WEBVTT - Ghost Guns, Butterfly Knives and the Second Amendment 0:00:02.800 --> 0:00:06.360 In April of last year, President Joe Biden announced new 0:00:06.440 --> 0:00:09.960 rules meant to crack down on so called ghost guns 0:00:10.280 --> 0:00:11.680 that can be built at home. 0:00:12.280 --> 0:00:16.119 All of a sudden, it's no longer a ghost. It 0:00:16.200 --> 0:00:21.520 has return address. It's going to help save lives, reduce crime, 0:00:22.280 --> 0:00:24.160 and get more criminals off the streets. 0:00:24.920 --> 0:00:28.560 The rules require sellers to run background checks and include 0:00:28.680 --> 0:00:32.840 serial numbers on the gunkits. Last month, a federal judge 0:00:32.880 --> 0:00:37.080 in Texas struck down those regulations, but this week, by 0:00:37.120 --> 0:00:40.080 a five to four vote, the Supreme Court is allowing 0:00:40.159 --> 0:00:45.160 federal officials to resume enforcing the rules while litigation plays out. 0:00:45.680 --> 0:00:48.920 Joining me a Second Amendment law expert John Donahue, a 0:00:48.960 --> 0:00:52.360 professor at Stanford Law School, it seems like there's a 0:00:52.440 --> 0:00:55.640 massive amount of litigation over gun restrictions. 0:00:56.000 --> 0:00:58.920 So, as is always the case, there is this back 0:00:59.000 --> 0:01:05.399 and forth between regulatory measures and industry response, and in general, 0:01:05.959 --> 0:01:10.080 every restriction on weapons of any kind is being challenged 0:01:10.120 --> 0:01:14.560 in federal court, and unfortunately, in my view, some of 0:01:14.600 --> 0:01:19.440 the federal courts are trying to preempt the enforcement of 0:01:19.480 --> 0:01:23.440 these measures. So the litigation is going on literally across 0:01:23.480 --> 0:01:27.840 the country. It's, to my mind, very unfortunate that these 0:01:27.880 --> 0:01:30.960 restrictions are being undermined by the federal courts. 0:01:31.160 --> 0:01:32.840 What exactly is a ghost gun? 0:01:33.160 --> 0:01:37.480 Ghost guns are essentially a name that refers to the 0:01:37.600 --> 0:01:41.560 kits that one can buy online without going through any 0:01:41.560 --> 0:01:45.080 sort of background check and allow one to make a 0:01:45.200 --> 0:01:50.480 fully functioning weapon in a relatively easy fashion. It might 0:01:50.520 --> 0:01:53.040 take you five or six hours to put a complete 0:01:53.120 --> 0:01:55.760 coast gun together. But the thing that makes them so 0:01:55.880 --> 0:02:01.360 attractive to criminals is that they bypass the normal requirements 0:02:01.600 --> 0:02:05.040 of going through a background check when purchasing a weapon 0:02:05.680 --> 0:02:11.720 and also eliminating identifying serial number that would be required 0:02:11.919 --> 0:02:15.919 on a legally purchased gun through a normal gun seller. 0:02:16.360 --> 0:02:19.760 So Texas Judge Ried O'Connor, the judge who ruled that 0:02:19.840 --> 0:02:26.560 Obamacare was unconstitutional, struck down the regulations. What was his reasoning, So, it's. 0:02:26.480 --> 0:02:30.760 Essentially this all out assault on the idea that the 0:02:30.800 --> 0:02:36.680 government can restrict individual's ability to acquire weapons. And in 0:02:36.720 --> 0:02:40.000 the ghost gun case, they were essentially saying that these 0:02:40.120 --> 0:02:43.880 efforts on the part of the Biden administration to curtail 0:02:44.240 --> 0:02:48.920 access to ghost guns was violating the Second Amendment, highlighting 0:02:48.960 --> 0:02:51.760 the part of the Second Amendment that said the right 0:02:51.840 --> 0:02:55.200 to keep in bear arms shall not be infringed, ignoring 0:02:55.240 --> 0:02:57.600 the first part of the Amendment, of course, which refers 0:02:57.639 --> 0:03:01.480 to a well regulated militia being necessary to a free state. 