1 00:00:03,200 --> 00:00:08,000 Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio. 2 00:00:10,280 --> 00:00:14,480 Speaker 2: Richard Glossop has been just hours away from being executed 3 00:00:14,720 --> 00:00:18,200 Speaker 2: three times. He's maintained his innocence through more than a 4 00:00:18,320 --> 00:00:22,720 Speaker 2: quarter century on Oklahoma's death row, telling news outlets like 5 00:00:22,880 --> 00:00:26,320 Speaker 2: Sky News that he's not guilty of hiring a coworker 6 00:00:26,680 --> 00:00:29,040 Speaker 2: to kill the owner of the motel where he worked 7 00:00:29,040 --> 00:00:30,320 Speaker 2: in nineteen ninety seven. 8 00:00:30,840 --> 00:00:34,159 Speaker 3: I didn't commit this crime, and there's no down in 9 00:00:34,240 --> 00:00:38,960 Speaker 3: my line that I may die because of this. I'm 10 00:00:39,040 --> 00:00:42,440 Speaker 3: truly sorry for what happened to Arry. I am, but 11 00:00:42,479 --> 00:00:43,519 Speaker 3: I had nothing to do with it. 12 00:00:44,040 --> 00:00:46,920 Speaker 2: Glossop's case has garnered international attention. 13 00:00:47,200 --> 00:00:49,920 Speaker 4: You never done this before. Yeah, it's close to a 14 00:00:50,000 --> 00:00:50,720 Speaker 4: murder before. 15 00:00:52,600 --> 00:00:55,120 Speaker 5: What is it doing in a place like it? 16 00:00:55,680 --> 00:00:59,160 Speaker 2: Sister Helen Prejahn, the death penalty opponent portrayed in the 17 00:00:59,280 --> 00:01:02,840 Speaker 2: nineteen ninety one five movie Dead Man Walking, has taken 18 00:01:02,920 --> 00:01:06,360 Speaker 2: up his cause, as have celebrities like Kim Kardashian and 19 00:01:06,440 --> 00:01:07,400 Speaker 2: Susan Sarandon. 20 00:01:07,760 --> 00:01:13,840 Speaker 4: Richard's case is so typical, you know, bad representation to 21 00:01:14,080 --> 00:01:18,520 Speaker 4: trials that were ridiculous, no physical evidence. You know, he's 22 00:01:18,560 --> 00:01:21,720 Speaker 4: put there by a snitch who actually did kill the person, 23 00:01:21,800 --> 00:01:25,840 Speaker 4: and then the snitches has life, and this guy is 24 00:01:26,000 --> 00:01:26,920 Speaker 4: being put to death. 25 00:01:27,400 --> 00:01:32,040 Speaker 2: And now Glossop has support from an unprecedented place. Oklahoma's 26 00:01:32,040 --> 00:01:37,039 Speaker 2: Republican Attorney General, Gentner Drummond, the state's top prosecutor, has 27 00:01:37,080 --> 00:01:40,440 Speaker 2: been urging the courts to undo his conviction, saying he 28 00:01:40,480 --> 00:01:43,959 Speaker 2: didn't get a fair trial due to critical errors, including 29 00:01:44,000 --> 00:01:47,520 Speaker 2: the destruction and suppression of evidence. The state has set 30 00:01:47,680 --> 00:01:51,520 Speaker 2: nine execution dates for Glossip, and just days before he 31 00:01:51,640 --> 00:01:55,080 Speaker 2: was again scheduled to be executed in May, the Supreme 32 00:01:55,160 --> 00:01:59,400 Speaker 2: Court blocked his execution and this Monday decided to review 33 00:01:59,440 --> 00:02:02,480 Speaker 2: his case. My guest is John Bloom, the director of 34 00:02:02,520 --> 00:02:06,920 Speaker 2: the Cornell Law Death Penalty Project. How unusual is it 35 00:02:07,080 --> 00:02:11,919 Speaker 2: for this Supreme Court to grant a stay of execution? 36 00:02:12,560 --> 00:02:15,160 Speaker 6: Well, this is a court that has been in general 37 00:02:15,240 --> 00:02:19,200 Speaker 6: hostile to inmates. So they've been reluctant to grant review 38 00:02:19,400 --> 00:02:24,240 Speaker 6: in capital cases and have been hesitant to interstags of execution. 39 00:02:24,360 --> 00:02:26,440 Speaker 6: And most of their work has been vacating stays of 40 00:02:26,480 --> 00:02:28,919 Speaker 6: execution which you've been entered by lower courts. 41 00:02:29,280 --> 00:02:31,000 Speaker 1: So why do you think they took this case? 42 00:02:31,639 --> 00:02:35,760 Speaker 6: Most likely the court took Gossop's case because it had 43 00:02:35,800 --> 00:02:39,920 Speaker 6: the extremely unusual feature of the Attorney General of the 44 00:02:40,160 --> 00:02:44,080 Speaker 6: relevant state here Oklahoma, agreeing with Gossip that he was 45 00:02:44,120 --> 00:02:46,480 Speaker 6: denied the right to a fair trial, and the Supreme 46 00:02:46,520 --> 00:02:47,639 Speaker 6: Court should intercede. 47 00:02:47,919 --> 00:02:53,800 Speaker 2: Explain the circumstances and why the Attorney general came to 48 00:02:53,880 --> 00:02:58,519 Speaker 2: that conclusion and independent investigations came to that conclusion. 49 00:02:59,000 --> 00:03:01,720 Speaker 6: Yes, For years been a number of questions raised about 50 00:03:01,800 --> 00:03:05,720 Speaker 6: colossups in his innocence, and new evidences resurface casting light 51 00:03:05,800 --> 00:03:09,240 Speaker 6: on the credibility of the main person that testified against 52 00:03:09,360 --> 00:03:12,440 Speaker 6: him in this particular case. And then there was some 53 00:03:12,520 --> 00:03:16,359 Speaker 6: additional evidence discovered by the prosecution and disclosed to the defense, 54 00:03:16,520 --> 00:03:19,200 Speaker 6: which has formed the basis of this most recent appeal, 55 00:03:19,639 --> 00:03:22,480 Speaker 6: and been several independent commissions, both of which have found 56 00:03:22,520 --> 00:03:27,720 Speaker 6: serious problems with the fairness and the constitutionality of his trial. 57 00:03:28,080 --> 00:03:31,040 Speaker 6: And so after reviewing all that evidence, the Attorney General 58 00:03:31,160 --> 00:03:33,239 Speaker 6: concluded that he should get a new trial. 59 00:03:33,760 --> 00:03:39,680 Speaker 2: Did prosecutors withhold a box of documents this whole time 60 00:03:39,720 --> 00:03:43,600 Speaker 2: and just turned it over to the defense recently, Yes. 61 00:03:43,600 --> 00:03:46,440 Speaker 6: Been referred to in the press as Box eight, But yes, 62 00:03:46,520 --> 00:03:50,040 Speaker 6: they found a box of materials which cast furthered out 63 00:03:50,120 --> 00:03:52,960 Speaker 6: and corroborated some of the suspicions that people had about 64 00:03:53,160 --> 00:03:56,720 Speaker 6: the main witness, a person named Sneedge's credibility in this 65 00:03:56,760 --> 00:04:00,720 Speaker 6: particular case, indicating that he'd been significantly coached testimony that 66 00:04:00,800 --> 00:04:03,400 Speaker 6: he was under the influence of some powerful drugs that 67 00:04:03,440 --> 00:04:07,320 Speaker 6: had psychiatric problems. And so after reviewing all that, the 68 00:04:07,440 --> 00:04:09,960 Speaker 6: Attorney General in Oklahoma said, yes, I think this person 69 00:04:10,000 --> 00:04:13,120 Speaker 6: should get a fair trial. The Oklahoma Court of Criminal 70 00:04:13,160 --> 00:04:16,280 Speaker 6: Opiles said no. But I think the unique feature of 71 00:04:16,320 --> 00:04:19,160 Speaker 6: this is that the judgment is not being defended by 72 00:04:19,200 --> 00:04:21,320 Speaker 6: the attorney General of the state of Oklahoma. They are 73 00:04:21,360 --> 00:04:24,360 Speaker 6: confessing that there was constitutional error in Glossop's case. 74 00:04:24,680 --> 00:04:28,040 Speaker 2: As you mentioned, the Oklahoma appeals Court upheld his conviction, 75 00:04:28,839 --> 00:04:32,680 Speaker 2: and the court ruling noted that the attorney General said 76 00:04:32,720 --> 00:04:36,480 Speaker 2: he was not suggesting Glossop is innocent, but only that 77 00:04:36,680 --> 00:04:41,280 Speaker 2: justice would not be served by executing him. Was that 78 00:04:41,320 --> 00:04:43,880 Speaker 2: the main reason they didn't