Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 1: You know, if anyone knows a con I guess it
Speaker 1: would be Donald Trump. California lawyer Michael Avenatti gained a
Speaker 1: national profile in eighteen as a fierce critic of former
Speaker 1: President Donald Trump. Of a Nati asked Americans to believe
Speaker 1: that his client, adult film stars Stormy Daniels, had an
Speaker 1: affair with Trump. But now Avenati's freedom hinges on convincing
Speaker 1: a jury that Daniels is a liar. The lawyer is
Speaker 1: on trial for allegedly stealing three hundred thousand dollars from
Speaker 1: Daniels by intercepting advanced payments for a book deal she
Speaker 1: struck while suing Trump. The prosecution's star witness is Daniels herself,
Speaker 1: and Avnati, who's representing himself, got the chance to grill
Speaker 1: his former client. Joining me is Bloomberg Legal reporter Eric Larson.
Speaker 1: Tell us a little about the case, Eric, or the
Speaker 1: criminal case accusing Michael Avanati of stealing about three hundred
Speaker 1: thousand dollars from the book advance from his former clients,
Speaker 1: the porn star Stormy Daniels. So he is charged with
Speaker 1: wire fraud and identity theft for basically intercepting these electronic
Speaker 1: payments when I'm the publisher St. Martin's Press. So now
Speaker 1: for someone who might have been living in a hut
Speaker 1: during the Trump years, remind us of how they both
Speaker 1: came to fame. It's a pretty bizarre a criminal trial
Speaker 1: if you think about it, because Michael Avenati was representing
Speaker 1: Stormy Daniels in a pretty explosive lawsuit against Donald Trump
Speaker 1: when he was president. She had sued to try to
Speaker 1: get out of a non disclosure deal that she had
Speaker 1: struck with Trump to stay quiet about and alleged sexual
Speaker 1: affair that she had with Trump, and to stay quiet
Speaker 1: about the hundred and thirty thousand dollar payment that she
Speaker 1: received to keep quiet about it just before the two
Speaker 1: thousand sixteen election. So you might remember we saw Abanati
Speaker 1: and Stormy Daniels pretty frequently TV standing outside court. Aubanati
Speaker 1: was doing lots and lots of television appearances to talk
Speaker 1: about Stormy Daniels. She was on sixty Minutes. So they
Speaker 1: were a pretty interesting pair trying to take down Trump.
Speaker 1: They had a big falling out over this book deal
Speaker 1: when Stormy Daniels found out that Aubanati had been intercepting
Speaker 1: these payments, and she had been asking him where is
Speaker 1: this money from the publisher? You know, all along recording
Speaker 1: to this criminal case. He knew that where the money was.
Speaker 1: He had taken it and spent it for his own
Speaker 1: personal expenses on things like payments on a ferrari and
Speaker 1: everything for you know, even going to Starbucks. Things like
Speaker 1: this is prosecutors together where the money went, and it
Speaker 1: didn't go to her. So she got an eight hundred
Speaker 1: thousand dollar advance on the book. Well, it was an
Speaker 1: eight hundred book deal, and she was getting some of
Speaker 1: the money in installments as the deal was progressing, like
Speaker 1: when it actually was published and she was doing enough
Speaker 1: publicity and things for this, they were supposed to be
Speaker 1: giving her installments about a little over a hundred thousand
Speaker 1: dollars at a time. But two of those payments Abanati
Speaker 1: is accused of intercepting. Um. Of course, he has a
Speaker 1: defense saying that he was entitled to that money and
Speaker 1: that he didn't do anything wrong. But when she found
Speaker 1: out about this, she went to the publisher herself and
Speaker 1: demanded where is this money? And they said, well, we've
Speaker 1: been sending it here's the proof of that. And so
Speaker 1: that's when it all fell apart. For those two. I
Speaker 1: always ask about the size of the book deals because
Speaker 1: I cannot believe the amount of money that that goes
Speaker 1: into advances on a book you don't even know how
Speaker 1: well it will do. So he had a federal public defender,
Speaker 1: he did, and that the public defender gave the opening
Speaker 1: statement to the jury from a week ago. But shortly
Speaker 1: after that, Amanati decided to represent himself. So that was
Speaker 1: sort of a new twist on this case that was
Speaker 1: already kind of strange to begin with. So that put
Speaker 1: him in a position to personally cross examine Dormy Daniels,
Speaker 1: who's the government star witness, And that's what happens on Friday,
