Thin Gruel: Tetrahedron, Target, Firing

Summary

Money Stuff: The Podcast – Episode Summary Title: Thin Gruel: Tetrahedron, Target, Firing
Release Date: December 13, 2024
Hosts: Matt Levine & Katie Greifeld
Description: Matt Levine and Katie Greifeld delve into the intricacies of Wall Street, finance, and current events, offering sharp insights with their characteristic wit and technical clarity.

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1. Auction Drama: The Onion vs. Infowars

Background on Infowars and Bankruptcy
Matt opens the discussion by detailing the downfall of Alex Jones's Infowars, which became synonymous with conspiracy theories, including the infamous claim that the Sandy Hook massacre was a hoax. This led to the parents of the Sandy Hook victims suing Infowars, resulting in damages exceeding $1 billion. Consequently, Infowars filed for bankruptcy, putting its assets up for auction to satisfy creditors.

The Bidding War: The Onion vs. FUAC
Two primary bidders emerged in the auction: FUAC (First United American Companies), representing Alex Jones aiming to reclaim Infowars, and The Onion's corporate parent, Global Tetrahedron LLC.

• Katie Greifeld: "I thought that the Onion was for sure buying Infowars. That's the surface level headline reading that I had done, but turns out not exactly." (04:18)
• Matt Levine: "The highest bidder, FUAC, offered $3.5 million in cash, while The Onion bid $1.75 million plus support from the Sandy Hook parents." (05:41)

Support from Sandy Hook Parents
The parents backed The Onion's bid, not just financially but ideologically. They preferred The Onion's vision of transforming Infowars into a satirical platform against gun violence. This support included a waiver ensuring other creditors would receive more from The Onion's lower bid, making it more attractive despite the lesser cash amount.

Judicial Intervention and Future Implications
The bankruptcy trustee initially favored The Onion, but FUAC contested the process, leading a judge to deem the auction unfair and mandate a re-auction. Matt reflects on potential outcomes, suggesting that while The Onion remains a likely winner due to creditor support, the procedural complexities might continue to favor FUAC if The Onion cannot upscale its bid effectively.

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2. Securities Fraud Lawsuit Against Target

Target’s Pride Marketing Controversy
Katie brings up Target's 2023 Pride marketing event, which faced backlash and led to a subsequent boycott, adversely affecting Target's stock price. This controversy set the stage for a notable securities fraud lawsuit.

America First Legal Group’s Lawsuit
America First Legal, backed by figures like Stephen Miller, sued Target claiming that the company failed to disclose that its Pride marketing would likely lead to a consumer boycott, resulting in stock value decline.

• Matt Levine: "They had a risk factor in their annual report mentioning that DEI initiatives could harm reputation and lead to boycotts, but the plaintiffs argued it wasn't specific enough to Target's 2023 event." (15:28)

Legal and Regulatory Implications
The lawsuit's acceptance signals a shift in how securities laws are being leveraged to pursue political agendas. Matt expresses concern over the expanding scope of what constitutes securities fraud, fearing it could lead to excessive litigation based on subjective interpretations of corporate actions.

Broader Impact on Corporate Disclosures
The hosts discuss the potential chilling effect on corporate marketing and DEI initiatives, pondering whether companies might overly sanitize their disclosures to avoid legal repercussions, thereby stifling authentic corporate social responsibility efforts.

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3. Insider Trading Spotlight: The Ken Peterman Case

Case Overview
Matt introduces the case of Ken Peterman, former CEO of Comtech Telecommunications, accused of insider trading.

• Matt Levine: "He attempted to sell his stock after being fired amidst a blackout period, knowing upcoming negative earnings, thereby avoiding significant losses." (27:03)

Legal Nuances and Defense
Peterman's defense hinges on his belief he was no longer an insider post-firing, contesting the applicability of the blackout period. However, The company maintained that the blackout still applied, complicating his defense.

Hypothetical Scenarios and Ethical Considerations
Katie and Matt explore hypothetical situations, questioning whether similar actions would be deemed insider trading if outcomes favored the stock (e.g., if the stock had risen post-sale). They debate the fine line between emotional decisions and malfeasance in trading based on material non-public information.

