WEBVTT - A "Stormy" Cross-Examination by Michael Avenatti 0:00:03.200 --> 0:00:07.960 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:00:09.000 --> 0:00:11.080 You know, if anyone knows a con I guess it 0:00:11.080 --> 0:00:15.160 would be Donald Trump. California lawyer Michael Avenatti gained a 0:00:15.240 --> 0:00:19.360 national profile in eighteen as a fierce critic of former 0:00:19.400 --> 0:00:22.880 President Donald Trump. Of a Nati asked Americans to believe 0:00:22.880 --> 0:00:26.800 that his client, adult film stars Stormy Daniels, had an 0:00:26.800 --> 0:00:31.440 affair with Trump. But now Avenati's freedom hinges on convincing 0:00:31.440 --> 0:00:34.920 a jury that Daniels is a liar. The lawyer is 0:00:34.960 --> 0:00:38.319 on trial for allegedly stealing three hundred thousand dollars from 0:00:38.400 --> 0:00:42.159 Daniels by intercepting advanced payments for a book deal she 0:00:42.280 --> 0:00:47.479 struck while suing Trump. The prosecution's star witness is Daniels herself, 0:00:48.000 --> 0:00:52.120 and Avnati, who's representing himself, got the chance to grill 0:00:52.240 --> 0:00:56.320 his former client. Joining me is Bloomberg Legal reporter Eric Larson. 0:00:57.160 --> 0:01:00.120 Tell us a little about the case, Eric, or the 0:01:00.240 --> 0:01:04.280 criminal case accusing Michael Avanati of stealing about three hundred 0:01:04.280 --> 0:01:08.200 thousand dollars from the book advance from his former clients, 0:01:08.800 --> 0:01:11.720 the porn star Stormy Daniels. So he is charged with 0:01:11.840 --> 0:01:16.000 wire fraud and identity theft for basically intercepting these electronic 0:01:16.080 --> 0:01:19.640 payments when I'm the publisher St. Martin's Press. So now 0:01:19.680 --> 0:01:21.920 for someone who might have been living in a hut 0:01:22.040 --> 0:01:25.040 during the Trump years, remind us of how they both 0:01:25.120 --> 0:01:28.759 came to fame. It's a pretty bizarre a criminal trial 0:01:28.800 --> 0:01:31.600 if you think about it, because Michael Avenati was representing 0:01:31.640 --> 0:01:36.039 Stormy Daniels in a pretty explosive lawsuit against Donald Trump 0:01:36.080 --> 0:01:38.959 when he was president. She had sued to try to 0:01:39.000 --> 0:01:41.800 get out of a non disclosure deal that she had 0:01:41.840 --> 0:01:46.160 struck with Trump to stay quiet about and alleged sexual 0:01:46.400 --> 0:01:49.080 affair that she had with Trump, and to stay quiet 0:01:49.080 --> 0:01:52.240 about the hundred and thirty thousand dollar payment that she 0:01:52.360 --> 0:01:54.520 received to keep quiet about it just before the two 0:01:54.520 --> 0:01:57.960 thousand sixteen election. So you might remember we saw Abanati 0:01:58.080 --> 0:02:02.840 and Stormy Daniels pretty frequently TV standing outside court. Aubanati 0:02:02.960 --> 0:02:05.600 was doing lots and lots of television appearances to talk 0:02:05.640 --> 0:02:08.639 about Stormy Daniels. She was on sixty Minutes. So they 0:02:08.639 --> 0:02:12.040 were a pretty interesting pair trying to take down Trump. 0:02:12.400 --> 0:02:15.760 They had a big falling out over this book deal 0:02:16.200 --> 0:02:19.880 when Stormy Daniels found out that Aubanati had been intercepting 0:02:19.880 --> 0:02:22.400 these payments, and she had been asking him where is 0:02:22.440 --> 0:02:25.240 this money from the publisher? You know, all along recording 0:02:25.280 --> 0:02:27.240 to this criminal case. He knew that where the money was. 0:02:27.280 --> 0:02:29.760 He had taken it and spent it for his own 0:02:29.760 --> 0:02:32.960 personal expenses on things like payments on a ferrari and 0:02:33.000 --> 0:02:35.440 everything for you know, even going to Starbucks. Things like 0:02:35.480 --> 0:02:38.880 this is prosecutors together where the money went, and it 0:02:38.960 --> 0:02:41.920 didn't go to her. So she got an eight hundred 0:02:41.960 --> 0:02:44.840 thousand dollar advance on the book. Well, it was an 0:02:44.840 --> 0:02:48.120 eight hundred book deal, and she was getting some of 0:02:48.160 --> 0:02:51.400 the money in installments as the deal was progressing, like 0:02:51.480 --> 0:02:54.600 when it actually was published and she was doing enough 