TOGETHER WITH...

In today’s email:

• Elon's suing Zuck

• An online theremin

• Taylor Wessing hits €500m

• The dark side of autocorrect

• The price of the SQE is going up

• Elon's suing a New York law firm

• Fiction for when you’re on the toilet

• Revolut is the criminal’s favourite bank

• DWF went public but is now going back private

• What Gary Neville’s got to do with Pinsent Masons

… and more!

EDITOR’S RAMBLE 🗣

Hey guys!

I’ve got a quick request from you.

I’m gathering some testimonials from happy readers to include on the LittleLaw website.

So, if you’re a happy reader — and have two minutes to spare — it’d mean a lot to me if you could leave a testimonial.

LAST WEEK’S POLL 📊 

In last week’s newsletter, I asked your views on if you thought the zombie game was a rip off of IKEA.

Well, the results are in…

Was the store in this game an IKEA rip-off? 

🟩🟩🟩🟩🟩🟩 Yes! (55)

⬜️⬜️⬜️⬜️⬜️⬜️ No! (3)

58 Votes

I’m not so surprised by this outcome!

- Idin

FEATURED REPORT 📰

🥊 Elon's lawsuit (this one's not about Zuck)

What’s going on here?

Elon Musk's company, X Corp (which now owns Twitter), is suing Wachtell, Lipton, Rosen & Katz, one of the top law firms in New York (let’s just call them Wachtell Lipton).

Why, you ask? Well, Elon thinks the $90m fee the firm charged during Musk's takeover of Twitter was unfair.

The lawsuit has been filed in San Francisco Superior Court (you can read the full thing here).

What acquisition are we talking about?

As you’ll probably know, last year, Elon decided to add Twitter to his collection of cool stuff he owns, buying the company for $44bn.

Wachtell Lipton was hired by Twitter's old management (not Musk) to handle getting the deal over the line, and they did their job.

What did Wachtell Lipton do wrong?

X Corp is saying that Wachtell Lipton's $90m fee is ‘unjust enrichment’. In the lawsuit, they say that the law firm took “funds from the company cash register while the keys were being handed over” to Elon.

Claiming unjust enrichment isn’t just saying that they’ve overcharged — the argument is that the fee:

1. is not justified by the circumstances, and

2. results in an unfair disadvantage to someone else (in this case, X Corp).

The decision to pay Wachtell Lipton that much was made by Twitter’s outgoing management. Musk’s team is arguing that, by the time they agreed this fee, the outgoing Twitter team didn’t really care what happened to Twitter’s financial position as they were about to leave.

The lawsuit claims they breached their fiduciary duty to the company (this is their duty to always do what's best for the company).

Check out this reaction from one of Twitter’s directors when they saw the fees sent over for approval!

Why should law firms care?

There are two lessons law firms can take from this.

Lesson 1: Be clear with your billing arrangements

Clients can push back against law firms on their fees.

At the start of a client-lawyer relationship, firms are often asked to give indicative fees for the work they’re going to do.

These are backed by a lot of detail, including the hourly rates of each person working on the matter and other assumptions (for example, an assumption that there isn’t some unexpected complication that arises).

So, this case really stresses the importance of clear fee discussions at the start of the working relationship.

As the filing is public, we’re able to see some of the communications between Wachtell Lipton and the Twitter team.

Below you’ll see the law firm clearly says that it will add a multiplier to its fees. In the work it did, its fees were around $30m and (as promised) it presumably applied a multiplier to bring it nearer to $90m.

It’s a loooooot of money, but it seems pretty clear.

Lesson 2: Some clients are just going to ‘try it on’

This isn’t the first time that Elon has not wanted to pay for something when it comes to Twitter.

He’s avoided paying Twitter staff who were owed money.

He’s failed to pay rent for Twitter’s offices in London, San Francisco and New York.

He’s not paid a PR firm who did work for Twitter.

So, whether he has a successful claim against Wachtell, it seems like Elon’s the type of person to ‘try it on’ — whoever the opponent is.

TOGETHER WITH MASTERWORKS 🤝*

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Mm-hmm, sure. So, what’s the catch?

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These results aren’t cherry-picking. This is the whole bushel. Masterworks has built a track record of 8 exits, the last 3 realizing 10.4%, 35%, and 13.9% net returns even while financial markets plummeted.

But art? Really? Okay, skeptics, here are the numbers.

Contemporary art prices:

• outpaced the S&P 500 (the top 500 companies in the US stock exchange) by 131% over the last 26 years,

• have the lowest correlation to equities of any asset class, and

• remained stable through the dot-com bubble and ’08 crisis.

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FEATURED REPORT 📰

🥊 Revolut gives out $20m for free

What’s going on here?

Revolut, the fintech neobank headquartered in London, had flaws in its payment system that allowed some crafty criminals to make off with £15.5m.