0:03:01.720 --> 0:03:04.480 Were you surprised by the Supreme Court's decision to let 0:03:04.480 --> 0:03:08.720 the regulations remain in place pending litigation, You know. 0:03:08.919 --> 0:03:12.000 It wasn't surprising to me, because it does seem to 0:03:12.040 --> 0:03:15.960 me that the issue of ghost guns is such a clear, 0:03:16.440 --> 0:03:21.720 valuable governmental intervention that I thought even this Supreme Court 0:03:22.240 --> 0:03:25.600 would have a hard time trying to stripe down these 0:03:25.600 --> 0:03:29.040 sensible government restrictions. The only thing that did surprise me 0:03:29.080 --> 0:03:31.720 a little bit was that it was only five to four. 0:03:32.000 --> 0:03:35.200 I thought Kavanaugh would have joined this and at least 0:03:35.200 --> 0:03:38.120 made it a six to three decisions. And it also 0:03:38.440 --> 0:03:40.240 shows that we may not be out of the woods, 0:03:40.360 --> 0:03:43.080 because this was a five to four decision saying, at 0:03:43.160 --> 0:03:45.640 least at this point, we're not going to stop the 0:03:45.680 --> 0:03:49.440 Biden administration. But it certainly wasn't guaranteeing that they wouldn't 0:03:49.480 --> 0:03:53.600 try to stop the Biden administration later after more thorough 0:03:53.640 --> 0:03:55.240 litigation on the issue. 0:03:55.360 --> 0:03:58.080 Also this week, a three judge panel of the Ninth 0:03:58.160 --> 0:04:04.400 Circuit found that thirty year ban on butterfly knives violates 0:04:04.440 --> 0:04:07.320 the Second Amendment, and they based it on the Supreme 0:04:07.400 --> 0:04:10.920 Court's new history and tradition standard. How did they come 0:04:10.960 --> 0:04:11.720 to that decision? 0:04:12.120 --> 0:04:17.000 This is a mind boggling decision. The first sentence starts 0:04:17.040 --> 0:04:22.599 off saying something like, because this Hawaii restriction on these 0:04:22.640 --> 0:04:27.000 type of knives violates the clear text of the Amendment, 0:04:27.200 --> 0:04:31.880 it must be struck down. And it's almost extraordinary, I think, 0:04:31.960 --> 0:04:36.960 to argue that butterfly knives could in any way advance 0:04:37.040 --> 0:04:40.440 the interests of a well regulated militia. So it just 0:04:40.520 --> 0:04:43.680 seems absurd on its face, both as a matter of 0:04:43.839 --> 0:04:47.880 wise policy, but also just as a matter of interpreting 0:04:48.040 --> 0:04:52.120 the Second Amendment. So I was very puzzled by the decision. 0:04:52.279 --> 0:04:55.640 But again, unfortunately, many of the federal judges seem to 0:04:55.760 --> 0:05:00.359 think that every restriction on guns of any kind be 0:05:00.480 --> 0:05:05.280 struck down, and they're sort of advancing that mission whenever 0:05:05.320 --> 0:05:06.440 they have an opportunity. 0:05:07.160 --> 0:05:10.760 I mean, the Supreme Court Bruin case was about gun 0:05:10.800 --> 0:05:14.359 regulations in New York. How did they say that this 0:05:14.760 --> 0:05:18.360 same framework applies to butterfly knives. 0:05:18.920 --> 0:05:23.040 It's interesting a number of years ago, the former Republican, 0:05:23.120 --> 0:05:26.320 I should add. Supreme Court Justice John Paul Stevens said, 0:05:26.320 --> 0:05:29.840 the single worst decision in his thirty four years on 0:05:29.920 --> 0:05:33.320 the Supreme Court was the Heller decision, which is the 0:05:33.360 --> 0:05:36.039 first time that the Supreme Court said, there is this 0:05:36.279 --> 0:05:39.880 individual right under the Second Amendment to have a gun 0:05:39.920 --> 0:05:43.720 in your home for personal defense. And that was almost 0:05:43.720 --> 0:05:47.880 certainly wrongly decided, as John Paul Stephen said, but Bruin 0:05:48.000 --> 0:05:51.760 has expanded the harm enormously because it not only struck 0:05:51.800 --> 0:05:54.200 down this one hundred and nine year old New York 0:05:54.240 --> 0:05:57.919 City restriction on carrying of gun and said that you 0:05:58.040 --> 0:06:02.159 have this individual constitutional right to carry guns outside the home, 0:06:02.480 --> 0:06:06.560 but it also sets forth a sort of bizarre framework 0:06:06.680 --> 0:06:09.560 in which they said that all of the evidence that 0:06:09.640 --> 0:06:14.680 New York brought forward showing that the restrictions reduced homicides 0:06:14.800 --> 0:06:18.919 reduced violent crime were irrelevant. We didn't care what the 0:06:19.000 --> 0:06:23.839 consequences