WEBVTT - Trump's Impact on SCOTUS & Facebook Arguments 0:00:03.200 --> 0:00:08.000 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:00:09.960 --> 0:00:13.320 There's been a lot of speculation that in a second term, 0:00:13.600 --> 0:00:16.840 Donald Trump could create a Supreme Court with a Trump 0:00:16.920 --> 0:00:21.080 appointed majority that could serve for decades. After all, Trump 0:00:21.160 --> 0:00:25.439 appointed three Supreme Court justices in his first term that 0:00:25.600 --> 0:00:29.639 gave the Court a super conservative majority. Joining me is 0:00:29.680 --> 0:00:34.920 constitutional law expert David super, a professor at Georgetown Law. David, 0:00:34.920 --> 0:00:39.159 There's a lot of speculation that one or two of 0:00:39.440 --> 0:00:44.400 the oldest justices, the super conservatives actually seventy six year 0:00:44.400 --> 0:00:48.120 old Clarence Thomas and seventy four year old Samuel Alito, 0:00:48.760 --> 0:00:52.440 could retire and give Trump a chance to put younger 0:00:52.600 --> 0:00:55.600 conservatives on the court. Do you think that's likely. 0:00:56.440 --> 0:00:59.280 I'm not sure that it is. They both show every 0:00:59.320 --> 0:01:03.360 sign of their jobs. Progressives don't like how they're doing 0:01:03.440 --> 0:01:07.720 their jobs, but their opinions remain sharp. When they choose 0:01:07.720 --> 0:01:11.040 to speak from the bench, they make sense, So I 0:01:11.120 --> 0:01:14.280 can certainly imagine them feeling like they want to keep 0:01:14.280 --> 0:01:15.440 doing this well. 0:01:15.560 --> 0:01:18.880 Thomas, The New York Times reported that he once told 0:01:18.880 --> 0:01:21.200 a former clerk that he intended to stay on the 0:01:21.240 --> 0:01:25.000 bench until twenty thirty four. The liberals made my life 0:01:25.040 --> 0:01:27.200 miserable for forty three years, and I'm going to make 0:01:27.200 --> 0:01:30.240 their lives miserable for forty three years. So we have 0:01:30.319 --> 0:01:35.000 some time yet before he considers retiring, I suppose. On 0:01:35.040 --> 0:01:38.520 the liberal side, there have also been renewed calls for 0:01:38.880 --> 0:01:43.080 seventy year old Justice Sonya Soto Mayord to retire before 0:01:43.200 --> 0:01:48.600 January so President Biden and the Democratic controlled Senate can 0:01:48.720 --> 0:01:52.440 quickly confirm a successor. I don't know about quickly, but 0:01:52.520 --> 0:01:55.080 that whole scenario seems unlikely to me. 0:01:55.440 --> 0:01:58.360 Yeah, I can't imagine that she would do that, and 0:01:58.440 --> 0:02:00.640 I think it would be a foolish move. Try. There 0:02:00.720 --> 0:02:06.040 was talk about their good Marshal retiring after Jimmy Carter 0:02:06.200 --> 0:02:10.320 lost for reelection, and I think cooler heads prevailed there 0:02:10.639 --> 0:02:14.320 and recognized that that couldn't be done in a snap. Now. 0:02:14.480 --> 0:02:18.760 I can't imagine that Senator Mansion or Senator Cinema would 0:02:18.800 --> 0:02:21.720 be okay with this sort of a process at this point, 0:02:21.760 --> 0:02:23.440 and without them you can't do anything. 0:02:24.160 --> 0:02:28.800 As far as future judicial appointments, there have been reports 0:02:28.840 --> 0:02:33.359 that Trump complained about his first term appointees being too 0:02:33.440 --> 0:02:37.800 independent and not being loyal enough to him, and you know, 0:02:38.040 --> 0:02:42.400 reportedly has fallen out with the Federalist Society, which basically 0:02:42.480 --> 0:02:46.640 chose his judicial appointments during his first term. So what 0:02:46.680 --> 0:02:51.040 do you expect from Trump as far as future judicial appointments. 0:02:51.600 --> 0:02:56.519 I think he's not especially focused personally on the courts. 0:02:56.560 --> 0:02:59.000 He's not a lawyer. He's never shown a lot of 0:02:59.040 --> 0:03:02.440 interest in it. So my suspicion is that he will 0:03:02.600 --> 0:03:05.880 go back to the federal of Society, perhaps not give 0:03:06.000 --> 0:03:09.640 them as celebrated and formal a role in the process, 0:03:09.840 --> 0:03:13.120 but that we will basically be getting more said sock judges. 