Pod Insights The Prof G Pod with Scott Galloway Prof G Markets: Goldman Sachs Restructures its Businesses + Restaurant NFTs, and Nikola’s Securities Fraud Saga About this episode This week on Prof G Markets, Scott explains why Goldman Sachs is refocusing on its asset management business and scaling back its efforts in consumer banking. He then shares his thoughts on why catering to the 1% continues to be a lucrative business model, even as it sows inequality of opportunity. And in this week’s unpack, we learn about why the CEO of Nikola was just convicted of securities fraud.
Show Notes:
Goldman
Restaurant NFTs
Nikola
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Transcript 5,529 words · 11 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
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0:48 Speaker 01 Your heart can tell you a lot about your health. Apple Watch Series 12 measures your heart rate every five seconds with the most accurate heart rate sensing in wearable. So your vitals app, now with heart rate variability, can tell you when something is off. And your readiness score can let you know when to rest and when to push. Hear the story in every heartbeat with Apple Watch Series 12. The features described are for wellness purposes only and not for medical use. iPhone 11 or later required. Based on Apple conducted study of heart rate accuracy, August 2026. Visit apple.com/aplewatchseries12.
1:18 Scott Galloway? This week's number: $85 million. Mackenzie Scott donated $85 million to the Girl Scouts, the largest single donation in the organization's history. Ms. Scott has donated $12 billion to different charities and organizations in the past two years, including a March donation of $275 million to Planned Parenthood. Sheryl Sandberg, also a billionaire, has donated $3 million to ACLU's fight for abortion rights. However, Ms. Sandberg has issued infinitely more press releases.
2:01 Scott Galloway? Welcome to Prof G Markets. Today, we're discussing Goldman's restructuring, when scarcity becomes a security, and an unpack on securities fraud. Here with the news is Prof G Media Analyst Ed Elson. Ed, what's the good word?
2:15 Ed Elson? I'm excited for dinner tomorrow, Scott.
2:17 Scott Galloway? Yes, that's right. Team dinner, team dinners, bonding, culture. And you know, you know what the strategy is. Pay for dinner, daddy gives the credit card and goes home at 10, and all the kids go out. Boom, that's what you call leadership.
2:30 Ed Elson? Oh, my God.
2:31 Scott Galloway? All right, what's the headlines, Ed?
2:32 Ed Elson? Let's start with our weekly review of market vitals. The S and P 500 rallied amid a week of strong earnings. The dollar was relatively stable, so were Bitcoin and Ethereum. And the yield on 10-year Treasuries reached its highest level since 2008. Shifting to the headlines. Last week, we discussed the Japanese yen's weakness against the dollar. Well, private equity giant KKR has identified that weakness as an investment opportunity. The company plans to take advantage of the cheap currency to pour more investment into Japanese companies at attractive valuations. Liz Truss resigned as Prime Minister on Thursday.
3:16 Ed Elson? That makes her the shortest-serving Prime Minister in UK history. She was in power for just 44 days, and the pound surged on news of her resignation. And a quick look at recent earnings announcements. Netflix added 2.4 million subscribers in the third quarter and expects to add another 4.5 million next quarter. This news came after back-to-back subscriber losses in the first half of the year, and it sent shares up 10%. And Tesla reported its highest-ever quarterly revenue at $21.5 billion, but that still fell short of Wall Street's expectations. It also expects to finish the year shy of its delivery goals. Elon Musk said on the call that Tesla might pursue a share buyback of $5 to $10 billion
4:01 Ed Elson? in 2023, and he also expressed confidence in the company's future value.
4:05 Speaker 03 I see a potential path which has looked to be worth more than Apple and Saudi Aramco combined.
4:12 Ed Elson? The market, however, appeared to disagree. Tesla shares slid 6% after the earnings call. Scott, any thoughts?
4:20 Scott Galloway? First off, it's just really bad form to say we're going to be worth more than this company and you're also, you're sending a signal with no underlying logic or proof to shareholders on an earnings call and I don't know what he gets from it. People know the Tesla story. You got Kathy Wood out there saying that Tesla could be a $4,000 stock, which I think means it would be worth more than 40% of the NASDAQ or some crazy number. So he's got enough crazy sycophants doing that work for him. This just doesn't, it's just on a risk-adjusted basis, just a dumb move.
