NBA Investigation and Final Thoughts

Welcome to Pablo Tore Finds out. I am Pablo Tore and today we're going to find out What this sound is You could go to the SEC and say you didn't, you know, sorry, we discloseed it, but we didn't disclose enough. That's a more common issue, right? where you don't disclose enough The fact that there's no disclosure at all is pretty egregious right after the ad David is Sitzing Big time Europe're up hotels, baby David, I want to thank you for doing this, given that you're beaming in from Germany. for this emergency episode It is a time of day that no one should be speaking as loudly as I'm speaking in a hotel room Eleven. of our aspiration series Dmands this. Lou Manzo. We are joined again by him here in New York City, David This is of course a longt time PTFO listener turned new special legal analyst who was subbing in forminel Hassan, who is in a foreign territory known as San Antonio for the NBA finals and what Lou lacks in I would say, a credible Doc Rivers impression He makes up for and literally being the former Department of Justice prosecutor who launched the federal government's investigation into aspiration co founder, Joe Sandberg in twenty three So I should recap here for everybody. David, Lou was not one of my sources when we started this. series in September of twenty five. He was merely listening. We finally got in touch for the veryy first time earlier this year on the dating app known as LinkedIn which has become, I would say, decreasingly helpful for my reporting now that people know that I'm creeping around You know, I always like it when you click on my profile. I check it out. We are watching each other But the thing I immediately discovered, David, that I learned about Lou that's relevant here is that the whistleblower complaint, that you and I and am mean read aloud from at Sloan liive. as you sat in the chair that Adam Silver sat in in sppring of twenty six This was something that Lou had read in, yes, twenty twenty three in the spring of that year. Meaning he had also already considered, vetted the witnesses inside of Aspiration who had specifically mentioned in writing under penalty of perjury That aspiration had found a way to David Heay, Clippers forward, Kai Leonard, an incentivized bonus to circumvent the NBA's salary cap disguised as an organic marketing sponsorship agreement this was war complaint. The very same one would provide Lou and the DOJ a roadmap for the successful prosecution Ultimately of Joe Sandberg and What else can we say about this, Lou before you caveat us into? Well, I should caveat it and say again, I'm speaking without any personal knowledge of what's happened in the last couple years. I don't have a source inside DOJ. I'm not going to pretend I do And I can't talk about what I did at DOJ. But I can talk about kind of the The tea leaf reading of what's happened in the last week and hopefully walk us through his sentence him David, not everybody is happy that Lou is here. This is why Lou is saying this in part. It's amazing, Pablo. you bring in a guy who starts off sort of hands up, can't talk does a great episode, very important, and he's back. I had it for to one that we'd never see lose face again. Unfortunately, for certain defense attorneys who may or may not have placed a court filing into the public record last week, Lou is back And I would like you, David to now read one reaction from Joe Sandberg's attorneys to the afore mentioned episode that we did together equally stunning and prejudicial. is that a former DOJ prosecutor who was involved in this case appeared on a popular podcast on may fifth to offer commentary about sentencing in this case while it is still pending. And My favorite part is that after that, they put in parentheses C HTTVS colon slash slash WWW d. pablo d. show slash pe slash the DOJs Aspiration prorosecutor joins, which is of course, A newsletter that you can subscribe to. I appreciate everybody digging through court filings to actually get a way to subscribe I also want to Lu for having the balls to come back Well, you know, I think it's important that people their legal responsibilities seriously, but also speak out about issues, especially things that are going on in DOJ I was just struck by the entire sentence, Lou, because I'm trying to figure out, having gone through that episode again because I was there exactly how it's prejudicial because what that would mean is that the judge was watching the show and had some sort of epiphany race sentencing because of our show. And I'm sorry, but I found that as much as I respect all three of us not in a particular order, but you'd be first that I do not believe we would sway the judge in sentencing But but maybe I'm wrong I also didn't think it was prejudicial to him. I mean we I agree. Yeah. But you know, it's a defense attorney. I appreciate it. If I were the defense attorney, I would do the same thing and throw everything against the wall and try and allege some misconduct against a former DOJ employee and try and, you know, pin it on DOJ. why not? But you'll notice in that in that line, they didn't explain how it could be prejudicial just that it was generally prejudicial without any thing other than the conclusory statement And now that sentencing that was allegedly prejudiced is complete as of Monday and we'll get to that in a second from inside of the courtroom in Los Angeles. But I also need to point out that we here at Paba Torory finds out, we're not merely condemned by Joe Sandberg's high powered defense attorneys We were also condemned by Clippers owner, Steve Balmer and his high powered attorneys, of course Lu, if you could read this excerpt from the victim impact letter. Balmer personally tweeted out Mr. Balmer's connection to Sandbberg is what caused a former talking head and television personality, Pablo Tory. to launch a relentless, vitriolic public campaign against Mr. Balmer, alleging principally based on anonymized gossip as well as on a misapprehension. or intentional disregard of the fact that Mr. Bommer conspired with Sandberg in aspiration to engage in the circumvention of the NBA salary cap by virtue of an endorsement deal between aspiration and one of the team's star players Quiet Leonard So beautiful Pablo because if you read these two quotes side by side It is virtually impossible even for a Harvard guy to walk the tightrope where you do a show where both sides say you screw them just as a chef's kiss to journalism that you could do a show that both sides believe put them in a position where they had to fight back I should say that both Sandberg and Balmer and me Incidentally, all Harvard guys And they're ganging up on, you know, the journalists, both the alleged scammer and his alleged biggest victim, which to David's point, does feel like an award we should be honoring in some regard as we move forward here This shared dynamic between Balmer and Sandberg may in fact say something quite poetic, even interesting about their