overturn the case. 79 00:04:44,360 --> 00:04:46,600 Speaker 6: I mean, I think the main reason they didn't overturn 80 00:04:46,640 --> 00:04:49,320 Speaker 6: the case, at least according to what they said, is 81 00:04:49,400 --> 00:04:52,279 Speaker 6: they didn't feel like this a new evidence met the 82 00:04:52,360 --> 00:04:55,840 Speaker 6: legal standard in Oklahoma to file a second petition. I 83 00:04:55,880 --> 00:04:58,720 Speaker 6: don't really understand that under their own rules, it would 84 00:04:58,720 --> 00:05:01,799 Speaker 6: seem that this type of perspesive showing of innocence would 85 00:05:01,839 --> 00:05:05,640 Speaker 6: satisfy the standard to have a second post conviction relief 86 00:05:05,680 --> 00:05:10,120 Speaker 6: hearing in mister Glossop's case. But the Oaks Homeless Corkorne opils, 87 00:05:10,200 --> 00:05:14,479 Speaker 6: you know, said no, and that again is unusual, and 88 00:05:14,560 --> 00:05:16,120 Speaker 6: that's probably why the Supreme Court took it. 89 00:05:16,520 --> 00:05:20,400 Speaker 2: And the state's pardoned parole board deadlocked in a vote 90 00:05:20,400 --> 00:05:21,839 Speaker 2: to even grant him clemency. 91 00:05:22,320 --> 00:05:24,320 Speaker 6: Yes, I understand they didn't have the full panel, but 92 00:05:24,360 --> 00:05:27,360 Speaker 6: the people that were there deadlocked on whether to grant 93 00:05:27,360 --> 00:05:28,120 Speaker 6: clemency or not. 94 00:05:28,680 --> 00:05:33,839 Speaker 2: Do you understand why the Attorney General thinks that this 95 00:05:34,120 --> 00:05:38,600 Speaker 2: was a miscarriage of justice and yet he still believes 96 00:05:38,640 --> 00:05:40,200 Speaker 2: in Glossop's guilt. 97 00:05:40,839 --> 00:05:43,839 Speaker 6: I think that's really a mischaracterization of what he said. 98 00:05:44,160 --> 00:05:47,599 Speaker 6: I think what he has that is, I'm not persuaded 99 00:05:48,120 --> 00:05:52,680 Speaker 6: that Glossop is innocent, but I am persuaded that the 100 00:05:52,800 --> 00:05:57,320 Speaker 6: trial itself, which produced his convictions and death sentences, was 101 00:05:57,400 --> 00:06:01,040 Speaker 6: not reliable because of the fact if the jury didn't 102 00:06:01,040 --> 00:06:03,320 Speaker 6: hear all the other And that's a little different from 103 00:06:03,320 --> 00:06:05,280 Speaker 6: saying I don't think he's endoctent. I think he's saying no, 104 00:06:05,400 --> 00:06:07,560 Speaker 6: I don't know whether he's innocent or not, and there's 105 00:06:07,560 --> 00:06:10,120 Speaker 6: been questions raised about his inisence. I'm not saying that 106 00:06:10,200 --> 00:06:13,760 Speaker 6: he is, but I am saying this trial wasn't sufficiently 107 00:06:13,920 --> 00:06:17,760 Speaker 6: reliable to produce an outcome which I'm comfortable allowing his 108 00:06:17,880 --> 00:06:19,000 Speaker 6: person to be executed. 109 00:06:19,240 --> 00:06:20,920 Speaker 1: Okay, I accept that distinction. 110 00:06:21,160 --> 00:06:25,360 Speaker 2: So now Oklahoma set nine execution dates for him, and 111 00:06:25,440 --> 00:06:29,160 Speaker 2: he's been just hours away from being executed three times. 112 00:06:29,480 --> 00:06:32,440 Speaker 2: How do you think he's managed to survive through all 113 00:06:32,480 --> 00:06:36,760 Speaker 2: those execution dates when you know other inmates on death 114 00:06:36,839 --> 00:06:38,719 Speaker 2: row are not so able. 115 00:06:39,560 --> 00:06:43,640 Speaker 6: I think the two primary reasons, which aren't necessarily mutually exclusive, 116 00:06:43,640 --> 00:06:46,080 Speaker 6: One is that he's had a lot of very good 117 00:06:46,200 --> 00:06:50,000 Speaker 6: lawyers working very hard to save his life over the years. 118 00:06:50,080 --> 00:06:53,839 Speaker 6: And two, he's been fortunate, been lucky in some respects 119 00:06:53,920 --> 00:06:56,800 Speaker 6: that this has been stayed. And often that's what it takes, right, 120 00:06:57,000 --> 00:06:59,480 Speaker 6: people working really hard and a little bit of luck 121 00:06:59,560 --> 00:06:59,919 Speaker 6: thrown in. 122 00:07:00,400 --> 00:07:03,800 Speaker 2: The Supreme Court did consider his case once before, although 123 00:07:03,839 --> 00:07:06,599 Speaker 2: not the merits of it explain why one of his 124 00:07:06,720 --> 00:07:10,600 Speaker 2: execution dates was set aside by the Justices in twenty fifteen. 125 00:07:11,160 --> 00:07:14,200 Speaker 6: Yes, there was previously a challenge to the execution methods 126 00:07:14,200 --> 00:07:16,560 Speaker 6: in this case, and part of that and whether he 127 00:07:16,640 --> 00:07:20,239 Speaker 6: could be executed humanly under lethal injection. So it didn't 128 00:07:20,280 --> 00:07:23,080 Speaker 6: deal with this question of whether there's a pervasive showing 129 00:07:23,080 --> 00:07:26,000 Speaker 6: events and sufficient to warrant a new evidentiary hearing or 130 00:07:26,040 --> 00:07:28,400 Speaker 6: some new proceedings, So they look at different issues. 131 00:07:28,800 --> 00:07:32,880 Speaker 2: The Supreme Court had been weighing his appeal since late September. 132 00:07:33,160 --> 00:07:35,520 Speaker 2: Do you have any indication or do you have any 133 00:07:35,560 --> 00:07:39,160 Speaker 2: suspicions about why the delay in acting. 134 00:07:39,600 --> 00:07:41,840 Speaker 6: It's not that I don't want to say it's that typical, 135 00:07:41,880 --> 00:07:44,360 Speaker 6: but it's not uncommon for a case to be the 136 00:07:44,400 --> 00:07:47,520 Speaker 6: technical term is relisted a conference and relisted and those 137 00:07:47,520 --> 00:07:49,960 Speaker 6: of the court talks about it, and then they don't 138 00:07:50,000 --> 00:07:52,840 Speaker 6: do anything, and then it comes back and relisted. Sometimes 139 00:07:52,840 --> 00:07:56,000 Speaker 6: that means that they are trying to look more deeply 140 00:07:56,120 --> 00:07:58,600 Speaker 6: at the record. Sometimes it means someone is going to 141 00:07:58,680 --> 00:08:02,160 Speaker 6: dissent or write an opinion. Sometimes it means there's going 142 00:08:02,240 --> 00:08:04,440 Speaker 6: to be a procureum reversal. In other words, they are 143 00:08:04,480 --> 00:08:05,760 Speaker 6: going to just go ahead and reverse it on the 144 00:08:05,800 --> 00:08:08,800 Speaker 6: pleadings without doing it and in this case, they just 145 00:08:08,920 --> 00:08:11,880 Speaker 6: sat on it and decided to look at the meyristocket. So, 146 00:08:11,920 --> 00:08:14,320 Speaker 6: I mean, there's a lot to go through in this case, 147 00:08:14,360 --> 00:08:17,320 Speaker 6: and I think it just is a further indication that 148 00:08:17,360 --> 00:08:20,440 Speaker 6: the court was troubled by this, and I think it's 149 00:08:20,480 --> 00:08:23,400 Speaker 6: unlikely they took it to say, yeah, we're going to 150 00:08:23,480 --> 00:08:25,120 Speaker 6: let you execute it. And usually when they take a 151 00:08:25,200 --> 00:08:28,160 Speaker 6: case in this posture, they're taking it to reverse it. 152 00:08:28,320 --> 00:08:31,840 Speaker 2: Wasn't there a similar situation to Glossups a year ago 153 00:08:32,040 --> 00:08:35,480 Speaker 2: and the justices ordered Texas Appeals Court to look at 154 00:08:35,520 --> 00:08:38,440 Speaker 2: the case again and it was a death row inmate 155 00:08:38,480 --> 00:08:40,920 Speaker 2: who had the backing of prosecutors as well. 156 00:08:41,679 --> 00:08:44,040 Speaker 6: Yes, I mean, this is not a completely unique situation, 157 00:08:44,160 --> 00:08:47,480 Speaker 6: but it's virtually unprecedented in many