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4. Expanding Definitions of Securities Fraud

Shifting Legal Landscape
Matt elaborates on his decade-long observation that the definition of securities fraud is broadening to encompass virtually any negative stock movement linked to disapproved corporate actions, irrespective of intent or disclosure quality. He highlights concerns over the politicization of securities laws, where political adversaries can weaponize fraud allegations against unfavorable business practices.

Implications for Future Litigation
The hosts speculate that with a conservative judiciary and political shifts, more cases like the Target lawsuit may emerge, potentially leading to a scenario where corporate legitimacy is perpetually under legal threat based on subjective interpretations of their actions.

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5. Closing Thoughts

Matt and Katie express apprehension over the current trajectory of securities law enforcement, emphasizing the need for clarity and fairness to prevent misuse of fraud allegations for political vendettas. They acknowledge the complexity of balancing corporate transparency with preventing frivolous lawsuits.

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Notable Quotes

• Katie Greifeld (04:16): "Incredible."
• Matt Levine (16:33): "It's a true case of everything is securities fraud."
• Matt Levine (22:11): "I've said for 10 years that every bad thing that a public company does is securities fraud."
• Katie Greifeld (29:20): "We've all been ticked off before, so would it..."
• Matt Levine (31:21): "Thanks for listening to the Money Stuff Podcast Podcast."

---

Conclusion

In this episode of Money Stuff: The Podcast, Matt Levine and Katie Greifeld navigate through high-stakes financial auctions, controversial securities fraud lawsuits, and insider trading cases, all while dissecting the evolving and often precarious boundaries of securities law. Their insightful analysis underscores the intricate dance between corporate actions, legal frameworks, and political influences shaping the financial landscape today.

Transcript

[Narrator]

GiveWell, a non profit that researches and recommends giving opportunities, takes the impact of donations seriously. To ensure their recommendations withstand tough scrutiny. GiveWell had their own researchers spend months trying to identify flaws in their past work. They then publish their findings, mistakes and all for any donors to use for their giving. It's this kind of rigor that can help your donation make a big impact on the world. GiveWell has now spent over 17 years researching charitable organizations and only directs funding to a few of the highest impact opportunities they've found. Over 125,000 donors have used GiveWell to donate more than $2 billion. Rigorous evidence suggests that these donations will save over 200,000 lives. If you've never used GiveWell to donate, you can have your donations matched up to $100 before the end of the year or as long as matching funds last. To claim your match, go to givewell.org and pick podcast and specify where you heard this ad. Make sure they know that you heard about GiveWell from this podcast.

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[Narrator]

Bloomberg Audio Studios, podcasts, radio news.

[Matt Levine]

This is the day it all crashes and burns.

[Katie Greifeld]

Yeah.

[Matt Levine]

Hello and welcome to the Money Stuff podcast, your weekly podcast where we talk about stuff related to money. I'm Matt Levine and I write the Money Stuff column for Bloomberg Opinion.

[Katie Greifeld]

I'm Katie Greifeld, a reporter for Bloomberg News and an anchor for Bloomberg Television. I also wrote a newsletter called ETF iq.

[Matt Levine]

Katie, you're. You're like gracing us with a little bit of your presence between sessions at the big ETF conference, huh?

[Katie Greifeld]

Yeah, you know, we were. Well, I was joking as I walked in 10 minutes late. Matt had been sitting here, miked up. There's an ETF conference at Bloomberg. It's Thursday. When we're recording this. Matt's a celebrity in a lot of contexts. I'm a celebrity in an ETF context. And you know, walking through an ETF event, it. To get anywhere on time.

[Matt Levine]

I feel like this is a challenge and I'm going to have to come back to the ETF event with you.

[Katie Greifeld]

Yeah. I mean now you're going to walk upstairs and everyone's going to just stop in their tracks.

[Matt Levine]

Bloomberg once had a crypto conference in which I interviewed Sam Bankman Fried on stage. A real, A real highlight. But at a Bloomberg crypto conference, I'm like a little bit of a celebrity. And before this interview, people were coming up to me and being like, I'm a fan. And then after this interview, I walked back to the green room with Sam Beckman Fried and he was a celebrity. People were pushing each other aside to get to Sam Bankman Fried. This was some better times for him.

