• Transcript
  • Show Notes

On this week’s episode of Stay Tuned, “Because More,” Preet answers listener questions about the guilty verdict in the murder trial of former Minneapolis police officer Derek Chauvin.

Then, Preet interviews New York Times financial columnist and CNBC co-anchor Andrew Ross Sorkin about the problem of financial illiteracy, why wealthy people want even more, and what in the world a “SPAC” is. 

Finally, in a special button to the episode, Preet speaks with his brother, CAFE Studios founder Vinit Bharara, about their shared childhood memories, the origins of Stay Tuned, and the changing media landscape.

In the Stay Tuned bonus, Sorkin talks about an unusual social experiment he recently conducted while running through Central Park. He also discusses his role in the creation of Showtime’s Billions, the TV drama (very) loosely based on one of Preet’s high-profile prosecutions.

Stay Tuned has been nominated for another Webby People’s Voice Award! This year, we’re up for Best Individual News & Politics podcast episode for our February 2020 conversation with Dan Goldman, his first interview after serving as Lead Majority Counsel during the first impeachment of President Trump. Vote for us here: https://bit.ly/3tKYi8o

To listen to the bonus, try the CAFE Insider membership free for two weeks and get access to the full archive of exclusive content, including the CAFE Insider podcast co-hosted by Preet and former U.S. Attorney Joyce Vance. 

Sign up to receive the CAFE Brief, a weekly newsletter featuring analysis by Elie Honig, a weekly roundup of politically charged legal news, and historical lookbacks that help inform our current political challenges.

As always, tweet your questions to @PreetBharara with hashtag #askpreet, email us at [email protected], or call 669-247-7338 to leave a voicemail.

Stay Tuned with Preet is brought to you by CAFE Studios and the Vox Media Podcast Network. 

Executive Producer: Tamara Sepper; Senior Editorial Producer: Adam Waller; Technical Director: David Tatasciore; Audio Producer: Matthew Billy; Editorial Producers: Sam Ozer-Staton, Noa Azulai, David Kurlander

REFERENCES & SUPPLEMENTAL MATERIALS

Q&A

  • “Derek Chauvin Trial: Chauvin Found Guilty of Murdering George Floyd,” New York Times, 4/20/21
  • “A Just Verdict,” CAFE Insider, 4/20/21
  • Tim Arango, “Derek Chauvin faces three charges. Here’s how his sentencing could unfold.” New York Times, 4/20/21
  • Blakely v. Washington, 542 U.S. 296 (2004)

THE INTERVIEW

  • Andrew Ross Sorkin Tweet about running in Central Park, 4/19/21
  • Diana B. Henriques, “Bernard Madoff, Architect of Largest Ponzi Scheme in History, Is Dead at 82,” The New York Times,” 4/14/21

FINANCIAL LITERACY

WALL STREET PSYCHOLOGY 

  • Grant McCool and Basil Katz, “Rajaratnam convicted on all insider trading charges,” Reuters, 5/12/11
  • Emma Newburger, “Ex-Goldman director Rajat Gupta says he’s innocent seven years after insider trading conviction,” NBC, 3/22/19
  • Theo Francis and Kristin Broughton, “CEO Pay Surged in a Year of Upheaval and Leadership Challenges,” Wall Street Journal, 4/11/21

STOCK TRADING IN CONGRESS

  • Andrew Ross Sorkin, “A Simple Way to End Questionable Stock Trading by Lawmakers,” New York Times, 1/5/21

SPACs

  • Andrew Ross Sorkin, “Wall Street’s New Favorite Deal Trend Has Issues,” New York Times, 2/10/21
  • Andrew Ross Sorkin, “How to Fix SPACs: Keep Their Backers Locked In Longer,” New York Times, 3/31/21

GAMESTOP

  • Matt Phillips and Taylor Lorenz, “‘Dumb Money’ Is on GameStop, and It’s Beating Wall Street at Its Own Game,” New York Times, 1/27/21
  • GameStop stock history, Yahoo Finance

How does money change people?

Top financial columnist Andrew Ross Sorkin shares the lessons he’s learned from a career covering Wall Street’s most powerful players. 

New York Times columnist Andrew Ross Sorkin is perhaps the most well-sourced journalist on Wall Street. In the process of writing Too Big to Fail, the definitive account of the 2008 financial crisis, he spent hundreds of hours talking to top CEOs, regulators, and policymakers. What he learned about human nature may surprise you.

This transcript has been edited for clarity. Published April 22, 2021. 

Preet Bharara:

From CAFE and the Vox Media Podcast Network, this is Stay Tuned. I’m Preet Bharara.

Andrew Ross Sorkin:

Whether you have a fancy title on your business card or you have $1 million in the bank or $1 billion in the bank, the human instinct, I don’t think, is actually that different. People want more.

Q&A

Preet Bharara:

That’s Andrew Ross Sorkin. He’s a columnist for The New York Times, where he serves as the editor-at-large of DealBook, the daily financial report he founded in 2001. He’s also a co-anchor of Squawk Box, a business news program on CNBC. Sorkin is the go-to authority on all things Wall Street, and it’s been that way for a long time.

 In 2009, he authored Too Big to Fail, the definitive account of the 2008 financial crisis. Today, Sorkin joins me to discuss the psychology of Wall Street titans, the relationship between the stock market and the economy, and what it was like to interview Bernie Madoff. That’s coming up. Stay tuned.

Hey, folks, exciting news. Stay Tuned with Preet Bharara has been nominated for a People’s Voice Webby Award for best episode of a news and politics podcast. The episode features my conversation with Dan Goldman last year, who offered us his first interview after serving as lead House majority counsel during the first impeachment of President Trump. Head to webbyawards.com to vote. You can also find a direct voting link in the show notes of this episode. Thanks as always for your support.

Before I get to your questions, I want to mention that you should stick around to the end of the show. I have a special surprise, a one-on-one with my brother Vinit Bharara.

So I’m recording this on the morning of Wednesday, April 21st, and still processing and digesting the historic verdict in the case against Derek Chauvin for the murder of George Floyd. I spoke about it yesterday on the CAFE Insider podcast and also we talked about the case together with Joyce Vance, and I’ve received some questions about it, so I’ll answer those. Of course, there’ll be a lot more to discuss in the coming days.

The one thing I want to reiterate is just how important this verdict was, not just for the stakeholders in that particular case and the family of George Floyd but for the country and the sense of relief that so many people have felt, which is natural.

I’ve been in a lot of courtrooms and I’ve seen and taken a lot of verdicts, including in cases that I personally tried. I think my heart was beating just as fast waiting for the verdict to come back in the Chauvin case, as any other case, that I had a personal involvement in.

Because we had an hour’s notice that the verdict was coming, and my kids were all home, we all gathered in the family room, which is an unusual event in my house lately, together as a family to see what the verdict was. I’ll never forget that.

So the case is not over. More things have to happen. We’ve gotten questions about the sentencing, as you may know, on the three counts on which Derek Chauvin was convicted. He faces statutory maximums of 40 years, 25 years, and 10 years respectively. He probably won’t get that, but those are the statutory maximums. Sentencing will be in about eight weeks, but between now and then, the judge has to take many things into consideration. And here’s a question about that in an email from listener Kyle.

“Hi, Preet. After Chauvin’s guilty verdict was read, the judge mentioned something called Blakely factors. Can you explain what that means and how it affects this case? Thanks, Kyle.”

Preet Bharara: So the Blakely factors, as they’re called, come from US Supreme Court case from 2004 called Blakely v. Washington. It’s one of a number of cases that basically held that in connection with sentencing, any fact that increases what the proper sentencing should be for a defendant needs to be found beyond a reasonable doubt by the jury. The judge ultimately renders the sentence, imposes the sentence, but if there’s some fact like drug weight or something else that affects the range of sentencing, the defendant has a right for that to be determined by the jury.

In Blakely, the Supreme Court held that the presumptive sentence was whatever the sentence would be under the guidelines, federal, state, or otherwise. Here the prosecution has indicated that it seeks an upward departure from whatever the guidelines would ordinarily suggest based on a couple of factors, including that the killing of Mr. Floyd happened in the presence of children, that Mr. Floyd was treated with particular cruelty, and that he abused his position of authority as a police officer.

