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In the crypto-enforcement space, the SEC recently reached an administrative settlement with TokenLot, an unregistered broker-dealer firm, and its two twenty-something principals. TokenLot described itself as an “ICO Superstore” and offered access to all sorts of tokens.  Many of these tokens were, undoubtedly, securities.  

Interestingly, the SEC order here includes an undertaking to “destroy” TokenLot’s digital assets:  

Destroy the digital tokens in the Current Inventory within 30 days of the date of this Order and Pending Inventory within 30 days of receipt by TokenLot; 

This isn’t something I’ve seen before.  It’s also something that makes me scratch my head.  I know how to destroy ordinary things.  If I wanted to destroy a piece of paper I could just shred it or burn it.  Once that happens, I can confidently say that the object has been “destroyed.”  

A distributed asset is a bit different.  If it exists on many computer nodes across the world, I don’t have the power to go into all of those notes and change them to erase the existence of the asset.  At best, all I could do is “destroy” the key to access/move the asset.  This seems different to me.

I reached out to…

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All I’ve got this week is a drive-by of interesting things (which is necessary because of how the news was so. exceptionally. boring)

1)  You’ve probably at least heard about the New York Times’s massive expose on Donald Trump’s inherited wealth and the tax fraud that enabled it.  If you’re not a tax person, the length may be a little intimidating, but trust me it’s very accessible and worth the read.  Among other highlights are some specific descriptions of the use of a shell company called All County Building Supply & Maintenance that served a dastardly dual purpose: to spin cash gifts from Fred Trump to his children into ordinary income (thus avoiding gift tax liability), and to justify rent increases for rent-stabilized apartments.  Fred Trump accomplished this by making his children owners of All County, and then using All County as a purchasing agent for his buildings.  For every purchase, All County added a large markup – pure profit for All County (and thus the kids), paid by Fred Trump.  Then, Fred Trump used the inflated bills as proof of property improvements to justify his rent increases.  The scheme was sheer elegance in its simplicity.

For the securities…

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By now, I’m sure everyone’s seen the eyebrow-raising SEC complaint filed against Elon Musk for his fateful tweet announcing “funding secured” for his plan to take Tesla private at $420/share – while keeping all the old shareholders.  There are a lot of juicy details here, including an allegation that the $420 price was – as many suspected – a reference to marijuana; he ballparked a 20% premium, which would bring the price to $419, and then rounded up to impress his girlfriend.

Well, as we all know by now, funding was not secure, there was no plan, and – as I previously posted – there was no way the plan was ever going to work in the first place, because you can’t go private while keeping a massive retail shareholder base.

That said, the thing I keep wondering is, if anyone but the SEC had brought this case, would there be a serious question of materiality?

For starters, there has been a private complaint.  A short-seller, apparently injured when Tesla’s price shot up in the wake of Musk’s initial tweet, filed a class action complaint alleging securities fraud.  Now, this case is in the early stages so there’s no…

Johnny Burris, a whistleblower whose case has drawn national attention, recently filed a complaint in the United States District Court for the District of Arizona.  The complaint alleges that he was wrongfully terminated because he “objected to pushing proprietary J.P. Morgan Private Bank Managed Accounts, Chase Strategic Portfolio Managed Accounts, and proprietary mutual funds into his clients’  portfolios on the grounds that he viewed such ‘bank managed products’ as not always suitable for his retired clients.” 

Burris’s objections may ring familiar.  J.P. Morgan paid about $307 million in fines for steering clients toward proprietary funds. 

The complaint sets out two different causes of action.  The first is under Sarbanes-Oxley, and the second is under Dodd-Frank.  The oddly-drafted Dodd-Frank whistleblower provision has already reached the U.S. Supreme Court once with the court construing it to only apply to whistleblowers that report out to the SEC and not just internally.  Because Burris made a complaint to the SEC, he will not have any issues with that requirement. 

Nizan Packin and I have written about another issue with the Dodd-Frank cause of action.  (Our short 2016 article opens with a discussion of Burris’ whistleblowing to frame the issue.)   Unlike the Sarbanes-Oxley cause…

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Back when the CBS Board first decided to revolt against its controlling shareholder, Shari Redstone, I posted a collection of immediate thoughts.  My final one was:

[T]here’s a subtext in all of this, and it’s that Shari Redstone in particular is an untutored interloper, interfering in a business that she knows little about having finally managed to wrest control from her ailing – and often-estranged – father….It’s hard not to wonder about something of a gendered undercurrent in this kind of commentary, and that, in turn, taints CBS’s general depiction of Shari Redstone as a gossipy – and they don’t use that word but that is the implication when they allege that Redstone basically is saying mean things about people – busybody in corporate affairs.

In light of what transpired and came to light since then, I’m going to emphasize that point again.  Because there’s even more evidence today that the Board’s hostility to Redstone – and its support of Moonves – was tainted by (what I assume was unconscious) bias.  And now, after an expensive and pointless legal battle, terrible publicity, and a general waste of corporate resources, we have a cautionary tale about how sexism distorts and inhibits business judgment.

[More under the jump]