[Katie Greifeld]

Certainly. Levels. Yeah. That's a real like a time capsule.

[Matt Levine]

Well, happened.

[Katie Greifeld]

Yeah.

[Matt Levine]

When was that was like, it was like summer 2021. I introduced him on stage. I said something like, Sam Bankman Fried probably needs no introduction. He's probably bought most of your companies. Like this is back between when everything else crashed and when FTI crashed.

[Katie Greifeld]

Yeah, like the Terra Luna stuff, man. Anyway, well, anyway, what are you talking about today, Katie? We're gonna talk about the Onion and Infowars. We're going to talk about it and some proof that everything is securities fraud. I described that correctly, right?

[Matt Levine]

Sure.

[Katie Greifeld]

Okay. Then we're gonna talk about Ken Peterman who was fired.

[Matt Levine]

And then it's interpreted right.

[Katie Greifeld]

But did he. So he. So the Onion, this was interesting. I haven't checked in on this story in a while and then you published on it and I thought that the Onion was for sure buying Infowars. That's the surface level headline reading that I had done, but turns out not exactly.

[Matt Levine]

Right. So Infowars, Alex Jones's company that he used to spread various right wing conspiracy theories, one of which is that the Sandy Hook massacre was a hoax. The parents of the Sandy Hook children who were killed sued him and won like a billion dollars of damages, which is considerably more money than Alex Jones and Infowars have. And so they filed for bankruptcy. And you know, like kind of that means that the Sandy Hook parents kind of own his assets, kind of. But like what it literally means is that the bankruptcy trustee has an auction of the assets, which is basically like the Infowars, like company and brand and website and stuff. And the highest Bidder at the auction wins the assets and like, the money from the bid goes to Alex Jones's creditors, which means mainly the Sandy Hook families. But there are also some other people who he owes money to, either because he borrowed money from them or because they also sued him. And so they had an auction and there were two bidders and one of them was this thing called First United American Companies.

[Katie Greifeld]

Fuac.

[Matt Levine]

Fuac, which is like kind of Alex Jones. It's like someone's putting up money for Alex Jones to buy back infowars so he can continue running it as Infowars. And then the other bidder was the Onion or its corporate parent, which has the great name Global Tetrahedron llc.

[Katie Greifeld]

Beautiful, great name.

[Matt Levine]

Like really like the Onion, you know, all the way up the corporate structure. They're committed to comedy.

[Katie Greifeld]

They committed to the bid.

[Matt Levine]

Yeah. And so they bid for the assets and they had less cash than fuac. But what they had was the support of the Sandy Hook parents. Because if you think about the parents, like, one thing they want is money. Another thing they want is for Alex Jones to stop running InfoWars and stop broadcasting conspiracy theories. And then a third thing they want is that I think they liked what the Onions plans for Infowars were, which is sort of like running as a satire of this conspiracy site. And also I think, you know, there was like a teaming up with every town for gun safety, the Michael Bloomberg backed initiative. They would use infowars in part to sort of work against gun violence. And so the parents liked that plan and they supported it. And so you had this auction in which on the one side was a higher cash bid from FUAK and on the other side was like the bid that was supported by the lion's share of the creditors. And so the bankruptcy trustee said that the Onion won, and then FUAK went to court to stop it. And the judge said, actually this was not a fair auction. You have to run the auction again and kind of give it to the lions better.

[Katie Greifeld]

So is that what happens now that we have another auction?

[Matt Levine]

I think what happens now is we have another auction. And it seems like the decision was that the bankruptcy trustees procedures weren't good enough. And like, you can have another auction where the Onion could win. The way it worked is that FUX bid was cash. It was $3.5 million. The Onion's bid was $1.75 million in cash. And also the parents, the Sandy Hook parents, signed a waiver basically saying whatever money, other creditors, other people who Alex Jones lend money to, Whatever money the other creditors would get from any other bid, they will get $100,000 more from this Onion bid. So basically, like, you know, if the Onion puts in $1.75 million, as much as all of that can go to the other creditors. Whereas if FU act puts in $3.5 million, you know, three quarters of that or something is going to go to the Sandy Hook parents because they have most of the claims in bankruptcy. And so because of that waiver, they could go to the court and say, look, we can guarantee that the other creditors will get more money from our bid than from any other bid. And like, these creditors support it. So it's the highest bid, even though it has less money.

