Trevor Milton Guilty Verdict Comes With Warning

not a pusher. Trevor Milton might have convinced investors that his company had built the truck of the future, a zero emissions game changer, but he couldn't convince a jury. After less than a day of deliberations, a Manhattan jury convicted Milton of securities fraud and wire fraud for enticing investors to buy Nicolas shares with lies about technology that didn't exist, a stunning downfall for the door to door salesman turned billionaire who promised to revolutionize the auto industry.

My guest is securities law expert James Park, a professor or at u c l A Law school. James. The Justice Department is trying to crack down on corporate crime, and they certainly put a lot into this four week trial. Yeah, I think so. I think there was a lot to put on. There were a lot of different misrepresentations, and I think for each of them you have to be very careful to establish just exactly what was said and

what was the actual truth at the time. And I think you have to tell a story for each and every one of them. And I think the strength of the case, to me is not on any single misrepresentation, but the whole, the collective full of all four or five of them, when you add them up, I think that's where you get the criminal securities fraud. And I think it was also important that they put on evidence from insiders, people who worked at the company, who testified

that you know, we tried to intervene. We tried to tell him you're not telling the truth, and so he can't just argue that, well, I just made a bunch of mistakes. They intervened and said that you are making false statements about material fact. There's also you know, some testimony about at some point they tried to lock him out of the social media accounts, and so this was not a situation where you have a single mistake by

an important figure in the corporation. This is a pattern and practice that was occurring over a number of years and accelerated during a critical period in the company's life when it was a newly public corporation. And so I think that's why we have this four week case. So the defense seemed to be two prong one that he didn't have intent, he didn't mean to deceive potential investors,

and in any case, his statements weren't material. And the defense attorney sort of comparative in the closing he said, you know, they're gonna have to go after the Energizer bunny after this. In other words, it was like puffery. It wasn't an intent to deceive. Yeah, I remember hearing the Energizer bunny prayed. I had to laugh a little at that. But you know, Energizer batteries work. They worked pretty well, and so you know, fundamentally the product works

and has been tested and is reliable. And even if they have sort of a funny way of showing that, you know, there's nothing factually incorrect about the Energizer body as far as I know, And in this situation, it's not really puff free. When you are misstating very particularized fact. You know, he's saying we're producing hydrogen at four dollars a gallon at a time when it's selling for sixteen dollars a gallon. That's not true. They were not producing

hydrogen at all. And so you know, when you get that specific court generally will say that's not toughery, that's a factual misstatement. And you know, he's saying, we produced this badger truck using our components from the ground up, and implying that they have developed the technology, is their proprietor very technology, when in fact they're using third party sources.

And they're saying we have all of these binding contracts, and in the interview he specifically corrects the interview to clarify that the contracts are binding, when in fact they are not binding and to be canceled in any time. These are all fact you know, one or two of them. Maybe you could sort of say, you know, he's just making mistakes and doesn't have an intense or to see.

But when we get some multiple misstatements of factual information like this, I think it's very very difficult to conclude that this was not without deceptive intent, and so I think that if you look at the case as a whole and it's strong now the materiality point, you know, that's always an issue, a very important issue for any securities fraud case. Are the misstatements material are the importance

to investors. And they put on a witness who said that for each of these individual statements, we didn't really see an immediate soft price reaction. But you know, to me, I think the materiality would be in the story that's told as a whole, with all of the mis statements together over time, that collectively they must have had an impact on the company stock price, which did increase exponentially over time during the period um when he was making

these misstatements. And so I think that materiality here, in my view, is is satisfied when you look at the misstatements collectively as a whole um the mis statements creates portrayal of a company that has finished products that are soon to be rolled out, and that simply was not true. The defense only put on one witness, and that was to the materiality. Obviously, a defendant doesn't have to take the stand in his own defense, but in this case, did it sort of cry out for him to take

the stand. I mean, he has no criminal background that a lot of defendants are worried about if they take the stand. Obviously, he's a good talker. Why wouldn't he take the stand to try to deflect some of this? I think it would have been tough for him to defend his statement, you know, even with preparation. I think that he would have had to find some some evidence, something to back up his statements. And I think that that evidence simply did not exist. That he was saying

things that were false. And so I think that if he had to come up and explain why he was saying what he was saying, I think that the prosecutors would have cross examined him and made a lot of significant points. And so I think that, you know, given that he did not testify, I think that there there may not have been sufficient evidence to back up the

