[Congressional Record Volume 163, Number 60 (Thursday, April 6, 2017)]
[Extensions of Remarks]
[Pages E487-E489]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




               ENCOURAGING EMPLOYEE OWNERSHIP ACT OF 2017

                                 ______
                                 

                               speech of

                           HON. KEITH ELLISON

                              of minnesota

                    in the house of representatives

                         Tuesday, April 4, 2017

  Mr. ELLISON. Mr. Speaker, today we consider another bill requested by 
large corporations. But, I have to wonder, of all the things the 
American public want, why is a revision to the Securities and Exchange 
Commission rules--Section 701 to be precise--the priority for this 
week?
  We've been here for three months now. House Republicans set the 
agenda. They lead this governing body. Why do they keep bringing us 
bills that are the priorities of corporate

[[Page E488]]

America? In the past few months, Congressional Republicans, who decide 
which bills get considered have brought forward a hodgepodge of 
corporate requests.
  Here are some of the bills that are now law:
  1) Republicans passed--and the President signed--a law to protect 
corporate firms from having to disclose labor violations--like wage 
theft--before winning government contracts (H.J. Res. 37).
  2) Republicans made it easier to drug test people receiving 
unemployment compensation (H.J. Res 42).
  3) House and Senate Republicans--and the President signed--H.J. Res. 
86 which allow Internet Services Providers to sell your browser 
history.
  4) Republicans enacted a new law making it easier to dump coal debris 
near rivers and streams (H.J. Res. 38).
  5) Republicans stopped efforts to help governments around the world 
avoid corruption. H.J. Res. 41 removed the requirement that 
corporations disclose resource payments to foreign governments. This is 
a crushing blow to democracy activists working in fragile nations.
  6) And, a law preventing state governments from setting up retirement 
plans for residents who do not have a work-based plan (H.J. Res 66).
  So, in the three months we've been back, these laws, removing 
competition, disclosure, and consumer privacy, are the priorities of 
Republicans who set the agenda. These are all asks of corporate 
America--
  1) don't punish us for polluting streams,
  2) let us sell your internet browser history,
  3) let us make money drug testing laid off workers receiving 
unemployment due them and do not make us disclose our payments to 
foreign governments when we drill for oil or minerals.
  When I talk to my constituents, they don't ask for any of these. They 
say, ``Where's the jobs bill?'' My constituents say, can't we raise the 
minimum wage from $7.25 an hour? They say, our roads and bridges need 
work. Let's raise the gas tax a bit and invest in infrastructure. They 
say, we want to increase our skills; let's invest in pre-school, Pell 
grants and community colleges.
  Let's put people, not corporate wish lists-- first.
  But, nope, today we are asked to vote on a bill that makes it easier 
for private companies to provide options--like stocks--rather than 
compensation to their employees.
  This bill makes it easier for firms to offload some of their options 
to their employees without disclosing financial information to them. 
While I'm glad to see companies reward employees with stock and other 
compensation in addition to salaries, workers should be told the value 
of the compensation they receive. Not some IOU that they cannot cash in 
any time soon.
  With this bill, H.R. 1343, it is possible that employees would be 
promised stock options which could be worth less than promised, or 
even, completely worthless. So, employees could decide to forego a 
salary increase--or accept lower pay--in order to receive more stock 
options, yet, those stock options could be worth way less than 
expected. And the market to sell them could be non-existent.
  Why should employees receive less information than that of any other 
minority shareholder? Employees should be able to receive information 
on the financial position of the company so they can make an educated 
decision about whether to invest in securities.
  If an employee is trusted enough to run the day-to-day aspects of the 
business, they should be trusted enough to receive full disclosure 
about the company's financials. It's not difficult to allow 
participating employees to sign non-disclosure agreements. It can't be 
because these disclosures are an additional burden on the firm. These 
companies prepared these types of disclosures to receive the Rule 701 
Exemption from the SEC in the first place.
  I'm also concerned about the mismatch in power between the 
corporations and their employees. I am very concerned that employees 
can be more susceptible to pressure to take options instead of salary 
increases. For example, we could ask George Maddox. George was one of 
the 21,000 people who worked at ENRON. After working at ENRON for 30 
years, he had 14,000 shares of company stock. It was valued at $1.3 
million. Then ENRON collapsed, and he had literally nothing. All his 
retirement was in ENRON stocks.
  If you haven't watched the movies ENRON: The Smartest Guys in the 
Room recently, I'd urge you watch it again. You could also read Bethany 
McLean's book by the same name. One image has consistently stuck with 
me. A staff rally where leadership extolled the virtues of the firm. 
Leaders whipped employees into a frenzy to buy ENRON stock even as the 
leaders knew it was worthless. In fact, corporate leaders had already 
their stock. Yet, they were urging employees to buy!
  ENRON had a strategy of buying companies and then pressuring the new 
employees to buy ENRON stock to keep the stock price inflated. And 
since ENRON usually fired 10 percent of workers every year, workers 
felt pressured to buy stock to show a commitment to the firm.
  I don't think the supporters of this bill are doing this for 
nefarious reasons. I'm sure they find my reference to ENRON hyperbolic. 
They might also say that it's irrelevant since ENRON was a public 
company and we are talking about private companies.
  So, let's talk about Palantir Technonologies. This $20 billion 
company convinced top-tier engineers to accept below-market salaries by 
promising them generous stock options. But some employees who accepted 
this bargain, hoping to make money on selling their shares, cannot sell 
them. The only buyer of their stocks is Palantir Technologies 
themselves--or a buyer approved by Palantir Technologies.
  Palantir is not a small firm. Palantir is the third biggest American 
tech startup, behind only Uber and AIRbnb. It was also founded in 2004, 
which makes Palantir as old as Facebook. Which is a long time to wait 
to cash in your options.
  Pushing employees to own more of employer's stock exposes workers, 
like George Maddox, to put all their retirement eggs in one basket--
what we call ``concentration risk.''
  I just can't support a bill that gives employees fewer protections 
than investors. I can't support a bill that encourages employees to 
possibly forego cash in their paychecks in exchange for some unverified 
investment option. We should not make it easier for employers to 
pressure workers to choose options over salary without adequate 
disclosures.
  I ask this Congress to stop doing the bidding of corporate America 
until we address the priorities of American families and workers. We 
should increase wages and access to affordable housing, provide clean 
air and clean water, and protect our privacy
  Vote no on H.R. 1343.
  I would like to include in the Record an article from BuzzFeed News 
regarding ex-Palantir employees struggling to sell their shares:

                  [From BuzzFeed News, Oct. 28, 2016]

       Ex-Palantir Employees are Struggling To Sell Their Shares

       ``Demand has evaporated'' for the shares that make up the 
     bulk of Palantir's pay packages, and the company's CEO seems 
     aware of financial angst among his staff.
       Former employees of one of Silicon Valley's most valuable 
     startups are struggling to cash out of the stock options that 
     formed a major part of their pay packages.
       As it grew into a $20 billion company, Palantir 
     Technologies convinced top-tier engineers to accept salaries 
     considered meager by Silicon Valley standards, pairing the 
     relatively low wages with generous stock option grants. But 
     some former employees who accepted this bargain, banking on a 
     future windfall, are now complaining that the market for 
     their stock has gone ``completely dead.''
       The complaints add to pressure on Palantir CEO Alex Karp, 
     who has long contended that the company would avoid the 
     public markets. This week, Karp acknowledged publicly that he 
     was ``positioning'' Palantir for an initial public offering, 
     as part of efforts to reward cash-starved employees.
       This reversal didn't come out of the blue. A chorus of 
     complaints has arisen in a private Facebook group for 
     Palantir alumni, with many former employees expressing 
     concern and regret over their inability to sell their shares. 
     In September and October, two former employees promoted 
     possible opportunities to join together to sell a block of 
     shares, including an unsuccessful attempt to organize a sale 
     in China.
       Numerous other former employees shared personal stories: 
     Some said they needed the cash to buy a house or pay down 
     debt, while another said they took out a loan to fund the 
     process of turning the options into shares. One said it was 
     ``infuriating'' trying to sell their shares in a ``crap'' 
     market.
       Compared with last year, when the stock was highly sought 
     after, demand among big investors for Palantir shares has 
     recently gone cold, two brokers who specialize in startup 
     shares told BuzzFeed News.
       This chill reveals more about the fickle and sometimes 
     inscrutable nature of markets for startup stock than it does 
     about the business health of Palantir,'' which makes money by 
     analyzing data for government and corporate clients But it 
     has stirred frustration among current and former employees.
       A complaint about Palantir's below-market compensation was 
     the most upvoted question in an internal question-and-answer 
     session in the first part of this year, with 259 votes from 
     employees, an internal document reviewed by BuzzFeed News 
     shows. ``Our cash compensation + bonuses are below the market 
     for tech and our equity growth has slown significantly,'' the 
     question, posed anonymously by an employee, said. ``The total 
     comp is not competitive; even more so due to the 
     illiquidity.'' The questioner continued, ``Are we planning to 
     change our compensation model?''
       Palantir did move to address such concerns in April, 
     announcing it would raise salaries for many employees by 20% 
     and offer to buy back a portion of employee shares.