[Katie Greifeld]

Interesting. So what needs to happen in round two of this auction for the Onion to be successful? Do they just simply need more money?

[Matt Levine]

Well, so there's a couple of things. One is that, like, the procedure at the auction got sort of wonky at the end where, like, it was supposed to be an open auction and it sort of turned to a sealed bid auction. And part of that is because the Onion bid was we will pay $100,000 more than anyone else. So there's not really a point of having multiple rounds of bids, but you could imagine just structuring the bid again so that they can do a more open auction and then sort of come into the same result. The other possibility is that, you know, a reader suggested this to me, like, if Fuak says this waiver from the parents isn't real, like it doesn't count as real value. And I think the trustee argued and the Onion argues, and I think this is clearly true, that this is like a normal way to provide value in bankruptcy. You know, I wrote about credit bids where the creditor who has a mortgage on a house could get that house without paying more cash for it because they can bid the amount of their lien here. You know, these parents have a huge claim in the bankruptcy, and if they waive a portion of their claim, then that provides value to the other creditors. But if you don't like that, then the answer is finance it. The answer is the Onion could go out and borrow like $2 million from a bank and pay it back. That $2 million would then go to the San Diego parents when they win the auction, and then they could route it back to the Onion and then to the bank. Right. If the parents want a non financial benefit from this and, like, are bidding a portion of their claims, you could probably find a way to like get the bank to put out the money and then have it circle back to the bank. So that might be another thing that happens here.

[Katie Greifeld]

Do you think that something like that actually would. I mean, how do the bids change, but also like how the auction changes when it's run again?

[Matt Levine]

I think that if the auction is run again, it might be more transparent or whatever. But the trustee thinks that the waiver of claims provides a lot of value, and I think he's right. And it's sort of hard to imagine the trustee changing his mind on that. And I don't think the court ruled that he was wrong. But you could imagine something where the Onion puts up more cash and then gets the cash back so that they have a higher optical cash bid but like ultimately come to the same place.

[Katie Greifeld]

Well, this will be interesting to follow, but I kind of wish that I just stayed in my ignorant little bubble and only had read the first headline because it seems like really good poetic justice that the Onion, with the backing of the parents, would buy infowars.

[Matt Levine]

I still would guess that that's what's going to happen, But I'm not.

[Narrator]

GiveWell, a nonprofit that researches and recommends giving opportunities, takes the impact of donations seriously. To ensure their recommendations withstand tough scrutiny, GiveWell had their own researchers spend months trying to identify flaws in their past work. They then published their findings, mistakes and all for any donors to use for their giving. It's this kind of rigor that can help your donation make a big impact on the world. GiveWell has now spent over 17 years researching charitable organizations and only directs funding to a few of the highest impact opportunities opportunities they've found. Over 125,000 donors have used GiveWell to donate more than $2 billion. Rigorous evidence suggests that these donations will save over 200,000 lives. If you've never used GiveWell to donate, you can have your donations matched up to $100 before the end of the year, or as long as matching funds last. To claim your match, go to givewell.org and pick podcast and specify where you heard this ad. Make sure they know that you heard about GiveWell from this podcast.

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[Katie Greifeld]

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Let's talk about Target. Do you remember the 2023 Pride marketing event from Target?

[Matt Levine]

No, I remember solely the controversy about it.

[Katie Greifeld]

I don't remember it either. I also remember the controversy, but only very vaguely.

[Matt Levine]

I mean, they had like LGBT Pride themed merchandise at like the end of the aisle or something. People got really mad about it.

[Katie Greifeld]

Was this before or after the Bud Light thing?

