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

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Speaker 2: To find the defendant Anddutiers guilty of involuntary manslaughter as

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Speaker 2: Carshan count one. We find the dependent Andiboutiers not guilty.

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Speaker 2: Put Tambre evidence chart should come too. After just two

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Speaker 2: and a half hours of deliberations, a new Mexico jury

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Speaker 2: found Hanna Guccierrez read the armorer on the set of

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Speaker 2: the movie Rust, guilty of involuntary manslaughter for the death

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Speaker 2: of cinematographer Helena Hutchins. She was shot and killed when

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Speaker 2: a live round from a gun held by actor Alec

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Speaker 2: Baldwin fired during rehearsal. In twenty twenty one, Jura Alberto

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Speaker 2: Sanchez explained why they came to their decision pretty much.

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Speaker 3: Is just that all the never did the safety checks,

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Speaker 3: never checked the rounds, to pull him out, to look

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Speaker 3: at him, shake them. I mean, if you'd have done that,

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Speaker 3: this wouldn't happen.

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Speaker 2: The defense had argued that Guccierrez Reid was a fall

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Speaker 2: guy and the ultimate responsibility rested with producers, including Baldwin.

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Speaker 1: Hanas being made a skatego for are deliberate heerrors and

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Speaker 1: mistakes by production.

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Speaker 2: Now all eyes turned to Baldwin's own involuntary manslaughter trial,

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Speaker 2: which begins on July tenth. Joining me is former prosecutor

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Speaker 2: Joshua Castenberg, a professor at the University of New Mexico

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Speaker 2: Law School. A two week trial, very short jury deliberations,

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Speaker 2: what was the critical prosecution evidenced.

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Speaker 4: I think one is the prosecution did a very good

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Speaker 4: job of proving that Hanna Goudiers Read had a duty

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Speaker 4: and that she failed to perform the basic functions of

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Speaker 4: that duty, and that is to make sure the firearms

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Speaker 4: are safe. Now, the prosecution had not only the normal

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Speaker 4: hurdle of proof beyond a reasonable doubt, they also understood

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Speaker 4: that one of the defenses would be that, look, other

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Speaker 4: people had access to the guns and the armor isn't

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Speaker 4: the only one responsible for this. But they focused on

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Speaker 4: her specific responsibilities and they were able to get in

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Speaker 4: some evidence of drug use, and I think those were

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Speaker 4: the two strengths of the case. And frankly, the defense

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Speaker 4: didn't put up a compelling defense, even though it's not

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Speaker 4: their burden to do so. They didn't.

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Speaker 2: So one of the jurors said that they'd easily reached

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Speaker 2: their decision by determining that Gucciera's Read had failed to

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Speaker 2: properly carry out gun safety checks. The big question has

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Speaker 2: been why was their live ammunition on the movie set,

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Speaker 2: which is strictly forbidden. The prosecution said that Gucciera's Read

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Speaker 2: brought the live rounds to the set and showed some

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Speaker 2: photos to prove that.

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Speaker 4: Yeah, so, you know, I think there is evidence, you know,

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Speaker 4: where the live rounds came from. I don't think it's

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Speaker 4: you know, it's conclusive beyond a reasonable doubt, but there

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Speaker 4: is evidence that it came from her. I think what

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Speaker 4: that evidence really proved if she knew of the possibility

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Speaker 4: that live rounds would be in the vicinity of the

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Speaker 4: weapon and fail to do anything to stop it from

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Speaker 4: entering the weapon or keeping it in the weapon.

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Speaker 2: I mean, let's talk about how this affects Baldwin's trial.

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Speaker 2: If she's responsible for the live ammunition on the set,

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Speaker 2: that helps him, doesn't it.

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Speaker 4: Well, his attorneys have looked at this case, I have

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Speaker 4: no doubt, very carefully, and not only very carefully, but

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Speaker 4: with an eye towards presenting evidence in their own case.

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Speaker 4: And I think, ironically, the stronger the prosecution's case is

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Speaker 4: against Hanne Goodyear's read the weaker it is against Baldwin,

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Speaker 4: even though those are two separate trials with two different

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Speaker 4: theories of guilt.

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Speaker 2: Does this verdict in any way absolve Baldwin of negligence, Well.

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Speaker 4: It doesn't absolve him of negligence, because you can have

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Speaker 4: a criminal negligence series of crimes where there are multiple

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Speaker 4: people who had duties to perform or avoid performing certain things,

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Speaker 4: and yet they're all guilty, even though those duties are desparate.

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Speaker 4: But then there's the human logic, and the human logic

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Speaker 4: will go some thing like this, the more guilty she is,

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Speaker 4: the less he is, because really, what was his role? Now,

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Speaker 4: the prosecution did a great job in this first trial.

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Speaker 4: Their next focus has to be getting to the point

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Speaker 4: where the individual who last had their hand on the

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Speaker 4: gun had an independent responsibility to make sure the gun

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Speaker 4: was safeguarded. That's a true statement, but whether it rises

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Speaker 4: to the level of a crime, the failure to do

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Speaker 4: that or not, that's a tough mountain to climb.

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Speaker 2: The prosecutors used videos from the set to portray a

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Speaker 2: breakdown of movie industry firearms safety standards. The defense tried

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Speaker 2: to show that the producers were trying to cut costs,

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Speaker 2: They rushed the crew, They gave her too many things

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Speaker 2: to do because she was both a part time armorer

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Speaker 2: and a prop assistant. That's the producer's fault. But Baldwin

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Speaker 2: is one of the producers.

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Speaker 4: And you know, if the prosecution pursues that line, they

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Speaker 4: go up against Baldwin. He's not just an actor. He

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Speaker 4: had a greater role in the movie, on the Russ

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Speaker 4: movie that than a normal actor would have, and they'll

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Speaker 4: try to tie him in as being complicit in those failures,

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Speaker 4: and there's a possibility they'll be able to do so.

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Speaker 2: What I found interesting is that there was testimony that

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Speaker 2: he exerted a disproportionate amount of power because he was

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Speaker 2: serving as producer, writer, and lead actor. He was described

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Speaker 2: by one witness as the boss and no one says

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Speaker 2: no to him.

