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Tuesday, April 29, 2014

How Donald Sterling Will Cash In On His NBA Ban

Racist comments attributed to Los Angeles Clippers owner Donald T. Sterling have gotten him banned from any association with either the Clippers or the National Basketball Association "for life."

The wording of the ban, according to the NBA press release, prevents Sterling from "participat[ing] in any business...decisions involving the team."  This means he cannot exert any authority over business decisions involving the team.  For an active owner of a franchise, this is a hard condition to accept and suffer, for it prevents the owner from taking autonomous steps to cut costs or enhance revenues if the team's income stream or long-term interests should be compromised.  In short, Sterling becomes an absentee owner whose financial interest is now controlled by and dependent on the remaining league owners.

A sale of the franchise may not be eventually required, but as a practical matter, it is likely to happen.  The reason is simple: Donald Sterling now has leverage.  This is his time to cash out (whether he likes it or not), but how he plays this opportunity (and it is an opportunity for him, trust me) can differ in several respects.  As I will explain, this will not be a fire sale or distressed sale where he is selling at a discount.  Not at all. In fact, I believe the opposite is true, because he has leverage. 

Follow the logic. The latest controversy has shown that one wayward owner can cause significant, short-term brand damage and revenue losses to the rest of the league.  The prevention of a recurrence has a value.  It is a powerful reason why the rest of the league's franchise owners will pay Sterling to go away.

And they will pay...a premium.

On Sterling's side, I would be asking for a premium. (While he would be stripped of decisionmaking authority, the team is still is and no court would force him to sell on terms to which he would not agree.) And why not? The Clippers are an underdeveloped franchise in the nation's second-ranked media market which is also a gateway of sorts to the untapped and begging-for-sports Mexican and Latin American markets.  

If I am repping Sterling, I am asking to either hold on to a portion of the interest in the team -- maybe as a silent 49% owner -- or to get residuals on future revenue streams that can be developed by any other owner with the vision and capital to develop the huge basketball market to the south.  

A visionary with credibility in those global markets -- say, a Carlos Slim, but it could be anyone with capital and quiet cross-border credibility -- could turn even this cruddiest of perpetually underperforming NBA franchises into a global team.  After all, basketball is the second sport (ahead of baseball and after only soccer) in much of Latin America. 

A real visionary might even change the name of the franchise from the Clippers to something harkening to a global ethnic identity.  The Los Angeles Aztecs, anyone?  If there is a sports league that recognizes the power of branding, it is the NBA.  Franchise name changes are not uncommon, either; just this year, the New Orleans Hornets (formerly the Charlotte Hornets) became the New Orleans Pelicans, and the Charlotte Bobcats will become the Charlotte Hornets for next season.  In these cases, you had bland brands being changed with little or no fan dissension.  There is no "brand" for the Clippers beyond being the Not-Showtime, Not-the-Lakers, or just being a bad basketball club with a laughingstock of an owner.

Even on a more modest, domestic, regional scale, the Clippers can finally gain even footing with the Lakers, with whom they share the Staples Center for home games.  The Lakers have dominated the Southern California market since the days of Jerry West (i.e., 40-45 years ago).  Since the Clippers moved from San Diego to Los Angeles in 1984, the Lakers always cast a dark shadow over the Clippers by any metric (media ratings, sponsorships, licensing, attendance) you use.  But the Lakers have now faded on the court, the Clippers are the playoff team, and the balance of local attention can finally shift to afford the Clippers some local market growth at the possible expense of their more established co-tenant. 

The right vision can turn this one franchise into a huge moneymaking operation.  

The right deal advisors would make sure that Sterling either shares in the future gains, or gets a huge premium on the present value of the franchise in order for Sterling (who made his money as a harscrabble Los Angeles personal injury attorney) to surrender that upside potential without a protracted court fight.

Now, one report, quoting one sports business analyst, suggests the Clippers' franchise might sell for as much as $780 million. Given the reported annual net income of $15 million, this is a price to earnings valuation of fifty (50).  That number makes one pause, even if you consider the various avenues of untapped potential. (Note: The same report also states that Sterling denies any intent or willingness to sell the franchise.) That's why anyone considering a purchase or joining a syndicate has to have a plan, not just to do the deal, but how to create value in the franchise for the long term.

What do you think?

Eric Dixon is a New York corporate lawyer and strategic consultant.  

Monday, April 21, 2014

Startups: Your Lawyers & Advisors Must Share Your Values

It is important to have shared or compatible interests with the consultants or professionals you hire. I believe you also need to have your advisors -- your lawyer, your accountant, your strategic advisors or managers -- share your values. 

