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Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio. Today,

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Speaker 1: the Supreme Court upheld a twenty seventeen tax on American

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Speaker 1: owned businesses foreign profits, rejecting an appeal that could have

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Speaker 1: saved companies hundreds of billions of dollars. The vote was

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Speaker 1: seven to two, with the justices saying that Congress has

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Speaker 1: the constitutional power to tax people and companies on their

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Speaker 1: share of undistributed corporate income. It's a case that was

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Speaker 1: being watched because of its potential implications for Democratic proposals

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Speaker 1: to impose a wealth tax, but the Court skipped that question.

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Speaker 1: Joining me is leading tax scholar David Shizer, a professor

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Speaker 1: Columbia Law School and former dean of the school. This

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Speaker 1: hasn't been one of the most closely watched cases of

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Speaker 1: the term. Just how important is this decision?

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Speaker 2: This decision is very important for what it says and

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Speaker 2: also for what it doesn't say. What it says is

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Speaker 2: that many of the international tax provisions that the US

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Speaker 2: government has used to tax income from foreign corporations are constitutional,

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Speaker 2: and that's a very important holding. And at the same time,

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Speaker 2: what it doesn't say is whether something like President Biden's

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Speaker 2: marked to market income tax is okay, they haven't told

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Speaker 2: us whether Congress can tax people on appreciated stock when

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Speaker 2: they haven't sold the stock.

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Speaker 1: Tell us about the facts of this case.

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Speaker 2: So the Moors are US citizens who bought stock in

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Speaker 2: an Indian company. They have not sold the stock, they

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Speaker 2: have not received a dividend, and so ordinarily under US law,

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Speaker 2: you don't pay tax until you sell or until you

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Speaker 2: get a dividend. Here, they received a tax bill based

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Speaker 2: on what the foreign company was earning. And this was

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Speaker 2: part of a major US reform effort for corporate tax

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Speaker 2: in twenty seventeen. So the more said, hey, wait a minute,

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Speaker 2: you can't tax us because we haven't sold and we

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Speaker 2: haven't gotten a dividend. And the court said, actually, you

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Speaker 2: can be taxed. And initially the court sought they were

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Speaker 2: taking the question of can someone be taxed without a sale,

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Speaker 2: but it's actually not the issue that the case presented,

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Speaker 2: and the reason is that the corporation, the Indian company,

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Speaker 2: was realizing income. And so the court said, well, as

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Speaker 2: long as the company had these sales and was realizing income,

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Speaker 2: Congress could attribute those sales to you. And so basically

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Speaker 2: this became a case about the relationship between an owner

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Speaker 2: and the business entity the corporation, instead of a case

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Speaker 2: about whether you could tack an owner without a sale.

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Speaker 3: Was it an.

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Speaker 1: Unusual lineup of justices the seven to two Thomas and

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Speaker 1: Gore such in descent.

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Speaker 2: So I think what you have is a division of

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Speaker 2: views about things Congress could do. There is a seven

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Speaker 2: to two majority for the idea that Congress can treat

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Speaker 2: an owner as the entity for purposes of taxing the owner.

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Speaker 2: You can say, hey, owner, we're going to treat you

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Speaker 2: as earning the income of your entity. And there are

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Speaker 2: five justices that say that can be done pretty easily.

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Speaker 2: And there are two that say we think it can

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Speaker 2: be done, but only when there's an abusive situation, and

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Speaker 2: then two who say they don't think it can be done.

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Speaker 2: But on this other question of can you tax someone

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Speaker 2: for appreciation when they have it sold, there you have

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Speaker 2: four justices who come out saying the answer to that

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Speaker 2: is no, would be unconstitutional. You have five who said

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Speaker 2: we don't reach that question. One of those five, Jackson

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Speaker 2: wrote a concurrence saying and effect, she'd be fine with it.

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Speaker 2: But as to the other four, we don't yet know

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Speaker 2: where they are and that'll be another case.

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Speaker 1: So Paul Ryan, the former House Speaker who helped write

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Speaker 1: the legislation, said upending the tax could endanger a third

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Speaker 1: of the US tax code. Do you agree with that number?

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Speaker 2: The broadest holding here could have cost trillions of dollars

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Speaker 2: to the treasury, So I do agree. Really, the way

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Speaker 2: the court came out, you know, blesses most of what

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Speaker 2: Congress is already doing, and the questions are much more

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Speaker 2: about what in theories Congress might want to do, but

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Speaker 2: they haven't done it yet. So again, the big dollar

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Speaker 2: amounts that Congressman Ryan was probably thinking about were the

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Speaker 2: international tax provisions where US multinationals are taxed based on

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Speaker 2: the income of their foreign subsidiaries. And I think the

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Speaker 2: court today is saying that those rules are constitutional. What

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Speaker 2: Congress has not tried to do, but the President proposed

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Speaker 2: it a few months ago, is to say, hey, you

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Speaker 2: founded this company, your stake is now worth a billion dollars,

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Speaker 2: and we're going to tax that income on your stock

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Speaker 2: the fact that it's gone from zero to a billion.

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Speaker 2: We're going to tax you under the income tax even

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Speaker 2: though you haven't sold. And Congress has not done much

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Speaker 2: of that. And as for what it's done, there's still

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Speaker 2: a question whether it can, and if it decides to

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Speaker 2: do that, that's still an open question about whether the

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Speaker 2: Court would bless it.

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Speaker 1: Did Justice Cavanaugh, who wrote the majority, did he specifically

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Speaker 1: say we're not ruling on any other hypothetical taxes, we're

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Speaker 1: just resolving the issue before us today.