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Speaker 4: That's important, it's very important. Yeah, I mean, he's not

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Speaker 4: just the lead act. You know that Hollywood is not

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Speaker 4: the military, but there are defined leadership roles in the

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Speaker 4: movie industry, and it's clear that he took one of them,

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Speaker 4: and so there's responsibility that comes with taking one of them.

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Speaker 2: A firearms expert said that Balwin was basically instructing the

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Speaker 2: armorer how to do their job.

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Speaker 4: Yeah, you know, the armorer would have an independent duty

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Speaker 4: to push back. But I think the prosecution tried to

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Speaker 4: tailor this case against Hannah Goodear as reeds preserving enough

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Speaker 4: strong evidence against Baldwin to go after him in that trial,

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Speaker 4: and I think they did a pretty good job of

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Speaker 4: doing it. It's just that the prosecution of Alec Baldwin

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Speaker 4: is going to be considerably harder than it was against

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Speaker 4: the armorer.

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Speaker 2: I sort of wonder why they're going after Baldwin since

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Speaker 2: they found out that the armorer, or they believe the

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Speaker 2: armorer brought the ammunition to the set, she didn't do

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Speaker 2: proper safety checks before the incident.

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Speaker 4: You're going to hear competing theories about why they're going

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Speaker 4: after Baldwin. For example, one theory is they want publicity.

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Speaker 4: I don't believe that's true, but that is going to

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Speaker 4: be something that's advocating that he's a big person to

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Speaker 4: take down in the like. You're going to hear another

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Speaker 4: competing theory, which is we only have one system of

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Speaker 4: justice in this country, and there's been this unfortunate narrative

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Speaker 4: that there's two systems of us as one for the

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Speaker 4: top one percent and one for the rest of us.

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Speaker 4: But I also think that there's a fundamental issue here,

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Speaker 4: and that is the person who had their finger on

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Speaker 4: the trigger, it should have the justice system focused on

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Speaker 4: them as well at a fairness, because they're the one

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Speaker 4: who pulled the trigger without looking at the gun, without

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Speaker 4: doing the final safety check and the like. And I

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Speaker 4: actually think that's the most basic and real reason why

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Speaker 4: the prosecution is going forward on it. Having said that,

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Speaker 4: Baldwin is very gifted defense Council and you know, they're

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Speaker 4: going to make an equation to for example, you rent

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Speaker 4: a car when you land at the airport from a

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Speaker 4: reputable cart rental company. Your assumption when you turn the

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Speaker 4: ignition in on the car is the car is up

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Speaker 4: to safety standards, you know, And so that's what they're

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Speaker 4: going to equate it to.

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Speaker 2: Baldwin maintains and has maintained since day one, that he

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Speaker 2: didn't pull the trigger, and there's going to be test

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Speaker 2: stamoni from gun experts that it couldn't have fired without

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Speaker 2: pulling the trigger. How important is that?

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Speaker 4: Well, that cuts both ways, because if you have an FBI,

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Speaker 4: or you have a firearms expert or real expert saying, look,

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Speaker 4: this gun was fired because the trigger was depressed, and

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Speaker 4: it makes it appear that Baldwin wasn't telling the truth.

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Speaker 4: That can hurt him. On the other hand, what I'd

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Speaker 4: say about it is maybe he absolutely believes that he

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Speaker 4: didn't pull the trigger. Because the human mind is fallible,

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Speaker 4: and that's why, for example, when a railroad accident occurs,

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Speaker 4: or a plane crash accident occurs, the National Transportation Safety Board,

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Speaker 4: when they do mass interviews with people, they don't give

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Speaker 4: the interviews individualized credibility because everybody has a different story

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Speaker 4: as to what they saw in Our minds are conditioned,

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Speaker 4: particularly during a stressful moment, to capture and retain data

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Speaker 4: and then show the data in a manner that makes

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Speaker 4: sense to us, even though it may not be an

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Speaker 4: accurate reflection of what occurred. And so, if you remember,

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Speaker 4: there was a plane after nine to eleven that crashed

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Speaker 4: in Long Island. There were witnesses. They said there was

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Speaker 4: a giant fireball. There were witnesses they said the wings

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Speaker 4: fell off the airplane. All kinds of stories as to

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Speaker 4: what happened. It turned out there was no fireball, there

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Speaker 4: was no explosion. There was a plane crash because the

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Speaker 4: plane broke apart. But if you're the person with your

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Speaker 4: finger on the trigger, your brain may actually synthesize the

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Speaker 4: data that occurred, you know, the recall to say you

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Speaker 4: had nothing to do with it. It just went off,

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Speaker 4: even though your finger did it, you know. So I

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Speaker 4: don't think that the prosecution is going to spend a

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Speaker 4: lot of time trying to paint Baldwin as a liar.

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Speaker 4: They're going to try to paint them as irresponsible.

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Speaker 2: And in this case, Hannah Gucciras Reid did not take

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Speaker 2: the witness stand. But do we expect that Alec Ballwin

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Speaker 2: will take the witness stand?

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Speaker 4: Well, you know, taking the witness stand is ultimately a

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Speaker 4: defendant's choice, and it's not the defense council's choice. I mean,

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Speaker 4: they can just advise. And it's a risk for him

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Speaker 4: to take the stand. It's also a risk for him

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Speaker 4: not to. The judge instructs the jury that they're to

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Speaker 4: infer no guilt whatsoever from any defendant who does not

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Speaker 4: testify in their own defense. That's true, But he's an actor,

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Speaker 4: and him taking the witness stand, the risk is he

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Speaker 4: has to be genuine as to who he is. If

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Speaker 4: he takes the stand and tells the truth as he

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Speaker 4: sees it, but if the jury thinks he's acting through it,

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Speaker 4: they're going to hold it a tense him. But he's

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Speaker 4: in the most unique category of defendant that I could

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Speaker 4: think of.

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Speaker 2: Looking at the evidence that came in and how it

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Speaker 2: was received by the jury, which side do you think

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Speaker 2: has the advantage, the prosecution or Baldwin Well.