Now although it’s the case under Blakely that Chauvin had the right for the jury to decide those things, he waived that right and allowed it to be determined by the court. So the court, when it considers these aggravating factors like particular cruelty and abuse of position of authority, will get a briefing from the parties. There’ll be a hearing, an argument about it, and then the judge will decide.

Here’s a question in a tweet from Brandon, @bjm11, who asks, “When Chauvin appeals, one, is the court required to give him another hearing or can that be declined? Two, would a subsequent trial start on a fresh slate, or does the prior guilty verdict have any impact?”

Preet Bharara: So, first, let me say as an initial matter, Chauvin has a right of appeal no matter what and, in most jurisdictions, there is an oral argument. So it wouldn’t be a hearing, but there’d be an argument in which Chauvin and the prosecutors will argue about whether or not there was some error that the trial court engaged in that should undo the trial verdict.

I think, by and large, Judge Cahill did a pretty good job, but the defense lawyer made a record, and every single time he objected to something and his objection was overruled, can form an arguable basis for appeal. The defense lawyer, for example, complained about how the prosecution, in its rebuttal summation and otherwise, belittled the defense. There was an objection to proceeding with trial on the timetable that it did and in the venue where it did because of potential prejudice that came from the $27 million settlement.

On the eve of the trial commencing, there were issues about jurors. There’s an issue about Representative Maxine Waters having said something about not accepting an acquittal in the case. All of those points were made by defense counsel. They could form the basis for an appeal.

My judgment is very, very unlikely for any of those points to be successful. But in case it were, going to your second question, and the verdict were overturned and there was a new trial scheduled, the prior guilty verdict per se has no effect. You begin with a clean slate with the presumption of innocence, with the overwhelming burden of proof resting on the prosecutor’s shoulders to have to prove once again to unanimous jury.

There are some complications that could potentially arise depending on how the second trial will unfold, which I don’t think will take place, but to honor the hypothetical, I’ll mention a couple of them. One is jury selection will be more difficult.

It was already difficult, given how sensational the case was and how much public information there was about the case, to find people who knew some of the facts of the case, could they be fair or not? It’s going to be hard to find people who were not aware of the fact of the prior guilty verdicts. Naturally, that might affect some people’s abilities to be fair if there were a second trial, so jury selection will be a challenge.

Then, second, to the extent some of the witnesses in a potential second trial testifying in a way that’s in variance with how they testified in the first trial, you can imagine the judge allowing cross-examination of those witnesses based on the different testimony. They would have to be careful not to indicate that there was a prior trial of Derek Chauvin and that there was a guilty verdict. There are ways to get around that.

But anytime people testify twice, it can create complications for those witnesses and the side that calls that witness. As I mentioned, jury selection might be a little bit trickier. But as I said, I don’t expect there to be a successful appeal here. It’s time for a short break. Stay tuned.

The Interview

Preet Bharara: My guest today is Andrew Ross Sorkin. He’s a financial columnist for The New York Times and a co-anchor of Squawk Box on CNBC. Sorkin is perhaps the most well-sourced journalist on Wall Street. Every morning, he publishes DealBook, a business newsletter that is essential reading for CEOs and policymakers alike.

Today Sorkin joins me to discuss CEO pay, how money changes people, and whether we should be worried about some of the recent trends on Wall Street. Andrew Ross Sorkin, welcome to the show.

Andrew Ross Sorkin:

Thanks for having me.

Preet Bharara:

Long overdue. I don’t know what’s taken us so long.

Andrew Ross Sorkin:

I’m a big fan and a long time listener. So it’s a privilege to be here with you.

Preet Bharara:

And first-time caller.

Andrew Ross Sorkin:

Yes, very much so.

Preet Bharara:

Before we start, I just want to say one thing off the top. We were scheduled to record this interview on Tuesday of this week, April 20th. The time is set for some days, and you’re a super busy person. The time set was 4:30. We got on the Zoom, as we do now in the pandemic, and the whole world was waiting for the verdict in the Derek Chauvin case. You very gallantly suggested let’s put this off so you and us and everyone else can see what happens with the verdict. It’s a big important date. And so, I appreciate that. We rescheduled for this morning because you were a gentleman. I appreciate it.

Andrew Ross Sorkin:

Well, I appreciate you. I also knew that this was a big moment in our country. Also, given what you do and the important commentary work you do and everything else, that this was something you needed to be focused on. So I thought interviewing me was not what you needed to be doing.

Preet Bharara:

Well, this is very important, but I think it’ll be a less distracted and more focused interview. As far as I’m concerned, it was the right result yesterday. We’ll see what more good comes of that.

Preet Bharara:

Here’s the thing that happened recently, and it made me think of a conversation that you and I had some years ago, and that is the passing of Bernie Madoff, the most epic Ponzi schemer in history, who was prosecuted by my office, the Southern District of New York. You had occasion to spend a lot of time with him I think five years ago, 2016.

Andrew Ross Sorkin:

Yup.

Preet Bharara:

What did you feel when he passed away? Tell folks what it was like to spend hours with him in his prison.

Andrew Ross Sorkin:

Oh goodness. What I felt more than anything as a journalist was actually regret because I, even to this day, don’t believe that the public got to see him truly face … Not justice, because obviously he was imprisoned, but face real questions about his conduct and his behavior.

Andrew Ross Sorkin:

As you know, what I was trying to do and the reason I was going down and visited with him in prison twice was effectively to persuade him and ultimately the prison to allow us to bring cameras inside for the first time, because he’s done some interviews but all written in either books or magazines or whatnot.

Andrew Ross Sorkin:

But to me, for the public to see what deception looks like and to viscerally be able to see that I always thought would be very worthy, in part because as a culture, I don’t think oftentimes … And I don’t mean to say this cynically, but that we as a culture are not skeptical enough, especially when it comes to our own personal finances and really trying to understand what’s going on with these things. I think it would have served just an important public service for people to see it.

Preet Bharara:

Like a warning? Like a cautionary tale?

Andrew Ross Sorkin:

I believe it not because it would have been revelatory in so far as that his answers would have shocked you, but because, at least for me, it was just such a profound demonstration of deception. In fact, even for me when I remember visiting with him, there were times he would tell these enthralling stories that all sounded true and you’d believe it. Then I remember leaving the prison once standing in the parking lot and it was like you couldn’t tell what was fact or fiction. I think that-

Preet Bharara:

Do you find him to be contrite at all?

Andrew Ross Sorkin:

The first time I went down there, he was not contrite at all. Not contrite at all. I mean it was like the opposite of contrite, which I also think would have been fascinating for the public to see. The second time I went down, I mean, in truth, I think he cried for like two hours. It was fascinating, which also, of course, raises so many questions about what I saw the first time. Maybe this goes back to the idea of the way a sociopath acts.

Preet Bharara:

But what did you ask him that got him to cry for two hours.

Andrew Ross Sorkin:

It’s funny, I’m not sure what inspired the crying. I do remember talking about his son who’d committed suicide. But I think he was so sad about his condition. And so, the question was was he contrite or was he just depressed about his own situation?

Preet Bharara:

When you talked to him, did you think to yourself, “I can see how this guy fooled and ripped off so many people, many of whom were sophisticated,” not all, but many, or did you find yourself thinking, “How the hell did this guy swindle people out of literally billions of dollars”?

Andrew Ross Sorkin:

Oh no, I could see it. I could see it. In fact, it was so clear to me because he was a remarkable storyteller. I mean, look, here I was, I know his background, I know the story, I know he swindled billions of dollars out of people, and then I’m believing certain stories he’s telling me in the moment. In fact, as I said to you, I almost had to double back in my head to realize, “Okay. Even that I’m not sure it was true.” So there was something … To say he had a talent maybe is overstating the case, but he had a talent to be convincing, no question.

Preet Bharara:

In your travels talking to people, I used to use the term sophisticated person, who we think of as somebody who’s inured to lies and being cheated. Time-after-time, when I write about some of these examples in my book, people who we think of as polished and sophisticated and smart get duped. Do we make too much of a distinction in the financial world between sophisticated and unsophisticated people?