0:02:54.639 --> 0:02:56.639 publicity and things for this, they were supposed to be 0:02:56.720 --> 0:02:59.400 giving her installments about a little over a hundred thousand 0:02:59.400 --> 0:03:03.280 dollars at a time. But two of those payments Abanati 0:03:03.560 --> 0:03:07.120 is accused of intercepting. Um. Of course, he has a 0:03:07.160 --> 0:03:09.440 defense saying that he was entitled to that money and 0:03:09.440 --> 0:03:12.040 that he didn't do anything wrong. But when she found 0:03:12.040 --> 0:03:15.240 out about this, she went to the publisher herself and 0:03:15.280 --> 0:03:17.200 demanded where is this money? And they said, well, we've 0:03:17.280 --> 0:03:20.320 been sending it here's the proof of that. And so 0:03:20.440 --> 0:03:23.320 that's when it all fell apart. For those two. I 0:03:23.360 --> 0:03:25.800 always ask about the size of the book deals because 0:03:25.800 --> 0:03:29.000 I cannot believe the amount of money that that goes 0:03:29.040 --> 0:03:31.440 into advances on a book you don't even know how 0:03:31.600 --> 0:03:35.200 well it will do. So he had a federal public defender, 0:03:35.840 --> 0:03:39.400 he did, and that the public defender gave the opening 0:03:39.440 --> 0:03:42.720 statement to the jury from a week ago. But shortly 0:03:42.800 --> 0:03:47.360 after that, Amanati decided to represent himself. So that was 0:03:47.480 --> 0:03:49.400 sort of a new twist on this case that was 0:03:49.440 --> 0:03:52.280 already kind of strange to begin with. So that put 0:03:52.360 --> 0:03:57.120 him in a position to personally cross examine Dormy Daniels, 0:03:57.240 --> 0:04:01.520 who's the government star witness, And that's what happens on Friday, 0:04:01.560 --> 0:04:05.720 So tell us about her testimony on direct examination with 0:04:05.840 --> 0:04:09.280 the questioning by the prosecutor. Right, So that's where they spelled, 0:04:09.480 --> 0:04:13.080 you know, laid out this whole story about how Aubenatti 0:04:13.320 --> 0:04:17.279 had been communicating with Stormy Daniels every day, you know, 0:04:17.320 --> 0:04:20.680 by phone and text. So naturally, when these payments from 0:04:20.680 --> 0:04:23.640 the publisher were supposed to start coming in, Stormy Daniels 0:04:23.640 --> 0:04:25.719 was looking at her bank account and wondering where that 0:04:25.760 --> 0:04:28.040 money was because, according to her, she had lots of 0:04:28.040 --> 0:04:30.800 expenses at the time, she travels a lot, she has 0:04:30.839 --> 0:04:34.520 a lot of security detail things like that. So the 0:04:34.640 --> 0:04:37.560 prosecution had her read out these text messages that were 0:04:37.560 --> 0:04:39.839 shown to the jury, and it just showed her getting 0:04:39.880 --> 0:04:43.800 increasingly upset, you know, wondering where the money was and 0:04:44.160 --> 0:04:48.520 venting her frustration to Aubenati. And then the prosecutor showed 0:04:48.520 --> 0:04:51.440 the evidence that Abanati had actually already received the money 0:04:51.560 --> 0:04:54.479 and kept asking, you know, Storm McDaniels, well, at what 0:04:54.640 --> 0:04:56.919 point did he say I have the money? And she 0:04:56.920 --> 0:05:00.120 would say, he never said that, So they're just and 0:05:00.480 --> 0:05:03.120 they spent that time trying to illustrate all of the 0:05:03.200 --> 0:05:05.760 different opportunities that Abanati would have had to tell her 0:05:05.880 --> 0:05:07.960 where the money was and then failed to do so. 0:05:08.360 --> 0:05:11.000 And she said he lied to me every day for 0:05:11.040 --> 0:05:15.240 almost five months, that's correct. There were two payments that 0:05:15.320 --> 0:05:18.559 had disappeared, so you could tell that she was every 0:05:18.600 --> 0:05:20.680 day asking him about it, which is why I think 0:05:20.680 --> 0:05:23.400 she was so felt so betrayed. According to her, when 0:05:23.480 --> 0:05:25.920 when she found out where the money had gone. So 0:05:26.000 --> 0:05:30.160 you have Alvanati cross examining his former client. It must 0:05:30.160 --> 0:05:33.400 have been high drama in the courtroom just to see that. Yeah, 0:05:33.440 --> 0:05:36.040 it was pretty bizarre when you think about the falling 0:05:36.080 --> 