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Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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Speaker 1: day we bring you insight and analysis into the most

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Speaker 1: important legal news of the day. You can find more

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Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud,

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Speaker 1: and on Bloomberg dot com slash podcasts. The criminal investigation

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Speaker 1: into Michael Cohen, President Trump's personal lawyer, is causing concerns

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Speaker 1: in the White House and on Capitol Hill. During his

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Speaker 1: testimony yesterday, Attorney General Jeff Sessions was asked by Senator

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Speaker 1: Chris Coons whether he's discussed the possibility of pardoning Michael

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Speaker 1: Cohen with the President or any other White House officials.

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Speaker 1: As the President or anyone in the administration discussed with

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Speaker 1: you the possibility of President Trump pardnering Michael Cohen. Um,

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Speaker 1: I'm not able to reveal the contents of any communications

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Speaker 1: I might have what the President of the United States

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Speaker 1: are his top staff Sessions uh, issuing a no comment,

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Speaker 1: basically as he did to all questions involving communications with

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Speaker 1: the President. Joining me as constitutional law experts, Steven Vladdock,

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Speaker 1: professor at the University of Texas Law School, Steve Cohen

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Speaker 1: followed the declaration in Federal Court in Los Angeles saying

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Speaker 1: he'll plead the fifth in the lawsuit by adult film

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Speaker 1: star Stormy Daniels. Should that reassure the president? That's a

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Speaker 1: great question. I mean, I think it should. It should

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Speaker 1: reassure the president at least for the moment that if,

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Speaker 1: in fact, Michael Cohen has information that might incriminate the president. Um,

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Speaker 1: it's not necessarily going to come out in this case,

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Speaker 1: you know, June. I think the larger point here is

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Speaker 1: all of this maneuvering and all of this, all these headlines,

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Speaker 1: you know, would be out of place. I think if

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Speaker 1: there was no there there, and if the president didn't

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Speaker 1: have at least some real concern that there's exposure for him. Um,

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Speaker 1: if not in the Stormy Daniel suit in California, then

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Speaker 1: perhaps in some of the materials that were seized from

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Speaker 1: Michael Cohen's offices through those searches a couple of weeks ago.

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Speaker 1: And speaking of those materials, prosecutors gave in today and

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Speaker 1: they agreed to use a special master to review all

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Speaker 1: those documents. Why did they give in? Well, I think

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Speaker 1: from the government's perspective, this was the easiest way to

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Speaker 1: move along. I mean this, you know, the issue had

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Speaker 1: been basically frozen before a federal judge, Manhattan Judge kimball Wood,

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Speaker 1: as the parties were fighting over what the government should

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Speaker 1: be allowed to do with the materials they seized from

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Speaker 1: Michael Cohen's offices. I think the special Master was always

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Speaker 1: the obvious compromise here. Um. The courts have used those

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Speaker 1: before in these kinds of high profile cases because it's

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Speaker 1: a neutral party where you're not going to have you know,

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Speaker 1: the defendant being able to basically assert privilege before turning

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Speaker 1: things over, but you're also not giving them the government

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Speaker 1: the first bye at the Apple June. I actually think

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Speaker 1: this is a perfectly fair, reasonable compromise, and I think,

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Speaker 1: most importantly from the government's perspective, one that will allow

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Speaker 1: the case to move ahead and that will be difficult

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Speaker 1: for the President and his supporters to criticize. A lot

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Speaker 1: of breaking news this morning in this in this case,

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Speaker 1: the Senate Judiciary Committee just passed an amended version of

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Speaker 1: legislation aimed at protecting Special Counsel Robert Mueller fourteen to

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Speaker 1: seven vote, with four Republicans voting in favor. Tell us

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Speaker 1: about that bill and the important parts of it. Yeah,

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Speaker 1: I actually think This is perhaps the most important story

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Speaker 1: of the day um and a rare moment of bipartisan

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Speaker 1: cooperation on something that's politically sensitive in Congress. So, you know,

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Speaker 1: this legislation has been pending June since last summer um,

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Speaker 1: and at its core, what it basically does is it

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Speaker 1: provides for judicial review of the existing removal standard. It's