[[Page E489]]

       But on Wednesday, Oct. 26, in another move that seemed 
     aimed at placating employees and investors, Karp gave the 
     strongest indication yet that an IPO could be on the 
     horizon--though it is hardly a certainty. ``We're now 
     positioning the company so we could go public,'' he said from 
     the stage of a tech conference hosted by the Wall Street 
     Journal in Laguna Beach, California. ``I'm not saying we will 
     go public, but it's a possibility.''
       An IPO would provide a payday to major investors, including 
     Palantir co-founder and chairman Peter Thiel. ``Of course I 
     want my investors to be happy,'' Karp said, ``but the primary 
     people I care about are the wide-eyed people at Palantir who 
     are working day and night.''
       A Palantir spokesperson declined to comment.
       With a $20 billion valuation, Palantir is the third biggest 
     American tech startup, behind only Uber and Airbnb. It is 
     also by far the oldest of that elite group, meaning its 
     workers have waited a long time for their stock-option 
     payday. Founded in 2004, Palantir is as old as Facebook--
     which went public in 2012. In tech years, it is a generation 
     older than Airbnb, founded in 2008, and Uber, which was 
     founded in 2009. The much younger Snapchat, which was founded 
     in 2011, is reportedly laying plans for an IPO early next 
     year that could cause its valuation to leapfrog Palantir's.
       Stock options have long been central to compensation at 
     Palantir. A 2015 template for a Palantir offer letter gave 
     new hires the ability to choose among three different pay 
     packages, with lower cash salaries corresponding to higher 
     amounts of stock options. ``It is our hope and belief that 
     these options will ultimately constitute the bulk of your 
     overall compensation,'' says this internal Palantir document, 
     which was reviewed by BuzzFeed News.
       To illustrate the potential value of the options, the offer 
     letter template invites new hires to imagine a scenario in 
     which Palantir's valuation were to grow to $50 billion, or 
     $100 billion--or even $200 billion. ``Although the values in 
     the table below are hypothetical and inherently uncertain, we 
     want to emphasize our belief in Palantir's potential to 
     become a $100 billion company,'' the letter says. .
       While it waits for this dream to materialize, the company 
     has sought to ease financial angst among its employees. It 
     held a ``liquidity event'' this year that gave current and 
     former employees an opportunity to sell a fraction of their 
     shares. But Palantir also indicated it wanted to curb share 
     sales done outside of its official channels, warning that 
     selling to outsiders could make staff ineligible for future 
     liquidity events.
       That outside market hasn't exactly been humming with deal 
     activity anyway. Trading in private company shares is opaque 
     and fragmented, and data is hard to come by. But the two 
     brokers who spoke with BuzzFeed News said Palantir's prolific 
     fundraising--the company has raised more than $2.5 billion in 
     capital, according to data provider PitchBook--may have 
     dampened investor appetite. A number of big investors who 
     would want a piece of Palantir already have one, they said.
       In May, BuzzFeed News revealed some of the setbacks 
     Palantir has experienced as it seeks to expand beyond its 
     roots as a government contractor and woo major corporations. 
     The article, based on internal documents and insider 
     interviews, reported that Palantir had lost some blue-chip 
     corporate clients, was struggling to stem staff departures, 
     and had recorded revenue that was a fraction of its customer 
     bookings.
       At the conference Wednesday, Karp was asked about those 
     customer losses, which included Coca-Cola, American Express, 
     and Nasdaq. ``We date heavily before we marry,'' he answered.
       Even before the article was published, members of the 
     private Facebook group for Palantir alumni voiced concern 
     about selling their shares in the so-called secondary market. 
     BuzzFeed News is withholding the names of former employees to 
     protect their privacy.
       ``Any 2nd market shares going on right now? My broker 
     disappeared,'' one former employee posted in April.
       ``There are still periodic deals happening,'' another 
     replied. ``One that I know of right now, but it's full 
     already.''
       ``Yeah, the demand has evaporated,'' another said.
       More recently, however, some of the posts took on an urgent 