statements that he made. So prosecutors presented evidence that he spent more than eighty million dollars in six months during you know, the Gulf Stream jet, the multimillion dollar home, and the turks and kid goes. How is that relevant? Doesn't that just turn a jury against a defendant? It's a good question. You know, I think it may speak to motives, and I think the strongest security fraud cases are broad against individual executives when they have a motive

to personally enrich themselves. You know, this is what we see in en Rod with Jeff Skilling and World Colm with Bernie ebers Jeff Skilling sells tens of billions of dollars worth of stock in in the months before the restatements that were made by ed Ron. Bernie Eberts had hundreds of millions of dollars in loans that were backed by World Tom Stock. And so to get at a individual executive. To bring a case against an individual executive, I think you have a stronger case when there is

a motive to inflate the stock price. And I think that the spending would be relevant because it would show why he had an incentive or a special incentive beyond the normal corporate founder or executive to boost the company's stock price. And another piece of evidence that came out is that he negotiated a shorter lock up period. He wanted to sell his stock six months after the I

p O instead of a year. And I think that um is also a piece of evidence that may indicate that, you know, he may have some financial reason to boost the company stock so that he can get out as

quickly as possible. And so I think it's fair game to make allegations like that in the context of a security sproad case, because you know, there is second circuit precedent which says that individual Enrichmond is relevant on the question of whether somebody acted with fraudulent intent, and so I think that this is well within the bounds of proper evidence for the prosecution to int So outside the courthouse, Milton said, I did nothing wrong. I was talking about

the business plan. He still has hundreds of millions of dollars, and obviously they'll be appeals ahead. His attorney said they were going to keep on fighting, but appeals are an uphill battle. Was there any obvious error trial error that they can use here. I didn't see an obvious arrah. Others may have, but I did not see an obvious error. Do they have a chance on the materiality argument. I think it's a long shot. I don't think it's a

zero percent probability. I think they will raise the materiality arguments, and I think that maybe the best arguments they have because I think it's fairly clear that these statements are false, and that there are multiple statements, and you know, you can always make an argument about deceptive intent, about fraudulent intent.

But I think the prosecution made a very strong case, and I think if you look at the misstatements as a whole, they are material, a real and given that they happened multiple times after warnings, I think it's hard for him to argue that he's acting in good faith. I think that he knew as a executive chairman of a public corporation that he has an obligation to tell

the truth when he's speaking to the public. Yeah. So, the U S Attorney for Manhattan, Damian Williams, said the case is a warning to anyone who plays fast and loose with the truth to get investors to part with their money. So does this case have ramifications beyond this trial?

I think it does. I mean, I think in some ways you can see this as a continuation of the effort in the Farahness case, Right Sarahnes involved similar types of material misrepresentations with respect to the development of a product. It was in the context of a private corporation, and I think the next step is a company like this which is newly public had been acquired by a spac And my think that this sort of builds on the

lesson of seranists. In my view that if you are relatively new technology company, that you have to tell the truth about your products. Given how important these sorts of companies are to our economy, given the activity we still have with respect to entrepreneurial companies, I think that founders and management teams of these companies should be very careful and take note of both of these cases, take a very careful look at the sorts of problems that arose

when you make factual misstatements. This will hopefully improve the practices with respect to these startup companies and newly public corporations. You know, we've seen these sorts of products claims throughout the history of securities fraud. You know, in times when entrepreneurial companies, technology companies become a more important part of economy than there are high investor expectations for their products, and so there's incentive to lie about the product and

sort of their prospects. And so you know, nineteen eighties we have Apple computer lying about the Leasta office computer and that results in a hundred million dollar verdict in a trial against some of the executives. And so we see these patterns again and again over the decades, and I think given the importance of entrepreneurial companies to today's economy, it shouldn't surprise us that we see similar theories of

securities fraud being asserted. They did focus on social media a lot, so it's a message there too that you know, even on social media, you can't be exaggerating and giving misstatements. Absolutely, and I think that they highlighted the fact that social media is often accessed by you know, individual retail investors, and this is a way that we know you can communicate with a portion of the stock markets that previously had been somewhat ignored, and you can get your message

out to retail investors. And if you're persuasive, as we saw a year or two ago in the game Stop in a MC, matters that if retail investors buy your message on social media, they can really boost your stock price. And you know that to me may also be another argument prosecutors might make with respective materiality is that even if we don't see an immediate impact with respect to

sophisticated traders. You know, social media may take a bit of time for enthusiasm to sort of spread among different members of social media as things get posted and reposted, but over time it can have a very significant impact. And we did see a search in the company stock around the time these statements were made over social media. So he's facing as many as twenty years in prison. Do you have any feel for how much you'll get. I doubt it. Yeah, I doubt it will be twenty