Speaker 1: So tell us about her testimony on direct examination with
Speaker 1: the questioning by the prosecutor. Right, So that's where they spelled,
Speaker 1: you know, laid out this whole story about how Aubenatti
Speaker 1: had been communicating with Stormy Daniels every day, you know,
Speaker 1: by phone and text. So naturally, when these payments from
Speaker 1: the publisher were supposed to start coming in, Stormy Daniels
Speaker 1: was looking at her bank account and wondering where that
Speaker 1: money was because, according to her, she had lots of
Speaker 1: expenses at the time, she travels a lot, she has
Speaker 1: a lot of security detail things like that. So the
Speaker 1: prosecution had her read out these text messages that were
Speaker 1: shown to the jury, and it just showed her getting
Speaker 1: increasingly upset, you know, wondering where the money was and
Speaker 1: venting her frustration to Aubenati. And then the prosecutor showed
Speaker 1: the evidence that Abanati had actually already received the money
Speaker 1: and kept asking, you know, Storm McDaniels, well, at what
Speaker 1: point did he say I have the money? And she
Speaker 1: would say, he never said that, So they're just and
Speaker 1: they spent that time trying to illustrate all of the
Speaker 1: different opportunities that Abanati would have had to tell her
Speaker 1: where the money was and then failed to do so.
Speaker 1: And she said he lied to me every day for
Speaker 1: almost five months, that's correct. There were two payments that
Speaker 1: had disappeared, so you could tell that she was every
Speaker 1: day asking him about it, which is why I think
Speaker 1: she was so felt so betrayed. According to her, when
Speaker 1: when she found out where the money had gone. So
Speaker 1: you have Alvanati cross examining his former client. It must
Speaker 1: have been high drama in the courtroom just to see that. Yeah,
Speaker 1: it was pretty bizarre when you think about the falling
Speaker 1: out that these two had. I mean, Albanati spent a
Speaker 1: lot of time, you know, several years ago telling Americans
Speaker 1: they needed to believe this woman, that she had a
Speaker 1: pretty salicious tale to tell about Donald Trump, and they
Speaker 1: really were trying to take the president down based on
Speaker 1: her word. And now he's here telling this jury that
Speaker 1: she's a liar and can't be trusted. So he used
Speaker 1: his cross examination to try to pull out various times
Speaker 1: that he thinks showed that she had been untruthful about
Speaker 1: various things, and also questioned her about various times that
Speaker 1: she had accused other people of stealing from her. I
Speaker 1: think he was trying to sort of suggest that she
Speaker 1: was paranoid and accuse people of sess frequently that sort
Speaker 1: of thing. But it really wasn't bizarre questioning because Dormy
Speaker 1: Daniels is a pretty interesting character. She is working on
Speaker 1: a TV show about the paranormal paranormal activities, so she's
Speaker 1: on record telling her viewers and fans and things like
Speaker 1: this that she can see ghosts, that she can see
Speaker 1: into people's houses, basically through their walls, that she's even
Speaker 1: in communication with a hunted doll. So he was trying
Speaker 1: to obviously make her look a little bit bonkers and
Speaker 1: wanted a jury to see that she can essentially make
Speaker 1: things up a lot, I think is what he was
Speaker 1: trying to suggest. Has she made contradictory public statements about
Speaker 1: her relationship with Trump, because I got very confused about
Speaker 1: what her position was, right, It was a little confusing,
Speaker 1: and that was actually brought up by Amanati. He asked
Speaker 1: her about a statement that she had made about a
Speaker 1: month before she hired him back when they were non
Speaker 1: just Her nondisclosure deal with Trump was in force in
Speaker 1: January two eighteen, and when reports were coming out about
Speaker 1: her affair with Trump and the hush money payment, she
Speaker 1: put out a statement saying that there was no fair
Speaker 1: between her and Trump. Of course, then she changed her
Speaker 1: tune on that and basically said the opposite, and Abanati
Speaker 1: asked her about that and basically was saying, you lie.
Speaker 1: You put out this statement, it was a lie, trying
Speaker 1: to show that she was capable of lying because she
Speaker 1: now says that she did have interactions with Trump. But
Speaker 1: then it got even stranger because she still says, no,
Speaker 1: I didn't have an affair. It was just a sexual encounter.