ways. And in this case, 158 00:08:47,520 --> 00:08:49,440 Speaker 6: you have not only the attorney general, a lot of 159 00:08:49,520 --> 00:08:52,920 Speaker 6: very conservative lawmakers in Oklahoma are also coming forward supporting 160 00:08:52,920 --> 00:08:55,080 Speaker 6: gloss Up and just saying we shouldn't execute him at 161 00:08:55,120 --> 00:08:57,280 Speaker 6: this time. So it's a very I think the fact 162 00:08:57,280 --> 00:08:59,679 Speaker 6: that he has a lot of people supporting him who 163 00:08:59,679 --> 00:09:03,160 Speaker 6: are not what you would generally call the usual suspects 164 00:09:03,679 --> 00:09:06,280 Speaker 6: is part of what makes this case stand out and 165 00:09:06,400 --> 00:09:09,160 Speaker 6: probably explain the Supreme Court decision to review it. 166 00:09:09,440 --> 00:09:13,120 Speaker 2: It's gotten national attention. There's been a documentary and Susan 167 00:09:13,160 --> 00:09:17,280 Speaker 2: Sarandon brought a tangent to it. Kim Kardashian urged her 168 00:09:17,400 --> 00:09:21,280 Speaker 2: social media followers to contact the parole board. So he's 169 00:09:21,320 --> 00:09:23,760 Speaker 2: gotten more attention than most death row inmates. 170 00:09:24,200 --> 00:09:27,320 Speaker 6: That is true, and credible showings of innocence tend to 171 00:09:27,400 --> 00:09:27,720 Speaker 6: do that. 172 00:09:27,960 --> 00:09:30,400 Speaker 2: What is the question the High Court is actually going 173 00:09:30,480 --> 00:09:31,840 Speaker 2: to decide, Well. 174 00:09:31,800 --> 00:09:35,000 Speaker 6: Basically they've been asked to decide whether the prosecution's failure 175 00:09:35,040 --> 00:09:39,080 Speaker 6: to disclose this evidence the prime glossip of a fair trial. 176 00:09:39,360 --> 00:09:42,160 Speaker 6: This information was with hell. There's a Supreme Court decision 177 00:09:42,480 --> 00:09:45,920 Speaker 6: called Brady versus Maryland who says prosecutors have a duty 178 00:09:46,000 --> 00:09:50,200 Speaker 6: under the due Process clause to disclose material exculpatory information. 179 00:09:50,679 --> 00:09:53,680 Speaker 6: And the Oklahoma Court Criminal Appeal said this didn't fall 180 00:09:53,720 --> 00:09:56,920 Speaker 6: into that category, and the cirt Peedition says, we think 181 00:09:56,920 --> 00:10:00,040 Speaker 6: it does. We won't use Supreme Court to rule on that. 182 00:10:00,160 --> 00:10:01,120 Speaker 6: What they're going to rule upon. 183 00:10:01,480 --> 00:10:04,840 Speaker 2: If the Supreme Court reverses his conviction, could he be 184 00:10:04,920 --> 00:10:05,760 Speaker 2: tried again. 185 00:10:05,520 --> 00:10:06,199 Speaker 4: For the murder? 186 00:10:06,640 --> 00:10:10,280 Speaker 6: Yes, I mean theoretically yes. The Court isn't in the 187 00:10:10,360 --> 00:10:13,560 Speaker 6: business as saying, no, you can't retry this person again. 188 00:10:13,640 --> 00:10:15,320 Speaker 6: Normally what they do as they say, there was a 189 00:10:15,360 --> 00:10:18,840 Speaker 6: problem this trial. We remanded back for proceedings consistent with 190 00:10:18,840 --> 00:10:21,760 Speaker 6: his opinion. I do think, given all the evidence which 191 00:10:21,800 --> 00:10:25,600 Speaker 6: points towards CLASSPS innocence here at the Supreme Court reverses 192 00:10:25,960 --> 00:10:28,800 Speaker 6: extremely unlikely there will ever be another trial. 193 00:10:29,920 --> 00:10:32,800 Speaker 2: I'd also like to get your reaction to Attorney General 194 00:10:32,840 --> 00:10:36,760 Speaker 2: Merrick Garland's decision this month to seek the death penalty 195 00:10:37,040 --> 00:10:41,720 Speaker 2: for the massacre that occurred at a Buffalo supermarket last year. 196 00:10:42,280 --> 00:10:46,240 Speaker 2: After he took office, Garland had issued a moratorium on 197 00:10:46,320 --> 00:10:50,400 Speaker 2: federal executions, and this is his first approval of a 198 00:10:50,440 --> 00:10:51,800 Speaker 2: new capital prosecution. 199 00:10:52,800 --> 00:10:55,480 Speaker 6: Very disappointing. I mean, president did run on an anti 200 00:10:55,520 --> 00:10:58,200 Speaker 6: Deathtony campaign. I relized. This isn't the president himself, This 201 00:10:58,320 --> 00:11:02,280 Speaker 6: is the president's attorney general, so there is some independence 202 00:11:02,440 --> 00:11:05,880 Speaker 6: and what the attorney general does versus what the president does. 203 00:11:06,000 --> 00:11:08,920 Speaker 6: But you know, for whatever reason they felt compelled to 204 00:11:08,920 --> 00:11:12,080 Speaker 6: do this, maybe because they did it in Pittsburgh, you know, 205 00:11:12,400 --> 00:11:12,959 Speaker 6: I don't know. 206 00:11:14,160 --> 00:11:18,400 Speaker 2: Do you think that even bringing one capital case diminishes 207 00:11:18,440 --> 00:11:21,079 Speaker 2: their protestations against the death penalty? 208 00:11:22,040 --> 00:11:25,080 Speaker 6: That's true. I mean, I think the main lesson one 209 00:11:25,120 --> 00:11:28,040 Speaker 6: of the reasons the presidents that he opposed it was 210 00:11:28,040 --> 00:11:30,840 Speaker 6: wasn't persuaded that it could be done fairly in the 211 00:11:30,880 --> 00:11:33,679 Speaker 6: majority of cases. And there's lots of evidence to support that, 212 00:11:33,920 --> 00:11:36,559 Speaker 6: and it can't be done anymore fairly in the case. 213 00:11:36,679 --> 00:11:38,320 Speaker 6: I mean, And of course I would never say that 214 00:11:38,360 --> 00:11:41,480 Speaker 6: what happened in Buffalo wasn't anything but horrific. You know 215 00:11:41,559 --> 00:11:44,800 Speaker 6: it clearly was. But still the death only is not 216 00:11:44,840 --> 00:11:48,080 Speaker 6: going to solve what created that crime, what caused that crime, 217 00:11:48,360 --> 00:11:51,360 Speaker 6: and in the end, isn't going to bring anyone's. 218 00:11:51,000 --> 00:11:51,680 Speaker 4: Love them back. 219 00:11:52,000 --> 00:11:54,760 Speaker 2: It's such a difficult topic. Thanks so much for sharing 220 00:11:54,800 --> 00:11:58,199 Speaker 2: your insights with me. That's John bloom director of the 221 00:11:58,280 --> 00:12:02,560 Speaker 2: Cornell Death Penalty Project. Coming up next, another face off 222 00:12:02,600 --> 00:12:05,920 Speaker 2: in federal court over crypto. I'm June Grossow, and you're 223 00:12:05,960 --> 00:12:09,240 Speaker 2: listening to Bloomberg. A hearing in federal court in DC 224 00:12:09,800 --> 00:12:13,320 Speaker 2: is being closely watched by the crypto industry because it 225 00:12:13,320 --> 00:12:17,360 Speaker 2: could help determine the extent of the SEC's jurisdiction over 226 00:12:17,440 --> 00:12:21,079 Speaker 2: digital assets. If that sounds familiar to you, it's because 227 00:12:21,120 --> 00:12:23,480 Speaker 2: the same issues were the subject of a hearing in 228 00:12:23,480 --> 00:12:27,520 Speaker 2: another case last week in Manhattan Federal Court that was 229 00:12:27,559 --> 00:12:31,120 Speaker 2: the legal battle between the SEC and Coinbase. This is 230 00:12:31,160 --> 00:12:34,720 Speaker 2: the legal battle between the SEC and Binance. These two 231 00:12:34,760 --> 00:12:38,280 Speaker 2: hearings are about the threshold issue of the definition of 232 00:12:38,280 --> 00:12:43,120 Speaker 2: a security. The SEC's actual case against Binance differs from 233 00:12:43,120 --> 00:12:47,240 Speaker 2: the case against its rival Coinbase because it includes allegations 234 00:12:47,280 --> 00:12:51,560 Speaker 2: of fraud and market manipulation. In fact, last November, Attorney 235 00:12:51,600 --> 00:12:54,880 Speaker 2: General Merrick Garlott announced that Binance was paying one of 236 00:12:54,920 --> 00:12:59,160 Speaker 2: the largest corporate penalties in US history four point three 237 00:12:59,240 --> 00:13:01,200 Speaker 2: billion dollars for money laundering. 