relationship, however, unintentionally, because One thing that I do want to tell you guys is that the reason you're both here is not merely to recap the sentencing Also to help me understand a side deal Both men made. and managed to keep extraordinarily quiet for five In years. Until of course This new episode of their favorite podcast Hello, it's me Pablo We have been very interested in what you guys actually like about this show And so in the show notes, there is a survey You'll find it magically as a link somewhere down there. And you can tell us what you want more of, what you want less of, what annoys you about me. potentially all of my friends We will use this to improve the show. It takes like thirty seconds. so please fill it out And we will make this better I do want to set the scene here Because something we've been anticipating for now years, actually, happened at the federal courthouse in downtown Los Angeles on Monday. And our court reporter, Anita Bennett was there filing dispatches for us, watching Joe Sandberg enter the room in off white jeans and a blue sweater over a striped baby blue shirt and sneakers Long last, Lou The case that you started back in the spring of twenty twenty three culminated federal prison sentence as pronounced by Judge Stephven V. Wilson of how long in the app fourteen years. Aspiration founder Joseph Sandberg has been sentenced to fourteen years in prison for defrauding investors of two hundred and forty eight million dollars per Baxter He and the clippers are being investigated by the NDA for paying Kauwai under the table fourourteen years after, again, this case was your baby at the DOJ How did it feel seeing that substantial in number. White collar sentencing is difficult because there's a lot of variants. But I think you can compare it to a couple of the major fraud cases that have been in popular media lately. Elizabeth Holes She got ten years for Feranos, which was a major fraud, inststitutional investors, kind of similar things where, you know doctd financial documents, doctored presentations, that kind of thing led to huge investments, ultimate financial collapse And that was a health product. Yes. right. This is blood testing technology that she defrauded investors about because it was not real. And she went to trial and she was convicted. and so a huge expense of resources both for the court and to the government and whatnot. And she got ten years. And then you've got Charlie Javz in New York. That was the Frank case where she sold her business to JP Morgan. It was all fraud She went to trial, got convicted, again, huge Ependiture of resources, seven years And this guy pled guilty pretty promptly in the course of the investigation and he got fourteen years for something that didn't involve health but it did involve five years of fraudulent documents and I think that's probably what got the court's attention the most. What shocks me, Lou is that the bid in the ask here was seventeen and a half and zero. That's a huge delta. That is a huge delta. whereere he came down was clearly on the side of the DOJ Well, I want to clarify that the DOJ recommended, yes, the sentence of seventeen and a half years based on total losses in their countounting of two hundred forty eight million dollars a wide ranging scheme to defraud multiple lenders and investors over that five year period And Judge Wilson, David, he did say this, according to our court reporter The history of this defendant is that he is charitable, wants to do good things, wants to do things that he thinks are important But the circumstances are among the worst that I've ever encountered in my forty years serving here He started with altruistic intentions, but he became entangled in a web of lies that continued for four years I would put the grade of this fraud is Zenith at so high It's literally the highest. I've never seen language like the highest possible point, the zenith, I believe. I don't know what happens going forward for this judge because if this is the zenith, Definitionally, no one will get fourteen years in his courtroom again Yeah, Lou, what Sandberg told the judge on Monday in part was, quote, I lost my moral compass and quote, and he and his lead defense attorney Mark Mcasey. for Trump attorney declined comment after the sentence came down In my mind, maybe he was hoping for a seven or an eight, fourteen definitely sticks out. but Again, when you're going to jail for that long of time, difference between a seven and a fourteen might not really hit you until You've been in for a couple of years. Well, it may not hit you til you leave the courtroom Because we also have this exclusive video B roll of Sandberg outside the courthouse, David, could you describe what we're seeing here? I've seen someone basasically gesticulating as though they cannot believe what happened, holding a file saying, did this just happen? A I really fourteen years I can't read the lips exactly, but it looks as though he's less than happy. And the judge did not grant his request to report after the Jewish holidays, which was one little tiny. He wanted to take care of his sick mother and be with her for the Jewish holidays in September, October. And no, he's got a report in August And so I do want to describe here, by the way, just some of the human costs that sort of account for why it was fourteen years because Sandberg presented this attempted portrait of a sympathetic figure, a good guy with a good heart There are also these victims that show up in the DOJ's memo, as well as in the courtroom. peopleeople that Samber conned through his relationships and sponsorships and celebrity investors, and one of them who showed up in person In court was a woman who invested in September of twenty twenty one fiveive thousand dollars in aspiration And I was a mother on the poverty line What I see for Joe is that he's excellent in public relations, but he really does not care about people And quote And then in the DOJ's memo filed before the hearing, there was the eighty year old widow who paid Sandberg half a million dollars in July of twenty four There's the single mother who gave Sandberg another half a million dollars in August of twenty four. There's the military widow whose husband died by suicide in Iraq, who lost one hundred thousand dollars This was some of the roster that helps sway the math towards the bigger end of that spectrum, David Well we call them in law school. I'm sorry to tell you, widows and orphans The more widows and orphas you can get To be defrauded, the better chance you have of getting the bigger sentence because it is a terrible story to tell. Steve Bamer losing sixty million dollars is not even remotely close to a widow losing one hundred thousand or ten thousandll or an orphan losing five thousandars. So you're looking for the most people you can find to come, provide victim impact statements and actually show up to the hearing if you're the DOJ because it's more meaningful And I think that's what separated this from Elizabeth