Trump's Business Empire at Risk

saying they were a fantasy, not reality. The documents do not say what they say. There is no such thing as objective value. Essentially, the court should not believe its own eyes, even quoting a famous line from the Marx Brothers Movieyes. The judge concluded by saying that New York Attorney General Letitia James is now entitled to a court order dissolving any certificates issue to Trump's LLC's, putting his ability to continue operating his sprawling Manhattan based company at risk.

Joining me is former federal prosecutor Robert Mintz, a partner Maccarter and English. Would you say this decision is unprecedented, rare, uncommon, how would you describe it?

by the lawyers who are involved in the case. There are a lot of questions as to exactly how the court is going to try to implement this decision.

The judge said that Trump's annual statements of financial condition used this false square footage to inflate its network by as much as two hundred and seven million dollars in twenty twelve, when Trump valued the penous that is staggering

one hundred and eighty million dollars. According to the judge, no apartment sold in New York City had ever approached that price, and the judge essentially said that while there may be some subjectivity in terms of evaluating the square footage and the value of an apartment, this was on an order of magnitude that, in his mind, showed a clear attempt to simply inflate numbers and a knowing violation of the law, and the judge found that former President

Trump had fraudulently inflated the value of this department to a staggering degree.

discredited and were simply frivolous. That the judge clearly was not at all accepting of the defenses that were being put forward by the Trump organization, and wrote a very very aggressive decision here, going through in great detail examples of what he felt was conduct that was clearly fraudulent.

bit of money on those loans. The judge did not buy that argument, saying that it's not fair to suggest that no harm had been done to these banks when they loan money to the Trump organization. The judge pointed out that the first principle of loan accounting is that

as the risk rises, so to the interest rates. So essentially, what the judge was saying is that while in this case the loans were repaid and the banks in fact did make money on loaning money to the Trump organization, had they known what the real value of the collateral was, they would have raised the interest rates and the banks

would have made even more money. So that's where they were victimized here, and the judge's eyes, the banks were misled in order to make a loan at a lower rate than they should have made it if the true value of the collateral were known to them at the time that the loan was extended to the Trump organization.

LLC's is unclear. The Trump organization's lawyers, for example, raised the fact that former President Trump's two sons, Donald Junior and Eric live in homes which are in fact owned by these LLC's, and so the question was do they have to be removed from the homes? Do those homes

have to be liquidated? They also asked whether mister Trump would have to sell assets including Trump Tower and forty Wall Street, which is a downtown commercial property, or whether those properties could be managed by an independent receiver rather

than being dissolved and have to be sold. So there's lots of unanswered questions here as to how this order will be implemented, and even the judge acknowledged that he was not entirely certain as to how his order would be implemented and wanted to take more time in order to evaluate the implementation of its own order.

It's going up on appeal, and we'll have to see what the appeals court does here. I think there is certainly a possibility that the appeals court may overturn this decision, just because it's so unprecedented and because the effects of this decision are so sweeping on a major organization like the Trump organization, which employs hundreds of people on holds millions and millions of dollars in real estate, not only in New York State but also around the world.

hundred and fifty million dollars. The judge could also decide a trial whether to borrow the former president and his sons from running a business in the state. Ever again, those seem to be the issues that are remaining, but that will have to be worth out by the state lawyers, the defense, and the judge.

a fantasy world. So one of the things that's really an issue here is the Trump brand, is the perception of the Trump organization and the question of whether it is really one of the great successful real estate empires in Manhattan and even in the United States and around the world, or whether it was built on a basis of fraud and fraudulent statements, and in fact, as the judge said, the empire is really simply a fantasy based upon false information that was provided to give favorable loans

to which the Trump organization was ultimately not entitled.

for forty four billion dollars. That deal allowed him to avoid a trial in the country's premiere venue for corporate litigation. But October will be a busy month for Musk. In that Delaware court. He'll face suits from a stockholder and pension funds questioning his lavish Tesla pay package, and further legal fallout from his Twitter By joining me to sort it all out? Is business law expert Eric Talley, a

professor Columbia Law School. Let's talk first about his record breaking pay package of fifty five billion dollars.

this is sort of within that cluster of cases. The hard part about this is that, you know, in many respects, Elon Musk's compensation package, as it was fashioned back in you know, twenty seventeen or whatever, it was a lottery ticket, and who knew whether that lottery ticket was going to pay off and by how much it paid off? And you know, he essentially did the billionaire's version of hitting the powerball on this lottery ticket. It paid off almost

to its maximal amount. And you know, I think part of the issue in the case, and probably what's going to feed into the opinion is, you know, to what extent should we or should we not use that sort of you know, twenty twenty hindsight to try to get a sense of whether everyone knew that this was going to be a a powerball ticket that paid off, or it really just turned out that, you know, the fortunes of Tesla outshine just about any conceivable picture that anyone

would have painted at the time. Musk agreed to a lower fixed component of his salary for this lottery ticket version and it paid off. That's clearly the argument that Musk is going to make that in fact, incentive contracts are there for a reason this happened to hit the powerball lottery, but at the time there was no reason to expect that it would.

pretty minuscule salary. So that's one part of it. The other part of it, though, Tesla's argument is that they kind of the board had to give him a high powered incentive contract to keep his attention because he's sort of as distractable as a six month old labrador puppy, and if you don't keep his attention on a really shiny bouncing ball, then he's going to run off and do other things. Well, they gave him that compensation contract.