were, because this is a constitutional right. And unless 0:06:23.920 --> 0:06:28.200 you can show us some historical restrictions, you know, perhaps 0:06:28.200 --> 0:06:32.200 going back to seventeen ninety one that are analogous to 0:06:32.240 --> 0:06:35.200 the restriction that you're talking about now, we're just going 0:06:35.279 --> 0:06:39.520 to say you cannot have that type of gun regulation today, 0:06:39.680 --> 0:06:42.279 and so that's what the Hawaii decision picked up on. 0:06:42.400 --> 0:06:46.200 I said, well, a butterfly knife is a weapon. The 0:06:46.240 --> 0:06:50.560 Second Amendment refers to arms, and so we will extend 0:06:50.880 --> 0:06:54.880 this conclusion to a restriction on butterfly knives. And because 0:06:54.880 --> 0:06:58.560 we don't see any similar restriction on butterfly knives in 0:06:58.640 --> 0:07:01.960 seventeen ninety one, you can't do it today. Makes no 0:07:02.120 --> 0:07:07.200 sense in any customary interpretation of constitutional law or good policy. 0:07:07.600 --> 0:07:08.720 But that's where we are. 0:07:09.000 --> 0:07:13.160 Hawaii even pointed to statutes dating back to eighteen thirty 0:07:13.280 --> 0:07:18.480 seven that regulated bladed weapons like booie knives, but the 0:07:18.520 --> 0:07:23.040 panel said the state hadn't cited any statute which categorically 0:07:23.080 --> 0:07:26.360 banned the possession of any type of pocket knife. You know, 0:07:26.520 --> 0:07:29.120 the Ninth Circuit used to be a very liberal circuit, 0:07:29.560 --> 0:07:31.680 but now it depends on the panel you get. And 0:07:31.720 --> 0:07:35.360 in this case there were two Trump appointees and one 0:07:35.640 --> 0:07:39.080 George W. Bush appointee. Do you think that Hawaii should 0:07:39.080 --> 0:07:40.680 ask for an on bank. 0:07:40.440 --> 0:07:44.800 Hearing, Yes, and even on bank hearing now you don't know, 0:07:44.920 --> 0:07:48.800 because they actually don't take the entire Ninth Circuit for 0:07:49.000 --> 0:07:52.440 on bomb, but they will select the portion of it, 0:07:52.480 --> 0:07:55.240 and if you've got a bad draw, you could imagine 0:07:55.640 --> 0:07:59.120 not prevailing on the en bomb. But I still think 0:07:59.160 --> 0:08:03.120 that they should because it's an embarrassment for the federal 0:08:03.200 --> 0:08:10.240 court to have such an unprincipled and unwise federal precedent. 0:08:10.360 --> 0:08:13.360 So I'm hoping that they strike this down through the 0:08:13.440 --> 0:08:14.440 unbanked proceeding. 0:08:15.040 --> 0:08:18.080 So our trial and appellate courts around the country now 0:08:18.640 --> 0:08:23.520 looking at modern day weapons and determining their legality by 0:08:23.880 --> 0:08:27.320 century old statutes, Is that what it's come to. 0:08:28.000 --> 0:08:31.160 Yeah, I mean, it's a bizarre process. Think about the 0:08:31.240 --> 0:08:35.200 Brewing case where they struck down restrictions on carrying of guns. 0:08:35.360 --> 0:08:39.000 Texas had a law from eighteen seventy one to nineteen 0:08:39.080 --> 0:08:44.240 ninety five that prohibited carrying of guns and in Brewing. 0:08:44.320 --> 0:08:47.520 They said, oh, well, that's a late statute, So certainly 0:08:47.559 --> 0:08:50.280 that can't be relevant to whether there's a right to 0:08:50.320 --> 0:08:53.840 carry guns because that was established way back in seventeen 0:08:53.920 --> 0:08:56.920 ninety one. And so the Supreme Court, even when they 0:08:57.000 --> 0:09:01.320 had long standing prohibition in the Brewing case that they 0:09:01.320 --> 0:09:05.040 could have pointed to, said they're all irrelevant because they 0:09:05.120 --> 0:09:09.679 came too late. So it's a very unwise standard for law, because, 0:09:09.720 --> 0:09:14.240 of course, weaponry has come vastly more lethal and dangerous 0:09:14.400 --> 0:09:17.440 in the last fifty years than it was way back 0:09:17.480 --> 0:09:21.600 in seventeen ninety one. So it's a very troubling trend. 