0:05:39.080 out that these two had. I mean, Albanati spent a 0:05:39.120 --> 0:05:42.000 lot of time, you know, several years ago telling Americans 0:05:42.000 --> 0:05:44.400 they needed to believe this woman, that she had a 0:05:44.440 --> 0:05:48.280 pretty salicious tale to tell about Donald Trump, and they 0:05:48.320 --> 0:05:50.960 really were trying to take the president down based on 0:05:51.080 --> 0:05:54.359 her word. And now he's here telling this jury that 0:05:54.400 --> 0:05:57.520 she's a liar and can't be trusted. So he used 0:05:57.520 --> 0:06:00.840 his cross examination to try to pull out various times 0:06:00.839 --> 0:06:04.200 that he thinks showed that she had been untruthful about 0:06:04.240 --> 0:06:07.960 various things, and also questioned her about various times that 0:06:08.000 --> 0:06:11.360 she had accused other people of stealing from her. I 0:06:11.400 --> 0:06:13.479 think he was trying to sort of suggest that she 0:06:13.640 --> 0:06:17.120 was paranoid and accuse people of sess frequently that sort 0:06:17.160 --> 0:06:20.559 of thing. But it really wasn't bizarre questioning because Dormy 0:06:20.680 --> 0:06:24.560 Daniels is a pretty interesting character. She is working on 0:06:24.560 --> 0:06:28.839 a TV show about the paranormal paranormal activities, so she's 0:06:28.960 --> 0:06:32.080 on record telling her viewers and fans and things like 0:06:32.120 --> 0:06:35.320 this that she can see ghosts, that she can see 0:06:35.360 --> 0:06:39.559 into people's houses, basically through their walls, that she's even 0:06:40.040 --> 0:06:44.359 in communication with a hunted doll. So he was trying 0:06:44.400 --> 0:06:47.400 to obviously make her look a little bit bonkers and 0:06:47.480 --> 0:06:50.400 wanted a jury to see that she can essentially make 0:06:50.480 --> 0:06:51.960 things up a lot, I think is what he was 0:06:52.000 --> 0:06:56.480 trying to suggest. Has she made contradictory public statements about 0:06:56.480 --> 0:07:01.120 her relationship with Trump, because I got very confused about 0:07:01.200 --> 0:07:05.400 what her position was, right, It was a little confusing, 0:07:05.400 --> 0:07:09.240 and that was actually brought up by Amanati. He asked 0:07:09.240 --> 0:07:11.800 her about a statement that she had made about a 0:07:11.800 --> 0:07:14.040 month before she hired him back when they were non 0:07:14.080 --> 0:07:17.760 just Her nondisclosure deal with Trump was in force in 0:07:17.880 --> 0:07:21.640 January two eighteen, and when reports were coming out about 0:07:21.680 --> 0:07:24.680 her affair with Trump and the hush money payment, she 0:07:24.800 --> 0:07:28.360 put out a statement saying that there was no fair 0:07:28.440 --> 0:07:31.680 between her and Trump. Of course, then she changed her 0:07:31.680 --> 0:07:36.120 tune on that and basically said the opposite, and Abanati 0:07:36.280 --> 0:07:39.000 asked her about that and basically was saying, you lie. 0:07:39.040 --> 0:07:41.560 You put out this statement, it was a lie, trying 0:07:41.560 --> 0:07:43.760 to show that she was capable of lying because she 0:07:43.840 --> 0:07:47.680 now says that she did have interactions with Trump. But 0:07:47.720 --> 0:07:50.040 then it got even stranger because she still says, no, 0:07:50.160 --> 0:07:52.720 I didn't have an affair. It was just a sexual encounter. 0:07:53.280 --> 0:07:55.000 So she was trying to mince words there and say, 0:07:55.080 --> 0:07:58.200 no, no no, it wasn't affair. Um, but at any rate, 0:07:58.240 --> 0:08:01.200 you're right it was a sort of a strange contradictory statement. 0:08:01.880 --> 0:08:06.040 So he said, Ms. Daniels, do have a single text message, email, 0:08:06.200 --> 0:08:09.800 voicemail or recording that says I would not take any 0:08:09.880 --> 0:08:14.560 money from your book deal. What was that about, right? 0:08:14.680 --> 0:08:16.680 So that was kind of the heart of the matter. 0:08:16.720 --> 0:08:18.520 All this other stuff was a little bit of a 0:08:18.920 --> 0:08:22.160 maybe a distraction or just trying to make Stormy Daniels 0:08:22.200 --> 0:08:24.360 look a little nuts. But what it really got down 0:08:24.360 --> 0:08:27.720 to is when she hired him, they signed an agreement 0:08:28.200 --> 0:08:30.760 that said that he would be entitled to his share 0:08:30.760 --> 0:08:35.280 of any future book or media deals. But this agreement 0:08:35.520 --> 0:08:38.640 then says the amount will be determined by the parties later. 