention on a really

288
00:16:31,040 --> 00:16:33,760
Speaker 3: shiny bouncing ball, then he's going to run off and

289
00:16:33,840 --> 00:16:37,080
Speaker 3: do other things. Well, they gave him that compensation contract.

290
00:16:37,280 --> 00:16:39,680
Speaker 3: It was a big one. He ended up running off

291
00:16:39,720 --> 00:16:43,800
Speaker 3: and getting distracted by SpaceX and Twitter and the boring

292
00:16:43,880 --> 00:16:46,680
Speaker 3: company and so forth. I guess I'm trying to figure

293
00:16:46,680 --> 00:16:48,680
Speaker 3: out which way that cuts. Does that mean that they

294
00:16:48,680 --> 00:16:51,080
Speaker 3: really should have given a bigger package to keep his

295
00:16:51,120 --> 00:16:54,240
Speaker 3: attention on things or not? So it's hard to tell

296
00:16:54,280 --> 00:16:56,920
Speaker 3: exactly which way that cuts. The fact that he is

297
00:16:56,960 --> 00:17:01,240
Speaker 3: so distractable almost feeds into the argument that it would

298
00:17:01,280 --> 00:17:04,359
Speaker 3: make sense to have a high powered incentive contract to

299
00:17:04,480 --> 00:17:08,000
Speaker 3: keep his eyes focused on the fortunes of Tesla and

300
00:17:08,040 --> 00:17:12,439
Speaker 3: not to get too waylaid by other shiny lights and

301
00:17:12,480 --> 00:17:13,280
Speaker 3: bouncing balls.

302
00:17:13,880 --> 00:17:19,320
Speaker 1: How much does Musk's testimony during that November twenty twenty

303
00:17:19,320 --> 00:17:22,560
Speaker 1: two trial that he played no part in the board's decision,

304
00:17:23,119 --> 00:17:25,679
Speaker 1: So is the independence of the boarding coming to this

305
00:17:25,840 --> 00:17:27,520
Speaker 1: decision important.

306
00:17:27,680 --> 00:17:29,760
Speaker 3: Yeah, it's a big deal. It's it's kind of an

307
00:17:29,840 --> 00:17:33,880
Speaker 3: interesting situation right now with Twitter because just last year,

308
00:17:34,280 --> 00:17:37,679
Speaker 3: a totally different case involved Tesla and its decision to

309
00:17:37,840 --> 00:17:42,080
Speaker 3: purchase a very struggling solar energy company called Solar City.

310
00:17:42,600 --> 00:17:47,440
Speaker 3: That case ended up resulting in an Elon Musk win,

311
00:17:48,119 --> 00:17:50,679
Speaker 3: but it did so in an odd way. The judge

312
00:17:50,680 --> 00:17:53,320
Speaker 3: in that case, you know, everyone sort of expected the

313
00:17:53,400 --> 00:17:55,879
Speaker 3: judge in that case was going to have to decide

314
00:17:56,000 --> 00:17:59,000
Speaker 3: whether he was going to declare that Elon Musk was

315
00:17:59,040 --> 00:18:04,399
Speaker 3: a controlling shareholder of Tesla, and if that was true

316
00:18:04,440 --> 00:18:06,439
Speaker 3: and the only one owns about twenty one twenty two

317
00:18:06,480 --> 00:18:08,960
Speaker 3: percent of the stock or did at the time, if

318
00:18:09,000 --> 00:18:12,639
Speaker 3: that is true, that he's deemed to be a sufficiently

319
00:18:12,760 --> 00:18:16,479
Speaker 3: large stockholder, that he's a controller, that puts a larger

320
00:18:16,560 --> 00:18:20,560
Speaker 3: onus of fiduciary obligation on him. And it also calls

321
00:18:20,560 --> 00:18:23,359
Speaker 3: into question whether he might sort of just dominate and

322
00:18:23,400 --> 00:18:26,000
Speaker 3: control everyone on the board, and therefore you can't just

323
00:18:26,680 --> 00:18:30,159
Speaker 3: trust the board to be making independent judgments. So a

324
00:18:30,160 --> 00:18:32,600
Speaker 3: lot of people thought that in that Solar City case,