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Speaker 2: Yes, he did, And he also made another point. There's

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Speaker 2: another kind of tax, which is, hey, you're rich, and

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Speaker 2: it's not that we're going to tax your gains, we're

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Speaker 2: just going to tax your net worth. That would be

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Speaker 2: a wealth tax. That's the tax that Bernie Sanders and

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Speaker 2: Elizabeth Warrens have proposed. And interestingly, just as Kavanaugh said,

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Speaker 2: we're not deciding that, but he also added there that

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Speaker 2: the governments during oral argument had conceded that a wealth

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Speaker 2: tax would be unconstitutional. So I think he didn't just

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Speaker 2: note it. I think he sent a signal that he thinks,

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Speaker 2: like the government, that that would be unconstitutional. But the

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Speaker 2: Majority is very careful to say, this is a narrow decision,

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Speaker 2: and there are a lot of things we specifically.

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Speaker 4: Are not decided.

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Speaker 1: And did the government really concede that a wealth tax

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Speaker 1: would be unconstitutional? In the oral arguments.

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Speaker 2: Arguments, Yes, yes they did. There's this idea in the

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Speaker 2: Constitution of a so called direct tax, and a direct

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Speaker 2: tax is subject to a very unappealing requirement called apportionment,

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Speaker 2: which basically means that the amount of revenue collected from

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Speaker 2: the state has to be the same as its percentage

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Speaker 2: of the population. And if you had to abhor a

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Speaker 2: wealth tax, Bernie Sanders and Elizabeth Warren would have no

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Speaker 2: interest in it. The net effect of that is that

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Speaker 2: the wealth tax rate would be higher in poorer states. So,

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Speaker 2: when asked an oral argument, does the constitutional amendments for

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Speaker 2: income taxes cover a wealth tax or would a wealth

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Speaker 2: tax be a direct tax? The representative for the US

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Speaker 2: government said that would be a direct tax. So the

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Speaker 2: government did concede that a wealth tax would be unconstitutional

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Speaker 2: unless it was apportioned.

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Speaker 1: How often does the Constitution's sixteenth Amendment become a subject

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Speaker 1: of a Supreme Court case?

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Speaker 2: Extremely rarely. Part of the reason it came up now

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Speaker 2: is because of the conversation in the country about wealth

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Speaker 2: taxes or about an income tax that doesn't wait for

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Speaker 2: you to sell, and because Congress has been considering those steps.

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Speaker 2: I think the tax payers here brought this case in

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Speaker 2: an effort to who gives the court the chance to

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Speaker 2: say that those new rules would be unconstitutional. As it

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Speaker 2: turns out, they did not pick their vehicle. Wisely, they

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Speaker 2: did not pick the right case, because this case really

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Speaker 2: presents a different issue. It's much more about whether you

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Speaker 2: can tax an owner for what the business is doing

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Speaker 2: instead of the business. And that's the narrow basis in

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Speaker 2: which the Court resolved the issue.

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Speaker 1: So who were the winners here? The government the irs.

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Speaker 2: I think it's a win for Congress and the Internal

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Speaker 2: Revenue Service in the sense that a very important, longstanding

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Speaker 2: body of rules that are designed to protect the US

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Speaker 2: tax base against efforts to move income overseas. I think

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Speaker 2: those rules were blessed as authorized. But on the other hand,

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Speaker 2: there's still a big open question and in a sense

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Speaker 2: a mini win for opponents of these other tax reforms,

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Speaker 2: because the or It certainly did not bless them, and

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Speaker 2: we have four ninths of the Court explicitly coming out

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Speaker 2: against them, and heavy hinting from the majority that it

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Speaker 2: would be a different analysis than no one should assume

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Speaker 2: that they're constitutional.

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Speaker 1: I know you wrote an amicus brief in this case.

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Speaker 2: We actually said, we thought the issue that the court

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Speaker 2: said it was taking wasn't presented, and then instead, this

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Speaker 2: was a case not about whether realization was constitutionally required,

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Speaker 2: but about whether an owner could be taxed to what

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Speaker 2: its business is doing. And our theory is exactly the

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Speaker 2: theory that the court adopted.

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Speaker 1: Congratulations on that, Thank you. So does this mean then

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Speaker 1: that two hundred and seventy one odd billion dollars in

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Speaker 1: tax goes into the US treasury?

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Speaker 2: Yes, so the government doesn't have to give that back.

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Speaker 2: But the stakes were much broader because this was a

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Speaker 2: case about whether, on a one time basic, Congress could

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Speaker 2: tax earning and overseas companies. So the one time basis

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Speaker 2: was approved, but the reasoning the court gave and improving

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Speaker 2: it was this is just like a different rule where

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Speaker 2: there's other overseas income that we've been taxing all the time,

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Speaker 2: and we think that's constitutional as well.

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Speaker 1: With this decision, is a wealth check no longer a

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Speaker 1: concern since the government conceded that it was unconstitutional in

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Speaker 1: the oral arguments.

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Speaker 2: The government can change its psision in a future case.

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Speaker 2: So the fact that the government made that procession is

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Speaker 2: not finding. But I think the fact that the Court

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Speaker 2: shows to memorialize the concession is a signal of what

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Speaker 2: the current court thinks about the issue.

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Speaker 1: Thanks so much for joining us today and making tax

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Speaker 1: law understandable. That's Professor David's of Columbia Law School coming

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Speaker 1: up next on the Bloomberg Lawn Show. The Supreme Court

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Speaker 1: has about nineteen cases left to be decided within a

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Speaker 1: week that normally ends the term. The vast majority of

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Speaker 1: those cases are on controversial issues like presidential immunity, abortion, guns,

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Speaker 1: social media, and homelessness. Why are some of the most

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Speaker 1: controversial cases of the term being left to the last minute.

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Speaker 1: I'm June Grosso and you're listening to Bloomberg. The Supreme

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Speaker 1: Court handed down four decisions today, leaving nineteen more cases

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Speaker 1: to be decided before the end of the term next Friday.