Holes and Charlie Chavitz is that it's not just, you know, UBS or JP Morgan or Sequoia, but individuals with investments as small as five thousand dollars, which is pretty shocking. If you are trying to raise money for a one hundred million, two hundred million dollars business and you're taking in five thousand dollars investments, that's unusual Well, this was part of the story was that Joe Sandberg was trying to take this company public via SPAC. And this is the pandemic error right. So it's ESG, meaning it's the we're the good guys. We do environmental stuff during this era in which going public via SPAC, meaning you would inhabit this Vvehicle that would be a public offering, a stock to buy in the public markets premise was how can we generate as much revenue So justify the biggest possible evaluation. Right. Yeahah. And this was a weird time in America where using a SPC to go public as opposed to an IPO was a different forat and different standards of due diligence where you could get away with information in a SPAC that was was less investigated and go faster. So that's what a lot of companies were doing, and that's what Aspiration was trying to do And Aspiration also didn't want to think of itself as a bank, right? It was as a tech company. And so how does tech work? It depends on revenue, not profits. That's how, you know, you're going to get a huge valuation and to make your stock go, you know, boom when it comes out Driving revenue was the name of the game and that's where we got into some of the round tripping at sentencing. put it in even more plain English. It's the way people got rich without any of the regulation that exists when you are doing an IPO. And then it by the way, if you look today It's basically fallen apart. So the special purpose acquisition company the SPAC Yeahah, this is now a trend that's fallen by the wayside because it largely wound up being, I would say, embarrassingly messy as a concept in a public market. And the round tripping, by the way, I do want to explain that because this is a recurring in the story of how Joe Sandberg built up those revenues. Again, revenue, David, different from profit, revenue meaning simply the money you take in, not the net that you end up keeping But the round tripping here, Lou, how do you describe that in terms of he was operated. Right. So if I have a dollar and I give it to you and then you give the dollar to David and then David gives it back to me I guess I could say I generated one dollar in revenue, but nothing really changed. I gave a dollar and it just moved around the circle But for, you know teech companies, revenue is the big promise that you'll generate revenue and someday five years down the road, ten years down the road, that'll somehow turn into profit That's the model that they've gone on since since the, you know, D. combo What Aspiration was doing here and Joe Sandberg was doing was Aspiration would pay Joe Sandberg, Joe Sandberg would pay Intermediaries, intermediaries would then pay aspiration. And so that's the round trip And this whole thing where Joe would generate business that ended up actually being business that he was ive funding that was getting paid back to him. I do just want to reference that in the DOJ memo, one of the things they point out is that what Sandberg would be doing individually through his own vehicles is paying for sham services presented as marketing and branding services often, which then paid aspiration then aspiration, when they went public via SC would say, look at all the revenue we're getting. And then on the backke end, at that multiple Joe would profit, aspiration would profit and that whole manufacturing of business would end up paying off And the reason I say that is of course because when we zoom out to what we have been talking about When it comes to wait a minute Steve Balmer has been paying aspiration and Aspiration has been paying Steve Balmer. and Joe Sandberg has been involved in this story as well It reminds me that I should clarify that neither Steve Balmer nor the Clippers were mentioned this hearing in any capacity. But this now underscores, David, this conspicuous reality here, right? which is that Joe Sandberg is going out of his way to create revenue in all of these tortured and manufactured ways in this corner of the universe in the sports NBA context He is also Heying Kwi Leonard Millions of dollars to do nothing And Ki Leonard, for those who have not been keeping up, not only got signed to a no show twenty eight million dollars endorsement deal that was kept secret. he also happened to receive a special put right option on twenty million dollars worth of aspiration equity that Joe Sandberg personally awarded him. and Just so I can clarify, David, a put rightite option means what in layman's terms When you get an option, put right option, it means that you have the opportunity to cash in something that you have taken into your possession. You can take it into possession and then literally think of the word. you can put it back pututting it back. I'm giving it back to you. give me back money. And so Kawi had the opportunity to say, hey, I don't want the shares. I'll take the money. Yeah L, the way I've thought about this after consulting various securities experts is this is derisking an investment, which is a hell of a benefit to negotiate off to the side Right, you get a floor And that's that's the benefit of this. that it doesn't go to zero, it goes to a floor and that floor is, you know, negotiated in the contract. But it's only as good as the credit of the person who gives the put So if you get a put and you put stock back and the stock is meaningless and also the person you are putting the stock back to doesn't have three nickels to rub together to make a dime then what's the use of the put? So it doesn't eliminate all risk ever. Ideally, you'd want that to be backed by a large company, a company that you feel could never go belly up, a company that will always have the ability to call back and take the stock back. and that certainly was not the case with aspiration Yeah, all of which is to say that a put If real substantially changes the whole thesis. and the risk profile of what this investment really is So something that I need to clarify here David is actually the next thing I need you to help me table read here because How Joe Sandberg, again, guy now convicted in federal court to fourteen years in federal prison? how he described this payment In another private email that we obtained that was sent to members of Aspiration C Suite does help clarify sort of the scheme he was running when it came to the basketball stuff For avoidance of doubt, any and all benefit to aspiration from the Kwi deal is being subsidized by my contributing my equity to make this happen In conjunction with my offering to do that, I also explained verbally that Kawi's team wanted his legal fees paid. I'll state it here for you I am transferring twenty million of stock to Kauwai over four years to