238 00:13:01,840 --> 00:13:08,600 Speaker 7: Finance facilitated billions of dollars of unregulated cryptocurrency transactions. It 239 00:13:08,679 --> 00:13:13,439 Speaker 7: willfully enabled hundreds of millions of dollars in transactions between 240 00:13:13,520 --> 00:13:18,400 Speaker 7: American users and users subject to US sanctions, and its 241 00:13:18,480 --> 00:13:23,120 Speaker 7: platform accommodated criminals across the world who use finance to 242 00:13:23,160 --> 00:13:26,720 Speaker 7: move their stolen funds and other criminal proceeds. 243 00:13:27,280 --> 00:13:30,720 Speaker 2: Joining me is securities law expert James Park, a professor 244 00:13:30,720 --> 00:13:34,160 Speaker 2: at UCLA Law School. Jim. The SEC has argued that 245 00:13:34,200 --> 00:13:38,760 Speaker 2: most crypto assets fall under its jurisdiction and are subject 246 00:13:38,800 --> 00:13:42,840 Speaker 2: to its rules. Is it taking too broad an approach? 247 00:13:43,559 --> 00:13:48,240 Speaker 5: And I think that the SEC has to think about 248 00:13:48,240 --> 00:13:51,600 Speaker 5: the limits of its arguments. What are the limits of 249 00:13:51,640 --> 00:13:56,200 Speaker 5: its ability to regulate crypto assets? And in fairness to 250 00:13:56,240 --> 00:14:00,840 Speaker 5: the SEC in litigation, you are, you know, trying to 251 00:14:01,240 --> 00:14:04,560 Speaker 5: advance the position and trying to advance as broad of 252 00:14:04,600 --> 00:14:09,040 Speaker 5: a position as possible. And I think that is to 253 00:14:09,080 --> 00:14:13,680 Speaker 5: some extent reflected in the positions the SEC has taken. 254 00:14:14,360 --> 00:14:17,120 Speaker 5: At the same time, as a regulator, you have to 255 00:14:17,200 --> 00:14:21,440 Speaker 5: understand that at some point you have to define standards 256 00:14:21,480 --> 00:14:24,280 Speaker 5: that will give some guidance as to the limits of 257 00:14:24,320 --> 00:14:27,240 Speaker 5: your authority. And I think that's what the SEC has 258 00:14:27,320 --> 00:14:28,920 Speaker 5: to continue to think about now. 259 00:14:28,920 --> 00:14:29,760 Speaker 2: They have to. 260 00:14:29,840 --> 00:14:33,520 Speaker 5: Find some limits, right For example, they have concluded that 261 00:14:33,640 --> 00:14:38,640 Speaker 5: bitcoin is not a security, and bitcoin is the most 262 00:14:38,720 --> 00:14:42,280 Speaker 5: valuable crypto asset that's out there, worth you know, almost 263 00:14:42,280 --> 00:14:46,040 Speaker 5: a trillion dollars if you believe the valuation, and the 264 00:14:46,080 --> 00:14:49,720 Speaker 5: SEC is saying we're not regulating bitcoin. So, you know, 265 00:14:49,800 --> 00:14:52,960 Speaker 5: I think that the SEC has set some limits, and 266 00:14:53,000 --> 00:14:55,560 Speaker 5: the question is whether the courts are going to require 267 00:14:56,080 --> 00:15:01,960 Speaker 5: or define further limits for the SEC regulation of crypto assets. 268 00:15:02,200 --> 00:15:06,920 Speaker 2: Does the SEC's case against Binance differ from its case 269 00:15:06,960 --> 00:15:12,440 Speaker 2: against coinbase because it includes allegations of fraud and market manipulation. 270 00:15:13,520 --> 00:15:16,760 Speaker 5: It is different, and I think that the case against 271 00:15:16,960 --> 00:15:22,000 Speaker 5: Finance is more compelling because of those allegations relating to 272 00:15:22,600 --> 00:15:28,800 Speaker 5: a lack of compliance by the exchange in regulating questionable transactions, 273 00:15:29,640 --> 00:15:32,520 Speaker 5: and I think that that is ultimately going to make 274 00:15:32,600 --> 00:15:36,920 Speaker 5: Finance an easier case for the SEC. Having said that, 275 00:15:36,960 --> 00:15:40,560 Speaker 5: these initial motions to dismiss that have been argued are 276 00:15:40,600 --> 00:15:44,200 Speaker 5: about certain threshold issues with respect to the definition of 277 00:15:44,200 --> 00:15:47,600 Speaker 5: the security that are pretty much the same in both 278 00:15:47,640 --> 00:15:51,160 Speaker 5: the Binance and the coin based cases. So there are 279 00:15:51,640 --> 00:15:56,720 Speaker 5: some fundamental similarities about the initial stages of these cases. 280 00:15:57,240 --> 00:16:01,240 Speaker 5: I expect though, that as the litigation moves forward, assuming 281 00:16:01,240 --> 00:16:04,440 Speaker 5: that it does move forward, that the SEC will have 282 00:16:04,480 --> 00:16:08,480 Speaker 5: an easier time in the Binance case than the coinbas case. 283 00:16:09,000 --> 00:16:12,280 Speaker 2: So where does this piece fit in Binance and its 284 00:16:12,320 --> 00:16:16,360 Speaker 2: CEO pleaded guilty to Justice Department charges and settle with 285 00:16:16,440 --> 00:16:20,480 Speaker 2: the CFTC and the Treasury Department in November, with Binance 286 00:16:20,560 --> 00:16:25,360 Speaker 2: paying four point three billion dollars and shangpen Jao agreeing 287 00:16:25,400 --> 00:16:27,000 Speaker 2: to step down as CEO? 288 00:16:27,480 --> 00:16:28,600 Speaker 1: Does that fit anywhere? 289 00:16:28,600 --> 00:16:29,440 Speaker 2: Into this case? 290 00:16:30,000 --> 00:16:33,280 Speaker 5: Fits in? But indirectly, I think my understanding of those 291 00:16:33,840 --> 00:16:38,520 Speaker 5: charges as they related to compliance with various money laundering 292 00:16:38,880 --> 00:16:45,760 Speaker 5: statutes that require financial institutions to monitor suspicious transaction, and 293 00:16:46,320 --> 00:16:49,760 Speaker 5: Finance did not do that. Now there's a separate question 294 00:16:50,080 --> 00:16:54,040 Speaker 5: as to whether or not the Binance exchanges are they 295 00:16:54,400 --> 00:17:00,080 Speaker 5: securities exchanges, and that's an entirely separate issue that is 296 00:17:00,120 --> 00:17:03,640 Speaker 5: being litigated with the sec Then I expect that the 297 00:17:03,680 --> 00:17:08,320 Speaker 5: fact that Finances litigating this case seems to indicate that 298 00:17:08,960 --> 00:17:12,760 Speaker 5: they think that they can continue to do business even 299 00:17:12,840 --> 00:17:17,040 Speaker 5: with a substantial settlement like the one with the Department 300 00:17:17,040 --> 00:17:20,680 Speaker 5: of Justice, and that they believe that if they can 301 00:17:20,800 --> 00:17:24,160 Speaker 5: win I'm against the sec that they have a viable 302 00:17:24,200 --> 00:17:27,600 Speaker 5: business going forward. And it also speaks to the amount 303 00:17:27,720 --> 00:17:32,040 Speaker 5: of revenue these exchanges have generated that they're able to 304 00:17:32,080 --> 00:17:38,520 Speaker 5: afford such a large monetary penalty and still continue doing business. 305 00:17:39,320 --> 00:17:42,560 Speaker 2: So, as you mentioned, the case hinges on whether the 306 00:17:42,680 --> 00:17:46,600 Speaker 2: tokens fit within the definition of an investment contract. So 307 00:17:46,800 --> 00:17:50,680 Speaker 2: for those who have not been following this crypto debate, 308 00:17:51,040 --> 00:17:53,440 Speaker 2: explain what that means. 