     tone, as sales appeared to grow scarcer. Options are 
     contracts to buy shares at a certain price; to use them, the 
     owner must pay this price in addition to applicable taxes--
     which can amount to a large bill. What's more, options expire 
     at a certain point if they're not used, adding time pressure 
     to the equation.
       In the public market, owners of options can easily sell a 
     portion of their holdings to cover the tax bill and the 
     exercise price. But this strategy is much trickier in the 
     private market, and there was some debate in the Facebook 
     group over whether Polar would even allow it.
       In September, one former employee asked the group whether 
     anyone was ``coming up on their 3-year expiration,'' 
     soliciting advice on ``approaches people are taking given the 
     less-than-stellar private market.''
       Among the replies, one former employee reported taking out 
     ``a personal loan to meet my exercise deadline.''
       Another wrote: ``I'm in the same boat: 3 years coming up in 
     April, market is crap, and I probably don't have the 
     resources available for a loan. The fact that it's so 
     difficult to sell is infuriating and I'm wishing that I'd 
     taken the `high' salary option (which TBH wasn't that high to 
     begin with).''
       ``On the same boat,'' wrote another. ``Hoping to buy a 
     house next year and really couldn't wrap my head around 
     throwing so much money in addition to the stress and work 
     needed to process.''
       The former employee who started that thread apparently 
     didn't receive much solace. In response to a later post, 
     which asked whether there were ``any secondary market sales 
     brewing,'' this former employee wrote, ``Sorry to be the 
     bearer of bad news, but the market is completely dead at the 
     moment.''
       This person then quoted an unidentified broker as saying, 
     ``There is absolutely nothing moving in Palantir. People who 
     have bought through us are trying to sell now. I don't see it 
     changing without the company changing their tone on an IPO.''
       Others in the thread shared snippets of information they 
     said they had heard from brokers. According to one, a broker 
     ``told me that there are a few `price insensitive' sellers 
     satisfying what little demand exists.''
       Another former employee wrote: ``I'm interested in joining 
     any sales going down too, I've got a year to pay off a hefty 
     debt with the proceeds.'' The person added a neutral face 
     emoji.
       With buyers scarce, one former employee tried looking 
     across the Pacific.
       ``I spoke to someone that brokers sales in China, they said 
     they might be willing to get something together if there's 
     enough of us,'' they wrote above a link to a Google Doc that 
     asked others to report information about their holdings
       One of the repliers questioned whether this process would 
     actually turn into a sale--potential investors might just be 
     ``fishing for information on prices''--and another cautioned 
     the original poster against ``acting as an agent for a group 
     of sellers.'' (The poster said the query was ``just intended 
     as an interest check.'')
       In the end, none of that mattered. ``Not likely to go 
     anywhere in the next couple of months,'' the former employee 
     who posted the opportunity wrote later. ``Sorry if I got 
     anyone's hopes up.''
       Early this month, another member of the group posted about 
     an opportunity to sell options through EquityZen, a startup 
     that arranges small transactions of private company shares. 
     This former employee advised others to contact the EquityZen 
     CEO, providing the CEO's email address. But less than 12 
     hours later, another former employee replied to say that the 
     deal ``has been already submitted,'' meaning the opportunity 
     had passed.
       ``Dang,'' another member wrote.
       Discussions in the group about news related to Palantir 
     often come back to a familiar theme. In September, for 
     example, the Department of Labor accused Palantir of 
     discriminating against Asian job applicants, a claim Palantir 
     later rejected as ``flawed and illogical.'' In a thread 
     discussing the allegations, one former employee found a 
     financial angle.
       ``I sure hope this isn't an expensive lawsuit for them to 
     defend,'' this person wrote. ``I don't claim to understand 
     how the legal system works in cases like this, but geeeeez 
     this doesn't bode well for any of us looking for liquidity at 
     a fair price over anytime soon.''