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Speaker 1: already the case under federal law that Muller can only

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Speaker 1: be removed upon a finding by the Attorney General or

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Speaker 1: in this case Roy Rosenstein, of good cause. What wasn't available,

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Speaker 1: what still isn't available until unless this bill passes, is

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Speaker 1: an opportunity for Mueller to object if he is fired

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Speaker 1: because of what he thinks is not good cause. And

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Speaker 1: so the core of this bill is basically providing a

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Speaker 1: mechanism for Muller to go to court if the government

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Speaker 1: tries to fire him in a case where they where

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Speaker 1: he doesn't since they have good cause, and to get

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Speaker 1: three judges on the d C. District Court to review

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Speaker 1: whether the government was right or whether Mueller actually should

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Speaker 1: still be on the job. You know, Steve, a lot

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Speaker 1: of people think that the Special counsel is going to

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Speaker 1: make a report and everyone's going to get to read

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Speaker 1: it and see what it's about. But the way it

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Speaker 1: is now under the current regulations, he'll provide a confidential

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Speaker 1: report to Deputy Attorney General Rod Rosenstein, who will then

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Speaker 1: decide what to do with it. What does grass Lee's

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Speaker 1: amendment change that it actually does, June, I mean, so

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Speaker 1: if this actually gets out of Congress, and you know,

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Speaker 1: the President either signs it or it's passed over his veto,

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Speaker 1: one of me thinks the real salutary features of this

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Speaker 1: bill that got out of the Judiciary Committee today, besides

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Speaker 1: providing producial review, is it also requires a report upon

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Speaker 1: the closing of an investigation or the termination of a

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Speaker 1: special counsel, not just to the Attorney General, but to

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Speaker 1: the chair and ranking members of both the House and

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Speaker 1: Senate Judiciary committees. So it would be impossible for you know,

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Speaker 1: the President to basically bury um an adverse report from Mueller.

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Speaker 1: I think that's actually part of why this is such

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Speaker 1: an important development. And June, frankly a pretty important contribution

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Speaker 1: that came not from the Democrats on the Senate Judiciary

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Speaker 1: Committee but from Chairman Grassley. Let's let's talk about the

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Speaker 1: chances that this has actually just getting through getting through Congress,

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Speaker 1: let alone getting a signature from the President. Yeah. I mean, listen,

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Speaker 1: there's no question it's an uphill battle. I mean, I think,

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Speaker 1: you know, Senatementary Leader McConnell has said that he sees

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Speaker 1: no need to bring this bill to the floor, that

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Speaker 1: he doesn't think it's necessary. Um. I think, you know,

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Speaker 1: at least based on today's vote, four of his pretty

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Speaker 1: senior colleagues disagree with him, and so I think it's

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Speaker 1: gonna be really interesting to see if you know, Leader

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Speaker 1: McConnell's tone changes at all in like of what happened today. Um.

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Speaker 1: The other part of this June is it's also the

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Speaker 1: case that the bill allows for um retro perspective enforcement

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Speaker 1: of its provisions. And so if the bill is sort

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Speaker 1: of sitting in Congress and the President were to try

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Speaker 1: to remove Mueller, you know, perhaps that would finally motivate

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Speaker 1: Congress to act. But you know, the politics of the

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Speaker 1: Synik are really hard to predict their change in every day.

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Speaker 1: I don't think there was any sense as recently as

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Speaker 1: a month ago that this even had the votes to

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Speaker 1: get out of committee, and so now that it's out

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Speaker 1: of the committee, I think the pressure ships to Leader

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Speaker 1: McConnell um and to whether he's going to face, you know,

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Speaker 1: pressure from his own caucus to actually put this to

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Speaker 1: a vote of before the full sentence. We run out

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Speaker 1: of time. Steve, It's it's great to have you on again.