That is why I put my money where my mouth is. That's why I am willing to take founders' equity in young companies where the founders have merit and an underlying business with merit, in exchange for my services which are more of the "strategic" nature (using knowledge of the law and experience structuring deals) than what non-lawyers usually think legal work is (no, it's not always litigation or dealing with regulators). 

Remember this: A consultant who asks for a huge retainer and $1000-2000 an hour for the time of staff whom you will never meet doesn't believe in your business, doesn't give a damn whether you succeed or fail and is taking you for a fool.  I am all for people being paid according to the value they bring. But these rates, in this economy, do not reflect value added as much as they reflect the unrevealed fact that many clients are paying only a fraction of their bills and the "stated rate" or "stated charge" is artificially expanded as a trick to try to collect a higher percentage of the accounts receivable. 

Eric Dixon provides legal and strategic advice to all sorts of young companies, private entities, nonprofits and political entities.  He can be contacted at

Easter Sunday Blasphemy At St. Patrick's Cathedral

It is time for the Archdiocese of New York to close the doors of St. Patrick's Cathedral during Mass. Yesterday, on Easter Sunday of all days, the holiest of Christanity's holy days, St. Patrick's was overrun by photo and selfie-taking tourists during a midday Mass. It is as if Catholic Mass attendees were inside the Cathedral for the amusement of tourists, as if they were on stage and following a script. Yours truly was almost literally knocked down inside the Cathedral by, well, savages. (I prefer the "Battlefield Earth" term: man-animals, but I digress.)

It is a form of narcissism to be overly outerdirected. I am no shrink but I define that roughly as being preoccupied and controlled by an unrestrained (or irrational) desire to placate the desires and judgments of others whether or not they have earned the right to such priority. The Church maintains that "our doors are open to all who come." This is a huge strategic mistake that has been learned and remembered by other faiths which have survived persecution. As Jewish congregations have surely learned throughout history, unquestioned access invites trouble...or far worse. And certainly, Moslem congregations will prevent a nonbeliever from getting far within the doors.  

The result of the Archdiocese's institutional cowardice is a degradation of its core mission of ministering to its own worshippers. 

The failure to protect this core mission sends a subliminal message to its core membership: We will allow nonmembers to interfere with and show abject disrespect for your right to worship on your Holiest day in order to preserve our institutional openness.

The appreciation of the remaining populace to these demonstrations of openness and tolerance is returned with an air of blasphemous intolerance.  Within steps of the Cathedral, a young man was making significant money dressed up as "Holy Toast." The Archdiocese needs to protect its flock. Instead it allows -- no, it provokes -- itself to be overrun.  As former United States Ambassador to the United Nations John Bolton recently observed: "Weakness is provocative."

Peasant wisdom distllls this cowardice into three different, simple words: You don't matter.

Tuesday, April 15, 2014

Undisclosed Law Firm Contribution To Christie's RGA Defeats Independence Claim

It was just revealed Tuesday that law firm Gibson, Dunn & Crutcher gave $10,000 to the Republican Governors' Association, now headed by Governor Chris Christie, just nine days before the firm issued its internal investigation report.  (See my critique of that report here.)

Similar arrangements are often derided in political commentary as "pay to play." This is an obvious line of attack and criticism that you will hear in coming days. 

However, the real issue here is the law firm's failure to disclose this material fact that bears directly on the firm's supposed independence.  Make no mistake about it.  This substantial campaign contribution reflects directly on the firm's ability to avoid an appearance of impropriety or compromised independence.  Moreover, the firm's international reach, billing rates and institutional knowledge all argue strongly against any presumption that the failure to disclose was an inadvertent omission. In fact, these facts all support the inference that the failure to disclose could not possibly be inadvertent but rather, that it had to be conscious, deliberate and willful.

This brings us to the next shocking implication. This one has serious, criminal implications. This failure to disclose becomes even more significant, because the nondisclosure was committed in connection with the report that was given to the United States Attorney's Office.  I can see federal prosecutors questioning whether the failure to disclose was an intentional omission, not just an oversight or clerical error, and whether it was part of a plan not just to zealously advocate for the Governor's Office but to shield information (if not evidence) in order to mislead the United States Attorney's Office.  The legal consequences could be significant, and very adverse.

Punishing Political Enemies With Prison? New Jersey As Banana Republic?

The concept of jailing your political opponents is one that evokes images of totalitarian despots and banana republics along the lines of the fictional country in "Moon Over Parador."

But one new revelation buried in interview memoranda released yesterday by the lawyers for the New Jersey Governor's Office (the firm of Gibson, Dunn) could suggest that political considerations could affect your liberty.