0:08:39.080 --> 0:08:41.320 So he's saying, look, you knew all along that I 0:08:41.400 --> 0:08:44.200 was entitled to some of this book money, and that 0:08:44.280 --> 0:08:47.400 I had lots and lots of expenses from representing you 0:08:47.440 --> 0:08:51.560 in this huge lawsuit. And she claims that he verbally 0:08:51.600 --> 0:08:53.480 told her that he would not take any of the 0:08:53.520 --> 0:08:57.160 money after even though they signed that agreement, So they're 0:08:57.160 --> 0:09:01.080 interpreting the agreement differently. You know, Yes, I think Anadi 0:09:01.320 --> 0:09:05.079 acknowledges they never did specifically agree to an amount from 0:09:05.080 --> 0:09:07.760 the book deal that would he'd be entitled to. But 0:09:07.920 --> 0:09:10.720 he's arguing that she knew all alone that he was 0:09:10.760 --> 0:09:14.520 going to be entitled to that money. So what happened 0:09:14.520 --> 0:09:18.760 with her defamation lawsuit against Trump? Yeah, so that was 0:09:18.800 --> 0:09:22.680 a separate lawsuit, um, separate from the non disclosure agreement 0:09:22.720 --> 0:09:26.400 lawsuits that was in California. She lost it, and she 0:09:26.559 --> 0:09:29.520 was also ordered to pay Trump's legal fees of almost 0:09:29.600 --> 0:09:34.440 three hundred thousand dollars. So she was pretty upset about that. UM. 0:09:34.480 --> 0:09:38.320 I think she blames Anti for some of that, and he, 0:09:39.000 --> 0:09:41.760 you know, had suggested that it was her um that 0:09:41.880 --> 0:09:45.560 she ended up falsely accusing him of stealing her you know, 0:09:45.600 --> 0:09:48.400 this book money, um sort of his paybacks for that 0:09:48.559 --> 0:09:50.680 or you know, so that she'd have money to pay 0:09:50.720 --> 0:09:55.000 the three dollars. Is he as dramatic in the courtroom 0:09:55.120 --> 0:09:58.040 as he used to be when he was doing TV appearances? 0:09:58.520 --> 0:10:01.760 I would say, yes, know he is, or he was 0:10:01.800 --> 0:10:05.600 a very successful, you know lawyer. He said on his 0:10:05.679 --> 0:10:09.720 website that he had secured hundreds of millions of dollars 0:10:09.720 --> 0:10:12.600 and settlements for clients and lots of cases before he 0:10:12.679 --> 0:10:16.160 ever represented Stormy Daniel. So of course all that has 0:10:16.200 --> 0:10:18.920 come crashing down his law firm, you know, it's gone, 0:10:18.960 --> 0:10:24.200 and he's been convicted in another criminal case separate from this, 0:10:24.280 --> 0:10:28.559 of course, he was convicted of trying to extort Nike 0:10:29.040 --> 0:10:31.920 out of five million dollars on behalf of another client 0:10:32.040 --> 0:10:34.439 during settlements talks. He was sentenced to two and a 0:10:34.480 --> 0:10:36.680 half years for that, and he hasn't even started serving 0:10:36.679 --> 0:10:39.760 that prison term. Then there was a third criminal case 0:10:39.960 --> 0:10:43.000 in California where he was accused of ripping off other 0:10:43.280 --> 0:10:46.679 law firm clients of his, and that ended in a mistrial, 0:10:47.000 --> 0:10:50.000 although they're going to retry that case. He's out on 0:10:50.120 --> 0:10:54.320 bail from the California cases while he's here in New 0:10:54.400 --> 0:11:00.000 York right right, He's been basically under homes infinement in Califor, 0:11:00.000 --> 0:11:04.240 Mornia for quite some time, staying with a friend in Venice, California. 0:11:04.679 --> 0:11:07.560 But because of this trial, he's now been allowed to travel. 