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Speaker 1: Those include at least fourteen involving controversial issues from presidential

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Speaker 1: immunity and abortion to guns and homelessness. Joining me is

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Speaker 1: constitutional law expert Harold Krant, a professor at the Chicago

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Speaker 1: Kent College of Law, to answer the question that everyone,

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Speaker 1: well at least Supreme Court watchers are asking, what's the

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Speaker 1: hold up? First out, they issued three decisions. In addition

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Speaker 1: to the tax case today, and I have to say

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Speaker 1: they were not high profile cases that we were tracking.

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Speaker 4: All three cases were criminal law decisions and there were

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Speaker 4: relatively discrete issues which had divided the lower courts. So

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Speaker 4: the Supreme Court in those three cases acted as a

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Speaker 4: traditional Supreme court would in trying to clarify standards for

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Speaker 4: the lower court. So, for instance, in one case, it

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Speaker 4: had to do with the question of when you can

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Speaker 4: bring a retaliatory arrest claim, which doesn't happen very much

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Speaker 4: even if there's no probable cause, and the court held

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Speaker 4: that as long as you can show that even in

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Speaker 4: though probable cause existed, if no one else has ever

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Speaker 4: been convicted of that offense, then you can bring a

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Speaker 4: retaliatory arrest. So it's a relatively straightforward traditional decision which

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Speaker 4: commanded agreement of all the entire court. In the to

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Speaker 4: Marini case, there's a question about whether or not a

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Speaker 4: probable cause exists for one offense for which you have

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Speaker 4: been arrested, can you nonetheless bring a malicious prosecution charge

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Speaker 4: if you were charged with other offenses for which it

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Speaker 4: was no probable cause, And again relatively straightforward, the majority

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Speaker 4: of the court decided that a Moust's prosecution claim can

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Speaker 4: be brought even if there was probable cause for one charge,

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Speaker 4: but not for the rest. And in an interesting alignment

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Speaker 4: of the court in the Diaz case, it had to

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Speaker 4: do with the criminal rule of procedure, which says that

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Speaker 4: nobody can comment on an expert opinion on whether a

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Speaker 4: defendant had to requisite mental intent for an offense. In

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Speaker 4: this case, it was someone bringing over to clandestine drugs,

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Speaker 4: and the issue was she claimed she was innocent, didn't

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Speaker 4: have knowledge of it, and a FBI official testified that

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Speaker 4: most drug dealers in that situation would not give that

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Speaker 4: quantity of drugs to an unknowing mule to trying to

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Speaker 4: bring over the drugs. And the question at stake was

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Speaker 4: whether that testimony by the FBI has to do with whether,

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Speaker 4: in general, most people would know what they're hauling, or

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Speaker 4: is it too close to saying that in the FBI

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Speaker 4: experts mind, that person must have known that they were

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Speaker 4: bringing illegal drugs. So the court held that that testimony

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Speaker 4: was allowed, and that produced a bit of a split

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Speaker 4: in the court because of the fact that it wasn't

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Speaker 4: saying that that individual didn't know that they were bringing

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Speaker 4: over illegal drugs. It just said that most people in

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Speaker 4: that situation would know that they were bringing over a drugs.

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Speaker 4: So the Court allowed that to come in. And I

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Speaker 4: would make it interesting was that Justice Scorsich joined the

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Speaker 4: descent while Justice Jackson joined the majority. So in all

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Speaker 4: three cases criminal cases, the Court again performed its traditional

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Speaker 4: role of giving guidance to the lower courts in case

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Speaker 4: such cases percolated up. Again, they don't often, but they

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Speaker 4: do on occasion, and so the Court served that role.

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Speaker 4: And meanwhile, we're waiting for the more blockbuster cases that

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Speaker 4: the Court has yet to announce.

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Speaker 1: Every opinion day continue to be surprised that the blockbuster

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Speaker 1: cases are not coming out. I mean, here you have

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Speaker 1: the Raheemi case, the ban on guns for domestic bolence

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Speaker 1: abusers that was argued in November. Even if they have

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Speaker 1: descents and concurrences, should it take this long.

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Speaker 4: It shouldn't take this long. There may be a strategy.

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Speaker 4: I'm afraid of releasing many controversial decisions at once. So

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Speaker 4: it's sort of like mutes the overall reaction because nobody

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Speaker 4: knows where to start. And so the Presidential Community case,

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Speaker 4: the Raheemi case that you mentioned, the sleeping in the

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Speaker 4: parks case grants pass may be the same way. And

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Speaker 4: of course all the very sundry administry of law decisions

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Speaker 4: that have yet the be released. You know, you just

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Speaker 4: release them all together and nobody knows where to start

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Speaker 4: because they're also important and also controversial. That may be

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Speaker 4: a strategy or perhaps you know, a justice or two

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Speaker 4: can't finish a key concurrence or dissent and that's what's

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Speaker 4: holding up the court.

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Speaker 1: Who decides when the opinions come out? Would that be

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Speaker 1: the Chief Justice deciding that?

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Speaker 4: Chief Justice does decide that, and so that is a

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Speaker 4: strategy that Chief Justice Roberts oversees. But the question is

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Speaker 4: will he give a deadline to a fellow justice that

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Speaker 4: an opinion's going out whether or not the concurrence is ready.

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Speaker 4: That's not generally the case. But obviously the court doesn't

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Speaker 4: want to stay past July fourth. The Court may even

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Speaker 4: want to finish by the end of June. So it's

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Speaker 4: gettn close where the Chief just may say it was

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Speaker 4: not in by a certain day. We're releasing the opinion

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Speaker 4: the way it is. That's the leverage that the chief

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Speaker 4: can hold over the PEBO justices.

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Speaker 1: Do you think then that, for example, the Trump immunity case,

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Speaker 1: it's already written, concurrences, dissents, et cetera, and the Chief

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Speaker 1: is just holding it.

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Speaker 4: My guess is that other remaining twenty cases, they're likely

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Speaker 4: to be several that are all completed, and that for

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Speaker 4: strategic reasons, the Chief hasn't agreed to release the decision

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Speaker 4: yet wants to sort of stack them out in particular

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Speaker 4: orders over the last couple of opinions days. Not for sure,

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Speaker 4: of course, this is just speculation, but it's given so

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Speaker 4: much time that one would think that there are some

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Speaker 4: of these decisions would have been completed by now.