0:03:13.120 --> 0:03:16.600 And more ideologues. It seems like even the judges that 0:03:16.639 --> 0:03:22.280 he did appoint were ideologues more than respected jurists. 0:03:22.560 --> 0:03:26.280 He appointed arrange some of his appointments are splendid judges, 0:03:26.520 --> 0:03:30.400 some of them are skilled ideologs, and some of them 0:03:30.600 --> 0:03:34.440 are rather lost. I'm guessing the new round rule will 0:03:34.440 --> 0:03:36.240 include some in each of those piles. 0:03:36.840 --> 0:03:41.360 Now, the Biden administration has taken positions in certain cases 0:03:41.400 --> 0:03:45.200 before the Supreme Court, and we can anticipate that the 0:03:45.200 --> 0:03:49.640 Trump administration has opposing views and will want to back 0:03:49.680 --> 0:03:52.520 out of those positions. How often does it happen that 0:03:53.320 --> 0:03:58.280 new administration changes positions in cases before the Court. 0:03:59.040 --> 0:04:02.920 It's become more more and more frequent over time. Once 0:04:03.040 --> 0:04:07.120 upon a time, it was considered shocking enough that the 0:04:07.160 --> 0:04:11.080 Supreme Court would appoint a lawyer to argue the case 0:04:11.360 --> 0:04:15.320 as friend of the Court representing the position of the 0:04:15.320 --> 0:04:19.680 prior administration. These days, there's less of that. I think 0:04:19.680 --> 0:04:23.760 it is understood by the justices that this is what 0:04:23.960 --> 0:04:26.760 happens in a society where views on law have become 0:04:26.839 --> 0:04:27.680 very polarized. 0:04:28.160 --> 0:04:32.560 So now some areas where there might be a change. 0:04:33.000 --> 0:04:37.720 Transgender rights is probably one of them. Now the transgender 0:04:37.800 --> 0:04:41.760 rights case arguments are scheduled for December fourth, so well 0:04:41.800 --> 0:04:45.480 before inauguration day. I mean, what happens in a. 0:04:45.440 --> 0:04:49.719 Case like that, Well, the Trump administration has a couple 0:04:49.760 --> 0:04:53.760 of options. One is that they can ask the court 0:04:54.040 --> 0:04:58.400 to reopen it to allow supplemental briefing. Whether the Court 0:04:58.440 --> 0:05:01.560 would be inclined to slow itself down to allow that 0:05:01.800 --> 0:05:05.719 is debatable. Second, they can simply declare that their allegiance 0:05:05.800 --> 0:05:08.200 are on the other side and rely on the briefs 0:05:08.200 --> 0:05:12.440 that we're opposing what the Biden administration advocated. They can 0:05:12.520 --> 0:05:17.360 also express the intent to take executive action to reverse 0:05:17.640 --> 0:05:22.719 federal regulations, but that can't be done instantly. The court 0:05:23.000 --> 0:05:26.360 could decide the case and let them take their own 0:05:26.400 --> 0:05:29.400 action through due course, or the court could suspend the 0:05:29.440 --> 0:05:32.120 case to give them time to act. Or the court 0:05:32.240 --> 0:05:36.440 could decide not to issue a ruling because it expects 0:05:36.600 --> 0:05:37.680 the issue to go away. 0:05:39.320 --> 0:05:44.400 The federal government already argued a case over ghost guns 0:05:44.680 --> 0:05:48.800 to keep regulations for ghost guns on the books, so 0:05:48.880 --> 0:05:52.600 that's already been argued, fully briefed, and argued. Now it's 0:05:52.640 --> 0:05:58.240 anticipated that the Trump administration might oppose those regulations. What 0:05:58.360 --> 0:06:00.960 happens there? Do they just pull their regulations or. 0:06:01.360 --> 0:06:05.400 Well, you can't just pull the regulation. The Administrative Procedure 0:06:05.400 --> 0:06:08.200 Act and the Supreme Court have been very clear that 0:06:08.240 --> 0:06:11.720 you have to go through the same procedure to remove 0:06:11.800 --> 0:06:16.320 regulations that you did to create them. So it would 0:06:16.320 --> 0:06:19.560 take a certain amount of time, probably a year, even 0:06:19.600 --> 0:06:24.520 if they move very quickly to get rid of those regulations. 