Andrew Ross Sorkin:

Yes and no. I think that there is a level of sophisticated person who clearly understands the markets and finance and economics at a level, frankly, that puts them at a remarkable advantage. I mean I would argue the markets themselves have never been a true level playing field, in part because of that and because of a financial literacy that exists. But at the same time I think there’s a lot of folks, even at that level, that are willing to either close their eyes or believe in all sorts of things.

Andrew Ross Sorkin:

By the way, I think we’re in a bit of a … Whatever you think this Dogecoin, Bitcoin, whatever, there’s a bubble going on of some sort with lots of, arguably, very sophisticated people who believe. They’re believers. Even the most sophisticated, I think, can get sucked into certain things.

Preet Bharara:

You mentioned financial literacy. I’ve asked this question of a number of people. What do you think is the rate or level of financial literacy in America?

Andrew Ross Sorkin:

Abysmally low. I think most people have no idea.

Preet Bharara:

Is that because people don’t watch CNBC every day?

Andrew Ross Sorkin:

No. It’s because some of this stuff is hard, but, more importantly, it’s really not taught in most places, especially at young ages. So the idea of credit, is credit a good thing? Is credit a bad thing? How does credit really work? That’s a fundamental part of our economy, and I can tell you that credit can be a great thing, credit can be a terrible thing, but you have to understand it to some degree before you can even begin to even think about it or opine on it.

Andrew Ross Sorkin:

So I’m just not sure that people appreciate a lot of these issues. I think it has huge implications for public policy, how we think about tax policy in America, how we think about R&D, how we think about incentives. I mean all of these things have such a huge impact on society, and yet I think if you really talk to people around the country, there’s just a very … And I hate to say it because people will think that you’re effectively saying they’re ignorant, and that’s not what I’m trying to say. But I think there’s not necessarily a particularly acute sophistication about understanding a lot of these issues.

Preet Bharara:

Separate from the policy issue, it has an impact and effect on people’s own personal finances. Then on the one hand, you say, well, if you’re not sophisticated or very immersed in these issues, how to manage your money, you’re supposed to rely on a financial planner or some other person, a stockbroker, if you have enough money to invest in stocks. Then you have people like Bernie Madoff who take advantage. It’s hard to know who to trust and who not to trust.

Preet Bharara:

I guess one question I have is … I was only half-kidding about CNBC. If you’re a thoughtful person who’s listening to this program and you want to become more educated on issues of finance and the stock market and everything else, what’s your advice to them? Should they watch you every day? Are there books that they can read? Should they pick up the Wall Street Journal? Is there something more obvious than that, or less obvious?

Andrew Ross Sorkin:

I think it’s a combination of all of those things. But I think the most important thing is to actually do research. Look, I think there are some great instructional stuff online that’s really helpful. I think you need to be reading the newspaper every day, whether it’s the Wall Street Journal or The New York Times, hopefully DealBook.

Preet Bharara:

Yeah. Look, I’m sorry. I didn’t mean to mention the Wall Street Journal, Mr. New York Times.

Andrew Ross Sorkin:

No, no, no, no.

Preet Bharara:

I forgot who I was talking to.

Andrew Ross Sorkin:

No, but you should absolutely … I mean I think everybody should be-

Preet Bharara:

You read all the papers, right?

Andrew Ross Sorkin:

For me, personally, I read everything. But I think all of that is helpful in terms of trying to get your head around what all of this means, whether it’s your personal finances that you’re trying to figure out or whether it’s some of these larger, as I said, policy issues and where you stand politically on them. I think it’s important to try to get educated on what all the different component parts are.

Andrew Ross Sorkin:

By the way, also to listen to both sides, especially when it comes to the policy stuff, because these things, on the surface, oftentimes sound very political. But if you actually dig in and you can look at the numbers, and once you understand it, you can make your own decisions about it.

Preet Bharara:

So maybe you can help educate me on something, or some things, with respect to the stock market. So the stock market, politicians say with great emphasis the stock market is not the economy, does not reflect the economy. Is that a slogan or is that correct?

Andrew Ross Sorkin:

It’s right and wrong. The stock market reflects what we’ll call the investor class, and some of the investor class, of course, are retail investors, which means people on the street who have views, and more and more people on the street, if you will, and I’m not talking about Wall Street, are investing. So there is a I don’t know if you’d call it wisdom of crowds issue going on, but it’s what …

Andrew Ross Sorkin:

The market is projecting out what people think the economy’s going to look like 12 months, 18 months, 24 months out from now. So during the pandemic, one of the things that I think blew everybody’s mind … By the way, including my own all the time … was we hear these terrible things going on in terms of unemployment rate, the economy falling. It’s just terrible, everything tragic. And yet you’d see the stock market go up and you’d like, “What is going on here? This is crazy town. This makes no sense.”

Andrew Ross Sorkin:

The truth is what was happening was investors were saying, okay, we’re not looking at what happened today or even in the rear-view mirror, what happened yesterday. We’re effectively making a bet that 12 months from now, 18 months now, the vaccine will be out, people will go back to work, and what’s that world going to look like.

Andrew Ross Sorkin:

I guess the answer to your question is while the stock market doesn’t necessarily reflect the economy per se, especially right now … And, by the way, people can be wrong because they’re guessing. This is all a bit speculative. The speculation, if you will, is that the economy will be better. And so, there is a bit of a correlation, but not in the here and now.

Preet Bharara:

Should everyone who has some savings be in the stock market?

Andrew Ross Sorkin:

Oh, goodness. No, I-

Preet Bharara:

Do we need to have some kind of a caveat here and say, “Mr. Andrew Ross Sorkin is not providing financial advice. You invest at your own risk”?

Andrew Ross Sorkin:

Thank you, counselor. Thank you, counselor.

Preet Bharara:

Is that better?

Andrew Ross Sorkin:

Yes, because I don’t like to offer true stock advice. Look, my sense is that if you have some savings, over time, it is better to be in the stock market than not on a long term basis, as long as you’re a longterm investor. If you’re buying into a stock index and you plan to be there for 10, 20, 30 years, yes, absolutely. If you’re telling me that you need this money six months from now, no. It’s a very bad idea to put that money into the stock market.

Preet Bharara:

Because anything can happen. It can enter a pandemic.

Andrew Ross Sorkin:

Anything can happen. A pandemic can happen. Who knows? Who knows what’s going to happen tomorrow?

Preet Bharara:

But do you think … I mean you’ve answered this. Is there any real rationality to the market? You’ve been covering it and writing about it and thinking about it for years and years, so your pronouncement matters to me.

Andrew Ross Sorkin:

I do think it’s reflective of where the economy is going. I think that’s true. I mean I think you saw where we were-

Preet Bharara:

Where people think it’s going.

Andrew Ross Sorkin:

Where people think it’s going, yes. I think it is a-

Preet Bharara:

And people are often wrong, just like they are about politics and about Donald Trump and everything else.

Andrew Ross Sorkin:

People are often wrong, but I think as a signal indicator, if you will, of where people think things are going, absolutely. By the way, there are companies that make money. You can see their balance sheet and you can see if they’re making more money this quarter or less money this quarter and if they’re employing more people or less people. There’s no question.

Andrew Ross Sorkin:

You look at a company like Amazon, its stock has gone through the roof. It’s actually come back a little bit. But that company has been a great success story and became an even greater success story during the pandemic, and the stock market reflected that.

Preet Bharara:

Look, I remember when Amazon began and had its rise. I would hear people say about Amazon what a lot of people say about some other companies, and maybe there are distinctions to be made. But in the late ’90s … I may have this off by a few years. But in the late ’90s and the early 2000s, Amazon kept growing and growing and growing, and there was no profitability in sight.

Andrew Ross Sorkin:

I remember the same thing. People used to call it … I remember there was a cover story … I think it was Fortune or Forbes who said amazon.com. Dot com.

Preet Bharara:

Right. How did Amazon do during the pandemic?

Andrew Ross Sorkin:

Fabulously. I mean unbelievably.

Preet Bharara:

And profitability?

Andrew Ross Sorkin:

Huge.

Preet Bharara:

Gigantic.

Andrew Ross Sorkin:

But that required a remarkable level of patience among the investor class. There was a belief that that Jeff Bezos was going to get there. He was given dispensation, a way, frankly, that most companies don’t have, to make these longterm investments, to lose money for as long as he did.