as well. You know, one of the things they may look at his investor hall how much were investors harmed by these misstatements. They may have examples of retail investors to spend a lot of money when the stock was trading at you know, ten, fifteen, twenty billion dollars and lost almost all their money now that it is trading at three dollars. And so I think one of the things they may argue is that there was a significant amount of market capitalization that was lost in the wake

of the fraud. And I think that sort of harm can be relevant in terms of a sentence. You know, I think defense will sort of portray him as somebody who was over enthusiastic and he made a lot of bad judgment calls and did he really intend to hurt people? But I agree with you, I don't think it's going

to be the maximum penalty. Thanks so much for being on the show of James D. Professor James Park of u c l A Law School, y the American history Champagne corks popped when an upstart labor union pulled off a stunning upset at an Amazon facility on Staten Island last April. Unions are seeing a resurgence in this country, with workers at big name companies like Amazon, Starbucks, and

Apple voting to unionize. Management often tries to curb union organizing with illegal tactics, despite a National Labor Relations Board and an administration that's in labor's camp. The middle class the middle class bill America. Everybody knows that, But unions built the meddle class. That's a fact. My guest is labor law expert Kate Andreas, a professor at Columbia Law School. Kate. Some pro union employees seem to be trying something a

little different. A group of Starbucks employees in South Carolina are suing the company for defamation over its response to a union pro test. The employees accused Starbucks of falsely and maliciously portraying them as criminals after they presented a letter of demands to their store manager, and the store manager then filed a police report. A defamation claim in a union organizing effort is certainly unusual and got a lot of attention, including from Senator Bernie Sanders. But is

it effective legally? Yeah, So the allegations in this case, they're really pretty stunning. The employer apparently accused workers of trying to kidnap him without any evidence, according to at least report. So the workers seemed to be seeking to pursue a defamation claim because that gives them more ability to win remedies than proceeding under the National Labor Relations Act, because state law includes greater penalties for violations of defamation

law than labor law allows. And I think their argument is that the harm here is one that's more of a sort of defamation rather than a labor violation. It's not entirely clear whether the suit will be able to go forward, because federal preemption doctrine does require that conduct that is protected by the Act or prohibited by the National Labor Relations Act must be resolved. Legal issues around that must be resolved in the first instance, by the board.

Starbucks is a huge company. The union has prevailed and around two hundred fifty of the company's nine thousand stores and the unions filed numerous legal complaints with the National Labor Relations Board. Do those complaints ever bring any kind of resolution. I think what we're seeing with Starbucks is

that there's overwhelming interests among workers and organizing unions. Hundreds of Starbucks stores in I think three dozen states have had union elections, and this is really pretty stunning, given that a year ago no Starbucks had the union, and most of the vast majority of these have voted to unionize. Nonetheless, what these workers are confronting at the legal regime that really doesn't do a good job at protecting their rights.

And so what we see is that the employer has engaged in a pattern of anti union activity, and the penalties under the National Labor Relations Fact are really pretty minimal, and so I think workers are looking to other tools to try to make sure that their rights aren't violated. It's Starbucks the best example of the pro union movement

of the workers. They are made the most progress. There's a lot of areas where workers are organizing in the last few years, and I think we see increased organizing activity in the areas of healthcare, university workers, journalists, trader does apple workers are I but Starbucks are certainly a pretty dark example of how much interest there is across the country among workers in organizing union so that they can have a voice at the workplace, so that they

can address problems of low wages, um of not having enough sick time, of just the vast range of concerns that workers have that they want to have a voice how the company addresses those problems, and Starbucks is a good example of the rising interest in unions, particularly among

young people. Do you think the rising interest in unions is in part sparked by concerns about health and economic justice that arose during the pandemic, or is it, as you say, more about young workers looking to protect their rights. I think it's a combination of factors. I think for the last few years, it's become increasingly clear that the country has a really significant problem with economic inequality, and people who are doing the work that makes things run

are not receiving their share of economic rewards. From that, and that became particularly clear in the context of the pandemic, where we had the workers who are considered essential and they had to keep working were actually many of them very low wage workers they think significant health and safety reacts. So I think the pandemic did kind of highlight those problems that already existed in the economy at increasing concerns

around health and safety. But then at the same time, we have a generation of young people who are coming into the workforce and recognizing that in order to make their jobs better and to improve conditions um that organizing

collectively is the best route to do that. So studies show that seventy one percent of Americans now approve of labor unions and the majority would like to have a union if they could, which is the highest since has been since nineteen and I remember we spoke when the upstart union Amazon Labor Union won that election at a facility in Staten Island. Now the group has had a second defeat in a row. As far as you know, workers voting to unionize. With these union fights, it seems

like it's one step forward, two steps back. Yeah. I don't think the issue is that workers don't want unions, because, as I said, there's really overwhelming evidence and increasing studies showing that the vast majority of workers would like to have a union if they could. But the problem is that the obstacles to winning a union really significant. So employers routinely engage in extensive anti union campaigning during union campaigns.