309 00:17:53,640 --> 00:17:57,960 Speaker 5: The term. The phrase investment contract is listed in the 310 00:17:58,000 --> 00:18:02,840 Speaker 5: definition of a security in the major federal securities laws. 311 00:18:03,080 --> 00:18:06,720 Speaker 5: At the very beginning of the Statute. They have definitions, right, 312 00:18:06,760 --> 00:18:09,520 Speaker 5: and one of the key definitions is that of a security, 313 00:18:09,600 --> 00:18:11,760 Speaker 5: and there is a long list. I mean, if you 314 00:18:11,800 --> 00:18:14,199 Speaker 5: ever get a chance to read the definition of a 315 00:18:14,600 --> 00:18:18,880 Speaker 5: security in the Federal Securities Acts of nineteen thirty three, 316 00:18:18,960 --> 00:18:21,400 Speaker 5: or or security is a Change Act in nineteen thirty four, 317 00:18:21,840 --> 00:18:24,720 Speaker 5: you won't really be able to make heads or tails 318 00:18:24,720 --> 00:18:27,640 Speaker 5: of it. It's a long laundry list. And I think 319 00:18:27,680 --> 00:18:30,680 Speaker 5: that the fact that you have this long list of 320 00:18:30,880 --> 00:18:34,000 Speaker 5: different types of things that could be securities evidence is 321 00:18:34,040 --> 00:18:38,119 Speaker 5: an intense by Congress that the definition of security is 322 00:18:38,160 --> 00:18:41,840 Speaker 5: fairly brought. So you have included in the definition of 323 00:18:41,880 --> 00:18:45,240 Speaker 5: a security some standard securities like a stock, a bond, 324 00:18:46,000 --> 00:18:49,160 Speaker 5: securities we're all familiar with. And then there is this 325 00:18:49,280 --> 00:18:53,880 Speaker 5: category of investment contract. And the meaning of investment contract 326 00:18:53,920 --> 00:18:57,080 Speaker 5: is not self evident. It's been defined though in a 327 00:18:57,119 --> 00:19:01,159 Speaker 5: Supreme Court case, the Howie case, and the big essence 328 00:19:01,160 --> 00:19:05,520 Speaker 5: of it, it's an investment in a common enterprise where 329 00:19:05,600 --> 00:19:10,000 Speaker 5: there is an expectation of profits through the efforts of others. 330 00:19:10,320 --> 00:19:13,800 Speaker 5: That's a mouthful, but it is a broad definition that 331 00:19:14,080 --> 00:19:19,480 Speaker 5: is meant to capture those financial arrangements that do not 332 00:19:19,640 --> 00:19:22,639 Speaker 5: quite fit into the category of stock or bonds, but 333 00:19:22,720 --> 00:19:25,840 Speaker 5: we think of as having the fundamental attributes of a 334 00:19:25,960 --> 00:19:31,560 Speaker 5: security and to try to translate that legal definition into 335 00:19:31,720 --> 00:19:34,480 Speaker 5: sort of common concepts. I think the basic idea is 336 00:19:34,600 --> 00:19:38,560 Speaker 5: you're investing in a business, a common enterprise that is 337 00:19:38,680 --> 00:19:43,080 Speaker 5: expected to generate profits, and you are not the one 338 00:19:43,160 --> 00:19:46,679 Speaker 5: running the business. You are somebody who has invested with 339 00:19:46,800 --> 00:19:50,560 Speaker 5: the expectation that the folks who are running the business 340 00:19:50,600 --> 00:19:55,320 Speaker 5: are going to generate profits. And that is the fundamental 341 00:19:55,440 --> 00:19:59,199 Speaker 5: essence of a security. And the sec has maintained that 342 00:19:59,280 --> 00:20:04,240 Speaker 5: some crypto assets are essentially like an investment in a 343 00:20:04,320 --> 00:20:09,680 Speaker 5: type of business that is expected or hopes to generate profits, 344 00:20:09,920 --> 00:20:13,320 Speaker 5: and that's why investors are buying these crypto assets. 345 00:20:14,119 --> 00:20:17,600 Speaker 2: Let's look at the arguments from both sides in the case. 346 00:20:17,920 --> 00:20:20,840 Speaker 2: So an attorney for Binance said that the company had 347 00:20:20,880 --> 00:20:25,800 Speaker 2: no obligations to investors after selling certain tokens, which would 348 00:20:25,800 --> 00:20:27,800 Speaker 2: need to be the case if the assets were to 349 00:20:27,840 --> 00:20:29,399 Speaker 2: be considered securities. 350 00:20:29,840 --> 00:20:33,560 Speaker 5: That's essentially trying to say it's not a contract, and 351 00:20:33,840 --> 00:20:37,560 Speaker 5: they are really focusing in on the plain meaning of 352 00:20:37,640 --> 00:20:41,479 Speaker 5: investment contract. We need some sort of a contract between 353 00:20:41,520 --> 00:20:46,800 Speaker 5: the investor and the common enterprise and they maintain that 354 00:20:46,880 --> 00:20:49,280 Speaker 5: there is no such contract. I think there are a 355 00:20:49,320 --> 00:20:52,600 Speaker 5: couple of responses one can make to that argument. 356 00:20:52,680 --> 00:20:53,520 Speaker 2: The first is. 357 00:20:53,480 --> 00:20:56,040 Speaker 5: That you know, to have a contract, it's an agreement. 358 00:20:56,080 --> 00:20:59,560 Speaker 5: It's an agreement, and it doesn't have to be written down. 359 00:20:59,640 --> 00:21:04,280 Speaker 5: So long as there is a expectation between the investor 360 00:21:04,480 --> 00:21:08,720 Speaker 5: and the enterprise that the enterprise is working to increase 361 00:21:08,760 --> 00:21:11,960 Speaker 5: the value of the crypto asset. Wants to argue that 362 00:21:11,960 --> 00:21:16,679 Speaker 5: that element of an agreement has been satisfied. Now, I 363 00:21:16,680 --> 00:21:19,159 Speaker 5: think Binance would say, well, you need something more than that, 364 00:21:19,560 --> 00:21:23,560 Speaker 5: because you know, there's nothing that says if I'm an 365 00:21:23,640 --> 00:21:28,040 Speaker 5: investor in crypto assets and the founder of the project, 366 00:21:28,160 --> 00:21:31,080 Speaker 5: they basically just take the money and don't do anything 367 00:21:31,119 --> 00:21:34,239 Speaker 5: with it. They don't make any efforts to create a 368 00:21:34,680 --> 00:21:38,159 Speaker 5: network that is valuable. If that happens, the person who 369 00:21:38,200 --> 00:21:40,919 Speaker 5: buys the crypto asset has no recourse. They have no 370 00:21:41,040 --> 00:21:46,199 Speaker 5: ability to sort of sue and enforce some obligation that 371 00:21:46,240 --> 00:21:49,919 Speaker 5: may or may not be technically true. It's a dangerous argument, 372 00:21:49,960 --> 00:21:52,920 Speaker 5: I think for Binance and the crypto industry, though, because 373 00:21:53,359 --> 00:21:56,080 Speaker 5: you know, why would I buy a crypto asset if 374 00:21:56,359 --> 00:22:00,359 Speaker 5: the people who raise money by selling tokens take the 375 00:22:00,400 --> 00:22:02,760 Speaker 5: money and do whatever they want with it. They don't 376 00:22:02,840 --> 00:22:05,320 Speaker 5: use the money to build a valuable system that's going 377 00:22:05,359 --> 00:22:08,560 Speaker 5: to increase the value of my crypto asset. I think 378 00:22:08,600 --> 00:22:11,760 Speaker 5: there is an understanding there, or there should be, that 379 00:22:12,320 --> 00:22:15,840 Speaker 5: if I buy a crypto asset from a venture where 380 00:22:15,880 --> 00:22:19,359 Speaker 5: they represent that they're going to use the funds to 381 00:22:19,480 --> 00:22:22,760 Speaker 5: build a valuable decentralized network, that's going to increase the 382 00:22:22,840 --> 00:22:27,679 Speaker 5: value of my crypto asset, I believe most investors, knowledgeable 383 00:22:27,680 --> 00:22:32,520 Speaker 5: investors would have an expectation that they will use that 384 00:22:32,680 --> 00:22:35,800 Speaker 5: money and use it in a way that potentially results 385 00:22:35,840 --> 00:22:39,240 Speaker 5: in profits. And so I think that's essentially what the 386 00:22:39,320 --> 00:22:40,960 Speaker 5: SEC has concluded. 