0:06:24.920 --> 0:06:28.160 This is a case where the conservative legal agenda has 0:06:28.200 --> 0:06:32.599 a somewhat ironic impact in that a year ago, the 0:06:32.600 --> 0:06:36.840 administration changing its views on how the statute should be 0:06:36.960 --> 0:06:42.000 interpreted would be entitled a considerable weight. But today, because 0:06:42.160 --> 0:06:45.320 the Supreme Court got rid of Chevron. The administration is 0:06:45.360 --> 0:06:48.320 not entiled to any difference anyway. So one can well 0:06:48.360 --> 0:06:50.760 imagine the Court saying, we really don't care if you've 0:06:50.839 --> 0:06:52.480 changed your position, really. 0:06:52.360 --> 0:06:55.400 Just ignoring Trump, the Trump administration. I mean, has the 0:06:55.440 --> 0:06:56.600 Court done that before. 0:06:56.960 --> 0:07:01.960 Well, we're very early in the post Chevron world. There 0:07:02.040 --> 0:07:06.440 always was deference. The administration's position mattered a great deal. 0:07:06.560 --> 0:07:09.960 But the Court went at great lengths last spring to 0:07:10.040 --> 0:07:14.480 tell us that Congress did not intend administration views to 0:07:14.520 --> 0:07:20.080 get any special weight in interpreting laws. And on that basis, 0:07:20.320 --> 0:07:23.080 one could well imagine the Court simply going ahead and 0:07:23.120 --> 0:07:25.960 deciding the case and saying that the administration wants to 0:07:26.040 --> 0:07:30.320 go through the procedures to remove the regulations, they're free 0:07:30.360 --> 0:07:33.120 to do so. But what the administration might or might 0:07:33.200 --> 0:07:35.600 not try to do or succeed in doing in the 0:07:35.640 --> 0:07:38.560 future doesn't stop the Court from deciding the case in 0:07:38.560 --> 0:07:39.000 front of it. 0:07:39.520 --> 0:07:43.080 Yeah, I'm wondering if, as you mentioned, we saw the 0:07:43.600 --> 0:07:47.880 Chevron doctrine being thrown out and the Court's conservatives have 0:07:48.000 --> 0:07:52.480 been basically reining in federal agencies, do you think that 0:07:52.600 --> 0:07:56.640 we'll still see that kind of aggressive attack on regulatory 0:07:56.680 --> 0:08:00.880 agencies by the Court in a Trump administration which may 0:08:00.880 --> 0:08:06.240 be using agencies to affect some of these broad changes. 0:08:07.040 --> 0:08:10.480 I think different justices will have a different view. Chief 0:08:10.600 --> 0:08:16.040 Justice Roberts has very little patients for sloppy, incompetent agency work, 0:08:16.160 --> 0:08:22.400 whichever ideology the agency has, and when presented with dishonest 0:08:22.800 --> 0:08:28.160 or incompetent agency actions in the first Trump administration, did 0:08:28.160 --> 0:08:31.480 not hesitate to strike it down, So I would expect 0:08:31.560 --> 0:08:35.559 he would be continued inclined to look closely at agencies 0:08:35.840 --> 0:08:39.200 and whether they're dotting their eyes and crossing their t's. 0:08:39.559 --> 0:08:43.520 Some of the other justices probably will feel that a 0:08:44.000 --> 0:08:47.720 lower level of scrutiny should be applied to deregulatory actions 0:08:47.720 --> 0:08:49.960 than was applied to regulatory actions. 0:08:50.280 --> 0:08:54.719 Some disputes coming up involve the EPA whether fights over 0:08:54.760 --> 0:09:00.000 certain clean air regulations can be heard by circuit courts. 0:09:00.000 --> 0:09:03.400 I mean, what happens there. Does the Trump administration just 0:09:03.960 --> 0:09:06.760 pull those cases or how would they handle. 0:09:06.480 --> 0:09:11.040 Those That's harder to know because that's an issue of 0:09:11.520 --> 0:09:16.600 process that has implications that go far beyond the current 0:09:16.720 --> 0:09:23.280 or next administrations. So one could imagine that the Trump administration, 0:09:24.120 --> 0:09:27.480 although its view on the ultimate merits, may be different, 0:09:28.040 --> 0:09:31.760 might not feel that that's a high priority to expend 0:09:31.800 --> 0:09:36.040 its credibility with the Court by switching positions, and may 0:09:36.120 --> 0:09:40.240 see some benefit to staying out of it or not 0:09:40.840 --> 0:09:42.960 disrupting what the Biden administration did. 0:09:43.320 --> 0:09:45.720 Have you heard any rumors about who might be the 0:09:45.880 --> 0:09:46.880 solicitor General? 