0:11:07.600 --> 0:11:10.280 And it's it is here for that, you know, with 0:11:10.840 --> 0:11:13.880 a lawyer owes a client money, it seems like it 0:11:13.960 --> 0:11:16.400 might this might have been a civil case. Did his 0:11:16.480 --> 0:11:21.320 celebrity play into this becoming a criminal case? Well, I 0:11:21.320 --> 0:11:24.200 mean it's hard to know exactly what, you know, the 0:11:24.280 --> 0:11:27.800 Justice Department is thinking or the U. S. Attorney's Office 0:11:27.800 --> 0:11:29.880 here when they decided to bring a case. But you know, 0:11:29.960 --> 0:11:33.280 of course, Avanatti has claimed, you know, all along the 0:11:33.400 --> 0:11:35.640 all three of these criminal cases, you know, they were 0:11:35.640 --> 0:11:38.120 brought during the Trump administration, and he claims that that 0:11:38.160 --> 0:11:42.120 he was targeted by from Justice Department specifically because of 0:11:42.400 --> 0:11:45.200 his lawsuit on behalf of the Stormy Daniels So you're right, 0:11:45.200 --> 0:11:47.439 I guess it could have been a civil matter, but 0:11:47.559 --> 0:11:50.800 just between Stormy Daniels and Aminatti. But he argues that 0:11:51.400 --> 0:11:53.559 because of who he is. You know, I don't know 0:11:53.600 --> 0:11:56.079 if Stormy Daniels went to the sider was the other 0:11:56.080 --> 0:11:59.040 way around. But they put together, you know, three completely 0:11:59.080 --> 0:12:02.520 separate cases against him and really sort of turned his 0:12:02.520 --> 0:12:06.000 world upside down. So he's actually filed a claim with 0:12:06.200 --> 0:12:10.760 the Justice Department accusing the Dustice Department of improperly having 0:12:10.840 --> 0:12:14.760 him thrown into solitary confinement when he was first arrested. 0:12:14.960 --> 0:12:17.480 He says that he spent weeks and weeks and weeks 0:12:17.480 --> 0:12:21.360 in solitary confinement and horrible conditions. Again, he says that 0:12:21.400 --> 0:12:25.760 Trump and former Attorney General William Barr did that intentionally 0:12:25.840 --> 0:12:29.040 to punish him. And so he's seeking about ninety million 0:12:29.080 --> 0:12:32.800 dollars from the government for that, and that's the appending 0:12:32.880 --> 0:12:35.440 claim before the Justice Department just filed a few weeks ago. 0:12:36.000 --> 0:12:37.440 Eric I also want to talk to you about the 0:12:37.559 --> 0:12:42.880 January sixth prosecutions, and we've seen that the defendants are 0:12:43.559 --> 0:12:49.320 a very bunch. Tell us about the former influencer Brandon Straca. So, 0:12:49.559 --> 0:12:56.120 Brandon Straca is described as a pro Trump social media influencer. Basically, 0:12:56.160 --> 0:13:00.760 he's a former liberal, self described gay, former role from 0:13:00.800 --> 0:13:04.160 New York City. He reportedly was a hair stylist um 0:13:04.200 --> 0:13:08.319 and at some point he decided to switch to becoming 0:13:08.480 --> 0:13:12.200 a Republican and supporting Trump and started a social media 0:13:12.280 --> 0:13:16.840 campaign all about trying to convince other Democrats to switch parties. 0:13:17.080 --> 0:13:19.280 So he became a bit of a social media star 0:13:19.360 --> 0:13:24.719 on the right, very popular with conservatives, and he ended up, 0:13:25.000 --> 0:13:28.800 you know, participating in some rallies after the election, claiming 0:13:28.800 --> 0:13:31.120 that it was stolen, that sort of thing. He spoke 0:13:31.160 --> 0:13:34.599 at a big rally of conspiracy theorists in Washington, d C. 0:13:35.160 --> 0:13:38.640 On January five one, just the day before. And then 0:13:38.679 --> 0:13:41.640 he also participated in the assault on the Capitol of 0:13:41.679 --> 0:13:45.679 a live stream that to his to his followers, about 0:13:45.679 --> 0:13:49.360 six hundred and sixty thousand followers um. And at one point, 0:13:49.480 --> 0:13:53.280 you know, he's caught on camera encouraging people to violently 0:13:53.400 --> 0:13:56.720 steal take his shield of protective shields from a riot officer. 0:13:56.960 --> 0:14:00.360 So very bizarre case. He's forty five years old. He 0:14:00.920 --> 0:14:05.760 pleaded guilty to disorderly conduct in October um and was 0:14:05.880 --> 0:14:09.520 just spent in last week to three years of probation. 