Some of this is in violation of the law, and some of it is not in violation of the law, but it sends a very clear message to workers that they should not organize and that their jobs are at risk if they organized, and that makes it very hard

to win unions. When you ask that the fact that many employers, even once workers win unions, resist negotiating contracts, and the legal remedies for that are very minimal, you can understand why it's been so hard for workers to organize and to win contracts, notwithstanding that they have the legal right to do so. I think it really just

highlights the need for labor law reform in this area. Yeah, because that Amazon union, the Staten Island facility, they still haven't gotten a contract, and the president of the union said that at the warehouse near Albany, Amazon subjected workers to intimidation and retaliation on a daily basis. They file dozens of unfair labor practice complaints with the n l r B. Is that par for the course for these big companies? What can they do and what can't they do?

Where's the line between intimidation and holding those meetings called captive audience meetings? Yeah, they're called that because essentially they're requiring employees to attend these meetings as a condition of employments. Of the employee declines to, they can be terminated. So where's the line. Well, the Nationally Or Relations Act the text employers right to compagne against unions, but it doesn't allow them to do so in a way that is coursive.

They can't threaten workers for organizing unions. The problem is that the line is often hard to draw, and workers often hear something as a threat. Because of the employment relationship, they know that they can be the from principles that they can be fired for any reason or no reason at all, and so frequently um there's a debate about or litigation over whether a statement is a threat or

or just an opinion. And even when employers are found to have committed unfairly for practices to either have threatened workers to have fired workers for organizing unions have easigally

disciplined workers for organizing unions. The problem is that the penalties for doing any of that are so minimal that it's often in employers interests or they deem it to be within their economic interests to go ahead and violate the law because that can displayed workers from organizing unions and the penalties that they will be faced with are very minimal. These votes are all secret votes, right, so the company doesn't know which way any particular workers voting.

That's true, Um, these are all secret ballot votes. The problem is that over the course of a union campaign, workers frequently become a friend aid because of all the things that their employer has done or said that if they do organize the union, things will actually get worse. And in fact, because employers violate the law, they are often able to coerce workers in that in that way. So how big a setback is it for the Amazon Labor Union to have to no votes in a row.

I think it is a setback, and it will probably require them to go back and think more about their organizing strategy. But I don't think it changes the underlying reality, which is that Amazon workers have deep desire to change their conditions. They are very low paid, they work under very time constraints or often punished for any idle time. There's significant health and safety problems at these warehouses, and

the desire to change conditions among workers will remain. And so I think that there will be continue to be organizing the activity and continue to be union successes. It just is going to require additional legal work and challenging the unfairly practices of Amazon and additional organizing. Kate, how long will it take for that Staten Island union to

get a contract? Well, it depends on both how well those workers are able to stay organized and how much economic and public pressure they're able to bring to bear against the company. There's no deadline for reaching our contract. One of the possible labor law reforms that has been considered is to require that a first contract goes through mediation or even arbitration in order to make sure that a fair contract is reached. But our current law does

not require that. So the workers need to bring to bear public pressure and economic pressure on the company to try to convince it to negotiate as it is required to do under the law. Another thing that's happening is that for this month, Starbucks and Apple were hit with shareholder proposals that call for labor rights audits after complaints by workers that the company has been trying to curb union organizing, and Amazon and Tesla were hit with similar

proposals less proxy season. So is this another way to try to put pressure on these companies? Yeah? I think what those proposals reflected a growing realization among shareholders that there are companies violation of the law and anti union campaigning is in contradiction with the what the brands claimed to be and it can actually hurt the company. And it's another way to try to hold companies accountable and

for following the law and for being good corporate system. Yes, so a may proposal at Amazon secured of independent voters and thirty eight point nine percent in total. What strikes me is that you have investors, this many investors wanting to support unions, and then you have Amazon with all these anti union tactics at the same time. Does it come from the top, does it come from you know, lower levels of management? Is it organized union busting? Yeah?