5:12 Ed Elson? Goldman Sachs kicked off earnings season and it was a beat. Earnings per share came in at $8.25, which was higher than analysts' estimates of $7.75. Still, those earnings were down significantly compared to last year. In Q3 2021, Goldman clocked almost $5.5 billion in profits versus just $3.1 billion this year. Goldman CEO David Solomon attributed that drop to poor conditions in the capital markets.
5:40 Speaker 04 This was a, you know, this is a challenging operating environment, certainly for a capital market-centered firm. There has not been a lot of capital markets activity, given the headwinds of economic activity. Equity issuance, net issuance has been slower.
5:52 Ed Elson? Now, most companies are seeing lower profits this year, but a 43% drop seems very large. So Scott, could you explain exactly why Goldman's business is suffering? And what was David really talking about when he mentioned the capital markets?
6:08 Scott Galloway? So Goldman is arguably kind of the premier advisor for companies looking to raise capital or thinking about mergers and acquisitions and
6:16 Scott Galloway? Global M and A is down 54% from last year. So it's been cut in half. Those are huge fees. IPO volume is down 44% from last year. I'm actually surprised it's not down more. And that's very lucrative. And then all of a sudden, that that tap just gets turned off. So Goldman does really well when investment banking and the capital markets are really strong. And there's a lot of activity and trading revenue is strong. And they do, they obviously get hurt really badly when it isn't. As a result, Goldman has been investing more in its asset management business. They know that if they're managing, call it $2 trillion in assets, and I'm just pulling that number out, that they'll make approximately 50 basis points a year on that asset base,
6:57 Scott Galloway? whether it's it's trading stocks for them, providing family offices, services, getting interest or loaning that money out at a higher interest rate than they are paying to the folks who store cash and assets with them. Margin loans, there's all sorts of ways to monetize that base. And they can much better predict it. Last year, no one could predict a 43% drop in their profits or a 50% drop in global M and A. But they can predict pretty steadily what the revenues will be from their asset management business. And the markets love that.
7:29 Ed Elson? Goldman also said it's going to restructure the organization in two major ways. First, it'll merge the company's trading and investment banking divisions into one unit. And second, it'll start pulling back from Marcus, which is the consumer banking business the company launched in 2016. Instead, as you mentioned, Goldman will refocus efforts on its traditional strengths, asset management for wealthy clients and serving big corporations. So you were hinting at it before, but Scott, why exactly is the company making those changes right now?
7:58 Scott Galloway? Well, Goldman, it's it's easy to play Monday morning quarterback, but there's been very few companies in the history of business that have been B to B businesses and have effectively crossed the chasm into B to C businesses. It's a different culture. It's more about marketing. It's more about consumer behavior. B to B is usually more about relationships. So this is kind of another example or case study of a B to B company, arguably one of the best brands in the history of B to B. They tried to go B to C and so far it isn't working. And just on the previous point of predictable revenues versus the sugar high of these investment banking or trading fees. You know, there's sort of a similar phenomenon at our firm. At Prop G Media, we have a variety of different business lines, but the way we monetize
8:38 Scott Galloway? those business lines is primarily through speaking fees and through podcast revenues. Advertisers pay to be on our podcasts. And the speaking fees are higher margin. They feel wonderful. After this podcast, I'm going to go to the West Side and speak at an event, which I'll be paid kind of six figures plus for. And that fee is incredible. And it's 80 or 90 points of gross margin minimum. And then we have our fees from our podcasts. And even though the speaking fees feel much better and can be much more lucrative, as an enterprise, it's the podcast fees that really drive value. Because if we hit a recession, you can bet that the national cotton growers aren't going to want to pay 100 grand to listen to some angry professor come tell them about the
9:23 Scott Galloway? future of business and technology. And a lot of that speaking revenue is really vulnerable. Whereas the podcast revenue, if we go into a recession, yeah, we'll see a hit, but it won't be a big hit. And it just, we would have a much easier time predicting our podcast revenue over the next five years than our speaking revenue, just as Goldman is going to have a much easier time predicting to the street their asset management revenue versus their investment banking and trading revenues. In sum, the market loves consistency and predictability.
