1 00:00:03,200 --> 00:00:08,000 Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio. 2 00:00:10,240 --> 00:00:14,280 Speaker 2: He's the first person charged in the FTX collapse to 3 00:00:14,400 --> 00:00:19,600 Speaker 2: avoid prison. Former FTX chief engineer Nishad Singh was one 4 00:00:19,640 --> 00:00:23,640 Speaker 2: of three top executives who turned on Sam Bankman Freed 5 00:00:23,720 --> 00:00:28,440 Speaker 2: and testified against him after his once thriving crypto empire 6 00:00:28,600 --> 00:00:32,239 Speaker 2: imploded in twenty twenty two. Bankman Freed is serving a 7 00:00:32,320 --> 00:00:35,680 Speaker 2: twenty five year prison sentence after a jury found him 8 00:00:35,720 --> 00:00:40,479 Speaker 2: guilty of fraud last year. Alameda Research chief executive officer 9 00:00:40,560 --> 00:00:45,720 Speaker 2: Caroline Ellison, the star witness against Bankman Freed, is reporting 10 00:00:45,760 --> 00:00:49,040 Speaker 2: to prison in September to serve a two year sentence. 11 00:00:49,560 --> 00:00:53,640 Speaker 2: Ryan Salome, one of Bankman Freed's top lieutenants at FTX 12 00:00:53,800 --> 00:00:57,240 Speaker 2: who did not testify against him, is serving a seven 13 00:00:57,280 --> 00:01:00,560 Speaker 2: and a half year sentence. But Singh walked out of 14 00:01:00,560 --> 00:01:04,280 Speaker 2: the courtroom yesterday. A free man joining me is Bloomberg 15 00:01:04,360 --> 00:01:07,920 Speaker 2: Legal reporter Ava Benny Morrison, who covered the trial and 16 00:01:08,120 --> 00:01:11,080 Speaker 2: was at the sentencing, tell us a little about Singh. 17 00:01:11,480 --> 00:01:15,000 Speaker 3: Mshad sing was one of three top executives at FTX 18 00:01:15,400 --> 00:01:18,000 Speaker 3: who turned on Sam Banks and Freed and signed up 19 00:01:18,000 --> 00:01:21,840 Speaker 3: his corporating witnesses to the government. They all testified at 20 00:01:21,959 --> 00:01:26,080 Speaker 3: stmin Fred's broad trial and eventually helped land his conviction 21 00:01:26,200 --> 00:01:29,800 Speaker 3: to statement. Freed's currently serving twenty five years in jail, 22 00:01:30,280 --> 00:01:33,160 Speaker 3: and after his sentence, it was time for the corporators 23 00:01:33,160 --> 00:01:35,920 Speaker 3: to face their own punishment for their role in the 24 00:01:35,959 --> 00:01:39,080 Speaker 3: collapse and the years long thought at FTX. Now Mishad 25 00:01:39,160 --> 00:01:42,280 Speaker 3: Singh turned up in court yesterday and we heard some 26 00:01:42,319 --> 00:01:46,880 Speaker 3: pretty compelling arguments from his attorney about why he should 27 00:01:46,959 --> 00:01:50,240 Speaker 3: avoid spending a day in prison. Only a couple of 28 00:01:50,240 --> 00:01:54,160 Speaker 3: months ago, Caroline Elison, the former CEO of Alimenta Research, 29 00:01:54,840 --> 00:01:55,960 Speaker 3: was sentenced to. 30 00:01:55,760 --> 00:01:56,880 Speaker 4: Two years in jail. 31 00:01:57,280 --> 00:02:01,040 Speaker 3: This is unusual most corporators end up avoiding any jail 32 00:02:01,120 --> 00:02:05,080 Speaker 3: time whatsoever, but fortunately for Nishad scene that was what happened. 33 00:02:05,240 --> 00:02:08,959 Speaker 3: Judge Lewis Caplan found that he deserved more cooperation credit 34 00:02:08,960 --> 00:02:12,040 Speaker 3: than Caroline Ellison, and he was essentially less culpable than 35 00:02:12,040 --> 00:02:14,360 Speaker 3: the florid at FTX than Allison was. 36 00:02:14,400 --> 00:02:17,240 Speaker 2: It also that he was involved in the fraud for 37 00:02:17,680 --> 00:02:19,280 Speaker 2: a shorter period of time. 38 00:02:19,720 --> 00:02:23,240 Speaker 3: Judge Kaplan certainly seemed to focus on the amount of 39 00:02:23,280 --> 00:02:27,840 Speaker 3: time Mishading knew about the fraud, so Nishad who was 40 00:02:27,919 --> 00:02:31,440 Speaker 3: the chief engineer at FTX, only found out in September 41 00:02:31,919 --> 00:02:36,200 Speaker 3: of twenty twenty two that FTX had been sending customer 42 00:02:36,280 --> 00:02:39,399 Speaker 3: funds billions at dollars worth of customer fund to alimated research. 43 00:02:39,840 --> 00:02:43,640 Speaker 3: In contrast, Caroline Ellison knew about this for years and 44 00:02:44,320 --> 00:02:48,200 Speaker 3: was an accomplice to Sam Bankman. Fridge and Caplan found 45 00:02:48,240 --> 00:02:51,680 Speaker 3: that this certainly helped Mishad Thing's case, the fact that 46 00:02:51,680 --> 00:02:53,240 Speaker 3: he only knew about it for a couple of months 47 00:02:53,240 --> 00:02:56,280 Speaker 3: before STX collapsed. You know, both the prosecution and the 48 00:02:56,280 --> 00:02:59,919 Speaker 3: defense did admit even when Nishad Thing found out about this, 49 00:03:00,080 --> 00:03:03,200 Speaker 3: max is broad and that STX couldn't afford to cover 50 00:03:03,240 --> 00:03:07,240 Speaker 3: the whole customer deposits. He continued to allow campaign donations 51 00:03:07,240 --> 00:03:10,280 Speaker 3: to be made in his name and forged ahead with 52 00:03:10,440 --> 00:03:15,000 Speaker 3: a purchase of a beautiful house in Washington State, something 53 00:03:15,040 --> 00:03:17,639 Speaker 3: that his lawyer said he will forever be ashamed of. 54 00:03:17,919 --> 00:03:20,120 Speaker 5: Three point seven million dollar house. 55 00:03:20,840 --> 00:03:23,320 Speaker 3: Yes, that's right, it was worth three point seven million 56 00:03:23,360 --> 00:03:25,959 Speaker 3: dollars and he bought it with his friends with a 57 00:03:26,040 --> 00:03:28,120 Speaker 3: place to go and when he could relax and go 58 00:03:28,160 --> 00:03:32,240 Speaker 3: on holidays. This was kind of the only luxury. Maybe 59 00:03:32,440 --> 00:03:36,280 Speaker 3: indulging purchase that Mishad seen had May when he was STX. 60 00:03:36,480 --> 00:03:38,840 Speaker 3: His lawyers, you know, really stressed that he was a 61 00:03:38,880 --> 00:03:42,440 Speaker 3: true believer in effect of altruism, his philosophy that drew 62 00:03:42,480 --> 00:03:45,400 Speaker 3: a lot of the STX and LM research folks together, 63 00:03:45,600 --> 00:03:47,440 Speaker 3: this idea that you could earn a lot of money 64 00:03:47,440 --> 00:03:49,280 Speaker 3: and give most of your way to make the world 65 00:03:49,400 --> 00:03:52,600 Speaker 3: better place. Mishad was very interested in charity. You know, 66 00:03:52,640 --> 00:03:55,840 Speaker 3: he's been involved in given away a lot of concernings 67 00:03:55,960 --> 00:03:59,400 Speaker 3: since he was in college. And his lawyers really tried 68 00:03:59,440 --> 00:04:02,280 Speaker 3: to push that point that this was, you know, yeah, 69 00:04:02,320 --> 00:04:05,960 Speaker 3: a big purchase, but it didn't look like he's and he's. 70 00:04:05,800 --> 00:04:08,240 Speaker 2: Been working all this time, unlike Caroline Ellison. 