Attorney At Law
Over the last couple of months, two major stories have dominated the headlines in financial publications: Elon Musk’s takeover of Twitter and the collapse of Sam Bankman-Fried’s crypto exchange FTX. Although they are very different situations, both have commentators and policymakers suggesting it may be time to tighten up the rules regulating the misappropriation of company assets.
Vaziri Law LLC is keeping a close eye on the conversation around this topic since business owners, shareholders, and employees in the Chicago area are often accused of misappropriation of assets during disputes. If the law in this area changes, it will have a broad impact.
What is a Misappropriation of Company Assets?
Misappropriation of assets is theft or fraud carried out by a business owner, shareholder, or employee. Assets that are owned by the business or meant for use by the business are instead taken for personal use or fraudulently diverted to another person or company.
Stolen money may take the form of cash, checks, or electronic transfers. Other assets that can be taken are physical goods — including product inventory — and services the business has contracted for.
Misappropriation of assets is often alleged in civil lawsuits, but it is also a criminal offense under both Illinois and federal law.
Musk and Bankman-Fried Both Accused of Misappropriation
Two of the stories that have dominated the financial press for the past few months include accusations of the misappropriation of assets and hints that policy-makers may soon make changes to this area of the law.
When Elon Musk took over Twitter last fall there were immediate questions about his ability to serve as CEO of both it and Tesla (not to mention SpaceX and his many other ventures). Senator Elizabeth Warren, who is known for her interest in business regulation, has suggested this is a question Congress should also consider. In a letter to the chairman of Tesla’s board of directors seeking information about the board’s oversight of Musk, Warren noted:
The first weeks of Mr. Musk’s Twitter ownership have raised questions about possible violations of securities or other laws, including whether Mr. Musk is funneling Tesla resources into Twitter, a potentially “ improper diversion of resources that might impact Tesla’s sales and earnings” and could result in “delays in programs at Tesla.” According to press reports, in late October, Mr. Musk “pulled more than 50 of his trusted Tesla employees, mostly software engineers from the Autopilot team, into his Twitter takeover,” including key staff such as Tesla’s Chief Information Officer, Director of Software Development, Director of Software Engineering, Autopilot Project Manager, Senior Manager of DevOps, and a senior manager of security intelligence. Reports noted that “[i]t is not immediately clear how Tesla employees are expected to split their schedules between the automaker and Twitter” or whether and how they will be reimbursed for those efforts.
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This use of Tesla employees raises obvious questions about whether Mr. Musk is appropriating resources from a publicly traded firm, Tesla, to benefit his own private company, Twitter.
It will be interesting to see if the Tesla board responds, and whether any policy-makers other than Warren take up this inquiry.
Congress is certainly not taking a wait-and-see approach in the other headline-generating situation where misappropriation of assets is alleged. During a Congressional hearing on FTX held shortly after it declared bankruptcy and its founder, Sam Bankman-Fried, was indicted, the company’s new CEO testified:
“This is really old-fashioned embezzlement. This is just taking money from customers and using it for your own purpose.”
Additional Congressional hearings are planned, and some sort of regulatory response is expected.
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These developments at Twitter and FTX are huge, market-moving events. They might also be law and policy-altering events. If they end up causing changes to the law on misappropriation of assets, the impact will also be felt by small and medium-sized businesses in disputes that don’t make headlines.
Business owners, shareholders, and employees in the Chicago area can count on Vaziri Law LLC to stay up-to-date on any changes in this area of law. We have a proven record of achieving positive outcomes in and out of the courtroom for our Chicago area clients, and are ready to take your call if you are involved in a case alleging the misappropriation of assets. Please contact us today to schedule a meeting.