325
00:18:32,920 --> 00:18:36,919
Speaker 3: we would learn answers to whether Elon Musk was a

326
00:18:36,960 --> 00:18:40,120
Speaker 3: controller or not. But the judge in that case, Vice

327
00:18:40,200 --> 00:18:43,240
Speaker 3: Chancellor Slights, who has tens left the bench. He crafted

328
00:18:43,320 --> 00:18:45,919
Speaker 3: kind of an interesting opinion that essentially was able to

329
00:18:46,040 --> 00:18:48,679
Speaker 3: dodge that. He said, I'm just going to pretend like

330
00:18:49,119 --> 00:18:52,680
Speaker 3: Elon Musk is a controller, but I'm still now going

331
00:18:52,760 --> 00:18:55,439
Speaker 3: to conclude that the way that they did this solar

332
00:18:55,480 --> 00:19:00,000
Speaker 3: city deal satisfied even the heightened requirements that I would

333
00:19:00,080 --> 00:19:03,480
Speaker 3: otherwise impose on a controller. And by doing that, he

334
00:19:03,560 --> 00:19:06,520
Speaker 3: basically said, look, I'm subjecting Elon Musk, at least for

335
00:19:06,640 --> 00:19:09,760
Speaker 3: argument's sake, to the most rigorous test that we have

336
00:19:09,880 --> 00:19:12,560
Speaker 3: in Delaware, and he passes, and therefore I don't have

337
00:19:12,640 --> 00:19:15,199
Speaker 3: to decide whether he's a controller or not, because he

338
00:19:15,240 --> 00:19:18,440
Speaker 3: would win even if he were a controller. Now that

339
00:19:18,640 --> 00:19:23,200
Speaker 3: left open this question that survives to this case about well,

340
00:19:23,240 --> 00:19:25,800
Speaker 3: what is his status? Does he own enough stock that

341
00:19:25,880 --> 00:19:28,320
Speaker 3: he can pretty much, you know, influence or has a

342
00:19:28,320 --> 00:19:31,920
Speaker 3: good chance of influencing the entirety of the board, And therefore,

343
00:19:32,080 --> 00:19:34,000
Speaker 3: in this case is going to have to be put

344
00:19:34,080 --> 00:19:36,840
Speaker 3: under much more of a microscope, and maybe the board's

345
00:19:36,920 --> 00:19:40,760
Speaker 3: judgment about this compensation package shouldn't be trusted as much,

346
00:19:40,800 --> 00:19:43,159
Speaker 3: and so there will be kind of an interesting question

347
00:19:43,520 --> 00:19:46,680
Speaker 3: about whether Chancellor McCormick in this case, you know, pursues

348
00:19:46,760 --> 00:19:51,600
Speaker 3: the same strategy as Vice Chancellor's light, deciding not to

349
00:19:51,720 --> 00:19:55,679
Speaker 3: decide whether he's a controlling stockholder and saying, assuming that

350
00:19:55,760 --> 00:20:00,440
Speaker 3: he is, this still is okay under Delaware law. Now

351
00:20:01,000 --> 00:20:05,240
Speaker 3: if in her opinion, ah boy, whether he's a controller

352
00:20:05,320 --> 00:20:07,600
Speaker 3: or not really matters for the outcome of this case,

353
00:20:07,640 --> 00:20:10,919
Speaker 3: because if he is a controlling stockholder, then he hasn't

354
00:20:11,000 --> 00:20:14,160
Speaker 3: met his burden to defend this thing. But if he's

355
00:20:14,160 --> 00:20:16,560
Speaker 3: not a controlling stockholder, he gets a lot more different.

356
00:20:16,800 --> 00:20:18,720
Speaker 3: If she decides that that's the case, she's going to

357
00:20:18,800 --> 00:20:21,119
Speaker 3: have to make a call on whether having twenty one

358
00:20:21,200 --> 00:20:24,320
Speaker 3: twenty two percent of the stock of Tesla is enough

359
00:20:24,680 --> 00:20:27,520
Speaker 3: to make him a controlling shareholder. I think a lot

360
00:20:27,520 --> 00:20:29,679
Speaker 3: of us that teach in this area are sort of

361
00:20:29,680 --> 00:20:32,920
Speaker 3: hoping that we'll hear something along those lines, but it's