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Speaker 1: I've always suspected that, you know, because it's more than

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Speaker 1: strange that the last couple of days of the term

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Speaker 1: at all these controversial cases at once. And everyone says, well,

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Speaker 1: it's because there are so many concurrences and dissents and

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Speaker 1: you know, they have to circulate those. But still it

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Speaker 1: seems like there's got to be something else going on.

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Speaker 1: So right now, they have an opinion day schedule for tomorrow,

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Speaker 1: and they just scheduled another one for Wednesday of next week,

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Speaker 1: and they seem to be doing three to four cases

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Speaker 1: each opinion day.

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Speaker 4: Yeah, they've been averaging about three to four day. And

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Speaker 4: it's interesting, right because today three opinions were all in

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Speaker 4: the criminal procedure context. So is that an accident or

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Speaker 4: did the chief decide to group them together because it

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Speaker 4: made sense thematically? We simply don't know. And obviously, if

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Speaker 4: the court wanted to finish next week, it would have

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Speaker 4: to release far more opinions on day than it has previously,

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Speaker 4: which would lead one to think that they'll probably announce

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Speaker 4: some opinion days for the week thereafter, just otherwise they

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Speaker 4: would be releasing at least six opinions on a particular day,

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Speaker 4: you know, which is hard to believe.

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Speaker 1: The justices read from the bench excerpts from their opinion,

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Speaker 1: and then the dissent may read, is that why it

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Speaker 1: takes so long? Because why couldn't they come out with

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Speaker 1: five or so a day.

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Speaker 4: No, they could, They certainly could. It's just it's just

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Speaker 4: a tradition to try to limit the number of cases released.

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Speaker 4: It once, but there's no rule about it. And the

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Speaker 4: quote could decide to release ten decisions, you know, on

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Speaker 4: one day, and it would get everybody scrambling. I don't

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Speaker 4: think that will be the case, because that would be

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Speaker 4: a departure from tradition, but it's certainly in the relst possibility.

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Speaker 1: All the cases outstanding, many of which are controversial, it

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Speaker 1: leads me to think that these decisions are going to

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Speaker 1: be splintered, and that you're going to find a lot

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Speaker 1: of maybe six to three down ideological the lines. Yeah.

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Speaker 4: I mean, today, again, the cases were relatively discreet. We

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Speaker 4: did not see those kind of traditional six ' three split,

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Speaker 4: But it is certainly likely that in a lot of

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Speaker 4: these cases, whether it's the Second Amendment case or the

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Speaker 4: First Amendment, social media cases or the administry of law cases,

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Speaker 4: not to mention presidential community, there may be a traditional

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Speaker 4: split along the conservative liberal fronts. But there remains to

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Speaker 4: be seen. I mean, there may be broader areas of agreement,

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Speaker 4: for instance, on the presidential immunity case. At least that

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Speaker 4: will be my guests from listening to oral arguments, but

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Speaker 4: we'll just have to see.

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Speaker 1: Yeah, And I have to say I'm surprised about the

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Speaker 1: Raheemi case because I thought during oral arguments that there

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Speaker 1: seemed to be enough justices who thought that, you know,

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Speaker 1: someone with a domestic violence temporary restraining order was the

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Speaker 1: kind of person who shouldn't have a gun. Yeah, you know.

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Speaker 4: Again, to me, the case seems straightforward. If you have

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Speaker 4: a protective order against you because you've engaged in violence

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Speaker 4: in the past, that would be a person to whom

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Speaker 4: we would think, even under the traditions that the court

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Speaker 4: looks to in the Broin case, that that would be

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Speaker 4: somebody who would not be eligible for a GA license

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Speaker 4: depending upon the jurisdiction. But who knows, and that will

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Speaker 4: find out very short.

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Speaker 1: Okay. So of the cases that are left, besides presidential immunity,

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Speaker 1: which I think is the one that most people are

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Speaker 1: sort of looking for, which do you think is the

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Speaker 1: most controversial.

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Speaker 4: I think the question of the emergency medicine, whether it

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Speaker 4: can extend to under the federal guidelines, extend to having

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Speaker 4: an abortion in Idaho is going to be extremely controversial.

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Speaker 4: It's in essence of preemption case about whether this statute

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Speaker 4: over rides Idaho's decision to ban abortions. A lot of

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Speaker 4: eyes will be attuned to that. Obviously. There's also the

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Speaker 4: Fisher the United States case, which has to do with

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Speaker 4: charges stemming out of January sixth, because it's trying to

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Speaker 4: define what its impeding, and the official proceeding is and

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Speaker 4: whether the rush to the capital so qualifies. I think

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Speaker 4: that'll be ones that are focused on. And there's really

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Speaker 4: three major initstrative law cases up for grabs, and they

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Speaker 4: have the potential of not tearing down the administrative state,

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Speaker 4: but pairing it back quite substantially, so I think those

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Speaker 4: will be very controversial as well. Just to add is

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Speaker 4: the whole question about whether the Sacklers were able to

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Speaker 4: settle all the claims stemming from the lawsuits against Purdue

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Speaker 4: Pharma for the oipriodes. That has a very practical impact on,

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Speaker 4: you know, many people to whom otherwise might even be

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Speaker 4: able to get more money back for the injuries that

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Speaker 4: they've suffered. So as a practical matter, that's going to

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Speaker 4: attract a lot of attention as well.

