Crypto Showdown & Elon Musk Ultimatum

in a stock or bond. My guest is security is attorney Robert him a partner at Tartar, Krinsky and Drogan.

come outside of that statutory framework. And it's really going to have a fundamental impact on whether crypto exchanges can operate in the United States and under what rules and how much regulation they're going to be subject to.

and then it says investment contracts. So the litigation that the SEC brought against Coinbase is really designed and the judge has to decide whether the crypto assets that were trading on the coin based platform fell within this category. Called investment contracts, and Coinbase's entire argument is that on the secondary market, there really is no contract in place where purchasers of these digital assets and tokens would have some contractual right to profits from the blockchain or the

company that the crypto relates to. And the SEC is arguing, well, that's too much of a specific, narrow definition, and that generally speaking, the court should go off of what they seem to be the expectations of the people buying these tokens and whether or not they have an expectation of profit, regardless of whether it's in the form of a written contract or not.

the expectation of a profit, including beanie babies, including baseball cards, and not all those things are securities. So just because someone has the expectation that one day their purchase will be more valualuable in the future does not convert that over to a security. And the SEC seemed to have a little bit of a problem coming back from that argument, because the SEC is taking a very broad view of

what constitutes security and what comes under its jurisdiction. And I think those arguments from coinbase were really resonating with the trial judge because she was concerned that she doesn't want to overly broaden the definition of security and include these things like collectibles and other things that are clearly intended to be outside the statute.

them until Congress chooses to amend the statute. And so Coinbase brought up the example of collectibles and beanie babies and saying that once you go down the slippery slope of going outside of what really is defined in the statute, almost anything that people buy, like a collectible, could be

a security. And the judge was particularly concerned about that because she was concerned about opening the doors to a lot more litigation and specifically mentioned class actions where these class action lawyers could seize on a ruling in the SEC's favor on this point and try to argue almost anything could be a security and start suing companies that create and promote collects.

So it's not just like beanie babies took off on their own, so to speak, a lot of thought and marketing and other things that you could consider to be, you know, kind of an enterprise. You know, we're in place. So the SEC's attempt to distinguish a collectibles market from a securities market really wasn't persuasive in that instance. But I think the SEC's brought and stronger argument is that the Securities Act of nineteen thirty three, even though it's old,

has a lot of flexibility built into it. And when Congress passed. That Act has been able to be adopted to new types of investment products over the years, like real estate investment trust and complex sorts of financing instruments. And the SEC's argument is that that was exactly what this Act is designed to do, and that crypto fits within that sort of category of a new financial investment, that it is comfortably within the concept of an investment contract.

the law and interpret its definitions. And one of Pointbase's arguments is centered around on a principle called the major questions doctrine, which is a key part of administrative law, which says that agencies like the SEC, which are administrative agencies, are limited and Congress cannot delegate to them questions that have major economic or political significance. Those have to be decided by Congress through debate and elections and democratic processes,

not delegated to an unelected commission. So yes, that issue came up. The judge seemed to indicate some skepticism with that. She didn't feel like she would really need to get to that point. She termed it the nuclear option in the oral argument. So, I think the judge has every intent to rule the more narrow question about whether the crypto assets fall within the definition of a security under the statute or not.

and the blockchain companies don't get that money. They're just you know, aftermarket purchasers that are buying and selling among themselves and still keeping those investor protections for when those tokens are initially issued, like for instance, an initial coin offering, you know, those could be securities because the company is getting the money from that offering. They're using it to build out a platform, they're using it to make the

product more valuable. So it's a much stronger case to say that that's a security than the after market trading. And I think the other really good point that Coinbase brought up was that the SEC allowed Coinbase to go public just three years ago in twenty twenty one. So Coinbase filed their forms with the SEC, describe the business model the platform was operating, and the SEC approved the

IPO three years ago. So how can the SEC come back three years later after approving the IPO and say, well, your business was an illegal enterprise, you know, all along, going back to twenty nineteen when you first started it, even though we approved it to be offered to the public. You know, in twenty twenty one.

definitive answer either way. And I suspect that at some point the either the appellate courts in New York or even the Supreme Court is going to have to issue a decision on this point because there have been contradictory rulings.