362
00:20:32,960 --> 00:20:35,600
Speaker 3: not clear to me which way it goes. Because Tesla

363
00:20:35,720 --> 00:20:39,240
Speaker 3: did put up, you know, I think some pretty flashy

364
00:20:39,280 --> 00:20:42,240
Speaker 3: testimony about, you know, the idea that this was the

365
00:20:42,280 --> 00:20:44,879
Speaker 3: type of compensation package that's like a lottery ticket, and

366
00:20:44,960 --> 00:20:47,679
Speaker 3: this lottery ticket just happened to pay off, but there

367
00:20:47,680 --> 00:20:49,600
Speaker 3: are all kinds of scenarios in which it might not.

368
00:20:50,359 --> 00:20:53,879
Speaker 1: If it's just a regular CEO, there's no question about

369
00:20:53,880 --> 00:20:58,080
Speaker 1: controlling stock. Are there parameters that the judges used to

370
00:20:58,200 --> 00:21:01,760
Speaker 1: determine whether a CEO's pay is fair or not?

371
00:21:02,320 --> 00:21:04,119
Speaker 3: Yeah, there are. There are a couple things that are

372
00:21:04,160 --> 00:21:06,439
Speaker 3: an issue here. So one is, even if it's just

373
00:21:06,440 --> 00:21:09,800
Speaker 3: the CEO, the CEO still on a director by director

374
00:21:09,840 --> 00:21:14,480
Speaker 3: basis may have extra pull and extra influence, and that's

375
00:21:14,520 --> 00:21:17,680
Speaker 3: something that you have to be mindful of when setting compensation.

376
00:21:17,960 --> 00:21:20,720
Speaker 3: But to the extent that there are directors who are

377
00:21:20,760 --> 00:21:25,040
Speaker 3: sufficiently independent of mister Musk that they can exercise their

378
00:21:25,080 --> 00:21:27,840
Speaker 3: own judgment, and if he's just an ordinary CEO, then

379
00:21:27,920 --> 00:21:30,560
Speaker 3: they're kind of the presumption goes in that direction, then

380
00:21:30,920 --> 00:21:37,120
Speaker 3: their disinterested assessment of the propriety of this compensation package,

381
00:21:37,280 --> 00:21:41,360
Speaker 3: and then their vote amongst the disinterested directors to permit it.

382
00:21:41,400 --> 00:21:44,840
Speaker 3: Gets a lot of deference under Delaware law that in

383
00:21:44,960 --> 00:21:48,240
Speaker 3: order to challenge that, it basically is protected by something

384
00:21:48,240 --> 00:21:51,119
Speaker 3: known as the business judgment rule. Which isn't quite a

385
00:21:51,240 --> 00:21:54,160
Speaker 3: conclusion that Tesla's going to win this case, but it's

386
00:21:54,480 --> 00:21:57,200
Speaker 3: pretty close to that. It's basically saying, boy, you better

387
00:21:57,240 --> 00:22:00,400
Speaker 3: be able to provide us evidence that these directors, even

388
00:22:00,400 --> 00:22:04,399
Speaker 3: though they weren't influenced or dominated or controlled by mister Musk,

389
00:22:04,720 --> 00:22:07,119
Speaker 3: they basically were just phoning it in and they didn't

390
00:22:07,119 --> 00:22:11,760
Speaker 3: really care about the welfare of Tesla or Tesla's stockholders.

391
00:22:11,800 --> 00:22:14,440
Speaker 3: And you know, that's a hard boundary to get over.

392
00:22:14,520 --> 00:22:18,480
Speaker 3: It was famously tested almost a quarter century ago involving

393
00:22:18,520 --> 00:22:21,320
Speaker 3: the then CEO of Disney, Michael Ovitz, who was let

394
00:22:21,359 --> 00:22:23,800
Speaker 3: go and handed one hundred and sixty million dollars on

395
00:22:23,880 --> 00:22:26,879
Speaker 3: his way out the door, and stockholders challenged it. But

396
00:22:27,240 --> 00:22:30,480
Speaker 3: because the board of directors and the compensation committee was

397
00:22:30,520 --> 00:22:34,800
Speaker 3: deemed to be sufficiently independent of him, the court basically said, yeah,