0:14:09.960 --> 0:14:12.960 He had been cooperating with the BED. He had about 0:14:12.960 --> 0:14:16.079 three meetings with them, I think according to the court papers, 0:14:16.200 --> 0:14:20.520 the prosecutors had wanted a period of home confinement as 0:14:20.560 --> 0:14:22.920 part of that sentence, but as they didn't end up 0:14:22.960 --> 0:14:25.600 getting that for just three years of probation for this guy. 0:14:26.120 --> 0:14:28.520 And yeah, as you said, there's a lot of sort 0:14:28.520 --> 0:14:31.560 of interesting characters who participated in that, and he certainly 0:14:31.600 --> 0:14:33.800 seems to be one of them. What's the civil suit 0:14:34.680 --> 0:14:39.280 against him? Yeah, there's a civil lawsities filed against him 0:14:39.520 --> 0:14:43.600 by a group of Capital police officers who were injured 0:14:43.800 --> 0:14:48.320 during the insurrection, and the defendants in the suit include 0:14:48.600 --> 0:14:53.080 Trump as well as Roger Stone at the Political Operative 0:14:53.400 --> 0:14:56.880 and several members of different right wing militia groups like 0:14:56.960 --> 0:15:00.280 the Proud Boys and Oathkeepers. So he stands that is 0:15:00.360 --> 0:15:03.360 kind of an unusual defendant in that case. But they 0:15:03.680 --> 0:15:06.520 alleged that he was part of a conspiracy to deprive 0:15:06.640 --> 0:15:09.840 these Capital police that they're still rights and to you know, 0:15:09.960 --> 0:15:13.640 basically alleged that because of all of their conduct together, 0:15:13.760 --> 0:15:17.520 that they're liable for these officers injuries. And he of 0:15:17.520 --> 0:15:20.600 course denied that in speaking dismissal of the suit, as 0:15:20.640 --> 0:15:23.400 are the other defendants. The people who marched on the 0:15:23.440 --> 0:15:26.960 Capitol were a diverse group of people, more than one 0:15:27.000 --> 0:15:30.240 would have expected. Perhaps there was also a Yale Law 0:15:30.280 --> 0:15:34.760 school graduate. He's actually the head of the Oathkeepers, right 0:15:34.800 --> 0:15:38.400 wing militia, and he's fighting, uh, he's fighting those charges. 0:15:38.480 --> 0:15:41.560 He's pleaded not guilty. All of those Oathkeepers members that 0:15:41.600 --> 0:15:44.280 pleaded not guilty. I think it was just last week. 0:15:44.520 --> 0:15:47.280 So they're definitely going to be putting up a big 0:15:47.320 --> 0:15:51.120 fight here. They all have separate lawyers and they're putting 0:15:51.160 --> 0:15:54.520 together what I think they're you know, suggesting is going 0:15:54.560 --> 0:15:58.040 to be a pretty big defense here that could lead 0:15:58.080 --> 0:16:02.000 to a very interesting trial. Um I think is in July. 0:16:02.760 --> 0:16:06.320 Thanks so much, Eric. That's Bloomberg Legal reporter Eric Larson. 0:16:08.120 --> 0:16:11.320 Google and Facebook make billions of dollars a year from 0:16:11.360 --> 0:16:15.520 their digital ad businesses, but they face data privacy legal 0:16:15.600 --> 0:16:20.119 risks on multiple fronts from Congress, from the Federal Trade Commission, 0:16:20.160 --> 0:16:24.440 and from lawsuits. Joining me is Matthew Chettenhelm, litigation and 0:16:24.480 --> 0:16:28.120 government analysts for Bloomberg Intelligence tell us broadly about the 0:16:28.200 --> 0:16:32.440 data privacy legal risks that Google and Facebook are facing. 0:16:32.920 --> 0:16:36.120 Google and Facebook make billions of dollars a year from 0:16:36.320 --> 0:16:41.240 their digital ad business and they now face you know, really, 0:16:41.280 --> 0:16:44.320 I think a myriad of different legal risks on many 0:16:44.320 --> 0:16:49.400 different fronts. It's really a story about one legislation. Congress 0:16:49.560 --> 0:16:54.760 is looking at making laws here as they never have before. Regulation, 0:16:54.960 --> 0:17:00.080 the Federal Trade Commission is looking at creating rules to 0:17:00.400 --> 0:17:04.679 potentially govern these businesses, and litigation. And you see your 0:17:04.720 --> 0:17:09.119 attorneys general in states across the US bringing more lawsuits. 