0:09:21.760 --> 0:09:25.679 And I'm hoping in some of these really bizarre decisions 0:09:25.679 --> 0:09:28.240 that are coming down, a Supreme Court will step in 0:09:28.400 --> 0:09:32.240 and try to curb the enthusiasm that has developed among 0:09:32.960 --> 0:09:38.080 basically Trump appointees and other very far right judges to 0:09:38.160 --> 0:09:40.240 strike down every gun regulation. 0:09:41.520 --> 0:09:46.760 And there's also a separate lawsuit challenging California's ban. Do 0:09:46.880 --> 0:09:49.480 these depend on the type of weapons ban? 0:09:50.480 --> 0:09:50.640 Now? 0:09:50.880 --> 0:09:54.320 I think this panel that issued the decision in Hawaii 0:09:54.800 --> 0:10:00.720 would ban every restriction on weapons practically across board. I 0:10:00.760 --> 0:10:04.559 know that one issue that is being litigated very extensively 0:10:04.720 --> 0:10:08.599 are assault weapons bands and bands on high capacity magazines. 0:10:08.800 --> 0:10:12.760 And if you read the harder and enthusiasm that the 0:10:13.440 --> 0:10:17.680 recent decision on the Hawaii case has for making the 0:10:17.760 --> 0:10:22.760 Second Amendment this superpower to strike down government regulations, I 0:10:22.800 --> 0:10:26.000 think all of those regulations would be struck down at 0:10:26.200 --> 0:10:28.560 that panel work making the decision. 0:10:28.760 --> 0:10:31.080 Thanks so much for being on the show. That's Professor 0:10:31.200 --> 0:10:35.040 John Donahue of Stanford Law School. I note Michael Bloomberg, 0:10:35.080 --> 0:10:38.600 the founder majority owner of Bloomberg LP, the parent company 0:10:38.600 --> 0:10:41.679 of Bloomberg Radio, is a donor to groups that support 0:10:41.760 --> 0:10:47.400 gun control, including Every Town for Gun Safety. The two 0:10:47.480 --> 0:10:51.120 judges sit one floor apart in the Manhattan Federal Courthouse, 0:10:51.480 --> 0:10:55.840 but they came to completely different decisions on cryptocurrency. The 0:10:55.920 --> 0:10:59.439 crucial question is whether crypto is a security that can 0:10:59.480 --> 0:11:03.440 be regular by the sec Judge Jed Raycoff found that 0:11:03.600 --> 0:11:08.280 Terraform Lab's token was a security when sold to retail investors, 0:11:08.480 --> 0:11:12.480 while Judge Anna Lisa Torres came to the opposite conclusion 0:11:12.800 --> 0:11:17.160 about Ripple Labs token, dueling decisions that create more legal 0:11:17.280 --> 0:11:21.320 uncertainty in the regulation of crypto. But when fighting the 0:11:21.480 --> 0:11:25.920 sec Coinbase and other crypto companies appear to be sticking 0:11:25.960 --> 0:11:29.560 with their argument that crypto is not a security, as 0:11:29.600 --> 0:11:33.280 well as arguing that the Supreme Court's Major Questions doctrine 0:11:33.520 --> 0:11:38.240 applies to the crypto industry. Another argument rejected by Judge 0:11:38.320 --> 0:11:42.080 Raycoff joining me is securities law expert James Park, a 0:11:42.160 --> 0:11:46.040 professor at UCLA Law School. The Supreme Court sort of 0:11:46.080 --> 0:11:51.160 invented this Major Questions doctrine fairly recently explain. 0:11:50.840 --> 0:11:55.200 What it is. Sure it is a recent doctrine at 0:11:55.280 --> 0:11:58.400 least it's been emphasized recently in a few cases. And 0:11:58.480 --> 0:12:02.760 my understanding of the doctrine is that it typically applies 0:12:02.880 --> 0:12:07.040 when an administrative agency uses a questionable reading of a 0:12:07.200 --> 0:12:11.240 statute to substantially increase its regulatory authority over what the 0:12:11.280 --> 0:12:14.439 Court says is a significant portion of the American economy. 0:12:14.800 --> 0:12:15.800 And the reason I think. 0:12:15.640 --> 0:12:18.640 For the doctrine, according to the Supreme Court is that 0:12:18.880 --> 0:12:24.520 administrative agencies have limited power. They're not in the US Constitution. 0:12:24.760 --> 0:12:29.040 They only are delegated power when Congress passes a law. 0:12:29.640 --> 0:12:33.320 And if the law is unclear, what the doctrine is 0:12:33.320 --> 0:12:36.720 saying is that Congress should act to make it clear 0:12:37.200 --> 0:12:41.720 that the agency has this power, rather than the agency 0:12:41.840 --> 0:12:45.840 taking it upon itself to interpret the statute as giving 0:12:45.880 --> 0:12:47.400 it expansive power. 