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Speaker 4: I think that the prosecution tried to put deserve as

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Speaker 4: much of the strength as they could in the evidence

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Speaker 4: to be used against Baldwin. Having said that, I could

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Speaker 4: see that Baldwin's attorneys might call the new Mexico OSHA

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Speaker 4: person to testify. They may call witnesses who brought in

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Speaker 4: evidence about Hanne Goudiera's read drug use to say that, look,

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Speaker 4: my client wasn't aware that he was under the influence

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Speaker 4: of marijuana or cocaine during this time on the movie set.

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Speaker 4: So I think that it felt slightly in favor of Baldwin.

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Speaker 4: I mean, you could still get a conviction out of

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Speaker 4: this evidence, but it's much harder to do so we'll find.

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Speaker 2: Out in July. Thanks so much, josh Deft. Professor Joshua

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Speaker 2: Castenberg at the University of New Mexico Law School coming

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Speaker 2: up next. What the liberal justices were worried about in

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Speaker 2: the Supreme Court's decision keeping Trump on the ballot. I'm

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Speaker 2: June Grosso and you're listening to Bloomberg. On the surface,

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Speaker 2: the Supreme Court was unanimous on Monday in ruling that

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Speaker 2: Donald Trump can appear on presidential ballots, but just below

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Speaker 2: the surface, there was plenty of conflict. In a procureum opinion,

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Speaker 2: all nine justices concluded that states can't enforce the insurrection

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Speaker 2: clause to bar federal candidates from the ballot, But the

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Speaker 2: three liberal justices wrote a caustic concurrence which read like

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Speaker 2: a dissent, saying the five conservatives had gone too far,

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Speaker 2: and Conservative Justice Amy Cony Barrett wrote her own, more

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Speaker 2: restrained concurrence joining me. Is Jessica Levinson, a professor at

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Speaker 2: Loyola Law School and host of the Passing Judgment podcast.

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Speaker 2: Jessica explained the reasoning of the procureum opinion, which all

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Speaker 2: nine justices agreed to. Why they decided that Donald Trump

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Speaker 2: should remain on the ballot.

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Speaker 5: So I wouldn't frame this so much as should Donald

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Speaker 5: Trump for me in on the ballot? Does any single

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Speaker 5: state have the power under section three of the fourteenth

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Speaker 5: Amendment to say that a presidential candidate is ineligible for office.

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Speaker 5: And the top line here is that nine of the

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Speaker 5: justices agreed that when it comes to a state, they

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Speaker 5: do not have the power for federal officials, particularly for

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Speaker 5: the president, to say that they're disqualified for office having

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Speaker 5: been previously serving in government, engaging in insurrection, and then

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Speaker 5: trying to once again serve in government.

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Speaker 2: You have two concurrences, one by all three of the

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Speaker 2: liberal justices and one by Amy Cony Barrett in the

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Speaker 2: Liberal justice is concurrence that read more like a dissent.

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Speaker 2: They said that the five conservatives went too far further

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Speaker 2: than they needed to go. Explain they decide novel constitutional

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Speaker 2: questions to insulate this court and petitioner that's trump future controversy.

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Speaker 2: Explain what they were concerned about there.

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Speaker 5: So I think what the concurrence, which really does read

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Speaker 5: more like a descent, is concerned about is one that

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Speaker 5: the Court answered a question that wasn't asked. That they said,

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Speaker 5: not only can a stake not by itself say that

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Speaker 5: there's a federal candidate whose ineligible profice under section three

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Speaker 5: of the fourteenth amendments. But here's who can It's just Congress,

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Speaker 5: and it's just through a certain type of legislation. And

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Speaker 5: so the first problem the concurrence has, it's this idea

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Speaker 5: that in fact, the procureum and as they phrased it,

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Speaker 5: the majority is just going too far and they're answering

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Speaker 5: a question that they didn't need to, and that that

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Speaker 5: violates the principle of judicial restraint. And then the second

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Speaker 5: thing they're saying about insulating, and I think this wasn't clear,

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Speaker 5: and I wish they had just said what they mean.

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Speaker 5: But I suspect what they mean is that by the

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Speaker 5: majority saying here's the way that you enforced Section three,

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Speaker 5: it's congressional legislation that is specifically aimed at and narrowly

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Speaker 5: tailored aimed at the issue the Constitution lays out. What

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Speaker 5: they're saying is does that mean then if Donald Trump,

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Speaker 5: for instance, was to win the election and then Congress

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Speaker 5: was to try not to certify under a different statute

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Speaker 5: under the Electoral Count Act, would Congress then laugh the

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Speaker 5: power to do that under this majority opinion?

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Speaker 2: And during the oral arguments, the lawyer for the Colorado

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Speaker 2: voters had said that a rule requiring Congressional action to

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Speaker 2: implement Section three could leave the door open to a

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Speaker 2: renewed fight over trying to use the provision to disqualify

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Speaker 2: Trump in the event that he wins the election. So

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Speaker 2: those five conservatives knew what they were doing.

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Speaker 5: I think this conservatives did know what they were doing.

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Speaker 5: This was discussed in oral arguments. I think that there's

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Speaker 5: a question as to whether or not it's appropriate or

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Speaker 5: not for the picureum to have gone further than just

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Speaker 5: Colorado lacks this power. But it certainly is the case

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Speaker 5: that there was a conversation about whether or not a

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Speaker 5: specific type of judicial decision would just kick the can

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Speaker 5: down the road. And I think that's what the concurrence

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Speaker 5: is really arguing her. The concurrence by the liberals, which is,

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Speaker 5: you're just pushing off some big and complicated questions until later,

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Speaker 5: and specifically those big questions, you're actually tilting the scale

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Speaker 5: in favor of saying that Congress would lack the power

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Speaker 5: to take any action outside of a new piece of legislation,

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Speaker 5: and that that's helpful not just for Trump but for

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Speaker 5: the Court itself in avoiding future controversy.

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Speaker 2: Well, do you think that there was a push, you know,

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Speaker 2: to speak with one voice, and so the three liberals

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Speaker 2: went along with that. Was this really a unanimous decision.

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Speaker 5: It really was a unanimous decision that was deeply fractured

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Speaker 5: on everything else other than the one line of the outcome.