[Matt Levine]

I want to say it was after the Bud Light thing, but I'm not sure, man. Was it around the same time? It was after the Bud Light.

[Katie Greifeld]

It was after, man. Why do companies keep doing this? It led to a boycott. The stock went down. Target has a lot of problems that aren't related to this. Whereas it feels like the Bud Light thing, like really jeopardized Bud Light's position as.

[Matt Levine]

Right. The Bud Light thing was like a sort of switch flipped on Bud Light.

[Katie Greifeld]

Yeah. But in any case, security's fraud.

[Matt Levine]

Yeah. So you do something and their stock goes down. Someone's going to sue you for securities fraud. And here what happened is that America first legal group, like a Stephen Miller backed like sort of Trump official backed anti woke anti DEI sort of legal entity.

[Katie Greifeld]

Very in vogue right now.

[Matt Levine]

It feels like very in vogue right now. They sued Target for securities fraud. And what they said was that you did this thing, you like, did this marketing event. You didn't disclose that it would cause a customer boycott and your stock went down. And so therefore, we were just frauded because we bought the stock not knowing that you were doing this thing that would cause a customer boycott. And then when the stock went down, we lost because of that fraud. Which struck me at the time. This is. They sued in, like, August of last year. It struck me as sort of a crazy theory because it's not like Target was concealing that they were doing a pride marketing event. It was marketing. It was quite public. Right?

[Katie Greifeld]

Yeah.

[Matt Levine]

And you might say, well, okay, but they didn't warn investors that this event might lead to a boycott. But they actually did do that. Like, there's actually a risk factor in their annual report saying that our position or perceived lack of position on environmental, social and governance, esg matters such as sustainability, responsible sourcing and diversity, equity and inclusion, D E and I could harm our reputation and could result in consumer boycotts. That's pretty clear.

[Katie Greifeld]

Well, not enough, Matt, that, you know.

[Matt Levine]

You'Re saying our DEI initiatives could, like, harm our reputation and lead to consumer boycotts. And so what the people suing said is, well, okay, you said that, but you didn't say specifically this 2023 marketing initiative could lead to a consumer boycott. You didn't specifically call out this thing as a problem. And last week a judge agreed with them and said, yes, this is not sufficient disclosure and the case can go forward because Target really might have defrauded shareholders by not telling them about the possibility that there would be a boycott for this marketing initiative.

[Katie Greifeld]

So that's wild.

[Matt Levine]

It's pretty wild.

[Katie Greifeld]

Yeah. And you talk about this in the column, but it's kind of fun to imagine, like, what does this mean going forward? Like, when you see a Target ad on tv, I like to imagine, like, you know, at the end of medicine and like, pharmaceutical ads, they have that sped up voice talking about the side effects. Like, they should have that at the end of every commercial that sped up v the ad.

[Matt Levine]

It's in the 10K. The securities filings have to be much, much longer and say every possible risk. But I don't think that's really what it means.

[Katie Greifeld]

They should go overboard.

[Matt Levine]

I don't think that's really what it means. I think what it means is, like, technically this is about disclosure, but it's not really because you can't possibly disclose everything that could go wrong. Right. Like, you have a risk factor that's like, what we do about DEI could cause a customer boycott. That's pretty good. That's like a pretty specific disclosure, but it's not specific enough. I think that what it means on its face is that everything is securities fraud. What it means on its face is that if you do something, then the stock price goes down. Doesn't matter what your disclosure said. There's some problem with the disclosure. No matter what, there's always something that you could have said that you didn't say and you can always get sued. And so it's a true case of everything is securities fraud. It's a true case of like any bad thing that a company does that causes its stock price to go down can be securities fraud without worrying about what its disclosure said. That's like one possible reading. I don't think that's the right reading. I think the right reading is that this is a conservative legal group picking a place to file this case with like a very Republican judge. And this sort of like anti dei, anti woke advocacy is like on the rise politically. And I've been writing about like the idea that everything is securities fraud for a long time, right? Like the idea that like anything you don't like that a public company does, you can say, well, what they really did is they failed to disclose it. And so it's securities fraud. And when I started writing about this like a decade ago, it was because the New York attorney general was suing, I think Exxon Mobil for not disclosing enough about climate change and basically saying, well, climate change is this like fraught political topic. But we can point to your securities disclosure and say, oh, you didn't like, warn investors enough that climate change was coming and would be bad for oil companies and therefore you're committing securities fraud. Ultimately the New York AG lost that case. But that was like where this idea started was this idea that we can use securities laws to pursue substantive political purposes. And what's happening now is like the same thing, but like from the other side politically right. Like, what's happening now is like if you don't like DEI initiatives, you can sue and call them securities fraud. And like, now you can win or you can like, you know, your case doesn't get dismissed. You've seen in the current sec, like there's been a lot of securities cases about climate disclosure. There's a case that I talk about a lot. This is a long Time ago the SEC sued SeaWorld for mistreating its orcas, I remember, and said that was securities fraud. And it's like all these like things that you can wrap up into securities route in the next four years with like a very Republican judiciary and like a Trump sec. It's going to be the reverse. It's going to be everything that conservatives don't like is going to be securities fraud.