Speaker 1: So she was trying to mince words there and say,
Speaker 1: no, no no, it wasn't affair. Um, but at any rate,
Speaker 1: you're right it was a sort of a strange contradictory statement.
Speaker 1: So he said, Ms. Daniels, do have a single text message, email,
Speaker 1: voicemail or recording that says I would not take any
Speaker 1: money from your book deal. What was that about, right?
Speaker 1: So that was kind of the heart of the matter.
Speaker 1: All this other stuff was a little bit of a
Speaker 1: maybe a distraction or just trying to make Stormy Daniels
Speaker 1: look a little nuts. But what it really got down
Speaker 1: to is when she hired him, they signed an agreement
Speaker 1: that said that he would be entitled to his share
Speaker 1: of any future book or media deals. But this agreement
Speaker 1: then says the amount will be determined by the parties later.
Speaker 1: So he's saying, look, you knew all along that I
Speaker 1: was entitled to some of this book money, and that
Speaker 1: I had lots and lots of expenses from representing you
Speaker 1: in this huge lawsuit. And she claims that he verbally
Speaker 1: told her that he would not take any of the
Speaker 1: money after even though they signed that agreement, So they're
Speaker 1: interpreting the agreement differently. You know, Yes, I think Anadi
Speaker 1: acknowledges they never did specifically agree to an amount from
Speaker 1: the book deal that would he'd be entitled to. But
Speaker 1: he's arguing that she knew all alone that he was
Speaker 1: going to be entitled to that money. So what happened
Speaker 1: with her defamation lawsuit against Trump? Yeah, so that was
Speaker 1: a separate lawsuit, um, separate from the non disclosure agreement
Speaker 1: lawsuits that was in California. She lost it, and she
Speaker 1: was also ordered to pay Trump's legal fees of almost
Speaker 1: three hundred thousand dollars. So she was pretty upset about that. UM.
Speaker 1: I think she blames Anti for some of that, and he,
Speaker 1: you know, had suggested that it was her um that
Speaker 1: she ended up falsely accusing him of stealing her you know,
Speaker 1: this book money, um sort of his paybacks for that
Speaker 1: or you know, so that she'd have money to pay
Speaker 1: the three dollars. Is he as dramatic in the courtroom
Speaker 1: as he used to be when he was doing TV appearances?
Speaker 1: I would say, yes, know he is, or he was
Speaker 1: a very successful, you know lawyer. He said on his
Speaker 1: website that he had secured hundreds of millions of dollars
Speaker 1: and settlements for clients and lots of cases before he
Speaker 1: ever represented Stormy Daniel. So of course all that has
Speaker 1: come crashing down his law firm, you know, it's gone,
Speaker 1: and he's been convicted in another criminal case separate from this,
Speaker 1: of course, he was convicted of trying to extort Nike
Speaker 1: out of five million dollars on behalf of another client
Speaker 1: during settlements talks. He was sentenced to two and a
Speaker 1: half years for that, and he hasn't even started serving
Speaker 1: that prison term. Then there was a third criminal case
Speaker 1: in California where he was accused of ripping off other
Speaker 1: law firm clients of his, and that ended in a mistrial,
Speaker 1: although they're going to retry that case. He's out on
Speaker 1: bail from the California cases while he's here in New
Speaker 1: York right right, He's been basically under homes infinement in Califor,
Speaker 1: Mornia for quite some time, staying with a friend in Venice, California.
Speaker 1: But because of this trial, he's now been allowed to travel.
Speaker 1: And it's it is here for that, you know, with
Speaker 1: a lawyer owes a client money, it seems like it
Speaker 1: might this might have been a civil case. Did his
Speaker 1: celebrity play into this becoming a criminal case? Well, I
Speaker 1: mean it's hard to know exactly what, you know, the
Speaker 1: Justice Department is thinking or the U. S. Attorney's Office
Speaker 1: here when they decided to bring a case. But you know,
Speaker 1: of course, Avanatti has claimed, you know, all along the
Speaker 1: all three of these criminal cases, you know, they were
Speaker 1: brought during the Trump administration, and he claims that that
Speaker 1: he was targeted by from Justice Department specifically because of
Speaker 1: his lawsuit on behalf of the Stormy Daniels So you're right,
Speaker 1: I guess it could have been a civil matter, but
Speaker 1: just between Stormy Daniels and Aminatti. But he argues that
Speaker 1: because of who he is. You know, I don't know
Speaker 1: if Stormy Daniels went to the sider was the other
Speaker 1: way around. But they put together, you know, three completely
Speaker 1: separate cases against him and really sort of turned his
Speaker 1: world upside down. So he's actually filed a claim with
Speaker 1: the Justice Department accusing the Dustice Department of improperly having
Speaker 1: him thrown into solitary confinement when he was first arrested.