enable this partnership for aspiration. The benefits that you will get from this partnership are subsidized by my twenty million of stock regards And Lou, the phrase there that has always stuck out to me is the benefits that you will get from this partnership becausecause it raises the question of like, so What do you have to gain by having Cohi Leonard secretly paid? Nothing here makes sense, right that you're going to have somebody who is very much not a dynamic speaker, It's a great basketball player, but not a dynamic speaker and who has no social media presence and doesn't want to talk about anything, but play basketball notot sure why he would be a great sponsor and then There's no reason why he'd be a great sponsor if you're not going tell anyone that he's even a sponsor. Let's just let that hang in the air a bit as we point out that Kawai's reps, Kawai, Aspiration, Joe Sandberg and Steve Balmer Never announced this. The original sin was that this was never announced, as Lu alluded to as Steve Bummer continued to pour money into aspiration. This was personally and via the clippers, while Kawai, yes was getting paid by aspiration secretly So before we get deeper into Steve Balmer's cllippers, allegedly having a secret side deal with Joe Sandberg to cirumment the salary cap forQui Leonard, Also note that there does remain an active lawsuit from eleven aspiration investors who are suing Balmer right now in civil court in Los Angeles. And what they allege is that Balmer has a secret side deal with Joe Sandberg that would have radically changed their decision to follow in the footsteps of one of the richest investors in the world by entrusting their money as well to aspiration. And Lou But they write in part is the following Plaintiffs would not have invested in or kept their investment in aspiration if Bamer and Sandenberg had disclosed the true nature of Balmer's investment Falmer's lawyers, David But they say in the victim impact letter that filed on behalf of their client aboutb Joe Sandberg Is this Mr. Balmer now understands that without his knowledge and contrary to the truth, Sandberg was touting a close relationship with Mr. Balmer to other investors and using Mr. Balmer's investments to attract additional similar investors. This is particularly insidious given that other than greeting Sandberg at a clliippers game, They had barely spoken Indeed, mrter Balmer recalls speaking to Sandberg only once, and that was only briefly while they both attended a public event. We have Zenith, we have insidious, we have really the heights of the emotional spectrum And one thing I need Lou to read here is Private email obtained written by Joe Sandberg. This from the month after Steve Bamer negotiated his highly publicized fifty million dollar investment. And this email was addressed to Balmer's chief investment offfficer and right hand money man, Brentant Vaugh who subject line is, quote Qest for a reference I hope you're doing well. Will you be in LA for the Clippers opening night on october twenty third I hope that will be the first of many games where you and I will get to cheer together. I'm also hoping you'd agree to act as a reference with a potential aspiration investor who's considering purchasing the same security that Team Balmer purchased The investor has recently asked to speak with you Would you be willing to speak with the investor about your perspective on aspiration Best, Joe toitch Br Vaugh, Team Balmers top money man, David. says Hi Joe. All good here. I unfortunately have a conflict on the twenty third. so we'll miss the game. I'm glad to speak with the investor. Feel free to connect us. Thanks, Brant That was from October of twenty twenty one, that exchange As was this email from Joe Sandberg to Aspiration Executives, Lou That begins with a reference to Cllipper's president of Business Operations, Gillian Zucker, who works directly with Steve Balmer Gillian is enthusiastic to support our success and please count her as an ally who is willing to help us as often as we would like her to help us. She is eager to contribute to our success Please keep that front of mind Also, Balmer himself is enthusiastic to help and will personally be a reference and advocate whereere we ask him So please keep that front of mind also And at this point, David, I just want to clarify we've just had Lou Read, an email from Joe Sandberg noted Fraudster, who is describing all of the ways in which Steve Balmer and his associates would love to help aspiration enthusiastically, and maybe that's all a liive At this point in the story, that seems possible, that's something we should acknowledge The reason why I am not going to acknowledge that is that while he is a convicted fraudster What we've seen already with the email exchanges is not a one way made up relationship, which as a former person in sales on Wall Street, I totally understand how you could spin that yarn. But the way we would spin it would not include emails that had this level of connection with the people we're talking about. It would always have a degree of separation This is where David's refusal to play along with me does vindicate him because the next thing I was gonna ask him to read is another private email sent just three days after that one. this one written by Steve Balmer himself It was sent to Joe Sandberg and the CEO of Intuit as well Since intuit and aspiration already have a business relationship and all of us share a passion for the clips and our Intuit Dome project. I thought it might be fun for the four of us to take in a game together sometime soon wouldould love for us to all get to know one another better Here are a few dates that work on my end, hoping one of these might work. If not, feel free to suggest a few others or we can let the experts find the perfect time. Could december eighth against Boston or january eleventh against Denver possibly work All of which is to say that what Steve Balmer's lawyers said in April of twenty twenty six about how Balmer now understands that without his knowledge, Sandberg was using Mr. Balmer's investments to attract additional similar investors does not quite add up It's just I'm trying to figure out how a podcaster, a Pulitzer prize winning podcaster is putting pieces of a puzzle together. Talking head talking listen. He's graduated Once you win a petser, you can no longer be called at talking head. The head still talks. the head still talks. I will always talk. I'm just shocked by this and people I don't want to get too far under the kimono, but I see these things for the first time here. and I just I'm shocked that they would take a position that is so easily refutable by the existence of actual emails, not speculation by a talking head podadcaster And so one of the things that Bummer wants you to think is that Joe Samberg marketing his investment is insidious But in fact, over and over again, what we're seeing is that Steve Balmer himself is personally helping Joe Sandberg use clliippers games In specific. to grow