Along the way, it’s worth noting that while you and I and most people think of Amazon as a prime membership or something that brings you packages to your home, a huge part of the business, developed in the middle of it, called AWS, which is effectively a cloud service, which is actually the most profitable part of that business, and it helped, to some degree, subsidize the rest of everything else and allow that to then build and grow.

Preet Bharara:

But to some people, I guess this is true. As I say it, I realize it must be true of some folks. They look at the Amazon story and they think back … Well, I thought that lots of people thought of amazon.com as amazon.com, as you mentioned. Now when I have an investment opportunity, with respect to something that’s new and different as Amazon was at the time, and it’s not profitable and there’s no near-term expectation of profitability, I think to myself, “Well, this could be the next Amazon,” and I could be on easy street and early retirement if I put all my money in this. How often does that happen?

Andrew Ross Sorkin:

I mean what you’re speaking to me-

Preet Bharara:

It’s the American dream.

Andrew Ross Sorkin:

… is the American dream. But, in many ways, Amazon was do you shoot the moon American dream and it succeeded. The truth is that so many of the other companies that also had no earnings or revenue back then disappeared and went bankrupt.

And so, it is very hard to really be able to choose and be able to identify a company at that early stage as a winner. The venture capital model is effectively most of the investments are going to fail, and you’re hoping a couple of your investments are grand slam home runs, because the rest of them, you do not even get to first base.

And so, it really depends on how you think about how you invest and do you have a portfolio. If you’re investing in 30 different companies and you’re just praying and hoping against hope that one works, that might actually not be a bad way to do it. If you’re putting your chip down on one of these companies and that’s it, that’s a riskier play.

Preet Bharara:

So we talked a little bit about sophisticated people, sophisticated investors, whatever that means. But there is a definition that’s applicable in connection with putting money into a hedge fund. You spend a lot of time thinking about hedge funds. I have from a prosecutorial standpoint, and we’ve prosecuted people who are hedge fund managers, prosecuted firms that are, in fact, hedge funds themselves.

This was not a concern of mine when I was in office. My concern was about insider trading and criminality and misconduct and ripping people off and that sort of thing. As a practical matter, do you know what percentage of hedge funds over time beat the S&P 500?

Andrew Ross Sorkin:

Oh, for the most part, they don’t.

Preet Bharara:

They don’t? So explain this to me. Any idiot like myself … And I don’t mean to call the people idiots. I’m calling myself an idiot. If you do what they say and you dollar-cost average, meaning if you’re lucky enough to have excess savings, and I am, and you put a certain amount of money in the S&P 500, it’s idiot-proof, to use that term again, and over time you have a certain gain on your investment. It’s very low cost. I don’t have to prove myself to have certain metrics to qualify as a sophisticated investor.

Then there are other people who have millions of dollars and they put them into these fancy hedge funds, and I do better. How do hedge funds thrive if that’s the case? I don’t get it.

Andrew Ross Sorkin:

Okay.

Preet Bharara:

I mean it’s a dumb question, but for the life of me, I don’t get it.

Andrew Ross Sorkin:

No. So, first of all, you’re right and you are right there with Warren Buffett who-

Preet Bharara:

That’s good company. Is that good company?

Andrew Ross Sorkin:

It’s very good company. He has advised everybody … He writes it in his own annual letters. He says, “Look, if I was telling my family what to do, I would tell them to buy a stock index. I would not tell them to buy into a hedge fund or put my money elsewhere.” In fact, he’s had a running bet against hedge funds with certain hedge funds about whether they’re going to beat the index, and variably he’s been right.

Preet Bharara:

I wish I had the figure in front of me, but it’s not the case it’s like, well, 65% beat the index and 35% don’t. It’s some very small number over time. I have friends who work at hedge funds, and I like them and they’re very smart and they’re upstanding people. But if we’re talking about an area that is susceptible to analysis, mathematical analysis, and rationality …

I’m going to repeat my question because I like asking it. What the hell are people doing putting billions of their dollars into a thing that over time, like almost every measure … At least in the last 20 years, maybe it was not true before that, by every measure cannot outperform the S&P 500?

Andrew Ross Sorkin:

Two things. You’re talking about the American dream. People dream. They believe that they can outperform the market. Because some of these hedge funds do for a short period of time, they want to play in that arena. Look-

Preet Bharara:

They’re looking for the lottery ticket.

Andrew Ross Sorkin:

This is a lottery ticket game. Think about Bill Ackman. So Bill Ackman’s a famed hedge fund manager who has been remarkably successful in certain years. I mean literally this last year, he’s up some 70% during the pandemic. He called it 100% right, and kudos to him. But there have been years where he has lost a small fortune making terrible bets.

Preet Bharara:

Small fortune to him.

Andrew Ross Sorkin:

Small fortune to him, exactly. But the point is that I think, unfortunately, what happens is people say to themselves, “I want that lottery ticket.” That’s why people go to the bodega to buy the lottery ticket. To some degree, this is the equivalent of that, just with a lot more money.

Preet Bharara:

I hear you. But by definition, the people who are permitted to invest in hedge funds, by a lot of people’s metrics, have already won the lottery. By and large, they are millionaires already. And so, you’re saying the millionaires want a lottery ticket, too.

Andrew Ross Sorkin:

Absolutely. I mean, look, it does-

Preet Bharara:

That will come as a surprise. I mean you and I are talking about this sort of … I don’t mean to say it’s blasé, but that’s a little bit of a shocking thing to the ears of the average American, that people who have millions of dollars, the kind of money that most Americans will never see in their lifetime, that those people are prepared to invest in ways that they feel are lottery tickets for them, to go from millionaire to billionaire, I suppose, and end up not doing as well as somebody who has the patience of Warren Buffett or someone else.

Andrew Ross Sorkin:

But isn’t that one of the great lessons about money? I think money does change people, and I don’t want to suggest it doesn’t in any way. But I do think that one of the truths that I’ve discovered after covering this world for the last 20 years is that whether you have a fancy title on your business card or you have $1 million in the bank or $1 billion in the bank, the human instinct, I don’t think, is actually that different.

Preet Bharara:

People want more.

Andrew Ross Sorkin:

People want more. There was a great line in Wall Street … Not the original Wall Street, which, of course, has the great greed is good line, but in the Wall Street 2, which was not as good a movie.

Preet Bharara:

That’s true. It was not as good.

Andrew Ross Sorkin:

But there was a question that I think either Michael Douglas or somebody asked and they said-

Character 1:

See, I find that everybody has a number, and it’s usually an exact number. So what is yours?

Character 2:

More.

Preet Bharara:

Look, you covered these cases. There were these insider trading cases we brought when I was in the US Attorney’s Office. One against a man by the name of Raj Rajaratnam, who’s a billionaire, another against a man by the name of Rajat Gupta, who was estimated to be worth about $100 million. $100 million. Pretty good. When you bring a prosecution, you’re not overly concerned about the psychology of why someone does it.

But the sense I got in my armchair psychologist role is that he wanted more. He looked at a guy like Rajaratnam … And this is a speculation on my part and what I know of human nature. He said, “I can’t believe that guy has a billion and I only have 100 million.”

And so, he entered into a conspiracy with him and gave him inside information, and lost his reputation in the process, convicted at trial, and went to prison. And he already had $100 million, because more.

Andrew Ross Sorkin:

Because more. I would also just add to that by saying what you see over and over again, especially among those who have a lot to begin with, is in certain cases, it’s actually not even about the money per se in terms of what that money can buy. It becomes, at those levels, a score card for power and for pride and for-

Preet Bharara:

Status?

Andrew Ross Sorkin:

… status. I mean I think that’s what happens. It’s so interesting because I think there are people who don’t have money, who are robbing stores or doing other things because they want to pay the mortgage or they want to pay for rent. That’s different. That’s a very different motivation.

Preet Bharara:

When we’re talking about insider trading, when we’re doing those cases, it’s a revelation, at least that I had, because the defense always is … I mean the inverse of all of this is when someone gets caught who’s already rich, they say, “Well, why would I do that? Why would my client do that? He’s already rich.”