Speaker 1: He says that he spent weeks and weeks and weeks
Speaker 1: in solitary confinement and horrible conditions. Again, he says that
Speaker 1: Trump and former Attorney General William Barr did that intentionally
Speaker 1: to punish him. And so he's seeking about ninety million
Speaker 1: dollars from the government for that, and that's the appending
Speaker 1: claim before the Justice Department just filed a few weeks ago.
Speaker 1: Eric I also want to talk to you about the
Speaker 1: January sixth prosecutions, and we've seen that the defendants are
Speaker 1: a very bunch. Tell us about the former influencer Brandon Straca. So,
Speaker 1: Brandon Straca is described as a pro Trump social media influencer. Basically,
Speaker 1: he's a former liberal, self described gay, former role from
Speaker 1: New York City. He reportedly was a hair stylist um
Speaker 1: and at some point he decided to switch to becoming
Speaker 1: a Republican and supporting Trump and started a social media
Speaker 1: campaign all about trying to convince other Democrats to switch parties.
Speaker 1: So he became a bit of a social media star
Speaker 1: on the right, very popular with conservatives, and he ended up,
Speaker 1: you know, participating in some rallies after the election, claiming
Speaker 1: that it was stolen, that sort of thing. He spoke
Speaker 1: at a big rally of conspiracy theorists in Washington, d C.
Speaker 1: On January five one, just the day before. And then
Speaker 1: he also participated in the assault on the Capitol of
Speaker 1: a live stream that to his to his followers, about
Speaker 1: six hundred and sixty thousand followers um. And at one point,
Speaker 1: you know, he's caught on camera encouraging people to violently
Speaker 1: steal take his shield of protective shields from a riot officer.
Speaker 1: So very bizarre case. He's forty five years old. He
Speaker 1: pleaded guilty to disorderly conduct in October um and was
Speaker 1: just spent in last week to three years of probation.
Speaker 1: He had been cooperating with the BED. He had about
Speaker 1: three meetings with them, I think according to the court papers,
Speaker 1: the prosecutors had wanted a period of home confinement as
Speaker 1: part of that sentence, but as they didn't end up
Speaker 1: getting that for just three years of probation for this guy.
Speaker 1: And yeah, as you said, there's a lot of sort
Speaker 1: of interesting characters who participated in that, and he certainly
Speaker 1: seems to be one of them. What's the civil suit
Speaker 1: against him? Yeah, there's a civil lawsities filed against him
Speaker 1: by a group of Capital police officers who were injured
Speaker 1: during the insurrection, and the defendants in the suit include
Speaker 1: Trump as well as Roger Stone at the Political Operative
Speaker 1: and several members of different right wing militia groups like
Speaker 1: the Proud Boys and Oathkeepers. So he stands that is
Speaker 1: kind of an unusual defendant in that case. But they
Speaker 1: alleged that he was part of a conspiracy to deprive
Speaker 1: these Capital police that they're still rights and to you know,
Speaker 1: basically alleged that because of all of their conduct together,
Speaker 1: that they're liable for these officers injuries. And he of
Speaker 1: course denied that in speaking dismissal of the suit, as
Speaker 1: are the other defendants. The people who marched on the
Speaker 1: Capitol were a diverse group of people, more than one
Speaker 1: would have expected. Perhaps there was also a Yale Law
Speaker 1: school graduate. He's actually the head of the Oathkeepers, right
Speaker 1: wing militia, and he's fighting, uh, he's fighting those charges.
Speaker 1: He's pleaded not guilty. All of those Oathkeepers members that
Speaker 1: pleaded not guilty. I think it was just last week.
Speaker 1: So they're definitely going to be putting up a big
Speaker 1: fight here. They all have separate lawyers and they're putting
Speaker 1: together what I think they're you know, suggesting is going
Speaker 1: to be a pretty big defense here that could lead
Speaker 1: to a very interesting trial. Um I think is in July.
Speaker 1: Thanks so much, Eric. That's Bloomberg Legal reporter Eric Larson.