0:09:47.600 --> 0:09:47.960 I have not. 0:09:48.640 --> 0:09:50.720 I have not either, and I can't believe that because 0:09:50.760 --> 0:09:54.640 I've heard rumors about many other high level positions that 0:09:55.320 --> 0:09:56.480 will have to be filled. 0:09:56.880 --> 0:10:00.320 I think that the new administration is going to want 0:10:00.360 --> 0:10:05.040 someone competent and credible, and so what you hear, at 0:10:05.120 --> 0:10:08.840 least what I hear about various other positions are people 0:10:09.240 --> 0:10:14.280 who may not be especially skilled or especially respected, but 0:10:14.360 --> 0:10:19.160 are very close with Trump circles and with the former president. 0:10:19.760 --> 0:10:23.240 I would expect the new solicitor General would be an 0:10:23.240 --> 0:10:27.520 extremely conservative lawyer, but not necessarily someone who Trump knows. 0:10:27.880 --> 0:10:29.760 It's always a pleasure to talk to you, David, Thanks 0:10:29.800 --> 0:10:32.439 so much for being on the show. That's Professor David 0:10:32.480 --> 0:10:36.520 super of Georgetown Law. Metta's Facebook is trying to get 0:10:36.520 --> 0:10:40.000 out of a shareholder lawsuit accusing it of fraud for 0:10:40.160 --> 0:10:44.360 misleading investors about a known risk from the massive Cambridge 0:10:44.360 --> 0:10:49.119 Analytica data breach. In twenty fifteen, the justices seemed divided 0:10:49.160 --> 0:10:53.840 about how much information public companies must disclose about potential 0:10:53.960 --> 0:10:59.200 investment risks, including past events. It led to hypotheticals from 0:10:59.280 --> 0:11:03.440 Chief Justice John Roberts slip and fall case to Justice 0:11:03.440 --> 0:11:06.120 Samuel Alito's trash from space. 0:11:06.600 --> 0:11:09.800 For example, if you're leaving my house and I say 0:11:10.760 --> 0:11:15.120 you might slip on the steps, you wouldn't say, well, 0:11:15.120 --> 0:11:19.600 that's never happened before. Your inference would be that has happened, 0:11:19.679 --> 0:11:22.120 and that's why I'm giving you the warning. And if 0:11:22.160 --> 0:11:24.600 there was a fire and it was caused by the 0:11:24.640 --> 0:11:27.200 fact that the factory was hit by a piece of 0:11:27.280 --> 0:11:31.040 space junk that fell out of the sky, the fact 0:11:31.080 --> 0:11:32.160 that that happened. 0:11:31.800 --> 0:11:35.120 Doesn't really tell you much more about the probability that 0:11:35.679 --> 0:11:38.800 you're going to have another fire based on objects falling 0:11:39.960 --> 0:11:40.800 out of space. 0:11:41.559 --> 0:11:45.120 Joining me is securities law expert James Park, a professor 0:11:45.200 --> 0:11:49.959 at UCLA Law School, Jim tell Us about the shareholder's 0:11:50.040 --> 0:11:51.680 lawsuit at the heart of this case. 0:11:52.320 --> 0:11:57.040 It's a securities class action brought under sec Rule ten 0:11:57.120 --> 0:12:04.840 B five, which typically applies to misrepresentations material misrepresentations made 0:12:04.960 --> 0:12:09.800 by companies that relate to their securities. And so this 0:12:09.920 --> 0:12:13.880 is a lawsuit class action brought on behalf of investors 0:12:13.920 --> 0:12:19.360 of Facebook. Now it's meta course, but Facebook, as with 0:12:19.720 --> 0:12:24.720 other public companies, issues periodic disclosures the form ten K 0:12:25.200 --> 0:12:28.960 on a yearly basis. The ten ques, and these sec 0:12:29.000 --> 0:12:34.240 disclosures typically have a lot of disclosures about risk which 0:12:34.280 --> 0:12:37.640 are required by the SEC And so the idea behind 0:12:37.679 --> 0:12:41.520 these risk disclosures is that your warning investors, this is 0:12:41.559 --> 0:12:45.640 the risk of investing in Facebook stock. And one of 0:12:45.679 --> 0:12:50.840 those risk disclosures basically said that there could be a 0:12:51.240 --> 0:12:58.280 risk of unauthorized access to user data that could damage Facebook. 