[Katie Greifeld]

How does that make you feel? Because that feels like a lot of fodder for the Money stuff column and potentially the podcast. Does that excite you or do you feel tired?

[Matt Levine]

I feel tired. This decision seems wrong and not like traditional securities fraud reasoning. So I think there's going to be a lot of stuff where it's like, this doesn't really make sense.

[Katie Greifeld]

Yeah.

[Matt Levine]

But, you know, fodder for the calm.

[Katie Greifeld]

Totally different from ESG or dei. But in just talking about the disclosures and like, thinking about, you know, how does this change things about, you know, how companies disclose possible risks, it kind of reminded me of that short seller. I think it was Carousdale Capital with that very tongue in cheek letter, which was basically just like, assume we don't hold the stock anymore. I don't know. I could see some parallels there.

[Matt Levine]

Yeah. I think it's harder to do in, like, the corporate risk factor context. You can't be as sarcastic.

[Katie Greifeld]

No. That's too bad. I do wonder at what point, you know, it turns in on itself, if it does at all. Like, if you're disclosing every possible risk factor, if the stock does go down because of that risk factor, I mean, could they then get sued because, hello, you knew this was going to, you know, potentially hurt the stock price and you did it anyway. Or is that silly?

[Matt Levine]

Technically, that's not a securities fraud claim. That's a, like, state law fiduciary duty claim.

[Katie Greifeld]

Yeah.

[Matt Levine]

Which people are less excited to bring for various reasons. But no, sure. I mean, like, even when it's in a risk factor, like, often what happens is, like, a company says, if we got hacked, that would be really bad for us. And then like, once they get hacked, it's like you have this risk factor saying, if we get hacked, but you already got hacked and you haven't updated that risk factor, like you're deceiving us by saying, if we get hacked when you did get hacked. So there's a lot of that where even the existence of the risk factor creates a potential for more liability because you have to update the risk factor to cover what's actually happened already.

[Katie Greifeld]

How should we end this section?

[Matt Levine]

My summing up would be, I've said for 10 years that every bad thing that a public company does is securities fraud. And what's happening now is that what counts as a bad thing is shifting. You might think that polluting is bad, but the new vibe is that having ESG policies is bad and so a lot of stuff is going to be treated as bad and is then going to be treated as securities fraud because everything is securities fraud. I don't know. That was a very good summing up.

[Katie Greifeld]

That was good.

[Matt Levine]

It's fine.

[Katie Greifeld]

Everything's subjective. What is bad? I don't know.

[Narrator]

GiveWell, a nonprofit that researches and recommends giving opportunities, takes the impact of donations seriously. To ensure their recommendations withstand tough scrutiny, GiveWell had their own researchers spend months trying to identify flaws in their past work. They then published their findings, mistakes and all for any donors to use for their giving. It's this kind of rigor that can help your donation make a big impact on the world. GiveWell has now spent over 17 years researching charitable organizations and only directs funding to a few of the highest impact opportunities they've found. Over 125,000 donors have used GiveWell to donate more than $2 billion. Rigorous evidence suggests that these donations will save over 200,000 lives. If you've never used GiveWell to donate, you can have your donations matched up to $100 before the end of the year or as long as matching funds last. To claim your match, go to givewell.org and pick podcast and specify where you heard this ad. Make sure they know that you heard about GiveWell from this podcast.