Speaker 1: Google and Facebook make billions of dollars a year from
Speaker 1: their digital ad businesses, but they face data privacy legal
Speaker 1: risks on multiple fronts from Congress, from the Federal Trade Commission,
Speaker 1: and from lawsuits. Joining me is Matthew Chettenhelm, litigation and
Speaker 1: government analysts for Bloomberg Intelligence tell us broadly about the
Speaker 1: data privacy legal risks that Google and Facebook are facing.
Speaker 1: Google and Facebook make billions of dollars a year from
Speaker 1: their digital ad business and they now face you know, really,
Speaker 1: I think a myriad of different legal risks on many
Speaker 1: different fronts. It's really a story about one legislation. Congress
Speaker 1: is looking at making laws here as they never have before. Regulation,
Speaker 1: the Federal Trade Commission is looking at creating rules to
Speaker 1: potentially govern these businesses, and litigation. And you see your
Speaker 1: attorneys general in states across the US bringing more lawsuits.
Speaker 1: You see class action attorneys pursuing litigation against these companies
Speaker 1: as they never have before. And so it's really on
Speaker 1: those three fronts where you're seeing major legal risks for
Speaker 1: this very lucrative business for these companies. Let's start with
Speaker 1: the possibility of a law from Congress. I know that
Speaker 1: people from both sides of the aisle are on board
Speaker 1: for tightening the rules for Internet platforms, but is there
Speaker 1: any consensus in Congress about a data privacy law? So
Speaker 1: that's really the stumbling block. And as you said, I
Speaker 1: mean this is really a change. For the past twenty
Speaker 1: years or so, there's sort of been this bipartisan consensus
Speaker 1: that the Internet works best when we stay out of
Speaker 1: the way as lawmakers. That's changed very quickly in the
Speaker 1: in the last five years, where I think now there's
Speaker 1: a bipartisan consensus that well, maybe we went too far
Speaker 1: there and maybe if we have no rules of the road,
Speaker 1: that leads to problems. Now, where lawmakers are having an
Speaker 1: issue is identifying exactly what is the problem and then
Speaker 1: agreeing on fixes on it. And I think we're still
Speaker 1: pretty far away here. When you look at directly regulating
Speaker 1: the digital ad business, which is the core business of
Speaker 1: these companies, there isn't really consensus across Democrats and Republicans
Speaker 1: or even within the parties themselves about exactly how to
Speaker 1: do that. And the big hurdle is in the Senate,
Speaker 1: you need sixty votes to make legislation into law, and
Speaker 1: that requires you know, often fifty Democrats and ten Republicans.
Speaker 1: And when you have the parties disagreeing about what is
Speaker 1: the problem, it's hard to agree on a solution. So
Speaker 1: we're not there yet, at least on any sort of
Speaker 1: comprehensive data privacy legislation. You're gonna keep seeing headlines hearings
Speaker 1: about it. I'm not sure that in the near term
Speaker 1: you're going to face comprehensive legislation. You might see sort
Speaker 1: of targeted legislation, maybe for children's data, but I think
Speaker 1: we're still pretty far away on that consensus on direct
Speaker 1: regulation of the core business. So then you have the
Speaker 1: Federal Trade Commission, which hasn't historically made rules for internet companies.
Speaker 1: What's the danger there? Yeah, So that's like I think
Speaker 1: what might be one of the big stories to watch
Speaker 1: this year. If Congress can't agree on how to go
Speaker 1: after these businesses and can't make a new law, it
Speaker 1: doesn't necessarily mean that the companies are going to continue
Speaker 1: to get to make the rules of the road for themselves.
Speaker 1: The Federal Trade Commission usually historically, as you said, hasn't
Speaker 1: been in the business of making rules on the front end.
Speaker 1: It goes after companies after the fact and says what
Speaker 1: you did there was unfair, and it brings an enforcement
Speaker 1: action again. Sit Now there's sort of a change in
Speaker 1: thinking at the Federal Trade Commission under new Chairwoman Lena Khan.
Speaker 1: And so in the middle of one the Federal Trade
Speaker 1: Commission went through and streamlined its process for making rules generally,
Speaker 1: which has been very difficult, and so they've kind of
Speaker 1: simplified that a little bit, sort of clearing the deck
Speaker 1: and getting things ready to go. Once the Federal Trade
Speaker 1: Commission has five commissioners in place, we're still waiting for
Speaker 1: the Senate to confirm a fifth member. But when it does,
Speaker 1: I think you could see Lena Kahn lead an effort
Speaker 1: to create rules on the front end for these Internet businesses.
