Saturday, October 6, 2018
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 aficionados, the article also has a soupcon of market manipulation: Fred Trump would buy stock in companies just before Donald Trump leaked an intention to take them over, causing a quick boost in the stock price.
2) Another expose, this one from the Washington Post, on the fate of small investors in Trump hotels. These investors bought individual units as condominiums, in the expectation that the Trump organization would rent them out and, after deducting maintenance fees, pay them the income. Problem is, after 2016, business has plummeted in New York and Chicago, leaving these investors with large losses. An interesting tale of corporate governance and, if you like, a timely hypothetical regarding application of the Howey test to condo sales. (Also, for those interested in reporting process, here is a Tweet thread explaining how WaPo developed the story.)
3) Finally, I previously posted about a pending oral argument in Delaware Chancery on the question whether corporate charters and bylaws can impose litigation limits (forum selection clauses, etc) on federal securities claims, in addition to placing limits on Delaware internal affairs claims. That argument, in the case of Sciabacucchi v. Salzberg, 2017-0931, took place on September 27, and the transcript is available from the Chancery court reporters. Attorneys did most of the talking, but towards the end of the hearing, VC Laster honed in on the critical question: if charters and bylaws can extend to cover claims not governed by Delaware law or the internal affairs doctrine, how much further can they go? William Chandler – yes, that William Chandler, former Delaware Vice Chancellor, now with Wilson Sonsini – argued that they extend to any claim that deals with the stockholder’s rights as a stockholder; VC Laster expressed concern about defining the appropriate relationship between the claim and the plaintiff’s stockholder status. At the same time, he acknowledged that ultimately the issue will probably be resolved not by him, but by the Delaware Supreme Court.
That’s all – here’s looking forward to another deadly dull week.