his credibility. the Pest de resistance as we went through this when we had a chance to really sit down and meet the folks from Aspiration. Josee Sandberg, who runs Aspirations here,'ll talk to you a little bit more about their company. can talk It's hard not to watch that clip and wonder to myself, is that what it looks like when you are first meeting a partner? And as someone who ran a team for eighteen years, I would not be a part of a presser where I'm sitting next to someone and I a' putting my name or the name of our owner or our organization with someone and I have not done one ounce of my own due diligence. It's just iss not credible to me generally making statements that may with your video evidence be inconsistent with reality The question of reality now It raises a related question which we've been raising David ever since we dropped part one of the series, which is that See Bomber characterizing his relationship with Joe Sandberg in that way that Lou just alluded to. inconsistent with reality such that it seems like Steve Balmer was, yes, just one of the many other investors that Joe Sandberg scammed as opposed to the most important VIP investor This is not a fun thing to be through U I was Persally defrauded remember They defrauded me, they defrauded many other investors much bigger than me. These were guys who committed fraud. How would I be able? Look, they conned me. 're of the richest. me. I made an investment in these guys thinking it was on the up and up and they conned me The problem is that all the evidence that surrounds the things that he said, not even in that clip, but as part of the general PR that Balmer has used is trying to paint a story of no relationship And so to me, that's where he loses credibility. And once you lose the credibility, I have to call into question anything he's saying about his relationship with Samberg and aspiration The thing that Team Balmer wants to argue about, if I can summarize it in a nuthell, loo is that you podcasters You may have a federal whistleblower complaint submitted under penalty of perjury by the two employees who helped take down Aspiration cofounder Joe Sandberg. You may even have the signed and executed Kwi Leard contract, which was a no show endorsement that never got announced by anybody You may even have more than these three thousand pages of documents and nine sources from inside the company corroborating all of your reporting But what you do not have Steve Balmer himself personersally disclosing the existence of a secret side deal with Joe Sandberg And that threshold, just to be very clear about it. That seems pretty high If you don't have a confession signed by the guy, then What are you really proving here? Right. In criminal law, when I was a federal prosecutor, you're always looking for that one email that says, hey, you know, here's the conspiracy. Conspiracy is usually not written out by words. It's circumstantial. So there' going to be parallel paths and there's going to be a wink or a nod or just an agreement generally that can just be as short as one second, as long as many years Very rarely do you have an email that says I agree to do X with you and that's illegal. Well The other reason with all that established that I really was excited to do this show with you both today is because somewhat remarkably We do now have Steve Balmer in writing. Thanks to his attorneys saying in fact, we did have a side deal with Joe Sandberg And it's not exactly the one you might have thought David And so I would just like you to read this excerpt, yet another excerpt from Steve Bamer's victim impact letter, the one he conspicuously tweeted out for the world under the auspices of being duped. because this next passage, this seemingly unassuming sentence. is a revelation For people like me who've been so many levels deep in this story It is a sentence that speaks directly to the true nature of Steve Baalmer's investment. mister Balmer invested approximately fifty million dollars on september fourteenth, twenty twenty one and ten million dollars on march ninth, twenty twenty three effort to further entice Mr. Bommer to invest Sandberg personally guaranteed mister Balmer's fifty million dollars investment by granting mister Balmer a put right for the value of his investment The reason this has been a bit of an asteroid. into the theater of this story is that the people I've been talking to, this is current and former Aspiration employees, current and former Aspiration investors, none of them had any idea for five years that this side deal between Joe Sandberg and Steve Balmer around the precipitating famous investment that was in headlines Existed. And so the very notion that Steve Balmer is admitting A half decade late that he had his own hidden arrangement with Joe Changing an investment of fifty million dollars into a relatively again, risk free loan with a personal IOU that derisked The celebrity VIP that came in to boost the reputation of the company I mean, David To describe how much this smells, it is hard to find the right analogy Yeah, this would get through even my COVID nose. Now we can argue and quibble whether or not there is a duty to disclose this to other investors. It would have to do with what kind of LLC, whether it's a C cororp an S cororp. There's all sorts of different rules and laws that Luke can talk about if he so chooses. But the reality is that when you are using Balmer as really the ramp other investors into the company by touting this investment. and it's a risk free investment for Balmer who takes the put right and says, we're not going to tell anyone this, but thank God, I've got my money back. Hey, you're not getting that put right. Thanks for your money. It just smells terribly to me. It feels like two big things, right? One is he's a different kind of victim right? because he had this backstop that other smaller investors you know, the widows and orphans that came to the DOJ's sentencing did not have So when Bomber says that he is a victim, it's true. He is a victim. lost that money. He lost the money. It's all gone But he had a very different deal than everyone else. And the second thing that it makes me wonder about is about any kind of diligence that they must have done into Joe Sandberg, right? Because I can personally give a put write for sixty million dollars, but that doesn't mean anything because I don't have sixty million dollars. You would think if you're a team bomber that you would do some diligence and some digging into Joe Sandberg at this point to see if that agreement is worth anything or if it's just, you know, a worthless clause that's being inserted Yes. I mean, this is it, right? This is now getting to the nexus between two men. one of whom says very publicly Barely know them Inidious had no idea he was using me in all these ways. and meanwhile, you have another level to which there was a personal protection a plan a negotiation that was meant, Daveid to safeguard The very reason Balmer came in apparently