Speaker 1: Now there's lots of questions about the Federal Trade Commission's authority.
Speaker 1: The Federal Trade Commission isn't Congress. It can't do whatever
Speaker 1: it wants. It's limited in its jurisdiction and to what
Speaker 1: it can reach. But I think there's gonna be significant
Speaker 1: pressure on the Democrats at the Federal Trade Commission to
Speaker 1: be aggressive in making new rules like that. And we
Speaker 1: don't know what exactly they have in mind yet and
Speaker 1: what we'll get to see them as the process plays out,
Speaker 1: but there's a chance that they start to go in
Speaker 1: that direction of trying to go after core elements of
Speaker 1: the digital ad business, and that would surely face lawsuits,
Speaker 1: wouldn't it. Any rules the FTC makes, Absolutely, there's major
Speaker 1: procedural hurdles just as a matter of making those rules.
Speaker 1: They have to jump through a number of hoops in
Speaker 1: the law to make that happen. But then substantively, you're
Speaker 1: exactly right, whatever rules they make, if they're disruptive to
Speaker 1: the industry, you're surely going to see an immediate legal
Speaker 1: challenge to those rules. And the question then is did
Speaker 1: the Federal Trade Commission have the authority to make fools
Speaker 1: like that that interfere with the business. The Federal Trade
Speaker 1: Commission's power is limited to policing unfair and deceptive practices,
Speaker 1: and that's what they've historically done through after the fact adjudication.
Speaker 1: If they go on the front end and say X
Speaker 1: y Z practices are unfair or deceptive. There's a real
Speaker 1: risk that the courts will step in and say, yes,
Speaker 1: you have that power to police unfair and deceptive practices,
Speaker 1: but you don't have the power to make major rules
Speaker 1: about a core element of American business. Congress didn't give
Speaker 1: you that power clearly. And there's a real risk that
Speaker 1: the FTC goes beyond its narrow grant of authority and
Speaker 1: then ends up stumbling in the courts. We don't know
Speaker 1: exactly how aggressive the Federal Trade Commission will be. There's
Speaker 1: a risk that it's pretty aggressive, but as you said
Speaker 1: there on the back end, the courts will serve as
Speaker 1: somewhat of a protection for the company. Now let's turn
Speaker 1: to the risks from litigation. And there's already a lot
Speaker 1: of litigation against the companies. So how big a risk
Speaker 1: is litigation in general? Yeah, in general, this is a problem.
Speaker 1: I think it's growing in scale because so many class
Speaker 1: action attorneys and so many attorneys generals have have realized
Speaker 1: that these are good targets. And and one reason that
Speaker 1: they are good targets for litigation is because the companies
Speaker 1: have so many users. And and for example, um last
Speaker 1: week we saw DC and three other states bring lawsuits
Speaker 1: against Google for its use of location data, that it
Speaker 1: was trying to collect people's data about their location even
Speaker 1: though they tried to turn it off, Google was taking
Speaker 1: that data anyway. I don't think that's a huge deal
Speaker 1: for the company when you're talking about three to four states. Um.
Speaker 1: When it becomes a problem is when you look at
Speaker 1: nationwide class actions and potentially, as we said earlier, the
Speaker 1: Federal Trade Commission enforcement authority. The Federal Trade Commission can
Speaker 1: in some cases collect civil penalties of forty six thousand
Speaker 1: dollars or more per violation. And when you do forty
Speaker 1: six thousand dollars per violation times millions of users, the
Speaker 1: math gets astounding. And so you saw Facebook in It's
Speaker 1: settled an FTC investigate and like that for for five
Speaker 1: billion dollars, and a lot of Democrats said that was
Speaker 1: a slap on the risk. You let Facebook off too easy.
Speaker 1: So every time there's there's some sort of issue about
Speaker 1: their data practices, you run the risk of the Federal
Speaker 1: Trade Commission and class action attorneys and potentially states attorneys
Speaker 1: general banding together to bring these sorts of enforcement actions.
Speaker 1: And even if you're just talking a hundred dollars per user.
Speaker 1: The math adds up when you when you have UM
Speaker 1: that many users. And that's just a piece of it.