0:12:58.520 --> 0:13:01.720 That was essentially what the risk is closure said. And 0:13:01.760 --> 0:13:04.680 the reason why the planiffs are saying this is maturely 0:13:04.760 --> 0:13:09.559 misleading is that at the time Facebook made this statement, 0:13:10.400 --> 0:13:16.400 it knew about a fairly large breach by a political 0:13:16.440 --> 0:13:21.200 consulting firm called Cambridge Analytica of user data. And so 0:13:21.280 --> 0:13:24.800 what the plantiffs are arguing is that you said that 0:13:25.000 --> 0:13:29.680 unauthorized access could be a risk when you knew there 0:13:29.920 --> 0:13:34.600 was a very significant unauthorized access at the time you 0:13:34.800 --> 0:13:39.280 issued that risk disclosure. That's essentially what the securities class 0:13:39.320 --> 0:13:41.079 action is dependent on. 0:13:41.960 --> 0:13:46.240 Outside of the validity of the issues here. The FTC's 0:13:46.400 --> 0:13:50.559 investigation led to this record five billion dollars civil penalty 0:13:50.600 --> 0:13:54.040 against Facebook, and Facebook reached a two hundred and seventy 0:13:54.080 --> 0:13:58.240 five million dollar class action settlement with users over the 0:13:58.280 --> 0:14:02.240 privacy breach last year. Why do you think this hasn't 0:14:02.280 --> 0:14:03.040 been settled. 0:14:03.640 --> 0:14:08.160 It's a good question, and I think that maybe one 0:14:08.240 --> 0:14:13.079 reason is that Facebook is often facing securities class actions 0:14:13.960 --> 0:14:18.680 and it does not want to be perceived as a 0:14:18.760 --> 0:14:22.920 company that settled lawsuits that arise out of disclosure violations. 0:14:23.600 --> 0:14:26.920 They may believe they have a strong case with respect 0:14:27.000 --> 0:14:31.120 to this particular allegation. Their argument's not a material misstatement 0:14:31.360 --> 0:14:34.080 because you know, there's a risk of this happening. And 0:14:34.640 --> 0:14:37.040 the argument, as I understand it, is that, Okay, they 0:14:37.120 --> 0:14:40.640 knew that there was a breach, they didn't know how 0:14:40.720 --> 0:14:44.880 big the impact would be on a huge company like Facebook, 0:14:45.320 --> 0:14:48.920 And you know, I think that's essentially the argument is that, well, 0:14:48.960 --> 0:14:52.000 we knew that there had been a breach, but we 0:14:52.040 --> 0:14:53.920 didn't know it was going to result in this later 0:14:54.040 --> 0:14:58.480 penalty and all this reputational harm, and so our disclosure 0:14:58.520 --> 0:15:02.000 that there's this risk that and unauthorized actions could affect 0:15:02.000 --> 0:15:05.760 our market value was mostly accurate according to Facebook, and 0:15:05.800 --> 0:15:09.040 so I think they believe they have a good case here. 0:15:09.200 --> 0:15:12.120 So let's talk about the argument. And there were a 0:15:12.160 --> 0:15:15.800 lot of strange hypotheticals thrown around. What were the concerns 0:15:15.840 --> 0:15:16.800 of the justices? 0:15:17.240 --> 0:15:20.880 I think one concern is that companies issue a lot 0:15:20.920 --> 0:15:25.360 of risk disclosures about many different things, and some of 0:15:25.360 --> 0:15:29.200 those things actually happen, you know, and so you might say, Okay, 0:15:29.200 --> 0:15:34.440 there's a risk of bad publicity, just generally media coverage, 0:15:34.480 --> 0:15:36.520 and you know, at the same time you issue this, 0:15:36.600 --> 0:15:38.960 there may be a lot of various events that are 0:15:39.120 --> 0:15:42.400 putting you in a bad life. And so I think, 0:15:42.720 --> 0:15:45.600 you know, one of the concerns that the justices are 0:15:45.720 --> 0:15:50.200 grappling with is that if we say there's liability in 0:15:50.240 --> 0:15:54.040 this case, so that mean that for almost every type 0:15:54.040 --> 0:15:58.320 of risk disclosure that is being issued, that a lawsuit 0:15:58.360 --> 0:16:01.720 could come up if you phrase things in the wrong way, 0:16:01.920 --> 0:16:05.920 if you know, there's something that happens relating to that risk, 0:16:06.120 --> 0:16:09.000 and so there may be too much liability there, and 0:16:09.120 --> 0:16:11.320 you know the effect of that may be that companies 0:16:11.360 --> 0:16:15.560 will just issue very very vague risk disclosures that don't 0:16:15.560 --> 0:16:19.640 say anything. They may not issue risk disclosures at all. Right, 0:16:19.720 --> 0:16:23.479 if I make you liable for a misleading risk disclosure, 0:16:24.280 --> 0:16:27.400 then maybe I won't issue that risk disclosure at all 0:16:27.480 --> 0:16:29.960 in the future. I think that's a concern, and I 0:16:29.960 --> 0:16:32.440 think they're also just concerned that the rule seems to 0:16:32.480 --> 0:16:37.280 be unclear here and it's tough for companies to navigate. 