398
00:22:35,000 --> 00:22:37,560
Speaker 3: this doesn't rise to that level of them just basically

399
00:22:37,600 --> 00:22:40,639
Speaker 3: being indifferent about the value to Disney, and there was

400
00:22:40,680 --> 00:22:43,160
Speaker 3: a rationale for what they did. And so the stockholders

401
00:22:43,160 --> 00:22:46,119
Speaker 3: lost in that case. And so that Disney case almost

402
00:22:46,160 --> 00:22:49,439
Speaker 3: certainly will rear its head if that's the nature of

403
00:22:49,520 --> 00:22:51,919
Speaker 3: the bottom line here, and that Musk is found to

404
00:22:52,000 --> 00:22:55,480
Speaker 3: be by Chancellor McCormick just an ordinary CEO and not

405
00:22:55,520 --> 00:22:56,840
Speaker 3: a controlling stockholder.

406
00:22:57,119 --> 00:23:01,080
Speaker 1: Coming up Next, the legal fallout from must purchase of Twitter.

407
00:23:01,280 --> 00:23:04,280
Speaker 1: This is Bloomberg. I've been talking to Professor Eric Talley

408
00:23:04,320 --> 00:23:08,280
Speaker 1: of Columbia Law School about how Elon Musk's leadership at

409
00:23:08,320 --> 00:23:11,600
Speaker 1: Twitter and Tesla is the subject of three major face

410
00:23:11,640 --> 00:23:15,880
Speaker 1: offs coming up in the Delaware Court of Chancery in October. Now,

411
00:23:15,960 --> 00:23:19,760
Speaker 1: let's talk about there's legal fallout from Musk buying Twitter,

412
00:23:20,200 --> 00:23:23,840
Speaker 1: which he's for some reason renamed x which everyone now

413
00:23:23,880 --> 00:23:28,639
Speaker 1: describes as formerly Twitter. There are numerous lawsuits over whether

414
00:23:29,080 --> 00:23:34,520
Speaker 1: xo's millions to former employees, vendors, and landlords, including whether

415
00:23:34,600 --> 00:23:37,840
Speaker 1: more than one point six million dollars in legal fees

416
00:23:37,880 --> 00:23:40,200
Speaker 1: are owed to Twitter's ex CEO.

417
00:23:41,119 --> 00:23:45,600
Speaker 3: Well, you know, when Musk took over Twitter, but before

418
00:23:45,640 --> 00:23:48,360
Speaker 3: we renamed it acts, there was a big house cleaning

419
00:23:48,560 --> 00:23:51,800
Speaker 3: and then sitting CEO and pretty much most of the

420
00:23:51,840 --> 00:23:54,119
Speaker 3: senior management and a lot of mid level management was

421
00:23:54,160 --> 00:23:57,880
Speaker 3: just shown the door. And there are allegations out there

422
00:23:57,960 --> 00:24:00,199
Speaker 3: that they were shown the door in a way it

423
00:24:00,359 --> 00:24:04,080
Speaker 3: was violative of their contract rights to have you know,

424
00:24:04,160 --> 00:24:07,480
Speaker 3: effectively golden parachute. No, if there's a you know, change

425
00:24:07,480 --> 00:24:10,359
Speaker 3: of ownership, that all there's options would vest and so

426
00:24:10,440 --> 00:24:14,480
Speaker 3: forth and Twitter basically stiffed them on those payments. That

427
00:24:14,520 --> 00:24:17,880
Speaker 3: has given rise to a lot of different lawsuits. Each

428
00:24:17,920 --> 00:24:19,480
Speaker 3: of them is probably going to be a little bit

429
00:24:19,520 --> 00:24:23,200
Speaker 3: different in nature, and typically you actually don't see this

430
00:24:23,600 --> 00:24:27,199
Speaker 3: after an acquisition then, you know, usually that's part of

431
00:24:27,200 --> 00:24:29,280
Speaker 3: the assumption is you know, there are these contract rights

432
00:24:29,280 --> 00:24:31,440
Speaker 3: that I'm not going to be able to avoid paying.