Playing on the question that I just asked you, and of course it’s much more complicated to explain the more philosophy, to put it tersely. Then you realize that, in many contexts, it’s the people who are already successful and already have a lot of money, who are built a certain way that they cheat.

So, for example, the analogy I always used was people who doped up. It wasn’t the crappy player who was the backup quarterback or the benched baseball player. It’s people like Lance Armstrong who did work hard, who did have probably more talent than anyone else in the world, but he wanted more and he wanted to always win.

That’s not something that people are necessarily built to understand. You look at people who are successful like that and you say, “You’re already the best in the world. Why would you cheat?” And even for Lance Armstrong, because more.

Andrew Ross Sorkin:

Because more, but also … And I’ve spent time with him as well.

Preet Bharara:

You like to hang out … You should hang out with me a little more.

Andrew Ross Sorkin:

You know what? I love fascinating stories and fascinating characters and fascinating people and-

Preet Bharara:

Crooks! You like crooks.

Andrew Ross Sorkin:

Well, the truth is that there’s a great drama to crooks and to people who have had these ups and downs. I’m somebody who believes ultimately that underneath it all, if you can actually get there to them, and sometimes you can’t, that there’s a way to understand it. Not necessarily a way to accept what they’ve done, but I’m always fascinated to try to understand why they think what they think and why they thought in the moment that they conducted the crime or whatever it was, how they thought they were going to get away with it.

But so much of these examples that you’re talking about are some of the most competitive people in the world, whether in sport or on Wall Street. It’s a battle of wits, people trying to outsmart each other. On Wall Street, by the way, that’s part of the business is how do you outsmart the other person. Sometimes-

Preet Bharara:

I don’t have to outrun the bear. I just have to outrun you.

Andrew Ross Sorkin:

Right, but sometimes outsmarting the other person, unfortunately, they’re a little too smart for their own good, if you know what I mean.

Preet Bharara:

Yeah. You’ve interviewed a lot of people who have a lot of money. I’m going to ask you to play armchair psychologist for second. Do you find that, by a large, they are more happy, less happy, or no different from people of ordinary means?

Andrew Ross Sorkin:

Goodness. Mostly no different. I don’t know if they’re materially less happy per se, but I think sometimes money obviously can create great unhappiness because people are fighting over money and it changes relationships and dynamics and all sorts of things. Happiness, look, maybe some of them get to go on a better vacation.

You know what? What money does do, and people have said this to me many times before, is while it can create lots of issues, for certain people, it depends on how much money we’re talking about, it can take one issue off the table as something that-

Preet Bharara:

Paying the bills.

Andrew Ross Sorkin:

Paying the bills. That those people are not thinking about that in the same way that most Americans are. Most Americans, I think, are spending a decent part of their life thinking about paying the bill. Am I going to have enough money? Are my kids going to be able to go to school? Am I going to pay that loan?

Preet Bharara:

There’s insecurity if you lose your job. Look at the pandemic. People who have a lot of money had a better time of it-

Andrew Ross Sorkin:

Totally.

Preet Bharara:

… during the pandemic because they had a cushion.

Andrew Ross Sorkin:

Exactly. In many ways, by the way, money also allows people to take risks that they might not otherwise take as well because of the cushion that you just talked about.

Preet Bharara:

Well, this is the mathematics of compounding interest or whatever other analogy you want to use. It’s a lot easier to get to $2 billion from $1 billion than to get from zero to $1 billion, and from $1 million to $2 million than from zero to $1 million, right?

Andrew Ross Sorkin:

100%. But I always think about Dick Fuld, Richard Fuld, who was the CEO of Lehman Brothers before the financial crisis and into the financial crisis. He’s somebody who had over $1 billion of stock in his company. He rode the stock all the way down to $56,000. People said there was a guy who was a true believer.

Andrew Ross Sorkin:

But if you turn the story around, he’s somebody who also had made and had in the bank several hundred million dollars already. And so, he was able, in many ways, to take a remarkable risk. While it may have looked like he had $1 billion of stock in this company, all the skin in the game that people talk about wanting in terms of trying to incentivize people, in many ways it was just the cherry on top, and maybe he could afford to lose that cherry.

Preet Bharara:

Yeah, although some people in his position still would not have done that. Can I ask you something else that angers folks and angers me too?

Andrew Ross Sorkin:

Okay.

Preet Bharara:

Since we didn’t really resolve the hedge fund issue. That’s CEO compensation. I know that, over time, there’s been a more dramatic gap between the lowest paid person at the company or the average paid person at the company and this CEO, and most people in America are not CEOs. But there is a question about what value they bring and whether their interests are aligned with the company’s.

Preet Bharara:

This was an extraordinary report that came out not that long ago. It sets forth that CEO pay generally surged during the pandemic. Median pay for the chief executives of more than 300 of the biggest US public companies went from $12.8 million to $13.7 million. Then most dramatically, and people love to hate on this kind of thing, myself included, the CEO of Norwegian Cruise Line-

Andrew Ross Sorkin:

Yup, unbelievable.

Preet Bharara:

… which recorded a $4 billion loss last year, because I don’t … Did you take a cruise last year, Andrew?

Andrew Ross Sorkin:

I don’t think I’ve ever taken a cruise, to be honest with you.

Preet Bharara:

I don’t think I ever will. I did take a cruise once with my family. That CEO of Norwegian Cruise Line, his pay doubled to $36.4 million. Not that you’re his keeper, but what the hell is going on there?

Andrew Ross Sorkin:

Well, I don’t know if I can speak to the Norwegian Cruise issue, but I can definitely speak to the larger issue of CEO pay, which literally makes no sense at all. The reason is it really is … I mean I don’t know if you could bring a RICO case against companies.

Preet Bharara:

Well, not now.

Andrew Ross Sorkin:

Maybe not now, but-

Preet Bharara:

Podcasters don’t have RICO capabilities.

Andrew Ross Sorkin:

But what’s so strange about CEO pay is it’s set by a board, oftentimes with consultants. The consultants, of course, are paid by the board to keep, effectively, I would argue, ratcheting up these numbers. But there’s nothing about competitive pricing.

Andrew Ross Sorkin:

So if you, Preet, or I were to hire somebody today, I think you would probably say to yourself, “I want to try to hire somebody, for whatever that job is, at a fair market rate.” You probably don’t want to pay too much more than that. Hopefully you don’t pay too much less than that because, arguably, you would like to make this a sustainable job.

But that’s not the conversation that happens in the boardroom. Nobody says, if the CEO left tomorrow and had to go get a job somewhere else, what would they get paid? Are they really also going to get paid $50 million a year? Is there another place that is going to do that?

I’ve always been struck by the fact that there is no genuine market in that way. Yes, there are certain executives that probably could get some of that kind of pay, but I think most of them probably couldn’t.

But one other thing I’d say is we look at public company CEOs because we see these numbers. They’re public and you get to see it. But the thing that’s just extraordinary that often is not covered enough is the numbers of private companies. You talked about hedge funds and the like.

Forget about CEOs making $40 million a year. There are people making $800 million a year. I mean literally $800 million. I’m not just talking about people who have stock in their company because the stock went up. You look at Steve Schwarzman at Blackstone. He’s made an enormous amount of money. I mean just literally off of the fees of the company in a given year. Some of these other hedge fund managers have done remarkably.

Preet Bharara:

Well, but it’s one thing … And those are extraordinary figures and I don’t know how those places do overall. But it’s one thing to make a lot of money if the company is making a lot of money and you’re taking some share of that. But the logic of making an enormous amount of money and having an increase in your salary when other people are being laid off seems not just nonsensical but downright corrupt to people. Are they right to feel that way?

Andrew Ross Sorkin:

I think they all are in many ways, especially when a company is failing or a company is not doing well. It seems crazy that you would be compensating that CEO for more. Look, this is a complicated part to me about capitalism and how we think about employees in America. All too often I would argue over the last, say, 30 40 years, employees are thought of in the same way that’s simply thought of as cost.

Maybe just think of it as cost. You could spend money on technology, you can spend money on people, you could spend money on marketing. You could spend money on this, you could spend money on that. And so, when a company takes out cost, whether they are people or whether they are light bulbs, the investor class treats them the same.