(See Eric Dixon's legal analysis of the original Gibson, Dunn internal investigation report here.) 

This nugget of information about former federal prosecutor turned Department of Community Affairs head under Christie, Richard Constable, reveals that Constable himself claimed to the lawyers at Gibson, Dunn that he was going to be appointed Essex County Prosecutor once Christie became Governor in 2010.

One problem, though. Constable did not have the requisite five years of experience as a New Jersey lawyer. 

In fact, he had zero.  

Constable took the New Jersey bar in 2010. DCA was a way to get him management experience while he amassed the "five years of legal experience."  (Note: Constable was a New York barred lawyer who was able to appear in federal court because he was admitted to the federal bar and specifically admitted to the District of New Jersey. State bar admission not necessary. But once leaving the Justice Department, Constable needed to take the state bar exam in order to practice.)

But why, with all the hundreds or thousands of fine lawyers in New Jersey, why the effort to put this one crony (a former assistant federal prosecutor under Christie at the Newark U.S. Attorney's Office, who handled corruption cases) in the Essex County Prosecutor's Office? (The former head of that office, Paula Dow, became Christie's first Attorney General.)

Incidentally, we've seen this "reaching" for a particular person when numerous other unquestionably more qualified people were available. We saw it when Christie tried to appoint Phil Kwon, and then non-litigator Bruce Harris, to the New Jersey Supreme Court in 2012. Kwon's nomination was withdrawn after the allegations his family engaging in illegal money-structuring transactions surfaced, while Harris was rejected by the State Senate.

(Full disclosure: I testified in opposition to Bruce Harris on May 31, 2012.) 

Might this be a way to have someone loyal to Christie handling the levers of "prosecutorial discretion" to ensure investigations get stopped -- while others get started up and, possibly, innocent people (but political enemies) get railroaded?

More to the point: Does this indicate another effort to use the state's prosecutorial power for political gain? (The flip side is that political enemies could have their liberty jeopardized. Prime examples are some of the Bid Rig investigations and prosecutions, and of course, the prosecution of now-jailed former Alabama Governor Donald Siegelman.)

Now, who in Essex County, New Jersey might be someone who would be up for protection? Or, conversely, who would be a political rival ripe for targeting and elimination? 

And the real offensive issue is how one's political alliances can affect one's liberty. 

In short, this new information hints, at least, at the atrocious and scandalous possibility that crossing the wrong powerful people in New Jersey (or elsewhere) can put your freedom in jeopardy.

Wednesday, April 9, 2014

Bridgegate Panel Subpoenas Struck Down

In a shocking development just moments ago, a New Jersey court has denied the Joint Legislative Investigative Committee an application for a court order for witnesses Bridget Kelly and Bill Stepien to produce documents pursuant to the Committee's subpoena.

I think that now the Committee needs to get creative to find ways to uncover facts relevant to the case.  The fact that now, certain facts will be concealed from the Committee (but not necessarily from the U.S. Attorney's Office whose investigation is apparently in full swing), does not mean that there is no purpose to continuing. It just means there is resistance. This is not surprising. 

Enjoy the opinion.

I will update this article as developments warrant. 

Investigations: Doing One The Right Way

The internal investigation report issued by the international law firm Gibson, Dunn for the Office of New Jersey's Governor on "Bridgegate" has been much criticized for, among other things, its inconsistencies and its overzealous tone that have undermined its credibility and authority. Let's stop criticizing, and talk briefly about what makes a good, sharp, effective investigative report.

First, you have to describe what you are investigating. This requires clarity of thought and clarity of writing. These are surprisingly in short supply.  And business owners and others who end up hiring lawyers to do these internal investigations just have no idea how few lawyers actually are proficient at writing a readable report in English. 

Second, you need to address the limitations of your investigation. There are always limitations. There will be documents you cannot access, witnesses you cannot talk to (and sometimes there are good reasons for this) and then there will be documents and witnesses of which or whom you are not even aware.  These are the unknown unknowns which are often crucial in uncovering the truth.  A good investigator must be honest with himself about the possibility of missing evidence or, even worse, evidence deliberately concealed from him by the wrongdoers on the inside who are pretending (often quite adeptly) to wear the white hats of innocence. A good, credible report addresses these problems.  The evidence and scope of access must be described, the limitations or "dead ends" must be explained, and the reasons why access is denied or otherwise impossible must be addressed. It is important to weigh the credibility of sources, both the people who talk and the evidence that is revealed.  It is important, from both fairness and credibility standpoints, to explain that refusal to talk to investigators may support inferences of "something to hide" as much as they support inferences that the uncooperative source may be appropriately wary of any investigation.  The report needs to address all of these points and potential drawbacks in order to be taken seriously and credibly.  After all, a report that is not viewed as a credible evaluation of a situation or scandal is literally a waste of paper. 