So I can't speak specifically to Amazon, but in general. Typically when there is a significant anti union campaign, it's coming from the top, and it's a company decision to try to coerce workers against joining union UM and so I think the more public pressure is brought to their either through shareholders, through the media, through worker activity, through community activity, trying to call upon employers to respect workers rights to organize, the more that that can help to

change employer behavior. That along with law reforms, and even without statutory reform, This current National Labor Relations Board and the current General Council at the Board is working very hard to try to enforce and make real the promise of the statute. So the General Council at the National Abor Relations Board has been per doing very aggressively violations of the law in order to try to stop this kind of anti union illegal behavior by companies like Starbucks

and Amazon. I've been talking to Columbia Law School professor Kate Andreas about the resurgence in unions. Is there any move in Congress to change the labor laws. There is a bill pending in Congress and it does have significant support, but unless the filibuster is removed, it's unlikely that it will pass. But that bill would make it easier for workers to organize unions, and it would increase penalties on

employers who violate the law. It would also make it easier to win first contracts, So it would be a really significant improvement and enable the workers who do want to have unions to achieve them. Tell us about the union case the Supreme Court just decided to take up

for this term. Essentially, it involves a strike that occurred and it's kind of the inverse of the defamation pace involving Starbucks, an employer's food teamsters or workers for their behavior during a strike under state law, and is seeking to have that to go forward, which would impose significant penalties on the union. The union argued that the state lawsuit was preempted and therefore they couldn't be subject to get damages, and they won at the lower court, but

this Preme Court just granted it. So there's some question about whether the court will change the law regarding preemption and make it easier for state lawsuits to go forward. That would make it easier, potentially for the Starbucks workers in the defination case to proceed, but it also would make it a lot easier for employers to bring actions against workers who engage in drug activity under state tourt

law or state property law. The Supreme Court in recent years has not been I'll say, has not been particularly kind to unions, particularly supportive of unions. Well, of course, there was the big union case for the Janis case, and then there was the case about farm workers in California. Court has issued a theory is of cases in recent years that are both hostile to unions and also to workers.

So one example was the Jans case, which made it impossible for state employers um to agree with their unions to have fair share fees, where all workers who benefit from a contract have to pay union use their fees. The court ruled that as a matter of the First Amendment, that is unconstitutional to have fair share fees, and all public sector workers have to be open shop or right to work, meaning you can be covered by union contract and get the benefits of a union contract but not

have to pay any contributions towards representation and bargaining. There

was that case. Then there was another case recently that held that a California state law that gave organizers the right to enter firm to talk to farm workers on a pretty minimal basis every now and then, but in order to enable the organizers have access to farm workers who often live on farms and are difficult to um to organize, the court will get that constituted at taking an illegal taking of property and violated the Fifth Amendment. And the Court is also if a number of cases

that limit workers right. So, for example, it help that employees could be required to waive their right to proceed in class actions or collective actions through mandatory arbitration agreements, even though the National Labor Relations Act says that workers

have the right to act collectively. And in all of these cases that were very vociferous defense, including defense that expressed a worry that the Court is returned into the kind of legal positions that it held in the early part of the twentieth century, where it routinely struck down laws that benefited workers. So why do you think the court is taking this particular case. It's always hard to know why a case gets granted. Um. In this case, the employer argued um that there was a circuit split

or a split among the lower court. And so that's one reason why the court often takes a case. And and so one possibility is that the Court is just going to use this to clarify the longstanding preemption doctrine. There is a worry, however, that given how conservative and anti worker some of the justices on the Court have been in the past, that they might use this case to make it harder for workers to engage in collective action and expose them to additional penalties under state law.

I don't know about this recent case, but you know, a lot of these cases, the plaintiffs aren't paying their own legal fees. A lot of these cases are part of a broader strategy to limit the ability of the government to protect workers and consumers and the environment. And so you know, even the case last year about the e g as ability is kind of part of the same kind of broader campaign to limit the ability of government to regulate corporations in ways that protect ordinary citizens.

Um and so you know, yeah, there are individual workers here and there who might not want to pay union do but the drive to kind of achieve right to work or the effort to expand the takings pause, it's really not driven so much by you know, individual agreece citizens or workers, but rather by a broader adgenda to weekend government's ability to protect workers and consumers and to protect the environment. Thanks so much for your insights, Kate.

That's Professor Kate Andreas of Columbia Law School, and that's it for this edition of The Bloomberg Law Show. Remember you can always get the latest legal news on our Bloomberg Law Podcast. You can find them on Apple Podcasts, Spotify, and at www dot bloomberg dot com, slash podcast, Slash Law, and remember to tune into The Bloomberg Law Show every week night at ten pm Wall Street Time. I'm June Grosso and you're listening to Bloomberg