[Katie Greifeld]

Success. It's discipline. It's teamwork. It's the drive and passion inside of us that comes before all recognition. It's the best in each of us, made better by the best in all of us. Whatever success looks like to you, Stifel is invested in yours. That's why Stifel is one of the fastest growing global wealth management firms in the country. So when you're ready to chase success, our financial advisors are ready for you. At Stifel, we invest everything into our advisors so they can invest everything into their clients. That means direct access to one of the industry's largest equity research franchises and a leading middle market investment bank. And it's why Stifel has won the J.D. power Award for Employee Advisor satisfaction two years in a row. If you're an advisor or an investor, choose Stifel. Where success meets success. Stifel Nicklauss & Co. Inc. Member SIPC and NYSE for J.D. power 2024 award information, visit jdpower.com awards compensation provided for using, not obtaining the award.

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[Katie Greifeld]

You know what's bad?

[Matt Levine]

No.

[Katie Greifeld]

Being fired. But you know what else I don't want that is super bad is insider trading.

[Matt Levine]

Wow. I don't want to be fired. I like insider trading. Oh, I mean, no, I mean, go on. I enjoy writing about insider trader. I have a soft spot for insider traders. So. Incredible SEC case this week. Ken Peterman was the CEO of a pretty small company called Comtech Telecommunications. And the following sequence of events allegedly occurred. One, he got like their earnings results, like a few weeks before they were announced. They were terrible. Right. Two, he got called into a meeting with like a lawyer doing an investigation of his alleged sexual relationship with a subordinate. In this meeting, he, one, confessed to that relationship and two, confessed that he had had someone else watch the like, mandatory sexual harassment training video for him because he was too busy to do it.

[Katie Greifeld]

Just like a real woman.

[Matt Levine]

He was busy doing sexual harassment.

[Katie Greifeld]

Right? Right.

[Matt Levine]

Probably not. But I read a lot about like accounting firm partners or whatever who, you know, don't take their regulatory continuing education requirements seriously. But if you're like doing sexual harassment, you should really watch the sexual harassment video. Yeah, you'll learn something.

[Katie Greifeld]

Well, maybe he thought it wasn't, which is also why he should have watched the video.

[Matt Levine]

Right.

[Katie Greifeld]

Would have maybe realized the error of his ways.

[Matt Levine]

Anyway, anyway, so that happened in this meeting.

[Katie Greifeld]

Cool.

[Matt Levine]

And shortly after the meeting, the board called him and said, we're going to fire you for cause. And then he called his broker and tried to sell all of his stock in the company.

[Katie Greifeld]

Sell it all.

[Matt Levine]

Then the next day the company announced that he was fired and the stock fell like 27%. And then a few days later, they announced the earnings of the stock fell even more. So by selling the stock, he avoided something like $12,000 of losses, which is like this is a small company.

[Katie Greifeld]

Right, Right.

[Matt Levine]

Anyway, the SEC says this insider trading, you read the description of what he was doing. It was in a blackout period. So the company had a policy saying executives can't trade the stock in the couple of weeks before earnings are announced because they worry about exactly what happened, which is that here he knew the earnings before they were public and he was trying to trade stocks during the earnings. And so he tried to sell stock and his broker was like, aren't you in a blackout period for executives? And he said, I'm not an executive anymore. He's not an insider. It's not insider trading.

[Katie Greifeld]

That seems pretty watertight.

[Matt Levine]

No, it's not.

[Katie Greifeld]

I'm just kidding. I promise, I promise.

[Matt Levine]

But in any case, it's a little unclear what his defense or what his reasoning was. But to me, one, you're not an insider anymore, not subject to the blackouts. And by the way, the company told him he was subject to the blackout even after he was fired, and he probably was. But there's an argument. I didn't know I was subject to a blackout. I had been fired. But then the other thing is, I just think that you should be able to do a little insider trading out of pique. He was mad at them, they fired him. Why should he keep on the stock?