Thirdly, address what conclusions and inferences can be drawn from the available evidence, but address all the possible conclusions. Sometimes the best investigations raise and address a series of new questions rather than "coming to a conclusion."  Although the reader will want to know "whodunit," the best report and most effective report for a corporate client is one which moves towards the truth instead of becoming an unwitting tool of a wrongdoer on the inside.  This is a constant risk and one which is neglected by lawyers who care only about placating the people writing the check to them.

Most crucially, however, is the inclination to keep an open mind.  When there are multiple limitations, it is virtually impossible to come to a conclusion. This is not an hour-long crime drama and the seminal "come to Jesus" confession just will not happen. Anyone expecting this is dangerously naive or intent on paying for and getting the outcome they want.  People with this attitude want the investigation to "bless" their desired story.  A corporate or small business client needs to honestly answer this question: Do you want a real investigation, or do you want a whitewash?

Finally, the most crucial ingredient in a good investigative report is the skill of the people doing it.  By skill, I am talking actual skill, not skill which is presumed or imputed to a lawyer because of their prior experience as prosecutors or regulators.  In fact, some former government lawyers make surprisingly poor investigators!  This is because government lawyers are accustomed to having government power (i.e., the power to subpoena, the power to investigate and the power to prosecute) at their disposal to shake the tree to get the evidence and testimony they need or want. Having power is not the same as having skill.

In addition, the office politics of a government office put a premium on finding targets to go after, and people and cases to resolve. The government regulators and prosecutors are not hired to find the truth; they are hired to process cases.  "Getting to the truth" is this nice-sounding, high-minded ideal.  The reality is far from that. Enforcement agencies often do not have the resources or the patience to go after and develop complex cases (such as the financial fraud allegations against financial institutions where the lack of prosecution has engendered the theory that they are Too Big To Jail).  This is why you should not expect former government lawyers to have the patience, discipline or experience to get to the bottom of cases, not unless you have a limitless budget.

The best investigators, therefore, are not the ones used to using the power.  They are the ones who have uncovered the truth without the benefit of the government's resources and power at their disposal. Sometimes, they are the ones who have been targeted by government regulators or prosecutors, and survived by proving their innocence despite being outgunned.  Those are the ones who have the skill and discipline to do the job. 

If you run a business and need to get to the truth, those people are the ones you should talk with. 

If you want someone to bless your version of events, you don't need an investigation. You are looking for an advocate. Just don't expect your whitewashed version of events to be taken seriously, no matter what you spend. 

Tuesday, April 8, 2014

A Theory on New Workplace Stress

There are anecdotal studies suggesting workplace stress has increased. I'm certain this might also have been a theory a few decades ago.  However, new stress incidences may reflect the recent and rapid proliferation of new technology in the office, combined with a general depersonalization of human communication within the office and even within core relationships. 

I end up studying such phenomena in my role as an investigative attorney. The truth will rarely reveal itself voluntarily and people hiding things will almost never confess. Thus, social cues and behavioral patterns open a window into what might really be going on. In the course of compiling these observations, I have sensed a noticeable and drastic deterioration in behavior.  It presents quite a paradox, in that politically correct society puts a premium on "living for others" and being "outerdirectedness," even at the cost of subordinating one's needs, wants and goals for the "greater good," yet at the same time people become increasingly individualistic.  In fact, this self-centered behavior, which comes across from several age groups and income and economic demographics, might be a strategic defiance, a primordial desire to assert one's individuality within one's own "space" (although that space often invades the space of others) at a time when the pressures to conform and apprehension about being under constant watch and judgment from others are arguably never greater than the present.  

Technology may thus be the gateway to deteriorating behavior and increased social discomfort, including increased anxiety-related disorders. The increased addiction to gadgets has made people less "aware" of their surroundings, and this comes off increasingly as an indifference or rudeness towards colleagues. The perceptions of hostility (whether overt or passive-aggressive) now extend to the commute, to the bus or train or sidewalk, and certainly within the office, whereas even five (!!!) years ago you would hear about such behaviors only in the context of "road rage." In addition, written communication does not allow for subtle nuances in voice inflection to be transmitted, so there are more opportunities for people to feel offended or hurt by harsh-appearing written words. The root cause is the technology which has encouraged people to avoid face-to-face or voice-to-voice communication. 

The opinion leaders in the audience are a fraction of the "one percent" and their awareness will not halt the trend among the larger population, which is too dominated by people of questionable education, average to below-average intelligence and prone to quick distraction. This trend will continue.