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Speaker 1: Thanks so much, Hal for being on Supreme Court watch

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Speaker 1: with us. That's Professor Harold Krent of the Chicago Kent

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Speaker 1: College of Law. So some of the cases that the

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Speaker 1: Court could decide tomorrow involve Donald Trump's claim of presidential immunity,

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Speaker 1: guns for domestic violence abusers, one of the country's strictest

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Speaker 1: abortion laws, fines for homelessness, the regulation of social media,

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Speaker 1: air pollution, and agency power coming up next on the

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Speaker 1: Bloomberg Law Show. In Video will get a Supreme Court

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Speaker 1: review on a shareholder crypto suit next term. It's the

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Speaker 1: second case involving shareholder lawsuits that the Court is teeing

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Speaker 1: up for next term. I'm June Grosso and this is Bloomberg.

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Speaker 1: The Supreme Court is teeing up cases for next term.

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Speaker 1: It's agreed to use a case over in Vidia's crypto

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Speaker 1: mining revenue to consider making it harder for share holders

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Speaker 1: to press securities fraud lawsuits. In Nvidia is seeking to

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Speaker 1: stop an investors suit that accuses the company of being

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Speaker 1: deceptive about how dependent it was on revenue from crypto

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Speaker 1: mining before a twenty eighteen market turndown. Joining me is

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Speaker 1: Seth Gertz, a partner at Dorsey and Whitney and a

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Speaker 1: former federal prosecutor specializing in crypto related scams. So, Seth,

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Speaker 1: you have cryptocurrency, crypto mining, computer chips. Tell us what

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Speaker 1: this case is all about.

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Speaker 3: It's a really interesting case. I mean, not least because

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Speaker 3: in videos just became their most valuable company in the world,

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Speaker 3: I believe this week. On one hand, it's a very

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Speaker 3: technical question regarding the fleeting standards and private securities location cases,

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Speaker 3: and so deals squarely with what a plaintiff needs to

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Speaker 3: prove regarding fraud the enter to get past emotion to

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Speaker 3: this misstage in a security fraud case, and that is

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Speaker 3: the meat of the legal arguments there in videos is

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Speaker 3: saying is arguing that you have to specifically allege the

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Speaker 3: content of internal documents that indicated the CEO would have

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Speaker 3: seen that were contrary to public statements that were being made.

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Speaker 3: The plaintiffs in the case are saying, no, no, no, not

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Speaker 3: so fast, because enough that we can infer based upon

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Speaker 3: information to CEO would have known other things insiders were

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Speaker 3: saying about information, The CEO had to give us a

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Speaker 3: strong enough inference of particularity that you should have known

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Speaker 3: and was making false statements, those false statements to cruxt

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Speaker 3: them sort of. The facts of the case relates to

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Speaker 3: how much of Videous profit was coming from sales of

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Speaker 3: its GPU's graphic processing units to cryptocurrency miners. The concern

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Speaker 3: is that that amount of profit was not being fully

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Speaker 3: disclosed and instead in video was from the plaintiff's perspective,

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Speaker 3: hiding the amount of profit they were making from cryptocurrency

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Speaker 3: miners and just putting it under a catch all category

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Speaker 3: or gamers.

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Speaker 1: Please explain what cryptocurrency miners are.

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Speaker 3: Sure and so crystocurrency miners Clinston's bitcoin, which is bitcoin.

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Speaker 3: Anytime there is a bitcoin transaction, there are miners, people

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Speaker 3: who use a computer to validate that transaction, to confirm

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Speaker 3: that it's a legitimate transaction, and process the transaction. In

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Speaker 3: return for doing this work, the cryptocurrency minors have historically

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Speaker 3: been paid or to via bitcoin in order to do this.

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Speaker 3: Cryptocurrency mining is a very computer intensive work. It uses

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Speaker 3: an incredible amount of energy and it's actually terrible for

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Speaker 3: the environment because of how much energy that it uses

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Speaker 3: and how heavy and extent of the computer processing is

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Speaker 3: that's required to allow crystocurrency mining. But also from the

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Speaker 3: SEC's perspective, as an added wrinkle in this case, cryptocurrency

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Speaker 3: mining is problematic because from the SEC's perspective, the extent

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Speaker 3: to which mining because occurring mirrors the fluctuations in the

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Speaker 3: overall market cryptocurrency. So if we're taking bitcoins, the SEC

437
00:27:03,320 --> 00:27:06,840
Speaker 3: is concerned that if your processor tied to cryptocurrency mining,

438
00:27:07,160 --> 00:27:10,840
Speaker 3: then your profits are going to follow the sort of undulations,

439
00:27:10,880 --> 00:27:13,280
Speaker 3: the ups and downs of the bitcoin market, and that

440
00:27:13,400 --> 00:27:15,240
Speaker 3: is sort of what happened a little bit in Video's

441
00:27:15,320 --> 00:27:17,760
Speaker 3: case and why got hot water with the SEC, and

442
00:27:17,800 --> 00:27:21,240
Speaker 3: then why his case ultimately arose because at its core,

443
00:27:21,440 --> 00:27:24,720
Speaker 3: in Video, because they're just cryptocurrency adjacent. This isn't coin based,

444
00:27:24,760 --> 00:27:27,679
Speaker 3: they're not an cryptocurrency investment firm. They make computer shifts,

445
00:27:27,840 --> 00:27:30,679
Speaker 3: and they made these GPUs, a computer chip that was

446
00:27:30,840 --> 00:27:34,560
Speaker 3: initially meant for gamers, but because it is so powerful

447
00:27:34,600 --> 00:27:37,800
Speaker 3: and because a lot of the computing power that's required

448
00:27:37,800 --> 00:27:41,200
Speaker 3: for mining is somewhat transferable to the computing power required

449
00:27:41,240 --> 00:27:45,600
Speaker 3: for high level gaming, it became very popular among cryptocurrency miners,

450
00:27:45,640 --> 00:27:48,600
Speaker 3: and so cryptocurrency miners were buying huge amounts of these

451
00:27:48,800 --> 00:27:52,080
Speaker 3: processing units. And what is the crux factually of the

452
00:27:52,200 --> 00:27:57,240
Speaker 3: case is whether In Video CEO knew to what extent

453
00:27:57,560 --> 00:27:59,879
Speaker 3: a large portion of the profits the planet is alleged