in the first place It doesn't matter the size of the investment, whether Bamber put in fifty million, five million, whether it's worth five billion or five hundred trillion. what a put right option does when it's between two individuals, it tethers them. There's no other way that I can describe it because in order for the put to be worth anything, it has to be substantially possibleible for it to have an existing worth Otherwise, what are we doing? So to me, this is absolute mind blowing evidence that some could cause circumstantial The existence of this put right is very real that would show that a relationship between Balmer and Samberurg was not started the Tuesday before One of the things I've been doing because I am not a securities expert. I'm a lawer on Both of you is that I've been consulting Lots of people whoever I can to help me learn about this, understand it. And so I consulted two longtime securities lawyers, two preeminent law professors with SEC experience, two venture capitalists. All of them echoed that smells But one of those securities attorneys referred to me through a Harvard law schoolchool professor agreed to go on the record to explain exactly why provroided that I to clarify that he was not providing legal advice and that listening to this podcast does not create an attorney client relationship, which frankly, after dealing with Lou for this long, that felt fair as well I am Pierce Han. I'm a partner in the Ice Meller Office of Washington DC practice is largely Federal securities laws and corporate and M andA matters But I asked Pierers Han, was how big a deal He publicly undisclosed put right option between a big name investor and the co founder of a company raising money, trying to go public via SAC B. Potentially fairly serious. It's something that is material to the public or to other investors who may want to invest that there's this side deal going on The foundational principle with the SEC is it's known as rule ten B dash five. It's an anti fraud provision You're required to provide disclosures, right? And omitting material facts is the same thing, right? It's really fraudulent against the public market for the next investor to buy in not knowing that there's a contractual put option right for this big name investor where this big name investor is getting some sort of benefit. And yeah, it's even more egregious that it was guaranteed I'm not in SEC or securities expert How obvious is this to you? I mean, just the basic facts of this Well, especially if this is a big name investor that's in this space and fifty million dollars is not a small amount of money person the investor should have known It's either a reckless disregard for the public, but for other investors Or there was some understanding between the company and the investor Like you invest, we're going to advertise and we're going to make this thing bigger And so what Pice Han is really harping on here is that It's crazy that this wasn't disclosed. And so my brain goes to, of course, like what would someone perhaps suing Steve Balmer in civil court over a lack of disclosure around the Kawi Leonard's side deal. Now think upon realizing, wait a minute, there was another side deal that's already been admitted to. What an interesting decision by Bomers's lawyers to disclose this in a victim impact statement while also in the middle of a lawsuit with other investors who would have liked to have known this material side agreement existed as it would likely have impacted their own investment Steve Balummer is doing something and we don't know why, though we certainly can speculate as he's sending this impact statement to Judge Wilson prior to sentencing. But the reality is that he's disclosing something that's very hurtful in another litigation that is currently ongoing Yeah, if I were a plaintiff counsel in the civil case, I wouldd be jumping up and down at this one. I do want to point out that I've been spending many, many, many hours of my own lookingoo for any evidence of previous disclosure across the three thousand pages of documents and more that I've gotten and otherwise And so what I can tell you is that according to one set of emails with Sandberg and potential aspiration investors that he was pitching, this is of february twenty twenty three There are attached financial documents at an aspiration Cap table that mention the Balmer investment. But they do not disclose the put option see that on the screen here It also was not anywhere among the list of disclosures in the december twenty twenty two purchase agreement for Dennis Wong, Balmer's longtime friend and the loan clipperers co owner who notoriously became the only new outside investor into Aspiration after wiring one point nine nine million dollars into the broke company nine days before Aspiration paid Ki Leonard. his months overdue, one point seven five million dollars And while Team Balmer said, yes, it was insidious that Sandberg was using Mr. Balmer's investments to attract additional similar investors Balmer also participated in a big press release about his investment in december twenty twenty one which was also included in the SEC S four filings for Aspirations's future public offering, the SPAC that we explained earlier. And the release, namess Balmer in the headlines, celebrating this big fifty million dollars investment, and says nothing about the put right while quoting Balmer saying Lou The following As fighting climate change continues to become front and center for more people and businesses Aspirations, technology, brand and community of members make it one of the most significant new companies in the public markets And that SEC S four filing for Aspirations's Future public offering. According to Pierce Han, the securities lawyer we've been talking to That does turn out to be the most obvious place where this should have been disclosed That's really the biggest one, right? Because that's the most public facing Right? I mean, you can make the argument that in a short press release, you just have the big name investor how much he's investing, then fine. But the S four requires comprehensive affiliate and related party disclosures. I mean that's the main public facing document If you try control Fim certain related party or affiliate partact certain relationships and related party transactions. It should be there So command Fing inside of this section I'm looking for the name of the investor or the name of his LLC and neither come up That should have been disclosed there That's the appropriate place it would have at minimum. Right I mean, so some companies will overd disclose, but I mean, at a minimum, there should have been in one line that there was an arrangement with X,YZ investor and you know you could go to the SEC and say you didn't you know, sorry, we disclosed it, but we didn't disclose enough. That's a more common issue, right? where you don't disclose enough. But the fact that there's no disclosure at all is pretty egregious. In my view And so just