433
00:24:31,840 --> 00:24:34,240
Speaker 3: Twitter seems to have been a little bit more or

434
00:24:34,400 --> 00:24:36,080
Speaker 3: the new Twitter seems to have been a little bit

435
00:24:36,080 --> 00:24:39,720
Speaker 3: more litigious about about this and trying to fight the

436
00:24:39,800 --> 00:24:43,080
Speaker 3: contractual rights, you know, many of which are available on

437
00:24:43,160 --> 00:24:47,160
Speaker 3: the SEC's website. They look pretty typical and at least

438
00:24:47,160 --> 00:24:50,720
Speaker 3: on first blush, just based on the terms of those deals,

439
00:24:50,920 --> 00:24:53,720
Speaker 3: there's nothing like kind of weird or exotic or sketchy

440
00:24:53,760 --> 00:24:56,520
Speaker 3: about them. So, you know, my guess is Twitter is

441
00:24:56,560 --> 00:24:59,399
Speaker 3: going to try to make an argument that for some reason,

442
00:24:59,480 --> 00:25:03,679
Speaker 3: there was conduct by these employees before they were they

443
00:25:03,720 --> 00:25:07,000
Speaker 3: were released, and therefore when Twitter and mister Musk basically

444
00:25:07,240 --> 00:25:09,320
Speaker 3: showed them the door, he did so because he had

445
00:25:09,359 --> 00:25:13,199
Speaker 3: cause to fire them. Unclear whether that is true or not,

446
00:25:13,400 --> 00:25:15,280
Speaker 3: but that the defense that Twitter is going to be

447
00:25:15,320 --> 00:25:18,880
Speaker 3: putting forward, because usually these these contracts say look, I'm

448
00:25:18,880 --> 00:25:21,679
Speaker 3: going to get this payment unless I am terminated for

449
00:25:21,880 --> 00:25:25,160
Speaker 3: cause or something along those lines or some other type

450
00:25:25,160 --> 00:25:28,320
Speaker 3: of misbehavior. So that's almost certainly going to be the

451
00:25:28,440 --> 00:25:31,520
Speaker 3: legal strategy that Twitter takes on. But you know, in

452
00:25:31,520 --> 00:25:34,000
Speaker 3: some ways, that's not a single argument that you can

453
00:25:34,040 --> 00:25:35,920
Speaker 3: make for every one of these folks, every single one

454
00:25:35,960 --> 00:25:37,280
Speaker 3: of them. You kind of have to say, oh, and

455
00:25:37,280 --> 00:25:40,000
Speaker 3: then here's why this person was fired for cause, and

456
00:25:40,040 --> 00:25:42,320
Speaker 3: here's why this other person was fired for cause. So

457
00:25:42,760 --> 00:25:45,520
Speaker 3: it is a big and somewhat of an uphill legal

458
00:25:45,560 --> 00:25:48,240
Speaker 3: battle to do that. You know, It's it's kind of

459
00:25:48,240 --> 00:25:53,000
Speaker 3: an interesting question about whether that uphill battle is in

460
00:25:53,080 --> 00:25:56,520
Speaker 3: part kind of predicated against a ticking clock of trying

461
00:25:56,560 --> 00:26:00,440
Speaker 3: to understand just how much money Twitter or X or

462
00:26:00,480 --> 00:26:02,159
Speaker 3: whatever you want to call it has it in the

463
00:26:02,200 --> 00:26:04,439
Speaker 3: bank to operate right now, given that it is now

464
00:26:04,520 --> 00:26:07,600
Speaker 3: a heavily indebted company and is having to pay significant

465
00:26:07,920 --> 00:26:11,080
Speaker 3: interest rate payments. And so maybe if it's kind of thinking, gosh,

466
00:26:11,160 --> 00:26:14,120
Speaker 3: we may be entering a zone of insolvement sometime soon,

467
00:26:14,240 --> 00:26:17,880
Speaker 3: this possibly could just a strategy to put off having

468
00:26:17,960 --> 00:26:20,600
Speaker 3: to pay these former employees until the whole company is

469
00:26:20,640 --> 00:26:24,159
Speaker 3: in Chapter eleven and they're restructuring every creditors sorts of claim.

470
00:26:24,640 --> 00:26:27,679
Speaker 1: So there's also a settlement over a lawsuit brought by

471
00:26:27,720 --> 00:26:33,320
Speaker 1: a pension fund over executive compensation packages at Tesla. There's

472
00:26:33,320 --> 00:26:35,960
Speaker 1: going to be an October thirteenth hearing on that settlement.