0:17:09.160 --> 0:17:15.080 You see class action attorneys pursuing litigation against these companies 0:17:15.119 --> 0:17:18.080 as they never have before. And so it's really on 0:17:18.240 --> 0:17:22.359 those three fronts where you're seeing major legal risks for 0:17:22.400 --> 0:17:26.760 this very lucrative business for these companies. Let's start with 0:17:27.119 --> 0:17:30.199 the possibility of a law from Congress. I know that 0:17:30.200 --> 0:17:34.200 people from both sides of the aisle are on board 0:17:34.400 --> 0:17:38.680 for tightening the rules for Internet platforms, but is there 0:17:38.680 --> 0:17:43.199 any consensus in Congress about a data privacy law? So 0:17:43.359 --> 0:17:46.280 that's really the stumbling block. And as you said, I 0:17:46.280 --> 0:17:49.360 mean this is really a change. For the past twenty 0:17:49.440 --> 0:17:53.320 years or so, there's sort of been this bipartisan consensus 0:17:53.320 --> 0:17:56.439 that the Internet works best when we stay out of 0:17:56.480 --> 0:18:00.600 the way as lawmakers. That's changed very quickly in the 0:18:00.680 --> 0:18:04.000 in the last five years, where I think now there's 0:18:04.000 --> 0:18:07.120 a bipartisan consensus that well, maybe we went too far 0:18:07.200 --> 0:18:10.120 there and maybe if we have no rules of the road, 0:18:10.440 --> 0:18:13.959 that leads to problems. Now, where lawmakers are having an 0:18:13.960 --> 0:18:18.000 issue is identifying exactly what is the problem and then 0:18:18.040 --> 0:18:21.760 agreeing on fixes on it. And I think we're still 0:18:21.840 --> 0:18:25.720 pretty far away here. When you look at directly regulating 0:18:26.040 --> 0:18:29.119 the digital ad business, which is the core business of 0:18:29.440 --> 0:18:35.480 these companies, there isn't really consensus across Democrats and Republicans 0:18:35.600 --> 0:18:39.240 or even within the parties themselves about exactly how to 0:18:39.440 --> 0:18:43.359 do that. And the big hurdle is in the Senate, 0:18:43.400 --> 0:18:47.240 you need sixty votes to make legislation into law, and 0:18:47.280 --> 0:18:50.920 that requires you know, often fifty Democrats and ten Republicans. 0:18:51.000 --> 0:18:54.080 And when you have the parties disagreeing about what is 0:18:54.119 --> 0:18:57.679 the problem, it's hard to agree on a solution. So 0:18:57.720 --> 0:19:00.480 we're not there yet, at least on any sort of 0:19:00.560 --> 0:19:04.720 comprehensive data privacy legislation. You're gonna keep seeing headlines hearings 0:19:04.760 --> 0:19:07.200 about it. I'm not sure that in the near term 0:19:07.240 --> 0:19:11.400 you're going to face comprehensive legislation. You might see sort 0:19:11.400 --> 0:19:15.040 of targeted legislation, maybe for children's data, but I think 0:19:15.040 --> 0:19:18.200 we're still pretty far away on that consensus on direct 0:19:18.280 --> 0:19:20.679 regulation of the core business. So then you have the 0:19:20.760 --> 0:19:26.960 Federal Trade Commission, which hasn't historically made rules for internet companies. 0:19:27.119 --> 0:19:30.680 What's the danger there? Yeah, So that's like I think 0:19:30.760 --> 0:19:33.359 what might be one of the big stories to watch 0:19:33.640 --> 0:19:37.959 this year. If Congress can't agree on how to go 0:19:38.000 --> 0:19:40.960 after these businesses and can't make a new law, it 0:19:41.040 --> 0:19:43.680 doesn't necessarily mean that the companies are going to continue 0:19:43.680 --> 0:19:46.000 to get to make the rules of the road for themselves. 0:19:46.040 --> 0:19:49.679 The Federal Trade Commission usually historically, as you said, hasn't 0:19:49.720 --> 0:19:52.800 been in the business of making rules on the front end. 0:19:52.880 --> 0:19:56.320 It goes after companies after the fact and says what 0:19:56.400 --> 0:19:59.320 you did there was unfair, and it brings an enforcement 0:19:59.320 --> 0:20:02.520 action again. Sit Now there's sort of a change in 0:20:02.640 --> 0:20:06.480 thinking at the Federal Trade Commission under new Chairwoman Lena Khan. 0:20:07.160 --> 0:20:09.720 And so in the middle of one the Federal Trade 0:20:09.760 --> 0:20:14.720 Commission went through and streamlined its process for making rules generally, 0:20:14.960 --> 0:20:17.479 which has been very difficult, and so they've kind of 0:20:17.560 --> 0:20:20.680 simplified that a little bit, sort of clearing the deck 0:20:20.720 --> 0:20:23.480 and getting things ready to go. Once the Federal Trade 0:20:23.520 --> 0:20:26.280 Commission has five commissioners in place, we're still waiting for 0:20:26.320 --> 0:20:29.560 the Senate to confirm a fifth member. But when it does, 0:20:30.160 --> 0:20:33.600 I think you could see Lena Kahn lead an effort 0:20:33.840 --> 0:20:37.119 to create rules on the front end for these Internet businesses. 