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Speaker 5: So on the one hand, you can see that there's

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Speaker 5: this enormous pressure because of the case with huge political

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Speaker 5: consequences and huge consequences on an issue that really divides

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Speaker 5: our country, that the court not look like they're policymakers.

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Speaker 5: So the court look like they are judges, They are

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Speaker 5: resolving disputes, they are not putting their thumb on the

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Speaker 5: scale of an election. And so I think that's how

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Speaker 5: we do get to that one line saying based on federalism,

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Speaker 5: based on all of these concerns about patchworks and chaos,

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Speaker 5: we're going to say Colorado went outside of its power.

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Speaker 5: But then the agreement dissipates, and that's where we lose

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Speaker 5: all consensus, and that's where you have the majority, I

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Speaker 5: think taking a very different stance thing, and here's exactly

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Speaker 5: how you apply Section three. And the concurrent thing, why

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Speaker 5: are you going so far? And you're doing this in

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Speaker 5: a way that not just avoids judicial restraints, but you're

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Speaker 5: kind of tipping the scales in favor of somebody like

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Speaker 5: the former president.

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Speaker 2: Justice amy Cony Barrett, in her separate, more temperate Concurrence, wrote,

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Speaker 2: the Court has settled a politically charged issue in the

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Speaker 2: volatile season of a presidential election, particularly in this circumstances,

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Speaker 2: writings on the Court should turn the national temperature down,

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Speaker 2: not up, but then goes on to say, well, the

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Speaker 2: main messages.

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Speaker 5: We all agreed, right, And I think this is an

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Speaker 5: understandable message by Justice Barrett, because she's very cognism of

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Speaker 5: the past that she doesn't want this to be a

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Speaker 5: bush by Gore reduct where it looks like by a

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Speaker 5: thinly de court divided along ideological lines of who appointed

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Speaker 5: the justices, that they make a decision that has huge

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Speaker 5: effects on the presidential election. So what she's saying is

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Speaker 5: he understands the concern that the majority went too far,

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Speaker 5: but she wishes that. I think the dissent gives me

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Speaker 5: the Freudian slips with the concurrence hadn't used such strident language.

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Speaker 5: And I wonder if there was some world in which

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Speaker 5: the liberals actually could have gotten Justice Barrett to sign

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Speaker 5: on if the tenor of the Concurrence had maybe been

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Speaker 5: slightly different.

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Speaker 2: Well, she hasn't been sitting in those liberal seats for

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Speaker 2: so long, particularly so to Mayor, and the emotion, shall

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Speaker 2: we say or anger building up. Is Barrett on a

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Speaker 2: sort of a mission because she appeared with Sonya so

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Speaker 2: to Mayor at the National Conference of Governors to say,

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Speaker 2: there are not Republican judges or democratic judges. We all

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Speaker 2: wear black robes, not red, not blue. But she on

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Speaker 2: a mission that you usually see the Chief Justice on.

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Speaker 5: I think that it's Justice Barrett, it's Justice Sonia Sodamayor,

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Speaker 5: who's also spoken warmly about Justice Clarence Thomas. It's the

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Speaker 5: Chief Justice, it's Elena Kagan, all of whom have said

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Speaker 5: some version of please know that we're judges, not politicians

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Speaker 5: and robes. And of course they need that right. The

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Speaker 5: Supreme Court depends on our respect and it depends on

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Speaker 5: us viewing them as something different from just political actors,

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Speaker 5: because ultimately they get their power from us. Saying that

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Speaker 5: they have that power, I mean, they don't have an

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Speaker 5: army to send in, they don't have a group of

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Speaker 5: police officers to send in to enforce their opinions. In

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Speaker 5: the sense that they have the power of the pen,

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Speaker 5: and if we ignore that, then we have a real

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Speaker 5: problem with our third branch.

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Speaker 2: So they don't want to appear as political actors. They

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Speaker 2: want to appear as judges. Yet, over the space of

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Speaker 2: six days, they gave Trump this outright victory in Colorado

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Speaker 2: and a victory in putting off his criminal case after

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Speaker 2: waiting for two weeks to decide whether or not they

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Speaker 2: were going to take his claim of presidential immuni from prosecution,

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Speaker 2: which may mean, probably will mean that he won't be

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Speaker 2: tried in the election interference case because there won't be time.

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Speaker 2: How is that not political?

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Speaker 5: I think what the justices would say is like, we

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Speaker 5: decided to take this case because we decide big constitutional

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Speaker 5: questions that are matters of first impression, and this is

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Speaker 5: a big constitutional question that we've never confronted before. And

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Speaker 5: I think what they might also say is, Jasonuth came

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Speaker 5: to us in December and asked us to said this

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Speaker 5: for arguments in March. We instead said you don't get

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Speaker 5: to jump the line, and we set arguments for the

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Speaker 5: end of April. Now is the end of April quite different?

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Speaker 5: In fact, when it comes to the court calendar and

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Speaker 5: the electoral calendar than the beginning of March. Of course

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Speaker 5: it is, but they can also say, look, we had

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Speaker 5: a full calendar. We didn't push this off until next term.

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Speaker 5: And they might say it's not our responsibility to make

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Speaker 5: sure that this case can occur before the election. Now,

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Speaker 5: on the other hand, of course, one would say, well,

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Speaker 5: are they actually unnecessarily delaying things by setting this particular pace.

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Speaker 5: But I think the justices would say, actually, we're moving

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Speaker 5: for us quite quickly.

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Speaker 2: Well, they set it for the last possible day they

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Speaker 2: could for all arguments, and we saw how fast they

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Speaker 2: did the Colorado case and that Trump immunity case has

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Speaker 2: been briefed and rebriefed. I don't know what else there

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Speaker 2: is left.

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Speaker 5: To say, right, I mean, what's left is the Supreme

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Speaker 5: Court decision. And I think what we do need to

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Speaker 5: think about is that we could get a decision that

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Speaker 5: isn't just an up or down. It's not just there

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Speaker 5: is absolute immunity or there isn't. We could get a

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Speaker 5: decision that says, for instance, there is qualified immunity and

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Speaker 5: send the case back to Judge chuckin the trial court

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Speaker 5: judge in the DC case dealing with election interference and

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Speaker 5: tell her to apply that standard that could also present

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Speaker 5: a delay, and.