454
00:27:59,880 --> 00:28:04,920
Speaker 3: that like nearly seventy percent almost of the gaming related

455
00:28:05,000 --> 00:28:08,359
Speaker 3: profit that in Video was claiming was actually due to

456
00:28:08,440 --> 00:28:12,960
Speaker 3: cryptocurrency minors. And from the SEC's perspective, that's the material

457
00:28:13,320 --> 00:28:15,879
Speaker 3: non disclosure, and certainly from the plaintiffs's that they're claiming

458
00:28:15,960 --> 00:28:18,800
Speaker 3: is a non disclosure because if over a billion dollars

459
00:28:18,800 --> 00:28:22,320
Speaker 3: of your profit is related to and tied up with

460
00:28:22,680 --> 00:28:26,960
Speaker 3: the cryptocurrency market and stakes bitcoin, that could give investors

461
00:28:27,040 --> 00:28:31,000
Speaker 3: cause for concern given the fluctuations inherent in the bitcoin market.

462
00:28:31,680 --> 00:28:34,440
Speaker 1: So the company said November twenty eighteen had missed its

463
00:28:34,480 --> 00:28:38,160
Speaker 1: revenue projections, and shares tumbled more than twenty eight percent

464
00:28:38,240 --> 00:28:42,680
Speaker 1: over two days. Innvidia's chief executives said, quote, a crypto

465
00:28:42,880 --> 00:28:46,120
Speaker 1: hangover was to blame. What did he mean by that?

466
00:28:46,200 --> 00:28:47,240
Speaker 1: And is it believable?

467
00:28:47,400 --> 00:28:49,640
Speaker 3: Well, it's certainly believable, you know. That's the statement that

468
00:28:49,840 --> 00:28:52,920
Speaker 3: I think certainly was part and parcel among why the

469
00:28:53,000 --> 00:28:55,360
Speaker 3: SEC has been involved. I mean, in Vidia has settled

470
00:28:55,360 --> 00:28:59,640
Speaker 3: an SDC regulatory enforcement action specifically related to this issue

471
00:29:00,160 --> 00:29:03,320
Speaker 3: five million dollars for that, and the plaintiffs are clinging

472
00:29:03,360 --> 00:29:07,200
Speaker 3: two statements like that to show that he knew essentially

473
00:29:07,200 --> 00:29:09,480
Speaker 3: what the plaintiffs were saying. Is the CEO, by saying

474
00:29:09,520 --> 00:29:14,040
Speaker 3: that knew that the fluctuation the wilds drop and bitcoin

475
00:29:14,120 --> 00:29:18,160
Speaker 3: around that same time, proved that Nvidia knew that these

476
00:29:18,200 --> 00:29:20,880
Speaker 3: processing units were being sold to and used heavily by

477
00:29:20,960 --> 00:29:24,160
Speaker 3: bitcoin miners because the reason that their profits dropped so

478
00:29:24,280 --> 00:29:28,280
Speaker 3: precipitously was because when bitcoin plummeted, so did the need

479
00:29:28,360 --> 00:29:30,720
Speaker 3: for minors and all of that work. And so the

480
00:29:30,760 --> 00:29:33,640
Speaker 3: fact that that those sales are so strongly linked, and

481
00:29:33,680 --> 00:29:36,560
Speaker 3: then you have the CEO statement to the same effect.

482
00:29:36,720 --> 00:29:41,640
Speaker 3: From the plaintiff's perspective, evidence is their knowledge, CEO's knowledge

483
00:29:41,640 --> 00:29:45,960
Speaker 3: certainly that a large portion of these GPUs graphic processing

484
00:29:46,040 --> 00:29:49,840
Speaker 3: units were heavily marketed, sold to, and utilized by the crisis.

485
00:29:50,160 --> 00:29:54,480
Speaker 1: Nvidia argued in its appeal that quote nothing plaintiffs have

486
00:29:54,600 --> 00:29:59,400
Speaker 1: sided describes the contents of a single internal communication involving

487
00:29:59,400 --> 00:30:02,640
Speaker 1: in vidious CEO that in fact addressed the portion of

488
00:30:02,720 --> 00:30:06,760
Speaker 1: GPU sold to cryptocurrency minors. Well, they don't need a

489
00:30:06,800 --> 00:30:09,160
Speaker 1: single internal document, do they.

490
00:30:09,800 --> 00:30:12,120
Speaker 3: No, they don't. I mean, I think that's a little overplayed,

491
00:30:12,160 --> 00:30:15,000
Speaker 3: and on some level it's difficult to contemplate how they

492
00:30:15,000 --> 00:30:17,160
Speaker 3: could get that right now. I mean, they have an

493
00:30:17,280 --> 00:30:19,760
Speaker 3: entry into discovery. They don't have access to any of

494
00:30:19,760 --> 00:30:22,280
Speaker 3: those documents that she would have in discovery. I mean,

495
00:30:22,320 --> 00:30:25,880
Speaker 3: it's a nice tagline, it's nice in hyperbolic, but it

496
00:30:25,920 --> 00:30:28,400
Speaker 3: really does I think overplay their argument a little bit

497
00:30:28,680 --> 00:30:31,120
Speaker 3: in that, of course they don't have documents, and they're

498
00:30:31,120 --> 00:30:34,680
Speaker 3: not required to state the specificity the actual contents of

499
00:30:34,680 --> 00:30:37,400
Speaker 3: a document, but they're required to say, and this is

500
00:30:37,480 --> 00:30:41,000
Speaker 3: one theory of pleading security fraud, is that there were

501
00:30:41,360 --> 00:30:44,240
Speaker 3: or there exists internal documents that would have put the

502
00:30:44,320 --> 00:30:48,280
Speaker 3: CEO unnoticed, as specifically the amount of proceeds coming from

503
00:30:48,320 --> 00:30:52,760
Speaker 3: sales to cryptocurrency miners, and the CEO knowingly and intentionally