0:16:37.520 --> 0:16:39.440 You know, what you have to disclose and when you 0:16:39.480 --> 0:16:42.240 have to disclose it. And you know, there's a concern 0:16:42.360 --> 0:16:44.840 here that we don't want to create a general duty 0:16:44.880 --> 0:16:50.120 to update everything in these disclosures, because there's so much 0:16:50.280 --> 0:16:54.280 in any any SEC disclosure that it may be impossible 0:16:54.360 --> 0:17:00.160 to you know, constantly update every single aspect of it. 0:17:00.200 --> 0:17:04.320 Is the question how much to disclose of the past 0:17:04.920 --> 0:17:07.480 in the present, you know, if you don't think the 0:17:07.520 --> 0:17:10.240 past is going to affect the future. I mean, what's 0:17:10.240 --> 0:17:11.920 the exact issue. 0:17:12.280 --> 0:17:15.400 I think what Facebook would say is these are primarily 0:17:15.920 --> 0:17:19.479 forward looking statements. They are predictions, and so they're not 0:17:19.520 --> 0:17:24.240 really meant to guarantee every single thing about past event. 0:17:24.480 --> 0:17:28.719 I think that they're saying that we're making no guarantee 0:17:28.760 --> 0:17:33.480 that there has been no unauthorized access to user accounts. 0:17:33.520 --> 0:17:35.479 And in fact, I think they would say, of course, 0:17:36.160 --> 0:17:40.800 of course there have been some abuses of Facebook privacy policies, 0:17:40.880 --> 0:17:43.840 and everyone would know that at the time the risk 0:17:43.880 --> 0:17:47.240 disclosure had been made. And I think Facebook is making 0:17:47.280 --> 0:17:50.680 a fairly subtle argument here, which was to say that 0:17:51.520 --> 0:17:55.359 it's true that we knew that there was an unauthorized 0:17:55.560 --> 0:17:59.400 access by Cambridge Analytica. What we didn't know is that 0:17:59.520 --> 0:18:03.280 it would affect our business so much. We had no 0:18:03.400 --> 0:18:07.480 way of knowing that, and essentially we have no way 0:18:07.480 --> 0:18:12.480 of essentially predicting the future. And essentially this risk disclosure, 0:18:12.560 --> 0:18:16.159 we disclosed this and we didn't know. We just didn't 0:18:16.200 --> 0:18:20.320 know that there was an event that would eventually cause 0:18:20.320 --> 0:18:25.160 significant economic damage to Facebook. We made no implicit representation 0:18:25.760 --> 0:18:28.560 about the past in this particular disclosure. It's more of 0:18:28.600 --> 0:18:30.360 a forward looking disclosure. 0:18:30.440 --> 0:18:34.400 In this case a hypothetical from Justice Kagan. A lot 0:18:34.440 --> 0:18:37.120 of the justices kept coming back to it, and that 0:18:37.400 --> 0:18:41.800 is a company discloses a risk of fire but doesn't 0:18:41.840 --> 0:18:44.920 disclose that there had recently been a fire that destroyed 0:18:44.960 --> 0:18:46.640 fifty percent of the plant. 0:18:47.280 --> 0:18:50.400 Yes, that's a great hypothetical, and I think it pushes 0:18:50.480 --> 0:18:54.280 back upon sort of Facebook statement that these statements do 0:18:54.359 --> 0:19:00.400 not make implicit representations about past events, because implicit in 0:19:00.480 --> 0:19:03.280 the risk of a fire in a building is that 0:19:03.320 --> 0:19:06.760 the building is still there. I think that's one implicit recognition, 0:19:06.880 --> 0:19:09.760 and I think there's also a recognition that there's not 0:19:09.880 --> 0:19:13.320 a known high risk of the building burning down. And 0:19:13.440 --> 0:19:16.520 I think that investors will want to know if there's 0:19:16.560 --> 0:19:20.280 a very very high risk that the building is so 0:19:20.440 --> 0:19:24.439 unsafe that we know it's very likely that it would 0:19:24.760 --> 0:19:28.520 burn down. What she's arguing here is that, you know, 0:19:28.720 --> 0:19:32.040 we should be requiring companies when they make these risk 0:19:32.160 --> 0:19:38.040 disclosures to also speak completely and disclose risks that they 0:19:38.119 --> 0:19:42.320 know about that they can calculate with some reasonable assurance. 