Speaker 1: The other pieces shareholder lawsuits. Every time you see a
Speaker 1: big scandal and you saw this Facebook whistleblower last year
Speaker 1: led to a big drop in Facebook's UH share prices,
Speaker 1: you see litigation over that, and that threatens billions of dollars.
Speaker 1: So it's really multiple fronts um on the litigation side.
Speaker 1: These are big companies. They can handle the cost, but
Speaker 1: it's a it's a rising and persistent threat. I think
Speaker 1: the Super I d C in the States is that
Speaker 1: likely to be settled. I do think it will. So
Speaker 1: we have one case that was brought by Arizona a
Speaker 1: couple of years ago, which is a very similar suit,
Speaker 1: and it's still playing out where we're two years into
Speaker 1: it and they're still litigating it. So I suspect that
Speaker 1: Google will bite each of these these three lawsuits, just
Speaker 1: as it's fought the Arizona lawsuits, and so far Google
Speaker 1: hasn't been able to knock that out. But as I said,
Speaker 1: I do think if it can't knock any of them out,
Speaker 1: and and one good thing for the company here is
Speaker 1: each one is going to be fought in its own
Speaker 1: state court, so it's not like they all rise or
Speaker 1: fall together. And so that kind of helps contain the risk.
Speaker 1: And so it can try to knock off each individual
Speaker 1: one based on state laws in that state. But then
Speaker 1: even if it can't knock them off, I think Google
Speaker 1: can settle suits by you know, by three or four
Speaker 1: states like this, um, you know, for in the mid
Speaker 1: hundred million dollar range. I think I said foreignern fifty
Speaker 1: million dollars when I did some estimates of it, and
Speaker 1: for for Google, that's that's something that is not real disruptive.
Speaker 1: What when it becomes a risk, as I said, is
Speaker 1: when it when it goes nationwide and the FTC or
Speaker 1: class action lawyers go go bigger, or more attorneys general
Speaker 1: baned together to do this. That's when it becomes you know,
Speaker 1: billions of dollars of potential risk, and it's that's a
Speaker 1: harder thing UM to control. Is there a class action
Speaker 1: lawsuit or a proposed class action lawsuit already against Google
Speaker 1: for the tracking? So yes, so I think there are
Speaker 1: a number of them. So there there is already an
Speaker 1: existing class action lawsuit out there about private browsing. That's
Speaker 1: been been pending in a federal court in California for
Speaker 1: some time now, and and there are are a handful
Speaker 1: of other suits that that are out there as well.
Speaker 1: Facebook as well, UM has you know, you can go
Speaker 1: back to the Cambridge Analytica matter. Um it's settled, book
Speaker 1: settled that five billion dollar investigation at the Federal Trade Commission.
Speaker 1: But there's still a class action lawsuits from from users
Speaker 1: that Facebook tried to get a dismissal of a couple
Speaker 1: of years ago and the court refused. Now that takes forever.
Speaker 1: We're we've been in discovery for I think two years
Speaker 1: now with with no movement on the case. But again,
Speaker 1: every time there's a big, big, you know, data scandal
Speaker 1: like this, you're inviting class action lawsuits and potentially you know,
Speaker 1: significant settlements. We still don't have a resolution on that
Speaker 1: Facebook one. And as I said, Google as well has
Speaker 1: cases out there that are still pending. Is there any
Speaker 1: doubt that Google does the tracking that they're accused of,
Speaker 1: you know, I think that's going to play out in
Speaker 1: the cases. What Google I think pushed back when when
Speaker 1: the when the litigation was immediately filed and said this
Speaker 1: sort of misstates um our practices, and it deals with
Speaker 1: outdated practices. I think this is really uh, you know
Speaker 1: about a question of how clear were their policies. And
Speaker 1: there's an allegation that, um, Google let people opt out
Speaker 1: of tracking in one way but actually kept some other
Speaker 1: setting on the back end that that consumers wouldn't know
Speaker 1: that they need to turn off as well. And so
Speaker 1: there's I think they're Google will push back and say, look, no,
Speaker 1: this is not nearly as confusing as as users make
Speaker 1: it sound like. So I think there is a fight
Speaker 1: to be fought there, but um, in some cases the
Speaker 1: companies haven't done very well with that. Lately, there there's
Speaker 1: been a push um from the courts to say, look,
Speaker 1: you have to be pretty clear. Um, you can't. You know,
Speaker 1: the users aren't going to read there, you know, their
Speaker 1: terms of service every time they click this stuff. You've
Speaker 1: gotta you can't make this stuff confusing. And I think
Speaker 1: I think it's it would be a tough hurdle to
Speaker 1: get through. So that's where you kind of think that
Speaker 1: there is a real risk that the company would need
Speaker 1: to settle this because um, you know, in some cases,
Speaker 1: their their settings aren't very clear. And as I said,
Speaker 1: there aren't overall legal standards about how they need to be.