9:58 Speaker 05 Too many bottles of this wine we can't pronounce. Too many bowls of that green, no lucky charms.
10:06 Ed Elson? The New York Times has an interesting story about how NFTs might change the high-end American restaurant scene. In New York, getting a table at a popular place is notoriously difficult. At many hot restaurants like Dame and Carbone, you have to wait weeks or even months to get a reservation, unless, of course, you have a special relationship with the host. In other words, the top restaurants in America are becoming more and more similar to members' clubs. And this is where NFTs come in. A new platform called Front of House is issuing digital tokens, or NFTs, that give the holder special access to restaurants. For $1,000, you can purchase a Dame token, which buys you the ability to walk in and get a table at Dame whenever you want.
10:48 Ed Elson? According to the co-founder of Front of House, the platform is really about creating intimacy. He said, quote, "I think one of the best things in the world is going into a place just like Cheers, where everybody knows your name, where they know what you like, where your martini is sitting there as soon as you like."
11:08 Ed Elson? So Scott, this seems to me like one of the first real applicable use cases for NFTs, for the consumer at least. But what do you think of the idea?
11:18 Scott Galloway? It's a continued trend in America where it's the financialization of everything. And that is if there was a hot restaurant, it meant that you had to pay the tax of planning ahead or waiting on hold to try and get through to make a reservation four weeks out for a special occasion. What this has said is, we're going to monetize scarcity. And that is, we're going to say, all right, rather than having to plan way ahead and make a reservation, or stay on hold to try and get a table for two in six weeks, we're going to match demand to supply by reducing demand by charging everybody that wants to make a reservation here or come to this restaurant a certain amount of money. The token itself is just the infrastructure, the mechanism.
12:00 Scott Galloway? But at the end of the day, this is monetizing excess demand. There's something disturbing though going on, and that is there's a segmentation to get rid of the tax that most people have to pay in terms of time or inconvenience around accessing consumer products, such that the wealthy...
12:19 Scott Galloway? Can have a different experience. And I think the best example of this is Disney, where people save up all year, or most families save up all year to go. It's several thousand dollars to go for, take your family to Disney for the weekend. But if you don't want to wait in line for three hours of the Avatar ride, no joke, Ed, they could hand out an iPad at the beginning of the line for Avatar. And by the time you got to the front of the line, you would have watched the movie. It took over three hours. For five or $6,000, you and seven friends, or seven kids, whatever it is, have this nice, high EQ person from the Midwest show up in a uniform. And that person will take you in a van behind stage, or behind in-between parks
13:02 Scott Galloway? and these kind of secret roads and tunnels. And then when you walk into Avatar, you're going through the employee entrance, get on the ride, and then have a hand signal if you want to go a second time. And we're getting further and further away from each other, even beyond the things that run through my mind about how I'm not preparing my kids for the real world. You can't help but see these people and think, you know, it's just gone too far. It's just too much. And now we're disarticulating or segregating from people. And wealthy people are having their own experiences, even when it comes to restaurants. So there's something uncomfortable about this. What the business learning is, is that Peter Drucker said, basically, every major shift in the economy
13:46 Scott Galloway? can be predicted by demographics. And the wealthiest, second wealthiest man in the world now is the CEO of LVMH, Bernard Arnault. And it's just been a great strategy to focus on the top 1%, because you're focusing on a market that has more and more money every year. And further evidence of this is what was the one company that got public this year? Ed, or one of the few big companies that went public, and by the way, did really well? Porsche. Kind of the ultimate collision of a midlife crisis and luxury. We are producing more and more men in their 50s who are exceptionally wealthy and have exceptionally small penises. So in sum, the gift that keeps on giving is catering to the 1%.
14:26 Ed Elson? Okay, we'll be right back after a quick break with an unpack on securities fraud.