0:19:42.560 --> 0:19:46.240 And that's where Justice Kagan may come out at the 0:19:46.320 --> 0:19:46.920 end of the day. 0:19:47.800 --> 0:19:51.639 You mentioned before the regulations, and well, just as Kavanaugh said, 0:19:51.920 --> 0:19:54.960 why can't the SEC just write a rig? Why does 0:19:55.000 --> 0:19:57.399 the judiciary have to walk the plank on this and 0:19:57.440 --> 0:20:00.439 answer the question when the SEC could do it? And 0:20:00.520 --> 0:20:04.040 the Chief Justice and Justice Amy Coney Barrett seem to 0:20:04.080 --> 0:20:06.840 agree with that. I mean, why can't they SEC write 0:20:06.840 --> 0:20:07.480 a regulation? 0:20:08.040 --> 0:20:12.439 They could, but it's difficult to write good regulations, and 0:20:12.520 --> 0:20:16.119 I think that the more general the regulation is, the 0:20:16.240 --> 0:20:19.440 easier it is for the SCC. That's one reason the 0:20:19.480 --> 0:20:24.159 SEC is not adding more specificity. It's also easier though, 0:20:24.280 --> 0:20:28.119 I think for public companies, right, the more specific you 0:20:28.280 --> 0:20:31.720 write the regulations, and you know the company is going 0:20:31.760 --> 0:20:34.320 to have to dig out all of this specific information 0:20:34.440 --> 0:20:38.639 and that could be overly burdensome. And so sometimes corporations 0:20:38.720 --> 0:20:43.880 want fairly vague disclosure requirements that they have some discretion 0:20:44.160 --> 0:20:46.919 to comply with. And that's the whole idea behind principles 0:20:46.920 --> 0:20:50.679 based regulation, which a lot of you know, what you 0:20:50.760 --> 0:20:55.840 might think of as conservative individuals, have advocated for SEC regulation. 0:20:56.600 --> 0:20:59.080 But I think Justice Kavanaugh has a good point, which 0:20:59.119 --> 0:21:01.960 is that you know, if you are leaving this to 0:21:02.280 --> 0:21:06.359 lawsuits to define, then you know courts, which are not 0:21:06.480 --> 0:21:09.320 experts in these matters, have to make these very difficult, 0:21:09.680 --> 0:21:13.880 complicated determinations of what should be disclosed. It also give 0:21:14.240 --> 0:21:18.880 a sense of regulation by enforcement, where lawsuits are being 0:21:19.000 --> 0:21:23.560 used to regulate companies after the fact, and that's a 0:21:23.680 --> 0:21:28.200 running theme about both lawsuits by private litigants as well 0:21:28.240 --> 0:21:32.840 as lawsuits by the Securities and Exchange Commissions. So he 0:21:33.000 --> 0:21:36.320 asked a very good question, but I think that there 0:21:36.359 --> 0:21:39.920 are some pressures that make it difficult for the SEC 0:21:40.040 --> 0:21:45.919 to specify completely what the disclosures does look like. And 0:21:45.960 --> 0:21:48.719 so what we have is a very imperfect system where 0:21:49.359 --> 0:21:53.239 you know, these issues get fleshed out in lawsuits, and 0:21:53.280 --> 0:21:56.680 often the lawsuits are settled, so we never even actually 0:21:56.680 --> 0:22:01.040 resolved what was required. So, you know, the requirements of 0:22:01.119 --> 0:22:05.359 disclosure for public companies, there's not clear guidances. It's a 0:22:05.359 --> 0:22:08.840 lot of discretion, it's a lot of judgment that is 0:22:08.880 --> 0:22:13.480 required in order to craft good disclosures. And I think 0:22:13.520 --> 0:22:18.080 there's you know, some resentment by public corporations that you 0:22:18.200 --> 0:22:22.440 have private enforcers who have a monetary incentive to sue 0:22:22.480 --> 0:22:25.800 whenever they find something wrong in a company's disclosures. And 0:22:26.119 --> 0:22:27.679 you know, you have to pay a lot of money 0:22:27.840 --> 0:22:30.879 sometimes to settle these lawsuits because you don't want to 0:22:30.960 --> 0:22:33.480 risk them going to trial. Now, you know. One point 0:22:33.520 --> 0:22:35.359 I would add, though, is that in addition to this 0:22:35.400 --> 0:22:39.359 private class action, the SEC brought a case against Facebook 0:22:39.480 --> 0:22:44.000 for I believe essentially it's the same disclosure, and they 0:22:44.200 --> 0:22:48.280 alleged that they were materially misleading, and Facebook actually settled 0:22:48.280 --> 0:22:50.840 that case for one hundred million dollars. So this is 0:22:50.880 --> 0:22:54.720 not a lawsuit that was brought only by private planets. 