504
00:30:52,840 --> 00:30:56,360
Speaker 3: may statements the contrary saying that you know, this profit

505
00:30:56,440 --> 00:30:59,120
Speaker 3: is more heavily tied to gaining and so you know,

506
00:30:59,160 --> 00:31:01,400
Speaker 3: the theory of their case, the plaintiffs case, is that

507
00:31:01,440 --> 00:31:04,120
Speaker 3: there were internal documents, internal information that would have put

508
00:31:04,120 --> 00:31:07,440
Speaker 3: the CEO unnoticed, and they do need to provide some

509
00:31:07,640 --> 00:31:09,840
Speaker 3: specificity as to what those documents would have been and

510
00:31:09,880 --> 00:31:12,360
Speaker 3: what they would have looked like, how much access we

511
00:31:12,440 --> 00:31:15,680
Speaker 3: would have had to them. But you know, word for word,

512
00:31:15,760 --> 00:31:19,280
Speaker 3: quoting a document for my read is hard beyond what's necessary.

513
00:31:19,280 --> 00:31:21,240
Speaker 3: But that is something that different court is going to

514
00:31:21,240 --> 00:31:22,080
Speaker 3: have to tease out here.

515
00:31:22,640 --> 00:31:24,760
Speaker 1: And why do you think the court took this case.

516
00:31:25,520 --> 00:31:27,400
Speaker 3: There's a number of different reasons. I think one of

517
00:31:27,400 --> 00:31:29,720
Speaker 3: them is that you now on a couple of issues

518
00:31:29,840 --> 00:31:33,320
Speaker 3: related to spleting standard like this for instance, this issue

519
00:31:33,320 --> 00:31:36,640
Speaker 3: on what needs to be pled about the contents of documents,

520
00:31:36,880 --> 00:31:39,920
Speaker 3: what's required for frauds. The answer you are having some

521
00:31:40,000 --> 00:31:42,200
Speaker 3: of these big circuits, like the Ninth and the Second

522
00:31:42,400 --> 00:31:46,160
Speaker 3: coming to diverging opinions. And there was a compelling argument

523
00:31:46,200 --> 00:31:48,960
Speaker 3: that Nvidia has here in that the Ninth Circuit and

524
00:31:49,000 --> 00:31:52,640
Speaker 3: the Second Circuit, if they are in fact approaching these differently.

525
00:31:53,040 --> 00:31:56,080
Speaker 3: Those two circuits, I mean, handle more than half of

526
00:31:56,120 --> 00:31:59,600
Speaker 3: the securities fraud cases in the country is an enormous number.

527
00:31:59,600 --> 00:32:02,640
Speaker 3: We have a circuit which is as California, since you

528
00:32:02,680 --> 00:32:04,720
Speaker 3: have San Francisco, to all any of the second circuit

529
00:32:04,720 --> 00:32:06,360
Speaker 3: which has New York. I mean, that is a tremendous

530
00:32:06,360 --> 00:32:09,880
Speaker 3: amount of security obligation should being handled by those two circuits.

531
00:32:09,920 --> 00:32:12,320
Speaker 3: And it is important that they are on the same page.

532
00:32:12,480 --> 00:32:15,280
Speaker 3: That's the strong spaces we're doing. So I think it

533
00:32:15,320 --> 00:32:18,360
Speaker 3: will be interesting to see which way the Court goes

534
00:32:18,400 --> 00:32:19,880
Speaker 3: on this as.

535
00:32:19,720 --> 00:32:22,880
Speaker 1: Far as shareholder actions, Does the Supreme Court have a

536
00:32:22,920 --> 00:32:26,000
Speaker 1: pattern of how it's ruled in the past or not.

537
00:32:26,600 --> 00:32:29,000
Speaker 3: I think that the knee jerk reaction would be to

538
00:32:29,040 --> 00:32:31,240
Speaker 3: say that they are going to make it harder to

539
00:32:31,320 --> 00:32:34,920
Speaker 3: bring these cases. But they haven't necessarily been issuing rulings

540
00:32:34,920 --> 00:32:38,040
Speaker 3: that just sort of fall in mind what you would assume. First,

541
00:32:38,200 --> 00:32:41,280
Speaker 3: They haven't been issuing sort of down the road conservative

542
00:32:41,360 --> 00:32:42,959
Speaker 3: super majority type of ruling.

543
00:32:43,200 --> 00:32:46,400
Speaker 1: I don't recall a lot of cases that they've taken

544
00:32:46,440 --> 00:32:47,719
Speaker 1: on cryptocurrency.

545
00:32:48,320 --> 00:32:50,280
Speaker 3: No, they really haven't. And this is sort of a

546
00:32:50,320 --> 00:32:54,120
Speaker 3: broader area in which, you know, cryptocurrency in the role

547
00:32:54,200 --> 00:32:58,200
Speaker 3: of the court in really kind of legislating cryptocurrency, it

548
00:32:58,240 --> 00:33:01,120
Speaker 3: has fallen to the Court to do so because cryptocurrency

549
00:33:01,240 --> 00:33:05,959
Speaker 3: is just far outpacing regulation. Congress is not moving fast

550
00:33:06,040 --> 00:33:08,400
Speaker 3: at all or even sort of at all to do

551
00:33:08,480 --> 00:33:11,400
Speaker 3: anything about cryptocurrency, and so you're seeing, for instance, like

552
00:33:11,440 --> 00:33:15,640
Speaker 3: the SEC getting very involved in attempting to regulate cryptocurrency,

553
00:33:16,080 --> 00:33:19,600
Speaker 3: in declaring it a security and therefore needs to be

554
00:33:19,680 --> 00:33:22,080
Speaker 3: regulated like any other investment. And you know, like they're

555
00:33:22,120 --> 00:33:25,800
Speaker 3: in orld and very aggressive litigation with coinbase right now,

556
00:33:26,160 --> 00:33:29,880
Speaker 3: I don't know that the three courts case here will