387 00:22:41,440 --> 00:22:44,240 Speaker 2: I was going to say that sounds like the argument 388 00:22:44,400 --> 00:22:48,040 Speaker 2: from the attorney for the SEC that marketing efforts by 389 00:22:48,119 --> 00:22:52,040 Speaker 2: Binance to promote its tokens suggests that investors expect a 390 00:22:52,080 --> 00:22:55,439 Speaker 2: profit as they would when investing in securities. Is that 391 00:22:55,480 --> 00:22:57,400 Speaker 2: about the same argument it is? 392 00:22:57,600 --> 00:22:57,919 Speaker 7: It is. 393 00:22:58,000 --> 00:23:00,480 Speaker 5: I think the fact that they are representing to the 394 00:23:00,520 --> 00:23:03,439 Speaker 5: crypto accet holders that they are going to do this, 395 00:23:04,160 --> 00:23:08,480 Speaker 5: they are making these sorts of statements and representations. Whether 396 00:23:08,560 --> 00:23:11,920 Speaker 5: you think that creates the formal contract or not. There 397 00:23:12,000 --> 00:23:16,720 Speaker 5: is some understanding there. There is some understanding there. Whether 398 00:23:16,760 --> 00:23:19,359 Speaker 5: it rises to the level of a contract, I think 399 00:23:19,520 --> 00:23:24,119 Speaker 5: is a complicated issue, but there's an expectation and because 400 00:23:24,160 --> 00:23:28,360 Speaker 5: the Supreme Court has read how we fairly broadly in 401 00:23:28,400 --> 00:23:31,480 Speaker 5: the past that I think that even if there is 402 00:23:31,680 --> 00:23:36,879 Speaker 5: not a formal enforceable contract there, the sec has an 403 00:23:37,000 --> 00:23:40,680 Speaker 5: argument that you know, it's not crazy for the investor 404 00:23:40,720 --> 00:23:44,960 Speaker 5: to think that there is an obligation on the part 405 00:23:45,000 --> 00:23:48,000 Speaker 5: of those who have sold the tokens to use that 406 00:23:48,200 --> 00:23:51,760 Speaker 5: to build something that is valuable and Jim. 407 00:23:51,640 --> 00:23:56,119 Speaker 2: Are these arguments similar to the arguments that coinbase made 408 00:23:56,240 --> 00:24:00,120 Speaker 2: last week and other crypto platforms have made in the pasts. 409 00:24:01,200 --> 00:24:04,600 Speaker 5: They are very similar. They're very similar. The same argument 410 00:24:04,960 --> 00:24:09,239 Speaker 5: essentially has been made by both coinbase and Finance, and 411 00:24:09,640 --> 00:24:14,600 Speaker 5: even in prior cases Ripple and Terrorform, the major arguments 412 00:24:14,720 --> 00:24:18,520 Speaker 5: have been the same, which indicates to me that some 413 00:24:18,600 --> 00:24:21,600 Speaker 5: of the best legal minds in the country has come 414 00:24:21,640 --> 00:24:24,040 Speaker 5: to the conclusion that this is the best hope for 415 00:24:24,200 --> 00:24:28,960 Speaker 5: the crypto industry to avoid classification as a security. 416 00:24:29,320 --> 00:24:32,000 Speaker 2: Coming up next on the Bloomberg Law Show, I'll continue 417 00:24:32,000 --> 00:24:36,200 Speaker 2: this conversation with UCLA law professor James Park, and we'll 418 00:24:36,240 --> 00:24:39,680 Speaker 2: talk about the confusion in the courts over crypto. I'm 419 00:24:39,760 --> 00:24:43,480 Speaker 2: June Grosso and you're listening to Bloomberg. Finance and the 420 00:24:43,520 --> 00:24:47,840 Speaker 2: Securities and Exchange Commission faced off in federal court in DC. 421 00:24:48,600 --> 00:24:51,879 Speaker 2: It's the second closely watched courtroom battle in less than 422 00:24:51,920 --> 00:24:55,920 Speaker 2: a week that could help define the SEC's jurisdiction over 423 00:24:55,960 --> 00:24:59,679 Speaker 2: the crypto sector. I've been talking to UCLA law professor 424 00:24:59,760 --> 00:25:04,240 Speaker 2: James Park. Judge Amy Berman Jackson said the SEC seems 425 00:25:04,280 --> 00:25:08,000 Speaker 2: to be saying that all digital assets are securities. She asked, 426 00:25:08,160 --> 00:25:10,919 Speaker 2: how are the issuers supposed to know when they crossed 427 00:25:10,960 --> 00:25:13,960 Speaker 2: the line but hasn't. The SEC said it doesn't have 428 00:25:14,040 --> 00:25:15,560 Speaker 2: jurisdiction over bitcoin. 429 00:25:16,240 --> 00:25:19,960 Speaker 5: Bitcoin is not a security. And I think that she's 430 00:25:20,080 --> 00:25:24,880 Speaker 5: probing the SEC and trying to get it to take 431 00:25:24,920 --> 00:25:27,760 Speaker 5: a firmer position on what the limit thought. And I 432 00:25:27,760 --> 00:25:29,720 Speaker 5: think part of what she would like to do as 433 00:25:29,760 --> 00:25:35,960 Speaker 5: a judge, in her opinion, is to give litigant some 434 00:25:36,520 --> 00:25:38,879 Speaker 5: indication of where the limits of how we might be. 435 00:25:39,320 --> 00:25:42,119 Speaker 5: It might be troubling to have a test that is 436 00:25:42,160 --> 00:25:45,960 Speaker 5: so undefined that the only way we know whether something 437 00:25:46,000 --> 00:25:49,280 Speaker 5: is a security is because the SEC takes the position 438 00:25:49,359 --> 00:25:54,080 Speaker 5: that it is a security that is not ideal. At 439 00:25:54,080 --> 00:25:57,960 Speaker 5: the same time, it may not be possible to define 440 00:25:58,720 --> 00:26:01,520 Speaker 5: clearly what the limit of how we are and so 441 00:26:02,160 --> 00:26:04,960 Speaker 5: I'm not sure exactly what Judge Jackson is getting it. 442 00:26:05,040 --> 00:26:07,960 Speaker 5: There are a number of possibilities. One possibility is that 443 00:26:08,280 --> 00:26:11,400 Speaker 5: she is really skeptical of the SEC's position and thinks 444 00:26:11,400 --> 00:26:15,400 Speaker 5: that is really broad. The other possibility is he recognizes 445 00:26:15,440 --> 00:26:18,520 Speaker 5: that this is a vague test, but is really trying 446 00:26:18,520 --> 00:26:23,199 Speaker 5: to get the SEC's assistance in thinking about how we 447 00:26:23,320 --> 00:26:27,440 Speaker 5: could be limited in some way to what extent can 448 00:26:27,480 --> 00:26:30,600 Speaker 5: we provide the industry with some notice as to where 449 00:26:30,640 --> 00:26:33,280 Speaker 5: the line is. Where is the line between something that's 450 00:26:33,280 --> 00:26:36,680 Speaker 5: the security that is an investment contract in something that 451 00:26:36,920 --> 00:26:39,680 Speaker 5: is not. You know, the SEC has tried to give 452 00:26:39,720 --> 00:26:43,320 Speaker 5: some guidance, but I think that in the closer cases 453 00:26:43,400 --> 00:26:46,359 Speaker 5: the line is very blurry. The line is very blurry 454 00:26:46,440 --> 00:26:50,080 Speaker 5: if you are getting into digital assets that are close 455 00:26:50,119 --> 00:26:53,720 Speaker 5: to the line between something that is an investment contract 456 00:26:53,720 --> 00:26:54,679 Speaker 5: and something that is not. 457 00:26:55,320 --> 00:26:58,800 Speaker 2: Yeah, the judge wanted the SEC to define a boundary 458 00:26:59,280 --> 00:27:02,359 Speaker 2: for what it can considered a security in regard to 459 00:27:02,640 --> 00:27:05,840 Speaker 2: virtual tokens, and lawyers for the SEC said the test 460 00:27:06,359 --> 00:27:08,639 Speaker 2: is designed to be flexible and that there is no 461 00:27:08,800 --> 00:27:11,680 Speaker 2: bright line to make the distinction. And that's true of 462 00:27:11,720 --> 00:27:13,600 Speaker 2: a lot of tests in the law, right, that there's 463 00:27:13,680 --> 00:27:14,919 Speaker 2: no bright line. 464 00:27:15,640 --> 00:27:18,240 Speaker 5: That is true. That is something true in many areas 465 00:27:18,320 --> 00:27:21,720 Speaker 5: of the law when you're trying to define something like 466 00:27:21,880 --> 00:27:27,880 Speaker 5: negligence or intent, it really depends on a close examination 467 00:27:28,119 --> 00:27:32,760 Speaker 5: of the fact. I think the reason why the crypto 468 00:27:32,840 --> 00:27:36,960 Speaker 5: asset industry is frustrated though, by this approach, is that 469 00:27:37,440 --> 00:27:40,720 Speaker 5: if you're going to build an industry, if you're going 470 00:27:40,840 --> 00:27:47,520 Speaker 5: to create an ecosystem of digital assets, the entrepreneurs who 471 00:27:47,560 --> 00:27:51,600 Speaker 5: are starting these projects, they want a certain amount of certainty. 