0:22:54.720 --> 0:22:59.359 The SEC also has been asserting and pushing this particular 0:22:59.440 --> 0:23:00.400 theory as well. 0:23:00.440 --> 0:23:03.200 Coming up next, how might the Justice is rule here? 0:23:03.440 --> 0:23:07.280 This is Bloomberg. I've been talking to Professor James Park 0:23:07.359 --> 0:23:11.560 of UCLA Law School about oral arguments before the Supreme 0:23:11.640 --> 0:23:14.920 Court this week in Facebook's attempt to get out of 0:23:14.960 --> 0:23:19.520 a shareholder lawsuit accusing it of fraud for misleading investors 0:23:19.840 --> 0:23:23.320 about a known risk from the massive Cambridge Analytic data 0:23:23.320 --> 0:23:27.960 breach in twenty fifteen. Something that Justice Gorsech said resonated 0:23:28.000 --> 0:23:32.280 with me. He suggested that reasonable investors were well aware 0:23:32.320 --> 0:23:35.840 of the risk of data breaches at large companies, including 0:23:35.840 --> 0:23:36.880 by foreign governments. 0:23:37.040 --> 0:23:40.040 I think China probably has all of our FBI files, 0:23:40.160 --> 0:23:43.520 you know, I mean, data breaches are part of our 0:23:43.600 --> 0:23:46.960 lives these days. There are data breaches. But I think 0:23:47.000 --> 0:23:49.840 what the plaintiffs would say is that the Cambridge Analytical 0:23:49.960 --> 0:23:55.120 breach was an extraordinary one. I'm involving millions of different customers, 0:23:55.320 --> 0:23:57.879 and you know, I believe the data was used for 0:23:57.960 --> 0:24:03.159 political purposes. And you know, not every data breach results 0:24:03.200 --> 0:24:06.440 in a five billion dollar fine by the Federal Trade Commission. 0:24:06.840 --> 0:24:10.200 And so, you know, certainly we're generally aware there could 0:24:10.280 --> 0:24:13.320 be data breaches, but you could argue the investors assume 0:24:13.720 --> 0:24:17.080 most companies are managing them pretty well and they're not 0:24:17.119 --> 0:24:21.640 going to affect the stock price significantly, but this one did. Now, 0:24:21.840 --> 0:24:24.919 what Facebook is saying, though, is that, you know, we 0:24:25.040 --> 0:24:27.159 knew about the breach at the time we made this 0:24:27.320 --> 0:24:31.080 risk disclosure, but it wasn't quite clear it was going 0:24:31.160 --> 0:24:35.720 to have this big impact. That was still unclear, and 0:24:36.240 --> 0:24:38.840 you know, we warned about that risk, but we didn't know. 0:24:39.119 --> 0:24:42.240 We didn't know that the stock price would be affected 0:24:42.280 --> 0:24:45.399 as much as it ultimately was. When the scandal broke 0:24:45.520 --> 0:24:50.679 more widely and regulators reacted, and that, you know, it 0:24:50.720 --> 0:24:53.920 became something that hurt Facebook's reputation. That aspect of it 0:24:54.200 --> 0:24:57.160 we didn't know at the time the risk disclosure was issued. 0:24:57.960 --> 0:25:00.520 Do you have any feel from the oral organ about 0:25:00.520 --> 0:25:01.440 how they might rule. 0:25:03.119 --> 0:25:06.760 I think it'll be a very fact specific decision. I 0:25:06.800 --> 0:25:12.520 think that the court understands that this is a really, 0:25:12.600 --> 0:25:17.879 really hard issue and the Supreme Court is not qualified 0:25:17.920 --> 0:25:22.520 to write very detailed disclosure rules, and so I think 0:25:22.560 --> 0:25:26.480 they will try to limit the case to its fact. 0:25:26.840 --> 0:25:29.240 It's a tough one. It's really tough to predict which 0:25:29.240 --> 0:25:32.719 way they're going to go. I suspect maybe a majority 0:25:32.840 --> 0:25:36.600 will side with Facebook. You know that this is a 0:25:36.640 --> 0:25:40.679