It was a big one. He ended up running off and getting distracted by SpaceX and Twitter and the boring company and so forth. I guess I'm trying to figure out which way that cuts. Does that mean that they really should have given a bigger package to keep his attention on things or not? So it's hard to tell

exactly which way that cuts. The fact that he is so distractable almost feeds into the argument that it would make sense to have a high powered incentive contract to keep his eyes focused on the fortunes of Tesla and not to get too waylaid by other shiny lights and bouncing balls.

but it did so in an odd way. The judge in that case, you know, everyone sort of expected the judge in that case was going to have to decide whether he was going to declare that Elon Musk was a controlling shareholder of Tesla, and if that was true and the only one owns about twenty one twenty two percent of the stock or did at the time, if that is true, that he's deemed to be a sufficiently large stockholder, that he's a controller, that puts a larger

onus of fiduciary obligation on him. And it also calls into question whether he might sort of just dominate and control everyone on the board, and therefore you can't just trust the board to be making independent judgments. So a lot of people thought that in that Solar City case, we would learn answers to whether Elon Musk was a controller or not. But the judge in that case, Vice

Chancellor Slights, who has tens left the bench. He crafted kind of an interesting opinion that essentially was able to dodge that. He said, I'm just going to pretend like Elon Musk is a controller, but I'm still now going to conclude that the way that they did this solar city deal satisfied even the heightened requirements that I would

otherwise impose on a controller. And by doing that, he basically said, look, I'm subjecting Elon Musk, at least for argument's sake, to the most rigorous test that we have in Delaware, and he passes, and therefore I don't have to decide whether he's a controller or not, because he would win even if he were a controller. Now that left open this question that survives to this case about well,

what is his status? Does he own enough stock that he can pretty much, you know, influence or has a good chance of influencing the entirety of the board, And therefore, in this case is going to have to be put under much more of a microscope, and maybe the board's judgment about this compensation package shouldn't be trusted as much, and so there will be kind of an interesting question about whether Chancellor McCormick in this case, you know, pursues

the same strategy as Vice Chancellor's light, deciding not to decide whether he's a controlling stockholder and saying, assuming that he is, this still is okay under Delaware law. Now if in her opinion, ah boy, whether he's a controller or not really matters for the outcome of this case, because if he is a controlling stockholder, then he hasn't met his burden to defend this thing. But if he's not a controlling stockholder, he gets a lot more different.

If she decides that that's the case, she's going to have to make a call on whether having twenty one twenty two percent of the stock of Tesla is enough to make him a controlling shareholder. I think a lot of us that teach in this area are sort of hoping that we'll hear something along those lines, but it's

not clear to me which way it goes. Because Tesla did put up, you know, I think some pretty flashy testimony about, you know, the idea that this was the type of compensation package that's like a lottery ticket, and this lottery ticket just happened to pay off, but there are all kinds of scenarios in which it might not.

But to the extent that there are directors who are sufficiently independent of mister Musk that they can exercise their own judgment, and if he's just an ordinary CEO, then they're kind of the presumption goes in that direction, then their disinterested assessment of the propriety of this compensation package, and then their vote amongst the disinterested directors to permit it. Gets a lot of deference under Delaware law that in order to challenge that, it basically is protected by something

known as the business judgment rule. Which isn't quite a conclusion that Tesla's going to win this case, but it's pretty close to that. It's basically saying, boy, you better be able to provide us evidence that these directors, even though they weren't influenced or dominated or controlled by mister Musk, they basically were just phoning it in and they didn't really care about the welfare of Tesla or Tesla's stockholders. And you know, that's a hard boundary to get over.

It was famously tested almost a quarter century ago involving the then CEO of Disney, Michael Ovitz, who was let go and handed one hundred and sixty million dollars on his way out the door, and stockholders challenged it. But because the board of directors and the compensation committee was deemed to be sufficiently independent of him, the court basically said, yeah, this doesn't rise to that level of them just basically being indifferent about the value to Disney, and there was

a rationale for what they did. And so the stockholders lost in that case. And so that Disney case almost certainly will rear its head if that's the nature of the bottom line here, and that Musk is found to be by Chancellor McCormick just an ordinary CEO and not a controlling stockholder.

describes as formerly Twitter. There are numerous lawsuits over whether xo's millions to former employees, vendors, and landlords, including whether more than one point six million dollars in legal fees are owed to Twitter's ex CEO.

forth and Twitter basically stiffed them on those payments. That has given rise to a lot of different lawsuits. Each of them is probably going to be a little bit different in nature, and typically you actually don't see this after an acquisition then, you know, usually that's part of the assumption is you know, there are these contract rights that I'm not going to be able to avoid paying.