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Speaker 2: None of the justices dissented from that order delaying Trump's

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Speaker 2: trial either.

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Speaker 5: One thing I would offer is, I know we're all

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Speaker 5: very much focused on the question of whether or not

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Speaker 5: the DC case, that election interference case does move forward

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Speaker 5: before the election. But there's also another question looming in

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Speaker 5: that case, in an unrelated case before the Supreme Court,

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Speaker 5: dealing with whether or not the federal statute that Trump

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Speaker 5: is charged under, at least for I think half of

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Speaker 5: the charges, whether or not that's appropriate to use in

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Speaker 5: this type of case, and that similarly could have delayed.

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Speaker 2: This trick and not to be repetitive, but I will

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Speaker 2: be taking these cases that basically put them in the

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Speaker 2: middle of the presidential election is not going to help

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Speaker 2: to make people think that they're judges in black robes

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Speaker 2: and not politicians.

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Speaker 5: Well, I think when it came to the Section three case,

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Speaker 5: as a fourteenth Amendment, they just didn't have a choice.

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Speaker 5: That's the case that screams out for Supreme Court review

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Speaker 5: when it comes to the cases dealing with January sixth

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Speaker 5: and whether or not the obstruction statues that people are

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Speaker 5: charged under is appropriate. I similarly think that probably does

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Speaker 5: cry out for Supreme Court resolution. And then when it

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Speaker 5: comes to this question of presidential immunity, one could argue

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Speaker 5: same things constitutional question matter first impressions, that means Supreme Court.

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Speaker 2: Well, I'm not sure their approval rating can get any lower,

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Speaker 2: but we'll see. Thanks so much, Jessica. That's Professor Jessica

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Speaker 2: Levinson of Loyola Law School, host of the Passing Judgment podcast.

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Speaker 2: Coming up next is the SEC's multi billion dollar enforcement tool,

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Speaker 2: in Jeopardy. I'm June Grosso and this is Bloomberg.

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Speaker 1: This is Bloomberg Law with June Grosso from Bloomberg Radio.

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Speaker 2: Whether or not a defendant has to cough up profits

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Speaker 2: from illegal trading activity may come down to what court

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Speaker 2: securities regulators filed in. That's because US appeals courts disagree

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Speaker 2: about what the SEC needs to show to take back

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Speaker 2: profits from alleged wrongdoers. Is it about how much investors

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Speaker 2: lost or is it about how much the defendant made

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Speaker 2: from illegalas a lot is at stake for the SEC

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Speaker 2: because disgorgement is one of the most powerful tools it

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Speaker 2: has for taking back those illegal profits it brought in

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Speaker 2: some three point thirty seven billion dollars in twenty twenty three.

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Speaker 2: That's more than twice what the agency recovered in fines.

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Speaker 2: Joining me is Anthony Sabino, a professor in the Department

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Speaker 2: of Law at the Peter J. Tobin College of Business

436
00:26:08,880 --> 00:26:11,760
Speaker 2: at Saint John's University. Nice to have you back on

437
00:26:11,800 --> 00:26:12,600
Speaker 2: the show, Anthony.

438
00:26:13,040 --> 00:26:15,320
Speaker 3: Well, first of all, let me say I'm delighted to

439
00:26:15,400 --> 00:26:18,639
Speaker 3: be on the program with you again and especially today

440
00:26:18,680 --> 00:26:21,600
Speaker 3: to discuss what I think is going to be the

441
00:26:21,640 --> 00:26:24,760
Speaker 3: next landmark Supreme Court case in the realm of securities law.

442
00:26:24,840 --> 00:26:27,119
Speaker 3: It's probably a year away, but again, this is an

443
00:26:27,160 --> 00:26:30,359
Speaker 3: issue that certainly the Supreme Court should resolve and I

444
00:26:30,400 --> 00:26:31,880
Speaker 3: think very much needs to resolve.

445
00:26:32,760 --> 00:26:36,840
Speaker 2: So how much a defendant will pay to the sec

446
00:26:36,880 --> 00:26:41,800
Speaker 2: and disgorgement depends on where they are, what circuit they're in.

447
00:26:42,040 --> 00:26:43,560
Speaker 2: Just explain this.

448
00:26:43,920 --> 00:26:46,960
Speaker 3: Problem, junior. Correct, It is very much a problem, which

449
00:26:46,960 --> 00:26:49,240
Speaker 3: is why the Supreme Court is going to eventually have

450
00:26:49,280 --> 00:26:52,240
Speaker 3: to step in, and I hope sooner as opposed to later.

451
00:26:52,680 --> 00:26:55,120
Speaker 3: And the reason is there is very much a sharp divide,

452
00:26:55,160 --> 00:26:58,399
Speaker 3: a deep chest in between A decision from June to

453
00:26:58,400 --> 00:27:02,040
Speaker 3: twenty two called Hall the Fifth Circuit, a very prominent

454
00:27:02,080 --> 00:27:06,600
Speaker 3: circuit indeed, which basically said that disgorg is regulated by

455
00:27:06,600 --> 00:27:10,760
Speaker 3: a statutory addition that Congress made in very early twenty

456
00:27:10,840 --> 00:27:14,159
Speaker 3: twenty one with respect to recognizing disgorgements, and as the

457
00:27:14,160 --> 00:27:17,640
Speaker 3: Fifth Circuit classifier, is a legal version of the remedy

458
00:27:18,080 --> 00:27:21,560
Speaker 3: as opposed to the more recent decision called Goville from

459
00:27:21,560 --> 00:27:24,719
Speaker 3: October of last year. So it's very fresh from the

460
00:27:24,720 --> 00:27:27,560
Speaker 3: eminent Second Circuit. And as we've said many times on

461
00:27:27,640 --> 00:27:30,480
Speaker 3: the program before, the Second Circuit was long ago recognized

462
00:27:30,520 --> 00:27:33,280
Speaker 3: by the Supreme Court as the mother court of the

463
00:27:33,280 --> 00:27:36,280
Speaker 3: federal securities law, and the Justices pay a great deal

464
00:27:36,320 --> 00:27:39,359
Speaker 3: of attention, if not deference to it. The Second Circuit,