0:12:48.320 --> 0:12:53.120 Tara Labs was making the argument that crypto enforcement is 0:12:53.160 --> 0:12:56.880 a major question and trying to get an SEC lawsuit dismissed. 0:12:57.400 --> 0:12:58.000 Yeah, that's right. 0:12:58.080 --> 0:13:01.600 They did raise that issue, and the judge in that case, 0:13:01.720 --> 0:13:07.440 Judge Jed Raykoff, rejected the argument. And Judge Raykoff, as 0:13:07.440 --> 0:13:10.000 you may know, is one of the most prominent federal 0:13:10.080 --> 0:13:13.880 judges in the country and is regarded as having special 0:13:13.920 --> 0:13:17.400 expertise in securities laws. So his decision is one that 0:13:17.480 --> 0:13:20.559 will be influential. And I think the basic argument that 0:13:21.760 --> 0:13:25.040 Judge Raycoff made, if I'm understanding it correctly, is that 0:13:26.000 --> 0:13:31.160 in this case, the SEC is simply applying well established 0:13:31.400 --> 0:13:36.120 disclosure requirement to crypto assets when they are security and 0:13:36.200 --> 0:13:38.240 this is part of the bread and butter of what 0:13:38.320 --> 0:13:42.960 the SEC does, and so it does not implicate a 0:13:43.000 --> 0:13:48.480 substantial new authority or power over significant economic activity. That's 0:13:48.520 --> 0:13:51.720 I think what Judge Raykoff says, and that's what he 0:13:51.760 --> 0:13:53.679 said in his opinion in the Terraform case. 0:13:54.080 --> 0:13:58.600 So Judge Rakoff said that crypto wasn't a major industry 0:13:58.760 --> 0:14:01.480 and it would ignore reaction to put crypto on the 0:14:01.520 --> 0:14:05.880 same plane of importance as the energy and tobacco industries. 0:14:06.559 --> 0:14:10.560 But crypto advocates say it's a one trillion dollar industry 0:14:10.920 --> 0:14:15.400 that's attracted investments from hundreds of millions of people globally. 0:14:16.000 --> 0:14:18.640 Yeah, I think that's the argument that the defendants are 0:14:18.640 --> 0:14:21.000 going to make, that the crypto industry will make that 0:14:21.120 --> 0:14:25.920 this has the potential to be a transformative technology that 0:14:26.040 --> 0:14:28.360 could reshape the economy. 0:14:28.360 --> 0:14:30.560 And therefore it involves. 0:14:30.000 --> 0:14:34.000 A significant amount of economic activity. I think the answer 0:14:34.080 --> 0:14:37.360 on the other side, though, is that, you know, sure, 0:14:37.400 --> 0:14:40.800 on paper, if you add up the value of bitcoin 0:14:40.960 --> 0:14:45.080 and ethereum and some of the other crypto acids, maybe 0:14:45.120 --> 0:14:48.880 it totals about a trillion dollars, but that's based upon 0:14:49.560 --> 0:14:55.560 fairly speculative trading and perhaps potentially manipulation. Do we really 0:14:55.640 --> 0:14:57.520 believe that these crypto. 0:14:57.160 --> 0:14:59.400 Assets are worth that much? 0:14:59.520 --> 0:15:02.520 I think the there are certainly questioned as to the 0:15:02.560 --> 0:15:04.920 true value of these crypto assets. 0:15:05.080 --> 0:15:06.080 Another point that. 0:15:05.960 --> 0:15:09.040 Should be made is that the bulk of the value 0:15:09.040 --> 0:15:13.960 of crypto is in bitcoin and ethereum, and a few 0:15:14.000 --> 0:15:17.840 years ago the SEC explicitly said it did not consider 0:15:17.920 --> 0:15:21.120 bitcoin or ethereum to be security. So it's not trying 0:15:21.160 --> 0:15:26.040 to sert jurisdiction over the two crypto assets that comprise 0:15:26.160 --> 0:15:29.040 the bulk of that one trillion dollars, and so the 0:15:29.160 --> 0:15:32.400 remaining crypto assets, some of which the SEC is trying 0:15:32.440 --> 0:15:38.040 to regulate the value is probably substantially smaller than you know, 0:15:38.160 --> 0:15:42.200 trillion dollars, and so the SEC might argue that this 0:15:42.320 --> 0:15:45.920 does not involve a major question, because it's really a 0:15:45.960 --> 0:15:48.880 fairly small amount, and you know, even a trillion dollars 0:15:48.920 --> 0:15:52.520 if you think about you know, the market capitalization of Tesla, 0:15:52.560 --> 0:15:55.560 for example, is around a trillion dollars. That's a single 0:15:55.600 --> 0:15:59.880 public corporation. Then the context of public markets thoughts and 0:16:00.080 --> 0:16:03.120 on the trillion dollars, it's a lot, but it's killed 0:16:03.160 --> 0:16:06.160 in comparison to the value of the markets that the 0:16:06.240 --> 0:16:09.200 SEC has regulated for a long time. 0:16:09.320 --> 0:16:10.800 So that would be the argument. 