That’s the problem, that we lost a sense of humanity in all of this. I think it’s coming back a little bit in terms of the conversation that the business community is now having about the role that they play in society. But I think it still has a long way to go.

Preet Bharara:

I’m going to move on to something else that makes people angry, and I think this makes you angry too. We’ve talked about this. We mentioned insider trading before. So you’re a journalist. You’ve done very well. You talk about companies and you talked to a lot of people who were at companies. Are you allowed, under the rules of your journalistic employers, The New York Times or CNBC, either or both, are you allowed to invest and trade in individual stocks?

Andrew Ross Sorkin:

Not at all.

Preet Bharara:

Why is that?

Andrew Ross Sorkin:

One is I’m often privy to effective means of information. My job is to ferret out information before it reaches the public. Secondly, I would never want, and neither would the news organizations that I work for, ever want there to be even a scintilla of a question about my motivations or incentives to write or report or talk about a particular issue or a particular news item. I mean to me, that’s sacrosanct, right?

Preet Bharara:

Yes, absolutely. Not to downplay your importance and influence, because you’re influential. But let me ask a followup question. Are you now or have you ever been a member of the House of Representatives or the US Senate?

Andrew Ross Sorkin:

I have not. I’m not now nor have I ever been, nor do I imagine I ever will.

Preet Bharara:

If elected, I shall not serve. Would you agree with me that those people, senators and representatives, have real power and authority as lawmakers?

Andrew Ross Sorkin:

Correct. Absolutely.

Preet Bharara:

Yeah, I don’t know why I’m doing it this way.

Andrew Ross Sorkin:

No, you’re doing it like a prosecutor should. I’m with you.

Preet Bharara:

Once in a while, I feel like doing a direct examination.

Andrew Ross Sorkin:

No, this is the right way to do it because it’s ludicrous. It’s ludicrous.

Preet Bharara:

And members of Congress can invest and trade in individual stocks even though, on a regular basis, they serve on committees and they vote on legislation, even if it’s not something that they’re the chair of the committee for. But vote all the time on things that they presumably have either inside information about or some conflict of … The same two things that you talked about, and we put up with that.

I mean I was a staff … We talked about this before you wrote your column a couple of months ago that was excellent. I was just a staffer, and I found it crazy to trade in individual stocks because all day long I had meetings with people, and they were folks who had interests in the telecommunications industry, various technology fields, et cetera.

This is why you get these questions about members of the Senate in the last year. No cases were brought, but there was a case brought against a particular congressman, who was pardoned by the President, engaged in communications of insider trading while in the White House lawn.

But what the hell is going on with that? Why doesn’t Congress police itself better and say, “You know what? If Andrew Ross Sorkin, who,” again, not to downplay it, “is a mere journalist, ethics requires that he not trade individual stocks, how about our elected representatives in Congress?”

Andrew Ross Sorkin:

Look- [clapping sounds]

Preet Bharara:

End scene.

Andrew Ross Sorkin:

End scene. I don’t understand it. I can’t get my head around it. Congress has been unwilling to police itself. The regulatory agencies have been unwilling to make it a priority to try to police them. I wrote this column effectively suggesting that the SEC stand up and say, “We’re going to start policing Congress ourselves.”

Andrew Ross Sorkin:

Of course, the conundrum, if you’re Gary Gensler running the SEC, is your budget is set by these same people. And so, I think, over the years, no regulator, appointed or otherwise, has really wanted to bite the hand that feeds it, and that is the problem. Asking people to police themselves has never been a particularly successful strategy. And so, here we are.

I think it’s going to take some real leadership from somebody. I’m not sure who’s going to be the one to stand up to say enough is enough, because why should the American … The American public has so much skepticism and cynicism already about politics and about policy and how it’s made. Well, why not just take this piece off the table?

I mean it’s so crazy that this is even allowed to happen when, as you’ve said, I’m not allowed to own stocks. There’s a lot of businesses that don’t allow their employees to own stocks or they have to go through remarkable vetting programs and things like that.

Preet Bharara:

Pre-approval. If you’re a law firm, generally you have to do that. If you’re a staff member at the SEC, I think you have to do that. But Congress doesn’t have to do anything. Anyway, put that on the list of things in your platform for when you run for that office.

Andrew Ross Sorkin:

By the way, full disclosure, I should say that I am allowed and do own shares of my two employers. So I do own shares of The New York Times company and Comcast, but I am a longterm holder, as they say.

Preet Bharara:

Got it. That makes sense. Here’s the thing that you need to help me understand and other people understand. So everyone, I think, over time, has come to understand the idea of an initial public offering and going public. People have a general sense of what that means. Now there’s a new thing called a SPAC. What on God’s earth is a SPAC and should we be concerned about that thing?

Andrew Ross Sorkin:

We should be so concerned about it. Here’s what’s happening. People are trying to call it what they call an IPO 2.0. This is the new version of going public.

Preet Bharara:

It is 2.0, because more.

Andrew Ross Sorkin:

What it is effectively is there are effectively investors who are starting what’s called a blank check company. They go out and they actually do have a real IPO. They raise money, let’s say a couple hundred million dollars, a billion dollars. It’s called a blank check company because literally the company does nothing except take that money and go find an acquisition target, usually a private company that effectively is then going to be brought public, if you will, through the back door, if you think about it like this, into the public markets through this publicly traded company.

Preet Bharara:

So you avoid a lot of scrutiny. You avoid a lot of disclosures you have to make.

Andrew Ross Sorkin:

All of the rules that are applied to an IPO, which effectively means … If you’re a company going public for the first time, you typically can’t make crazy future projections about what’s going to happen three, four, five years from now. The SEC’s looked down upon that. You go through a whole process, a roadshow. Investors have to look through your books. It’s a very difficult and often arduous process.

Andrew Ross Sorkin:

This SPAC idea, in many ways, short circuits that process, and most of the companies that are going public through this don’t have revenue. This brings us back to the Amazons. They don’t have revenue, they don’t have profits, and so they have to tell you what they’re going to be doing three, four, five years from now. Of course, call me in three or four, five years from now and we’ll see how accurate those projections are. But there’s a lot of investors that have gotten a lot of excitement around these things, possibly too excited.

Preet Bharara:

So I understand how this works, and people can follow. It can be anybody, an individual who has some means.

Andrew Ross Sorkin:

Preet, we could do it together. We could go raise some money right now.

Preet Bharara:

Okay, let’s make it me, or you, Andrew Ross Sorkin. You’re going to create a SPAC. You have a goal of raising … I don’t know if you have to have a goal in advance … $500 million. You call up your friends and you say, “I’m starting a SPAC. It’s the new hot thing. It’s crazy. It’s amazing. You’ll get rich with me.” Then I ask you the question, “Okay, Andrew. What kind of company do you intend to buy?” Do you have to tell me? Do you even have to know?

Andrew Ross Sorkin:

First of all, I’m not supposed to know. I’m not supposed to know what company I’m trying to buy-

Preet Bharara:

Or even the industry.

Andrew Ross Sorkin:

No, no. There are people who will say, yeah, with the specialty. In my case, I’d say I’d go by a media company. So I have an expertise, arguably … Or maybe not, we’ll see … in the media space. I’m going to go buy a media company. So people would say, “Okay. Sorkin, I’m going to give you the money. You then have effectively 24 months.” It’s like a sprint. There’s a deadline, because, interestingly, if you don’t spend the money in that 24-month period, you have to return it. In fact, you lose then.

Preet Bharara:

But what requires the time limit?

Andrew Ross Sorkin:

It’s just the way the instrument, if you will, is effectively set up. Arguably, I guess they could make it three years, four years, five years if they want. You effectively, though, provide interest on the investment they’ve given you if you can’t find an investment. For the people investing in these things initially, they’re not really longterm investors. Most of these guys are just … It’s a financial play for them.

Preet Bharara:

The attractiveness of it is the wherewithal of the person starting the SPAC. In your case, potentially, I’m knowledgeable about media, someone else might be knowledgeable about tech, et cetera, et cetera. So it’s a little bit people putting money in the SPAC on spec. Can I say that?