How did this happen?

European and US payment systems don't always play well together. And in this case, those differences created a perfect storm for trouble. When certain transactions got declined, Revolut mistakenly refunded those accounts, giving away its own money. The criminals exploited this loophole.

Revolut managed to claw back some of the stolen cash, but the damage was already done. They lost £15.5m — around two-thirds of their annual net profit from 2021.

Who dropped the ball?

Revolut's internal systems weren’t pickup up the massive fraud that was happening right under their noses.

It wasn't until a partner bank in the US said, "Hey, Revolut, we're missing some money," that they finally realised something was wrong.

What are Revolut’s shareholders saying?

Investors aren't thrilled about this mess — they’re now slashing the value of their Revolut stakes.

Why should law firms care?

When something like the flaws in Revolut's payment unfold, different teams from commercial law firms could get involved.

• Cybersecurity and data protection: These lawyers would help with incident response, dive into the details of Revolut's security measures and advising on any legal implications of the incident. They usually work alongside IT and public relations experts to implement a plan to address the issue, minimise the reputational damage and regain the trust of Revolut's customers and investors

• Regulatory compliance: After any bank security incident, you can expect a call from the regulators. Financial regulatory lawyers will help with any submissions to regulators to reduce the damage of any investigations that could take place. Also, Revolut isn’t so well-liked by the regulators already (see the ‘What’s the impact for Revolut?’ section below).

• Litigation and dispute resolution: If the theft leads to legal battles and disputes, the litigation and dispute resolution team steps up to the plate. They’ll represent Revolut's interests in court if needed. In this case, they may pursue legal action against the criminals or handle potential lawsuits from affected parties (although, Revolut is saying that, luckily, no client money was stolen… just money from its own corporate funds).

What’s the impact for Revolut?

Revolut has been trying to get its UK banking licence now for years, but regulators haven’t been quick to give it to them.

The company needs it to help it expand the business in the UK and globally.

But, the two UK banking regulators — the Financial Conduct Authority and the Prudential Regulation Authority — aren’t willing to give it a licence as they believe that the company’s ownership was too complex.

Now, this latest bit of drama probably won’t speed up Revolut’s bid for a licence.

The regulators might not feel that the company can demonstrate robust safeguards and compliance with UK banking regulations.

A BIT OF FUN 😄

When Microsoft Word does you dirty 😡 

IN OTHER NEWS 🗞

• ⚽️ Pinsent Masons and Hill Dickinson have signed up for office space in Gary Neville’s building in Manchester. The ex-footballer’s company, Relentless Developments, is behind the development which will also house the Japanese-Peruvian restaurant Chotto Matte on its rooftop terrace.

• 🐦️ Twitter is considering taking legal action against Meta, the company behind the rival app Threads. Despite claims in a legal letter that former Twitter employees were involved in creating Threads, Meta denies any wrongdoing. Threads has gained over 70m users within a day of its launch, posing a potential threat to Twitter's user base of 350m.

• 🏢 The law firm DWF has seen its share price jump by 35% after it’s been linked to an acquisition for £342m. The proposed proposed buyer is Inflexion Private Equity Partners, a private equity firm. If this goes through, the firm that went public in 2019 will be taken private again.

• 😭 The SRA is increasing the cost of the SQE. It's going to cost £4,564, which is £449 more than before (and this fee doesn’t include any prep courses that you choose to sign up for). The new prices kick in from September 2023.

• 📈 Taylor Wessing, a global law firm, had a strong financial year, reaching €500m in business for the first time, even though growth slowed a bit compared to previous years. Their global revenue went up 4% to £439m and the UK revenue also rose 4% to £227.1m. However, UK profit dipped by 12%, but the firm's leadership seem upbeat about future prospects, with major investments in premises and hiring.

AROUND THE WEB 🌐

• 🗞️ News: Want another good source for commercial news? The Daily Upside can help. It covers business news with no fluff and is written by an investment banker who knows their stuff inside out. No more sifting through endless articles — just quality insights and captivating stories to level up your commercial awareness.*

• 📡 Fun: Ever heard of a theremin? It’s an electronic musical instrument played by moving your hands in the air around a couple of antennas (here’s a video for the curious). Now you can play the theremin on your laptop, straight in your browser!

• 💩 Read: If you’re reading this newsletter while you’re on the toilet, take a break and read of some fiction that has been made just for you.

Credit: r/internetisbeautiful

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STUFF THAT MIGHT HELP YOU 👌

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Masterworks disclosure: “Net Return" refers to the annualized internal rate of return net of all fees and costs, calculated from the offering closing date to the date the sale is consummated. IRR may not be indicative of Masterworks paintings not yet sold and past performance is not indicative of future results. See important Regulation A disclosures at masterworks.com/cd.