0:16:10.520 --> 0:16:13.680 I think that the SEC is making on the other side, 0:16:13.880 --> 0:16:18.320 that really the market is not as significant or strong, 0:16:18.640 --> 0:16:21.920 and that the real value is speculative and it's really 0:16:22.000 --> 0:16:24.040 guesswork as to whether or not this is going to 0:16:24.080 --> 0:16:26.040 have any economic impact at all. 0:16:26.680 --> 0:16:29.320 Is there a question as to whether the SEC can 0:16:29.400 --> 0:16:35.480 regulate cryptocurrencies or whether it can regulate all digital assets. 0:16:37.000 --> 0:16:39.640 I think the SEC has made it clear that they're 0:16:39.680 --> 0:16:43.640 only trying to regulate those crypto assets that are security 0:16:44.240 --> 0:16:47.440 that fall under the Howie test, and that's only a portion. 0:16:47.720 --> 0:16:49.320 That is only a portion. 0:16:49.120 --> 0:16:52.520 Of the crypto assets that are out there. I think 0:16:52.560 --> 0:16:55.760 if the SEC was trying to regulate all crypto assets, 0:16:55.880 --> 0:16:59.800 that could be potentially more problematic. But to the extent 0:16:59.840 --> 0:17:02.680 that they are saying we are regulating only those crypto 0:17:02.760 --> 0:17:06.159 assets that are securities, I think they're on firmer ground, 0:17:06.520 --> 0:17:10.720 and I think the major difference between potential major questions 0:17:10.720 --> 0:17:12.960 our argument in this case versus some of the ones 0:17:13.000 --> 0:17:15.760 that have been discussed in prior Supreme Court cases is 0:17:15.800 --> 0:17:19.320 that the courts can decide case by case whether a 0:17:19.359 --> 0:17:22.480 crypto asset is a security or is not. And so 0:17:22.520 --> 0:17:25.960 there's a natural check on the SEC's authority where you 0:17:26.000 --> 0:17:28.240 know they're not going to be able to simply assert 0:17:28.280 --> 0:17:31.040 authority over all crypto assets that they're not trying to 0:17:31.080 --> 0:17:34.159 do so, and to the extent that they overreach and 0:17:34.200 --> 0:17:37.879 they try to regulate some crypto assets that are not securities, 0:17:38.119 --> 0:17:42.200 then litigation in the courts can check that potential abuse 0:17:42.240 --> 0:17:42.679 of power. 0:17:43.480 --> 0:17:48.440 There are dueling decisions by two Manhattan federal judges who 0:17:48.480 --> 0:17:52.639 sit one floor apart in the Federal Courthouse, Judge Rakeoff 0:17:52.960 --> 0:17:56.679 and Judge an Alisa Torres. They came to different conclusions 0:17:56.680 --> 0:18:00.719 on whether crypto is a security when sold to retail investors, 0:18:01.080 --> 0:18:05.080 and they both applied the same nineteen forty six Supreme 0:18:05.119 --> 0:18:05.800 Court ruling. 0:18:06.200 --> 0:18:09.720 It's a truly interesting set of decisions, and I can't 0:18:09.760 --> 0:18:12.760 recall anything like this ever happening before, although I'm sure 0:18:12.800 --> 0:18:16.000 it had. Where you have this initial decision in the 0:18:16.119 --> 0:18:19.800 Ripple case, and it's said that in some circumstances Ripple 0:18:20.200 --> 0:18:22.600 is not a security when it was offered and traded 0:18:22.640 --> 0:18:25.800 in secondary market, and that was a loss for the SEC. 0:18:26.040 --> 0:18:28.840 I don't think it was a loss, you know, that 0:18:29.000 --> 0:18:31.720 was fatal to the SEC's position, but it was a 0:18:31.800 --> 0:18:35.160 significant loss, and that could have been the only opinion, 0:18:35.240 --> 0:18:38.840 substantial opinion on the application of the Howie pest for 0:18:38.880 --> 0:18:41.359 a long time, because it takes a long time for 0:18:41.359 --> 0:18:44.359 a