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16:46 Ed Elson? We're back with Prof G Markets. Entrepreneurs are supposed to pull the future forward. Bold claims about the future are their bread and butter. But there's a line somewhere that we don't want them to cross. Last year, the Elizabeth Holmes saga captured our attention when she was convicted of lying to investors about her blood testing startup Theranos. Now, a New York City jury has found that another entrepreneur, Trevor Milton, crossed the line with his electric truck startup Nicola. That line between vision and fraud is the subject of this week's unpack with Prof G Media's editor in chief, Jason Stoudamire.
17:27 Speaker 06 In the span of just one year, between late 2016 and 2017, two different entrepreneurs stood on two different stages in front of what they claimed were semi-trucks powered by electric motors. Both men promised that their electric truck was a world-changing innovation that would shortly be delivering freight across the country. Today, neither man's company has delivered a single working vehicle. But the consequences of those broken promises have been radically different. One of these men, Trevor Milton of Nicola, was just convicted for securities fraud and will likely face prison time. The other, Elon Musk of Tesla, is the wealthiest man in the world.
18:09 Ed Elson? So what's the difference?
18:11 Speaker 06 Let's start with Milton. In 2016, Trevor Milton had been involved in several alternative fuel trucking ventures, and he was starting to get a lot of interest from auto manufacturers and trucking companies for his latest effort, which he called Nicola. Nicola, Milton's company, planned to build trucks powered by hydrogen fuel cells, which is a form of electric power. To announce his product to the world, he held an event at the company's headquarters where they unveiled the white and blue Nicola One. Milton was definitive at that event that what loomed above him on stage was a working vehicle.
18:45 Speaker 07 Know it's real, touch it, feel how sturdy it is. You're going to see that this is a real truck. This is not a pusher.
18:51 Ed Elson? That sounds definitive, but what does he mean that the truck is not a pusher? I've never heard that term.
18:58 Speaker 06 It's an odd term, isn't it? It sounds, though, like he means it literally in that the truck moves under its own power. You don't have to push it. He's really insistent on this point, though. He uses the term again later that day in an interview with CNET, sitting inside the truck's cab.
19:15 Speaker 07 This isn't just a pusher like a lot of vehicles that they unveil are just vehicles that don't actually function. It's a fully functioning, you know, vehicle, which is really.
19:22 Speaker 06 Milton made a lot of other claims about Nikola around this time. He said that they were providing the technology and the engineering for a pickup truck that would be built by GM. He claimed that the company was manufacturing hydrogen, which provided the energy for its vehicles, at $4 per kilogram, which was a quarter of the market price. And then, most famously, the company released a promotional video that showed the truck barreling down a rural highway. On the strength of these claims and a series of partnerships and customer agreements, Nikola went public via a SPAC in June of 2020. The markets loved Nikola, and at one point, the company had a market cap of over $30 billion and was worth more than Ford.
20:03 Ed Elson? Only it really was a pusher, right?
20:06 Speaker 06 It was, literally. So things really started to fall apart for Milton just days after the SPAC, when Bloomberg reported that the truck he presented on stage was not a working model at all, but in fact, it didn't even have a motor in it. In September of that year, 2020, a small investment firm called Hindenburg, which specializes in short selling, produced a lengthy report on Nikola, claiming it was built on, quote, "an ocean of lies." Among other revelations, they reported that the video of the truck driving down a highway was produced by towing a non-working vehicle to the top of a gentle grade, then filming it from an angle to make it appear as if the road was level while it just rolled down the hill.
20:50 Speaker 06 So a few weeks after the Hindenburg report, Nikola announces that Milton has resigned and that it has been served with subpoenas from the Department of Justice and the SEC. The company settled the SEC's civil charges for $125 million, but the government chose to pursue criminal charges against Milton personally. That case went to trial this fall and a jury found Milton guilty of securities fraud and wire fraud.
21:13 Ed Elson? Okay, so what's the difference between civil and criminal charges?
21:17 Speaker 06 There's a lot of differences in how a criminal case versus a civil case is handled and different laws apply, but the really important difference that most of us need to know is that criminal charges can send you to prison.
21:29 Ed Elson? Which is bad. How do you avoid going to prison then?