465
00:27:39,359 --> 00:27:43,000
Speaker 3: in a more recent opinion authored by Circuit Judgement Nashi said, well,

466
00:27:43,040 --> 00:27:46,480
Speaker 3: no disgordn even with this statutory revision, is still an

467
00:27:46,520 --> 00:27:50,960
Speaker 3: equitable remedy that is regulated by equitable principles and paramounts

468
00:27:50,960 --> 00:27:54,520
Speaker 3: among them is that in seeking discord and the amount

469
00:27:54,520 --> 00:27:59,160
Speaker 3: of money related there too, the sec must prove that

470
00:27:59,200 --> 00:28:03,359
Speaker 3: there are acts actually investors who were not only defrauded okay,

471
00:28:03,400 --> 00:28:06,600
Speaker 3: material misrepresentations or missions, et cetera, but they must prove

472
00:28:06,680 --> 00:28:10,600
Speaker 3: the extent, they must quantify the amount of monetary damage

473
00:28:10,600 --> 00:28:13,679
Speaker 3: to those investors. In other words, if the SEC can

474
00:28:13,840 --> 00:28:18,320
Speaker 3: show there are investors with actual pecuniary harm, there is

475
00:28:18,320 --> 00:28:21,840
Speaker 3: no basis for disgorgements, and therefore the SEC can recover.

476
00:28:22,080 --> 00:28:25,560
Speaker 3: And the SEC has basically been using disgorgement for decades

477
00:28:26,040 --> 00:28:31,399
Speaker 3: to extract illegal profits from malefactors. But the bottom line is,

478
00:28:31,440 --> 00:28:34,240
Speaker 3: and you now see this, this limitation placed upon it

479
00:28:34,280 --> 00:28:36,960
Speaker 3: by the second circuit, that makes the SEC's case oil

480
00:28:37,000 --> 00:28:41,280
Speaker 3: the much harder, especially in the contemporary environment where we have,

481
00:28:41,560 --> 00:28:46,560
Speaker 3: for example, cryptocurrency cases where it's difficult and maybe impossible

482
00:28:46,640 --> 00:28:51,120
Speaker 3: to basically show the quantitative damage the dollar value, the

483
00:28:51,120 --> 00:28:54,520
Speaker 3: pecuniary harm to investors. So you have this very sharp

484
00:28:54,600 --> 00:28:56,280
Speaker 3: chasm between these two circuits.

485
00:28:57,000 --> 00:28:59,040
Speaker 2: And how have the other circuits lined up.

486
00:28:59,360 --> 00:29:02,120
Speaker 3: There's appending case before the first circuit up in Boston

487
00:29:02,320 --> 00:29:04,680
Speaker 3: that we have yet to hear from an eleventh circuit

488
00:29:04,720 --> 00:29:08,320
Speaker 3: case pending down in Florida, and that there is prior

489
00:29:08,440 --> 00:29:11,880
Speaker 3: eleventh circuit case law that sort of takes a middle

490
00:29:11,920 --> 00:29:14,600
Speaker 3: of the road position. We're not too sure where they're at.

491
00:29:14,760 --> 00:29:17,520
Speaker 3: The tenth circuit apparently said something about this. So both

492
00:29:17,600 --> 00:29:22,680
Speaker 3: qualitatively and quantitatively, the circuits are deeply divided, and that

493
00:29:22,720 --> 00:29:25,320
Speaker 3: has to be reconciled by the Supreme Court. And finally,

494
00:29:25,560 --> 00:29:28,320
Speaker 3: the reason the Court has to step in, in my estimation,

495
00:29:28,840 --> 00:29:32,840
Speaker 3: is the fact that this situation was largely presaged by

496
00:29:32,840 --> 00:29:36,080
Speaker 3: the Supreme Court's decision in Juna twenty twenty in the

497
00:29:36,160 --> 00:29:40,080
Speaker 3: Liu versus SEC. Case, where the Court and the depinion

498
00:29:40,160 --> 00:29:43,840
Speaker 3: by Justice Soto Mayor basically defined some of the parameters

499
00:29:44,160 --> 00:29:47,480
Speaker 3: of disgorgement as an equiple revet remedy and set forth

500
00:29:47,560 --> 00:29:51,080
Speaker 3: certain conditions and requirements for the SEC to prove it

501
00:29:51,320 --> 00:29:54,120
Speaker 3: and conversely how one defends against such a charge. But

502
00:29:54,240 --> 00:29:57,520
Speaker 3: it left certain questions unanswered, and that in turn was

503
00:29:57,560 --> 00:30:02,640
Speaker 3: exacerbated by some statutory revisions made by Congress in June

504
00:30:02,680 --> 00:30:05,760
Speaker 3: of twenty twenty one. And in essence, that's why the

505
00:30:05,760 --> 00:30:08,520
Speaker 3: Goville case from the Second Circuit and the Halem case

506
00:30:08,720 --> 00:30:10,920
Speaker 3: from the Fifth Circuit or at odds, because they take

507
00:30:10,960 --> 00:30:14,680
Speaker 3: startling different views of what Liu said or did not

508
00:30:14,800 --> 00:30:18,200
Speaker 3: say and what the statutory revision by Congress did or

509
00:30:18,240 --> 00:30:20,920
Speaker 3: did not do. So, as the final arbitrar of our

510
00:30:21,000 --> 00:30:23,560
Speaker 3: nation's laws is Supreme Court needs to step in and

511
00:30:23,640 --> 00:30:28,480
Speaker 3: especially because again disgorgements both as a deterrent to wrongful

512
00:30:28,520 --> 00:30:31,400
Speaker 3: behavior and as a just punishment for those who do

513
00:30:31,520 --> 00:30:34,680
Speaker 3: wrong in the capital markets. We need resolution on this.

514
00:30:34,960 --> 00:30:37,280
Speaker 3: So I'm looking forward to this case being keed up

515
00:30:37,280 --> 00:30:39,680
Speaker 3: by one of these parties, one of these cases, hopefully

516
00:30:39,720 --> 00:30:42,760
Speaker 3: the Goville case, to get to the justices, not this

517
00:30:42,920 --> 00:30:43,840
Speaker 3: year but next year.