case to be appealed, and it takes time for 0:18:44.720 --> 0:18:47.560 the appellate court to issue a decision, So that could 0:18:47.600 --> 0:18:51.000 have been the most significant precedent on the issue for 0:18:51.160 --> 0:18:54.359 some time. And then just a few weeks later, Judge 0:18:54.440 --> 0:18:58.600 Raykoff comes out with his decision which discusses the Ripple 0:18:58.640 --> 0:19:04.680 decision and rejects this distinction between institutional investors who are 0:19:04.680 --> 0:19:09.560 buying directly from Ripple and its founders versus the retail 0:19:09.600 --> 0:19:13.560 investors who are buying on secondary markets. He says basically 0:19:13.680 --> 0:19:18.280 that the marketing that was critical, the determining that this 0:19:18.480 --> 0:19:22.880 was a security because there were basically statements saying that 0:19:22.920 --> 0:19:26.639 there would be an expectation of profitability, that the price 0:19:26.640 --> 0:19:30.720 would rise because of the efforts of pairform in Judge 0:19:30.760 --> 0:19:33.919 Rakoff's case, and what Judge Racop said is that those 0:19:34.280 --> 0:19:40.439 communications were distributed to both retail and institutional investors, and 0:19:40.520 --> 0:19:44.160 so to draw a distinction between those two markets, according 0:19:44.160 --> 0:19:48.720 to Judge Rakoff, that was not, in his view, a viable. 0:19:48.359 --> 0:19:49.879 Distinction that could have been made. 0:19:49.880 --> 0:19:54.000 And so we have competing decisions here to different views, 0:19:54.040 --> 0:19:56.600 and we'll see what the second Circuit says at some 0:19:56.680 --> 0:19:59.719 point that body that would resolve this sort of a split. 0:20:00.280 --> 0:20:02.359 Judges in the Southern District. 0:20:02.000 --> 0:20:02.560 Of New York. 0:20:02.920 --> 0:20:06.199 These judges are district court judges, so they're on the 0:20:06.240 --> 0:20:10.920 same level, so their opinion isn't binding on other district 0:20:10.920 --> 0:20:14.840 court judges. But I'm wondering if, as you mentioned, Judge 0:20:14.880 --> 0:20:18.199 Rakoff is one of the most respected federal judges in 0:20:18.200 --> 0:20:20.879 the country. He's been on the bench for nearly thirty 0:20:20.960 --> 0:20:24.600 years and is known for his expertise in securities law. 0:20:24.960 --> 0:20:28.240 So I'm wondering whether his opinion carries more weight. 0:20:28.960 --> 0:20:31.840 It has a special residence, I think, and I think 0:20:31.880 --> 0:20:36.080 that's partly because of who judge Raykoff is. It may 0:20:36.080 --> 0:20:39.679 also be because other judges find the reasoning to be persuasive. 0:20:39.920 --> 0:20:41.880 And really, at the end of the day, I think 0:20:41.920 --> 0:20:43.920 what district court judges are going to do is they're 0:20:43.960 --> 0:20:46.720 not gonna say, well, this is a decision by this 0:20:46.920 --> 0:20:49.679 judge versus another judge, because they are all great judges. 0:20:49.720 --> 0:20:52.200 In my view, the Southern District of New York has 0:20:52.359 --> 0:20:54.720 as good of judges as any in the district court. 0:20:55.000 --> 0:20:56.360 And I think what they're. 0:20:56.200 --> 0:20:59.200 Going to really look at very carefully is the reasoning 0:20:59.400 --> 0:21:02.280 and the decide whether or not they agree with it. 0:21:02.440 --> 0:21:04.200 And you know, judges could differ. 0:21:04.280 --> 0:21:07.680 The Howie test is broad, but they may line up 0:21:07.680 --> 0:21:09.800 in favor of one interpretation. 0:21:09.280 --> 0:21:11.520 Over the other if there are additional. 0:21:11.119 --> 0:21:14.000 Decisions that we see in the coming months or years. 0:21:14.640 --> 0:21:18.680 So I'm a little confused, James. These companies like coinbase, 0:21:18.880 --> 0:21:23.840 are they arguing the major questions doctrine and arguing that 0:21:24.320 --> 0:21:27.440 crypto is not a security? Are they making both arguments? 