71 00:04:08,640 --> 00:04:12,040 Speaker 3: In Caroline Ellison's case, her lawyers have said that she 72 00:04:12,160 --> 00:04:17,919 Speaker 3: was really struggling to find an employment after the SPX collapse, 73 00:04:18,400 --> 00:04:21,680 Speaker 3: mainly because of the reputational damage that came is being 74 00:04:21,720 --> 00:04:27,080 Speaker 3: associated with STX and Elemental Research. She had been working 75 00:04:27,080 --> 00:04:30,080 Speaker 3: on writing a non fiction book and a math book 76 00:04:30,360 --> 00:04:34,839 Speaker 3: that Mischadsen had been lucky enough to find a job. 77 00:04:34,960 --> 00:04:37,320 Speaker 3: He's been working as a software engineer for a firm 78 00:04:37,360 --> 00:04:41,440 Speaker 3: in California since FTX collapsed, and he's also been volunteering 79 00:04:41,520 --> 00:04:44,720 Speaker 3: at a homeless shelter up from his house in the 80 00:04:44,760 --> 00:04:48,440 Speaker 3: Bay Area, and at night he's working on code for 81 00:04:48,560 --> 00:04:52,839 Speaker 3: a affordable housing project. So this certainly went towards his 82 00:04:53,279 --> 00:04:56,400 Speaker 3: argument for someone that is trying to build his life 83 00:04:56,440 --> 00:05:00,240 Speaker 3: back up again, and you know, he's certainly just any 84 00:05:00,320 --> 00:05:03,680 Speaker 3: interest in getting involved in a multi billion dollar thought again. 85 00:05:04,040 --> 00:05:08,039 Speaker 2: When he spoke to the judge, how did it come across. 86 00:05:08,080 --> 00:05:11,159 Speaker 3: Something that struck me about Mishad in court yesterday was 87 00:05:11,200 --> 00:05:15,279 Speaker 3: that he remained very calm and very composed the entire time. 88 00:05:15,680 --> 00:05:18,280 Speaker 3: When he got up to speak to Judge Caplan, he 89 00:05:18,400 --> 00:05:21,080 Speaker 3: approached the lectern with a piece of paper with his 90 00:05:21,120 --> 00:05:23,640 Speaker 3: written words on it in his hand and said that 91 00:05:23,720 --> 00:05:27,400 Speaker 3: how remorseful he was and how gutted he was about 92 00:05:27,520 --> 00:05:30,719 Speaker 3: the harm that he caused to so many innocent people. 93 00:05:31,000 --> 00:05:33,800 Speaker 3: He spoke about, you know, wanting to prove to not 94 00:05:33,880 --> 00:05:36,839 Speaker 3: only the judge but others that he was on the 95 00:05:36,880 --> 00:05:40,240 Speaker 3: past to redemption and he wanted to do good and 96 00:05:40,279 --> 00:05:42,520 Speaker 3: be a force for good in the world since being 97 00:05:42,560 --> 00:05:45,400 Speaker 3: part of the calamity at SS And what. 98 00:05:45,440 --> 00:05:48,479 Speaker 2: Was the reaction when he learned that he wasn't going 99 00:05:48,520 --> 00:05:49,400 Speaker 2: to have to go to prison. 100 00:05:49,839 --> 00:05:52,960 Speaker 3: I think that the big question mark was whether Judge 101 00:05:53,040 --> 00:05:57,600 Speaker 3: Caplan was going to send Mishad's prison or save him 102 00:05:57,640 --> 00:05:59,839 Speaker 3: from that, especially after the two years Tent said he 103 00:05:59,839 --> 00:06:03,040 Speaker 3: had the Caroline Elephent. So when he got to the 104 00:06:03,680 --> 00:06:06,960 Speaker 3: pointy end of delivering his judgment, Mi Shad was standing 105 00:06:07,279 --> 00:06:11,440 Speaker 3: between his two lawyers, and Judge Kaplin said I order 106 00:06:11,520 --> 00:06:14,320 Speaker 3: you to report to the Attorney General of the United 107 00:06:14,360 --> 00:06:17,560 Speaker 3: States the time served. And at that point Shad sing 108 00:06:17,600 --> 00:06:21,600 Speaker 3: barely reacted. There was a very saint smile that came 109 00:06:21,640 --> 00:06:25,320 Speaker 3: across his face. While his family, of which there were many, 110 00:06:25,720 --> 00:06:29,560 Speaker 3: seated in the public gallery behind him, Augar his Beyonce 111 00:06:29,880 --> 00:06:33,040 Speaker 3: Claire put her hand over her mouth. His mother kissed 112 00:06:33,040 --> 00:06:36,240 Speaker 3: his Beyonce on the cheek, and they held hands and 113 00:06:36,560 --> 00:06:38,680 Speaker 3: you could see that how emotional that they were. They 114 00:06:38,720 --> 00:06:41,320 Speaker 3: were crying, but you could just sense the kind of 115 00:06:41,400 --> 00:06:43,480 Speaker 3: utter relief that was put across the court room. 116 00:06:44,000 --> 00:06:47,599 Speaker 2: What seemed a little unusual is that the judge addressed 117 00:06:47,839 --> 00:06:52,200 Speaker 2: Thing's parents and said, I don't see anything you did wrong. 118 00:06:52,720 --> 00:06:53,680 Speaker 2: Tell us what led to that. 119 00:06:54,440 --> 00:06:58,839 Speaker 3: That's right part of things. Sentencing his parents along with 120 00:06:58,920 --> 00:07:01,760 Speaker 3: his brother and other friends and former colleagues that FTX 121 00:07:01,920 --> 00:07:06,320 Speaker 3: permitted letters in support of him, and his parents' letters 122 00:07:06,360 --> 00:07:10,480 Speaker 3: were pretty heartbreaking. They spoke about raising their son as 123 00:07:10,480 --> 00:07:13,160 Speaker 3: best as they could, spoke about how intelligent and talented 124 00:07:13,160 --> 00:07:15,720 Speaker 3: he was, and then discovering that he had been caught 125 00:07:15,800 --> 00:07:18,239 Speaker 3: up and export at FTX, And there were some pretty 126 00:07:18,280 --> 00:07:21,320 Speaker 3: harrowing parts in there about the impact that the FTX 127 00:07:21,320 --> 00:07:23,440 Speaker 3: collapse had had on the Shad and how he had 128 00:07:23,680 --> 00:07:27,440 Speaker 3: contemplated suicide in the weeks and months after FTX. His 129 00:07:27,520 --> 00:07:30,680 Speaker 3: parents spoke about the impact on his mental health, and 130 00:07:30,920 --> 00:07:34,200 Speaker 3: the Shad lawyer actually made a point of saying, you know, 131 00:07:34,320 --> 00:07:37,480 Speaker 3: every time Shad flew over from California to New York 132 00:07:37,520 --> 00:07:40,160 Speaker 3: to meet with us at our offices, his father was 133 00:07:40,200 --> 00:07:42,440 Speaker 3: there in the conference room sitting across from him, or 134 00:07:42,520 --> 00:07:45,360 Speaker 3: his younger brother was there. So he had the unwavering 135 00:07:45,400 --> 00:07:48,440 Speaker 3: support of his family. And that was very clear from 136 00:07:48,440 --> 00:07:50,600 Speaker 3: the amount of people that turned up in the court yesterday. 