518
00:30:44,480 --> 00:30:48,920
Speaker 2: So can the SEC, in a lot of cases, file

519
00:30:49,000 --> 00:30:49,800
Speaker 2: anywhere but the.

520
00:30:49,760 --> 00:30:55,040
Speaker 3: Second Circuit absolutely, absolutely okay. The securities laws give exclusive

521
00:30:55,120 --> 00:30:58,240
Speaker 3: jurisdiction in most cases to the SEC, and it gives

522
00:30:58,280 --> 00:31:00,720
Speaker 3: it broad authority to file and whatever district court they

523
00:31:00,760 --> 00:31:03,040
Speaker 3: think appropriate, obviously the district court being the trial court.

524
00:31:03,080 --> 00:31:05,400
Speaker 3: Then it percolates up to the circuit court level. But

525
00:31:05,520 --> 00:31:08,320
Speaker 3: again they can get you where the SEC is doing business,

526
00:31:08,360 --> 00:31:11,320
Speaker 3: where you are doing business with our investors who you're harmed.

527
00:31:11,680 --> 00:31:15,960
Speaker 3: Giving the quintessential interstate nature of securities transactions, that basically

528
00:31:16,160 --> 00:31:19,239
Speaker 3: leaves open the old the fifty States. So again the

529
00:31:19,280 --> 00:31:22,600
Speaker 3: SEC has Treman's choices. So right now, no doubt the

530
00:31:22,840 --> 00:31:25,320
Speaker 3: folks doing good work at the Division of Enforcement. The

531
00:31:25,360 --> 00:31:28,000
Speaker 3: SEC in Washington, d C. Not to mention, the regional

532
00:31:28,040 --> 00:31:30,800
Speaker 3: offices are thinking very long and hard about Okay, where

533
00:31:30,800 --> 00:31:33,920
Speaker 3: do we bring these cases? If they're seeking disgorgements, they

534
00:31:33,920 --> 00:31:36,240
Speaker 3: may very well decide, you know what, the second circuit

535
00:31:36,360 --> 00:31:38,880
Speaker 3: is not exactly friendly to us at this point in time.

536
00:31:39,240 --> 00:31:41,560
Speaker 3: So let's try the fifth circuit, which is clearly said,

537
00:31:42,040 --> 00:31:45,280
Speaker 3: this is the legal remedy of disgorgement, and therefore you

538
00:31:45,280 --> 00:31:47,520
Speaker 3: can ask for it, and here are the rules. And

539
00:31:47,920 --> 00:31:50,240
Speaker 3: again they may decide to pick the fifth circuit over

540
00:31:50,240 --> 00:31:52,800
Speaker 3: the second. They may avoid some of the circuits that

541
00:31:52,840 --> 00:31:55,760
Speaker 3: are in transition, shall we say, such as the tenth

542
00:31:56,240 --> 00:31:59,520
Speaker 3: and especially the first and the eleft circuit. And you know, June,

543
00:31:59,520 --> 00:32:01,120
Speaker 3: one of the I is here we can't lose sight of.

544
00:32:01,200 --> 00:32:03,560
Speaker 3: Is this, as the Supreme Court pointed out of the

545
00:32:03,600 --> 00:32:05,760
Speaker 3: Leo decision a couple of years ago, and as both

546
00:32:05,840 --> 00:32:09,800
Speaker 3: the go Villain Allow decisions point out, is that disgorgements

547
00:32:10,040 --> 00:32:13,040
Speaker 3: is really a modern remedy. It's really a judicially crafted

548
00:32:13,080 --> 00:32:16,200
Speaker 3: remedy that goes back to, of all places, the second circuit.

549
00:32:16,400 --> 00:32:20,880
Speaker 3: The Second circuit really invented disforgements back around nineteen seventy

550
00:32:20,920 --> 00:32:24,960
Speaker 3: one in the landmark securities fraud case called Texas Gulf

551
00:32:25,000 --> 00:32:28,520
Speaker 3: sofur So. This is really the second circuit, having invented

552
00:32:28,560 --> 00:32:32,400
Speaker 3: disgorgements or modifying it or applying it to modern securities

553
00:32:32,400 --> 00:32:36,600
Speaker 3: transactions in the early seventies and sharpping it through its

554
00:32:36,680 --> 00:32:40,400
Speaker 3: various transitions. And now we see how they're interpreting guidance

555
00:32:40,400 --> 00:32:43,120
Speaker 3: from the Supreme Court two years ago in the LEO case.

556
00:32:43,720 --> 00:32:47,920
Speaker 2: How much does the pecuniary harm standard complicate how the

557
00:32:48,080 --> 00:32:51,000
Speaker 2: SEC brings cases? I mean, does it need a lot

558
00:32:51,040 --> 00:32:54,280
Speaker 2: more work up front? We just talked about how in

559
00:32:54,400 --> 00:32:57,840
Speaker 2: cases where it could it would bring the actions elsewhere exactly?

560
00:32:57,920 --> 00:33:00,840
Speaker 3: Okay, yes, you're completely correct. The SEC will have to

561
00:33:00,840 --> 00:33:03,000
Speaker 3: do a lot more front end work, if I may

562
00:33:03,080 --> 00:33:05,560
Speaker 3: characterize it as such, where not only are they going

563
00:33:05,640 --> 00:33:08,320
Speaker 3: to have to examine has fraud been committed as a

564
00:33:08,360 --> 00:33:10,880
Speaker 3: metal of the parameters for securities fraud? And once again

565
00:33:10,920 --> 00:33:13,680
Speaker 3: remember the test for securities fraud is rather arduous. The

566
00:33:13,720 --> 00:33:16,400
Speaker 3: government must prove and again we're talking civil cases or

567
00:33:16,520 --> 00:33:19,440
Speaker 3: just fifty one percent, okay, not beyond reasonable doubt that

568
00:33:19,480 --> 00:33:22,440
Speaker 3: there was a material misreperomission. There was cyenta in other words,

569
00:33:22,440 --> 00:33:27,480
Speaker 3: evil intense. There was reliance, There was economic loss, causation,