to translate again, what we are reporting here is in fact, yes D Balmer in the end I am not disputing the loss of the money. What I'm saying is that along the way, also had this IOU guarantee with Joe that was hidden from the public, from the market, and from future victims of Joe Sandberg, which lands, according to the SEC and securities experts I've talked to most problematically upon aspiration and Joe Sandberg specifically, the people who authored, who are responsible for the SEC filing that was missing this disclosure So the question then becomes, but what about Steve Balmer's personal legal obligations as disclosure is concerned. and that is a bit trickier It's a little bit more tenuous, right? But if he's going out advertising on behalf of the company saying I invested fifty million dollars And you should too, you know, without disclosing that his Par investment is guaranteed That's misleading And that's omitting a material fact And so that would be adjudicated how? an investor later W so and then it would go through the courts. But at the SEC when reviewing the S four itself when it got filed and any other related disclosures and filings because the SEC is constantly looking at you know, but they don't have the manpower to look at everything. but if for whatever reason there was a red flag or You know, something wasn't adding up, they may be doing their own internal investigation and then they refer to their enforcement division. and then that's the one that then prosecutes brrings charges T T We did reach out to Steve Balmer's attorneys. for clarification, their office and They did not respond But all of this does bring us to the next thing that I have been looking forward to reporting here today. After spending the last three weeks or so talking to that range of current and former aspiration employees and investors, as well as current and former federal employees. Rumanzo, not among them, incidentally until now The thing I've been meaning to report is that Steve Balmer's put right option The secret side deal slash refund slash IOU brokered with Joe Samberg has now been reported to the Securities and Exchange Commission whose investigation into Samburg at Epiration is still ongoing And you may recall that Palmer was previously interviewed by the SEC But what is quite notable If you read the SEC's complaint against Sandberg, this one filed in August of twenty twenty five is that they describe how investor one purchased fifty million dollars in aspiration stock after september twenty twenty one because the company looked, quote, incredibly well financially And they on to detail David Howouse Sandberg quote. touted aspirations, successes and profitability in the corporate ESG sector to Investor O's chief investment officer in person and over the phone, making materially false and misleading statements to Investor O in the process And if you continue to read that section devoted to Investor onene, AKA by all description Steve Bomber They don't mention. the SEC does not mention that Investor One got a put right option either. Which raises an interesting question, Lou, and I'm wondering if you can guess what the question is. Does the SEC know? Bingo And when, in fact, if they did, when did they learn this? Were they informed when they interviewed Steve Bamer as the victim, David, who is laughing I just had a thought that you're gonna be mentioned in a third filing because it will be from a talking head Pulitzer Prize winning podcaster that it came to light that there was this situation I have been very afraid that someone else, including ESPN, by the way, which got a leaked version of Bomber's victim letter, would also draw attention to this put right. It has left this band of misfits, it turns out to have this discussion Once in a while, you have to be reined in because there is a story that can be told that this put right option was actually meant to materially mislead investors. It was meant as a way to further cover up a salary cap circ convention, which would not be all that interesting to the SEC It is critically important to understand which road Steve Boummer is going to choose to walk down because you can't have it both ways. Either this put right was a material representation that was not disclosed or it was immaterial for SEC purposes, but material for salary caps or convention. To me, it is very binary and I look forward to Steve somehow teaching me why it is something in the middle. So the question of why Why would it be that Steve Baummer disclosed the secret put right option side deal with Joe Sandberg for the first time in a half decade Team Bommer would not comment on any of this to us But it is worth remembering As we discussed in our last episode The MBA's investigators at Walked Tell Lipton did file a very interesting letter, David on behalf of one Mr. Joe Sandberg ahead of sentencing And that letter did say this mister Sandberg sat with us for two in person interviews, produced documents, and through his counsel provided additional information that was relevant to our investigation all our dealings with Mr. Sandberg, both directly and through his counsel, he provided information that was consistent with our review of contemporaneous documents and other evidence mister Sandberg's cooperation substantially assisted our investigation, including our ability to develop a more complete understanding of key events And so I suppose it is possible, Lou, maybe that Sandberg provided information to Walktell Lifton, the NBA investigators about right side deal and Walkell maybe even asked Team Balmer about it or at the very least informed them that this was a thing that Joe Sandberg had been talking about Thereby incentivizing Steve Baummer to get out ahead of any public mention of the put right at sentencing, perhaps in LA where Joe got the fourteen years or in a law firm's report to NBA commommissioner Adam Silver that is expected Eventually, maybe this summer in order to claim self protectively that Balmer himself had already disclosed this And so this is not in fact some bombshell. I said it myself tells the investigator did not respond to my request for comment about this. I think your theory is is the most likely, you generally want to take the sting out. So you say This is a news. I've disclosed this. It has been known in the public sphere And so this is a nothing burger. That's the only explanation I can come up with for why this would be in a victim impact statement at this stage of the game. Certainly not something that the judge would really care about. and it's just a gratuitous detail that that doesn't need to be in the letter Well, There is Another bit of texture I needed to acknowledge from an earlier episode, actually. and You may turn You are miss ate to part eight of this series, published in February of this year When we discuss something, David, that is it turns out relevant here We discussed a very important and very privileged email chain which described the negotiations, some of them at least