472 00:27:51,720 --> 00:27:53,640 Speaker 5: They want a certain amount of certainty as to when 473 00:27:53,680 --> 00:27:57,159 Speaker 5: they will be regulated, when they will not be Unfortunately, 474 00:27:57,280 --> 00:28:01,159 Speaker 5: I'm not sure that that certainty is possible. I'm not 475 00:28:01,200 --> 00:28:05,000 Speaker 5: sure that it is possible. And that is something that 476 00:28:05,400 --> 00:28:08,840 Speaker 5: you know, we'll see what the judges say, whether or 477 00:28:08,880 --> 00:28:11,840 Speaker 5: not that it is permissible to leave the state of 478 00:28:11,880 --> 00:28:15,440 Speaker 5: affairs as it is, or whether some judges may feel 479 00:28:15,480 --> 00:28:18,879 Speaker 5: like maybe we should rule against the SEC in some 480 00:28:18,920 --> 00:28:21,960 Speaker 5: of these cases and define the limits for them. And 481 00:28:22,560 --> 00:28:24,879 Speaker 5: you know, I think that's certainly a possible outcome in 482 00:28:24,880 --> 00:28:25,880 Speaker 5: some of these cases. 483 00:28:26,200 --> 00:28:32,080 Speaker 2: And Finance was pushing that this implicates the Major Questions doctrine, 484 00:28:32,640 --> 00:28:37,359 Speaker 2: which involves agency interpretation in matters of great economic or 485 00:28:37,400 --> 00:28:43,840 Speaker 2: political significance, just as Coinbase did last week, and this judge, 486 00:28:44,320 --> 00:28:47,400 Speaker 2: like Judge Polk last week, seemed to dismiss that. 487 00:28:48,160 --> 00:28:52,520 Speaker 5: Yeah, I think that's that's interesting, maybe not entirely unexpected. 488 00:28:53,200 --> 00:28:55,520 Speaker 5: You know, it is a doctrine that has some potential, 489 00:28:55,720 --> 00:28:59,280 Speaker 5: but the sort of application of it is unclear, and 490 00:28:59,360 --> 00:29:04,040 Speaker 5: I think both judges may have concluded that, you know, 491 00:29:04,080 --> 00:29:07,560 Speaker 5: the crypto asset industry is not large enough to implicate 492 00:29:07,560 --> 00:29:12,480 Speaker 5: the Major Questions doctrine. And it's interesting that both judges 493 00:29:12,600 --> 00:29:18,040 Speaker 5: seem to have come to that conclusion independently. And this 494 00:29:18,160 --> 00:29:22,240 Speaker 5: may also be a significant decision in that it begins 495 00:29:22,280 --> 00:29:26,200 Speaker 5: to set some limits to that Major Questions doctrine. And 496 00:29:26,280 --> 00:29:30,640 Speaker 5: I think that, you know, that's something that is notable, 497 00:29:30,760 --> 00:29:33,640 Speaker 5: but in my view, maybe not all that surprising. 498 00:29:34,040 --> 00:29:36,640 Speaker 2: As we've discussed before, courts have been divided on this 499 00:29:36,800 --> 00:29:41,080 Speaker 2: issue of whether digital tokens are security subject to SEC oversight. 500 00:29:41,280 --> 00:29:44,520 Speaker 2: And I've mentioned this before, but two Manhattan federal judges 501 00:29:44,520 --> 00:29:48,200 Speaker 2: whose courtrooms are just one floor apart in the federal courthouse, 502 00:29:48,280 --> 00:29:52,480 Speaker 2: here came to different conclusions. Now this case is in DC, 503 00:29:53,360 --> 00:29:57,360 Speaker 2: and the three other cases over cryptocurrency, we're in Manhattan, 504 00:29:57,520 --> 00:30:01,200 Speaker 2: the second circuit, which Justice has Marry Blackman called the 505 00:30:01,240 --> 00:30:05,760 Speaker 2: mother Court of securities law. Is there more weight put 506 00:30:06,000 --> 00:30:10,080 Speaker 2: on Manhattan Federal Court judges decisions. 507 00:30:09,800 --> 00:30:12,160 Speaker 1: As opposed to a DC federal court. 508 00:30:12,800 --> 00:30:16,280 Speaker 2: I mean, if there are conflicting decisions, where would the 509 00:30:16,280 --> 00:30:17,920 Speaker 2: greatest reliance be placed. 510 00:30:18,920 --> 00:30:23,480 Speaker 5: It's a great question. They're both very good courts, very 511 00:30:23,480 --> 00:30:29,600 Speaker 5: good judges, strong traditions, and I think it's good that 512 00:30:30,080 --> 00:30:33,760 Speaker 5: we are getting some decisions outside of the Southern District 513 00:30:33,840 --> 00:30:36,840 Speaker 5: of New York the Mother Court, because I think that 514 00:30:36,920 --> 00:30:40,080 Speaker 5: it's good for as many judges as possible to weigh 515 00:30:40,160 --> 00:30:42,960 Speaker 5: in on these issues, because if we begin to see 516 00:30:43,160 --> 00:30:46,560 Speaker 5: certain patterns in their decision making, then that can indicate 517 00:30:46,600 --> 00:30:50,240 Speaker 5: there's a consensus about what the law is. I think 518 00:30:50,280 --> 00:30:53,600 Speaker 5: that the advantage the Southern District of New York has 519 00:30:54,280 --> 00:30:58,600 Speaker 5: is the volume of cases relating to securities that the 520 00:30:58,680 --> 00:31:04,200 Speaker 5: judge is here, and that gives them an ability to 521 00:31:04,240 --> 00:31:08,800 Speaker 5: build up some expertise. I think that because of the 522 00:31:08,880 --> 00:31:11,920 Speaker 5: location of the Southern District of New York, the pool 523 00:31:12,000 --> 00:31:16,440 Speaker 5: of attorneys who end up becoming federal district court judges 524 00:31:16,520 --> 00:31:22,080 Speaker 5: include many individuals who have experience working with securities or 525 00:31:22,080 --> 00:31:26,320 Speaker 5: corporate law types of issues. So they are very knowledgeable, 526 00:31:26,760 --> 00:31:29,880 Speaker 5: and I think that, you know, the advantage the Southern 527 00:31:29,920 --> 00:31:32,400 Speaker 5: District of New York may have is that if you 528 00:31:32,440 --> 00:31:36,280 Speaker 5: have multiple cases in the district, then you will have 529 00:31:36,400 --> 00:31:42,560 Speaker 5: multiple decisions that can provide some guidance as to what 530 00:31:42,600 --> 00:31:46,320 Speaker 5: the parameters of the law is. And then eventually some 531 00:31:46,400 --> 00:31:48,480 Speaker 5: of these cases will go up to the US Court 532 00:31:48,480 --> 00:31:52,480 Speaker 5: of Appeals for the Second Circuit, which is also arguably 533 00:31:52,560 --> 00:31:57,960 Speaker 5: the pre eminent appellet court for deciding securities law issues, 534 00:31:58,520 --> 00:32:01,760 Speaker 5: and so there is a developed body of law in 535 00:32:01,840 --> 00:32:06,440 Speaker 5: the Second Circuit that district court judges are both using 536 00:32:06,520 --> 00:32:10,720 Speaker 5: to guide their decisions and also influencing through their own decisions. 537 00:32:10,800 --> 00:32:13,400 Speaker 5: There may be a little bit less of that in 538 00:32:13,440 --> 00:32:17,560 Speaker 5: the DC Circuit simply because of the makeup of cases 539 00:32:17,560 --> 00:32:23,000 Speaker 5: may be more relating to government agencies and administrative law, 540 00:32:23,080 --> 00:32:26,280 Speaker 5: but they still do get a good number of significant 541 00:32:26,440 --> 00:32:30,080 Speaker 5: securities law cases as well. So I think that that 542 00:32:30,440 --> 00:32:32,320 Speaker 5: decision will also be influential. 