Speaker 1: The companies kind of get to do it on their own,
Speaker 1: and so this is the only check that you get
Speaker 1: to make your own terms of service. You just have
Speaker 1: to be clear about it. And I think there is
Speaker 1: room to to litigate over that and risk for the company.
Speaker 1: I'm not particularly tech savvy, but I have been getting
Speaker 1: notices when I open different apps, do you want to
Speaker 1: allow this app to track your location? And I always
Speaker 1: say no. So I think if people are offered the
Speaker 1: opportunity one way or the other, they're going to say no, Right,
Speaker 1: why would you say yes? Yeah? I think that's that's
Speaker 1: exactly it. And and and that's sort of like the
Speaker 1: one of the biggest questions is they'll offer you that
Speaker 1: opportunity on location data. And I think one of the
Speaker 1: biggest risks as you think about what could you know
Speaker 1: legislation look like here, It would be more questions like that,
Speaker 1: more empowering of users to say, um, do you want
Speaker 1: this or do you not? And making it easy for
Speaker 1: them to say no, or Congress could say here's the
Speaker 1: default rule Google, Facebook, you can't take any data unless
Speaker 1: users go through jump through all these hoops to turn
Speaker 1: it on. And so that's the real risk I think
Speaker 1: for the companies is moving down that road. Right now,
Speaker 1: we have some steps there and allegations that even when
Speaker 1: when they give those options, they're not really giving those options,
Speaker 1: and so there's litigation over that. But but the bigger story,
Speaker 1: I think is the potential legislation making that the standard
Speaker 1: and really cutting off the flow of data that fuels
Speaker 1: these businesses. Not how important is the location data for Google?
Speaker 1: I mean, how important is it that they know where
Speaker 1: you are? Yeah, I think the great source of data
Speaker 1: for the companies. And that's that's the point that the
Speaker 1: DC Attorney General and others made when they filed these
Speaker 1: lawsuits that when when you're trying to appeal to advertisers,
Speaker 1: it's it's a great thing to be able to tell them. Look,
Speaker 1: we can pitch a product to these users based on
Speaker 1: our knowledge of where they are, where they're driving, where
Speaker 1: they're taking their phone every day, and then taylor the
Speaker 1: advertising based on that location. That's a key piece of
Speaker 1: knowledge that users are often giving away, maybe without fully
Speaker 1: realizing it. And um, so I think it's an important,
Speaker 1: you know, part of the story. If that gets targeted
Speaker 1: and the rules about how the companies can collect that
Speaker 1: data get tighter. Then, uh, digital ads become a little
Speaker 1: bit less effective because it can't be as tailored to
Speaker 1: exactly where users are. So to sum up, what is
Speaker 1: the greatest risk to Google and Facebook? Is it from Congress,
Speaker 1: from the FTC, or from lawsuits? So it's a great question.
Speaker 1: I think it's all of the above. In theory, the
Speaker 1: biggest risk is a law, you know, because Congress has
Speaker 1: power to impact these businesses in a way that that
Speaker 1: regulators or litigators can't. Uh. The problem there, as we said,
Speaker 1: is it's very difficult to do. We're not there yet,
Speaker 1: doesn't mean we won't get there, But that's the biggest
Speaker 1: risk going forward. In the meantime, you're seeing you're going
Speaker 1: to see, you know, rising costs and risks from regulation
Speaker 1: and from litigation, but those are unlikely to be business
Speaker 1: model disruptive in the way that a new law from
Speaker 1: Congress would be. Thanks so much for being on the
Speaker 1: Bloomberg Laws Show. Matt that's Matthew Chettenhelm, Litigation and government
Speaker 1: analysts for Bloomberg Intelligence. And that's it for this edition
Speaker 1: of the Bloomberg Law Show. Remember you can always get
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Speaker 1: night at ten pm Wall Street Time. I'm June Grosso
Speaker 1: and you're listening to Bloomberg