21:32 Speaker 06 There are several different crimes that are all called fraud, including two that Milton was convicted of: securities fraud and wire fraud. They boil down to the same thing. Prosecutors must prove that the defendant knowingly attempted to deceive people in order to obtain something of value. Securities fraud means that the fraud has to be connected to a security, here Nikola's stock, and wire fraud means that the scheme made use of the wires, which is an arcane legal term for telephones or the internet.
22:04 Ed Elson? So is this different from insider trading?
22:06 Speaker 06 Yes and no. So insider trading is technically a form of securities fraud, but in a way, it's the opposite of what Milton did. Both are crimes of information. Insider trading is buying or selling stock on the basis of secret information. The information is true, but it's known only to company insiders. That's what gives it value. In Milton's case, though, the information was false, but public. So the two crimes are inverses of one another.
22:34 Ed Elson? So the point is that in both situations, the defendant knows something that the market doesn't, right? I mean, Milton knew that the truck was a fraud.
22:42 Speaker 06 Yeah, that's exactly right. It's illegal if you have that information by virtue of being an insider at the company. So, for example, if you know the company's going to release an actual truck that's going to set the world on fire and you buy a bunch of stock before that happens. Or if the information is false and you've manufactured it and you know it to be false. So traders buy and sell stocks on the basis of outside information all the time. Hindenburg, for example, shorted Nikola before releasing that bombshell report. That's how they make money. And the line can be tricky sometimes. If Milton himself had told Hindenburg that the truck didn't work, then potentially Hindenburg would have been considered an insider because they had inside information.
23:24 Ed Elson? So back to the issue you raised at the top. Elon Musk has also failed to keep his promises about electric trucks. So why wasn't what he did securities fraud?
23:32 Speaker 06 About a year after Milton's Nikola unveil, Elon did him one better, right? So at the Tesla semi unveiling, they actually drove two Tesla semis with trailers attached directly onto the presentation stage.
23:45 Speaker 08 I hope you like what you see. I'm going to tell you about everything that this truck can do. It blows my mind, I think it'll blow yours, starting with performance.
24:00 Speaker 06 In his presentation, Elon makes a number of claims about the eventual capabilities of the Tesla semi, which are quite impressive sounding. But critically, he's clearly talking about the production model. And he's vague in places about which of these capabilities are complete and which are still under development. At the end of the presentation, though, he does make what sounds like a definitive claim.
24:22 Speaker 08 Production begins 2019. So if you order now, get the truck in two years.
24:29 Speaker 06 Of course, that did not happen. No trucks were produced in 2019 and no trucks have been produced yet, although Tesla now claims it will start delivering trucks in December. That's far from the only time Elon has promised something that he or Tesla did not deliver. He's been promising full self-driving cars for years, for example. And it's possible that when he said that there would be Tesla semis in 2019 or full self-driving cars next year, he knew they were unlikely or even impossible.
24:58 Ed Elson? So why isn't that securities fraud?
25:00 Speaker 06 The most difficult thing to prove in court is a defendant's state of mind. Fraud requires that the defendant know they are deceiving the victim. In Milton's case, the extravagant measures he took to perpetuate the fraud make that clear. At the unveiling event, the headlights didn't work. Nikola had to run an electrical cable under the stage to power them on a supposedly electric truck. So, concrete factual statements about the present, those can be disproved and knowledge of their falsity established. Statements about the future, though, they're much harder to show that they were lies. How do you prove Elon knew there would be no Tesla semis produced in 2019? No doubt, the company had plans for that date,
25:44 Speaker 06 development schedules and Gantt charts and all that sort of stuff. Elon, or any entrepreneur making claims about the future, can say, "That's what I honestly believed." And I suppose he probably did. Radical optimism is a principal characteristic of entrepreneurs. Now Elon has gotten close to serious trouble in the past, and it has come when his statements have been about the present or the near future. In 2018, when he tweeted that he had "funding secured to take Tesla private", he settled a civil claim from the SEC for that false statement. And the same year, Tesla disclosed that the DOJ had subpoenaed the company over Elon's claims that the company would soon be producing 1,000 Model 3 cars per week.