Andrew Ross Sorkin:

That’s exactly what’s happening. Then part of the reason why you’re seeing so many celebrities, big names trying to do this, people in the business, Colin Kaepernick has a SPAC, ARod’s got a SPAC. Everybody’s got a SPAC. In fact, it’s a terrible, terrible line. But on Wall Street, there’s a running line going that says, “I know more people who have a SPAC than who have COVID.” Ha ha, but not really.

Anyway, but the reason they’re doing this is because if they find an acquisition target, they get to keep 20% of the money that was put up initially. It’s like the greatest deal around.

Preet Bharara:

Well, so when you call me to set up your SPAC, do you have to put a dollar into it?

Andrew Ross Sorkin:

I do have to put a little bit of money into it, yes.

Preet Bharara:

But not 20%.

Andrew Ross Sorkin:

No, no, no, no, no. I’d put in a tiny, tiny, tiny amount just to show a little skin in the game. But I don’t really have any skin in the game, of course. No, this is a cash [crosstalk 00:54:58].

Preet Bharara:

Ordinary people should be worried about this. How can this affect the economy? Do we have a bubble situation going?

Andrew Ross Sorkin:

Look, I think what the person on the street should be worried is you have a lot of companies going public that don’t have real earnings, don’t have a revenue, and you have a lot of these “sponsors”, the people who are putting these SPACs together who go out on TV. They put out press releases, they’re on social media trying to tell the public, when they do buy some company, how great it is.

Andrew Ross Sorkin:

I think people should just be wary because these “sponsors” who are arguably saying, “Hey, I’m here. I’ve vetted this thing. I’m buying in. I’m an investor in it,” aren’t really any of those things. They’ve gotten 20% of the company for free, effectively, and most of the time they intend to sell their shares within six months to a year, far earlier than any of the projections that these companies are making about what’s going to happen in the future.

Preet Bharara:

Yeah, and I would imagine, just thinking about this off the top of my head, when you have a two-year deadline and you get to month 20 and month 21, with the prospect of having to return all of your investors’ money, that maybe don’t make the most intelligent and best decisions about your acquisition-

Andrew Ross Sorkin:

Exactly.

Preet Bharara:

… in the days leading up to the deadline.

Andrew Ross Sorkin:

Look, we have hundreds of billions of dollars chasing not enough companies effectively that are sustainable businesses that should be doing this. I think, one day, the next Preet Bharara will be subpoenaing lots of emails that are going to show lots of misbehavior around what they know and what-

Preet Bharara:

Because there’s an incentive to misrepresent when representations have to be made, even though few representations have to be made in this context, because there’s a lot of money to be made and there’s a lot of loss to be avoided. I guess it’s great to be efficient to see who is being sought out by a SPAC because your valuations are going to go way up.

Andrew Ross Sorkin:

Well, and that’s the thing, your valuation will go way up. A lot of venture capital-backed companies are using this moment effectively to try to get out as quickly as humanly possible. If you own a business, there’s a rush to the exit. This is your shot. However, of course, we’re already starting to see a lot of the stocks of these companies are starting to fall. So we’ll see who ends up holding the bag.

Preet Bharara:

Can you explain in 60 to 90 seconds this whole business of-

Andrew Ross Sorkin:

It takes me 60 to 90 seconds to clear my throat.

Preet Bharara:

So this craziness with GameStop, which is a retail store chain, a chain store, which presumably would not have a brisk business during the pandemic. The hedge funds, we talked about hedge fund folks a few minutes ago, have been short on GameStop, meaning they’re placing a bet that revenue and profitability will go down at that store chain. Then some other group of folks said, “Screw that. We’re going to go long,” and that’s going to hurt the hedge fund folks.

Preet Bharara:

Some people say it was brilliant, some people say it was rogue, some people say it was reckless, some people say it sends a message. I feel like I’ve asked you this form of question three or four times. What the hell is going on here?

Andrew Ross Sorkin:

Okay. So what’s happening here is basically GameStop has long been assumed to be like the Blockbuster of our era, which is to say great at one time in a bricks and mortar world, but longterm is going to struggle because people are going to download their games. They’re not going to show up at a store.

So the value of the company had gone down, but was still relatively high. And so, there were a number of big hedge fund professional investors who said this is nuts and they start shorting the company, expecting the value to, over time, be much lower.

At the same time, there was a group of investors online, might be described as a retail audience that’s on Reddit and elsewhere, who say two things. One is that they actually believe in GameStop, and some of them genuinely believe that the business can be improved. But another very clever group said to themselves, “You know what? There’s so many shares that effectively are being held short.” We can talk about how you short a company.

But so many people are betting against it, that there’s a way, effectively, to have what’s called a short squeeze, that if enough people buy the stock and go long at the same time, you can actually create an almost self-fulfilling prophecy that it will go even higher, because those who have sold the company short effectively have to re-buy the shares.

It’s a little bit in the weeds. It’s a little complicated and, therefore, it will effectively press the price even higher. We will stick it to the man, we will stick it to the suits by doing this, and we will demonstrate just how screwed up Wall Street really is.

And so, that’s what happened. You had a group of people go to Reddit, get in the markets and start buying and buying and buying and buying, to the point where a number of hedge funds lost billions of dollars on their short bets.

Now the stock is so high today. I mean, to me, it defies logic and sense. But it is representative of this moment that we’re in in the markets and also the power of social media to bring people together. Look, you used to look at these things with … Hedge funds used to hang out, have dinners together, and they would get together and push the price of stocks. And these guys are saying, “We can do that, too.”

Preet Bharara:

Andrew Ross Sorkin, thanks for making the time and explaining so many things to me.

Andrew Ross Sorkin:

Oh, goodness. Thank you for having me and for explaining so many things back to me. Let’s do it again.

Preet Bharara:

My conversation with Andrew Ross Sorkin continues for members of the CAFE Insider community. To try out the membership free for two weeks, head to cafe.com/insider. Again, that’s cafe.com/insider.

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Preet Bharara:

So I want to end the show this week with a little bit of a follow on to what I said at the end of the show last week, where I talked about the sale of the company to Vox Media, thanking folks, bidding farewell to Anne Milgram, and at the end thanking my brother, who made all this possible. I thought what better way to follow up on that discussion than by asking my brother to be on Stay Tuned. And so, he’s my special guest at the end of the show. Vinit, are you here?

Vinit Bharara:

Hey, how are you?

Preet Bharara:

How are you? Now can I just at outset ask you do you prefer to be called kid brother or baby brother?

Vinit Bharara:

Ah, boss brother. Boss brother.

Preet Bharara:

Boss brother. So you’re not my boss anymore, I think, officially.

Vinit Bharara:

True, true. It’s unfortunate.

Preet Bharara:

Did it fulfill some childhood fantasy to be my boss?

Vinit Bharara:

Yeah, ever since I was five.

Preet Bharara:

You said that a little bit too enthusiastically.

Vinit Bharara:

Yeah, ever since I was five —

Preet Bharara:

When you were five, you used to say … I believe you would say things like, “You’re not the boss of me.”

Vinit Bharara:

Exactly.

Preet Bharara:

You’re very specific.

Vinit Bharara:

Now, because that was with the whole remote control, as you told your audience last week. We used to fight about the remote control. You used to win more than I did. You were mom and dad’s favorite.

Preet Bharara:

I was not. I was not.

Vinit Bharara:

So this is my revenge.

Preet Bharara:

Mom and dad are going to listen to this. You can’t say that.

Vinit Bharara:

They know. Everybody knows.

Preet Bharara:

No, no, no. That’s not-

Vinit Bharara:

So this is my revenge.

Preet Bharara:

That’s not true.

Vinit Bharara:

Okay.

Preet Bharara:

How did you get me to do a podcast?

Vinit Bharara:

I don’t know. Did I get you to do a … If you remember-

Preet Bharara:

Your voice got very high there. Why did your voice get so high?

Vinit Bharara:

I know. It did. It did because I’m just trying to remember back.

Preet Bharara:

Let me refresh your memory. So I got fired. You remember that, right? You’re aware of that?

Vinit Bharara:

I do remember that.

Preet Bharara:

I think you read it in the papers.

Vinit Bharara:

All day on CNN. That was breaking news.