0:20:37.600 --> 0:20:41.240 Now there's lots of questions about the Federal Trade Commission's authority. 0:20:41.560 --> 0:20:44.479 The Federal Trade Commission isn't Congress. It can't do whatever 0:20:44.520 --> 0:20:47.320 it wants. It's limited in its jurisdiction and to what 0:20:47.440 --> 0:20:49.760 it can reach. But I think there's gonna be significant 0:20:49.800 --> 0:20:53.000 pressure on the Democrats at the Federal Trade Commission to 0:20:53.000 --> 0:20:56.280 be aggressive in making new rules like that. And we 0:20:56.320 --> 0:20:58.520 don't know what exactly they have in mind yet and 0:20:58.520 --> 0:21:00.960 what we'll get to see them as the process plays out, 0:21:01.000 --> 0:21:03.159 but there's a chance that they start to go in 0:21:03.200 --> 0:21:07.199 that direction of trying to go after core elements of 0:21:07.480 --> 0:21:11.480 the digital ad business, and that would surely face lawsuits, 0:21:11.520 --> 0:21:15.680 wouldn't it. Any rules the FTC makes, Absolutely, there's major 0:21:15.760 --> 0:21:19.760 procedural hurdles just as a matter of making those rules. 0:21:19.760 --> 0:21:22.000 They have to jump through a number of hoops in 0:21:22.040 --> 0:21:25.680 the law to make that happen. But then substantively, you're 0:21:25.720 --> 0:21:30.240 exactly right, whatever rules they make, if they're disruptive to 0:21:30.640 --> 0:21:33.879 the industry, you're surely going to see an immediate legal 0:21:33.960 --> 0:21:36.960 challenge to those rules. And the question then is did 0:21:37.040 --> 0:21:40.440 the Federal Trade Commission have the authority to make fools 0:21:40.560 --> 0:21:42.840 like that that interfere with the business. The Federal Trade 0:21:42.880 --> 0:21:48.720 Commission's power is limited to policing unfair and deceptive practices, 0:21:48.840 --> 0:21:52.200 and that's what they've historically done through after the fact adjudication. 0:21:52.560 --> 0:21:54.919 If they go on the front end and say X 0:21:55.080 --> 0:21:58.680 y Z practices are unfair or deceptive. There's a real 0:21:58.800 --> 0:22:01.760 risk that the courts will step in and say, yes, 0:22:02.119 --> 0:22:05.040 you have that power to police unfair and deceptive practices, 0:22:05.080 --> 0:22:08.920 but you don't have the power to make major rules 0:22:09.000 --> 0:22:13.560 about a core element of American business. Congress didn't give 0:22:13.600 --> 0:22:16.639 you that power clearly. And there's a real risk that 0:22:16.720 --> 0:22:20.520 the FTC goes beyond its narrow grant of authority and 0:22:20.560 --> 0:22:23.840 then ends up stumbling in the courts. We don't know 0:22:23.920 --> 0:22:27.400 exactly how aggressive the Federal Trade Commission will be. There's 0:22:27.400 --> 0:22:29.800 a risk that it's pretty aggressive, but as you said 0:22:29.840 --> 0:22:33.600 there on the back end, the courts will serve as 0:22:33.720 --> 0:22:36.920 somewhat of a protection for the company. Now let's turn 0:22:37.000 --> 0:22:39.960 to the risks from litigation. And there's already a lot 0:22:40.000 --> 0:22:43.080 of litigation against the companies. So how big a risk 0:22:43.160 --> 0:22:47.480 is litigation in general? Yeah, in general, this is a problem. 0:22:47.920 --> 0:22:51.520 I think it's growing in scale because so many class 0:22:51.560 --> 0:22:55.480 action attorneys and so many attorneys generals have have realized 0:22:55.560 --> 0:22:59.560 that these are good targets. And and one reason that 0:22:59.640 --> 0:23:03.840 they are good targets for litigation is because the companies 0:23:03.840 --> 0:23:08.520 have so many users. And and for example, um last 0:23:08.520 --> 0:23:12.920 week we saw DC and three other states bring lawsuits 0:23:12.960 --> 0:23:17.679 against Google for its use of location data, that it 0:23:17.800 --> 0:23:21.400 was trying to collect people's data about their location even 0:23:21.400 --> 0:23:23.960 though they tried to turn it off, Google was taking 0:23:23.960 --> 0:23:27.000 that data anyway. I don't think that's a huge deal 0:23:27.080 --> 0:23:30.840 for the company when you're talking about three to four states. Um. 0:23:30.840 --> 0:23:33.040