26:27 Speaker 06 That was a statement about the future, but it was a very specific one, and it was at an event just a few months out.
26:33 Ed Elson? So, the more specific and untrue statement, and the more near-term it is, the more likely it is to be fraudulent?
26:39 Speaker 06 Yes. One last thing, though. Being able to make a case isn't the only consideration for a prosecutor. Criminal prosecutions are expensive for the government and for the defendant, and they can ruin careers. So prosecutors have to allocate their resources carefully. In Milton's case, it was apparent that while Nikola may have had some legitimate technology, Milton's presentation of the company's potential was a thoroughgoing fraud. The truck was fake, his hydrogen production was non-existent, he told a slew of other outright lies. The same with Holmes, who was secretly diverting blood samples to commercial labs rather than use her own non-functional machines. In Elon's case, he exaggerates and he makes promises about the future that he can't keep. But Tesla really does make cars, and a lot of them.
27:24 Speaker 06 And for much of the time he was making those promises, the company's investors were making money. So that presents a less attractive target for prosecutors.
27:32 Ed Elson? Thanks, Jason. Scott, you've started a number of businesses. So as an entrepreneur, how do you calibrate your own optimism about the future as well as keeping reasonable promises to your investors and your employees?
27:45 Scott Galloway? My career's just been in a different weight class. Started a consulting firm, Profit, then a business intelligence firm, L2, a new commerce company, Red Envelope. When you're selling a dream, or you're selling investors on a product that's not yet been released, there's a lot of jazz hands. All the businesses I raised money for were already operating businesses, so there was metrics that people, investors, could look at. What is more important, I think, is to outline a compelling vision to employees. And on a regular basis, I like to do an all hands, or take everyone to dinner and just sort of say, this is kind of the vision for the company over the kind of medium, or the short, medium, and long term, where we're headed.
28:28 Scott Galloway? And also, hopefully, they look at the individual outlining that vision and go, I think this person can deliver against this. I'm going to stick around and ride this out. But these individuals, whether it's Jeff Bezos, or kind of the ultimate exemplars, Adam Newman, their ability to outline a crazy vision and raise a ton of capital and pull the future forward is key to the success of some of these trillion-dollar companies. In the case of Adam Newman, he was never really able to pull the future forward because at the end of the day, they were just renting desks. But the other big phenomena here, Ed, is that the majority of companies traditionally that have gone public are profitable, meaning you have some sense of the underlying dynamics of this company, why it's profitable and its growth. Now, the majority of companies that have gone public the last couple of years are not profitable.
29:11 Scott Galloway? So you're trying to bet, or you're making an investment on something that's not proven, and so far, you don't know if it's ever going to be able to return or make more money than it spends. And so, in order to get investors to back something like that, it's all about the narrative versus the numbers. And what you've found is, is that the visionary storytelling CEO has become increasingly important in a world where companies need to get public without profitability and pull the future forward with cheap capital.
29:45 Ed Elson? Okay, thanks Scott. Let's take a look at the week ahead. We're watching for US GDP data as well as the European Central Bank's interest rate decision. They're expected to raise rates by another 75 basis points. We've also got earnings from big tech, Amazon, Apple, Meta, Google and Microsoft. Scott, do you have any predictions?
30:04 Scott Galloway? So this week, the saga that is Musk and Twitter comes to an end, or at least this chapter comes to an end, and that is the deal will close. And also, what will be interesting this week is to track Tesla's stock because there may be a $10 to $15 billion hole in the equity financing. We don't know what the commitment is or how enforceable the commitment is from his buddies to participate, who I imagine are all looking for excuses to get out of this equity deal. And if he has to come up with another $10 or $15 billion, all roads lead to the sale of some of his Tesla shares, which will put the stock under pressure this week. Okay, that's all for this episode. Our producers are Claire Miller and Jason Stavers. Special thanks to Catherine Dillon, Ed Elson and the Prop G Media team. If you like what you heard, please follow, download and subscribe.
30:46 Scott Galloway? Thank you for listening to Prop G Markets from the Vox Media Podcast Network. We will catch you next week.
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