543 00:32:33,160 --> 00:32:36,520 Speaker 2: So Binance is the second courtroom battle over the same 544 00:32:36,600 --> 00:32:39,520 Speaker 2: issue in less than a week. How many more of 545 00:32:39,560 --> 00:32:41,160 Speaker 2: these cases are in the offing? 546 00:32:41,720 --> 00:32:44,240 Speaker 5: You know, these are probably going to be the major ones. 547 00:32:44,440 --> 00:32:47,800 Speaker 5: I think that you have other cases pending terre reform 548 00:32:48,160 --> 00:32:52,160 Speaker 5: and ripple. I think these four cases are probably going 549 00:32:52,240 --> 00:32:56,600 Speaker 5: to define the scope of what is a security You 550 00:32:56,680 --> 00:33:01,280 Speaker 5: could potentially see some other cases rise up as well 551 00:33:01,320 --> 00:33:04,880 Speaker 5: as we see additional enforcement. The question is whether or 552 00:33:04,960 --> 00:33:09,240 Speaker 5: not there will be incentives to litigate those cases and 553 00:33:09,280 --> 00:33:12,760 Speaker 5: whether they'll be resources. Will there be resources to fully 554 00:33:12,800 --> 00:33:18,120 Speaker 5: litigate cases involving, say, individual defendants who are charged with 555 00:33:18,200 --> 00:33:21,600 Speaker 5: insider trading on crypto assets. There may be, there may 556 00:33:21,640 --> 00:33:24,960 Speaker 5: not be. I think the thing that distinguishes this group 557 00:33:25,000 --> 00:33:29,640 Speaker 5: of four cases is that these defendants have the resources 558 00:33:29,680 --> 00:33:34,040 Speaker 5: to hire top notch attorneys who can make very sophisticated, 559 00:33:34,720 --> 00:33:39,520 Speaker 5: well developed arguments and litigate potentially all the way up 560 00:33:39,520 --> 00:33:43,800 Speaker 5: to the US Supreme Court. And I don't really see 561 00:33:44,320 --> 00:33:48,600 Speaker 5: all that many other cases having that sort of staying power. 562 00:33:48,600 --> 00:33:49,400 Speaker 5: But I could be wrong. 563 00:33:49,880 --> 00:33:52,800 Speaker 2: Are any of these cases close to the appellate. 564 00:33:52,400 --> 00:33:53,200 Speaker 1: Court level yet? 565 00:33:53,600 --> 00:33:54,320 Speaker 6: Not yet? 566 00:33:54,600 --> 00:33:56,680 Speaker 5: And I think you know, if I had to bet. 567 00:33:56,760 --> 00:33:59,520 Speaker 5: I think the one that may make it up first 568 00:33:59,560 --> 00:34:02,880 Speaker 5: may be the terraform case. I believe Judge Raycop granted 569 00:34:03,440 --> 00:34:07,600 Speaker 5: some rejudgment back in December, and so I think that 570 00:34:07,800 --> 00:34:10,680 Speaker 5: could fairly soon be in a stage where it's in 571 00:34:10,719 --> 00:34:14,280 Speaker 5: a final judgment that could be appealed to the Second 572 00:34:14,320 --> 00:34:15,640 Speaker 5: Circuit and Jim. 573 00:34:15,680 --> 00:34:18,760 Speaker 2: One thing I want to mention is these oral arguments 574 00:34:18,800 --> 00:34:20,480 Speaker 2: were incredibly long. 575 00:34:20,880 --> 00:34:24,400 Speaker 5: Four hours, you know, these oral arguments were very long 576 00:34:24,840 --> 00:34:29,120 Speaker 5: the financing coinbase and I commend both judges for taking 577 00:34:29,160 --> 00:34:34,320 Speaker 5: the time to give both sides the time to argue extensively. 578 00:34:35,120 --> 00:34:37,879 Speaker 5: These are judges that are trying to get things right 579 00:34:38,120 --> 00:34:42,400 Speaker 5: on a very complicated issue. They're also very busy judges. 580 00:34:42,760 --> 00:34:45,400 Speaker 5: They may have hundreds of other cases on their docket. 581 00:34:45,960 --> 00:34:49,240 Speaker 5: It's very unusual to give you a block of four 582 00:34:49,280 --> 00:34:52,879 Speaker 5: hours to oral arguments, but I think the fact that 583 00:34:52,920 --> 00:34:58,280 Speaker 5: they did will lend some additional legitimacy to the decisions 584 00:34:58,320 --> 00:35:02,000 Speaker 5: they end up making. Think it's great to have these 585 00:35:02,120 --> 00:35:05,480 Speaker 5: very talented judges, you know, listening to the arguments of 586 00:35:05,520 --> 00:35:08,120 Speaker 5: what are some very talented attorneys to try to get 587 00:35:08,160 --> 00:35:08,680 Speaker 5: things right. 588 00:35:09,000 --> 00:35:11,480 Speaker 2: It's going to be interesting to compare the conclusions these 589 00:35:11,560 --> 00:35:15,000 Speaker 2: judges come to on this question that's so important to 590 00:35:15,040 --> 00:35:18,520 Speaker 2: the crypto industry and to the SEC. And we discussed 591 00:35:18,560 --> 00:35:22,840 Speaker 2: before the record penalty that Finance paid, and its chief 592 00:35:22,880 --> 00:35:27,680 Speaker 2: executive shangpeng Xiao, had pleaded guilty as well and agreed 593 00:35:27,719 --> 00:35:31,879 Speaker 2: to step down as CEO. His sentencing is coming up 594 00:35:31,880 --> 00:35:35,200 Speaker 2: in February, and for the second time, a judge denied 595 00:35:35,360 --> 00:35:39,120 Speaker 2: his request for permission to travel back home to the 596 00:35:39,239 --> 00:35:43,120 Speaker 2: UAE while he awaits sentencing, even though he offered a 597 00:35:43,200 --> 00:35:45,480 Speaker 2: post a bond of one hundred and seventy five million 598 00:35:45,560 --> 00:35:49,560 Speaker 2: dollars secured by fifteen million in cash. Of course, he 599 00:35:49,600 --> 00:35:52,360 Speaker 2: has a net worth of more than thirty seven billions, 600 00:35:52,400 --> 00:35:54,799 Speaker 2: so maybe the judge was taking that into consideration. 601 00:35:55,040 --> 00:35:58,319 Speaker 5: The thing that may concern the judge is that there 602 00:35:58,320 --> 00:36:04,720 Speaker 5: are some allegations that Finance was somewhat intentional in trying 603 00:36:04,760 --> 00:36:08,440 Speaker 5: to evade US law. And to the extent that that's 604 00:36:08,480 --> 00:36:12,560 Speaker 5: the case, you have, you know, a person who may 605 00:36:12,560 --> 00:36:17,160 Speaker 5: be able to go pretty much anywhere and may have 606 00:36:17,280 --> 00:36:20,040 Speaker 5: a mentality that you know, as long as I can 607 00:36:20,080 --> 00:36:25,680 Speaker 5: avoid US law, I have no moral obligation to come 608 00:36:25,719 --> 00:36:28,200 Speaker 5: back and comply with it. I think that that's what 609 00:36:28,360 --> 00:36:31,680 Speaker 5: makes the judge a little bit uncomfortable. In addition to 610 00:36:31,760 --> 00:36:34,960 Speaker 5: the vast resources that the CEO has. 611 00:36:35,239 --> 00:36:37,000 Speaker 1: It is crazy money. It is. 612 00:36:37,040 --> 00:36:41,360 Speaker 5: That's what makes it so unprecedented and interesting because you know, 613 00:36:41,400 --> 00:36:45,400 Speaker 5: typically the investment contract cases that seen in the past, 614 00:36:45,520 --> 00:36:50,799 Speaker 5: they involved fairly small time schemes, maybe involving a few 615 00:36:50,840 --> 00:36:54,680 Speaker 5: million dollars here and there. When you're getting into you know, 616 00:36:54,760 --> 00:36:59,600 Speaker 5: digital assets worth billions potentially, that really changes. 617 00:36:59,239 --> 00:37:03,120 Speaker 2: The nature of the It certainly seems to. Thanks so much, Jim. 618 00:37:03,360 --> 00:37:06,960 Speaker 2: That's Professor James Park of UCLA Law School. And that's 619 00:37:07,000 --> 00:37:09,960 Speaker 2: it for this edition of the Bloomberg Law Podcast. Remember 620 00:37:10,000 --> 00:37:12,719 Speaker 2: you can always get the latest legal news by subscribing 621 00:37:12,760 --> 00:37:16,200 Speaker 2: and listening to the show on Apple Podcasts, Spotify, and 622 00:37:16,280 --> 00:37:20,320 Speaker 2: at Bloomberg dot com, slash podcast, Slash Law. I'm June 623 00:37:20,320 --> 00:37:22,480 Speaker 2: Grosso and this is Bloomberg