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Speaker 1: And you know you said change every day. This changes

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Speaker 1: every minute, it seems. Thanks so much that Stephen Vladikey's

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Speaker 1: griffest at the University of Texas Law School. It's the

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Speaker 1: first acquittal in a spoofing case since the practice was

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Speaker 1: outlawed in eight years. A jury has cleared former UBS

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Speaker 1: Precious metals trader Andre Flotron of conspiracy to engage in

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Speaker 1: commodities fraud. My guess is Professor John on Coffee of

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Speaker 1: Columbia Law School. Jack. The Justice Department has been cracking

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Speaker 1: down on spoofing. What was Floatron accused of doing? And

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Speaker 1: explain spoofing in that simply stated, spoofing is submitting a

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Speaker 1: large number of orders that you are going to prevent

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Speaker 1: every being executed if you submit them and then you

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Speaker 1: cancel them in order to feign a market interests that

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Speaker 1: will move the other side. UH. Typically this is done

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Speaker 1: to defraud the computer. There is a lot of high

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Speaker 1: speed alagar rhythmic trading on computers, and they see the

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Speaker 1: orders coming in and they move their prices up in

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Speaker 1: light of that seemingly higher demand. Then you trade on

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Speaker 1: the other side of the market, taking advantage of that

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Speaker 1: increase in the computers prices. Uh. In this case it

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Speaker 1: didn't involve computers, but essentially submission of a large number

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Speaker 1: of orders that you intend never to be executed is

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Speaker 1: seen as the kind of fraud on the market. It's

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Speaker 1: creating a feigned false demand on one side. Uh. That's

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Speaker 1: what he was accused of. The jury acquitted after only

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Speaker 1: five hours, suggesting that they weren't convinced at all and

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Speaker 1: found it a simple case. Well, Jack, you had two

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Speaker 1: former traders flipping on him and testifying against him. The

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Speaker 1: government had trading data and patterns. What was the problem

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Speaker 1: with the government's case. After five days of the case,

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Speaker 1: they had five hours of acquittal. I agree that it's

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Speaker 1: a surprising reversal for the government to elaborate on what

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Speaker 1: you just said. They had both of his deputies, people

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Speaker 1: he had trained how to trade, and both of those

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Speaker 1: people had pled guilty and testified against him and said

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Speaker 1: they learned how to spoof by watching over his shoulder.

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Speaker 1: That's usually very strong evidence. The attorney for the defendant,

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Speaker 1: Michael Mukasey, who was the son of the former Attorney General,

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Speaker 1: was apparently able to discredit those witnesses by convincing the

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Speaker 1: jury they were only making these statements to save their

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Speaker 1: own skin under great plea bargaining pressure, and he attacked

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Speaker 1: the entire cases trial by statistics. You didn't seem to

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Speaker 1: have an injured victim saying I was cheated. You had

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Speaker 1: lots of datas showing that the market was being influenced

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Speaker 1: by this flow of faults and quickly canceled orders, but

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Speaker 1: that didn't convince the jury, and maybe the jury didn't

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Speaker 1: see a real victim in all of this. How big

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Speaker 1: a setback is this for the government's efforts to crack

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Speaker 1: down on spoofing. No question, it's a setback. I think

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Speaker 1: that most the people in the industry are going to

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Speaker 1: be more influenced by the fact that the government did

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Speaker 1: indict and did prosecute and got the subordinates to plea

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Speaker 1: bargain against their superior. Very few people in the trading

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Speaker 1: business are going to want to take the chance of

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Speaker 1: beending a year of their lives defending themselves from a

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Speaker 1: teleny conviction where they could get a lengthy sentence. So

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Speaker 1: the government lost, but the government's won other cases. And

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Speaker 1: as long as the government's making it a priority, I

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Speaker 1: think you're going to see a lot of deterrents still generated.

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Speaker 1: Let's change topics and talk about Japan, A's biggest bank

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Speaker 1: is accused of dodging regulatory scrutiny by swapping license and

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Speaker 1: the Senate's Permanent Subcommittee on Investigation is looking into how

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Speaker 1: Mitsubishi uf J dropped its New York license to get

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Speaker 1: a federal license. According to a person with knowledge of

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Speaker 1: the matter, tell us the concern here, Oh, I think

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Speaker 1: this is a frightening example of regulatory arbitrage. You need

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Speaker 1: to understand that almost any major bank in the world

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Speaker 1: has to have a branch in New York City in

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Speaker 1: order to engage in what is called dollar clearing, making

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Speaker 1: transactions and dollars so that they're major clients or major

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Speaker 1: nations can have dollars, which is the basic currency of

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Speaker 1: the world, and you have to grease the wheels of

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Speaker 1: commerce using dollars. So they all have offices in New York.