137 00:07:50,920 --> 00:07:53,520 Speaker 3: And the judge addressed that at the end of his sentence, 138 00:07:53,600 --> 00:07:55,600 Speaker 3: after he told the Shad that he wouldn't have to 139 00:07:55,600 --> 00:07:58,480 Speaker 3: serve danja Ol, and he said, you know, I'd like 140 00:07:58,520 --> 00:08:01,120 Speaker 3: to just address this Thing's parents on a personal note, 141 00:08:01,400 --> 00:08:03,240 Speaker 3: and he said, there is nothing I can see that 142 00:08:03,320 --> 00:08:05,800 Speaker 3: you did wrong, and then he walked out of the courtroom. 143 00:08:05,920 --> 00:08:08,760 Speaker 3: And I think it was quite an emotional moment in 144 00:08:08,760 --> 00:08:12,360 Speaker 3: the courtroom, especially if Mishad's parents to see that. They 145 00:08:12,360 --> 00:08:15,160 Speaker 3: were I think quite receptive to what he said and 146 00:08:15,640 --> 00:08:18,760 Speaker 3: almost grateful because you can imagine the impact he's had 147 00:08:19,040 --> 00:08:19,840 Speaker 3: on his family. 148 00:08:20,600 --> 00:08:23,680 Speaker 5: So this case is over. What's the next sentencing? 149 00:08:23,760 --> 00:08:25,880 Speaker 2: Is that this final sentencing in this case. 150 00:08:27,040 --> 00:08:30,960 Speaker 3: Yes, we've got one final sentencing hearing left in this 151 00:08:31,520 --> 00:08:35,120 Speaker 3: FTX saga, and that is of Gary Wong. Gary Wong 152 00:08:35,280 --> 00:08:37,520 Speaker 3: was the co founder at STX. He helped build the 153 00:08:37,559 --> 00:08:41,880 Speaker 3: exchange with Sam Bank mcfreed. He became the chief technology officer, 154 00:08:42,840 --> 00:08:46,079 Speaker 3: and he was also a corporating witness and gay testimony 155 00:08:46,080 --> 00:08:49,199 Speaker 3: at Sam's trial. He's due to be sentenced at the 156 00:08:49,280 --> 00:08:52,160 Speaker 3: end of November, so it'll be interesting to see where 157 00:08:52,679 --> 00:08:56,760 Speaker 3: Judge Kaplan puts him on the culpability scale because he 158 00:08:57,880 --> 00:09:03,440 Speaker 3: knew about the afforded STX and animator research a little 159 00:09:03,440 --> 00:09:07,320 Speaker 3: bit earlier than Michez Thing did. Thought from the evidence 160 00:09:07,320 --> 00:09:10,600 Speaker 3: that we heard it call, he wasn't as safely involved 161 00:09:10,679 --> 00:09:11,760 Speaker 3: as Camlin. 162 00:09:11,440 --> 00:09:14,400 Speaker 2: Elision was and of course we should mention that Sam 163 00:09:14,480 --> 00:09:18,480 Speaker 2: Bankman freed is appealing his conviction. Thanks so much, Ava. 164 00:09:19,000 --> 00:09:22,880 Speaker 2: That's Bloomberg Legal reporter Ava. Benny Morrison coming up next 165 00:09:22,920 --> 00:09:26,199 Speaker 2: on the Bloomberg Law Show. The crypto industry is using 166 00:09:26,240 --> 00:09:30,040 Speaker 2: a Texas legal strategy to dial up its attacks on 167 00:09:30,120 --> 00:09:35,680 Speaker 2: the SEC. A leading crypto trading platform is trying a 168 00:09:35,880 --> 00:09:40,520 Speaker 2: preemptive strike against the SEC. Crypto dot Com is suing 169 00:09:40,559 --> 00:09:43,920 Speaker 2: the SEC before the agency has a chance to bring 170 00:09:44,000 --> 00:09:47,040 Speaker 2: an enforcement action against it. And it's suing in the 171 00:09:47,120 --> 00:09:51,160 Speaker 2: strategic venue of Texas, home of the Fifth Circuit, the 172 00:09:51,160 --> 00:09:54,880 Speaker 2: most conservative appellate court in the country, which has restricted 173 00:09:54,920 --> 00:09:59,280 Speaker 2: agency powers, including in the Jocracy case which led to 174 00:09:59,320 --> 00:10:03,480 Speaker 2: a Supreme Court decision last year limiting the SEC's use 175 00:10:03,600 --> 00:10:06,880 Speaker 2: of in house judges. Joining me is securities law expert 176 00:10:07,000 --> 00:10:11,120 Speaker 2: James Park, a professor at UCL Law School. Crypto dot 177 00:10:11,160 --> 00:10:15,720 Speaker 2: Com got a Wells Notice indicating the SEC was going 178 00:10:15,760 --> 00:10:19,400 Speaker 2: to bring an enforcement action, and instead of waiting, it 179 00:10:19,480 --> 00:10:21,640 Speaker 2: beat the SEC to the pun so to speak. 180 00:10:22,160 --> 00:10:26,320 Speaker 1: It did and that's unusual. You know. Wells notice is 181 00:10:26,400 --> 00:10:29,960 Speaker 1: an indication by the SEC that it's panning to bring 182 00:10:30,000 --> 00:10:33,000 Speaker 1: a case, and the purpose of the Wells notice, which 183 00:10:33,000 --> 00:10:36,280 Speaker 1: has been around since the nineteen seventies, is to give 184 00:10:36,520 --> 00:10:41,280 Speaker 1: the potential defendant a chance to provide evidence or arguments 185 00:10:41,320 --> 00:10:44,640 Speaker 1: to the SDC persuading it not to bring a case. 186 00:10:44,960 --> 00:10:48,720 Speaker 1: And so this is unusual in that a typical response 187 00:10:48,800 --> 00:10:52,040 Speaker 1: to a Wells Notice would be to make a final 188 00:10:52,120 --> 00:10:55,120 Speaker 1: attempt to persuade the SEC not to bring a case, 189 00:10:55,800 --> 00:11:01,080 Speaker 1: and instead Crypto has preemptively sued the SDC in the 190 00:11:01,120 --> 00:11:05,800 Speaker 1: Eastern District of Texas and basically argue that it is 191 00:11:05,920 --> 00:11:09,840 Speaker 1: overreaching its jurisdiction even though the SEC is not actually 192 00:11:10,400 --> 00:11:12,079 Speaker 1: voted to bring the case. 193 00:11:12,960 --> 00:11:16,839 Speaker 2: So is the case ripe then for decision if they 194 00:11:16,880 --> 00:11:20,280 Speaker 2: don't know exactly what the SEC would be doing. 195 00:11:20,720 --> 00:11:23,520 Speaker 1: That's the argument I think the SEC is going to make. 196 00:11:24,040 --> 00:11:26,880 Speaker 1: They will argue that we have not decided to sue 197 00:11:26,880 --> 00:11:29,440 Speaker 1: you at this particular point in time, and so there's 198 00:11:29,480 --> 00:11:33,520 Speaker 1: not a ripe dispute that can really be adjudicated in 199 00:11:33,920 --> 00:11:38,160 Speaker 1: this case. I think Crypto dot Com will argue though, 200 00:11:38,280 --> 00:11:41,440 Speaker 1: that well, you know, we know you're going to bring 201 00:11:41,520 --> 00:11:44,720 Speaker 1: enforcement against us. We know the theory because it's been 202 00:11:44,760 --> 00:11:49,640 Speaker 1: asserted against other crypto exchanges. And therefore we should be 203 00:11:49,679 --> 00:11:56,720 Speaker 1: permitted to challenge your policy, your administrative actions, and we 204 00:11:56,840 --> 00:12:00,040 Speaker 1: might have standing because we could be injured or affected 205 00:12:00,120 --> 00:12:03,800 Speaker 1: by that particular decision. But I think that'll be a 206 00:12:03,840 --> 00:12:06,800 Speaker 1: critical issue for the district court to consider whether this 207 00:12:06,920 --> 00:12:08,319 Speaker 1: is indeed a right dispute. 