But ideally is the judges pointing out that this is more an issue for Congress in terms of trying to pass a legislative framework for crypto that defines, you know what people have to do, you know how to regulate it, which agency should be responsible for it, because right now you have this SEC, you have the CFTC which regulates commodities, and other agencies at the state level are all kind of start jurisdiction over crypto, and it's very harmful for

the industry, and it's hindering innovation and development because there really is not a clear regulatory framework. So ideally Congress would act, but I don't have high hopes for that in this political climate.

his current shares. In a series of posts on x, the Tesla chief executive says he would be quote uncomfortable growing Tesla to be a leader in AI and robotics without having twenty five percent control, enough to be influential, but not so much that I can't be overturned. And then the not so veiled threat. Musk writes. Unless that is the case, I would prefer to build products outside of Tesla. Musk previously held a stake of more than

twenty percent in Tesla. But now owns around thirteen percent of the company's stock after selling billions of dollars of shares in twenty twenty two, partly to help finance his forty four billion dollar purchase of Twitter. Joining me is business law expert Eric Talley, a professor at Columbia Law School. So the latest, although, to say, what's the latest on Elon Musk is very dangerous because he's in the news

all the time. But he's pressuring Tesla's board to arrange another massive stock award for him, And he wrote that unless he has roughly twenty five percent voting control of Tesla, he'd preferred to build artificial intelligence and robotics products elsewhere.

of public opinion. Which is kind of a bizarre thing. Now, it may well be the case that mister Musk has already put forward this request and has ended up not having it received as well as he would want it, but it's kind of an interesting thing to decide he's going to put it. You know, he's going to crowdsource people's opinions about whether he should get a raise or should have his ownership stake increased to twenty five percent. Now, the guy is, you know, clearly an iconoclast who has

a huge following all over the place. Some of the following follows him into the stock markets as well. So I think if you're sitting on the board of Tesla, you probably don't want, you know, Elon Musk becoming sour and sort of, you know, unhappy about his situation at Tesla. By the same token, there's a real sense in which the types of of reasons that mister Musk gave in his fairly long tweet they don't really quite pass the

smell test. I think, you know, sort of the main one that he gave was that he needs that level of control so that he has enough influence and power to help direct things at Tesla. He's only sitting at thirteen percent now, which by the way, is an amount that he brought himself down to, having shed a bunch of his Tesla shares so that he could afford his Twitter acquisition. And he doesn't feel like he has the

influence he wants. And I don't really know of anyone who actually believes that even as a thirteen percent shareholder. You know, it's obvious to me that most retail investors, and almost certainly that board is hanging on every single word that Elon Musk sets. So you know, to claim that, you know, if I don't have twenty five percent, I'm not going to have enough influence at Tesla, it just doesn't add up to me on some level.

the company. And so there may be a sense that, you know, if you tie all these different things together, you know, one of the things that may be worrying mister Musk, and maybe he's trying to think his way through, is what kind of financial strain is he going to be under over at X, which he notoriously overpaid for a year a month ago, And so you know, that

may be part of what's going on here. It's pretty clear that we don't have a lot of his ability into the finances at X, but it looks like a lot of the investors that do have to, you know, periodically mark their positions to market value are now sort of reflecting that their investment in Twitter is a fraction of what it used to be worth. The company itself

is heavily leveraged. It's got a lot of debt obligations coming to and they're going to have to meet those in an environment that's looking incredibly and progressively less friendly. So you know, maybe part of what's going on here is an attempt to get a little bit more liquidity to patch up the holes and the dike over over at X and possibly even you know, buy out some of these debt holders at a fraction of what they are carrying their own debt ut So these two things

could be tied together. And while yes it's the case that he is still an incredibly wealthy person, the use of those shares to juggle other business commitments that mister must has maybe you know, critically important, and it may be important for him to get himself back up into the mid twenties in terms of ownership shares. All of this is perfectly fine and good to think about from mister Musk's perspective, I guess one worries a little bit

if you're just an ordinary Tesla's shareholder. Is this good news or is this bad? Dude? You've got this charismatic CEO who's essentially now dangling a threat to walk away and take his ball with him, including a bunch of potential growth opportunities for the company that you know, quite frankly, the valuation in Tesla in the market is part its cars and part its batteries and part its solar roofs. But I think a lot of it is prospect that it's going to be moving into a bunch of exciting

new fields over the next few years. And so, you know, on some level, the statement by mister Musk was a shot across the bow about those growth opportunities for Tesla. And you know, I'm not so sure that as a stockholder you'd be feeling one hundred percent comfortable in either direction either. On the one hand, you know, he does take his ball and goes home. On the other hand, he end up giving a large fraction of the value

back to Elon Musk. You know, maybe he you know, he turns things once again in the strong direction of stockholders, but he clearly is attempting to exact a price in order to do so.