473
00:26:36,440 --> 00:26:38,560
Speaker 3: That one is a little bit different because that one,

474
00:26:38,560 --> 00:26:42,400
Speaker 3: I think has to do with director compensation at Tesla

475
00:26:42,840 --> 00:26:46,239
Speaker 3: and not Musk's compensation, if I am not mistaken, And

476
00:26:46,280 --> 00:26:49,000
Speaker 3: so it's kind of based on different facts. Because it's settled,

477
00:26:49,040 --> 00:26:51,920
Speaker 3: we don't exactly know how things are going to come out.

478
00:26:52,000 --> 00:26:54,640
Speaker 3: Usually with these settlements that both sides sort of say,

479
00:26:54,920 --> 00:26:56,520
Speaker 3: we think we had a strong case, but there are

480
00:26:56,520 --> 00:26:58,679
Speaker 3: of course risks that we might lose, and therefore we

481
00:26:58,720 --> 00:27:02,439
Speaker 3: think this is a reasonable settlement amount. And so my

482
00:27:02,640 --> 00:27:07,040
Speaker 3: guess is those things typically are going to end up

483
00:27:07,080 --> 00:27:10,920
Speaker 3: getting signed off on. But you know, in recent months famously,

484
00:27:10,960 --> 00:27:13,879
Speaker 3: the Delaware chance Re Court has become an entertaining, if

485
00:27:13,920 --> 00:27:17,480
Speaker 3: somewhat frenetic landscape on which people suddenly show up and

486
00:27:17,520 --> 00:27:21,160
Speaker 3: object to settlement, such as in the AMC settlement last

487
00:27:21,200 --> 00:27:23,639
Speaker 3: month in front of Vice Chancellor's earned So my guess

488
00:27:23,720 --> 00:27:26,840
Speaker 3: is this ends up sort of failing through. A successful

489
00:27:26,840 --> 00:27:29,119
Speaker 3: settlement of a case is usually seen by all sides

490
00:27:29,160 --> 00:27:31,480
Speaker 3: as you know, kind of a victory, including the judges

491
00:27:31,480 --> 00:27:33,879
Speaker 3: who now don't have to adjudicate the case. But you know,

492
00:27:33,920 --> 00:27:37,479
Speaker 3: you never know whether an objector is going to have

493
00:27:37,520 --> 00:27:39,640
Speaker 3: some traction. There are always a few people who are

494
00:27:39,800 --> 00:27:41,359
Speaker 3: kind of thinking that this should have been a more

495
00:27:41,400 --> 00:27:44,520
Speaker 3: lucrative settlement or less lucrative settlement, But my guess is

496
00:27:44,560 --> 00:27:45,760
Speaker 3: it ends up being signed off.

497
00:27:46,160 --> 00:27:49,640
Speaker 1: What caught my eye is that attorneys for the pension

498
00:27:49,720 --> 00:27:52,679
Speaker 1: fund are looking for two hundred and thirty million dollars

499
00:27:52,720 --> 00:27:56,040
Speaker 1: in legal fees, which adds up to more than ten

500
00:27:56,119 --> 00:27:57,960
Speaker 1: thousand dollars an hour.

501
00:27:58,680 --> 00:28:02,200
Speaker 2: Yes, seriously, that's another job that we missed out.

502
00:28:02,280 --> 00:28:05,600
Speaker 3: Actually, so this is an often controversial but also a

503
00:28:05,600 --> 00:28:10,440
Speaker 3: little bit complicated thing about how our plaintiff attorneys compensated.

504
00:28:10,480 --> 00:28:13,520
Speaker 3: There definitely is a fairly large cottage industry of plant

505
00:28:13,520 --> 00:28:16,560
Speaker 3: off attorneys who say, okay, let's go after this particular violation.

506
00:28:16,720 --> 00:28:19,520
Speaker 3: We'll find a stockholder who can be our representative stockholder,

507
00:28:19,560 --> 00:28:21,679
Speaker 3: and then we're going to move forward with a class

508
00:28:21,680 --> 00:28:24,480
Speaker 3: action or a derivative action and try to get a settlement.