208 00:12:08,760 --> 00:12:12,840 Speaker 2: Crypto dot Com, which is based in Singapore, last year 209 00:12:12,880 --> 00:12:18,200 Speaker 2: moved at US headquarters from Miami to Tyler, Texas. Does 210 00:12:18,240 --> 00:12:21,720 Speaker 2: it seem like that's a move to a friendlier jurisdiction. 211 00:12:22,559 --> 00:12:27,120 Speaker 1: It could be for a variety of reasons, not necessarily 212 00:12:27,200 --> 00:12:31,640 Speaker 1: related to this lawsuit, but simply the lack of a 213 00:12:31,679 --> 00:12:37,320 Speaker 1: state income tax generally a business friendly climate. I would 214 00:12:37,360 --> 00:12:41,360 Speaker 1: be surprised sort of the ability to file in a 215 00:12:41,440 --> 00:12:45,400 Speaker 1: particular jurisdiction is what may have motivated Crypto dot com. 216 00:12:45,559 --> 00:12:47,720 Speaker 1: And you know, I think there are a lot of 217 00:12:47,760 --> 00:12:50,720 Speaker 1: considerations that go into play when you are moving your 218 00:12:51,120 --> 00:12:55,800 Speaker 1: headquarters from one place to another, But certainly the fact 219 00:12:55,840 --> 00:12:58,240 Speaker 1: that it is in Texas now it's more of a 220 00:12:58,400 --> 00:13:01,680 Speaker 1: natural place for the like this to be filed as 221 00:13:01,720 --> 00:13:04,800 Speaker 1: opposed if they were in Miami and filing in Texas, 222 00:13:04,880 --> 00:13:07,720 Speaker 1: it'd be more of an attenuated link between Crypto dot 223 00:13:07,760 --> 00:13:10,400 Speaker 1: Com and Texas if its headquarters was not located. Now, 224 00:13:10,600 --> 00:13:14,000 Speaker 1: certainly they have customers in Texas, they do business in Texas, 225 00:13:14,040 --> 00:13:16,320 Speaker 1: and so they could argue they should still be able 226 00:13:16,360 --> 00:13:18,720 Speaker 1: to see in Texas. But the fact that they are 227 00:13:18,760 --> 00:13:21,640 Speaker 1: headquarters there may make the arguments that the case should 228 00:13:21,640 --> 00:13:23,680 Speaker 1: be in Texas a little bit stronger. 229 00:13:24,080 --> 00:13:27,440 Speaker 2: Any case in Texas that's appealed would be appealed to 230 00:13:27,520 --> 00:13:32,520 Speaker 2: the Fifth Circuit, which is notoriously conservative and has struck 231 00:13:32,600 --> 00:13:35,560 Speaker 2: down a slough of Biden regulations. 232 00:13:36,000 --> 00:13:41,679 Speaker 1: It hasn't particularly with respect to SEC regulations. They are 233 00:13:41,720 --> 00:13:47,760 Speaker 1: struck down very extensive, ambitious regulations of hedge funds private 234 00:13:47,800 --> 00:13:52,880 Speaker 1: funds that would have required disclosure relating to fees, and 235 00:13:53,400 --> 00:13:57,679 Speaker 1: they have struck down disclosure rules were leading to stock 236 00:13:57,760 --> 00:14:03,760 Speaker 1: repurchases by companies. They basically said, the SEC arbitrarily changed 237 00:14:03,800 --> 00:14:09,000 Speaker 1: its position on a proxy advisory firms and the advice 238 00:14:09,080 --> 00:14:12,720 Speaker 1: they give with respect to voting. One exception, though, with 239 00:14:12,760 --> 00:14:16,480 Speaker 1: respect to the Fifth Circuit, is that initially they upheld 240 00:14:17,400 --> 00:14:21,840 Speaker 1: various rules relating to diversity and diversity disclosure passed by 241 00:14:21,840 --> 00:14:25,760 Speaker 1: the Nasdaq, which is a regulated exchange that is regulated 242 00:14:25,800 --> 00:14:28,840 Speaker 1: by the SEC, and past various rules saying that if 243 00:14:28,840 --> 00:14:31,120 Speaker 1: you don't have a certain diversity on your board, you 244 00:14:31,120 --> 00:14:34,880 Speaker 1: have to issue disclosure a panel that this circuit initially 245 00:14:35,400 --> 00:14:40,440 Speaker 1: upheld that decision, but the entire Fifth Circuit unboked. The 246 00:14:40,600 --> 00:14:45,280 Speaker 1: entire court decided to review that decision, and reports of 247 00:14:45,320 --> 00:14:48,440 Speaker 1: the argument indicate that they may strike down that rule 248 00:14:48,440 --> 00:14:51,240 Speaker 1: as well. So the answer is yes, so that the 249 00:14:51,240 --> 00:14:55,880 Speaker 1: Fifth Circuit generally has not been a favorable court for 250 00:14:56,160 --> 00:14:56,960 Speaker 1: the SEC. 251 00:14:57,240 --> 00:15:00,720 Speaker 2: If the SEC brings in action, would it be brought 252 00:15:00,760 --> 00:15:01,800 Speaker 2: in the second Circuit? 253 00:15:02,080 --> 00:15:06,040 Speaker 1: It depends. I think it depends on the circumstances. And 254 00:15:06,120 --> 00:15:08,960 Speaker 1: they have sort of a wide amount of discretion. Is 255 00:15:08,960 --> 00:15:12,200 Speaker 1: where they can file a suit. And you know, wherever 256 00:15:12,520 --> 00:15:16,480 Speaker 1: there are investors who have been harmed by a particular 257 00:15:16,760 --> 00:15:19,680 Speaker 1: practice and so forth, that they might choose to sue 258 00:15:19,720 --> 00:15:22,960 Speaker 1: in that venue. But you know, they could have chosen Texas. 259 00:15:23,040 --> 00:15:25,600 Speaker 1: You know, the SEC might have simply said, your headquarters 260 00:15:25,680 --> 00:15:28,000 Speaker 1: in Texas will sue you in Texas. They might have 261 00:15:28,040 --> 00:15:31,360 Speaker 1: suit in Washington, DC. That's another place where they can 262 00:15:31,400 --> 00:15:34,640 Speaker 1: bring suit, and they often bring suit in the Southern 263 00:15:34,680 --> 00:15:37,640 Speaker 1: District of New York. There's a common venues and there's 264 00:15:37,680 --> 00:15:40,160 Speaker 1: a lot that goes into I think choosing a venue 265 00:15:40,160 --> 00:15:42,880 Speaker 1: there's no real science to it, And I think they 266 00:15:43,000 --> 00:15:47,920 Speaker 1: actually still could sue Crypto dot Com in another jurisdiction, 267 00:15:48,080 --> 00:15:50,720 Speaker 1: in another venue if they chose to bring a case 268 00:15:50,760 --> 00:15:54,000 Speaker 1: against Crypto. I don't think there's anything about this particular 269 00:15:54,120 --> 00:15:58,240 Speaker 1: case that precludes them from suing Crypto independently in the 270 00:15:58,320 --> 00:16:01,080 Speaker 1: enforcement action that they might have been planning to bring. 