sixty billion dollars worth of Tesla stock. He does not take a salary, He gets paid exclusively in Tesla stock, and they have not re upped a new compensation package for him because we don't know what the decision is going to be in the previous one in which he was sued by shareholders saying that that compensation package was outrageously large in a breach of the new Sherry duties. So you know, to the extent that we don't know how that decision is going to come out of Chancellor

McCormick's chambers. Suppose she comes back and she says, yeah, the shareholders have a point here. You know, the procedures he used to pay himself this exorbitant amount of money. I'm more unfair. That may mean that the cast flowers have to go in the reverse. He's got to give back to some of this money that he's already been paid, or some of the value he's already been paid, or

shares that he's received. So while the decision on this is waiting in the offing, it's already kind of a sketchy time to be saying, oh, let's just roll this up, reload this same package, or maybe even a richer package, when we don't even know what the legal status of

the existing one was going to be. Second, one of the things that has become clear even at the very first month of twenty twenty four is that the electric vahicle space is both getting crowded by new entrants and foreign competition, and you know, sort of a kind of an inflection point about how heavily people are going to be diving into additional purchases of electric vehicles versus hybrids, versus you know, internal combustion vehicles versus some combination of

all of them. So the growth trajectories for the EV sector as a whole, I think, you know, people are trying to reassess what that looks like, and the fact that it's getting so crowded that's going to make Tesla probably face even more of an uphill battle itself. So you've got this CEO who's saying I want you to basically double my stake in the company, or else I'm going to start directing business outside of Tesla. It's not a great look and it's not a great moment for

that to happen. You know, I guess to play Devil's advocate on it. Maybe this is the moment where Tesla absolutely needs stability and they need to keep him around, and so they're willing to say yes to almost anything, and that's certainly a possibility.

It's called the corporate opportunities doctrine. And you know, it's a situation where if you are a CEO and you say, well, I'm just going to plan to pole business that is firmly within the line of this company out. Well, you might be inviting yet another lawsuit. So the timing is not particularly great. And even if the timing were great, you know, you would kind of think, well, maybe this is the type of situation where you want to approach

the board quietly. That has clearly not been the strategy that mister Musk is pursuing here. So we'll see how it shakes down. You know that at very least it gives you and me something to talk about.

The case is involved from a corporate law perspective because it entails all kinds of crisscrossing questions of does Musk own enough shares of Tesla to actually make him a controlling shareholder even at the time, I think he was sitting like twenty two to twenty three percent of the company, but not a majority. That's a tough question in and of itself. There's questions about what was the appropriate set

of comparables to look at. Was this a reasonable compensation package when it was passed, because it looked like it was so high in the sky that none of these benchmarks were going to pay off, and then it turns out, you know, all of them paid off basically. So I think there are a lot of balls that are in the air in this one opinion. I know people who are sort of students of the Delaware chancewer Recurt, they're waiting on this spinion. You're going to you know, pick

it apart almost immediately. So I would be inclined to give Chancellor McCormick a runway to get this thing out because it could end up giving rise to you know, all kinds of different uses once it is out there. And I think you know this recent fora may suggest that the import of her decision is even greater. Right, So, for all we knew she was about to issue the opinion, and then we get hit with the tweets. You've got to make sure that is going to hold Lotter against

whatever new attention grabbing headline is out there. That having been said, most people are anticipating that we are going to see an opinion come out of the Chance Recurt pretty soon, probably within the nex.

ongoing use of ketamine. I mean, I'm not sure anyone's surprised at this, but what impact does it have?