on Balmer's original fifty million dollars investment which he had made through his As always, tragic comically named LLC, his vehicle Pole Pat. Pole pot, Ple pat And the chain included David, you may recall, Joe Sandberg, Aspirations's cororporate Outside couounsel, Balmer's corporate oututside couounsel, and also his chief investment officer, the aforementioned Brant Vaugh Because on september sixth, twenty twenty one, otherwise known as Labor Day Balmer's cououncil included the following note. As everyone was trying to speed close This investment into a company with sppoiler alert Fraudulent financials. Let us know if you have any questions at all We are also working on a separate put right letter agreement regarding the proposed transfer of a certain amount of shares to Joe Sandberg, as well as a related side letter to be entered into between Pat and Aspiration acknowledging such put right We'll share drafts of these documents as soon as they are available. And that, which we had never read on the show before, is the only documentation The only evidence of this thing that Balmer suddenly disclosed in his victim impact letter M insane part, I would argue is the fact that In March of twenty twenty three, let's not forget this other component to the excerpt that David read from the victims letter In march of twenty three, Steve Balmer proceeded to invest Another ten million dollars And by then, if you're not familiar, not only had the two Aspiration whistleblowers filed their complaint to the government T the DOJ where one Lu Manzo was turns out waiting to be eventually invited onto this podcast Um in the disclosures that Balmer signed off on on that investment He was told in writing that KPMG had resigned as Aspirations's independent auditor The company was in default and the SEC lw They put it this way in that same complaint against Joe Sandberg that we read from earlier On or about july fiveth, twenty twenty two, KPMG resigned as Aspirations oututside auditor, citing, among other factors. Revenue transactions that had characteristics of fraud Not not the best investment. I would say. Given that you're going in, David, as you previously reported, as if the company was still going to go public via SPAC at that over two billion dollars valuation That is the price that Balmer still bought in at ten million dollars for Nothing about this was normal is my takeaway. If you this letter from KPMG that not only, you know, there's different ways auditors can resign They can resign quietly and walk away orr they can resign and say revenue transactions that had characteristics of fraud There's no way a company iss going public, even via SPAC after KPMG says this. And so the idea that This could still be a viable investment is preposterous. And so Question I have for Lou Manzo. att the end here as the guy who launched the prosecution that has now culminated in a towering fourteen year sentence for Joe Sandberg is kind of a simple one But I do want to read from the thing that David Sampson quoted earlier which was the NBA's collective bargaining agreement which says about Violations of the NBA salary capp that they may be proven by direct or circumstantial evidence, including, but not limited to evidence that a player contract or any item or provision thereof cannot rationally be explained And so Lou, I know the NBA is not federal court. But if we provided a prosecutor with all of the evidence that this series has amassed, over eleven episodes now When it comes to whether Steve Balmer circumvented the NBA salary cap for Kwi Leonard in a secret side deal with Joe Sandberg and Aspiration Do you have an alternate rational explanation Play the music. It's very hard to imagine a scenario where rational actors would take these rootes But for the sake of this outcome, and that would be salary cap cir convention. In other words, David, I think there is a one word summary, which I'd hope you could provide us at the end here because the answer to my question is therefore Guilty Speaking of verdicts, before I let you go. I do need to point out that ahead of game one of the NBA finals, which of course, the New York Knicks won quite dramatically NBA commommissioner Adam Silver held his traditional annual press conference. And there was a question that I did not know was going to be asked And I want to credit Joe Varden of the athletic for completely independently asking it Because this is the exchange that happened between The reporter and the commissioner Un added death I wanted to ask you about aspiration Emmy investigation there, but I wanted to point out a couple things and have you react. The questions are is the investigation done? When might you release whatever decision you're going to make? But in this cess There's been a pulitzer awarded for the reporting on it. And then also yesterday, the CEO was sentenced to like fourteen years in prison. Do either of those things from a perception standpoint affect the decision that you ultimately have to make? So number one, Joe, as you know The investigation is being conducted by a law firm independent of the NBA. I mean Yes, ultimately we're paying their bills, but they are doing the work independent of the league office. And my instruction to them is, you we can't be investigating forever, but and at some point we have to wrap it up. But at the same time, the most important thing is that we get it right. And I think that relates to the second part of your question in terms of perception I certainly hear and read things all the time about the perception of what really happened or didn't happen here. And my only reaction is I think I wouldn't be doing my job if ultimately I issued a determination based on perception. my job is to follow the facts What essentially happens here is that a factual report together with findings will be made by this independent firm. That's presented to me. It's then ultimately my role to determine what the appropriate discipline, if any, should be meted out based on their findings. So sort of you two independent processes there. and that's what's happening right now. So I don't have a specific timeline on when they will be completed. I think it's clear they're far along. I think those reports are reading all the time from people who are being interviewed by them. and I think they understand that you could could keep going on and on, but I think we're close to the point now where I think we need to wrap this up because you also need finality. The team has to understand, you know what situation they're going to be operating under. and so do the other twenty nine teams. So that's where things currently stand Pablatori finds out is produced by Walter Avaroma, Maxwell Carney, Ryan Cortez, Juan Galindo, Patrick Kim, Neilily Loman, Rob M Cray, Matt Sullivan, Claire Taylor, and Chris Tumonello. Studio Engineering by RG Systems, Sound desesign by Andrew Bursk, Digital strrategy by Bailey Carlin and Andrew Northern, theme song as always I John Bravo We'll talk to you next time.