509
00:28:24,720 --> 00:28:27,960
Speaker 3: But there's kind of a parallel to the venture capital

510
00:28:28,080 --> 00:28:31,480
Speaker 3: industry where I think you know the famous adage that

511
00:28:31,680 --> 00:28:35,199
Speaker 3: nine out of ten VC backed companies basically just go

512
00:28:35,400 --> 00:28:38,080
Speaker 3: sideways or fail, right, you'll make any money off of them.

513
00:28:38,120 --> 00:28:40,480
Speaker 3: You'll only make money off of the one in ten

514
00:28:40,640 --> 00:28:44,360
Speaker 3: that succeeds. And there's something that's kind of similar about

515
00:28:44,880 --> 00:28:47,640
Speaker 3: these lawsuits that when you take on any one of

516
00:28:47,640 --> 00:28:51,280
Speaker 3: these lawsuits, you are effectively bearing risk to take it

517
00:28:51,320 --> 00:28:54,200
Speaker 3: on the overwhelming majority at the time, you're not going

518
00:28:54,280 --> 00:28:56,760
Speaker 3: to get that much out of it. If anything, if

519
00:28:56,760 --> 00:28:59,360
Speaker 3: the case gets dismissed, you have spent however much you

520
00:28:59,440 --> 00:29:03,160
Speaker 3: spent as a plane is firm, getting absolutely nothing. And

521
00:29:03,200 --> 00:29:05,880
Speaker 3: so the theory in a lot of these cases that

522
00:29:06,000 --> 00:29:08,800
Speaker 3: you know there will be some sort of percentage of

523
00:29:08,840 --> 00:29:11,880
Speaker 3: the overall settlement that the plaintiffs attorneys are going to

524
00:29:11,960 --> 00:29:16,800
Speaker 3: get that can't be exorbitant, but the judges generally do

525
00:29:16,880 --> 00:29:19,000
Speaker 3: try to take account of the fact that there are

526
00:29:19,400 --> 00:29:21,840
Speaker 3: significant costs in bringing these cases and there are a

527
00:29:21,880 --> 00:29:24,800
Speaker 3: lot of risks associated with them. And so you know,

528
00:29:24,840 --> 00:29:27,440
Speaker 3: if you just look x post and in hindsight that

529
00:29:27,680 --> 00:29:30,920
Speaker 3: this one settlement, it's like, oh, what attorney makes ten

530
00:29:30,960 --> 00:29:33,120
Speaker 3: thousand dollars an hour. Well, the fact of the matter

531
00:29:33,280 --> 00:29:36,040
Speaker 3: is if there were nine other cases that had just

532
00:29:36,120 --> 00:29:38,320
Speaker 3: as much effort going into them and they all ended

533
00:29:38,400 --> 00:29:41,040
Speaker 3: up with nothing, then that looks more like one thousand

534
00:29:41,120 --> 00:29:43,920
Speaker 3: dollars an hour. Right, that the fence side attorney might

535
00:29:44,040 --> 00:29:47,880
Speaker 3: easily be billing regardless of whether the case wins or loses,

536
00:29:47,920 --> 00:29:50,640
Speaker 3: and therefore doesn't even actually have any risk there. So

537
00:29:50,840 --> 00:29:53,240
Speaker 3: when you sort of look at the numbers in isolation there,

538
00:29:53,280 --> 00:29:56,360
Speaker 3: they're eye popping. They're definitely eye popping when you back

539
00:29:56,400 --> 00:29:58,800
Speaker 3: it out and sort of say, well, you know, on

540
00:29:58,840 --> 00:30:01,600
Speaker 3: some level, while we're on the topic of lottery tickets,

541
00:30:01,680 --> 00:30:03,840
Speaker 3: taking these cases from the plaintiffs side is a little

542
00:30:03,840 --> 00:30:06,480
Speaker 3: bit of a lottery ticket as well. That may give

543
00:30:06,520 --> 00:30:09,160
Speaker 3: a little bit more explanation to it. Do the courts

544
00:30:09,240 --> 00:30:12,680
Speaker 3: and the parties always get it right, It's not clear, right.