0:21:28.520 --> 0:21:31.800 Yes, that's right. These are both arguments that they're asserting, 0:21:32.080 --> 0:21:35.200 and to some extent they are independent. Although you could 0:21:35.320 --> 0:21:39.000 argue there is a relationship between the two arguments, you 0:21:39.040 --> 0:21:43.520 could say that perhaps because of the ambiguity of the 0:21:43.560 --> 0:21:47.600 definition of the security, that maybe it's not proper for 0:21:47.640 --> 0:21:50.240 the SEC to take the position that it's taken, and 0:21:50.280 --> 0:21:55.000 that it is essentially exploiting an ambiguous definition in order 0:21:55.040 --> 0:21:59.200 to regulate substantial major questions. So there is a relationship 0:21:59.280 --> 0:22:03.240 between the two arguments, but they're also both independent arguments. 0:22:03.280 --> 0:22:06.480 And certainly the SEC has to prove in the coinbase 0:22:06.600 --> 0:22:10.280 case that there were securities trading on that exchange, that 0:22:10.359 --> 0:22:13.600 some of the crypto accids were securities, because the SEC 0:22:13.680 --> 0:22:18.080 only has jurisdiction over a securities exchange. I mean, that's 0:22:18.080 --> 0:22:21.320 why it's important in the coinbased case that the SEC 0:22:21.480 --> 0:22:25.040 established that at least some of the crypto ascids trading 0:22:25.080 --> 0:22:28.720 on that exchange were securities under the Howie pat. 0:22:29.040 --> 0:22:33.080 Coinbase, which has cited the major questions doctrine in an 0:22:33.200 --> 0:22:37.479 August fourth filing despite Judge Racoff's opinion, and is asking 0:22:37.520 --> 0:22:43.080 another judge to dismiss an SEC lawsuit, and it's pointing 0:22:43.160 --> 0:22:48.639 to the decision by Judge and Alisa Torrez and says 0:22:48.640 --> 0:22:51.560 that Judge Rakeoff is wrong. So a third judge is 0:22:51.600 --> 0:22:55.040 going to decide which judge is right in his or 0:22:55.080 --> 0:22:55.720 her opinion. 0:22:57.160 --> 0:23:00.480 Yes, I think that the judge will certainly put potentially 0:23:00.520 --> 0:23:02.840 weigh in on the decision. 0:23:02.920 --> 0:23:03.120 Now. 0:23:03.160 --> 0:23:06.760 Another possibility, though, is that the judge may simply say 0:23:06.840 --> 0:23:10.720 something like it's premature at this time. I can't decide 0:23:11.280 --> 0:23:15.480 this particular issue on the pleadings alone. I want more information, 0:23:15.680 --> 0:23:16.680 more discovery. 0:23:17.040 --> 0:23:18.680 So it's possible the judge. 0:23:18.400 --> 0:23:23.000 To avoid for a while deciding between these two competing interpretations. 0:23:23.000 --> 0:23:26.360 But it's also very possible that the judge will look 0:23:26.400 --> 0:23:30.879 at these two decisions and decide that she agrees with 0:23:30.960 --> 0:23:34.040 one of them versus the other. That's one possibility. Another 0:23:34.119 --> 0:23:37.119 possibility is that the judge in the coin base case 0:23:37.280 --> 0:23:41.199 could craft her own approach and basically say, here's a 0:23:41.320 --> 0:23:45.000 third way that these other two judges have overlooked. So 0:23:45.040 --> 0:23:47.280 there are a number of possibilities as two to what 0:23:47.400 --> 0:23:47.919 could happen. 0:23:48.320 --> 0:23:51.960 Will you explain why it's so important for the crypto 0:23:52.160 --> 0:23:56.080 industry to make this argument and to try to undercut 0:23:56.400 --> 0:23:59.040 the SEC which is trying to police it. 0:24:00.000 --> 0:24:00.679 Great question. 0:24:01.400 --> 0:24:07.879 It is important because the SEC's position creates uncertainty in 0:24:07.920 --> 0:24:11.879 this industry, creates uncertainty, and when there is uncertainty in 0:24:11.920 --> 0:24:17.280 an industry, then investors are less willing to commit funds. 0:24:17.960 --> 0:24:22.280 And so if the status of crypto is not certain, 0:24:23.000 --> 0:24:28.320 then institutional investors who have been willing to invest. 0:24:27.920 --> 0:24:30.880 In crypto, you know, if there is uncertainty. 0:24:30.400 --> 0:24:33.000 They're not going to invest or they're going to invest 0:24:33.000 --> 0:24:37.359 on less favorable terms. If the uncertainty is taken away, 0:24:38.359 --> 0:24:42.679 then we may see more funds allocated towards crypto. And 0:24:42.720 --> 0:24:45.600