Twitter seems to have been a little bit more or the new Twitter seems to have been a little bit more litigious about about this and trying to fight the contractual rights, you know, many of which are available on the SEC's website. They look pretty typical and at least on first blush, just based on the terms of those deals, there's nothing like kind of weird or exotic or sketchy

about them. So, you know, my guess is Twitter is going to try to make an argument that for some reason, there was conduct by these employees before they were they were released, and therefore when Twitter and mister Musk basically showed them the door, he did so because he had

cause to fire them. Unclear whether that is true or not, but that the defense that Twitter is going to be putting forward, because usually these these contracts say look, I'm going to get this payment unless I am terminated for cause or something along those lines or some other type of misbehavior. So that's almost certainly going to be the

legal strategy that Twitter takes on. But you know, in some ways, that's not a single argument that you can make for every one of these folks, every single one of them. You kind of have to say, oh, and then here's why this person was fired for cause, and here's why this other person was fired for cause. So it is a big and somewhat of an uphill legal

battle to do that. You know, It's it's kind of an interesting question about whether that uphill battle is in part kind of predicated against a ticking clock of trying to understand just how much money Twitter or X or whatever you want to call it has it in the bank to operate right now, given that it is now a heavily indebted company and is having to pay significant

interest rate payments. And so maybe if it's kind of thinking, gosh, we may be entering a zone of insolvement sometime soon, this possibly could just a strategy to put off having to pay these former employees until the whole company is in Chapter eleven and they're restructuring every creditors sorts of claim.

think this is a reasonable settlement amount. And so my guess is those things typically are going to end up getting signed off on. But you know, in recent months famously, the Delaware chance Re Court has become an entertaining, if somewhat frenetic landscape on which people suddenly show up and object to settlement, such as in the AMC settlement last month in front of Vice Chancellor's earned So my guess

is this ends up sort of failing through. A successful settlement of a case is usually seen by all sides as you know, kind of a victory, including the judges who now don't have to adjudicate the case. But you know, you never know whether an objector is going to have some traction. There are always a few people who are kind of thinking that this should have been a more lucrative settlement or less lucrative settlement, But my guess is it ends up being signed off.

But there's kind of a parallel to the venture capital industry where I think you know the famous adage that nine out of ten VC backed companies basically just go sideways or fail, right, you'll make any money off of them. You'll only make money off of the one in ten that succeeds. And there's something that's kind of similar about these lawsuits that when you take on any one of these lawsuits, you are effectively bearing risk to take it on the overwhelming majority at the time, you're not going

to get that much out of it. If anything, if the case gets dismissed, you have spent however much you spent as a plane is firm, getting absolutely nothing. And so the theory in a lot of these cases that you know there will be some sort of percentage of the overall settlement that the plaintiffs attorneys are going to get that can't be exorbitant, but the judges generally do try to take account of the fact that there are significant costs in bringing these cases and there are a

lot of risks associated with them. And so you know, if you just look x post and in hindsight that this one settlement, it's like, oh, what attorney makes ten thousand dollars an hour. Well, the fact of the matter is if there were nine other cases that had just as much effort going into them and they all ended up with nothing, then that looks more like one thousand dollars an hour. Right, that the fence side attorney might easily be billing regardless of whether the case wins or loses,

and therefore doesn't even actually have any risk there. So when you sort of look at the numbers in isolation there, they're eye popping. They're definitely eye popping when you back it out and sort of say, well, you know, on some level, while we're on the topic of lottery tickets, taking these cases from the plaintiffs side is a little bit of a lottery ticket as well. That may give a little bit more explanation to it. Do the courts and the parties always get it right, It's not clear, right.

The fact of the matter is that you know the attorneys that they are not doing this because they are essentially the newest incarnation of Mother Teresa running around, right. They are trying to make a living too. You know, Plaintiff attorneys are people too, and they've got to make a living, and so they're going to try to claim as much as they think they can they can feasibly

claim from the transaction. One of the things that's a little bit dangerous about these stockholder litigation cases is that you got the defendants that would like to settle, You got the plaintiff's attorney that would like to settle. You got one plaintiff that's kind of phenomenally being represented by the plaintiff, maybe backed by an entire class of plaintiffs,

but they're usually usually silent in the background. So are the defense attorneys and Planet's attorneys basically sort of ushering through a settlement that doesn't give a lot of value

to the real harmed parties in the case. That's a big danger and we see how fairly significant attorney compensation amount that better be matched by, you know, a significant benefit that is given to the company and to the stockholders here that there is an agreement that you know, some of this conversation is going to be given back.

I guess there's another question that sits in the background, though, is that is that actually going to be paid by an insurance company or you know, are there some hidden indemnification rights? And I think in some cases that's been ruled out, but I'm not sure it's been completely ruled out across all corners here, so we'll have.

Street Time. I'm June Grosso and you're listening to Bloomberg