Preet Bharara:

Yeah. Then you and I had a conversation not long after that about what I might do next. I’m trying to remember how the podcast … Was it my idea or your idea?

Vinit Bharara:

You may not remember that prior to this discussion about you joining our –

Preet Bharara:

Oh, yeah. Yes, at some point in the future, we discussed one day I would have to leave, although I never really fully expected that I would ever leave, that this was an option. I remember that now.

Vinit Bharara:

Yeah, you convinced me when I was at Amazon trying to figure out what to do next. You were one of the folks that influenced me to go into media. I don’t know if you remember. I was like, “What should I do next?”

Preet Bharara:

I was?

Vinit Bharara:

Yeah. You said media, “Go to media. Media, you can have an impact. You can influence.”

Preet Bharara:

Did you have a podcast already at the company?

Vinit Bharara:

No. My recollection was we chatted. We wanted to get you involved. I wanted to get you involved certainly in some capacity. We were trying to figure out how to do it.

Preet Bharara:

Because I was your brother or because you thought I was a cash cow?

Vinit Bharara:

I thought you’d be good. I thought you’d be good. I knew you’d be good. And you didn’t want to have to wear any make-up, so we talked about the video. I don’t know if you remember this.

Preet Bharara:

Oh, you really wanted me to do video.

Vinit Bharara:

Yeah. I wanted you to do the video. You said no.

Preet Bharara:

This was before I decided to be a commentator on CNN.

Vinit Bharara:

Yeah. So this was like sort of let’s go slow. Let’s try something that’s a little easier, no make-up, on your own schedule, and that’s what we did. That was my recollection how we started.

Preet Bharara:

Then did you expect it to do as well as it did?

Vinit Bharara:

I don’t think I was stretching it to think that you’d be excellent, for a bunch of different reasons. I’m not just trying to brag about you here and make you feel good. But you’re a missionary as opposed to a mercenary. What I find is that missionaries, when they’re doing new products, or any product at all, the best products come from them.

And you care. You care about your audience. You care about delivering a great product more than the financial part. And so, I knew that the product would be excellent. I knew you would be really good. What I didn’t know, by the way, is this soothing voice you have. I didn’t realize … Afterwards, everyone’s like-

Preet Bharara:

It’s the voice you hated. It’s the voice you hated.

Vinit Bharara:

… “If I had known this, if I had known that. Yeah, Preet has a soothing voice.” So that was something I didn’t know.

Preet Bharara:

It’s nice of you to say all of that now. I think you were optimistic and you have faith in me, just like I have faith in you. I’ve invested in every single one of your companies, and always will, because I think you’re the best business mind I know. But it was still a leap of faith and a good bit of confidence you had in me. And sometimes it’s awkward for relatives to work together.

Vinit Bharara:

Yeah, but we’ve had not one fight.

Preet Bharara:

I think we’ve had not one fight or argument. People might not believe that, but-

Vinit Bharara:

Not one. Not one.

Preet Bharara:

… it’s true, because I’m a very easygoing guy.

Vinit Bharara:

[Laughs] Exactly.

Preet Bharara:

I’m a very mellow guy.

Vinit Bharara:

No, I think we haven’t had any … To your point, no disagreements, no arguments, no fights, no awkward moments.

Preet Bharara:

And yet … I mean I don’t know, just I’m paranoid a little bit. Was there something lurking beneath the surface that made you want to offload the company to Vox, so you didn’t have to be my boss anymore?

Vinit Bharara:

No. No, no.

Preet Bharara:

Okay. I just wanted to get that on the record.

Vinit Bharara:

You told your audience why we did that.

Preet Bharara:

I’m wondering if you maybe could give a minute of your own thoughts as to why this is a great thing and what the future holds for us with Vox Media.

Vinit Bharara:

Well, I got to know Jim Bankoff at Vox Media a couple of years ago, and we kept in touch and we had a conversation in the beginning of this year about our respective companies and what they were doing. I have a lot of respect for Jim. When I’ve sold a few companies in the past, the biggest thing for me and that I found is the culture fit. When you’re going into a new company, if you’re going to sell your company to someone, it’s a marriage and you have to connect and click. You have to have respect for the party that you’re going to marry.

And so, that was the huge piece of this, was Jim and Vox and those people over there are good people. They’re similar. We got along really well. So I thought that was the first piece.

I think the second piece was just tactically now as a business, I thought that it was a great fit. You and your team produce super high quality journalistic content, and it fit really well with Vox’s mission and what they do really well. They have a lot of resources. It could get you a lot more audience and I think it could a little bit faster with them than you could have been with us.

Preet Bharara:

How hard is it to turn a startup into a successful company?

Vinit Bharara:

Hard. Hard, Preet. You know. Now you were part of it, I think, right?

Preet Bharara:

Yeah, but I’m lucky. So I did it one time and it worked out. I mean I’m not really a business person. In the industry … And I don’t know if people know, but you went to law school, too. We both went to Columbia Law School. Then you stopped practicing law, although you’re still an excellent lawyer. I can see your legal skills still at work from time-to-time.

But having been out there and raised capital to start businesses, including diapers.com, which you sold to Amazon, maybe not everyone knows that story, what’s the rate of success for the average startup?

Vinit Bharara:

Most startups fail. I think over 90% fail. Then I think a much smaller percentage, one in a thousand have the success that you had, popular audience, millions of people listening or enjoying your product, and then having a successful exit. So the odds are stacked against you.

I think the hardest thing in doing these things is, and now, again, that you’ve been part of it, is that you’re building something from scratch. You don’t always know what you’re doing. It’s like trying to ride a bike. At the same time, you’re often facing extinction on a regular basis. You really don’t know if you’re going to make it.

And so, emotionally, that can be pretty challenging because you’re in this gray scenario and you are responsible for a lot of people, your employees, your investors, and you just don’t know if you’re going to make it. And so, being able to navigate that is challenging. At the same time, it’s also super exciting. You have control of your destiny. When you succeed, it’s extremely rewarding, as you have, because you’ve beaten the odds.

And so, there’s nothing I would rather do, but I do think it’s one of the hardest things that you can do, which is to do these startups.

Preet Bharara:

What do you think the future digital media is, or media generally?

Vinit Bharara:

Well, I think what you’re starting to see is this consolidation between a lot of these players. I think you’re going to see more of that. I think you’re going to see a lot of companies go public, or try to go public, via the SPAC market. You’ve seen over the last couple of years that really good media companies have survived. Some, unfortunately, have gone away. With this consolidation, I think you’re going to see some strength.

So I’m optimistic about it. The platforms keep emerging. You see podcasts, I don’t know, 10 years ago … I guess they existed, but look at where they are now.

Preet Bharara:

Anyway, Vinit, I’m sorry it took three and a half years to have you on the show. In fairness, I have asked you before and you declined, because you’re more shy than people realize. But it’s been wonderful. It’s been great. I often say to people if you can work with people who are your friends, which I always have, or tried to, there’s nothing better than that, and I was wrong. I think better than that is working with your family-

Vinit Bharara:

Oh, that’s very nice—

Preet Bharara:

… if you get along like we do. So thanks. Keep in touch.

Vinit Bharara:

You keep in touch. I’d say thanks, too.

Preet Bharara:

I love you, bro.

Vinit Bharara:

Yeah. I love you too, man. Thank you.

Preet Bharara:

Well, that’s it for this episode of Stay Tuned. Thanks again to my guest Andrew Ross Sorkin. If you like what we do, rate and review the show on Apple Podcasts, or wherever you listen. Every positive review helps new listeners find the show.

Send me your questions about news, politics, and justice. Tweet them to me, @PreetBharara with #AskPreet, or you can call and leave me a message at 669-247-7338. That’s 669-24-PREET, or you can send an email to [email protected]

Stay Tuned is presented by CAFE Studios. Your host is Preet Bharara. The executive producer is Tamara Sepper. The senior producer is Adam Waller. The technical director is David Tatasciore. The CAFE team is Matthew Billy, David Kurlander, Sam Ozer-Staton, Noa Azulai, Nat Wiener, Jake Kaplan, Jennifer Korn, Geoff Isenman, Chris Boylan, Sean Walsh, and Margot Maley. Our music is by Andrew Dost. I’m Preet Bharara. Stay Tuned.