271 00:16:01,440 --> 00:16:04,840 Speaker 1: And then you could have concurrent lawsuits where you could 272 00:16:04,840 --> 00:16:07,720 Speaker 1: have this proceeding in Texas at the same time as 273 00:16:07,760 --> 00:16:11,960 Speaker 1: a SEC enforcement case against Crypto and Washington DC, and 274 00:16:12,040 --> 00:16:15,200 Speaker 1: that poses a certain complication, which might be you know, 275 00:16:15,240 --> 00:16:18,560 Speaker 1: an argument for dismissing one of the cases on ripe 276 00:16:18,640 --> 00:16:20,720 Speaker 1: this grounds is that it may not be a good 277 00:16:20,760 --> 00:16:24,400 Speaker 1: thing to have two concurrent lawsuits against the same defendants 278 00:16:24,400 --> 00:16:27,200 Speaker 1: that are basically deciding the same issue. 279 00:16:27,440 --> 00:16:32,240 Speaker 2: So is Crypto dot COM's lawsuit about the SEC's power 280 00:16:32,280 --> 00:16:33,680 Speaker 2: about agency power? 281 00:16:34,200 --> 00:16:36,840 Speaker 1: That's certainly part of it. It is a broader question, 282 00:16:36,920 --> 00:16:40,240 Speaker 1: and they're they're interrelating, right, it's sort of you know, 283 00:16:40,320 --> 00:16:45,360 Speaker 1: I'm questioning your agency power, your jurisdiction that could be 284 00:16:45,400 --> 00:16:49,560 Speaker 1: asserted against US. And if the SEC brought a case 285 00:16:49,680 --> 00:16:53,520 Speaker 1: against Crypto, the assumption is that the SEC has jurisdiction 286 00:16:53,680 --> 00:16:56,880 Speaker 1: and power, it would be just more of a background issue. 287 00:16:56,960 --> 00:17:00,720 Speaker 1: Both cases, I think would raise the same basic issue, 288 00:17:01,640 --> 00:17:04,639 Speaker 1: but you know, the one in Texas, I think is 289 00:17:04,720 --> 00:17:07,840 Speaker 1: much more hypothetical and it's much more of a hypothetical 290 00:17:08,440 --> 00:17:13,119 Speaker 1: injury to Crypto dot Com. Whereas if the SEC sues 291 00:17:13,200 --> 00:17:18,160 Speaker 1: Crypto dot Com, then Crypto has a very clear basis 292 00:17:18,200 --> 00:17:21,240 Speaker 1: for saying that we have been injured by the SEC's 293 00:17:21,280 --> 00:17:24,560 Speaker 1: action and the SEC does not have authority, and so 294 00:17:25,040 --> 00:17:28,760 Speaker 1: there's an argument that it might be better to decide 295 00:17:28,800 --> 00:17:32,520 Speaker 1: that issue in that concrete setting where the SEC has 296 00:17:32,560 --> 00:17:37,920 Speaker 1: asserted it's jurisdiction under Crypto, rather than hypothetically wondering whether 297 00:17:37,960 --> 00:17:40,920 Speaker 1: the SEC does have jurisdiction over Crypto. 298 00:17:41,359 --> 00:17:46,359 Speaker 2: We've talked before about how Crypto has been fighting the 299 00:17:46,520 --> 00:17:51,560 Speaker 2: SEC in different ways. Is this affirmative litigation part of 300 00:17:51,600 --> 00:17:53,000 Speaker 2: a broader strategy. 301 00:17:53,640 --> 00:17:57,960 Speaker 1: It's a good question as to whether there's any coordination. No, 302 00:17:58,160 --> 00:18:03,320 Speaker 1: is there a crypto industry that is essentially strategize That's 303 00:18:03,359 --> 00:18:07,000 Speaker 1: something I just don't know, but you know, certainly these 304 00:18:07,119 --> 00:18:10,920 Speaker 1: arguments are out there, and they've been developed in earlier 305 00:18:11,000 --> 00:18:16,919 Speaker 1: cases by by Ripple by binance by coinbase, and I 306 00:18:16,960 --> 00:18:21,440 Speaker 1: think crypto dot Com and its attorneys and I've learned 307 00:18:21,480 --> 00:18:25,720 Speaker 1: from those arguments, and I think that they are trying 308 00:18:25,760 --> 00:18:29,520 Speaker 1: to open up another front in the battle. And perhaps 309 00:18:29,600 --> 00:18:32,280 Speaker 1: their belief is that, you know, if you can get 310 00:18:32,400 --> 00:18:36,160 Speaker 1: a favorable decision from a Texas court, a fifth Circuit court, 311 00:18:37,119 --> 00:18:40,560 Speaker 1: that that might help our cause in some way with 312 00:18:41,200 --> 00:18:45,120 Speaker 1: other appellate judges or the US Supreme Court. And so 313 00:18:45,320 --> 00:18:47,639 Speaker 1: I think that you know, even if there is not 314 00:18:47,760 --> 00:18:53,159 Speaker 1: coordination among various members of the industry, there is just 315 00:18:53,640 --> 00:18:57,720 Speaker 1: a concerted industry argument that is being asserted in different 316 00:18:58,280 --> 00:19:03,280 Speaker 1: venues and in jurisdiction that you know, may ultimately be 317 00:19:03,320 --> 00:19:07,480 Speaker 1: decided by the US Supreme Court. And having a variety 318 00:19:07,520 --> 00:19:10,680 Speaker 1: of judges weigh in could be helpful to the crypto 319 00:19:10,760 --> 00:19:15,399 Speaker 1: industry if you're getting more favorable ruling that are skeptical 320 00:19:15,640 --> 00:19:19,400 Speaker 1: of the SEC's jurisdiction of a crypto asset. Now, there's 321 00:19:19,440 --> 00:19:22,879 Speaker 1: also a risk though to a strategy where you're bringing 322 00:19:22,960 --> 00:19:25,800 Speaker 1: multiple cases, is that some of those cases may go 323 00:19:25,920 --> 00:19:28,640 Speaker 1: against you and so forth. You know, I also think 324 00:19:28,680 --> 00:19:31,480 Speaker 1: there's a pr aspect to this as well, where you know, 325 00:19:31,560 --> 00:19:35,680 Speaker 1: we're filing a high profile action against the SEC. Let's 326 00:19:35,720 --> 00:19:39,440 Speaker 1: create this narrative that you know, the SEC is abusing 327 00:19:39,480 --> 00:19:42,359 Speaker 1: its authority and that a lot of folks are angry 328 00:19:42,440 --> 00:19:46,200 Speaker 1: about them. Are you know? Basically it's coming up again 329 00:19:46,280 --> 00:19:49,399 Speaker 1: and again, right, I think you know that coinbase and 330 00:19:49,520 --> 00:19:52,200 Speaker 1: binance cases are not really in the news as much. 331 00:19:52,280 --> 00:19:56,200 Speaker 1: So hey, let's let's bring this preemptive action and keep 332 00:19:56,200 --> 00:19:59,200 Speaker 1: this in the public discourse to put pressure on the SEC. 333 00:20:00,160 --> 00:20:03,639 Speaker 1: So to keep the issue alive as we lobby for 334 00:20:04,200 --> 00:20:05,560 Speaker 1: more favorable regulation. 