557
00:33:29,920 --> 00:33:34,640
Speaker 3: have any huge ramifications related to crypto currency, unless unless

558
00:33:34,640 --> 00:33:37,680
Speaker 3: the Court is notice to day we're denying it they

559
00:33:37,720 --> 00:33:40,719
Speaker 3: did complete enough the plant just have plt enough, in

560
00:33:40,720 --> 00:33:43,720
Speaker 3: which case I could see the court potentially going into Well,

561
00:33:43,720 --> 00:33:47,080
Speaker 3: here's why they've plat enough because you know, cryptocurrency mining,

562
00:33:47,120 --> 00:33:49,920
Speaker 3: the volatility the cryptal currency market is a huge issue,

563
00:33:50,040 --> 00:33:53,320
Speaker 3: and failure to disclose that information would obviously have an

564
00:33:53,320 --> 00:33:57,440
Speaker 3: impact on investor concerns, investor confidence in the company. And

565
00:33:57,760 --> 00:34:01,160
Speaker 3: if they choose to affirm, then I circuit I could

566
00:34:01,200 --> 00:34:04,120
Speaker 3: see a situation which they will have to delve into

567
00:34:04,400 --> 00:34:08,000
Speaker 3: some extent the facts and what's been pledged here. And

568
00:34:08,080 --> 00:34:11,799
Speaker 3: the crux of that really is like, how concerning is

569
00:34:11,920 --> 00:34:15,880
Speaker 3: like cryptocurrency might to an investor, and if the CEO

570
00:34:16,080 --> 00:34:19,240
Speaker 3: has some knowledge of that with holding it or masking

571
00:34:19,239 --> 00:34:23,400
Speaker 3: it under another profitability metric, how problematic is that? So

572
00:34:23,840 --> 00:34:26,800
Speaker 3: all that to say, I don't know that this case

573
00:34:26,800 --> 00:34:33,000
Speaker 3: will have sweeping ramifications for cryptocurrency like sec the coinbase

574
00:34:33,120 --> 00:34:35,759
Speaker 3: right now, but it's certainly possible. And I think this

575
00:34:35,880 --> 00:34:38,560
Speaker 3: represents a trend that we're going to start seeing more

576
00:34:38,560 --> 00:34:42,080
Speaker 3: and more up in which as cryptocurrency becomes more mainstream,

577
00:34:42,520 --> 00:34:45,359
Speaker 3: we are going to see the courts have to weigh

578
00:34:45,440 --> 00:34:50,000
Speaker 3: in and effectively legislate to roll cryptocurrency in our market economy.

579
00:34:50,600 --> 00:34:53,600
Speaker 1: What about the effect this would have on shareholder litigation

580
00:34:53,719 --> 00:34:57,560
Speaker 1: because the Court is also going to take a case

581
00:34:57,600 --> 00:35:01,920
Speaker 1: of a shareholder lawsuit against Meta over the data harvesting

582
00:35:02,040 --> 00:35:07,759
Speaker 1: scandal involving Cambridge Analytics. So with these two cases, could

583
00:35:07,760 --> 00:35:12,320
Speaker 1: the court give companies new leverage to win early dismissal

584
00:35:12,360 --> 00:35:16,440
Speaker 1: of shareholder lawsuits or the opposite if they rule for

585
00:35:16,480 --> 00:35:17,319
Speaker 1: the shareholders.

586
00:35:17,640 --> 00:35:20,040
Speaker 3: Absolutely absolutely, I mean I think that has been a

587
00:35:20,040 --> 00:35:23,960
Speaker 3: lot of the talk this week when service granted and

588
00:35:24,040 --> 00:35:26,839
Speaker 3: yet you know, rarely or the Supreme Court handle azing

589
00:35:26,880 --> 00:35:29,400
Speaker 3: really a security debligation and other next dockets, They're going

590
00:35:29,440 --> 00:35:32,799
Speaker 3: to have two cases related to this, and certainly there

591
00:35:32,880 --> 00:35:36,480
Speaker 3: is the potential for them to change the landscape entirely.

592
00:35:36,719 --> 00:35:38,960
Speaker 3: And I think you saw that in the AMIKI briefs

593
00:35:39,000 --> 00:35:41,879
Speaker 3: from the former sec chairs. We're asking the Supreme Court

594
00:35:41,960 --> 00:35:45,840
Speaker 3: to reverse the knife and uphold the District Court's denial.

595
00:35:45,880 --> 00:35:48,960
Speaker 3: Here is that there wasn't enough plas please, standard is

596
00:35:49,360 --> 00:35:52,480
Speaker 3: quite rigorous, and if the Supreme Court does sort of

597
00:35:52,480 --> 00:35:56,960
Speaker 3: follow that line of argument, it would certainly change the landscape.

598
00:35:57,200 --> 00:36:00,120
Speaker 3: In tandem with the met in Cambridge Analytic case, there

599
00:36:00,120 --> 00:36:06,120
Speaker 3: is joining the potential for surplaintive securious broadcases dramatically change next.

600
00:36:05,920 --> 00:36:09,760
Speaker 1: Term seems far away right now. Thanks for joining us. Seth.

601
00:36:10,040 --> 00:36:13,279
Speaker 1: That's Seth Gertz, a partner at Dorsey and Whitney. And

602
00:36:13,320 --> 00:36:15,799
Speaker 1: that's it for this edition of the Bloomberg Law Podcast.

603
00:36:16,120 --> 00:36:18,520
Speaker 1: Remember you can always get the latest legal news by

604
00:36:18,560 --> 00:36:22,400
Speaker 1: subscribing and listening to the show on Apple Podcasts, Spotify,

605
00:36:22,680 --> 00:36:26,520
Speaker 1: and at Bloomberg dot com, slash podcast, slash Law. I'm

606
00:36:26,600 --> 00:36:29,040
Speaker 1: June Grosso and this is Bloomberg