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Speaker 1: Generally they had only regular registered with the New York

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Speaker 1: State Office and avoided any kind of national registration with

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Speaker 1: the Office of the Controller of the Currency. But what

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Speaker 1: happened beginning now about seven or eight years ago, was

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Speaker 1: that the Department Financial Services in New York became much

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Speaker 1: more aggressive. They had found that a number of banks

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Speaker 1: worldwide were engaged in violating the Iranian sanctions by doing

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Speaker 1: dollar clearing transactions for Iran and other prohibited countries, and

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Speaker 1: the New York State Department was very tough, much tougher

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Speaker 1: than had been the Office of the Control of the

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Speaker 1: Currency and their initial supervisor because it's a new agency,

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Speaker 1: impolished something like six billion dollars of fines in just

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Speaker 1: four years. That made a number of these banks very nervous.

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Speaker 1: They complained to the U. S. Government, and they eventually

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Speaker 1: decided maybe the best thing to do was to switch

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Speaker 1: over to the o c C, the Office of the

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Speaker 1: Control of the Currency, and become registered on a national basis.

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Speaker 1: Now it's frightening in this case is that the application

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Speaker 1: to switch from New York State to the o c

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Speaker 1: C was made and then fully approved within just seven days.

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Speaker 1: That's a very quick switch without much notice being given

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Speaker 1: to New York State, And it suggests that to uh

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Speaker 1: they were being assisted by the o ce C and

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Speaker 1: escaping New York State oversight where there had been some

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Speaker 1: suspicion that there were inadequate controls, and where a court

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Speaker 1: appointed monitor had reported that the bank was not adequately

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Speaker 1: complying with the original settlement agreement it had entered. So

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Speaker 1: all this deserves a good deal of further inquiry. So Jack,

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Speaker 1: what other what implications are there for other global enders

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Speaker 1: who have considered trying to get away from New York's

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Speaker 1: financial services regulator? Well, they are trying. There have been

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Speaker 1: other such cases. I believe Deutsche Bank just succeeded and

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Speaker 1: was able to escape New York State on or about

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Speaker 1: March thirty. It didn't come in that quick seven day turnaround.

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Speaker 1: The Deutsche Bank had even more troubled regulatory history, but

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Speaker 1: they did escape New York moving to the o c

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Speaker 1: C on March thirty. And frankly, the o c C

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Speaker 1: has changed its tone and changed its policies. It had

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Speaker 1: been a tough regulator after the financial crisis, but now

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Speaker 1: under President Trump, they're much more interested in trying to

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Speaker 1: facilitate and ease regulation. Hey, in order to make the

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Speaker 1: business world one run smoother, and I think that signal

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Speaker 1: has been picked up by a number of other banks.

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Speaker 1: I suspect we'll see other such transitions. About thirty seconds here, Jack,

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Speaker 1: how does the New York Bank stand in in the

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Speaker 1: defiance of this Well, I mean, I think that every

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Speaker 1: bank had to have a New York office, and they

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Speaker 1: didn't want to get more fully involved with the more

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Speaker 1: thorough going oversight of the Office of the Control of

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Speaker 1: the Currency. Now that's changed because beginning under Governor Cuoma,

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Speaker 1: there were a succession of rather tough, aggressive regulators at

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Speaker 1: this Department of Financial Services, and that's produced what I

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Speaker 1: called originally regulatory arbitrage. You are seeking to find the easiest, softest,

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Speaker 1: and most accommodating regulator, and right now, under President Trump,

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Speaker 1: that appears to be the total regulator. Thanks Jack, always

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Speaker 1: a pleasure. That's Professor John Coffey of Columbia Law School.

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Speaker 1: Thanks for listening to the Bloomberg Law Podcast. You can

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Speaker 1: sub grib and listen to the show on Apple podcast,

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Speaker 1: SoundCloud and on Bloomberg dot com slash podcast. I'm June Brosso.

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Speaker 1: This is Bloomberg m