335 00:20:05,800 --> 00:20:09,439 Speaker 2: We're certainly paying attention to it. So in September, a 336 00:20:09,520 --> 00:20:13,400 Speaker 2: judge in Texas dismissed a case brought by a crypto company, 337 00:20:13,800 --> 00:20:17,200 Speaker 2: and he found that wells notice and subsequent suit from 338 00:20:17,200 --> 00:20:21,800 Speaker 2: the SEC weren't final actions and that the case was 339 00:20:21,840 --> 00:20:25,280 Speaker 2: therefore premature. But this is being a sign to Judge 340 00:20:25,400 --> 00:20:29,600 Speaker 2: Jeremy Kernadel, who ruled in July to freeze rulemaking by 341 00:20:29,600 --> 00:20:33,000 Speaker 2: the Labor Department. I mean he wouldn't have to follow 342 00:20:33,080 --> 00:20:35,160 Speaker 2: the other judge's determination. 343 00:20:35,400 --> 00:20:38,840 Speaker 1: Right, That's true. It's not binding. It's a district court decision, 344 00:20:38,880 --> 00:20:41,960 Speaker 1: so it's not binding on another district court. The reason 345 00:20:42,119 --> 00:20:45,800 Speaker 1: could be influential though, and it's certainly something I'm sure 346 00:20:46,040 --> 00:20:49,159 Speaker 1: that the judge will look at very closely. You know, 347 00:20:49,359 --> 00:20:53,080 Speaker 1: there may be some differences between Crypto dot COM's case 348 00:20:53,119 --> 00:20:57,000 Speaker 1: and the prior case, and you know, I read something 349 00:20:57,080 --> 00:20:59,879 Speaker 1: very quickly about that prior case by I can consent, 350 00:21:00,359 --> 00:21:02,679 Speaker 1: and I think in that case it was very clear 351 00:21:03,160 --> 00:21:05,800 Speaker 1: at some point that the SEC would not bring an action, 352 00:21:06,920 --> 00:21:09,800 Speaker 1: and so maybe that's the way you would distinguish the 353 00:21:09,800 --> 00:21:13,840 Speaker 1: Crypto dot Com case in that I'm fairly certain that 354 00:21:13,880 --> 00:21:16,600 Speaker 1: the SEC will bring an action against Crypto dot Com. 355 00:21:16,640 --> 00:21:21,280 Speaker 1: It's a very similar fact pattern as Binance and coinbase, 356 00:21:21,640 --> 00:21:24,040 Speaker 1: and so Crypto dot Com will say, sure, they haven't 357 00:21:24,040 --> 00:21:27,560 Speaker 1: decided to bring a suit against that, but given our 358 00:21:27,640 --> 00:21:31,720 Speaker 1: knowledge of their past enforcement activity, it's very unlikely that 359 00:21:31,800 --> 00:21:34,280 Speaker 1: they will not. I think that's the argument Crypto dot 360 00:21:34,320 --> 00:21:35,560 Speaker 1: Com might try to make. 361 00:21:36,080 --> 00:21:39,560 Speaker 2: What do you think of Crypto dot COM's tactic in general? 362 00:21:40,160 --> 00:21:45,320 Speaker 1: You know, it's a very interesting move to preemptively sue 363 00:21:45,359 --> 00:21:48,560 Speaker 1: before the SEC can bring an action. I think that 364 00:21:48,720 --> 00:21:52,600 Speaker 1: is extremely interesting, and it's aggressive. It is certainly aggressive, 365 00:21:52,920 --> 00:21:55,840 Speaker 1: and I think they are certainly trying to take advantage 366 00:21:55,840 --> 00:21:59,760 Speaker 1: of a favorable venue. They may believe the SEC would 367 00:21:59,760 --> 00:22:03,800 Speaker 1: never decide to file in Texas given its past experience 368 00:22:03,920 --> 00:22:06,480 Speaker 1: with the Fifth Circuit, and that may very well proved 369 00:22:06,520 --> 00:22:09,440 Speaker 1: to be true, but it's also unclear. The decision has 370 00:22:09,480 --> 00:22:12,000 Speaker 1: not been made, and I think this is an interesting 371 00:22:12,359 --> 00:22:15,880 Speaker 1: choice of litigation strategy and we'll see how it turned out. 372 00:22:16,119 --> 00:22:19,520 Speaker 2: Thanks so much, Jim. That's Professor James Park of UCLA 373 00:22:19,640 --> 00:22:24,399 Speaker 2: Law School. Coming up next. Delta sues CrowdStrike. This is Bloomberg. 374 00:22:25,560 --> 00:22:30,679 Speaker 2: Delta Airlines is suing cybersecurity firm CrowdStrike over the chaos 375 00:22:30,680 --> 00:22:34,760 Speaker 2: caused this summer by a software update that disabled millions 376 00:22:34,760 --> 00:22:39,040 Speaker 2: of computers worldwide and grounded much of the airline's passenger fleet. 377 00:22:39,359 --> 00:22:43,760 Speaker 2: Delta is accusing the cybersecurity firm of gross negligence that 378 00:22:43,880 --> 00:22:49,119 Speaker 2: costs the airline five hundred million dollars. CrowdStrike apologized publicly 379 00:22:49,400 --> 00:22:53,679 Speaker 2: after the July nineteenth glitch that shut down computers running 380 00:22:53,680 --> 00:22:59,800 Speaker 2: the Microsoft Windows operating system, paralyzing airports, banks, stock exchanges 381 00:23:00,240 --> 00:23:06,000 Speaker 2: businesses around the world, But CrowdStrike says Delta is giving misinformation, 382 00:23:06,520 --> 00:23:10,880 Speaker 2: doesn't understand cybersecurity, and is trying to shift the blame 383 00:23:10,960 --> 00:23:14,280 Speaker 2: for its slow recovery from the outage, joining me is 384 00:23:14,320 --> 00:23:18,760 Speaker 2: an expert in cybersecurity, doctor Ilia Koloshchenko. He's a partner 385 00:23:18,760 --> 00:23:22,840 Speaker 2: in cybersecurity practice, lead at PLAT Law and CEO of 386 00:23:23,080 --> 00:23:29,240 Speaker 2: Immune Web. This was a global technology outage, so isn't 387 00:23:29,280 --> 00:23:33,040 Speaker 2: it obvious that CrowdStrike bears the blame. 388 00:23:33,560 --> 00:23:36,000 Speaker 4: I don't think it would be fair to say that 389 00:23:36,359 --> 00:23:40,760 Speaker 4: it is crowdstrikes fault before we get all the texts. 390 00:23:41,160 --> 00:23:46,080 Speaker 4: Of course, I'm not saying that CrowdStrike is completely blame last, 391 00:23:46,680 --> 00:23:53,080 Speaker 4: but I'm unconvened that we have solid matters to claim 392 00:23:53,320 --> 00:23:57,160 Speaker 4: financial damages, and I believe that we need to investigate 393 00:23:57,200 --> 00:24:00,640 Speaker 4: these cases a little bit more because, based on crowd 394 00:24:00,800 --> 00:24:06,800 Speaker 4: strike public announcement and the details that they disclosed about 395 00:24:07,000 --> 00:24:11,800 Speaker 4: the incident, such kind of incidents may happen virtually everywhere, 396 00:24:12,000 --> 00:24:15,720 Speaker 4: so it was not like a negligence that can we 397 00:24:15,800 --> 00:24:18,240 Speaker 4: can Reprimand I think, what do. 398 00:24:18,160 --> 00:24:20,760 Speaker 2: We know so far about what caused this? 399 00:24:21,680 --> 00:24:24,800 Speaker 4: So to the depth of my knowledge, it was a 400 00:24:24,880 --> 00:24:31,520 Speaker 4: faulty update that was not tested as sophisticatedly as it 401 00:24:31,680 --> 00:24:35,920 Speaker 4: could see, and as a result, we have the many 402 00:24:36,040 --> 00:24:43,040 Speaker 4: machines that were using CrowdStrike software that became unusable, inoperable 403 00:24:43,240 --> 00:24:48,280 Speaker 4: for several hours at least, and actually this caused a 404 00:24:48,280 --> 00:24:50,280 Speaker 4: lot of inconvenience around the globe. 