[Katie Greifeld]

We're all entitled to fits of passion where we just sell a lot of stock.

[Matt Levine]

Right. It's not that he was. I mean, it probably was, but like it maybe wasn't that he was like trying to sell the stock before it went down. He was just like mad at the company, didn't want to own the stock anymore.

[Katie Greifeld]

Yeah, we've all been ticked off before, so would it.

[Matt Levine]

I should be his defense lawyer. Not really. Maybe.

[Katie Greifeld]

Hey, Ken Peterman, if you're listening. But I mean, it's insider trading. Whatever. But what if the earnings had been really great and the stock actually went up by 25% after earnings, but he had sold all his stock? Do you think that he would still be in hot water?

[Matt Levine]

No, because they've only really been cases where it's like you had material non public information and active on it. And here in your hypothetical, it wouldn't seem like he was acting on material information because it went the other way.

[Katie Greifeld]

He was just following his emotions.

[Matt Levine]

He's following his motions.

[Katie Greifeld]

Yeah.

[Matt Levine]

I don't know, man. You sell the stock an hour after you get fired. You're not making a calculation of.

[Katie Greifeld]

No.

[Matt Levine]

Maybe you are. I don't know. I wrote once about the CEO of Ajax, the Dutch soccer club. They hired him and after his job interview, he was like, I'm going to be the CEO.

[Katie Greifeld]

I crushed that.

[Matt Levine]

I crushed that. I'm going to be the CEO. I want to own the stock of the company. I'm the CEO. So he went out and bought a bunch of stock and then they rescinded the job offer because they're like, he's insider trading. Whoa. Ultimately, he got like a different job there. Like it was. They toned down the punishment, but they initially thought it was not okay for him to buy the stock before he was announced. The CEO.

[Katie Greifeld]

That feels like thin gruel. But what do I know? I cover ETFs in a newsletter called ETF IQ.

[Matt Levine]

People love it in the ETF world. You're a celebrity.

[Katie Greifeld]

I mention it because we got an email to the podcast Mailbag asking why I don't promote the fact that I also have a newsletter. But it just felt, you know.

[Matt Levine]

Some emailers to the podcast wish that it was much, much more about ETFs, others much less.

[Katie Greifeld]

Some writers to the Mailbag wish that we didn't talk about ETF so much. But thank you for writing it and thank you for reading ETF IQ Mailbag Mailbag. Hey, write in to the podcast moneypodloomburg Bet.

[Steve McCloskey]

Yeah.

[Katie Greifeld]

The holidays quickly approaching, we want to do another Mailbag episode. Appreciate everyone who's written in so far, but keep them coming.

[Matt Levine]

And that was the Money Stuff Podcast. I'm Matt Levine.

[Katie Greifeld]

And I'm Katie Greifeld.

[Matt Levine]

You can find my work by subscribing to the Money stuff newsletter on Bloomberg.com.

[Katie Greifeld]

And you can find me on Bloomberg TV every day on Open Interest between 9 to 11am Eastern.

[Matt Levine]

We'd love to hear from you. You can send an email to moneypodlumberg.net Ask us a question and we might answer it on air.

[Katie Greifeld]

You can also subscribe to our show wherever you're listening right now and leave us a review. It helps more people find the show.

[Matt Levine]

The Money Stuff Podcast is produced by Anna Mazarakis and Moses Andam.

[Katie Greifeld]

Our theme music was composed by Blake.

[Matt Levine]

Maples, Brendan Francis Newnham is our executive.

[Katie Greifeld]

Producer and Sage Bauman is Bloomberg's Head of Podcasts.

[Matt Levine]

Thanks for listening to the Money Stuff Podcast Podcast. We'll be back next week with more stuff.

[Katie Greifeld]

Thanks for listening to the Money Stuff Podcast. If you never want to miss a story, become a Bloomberg.com subscriber today. Check out our special intro offer right [e-mail] podcastoffer or click the link in our show notes. You'll also unlock deep reporting, data and analysis from reporters around the world.