545
00:30:12,720 --> 00:30:14,600
Speaker 3: The fact of the matter is that you know the

546
00:30:14,640 --> 00:30:16,959
Speaker 3: attorneys that they are not doing this because they are

547
00:30:17,040 --> 00:30:20,480
Speaker 3: essentially the newest incarnation of Mother Teresa running around, right.

548
00:30:20,560 --> 00:30:22,720
Speaker 3: They are trying to make a living too. You know,

549
00:30:22,840 --> 00:30:24,920
Speaker 3: Plaintiff attorneys are people too, and they've got to make

550
00:30:24,960 --> 00:30:27,560
Speaker 3: a living, and so they're going to try to claim

551
00:30:27,600 --> 00:30:29,920
Speaker 3: as much as they think they can they can feasibly

552
00:30:30,000 --> 00:30:32,320
Speaker 3: claim from the transaction. One of the things that's a

553
00:30:32,360 --> 00:30:35,920
Speaker 3: little bit dangerous about these stockholder litigation cases is that

554
00:30:36,280 --> 00:30:38,400
Speaker 3: you got the defendants that would like to settle, You

555
00:30:38,520 --> 00:30:41,960
Speaker 3: got the plaintiff's attorney that would like to settle. You

556
00:30:42,080 --> 00:30:45,440
Speaker 3: got one plaintiff that's kind of phenomenally being represented by

557
00:30:45,440 --> 00:30:49,200
Speaker 3: the plaintiff, maybe backed by an entire class of plaintiffs,

558
00:30:49,200 --> 00:30:54,200
Speaker 3: but they're usually usually silent in the background. So are

559
00:30:54,240 --> 00:30:57,400
Speaker 3: the defense attorneys and Planet's attorneys basically sort of ushering

560
00:30:57,400 --> 00:30:59,760
Speaker 3: through a settlement that doesn't give a lot of value

561
00:31:00,360 --> 00:31:02,800
Speaker 3: to the real harmed parties in the case. That's a

562
00:31:02,800 --> 00:31:06,959
Speaker 3: big danger and we see how fairly significant attorney compensation

563
00:31:07,080 --> 00:31:11,360
Speaker 3: amount that better be matched by, you know, a significant

564
00:31:11,400 --> 00:31:14,080
Speaker 3: benefit that is given to the company and to the

565
00:31:14,080 --> 00:31:17,280
Speaker 3: stockholders here that there is an agreement that you know,

566
00:31:17,320 --> 00:31:19,960
Speaker 3: some of this conversation is going to be given back.

567
00:31:20,280 --> 00:31:23,000
Speaker 3: I guess there's another question that sits in the background, though,

568
00:31:23,120 --> 00:31:25,520
Speaker 3: is that is that actually going to be paid by

569
00:31:25,960 --> 00:31:29,520
Speaker 3: an insurance company or you know, are there some hidden

570
00:31:29,720 --> 00:31:33,120
Speaker 3: indemnification rights? And I think in some cases that's been

571
00:31:33,560 --> 00:31:36,600
Speaker 3: ruled out, but I'm not sure it's been completely ruled

572
00:31:36,600 --> 00:31:39,080
Speaker 3: out across all corners here, so we'll have.

573
00:31:39,040 --> 00:31:42,840
Speaker 1: To keep our eye on the Delaware Chancery Court next month.

574
00:31:43,240 --> 00:31:46,320
Speaker 1: Thanks so much, Eric. That's Professor Eric Tally of Columbia

575
00:31:46,400 --> 00:31:48,400
Speaker 1: Law School, and that's it for this edition of The

576
00:31:48,440 --> 00:31:51,400
Speaker 1: Bloomberg Law Show. Remember you can always get the latest

577
00:31:51,440 --> 00:31:54,560
Speaker 1: legal news on our Bloomberg Law podcast. You can find

578
00:31:54,560 --> 00:31:59,160
Speaker 1: them on Apple Podcasts, Spotify, and at www dot bloomberg

579
00:31:59,200 --> 00:32:03,120
Speaker 1: dot com podcast slash Law, And remember to tune into

580
00:32:03,160 --> 00:32:06,520
Speaker 1: The Bloomberg Law Show every weeknight at ten pm Wall

581
00:32:06,560 --> 00:32:10,440
Speaker 1: Street Time. I'm June Grosso and you're listening to Bloomberg