405 00:24:50,640 --> 00:24:55,240 Speaker 2: Delta claims the incident could have been prevented by testing 406 00:24:55,560 --> 00:25:01,119 Speaker 2: the software update on just one computer. Does that pointed negligence? 407 00:25:01,520 --> 00:25:05,200 Speaker 4: This will probably be the very cracks of the lawsuits 408 00:25:05,240 --> 00:25:08,400 Speaker 4: if we have a lossit not for a virtual contract 409 00:25:08,440 --> 00:25:12,160 Speaker 4: boss In towards, I think that it will be difficult 410 00:25:12,160 --> 00:25:17,880 Speaker 4: to prove that crowd strike was negligent unless we get 411 00:25:17,960 --> 00:25:23,000 Speaker 4: some addition materials during the discovery phase or we have 412 00:25:23,080 --> 00:25:27,320 Speaker 4: any expert witnesses who will be able to testify that 413 00:25:27,600 --> 00:25:35,120 Speaker 4: crowd strikes software testing and deployment process was below the 414 00:25:35,520 --> 00:25:39,439 Speaker 4: industry acceptable standards. But I think it will be a 415 00:25:39,520 --> 00:25:42,879 Speaker 4: challenge and probably we will end up with many different 416 00:25:43,000 --> 00:25:47,080 Speaker 4: experts saying, you know, contradicting things. And at the end 417 00:25:47,119 --> 00:25:49,920 Speaker 4: of the day, I think it's fair to accept that 418 00:25:50,240 --> 00:25:54,240 Speaker 4: new software is perfect and we have a new regular 419 00:25:54,359 --> 00:25:58,639 Speaker 4: bug fixes and updates. I'm not talking about security patches, okay, 420 00:25:58,640 --> 00:26:01,560 Speaker 4: but I'm talking about you know, errors and buck success 421 00:26:01,760 --> 00:26:05,320 Speaker 4: in Microsoft software, in Apple software. So this is like, 422 00:26:05,359 --> 00:26:10,960 Speaker 4: you know, commonly acceptable reality that no software is immune 423 00:26:11,119 --> 00:26:15,600 Speaker 4: from small bags and issues. So I think crowd Strike 424 00:26:15,720 --> 00:26:21,000 Speaker 4: will insie that it has been duly following all applicable 425 00:26:21,560 --> 00:26:27,439 Speaker 4: processes and procedures to ensure the best reasonable quality of 426 00:26:27,920 --> 00:26:32,200 Speaker 4: its software and of its coptic Delta. 427 00:26:31,920 --> 00:26:35,840 Speaker 2: Is accusing CrowdStrike of gross negligence? What would it take 428 00:26:35,880 --> 00:26:36,440 Speaker 2: to prove that? 429 00:26:36,880 --> 00:26:41,040 Speaker 4: So? I think they have. Gross negligence is a very 430 00:26:41,160 --> 00:26:46,040 Speaker 4: high standard of proof in civil litigation, and I don't 431 00:26:46,080 --> 00:26:49,840 Speaker 4: think that they will manage to prevail on this claim 432 00:26:50,040 --> 00:26:54,760 Speaker 4: unless we don't know some facts that are probably known 433 00:26:54,840 --> 00:27:00,600 Speaker 4: to the plainting. Okay, negligence is possible, Okay, but gross 434 00:27:00,640 --> 00:27:03,560 Speaker 4: negligence I don't think it will be the case. And 435 00:27:03,720 --> 00:27:08,480 Speaker 4: I'm especially you know, capt icilled out unity damages because 436 00:27:08,600 --> 00:27:14,240 Speaker 4: the alleged misconduct of CrowdStrike has to be so eregious 437 00:27:14,359 --> 00:27:18,840 Speaker 4: that it would deserve in its punishment. So I honestly 438 00:27:18,920 --> 00:27:23,160 Speaker 4: don't think that gross negligence and unity damages will prevail. 439 00:27:24,119 --> 00:27:28,640 Speaker 5: Delta attributes the scope of the adage on crowdstrikes efforts 440 00:27:28,680 --> 00:27:34,240 Speaker 5: to alter other operating systems through uncertified and untested shortcuts 441 00:27:34,800 --> 00:27:39,000 Speaker 5: that damage and impaired its client systems and businesses. Is 442 00:27:39,040 --> 00:27:40,359 Speaker 5: that difficult to prove? 443 00:27:40,960 --> 00:27:43,920 Speaker 4: I don't think it will be difficult to prove when 444 00:27:44,280 --> 00:27:49,440 Speaker 4: I think it's give an attack that was admitted by CrowdStrike. 445 00:27:49,560 --> 00:27:54,840 Speaker 4: But the reality is that many security products do very 446 00:27:55,200 --> 00:27:59,399 Speaker 4: similar things because they need to have full control of 447 00:27:59,400 --> 00:28:03,680 Speaker 4: your machine, of your device in order to protect it completely. 448 00:28:04,000 --> 00:28:08,840 Speaker 4: There are alternative ways to do the same thing, Bob. 449 00:28:09,160 --> 00:28:13,960 Speaker 4: It's like you know, arguing, whether you know Android software 450 00:28:14,680 --> 00:28:18,080 Speaker 4: that is an open source sulftware is better than IOP 451 00:28:18,160 --> 00:28:22,200 Speaker 4: software that is for pree three closed first sulfware, Whether 452 00:28:22,280 --> 00:28:27,280 Speaker 4: it's better to have Linux versus Microsoft. So it's an 453 00:28:27,320 --> 00:28:31,240 Speaker 4: open question, and I don't think that justin based on 454 00:28:31,359 --> 00:28:35,560 Speaker 4: these facts, they will be able to prove even negligent laft, 455 00:28:35,600 --> 00:28:36,760 Speaker 4: a little gross. 456 00:28:36,440 --> 00:28:41,400 Speaker 2: Negligence, a crowd Strike spokesperson said, speaking of finger pointing. 457 00:28:41,720 --> 00:28:46,040 Speaker 2: Delta's claims are based on disproven misinformation, demonstrate a lack 458 00:28:46,120 --> 00:28:50,320 Speaker 2: of understanding of how modern cybersecurity works, and reflect a 459 00:28:50,400 --> 00:28:54,080 Speaker 2: desperate attempt to shift blame for its slow recovery away 460 00:28:54,120 --> 00:28:59,200 Speaker 2: from its failure to modernize its antiquated IT infrastructure. What 461 00:28:59,240 --> 00:29:00,320 Speaker 2: do you think of that respons. 