so sure that this moved the needle itself. You know, I don't think people were incredibly surprised by this by the same token, you know, I think that particularly at a company that's heading into what maybe a tougher landscape, since you're not the only kid on the block in terms of electric vehicle production. You know, both world politics

and the economy have facing bumpier roads ahead. You know, I think that on some level people really do want stability out of their leaders, and for any generic CEO, I think this could actually spell either doom or something close to doom. Isn't less clear to me that that's the case with Musk, simply because I just don't think

too many people were surprised by that. But what it does give rise to is, you know a little bit of a sense of well, you know, when mister Musk says something, is this part of a larger just kind of erratic type of personality. And that's I think that's a concern generally by the same token. You know, I think his personality type has been one that's been you know, not only good for Tesla, but it's been pretty good

for the American economy as well. His iconoclastic style, which maybe you know, part and parcel with the rest of this, has also caused him to be one of the more or risk tolerant and entrepreneurs out there, which I think has been all in regardless of what you think about him as a person, has been you know, not a terrible thing for industry. So, you know, I don't know

where this is going to go. It's it's It's obviously an issue that was concerning enough that it not only gave rise to a Wall Street Journal inductory, but a lot of other people have been, you know, trying to figure out what the implications of it are. On some level. It really just moved it up into our mental inbox because I think a lot of people sort of were vaguely aware of some of this track record already.

is a much harder lawsuit to win. You can very easily sue someone for being too greedy, but it's much harder to sue someone for not thinking about what they're doing. It's possible, but it's a harder thing to do. So, you know, shareholders might sort of say, well, look, this type of behavior suggests that you're not behaving in good faith in discharging your duties, that you're abdicating your duties,

that you're basically treating this like a plaything. And there have been lawsuits, many lawsuits in the past that have made those types of allegations. But you really have to have a pretty extreme case in order to show that, and so much so that you know the company's worth

nothing anymore. Well, if if you were to open up the Wall Street Journal today, you would not see that that Tesla is worth nothing at this point in time, So you know, I think it's certainly something a matter that may be of some concern, maybe a matter that at least in part caused mister Musk to think, oh boy, you know, if some of my shareholders turn against me, maybe it would be better for me to have twenty five percent of the stock rather than thirteen percent of

the stock. So maybe there's something that this has to do with. But I think that the civil exposure for under you know, sort of corporate law principles is still pretty small. That doesn't mean that illicit drug use doesn't give rise to certain types of legal obligations, but they're usually not at the hands of irate shareholders.

enhancing its its footprint and enhancing its business operations. So, you know, I guess one of the issues that came up in the executive compensation lawsuit as well, this question of how do you deal with a person that's got a finger in every pine is prone to being kind of like a distracted laboratory or retriever, right like, you know, and this was one of the arguments that Tesla made, is like, we had to pay him that much because if we didn't, he was just going to get distracted

into a bunch of other things. And you know, maybe there's a you know, a sense in which a tweet that he issued was you know, sort of trying to ring up that same type of logic or that same type of reasoning. And there are things that he is engaged in that seemed to be doing decently well. In SpaceX I think is sort of top of that list.

But with primary season in full swing and traumatic events overseas, how do employers keep political disagreements out of the workplace while respecting free expression? Joining me is Dominique Camacho Moran, a partner in the labor and employment practice at Faroh Fritz. Are you finding that employers are contacting you because there's a lot of political disagreements in the workplace?

So employers are men managing a lot of what I would call not contentious, but robusts debate in the workplace that can lean feelings hurt on any side of the conversation.

their ethnicity, or their national origin, or their religion. And so while an employer does not have to tolerate a viewpoint they don't agree with, there are all of these caveats to It's important that we comply with the law regarding discrimination and all of the categories that are protected under both federal, state, and local law, and sometimes that crosses the line.

the email system and that that's clearly articulated. The same is true for making sure that there's an understanding and perhaps explicitly that this is not the place for the conversations around religion or politics. That's an appropriate thing for an employer to decide. The key, though, is once an employer decides that that's the policy, it's consistent. Enforcement can't be we're only going to take this position when someone's talking about Donald Trump, or we're only going to take

this position if you're talking about Joe Biden. The need needs to be that we're going to be consistent in how we go about applying the rules.