462 00:29:00,880 --> 00:29:04,360 Speaker 4: Well, I think this is like a response that I 463 00:29:04,400 --> 00:29:08,600 Speaker 4: would expect. However, you know, probably the one thing that 464 00:29:08,960 --> 00:29:14,040 Speaker 4: deserves your attention. Is that actually when we talk about 465 00:29:14,280 --> 00:29:18,680 Speaker 4: negligence or even if they see you for breach of contracts, 466 00:29:18,800 --> 00:29:24,520 Speaker 4: I would probably say that crowd Strike will also argue saying, listen, 467 00:29:25,200 --> 00:29:29,160 Speaker 4: you've been using our software for a long period of time. 468 00:29:29,440 --> 00:29:34,080 Speaker 4: You had all the documentations, your IT people, your cybersecurity 469 00:29:34,120 --> 00:29:38,480 Speaker 4: people will fully aware of how it works, of what 470 00:29:38,720 --> 00:29:43,480 Speaker 4: exactly we do, how it operates you or web through 471 00:29:43,520 --> 00:29:48,720 Speaker 4: all our terms of services, framework agreements, whatever they may 472 00:29:48,760 --> 00:29:52,840 Speaker 4: have in place. So now you know, telling us that 473 00:29:52,960 --> 00:29:55,520 Speaker 4: you are kind of you know, flob a gaset, you know, 474 00:29:55,760 --> 00:29:59,720 Speaker 4: ambushed by these very facts you know how our software works, 475 00:30:00,320 --> 00:30:04,760 Speaker 4: doesn't sound credible because you've been aware of these facts 476 00:30:04,800 --> 00:30:08,280 Speaker 4: since the very beginning, or you should have been aware 477 00:30:08,320 --> 00:30:11,720 Speaker 4: of it. So now saying that it's a big surprise 478 00:30:11,920 --> 00:30:16,520 Speaker 4: and you have shocked doesn't sound They're like a credible claim, 479 00:30:16,720 --> 00:30:20,880 Speaker 4: And here I think they will get some attention from 480 00:30:20,920 --> 00:30:21,440 Speaker 4: the jury. 481 00:30:21,720 --> 00:30:24,160 Speaker 5: What about a breach of contract claim. 482 00:30:24,360 --> 00:30:26,720 Speaker 4: Well, that's a very interesting question because if they have 483 00:30:26,840 --> 00:30:30,600 Speaker 4: a contract, it really depends on the contract. And I think, 484 00:30:30,920 --> 00:30:36,120 Speaker 4: you know, unless crowd strike made some important concessions and 485 00:30:36,240 --> 00:30:43,280 Speaker 4: agreed to remove some of the clauses that expressly limit, reduce, exclude, 486 00:30:43,360 --> 00:30:48,880 Speaker 4: or cap their liability for certain incidents. I think Delta 487 00:30:49,440 --> 00:30:56,600 Speaker 4: chances to succeed fairly modest usually all cyber secure against it. 488 00:30:56,720 --> 00:31:01,040 Speaker 4: Under they have variance lawyers who know how to write 489 00:31:01,120 --> 00:31:07,120 Speaker 4: in a good tech contracts excluding or limiting their liability 490 00:31:07,200 --> 00:31:11,600 Speaker 4: to the full extent permitted by laws. So under the contract, 491 00:31:11,720 --> 00:31:14,479 Speaker 4: I'm not sure they will have much success. Maybe they 492 00:31:14,520 --> 00:31:18,000 Speaker 4: will get some nominal damages, but in this case it 493 00:31:18,120 --> 00:31:22,600 Speaker 4: will be a questionable victory in court because they'll probably 494 00:31:22,800 --> 00:31:26,440 Speaker 4: spend more money in their legal costs than they will 495 00:31:26,600 --> 00:31:31,200 Speaker 4: eventually stain at the end, and if they do so, 496 00:31:31,400 --> 00:31:35,720 Speaker 4: I think if this ends up in court, I'm confident 497 00:31:35,800 --> 00:31:39,520 Speaker 4: will have an appeal. So I don't think understand that 498 00:31:39,560 --> 00:31:43,440 Speaker 4: a litigation here is the best way to resolve this 499 00:31:44,040 --> 00:31:48,120 Speaker 4: regrettable incidents. I would rather settlement that would be mutually 500 00:31:48,160 --> 00:31:52,200 Speaker 4: there for Delta and for Crowdstright, because the breach of 501 00:31:52,280 --> 00:31:56,880 Speaker 4: contracts for me sounds we claim unless Delta managed to 502 00:31:56,960 --> 00:32:03,000 Speaker 4: change in new default contractual and saying that Crowdstrights will 503 00:32:03,080 --> 00:32:07,680 Speaker 4: be liable to the fullest extent for all directs indirect damagers. 504 00:32:07,840 --> 00:32:11,719 Speaker 4: In this case, it can be very problematic for crowds work, right, 505 00:32:11,840 --> 00:32:14,040 Speaker 4: But I don't think it's the case. 506 00:32:14,520 --> 00:32:18,560 Speaker 2: Are there consequences for other companies from this lawsuit? 507 00:32:19,400 --> 00:32:24,000 Speaker 4: I think that this case may open a fron door box, 508 00:32:25,000 --> 00:32:30,600 Speaker 4: because if it ends up in court, then probably all 509 00:32:30,640 --> 00:32:35,800 Speaker 4: cybersecurity and tax vendors will start urgently modifying their contract 510 00:32:35,840 --> 00:32:38,720 Speaker 4: in terms of services as the lays. Of course, it 511 00:32:38,800 --> 00:32:41,640 Speaker 4: will be in a very fact specific and it will 512 00:32:41,800 --> 00:32:45,760 Speaker 4: depend on the decision of the court. If the parties 513 00:32:45,880 --> 00:32:49,960 Speaker 4: don't settle and do this in a discrete, calm and 514 00:32:50,240 --> 00:32:54,920 Speaker 4: considential matter to everyone's satisfaction, I think it will create 515 00:32:54,920 --> 00:32:59,440 Speaker 4: a dangerous precedence first and second will probably see a 516 00:32:59,480 --> 00:33:04,240 Speaker 4: lot of the lawsuits not only against crowd Strike up Basic, 517 00:33:04,560 --> 00:33:08,680 Speaker 4: but also all other companies are saying, oh listen, I 518 00:33:08,720 --> 00:33:11,760 Speaker 4: had a problem with my iPhone. You know, I'm sewing Apple. 519 00:33:11,960 --> 00:33:16,280 Speaker 4: So it can cause you the kind of avalanche of lawsuits. 520 00:33:16,320 --> 00:33:19,640 Speaker 4: So I really hope that the parties will find an 521 00:33:19,680 --> 00:33:23,200 Speaker 4: amicable resolution of this regrettable incident. 522 00:33:23,320 --> 00:33:26,840 Speaker 2: Thanks for being on the show. That's cybersecurity expert doctor 523 00:33:26,880 --> 00:33:30,040 Speaker 2: Ilia Koloshenko, and that's it for this edition of the 524 00:33:30,080 --> 00:33:33,400 Speaker 2: Bloomberg Law Podcast. Remember you can always get the latest 525 00:33:33,440 --> 00:33:36,320 Speaker 2: legal news by subscribing and listening to the show on 526 00:33:36,400 --> 00:33:40,760 Speaker 2: Apple Podcasts, Spotify, and at bloomberg dot com, slash podcast, 527 00:33:40,800 --> 00:33:44,680 Speaker 2: slash Law. I'm June Grosso and this is Bloomberg