570
00:33:27,560 --> 00:33:30,160
Speaker 3: a chain of causation with respect to all those events

571
00:33:30,600 --> 00:33:32,360
Speaker 3: and in connection with the purchase of sale of the

572
00:33:32,440 --> 00:33:35,440
Speaker 3: securities on the American markets. But the bottom line is

573
00:33:35,560 --> 00:33:37,320
Speaker 3: the Commission is now not only going to have to

574
00:33:37,320 --> 00:33:39,520
Speaker 3: prove the elements of fraud, they're going to have to

575
00:33:39,720 --> 00:33:43,080
Speaker 3: get down into the weeds and assure themselves that there

576
00:33:43,200 --> 00:33:48,080
Speaker 3: is a cognizable body of investors who have again been

577
00:33:48,520 --> 00:33:52,120
Speaker 3: defrauded and not only flim flam, not only deceived, but

578
00:33:52,160 --> 00:33:54,760
Speaker 3: they suffered pecuniary harm. And that has to be measurable,

579
00:33:54,800 --> 00:33:58,200
Speaker 3: that has to be quantifiable, certainly in the Second Circuit's

580
00:33:58,200 --> 00:34:01,760
Speaker 3: opinion with respect to the gulfilled decision. And again, what

581
00:34:02,080 --> 00:34:04,520
Speaker 3: this highlights you in is one of the conflicts for

582
00:34:04,560 --> 00:34:08,120
Speaker 3: the tension between the existing law prior to the Supreme

583
00:34:08,160 --> 00:34:11,680
Speaker 3: Court's decision in LIEU and the amends that Congress made

584
00:34:11,719 --> 00:34:16,160
Speaker 3: basically six months later. LEU was predicated upon one subsection

585
00:34:16,719 --> 00:34:20,520
Speaker 3: of Section seventy eight U. Okay, again, the complexity of

586
00:34:20,520 --> 00:34:23,959
Speaker 3: the Federal Security's laws is astounding, but basically the existing.

587
00:34:23,680 --> 00:34:26,960
Speaker 2: Substounding, right, that's one thing that no one disagrees with.

588
00:34:27,160 --> 00:34:29,440
Speaker 3: That's for sure. We all know it's astounding, but it

589
00:34:29,440 --> 00:34:31,719
Speaker 3: gives us something to talk about. Does it not so.

590
00:34:31,960 --> 00:34:35,319
Speaker 3: The existing law talked about how the SEC can seek

591
00:34:35,520 --> 00:34:39,320
Speaker 3: any equitable remedy as long as it's for the benefit

592
00:34:39,440 --> 00:34:42,279
Speaker 3: of investors. And by the way, that's crucial to the

593
00:34:42,280 --> 00:34:46,000
Speaker 3: Goville decision because it said, okay, benefit to investors means

594
00:34:46,480 --> 00:34:49,839
Speaker 3: that to benefit them, you have to find someone who

595
00:34:49,920 --> 00:34:53,399
Speaker 3: was harmed, and the purpose of the equitable remedy, whatever

596
00:34:53,440 --> 00:34:55,560
Speaker 3: it might be, is to restore them to where they

597
00:34:55,560 --> 00:34:58,160
Speaker 3: should have been had they not been defrauded. Okay, And

598
00:34:58,200 --> 00:35:01,440
Speaker 3: as judgment ashly points out well so well. He states,

599
00:35:01,560 --> 00:35:04,279
Speaker 3: if there's no pecuniary harm, that means that if you

600
00:35:04,280 --> 00:35:07,600
Speaker 3: give these folks money via disgorgement of some other remedy,

601
00:35:07,840 --> 00:35:09,399
Speaker 3: you're not putting them back where they should have been.

602
00:35:09,520 --> 00:35:12,480
Speaker 3: You're improving their position. It's a winfull, okay, And that's

603
00:35:12,520 --> 00:35:15,000
Speaker 3: not what justice is all about. On the other hand,

604
00:35:15,040 --> 00:35:16,719
Speaker 3: and this is where again we see the chas in

605
00:35:16,760 --> 00:35:20,479
Speaker 3: between the circuits. The fifth Circuit in Halam focused upon

606
00:35:20,520 --> 00:35:24,680
Speaker 3: the amendment from January twenty twenty one that says disgorgement

607
00:35:24,760 --> 00:35:27,520
Speaker 3: and again, the SEC may seek disgorgement if I just report,

608
00:35:27,760 --> 00:35:31,800
Speaker 3: it doesn't define what disgorgement is. It does not say

609
00:35:31,880 --> 00:35:34,520
Speaker 3: that the disgorgment has to be for the benefit of investors.

610
00:35:34,760 --> 00:35:38,000
Speaker 3: And that's why Hallum basically says, you don't have to

611
00:35:38,080 --> 00:35:41,879
Speaker 3: find investors suffering the pecuniary harms. That's where they basically

612
00:35:41,920 --> 00:35:45,160
Speaker 3: parted ways with the Second Circuit. And indeed, the bottom

613
00:35:45,160 --> 00:35:48,320
Speaker 3: line is Goville was presaged by a prior Second Circuit

614
00:35:48,360 --> 00:35:52,239
Speaker 3: case called Ahmed, and so the chronology limited chronology is

615
00:35:52,480 --> 00:35:55,239
Speaker 3: second Circuit says such and such in Ahmed, the Fifth

616
00:35:55,280 --> 00:35:59,000
Speaker 3: Circuit July twenty twenty two disagrees in Halam. And now

617
00:35:59,400 --> 00:36:02,600
Speaker 3: the Second Circuit in October of twenty twenty three says no, no, no,

618
00:36:02,640 --> 00:36:05,920
Speaker 3: we're right, you're wrong. And again you see this division.

619
00:36:06,120 --> 00:36:08,400
Speaker 3: But again that's the whole point because now, and this

620
00:36:08,520 --> 00:36:10,840
Speaker 3: is why the Supreme Court very much needs to step in,

621
00:36:10,880 --> 00:36:12,480
Speaker 3: because they have to say, Okay, wait a minute. When

622
00:36:12,520 --> 00:36:16,919
Speaker 3: Congress enacted the newer provision that talks about disgorgements, did

623
00:36:16,920 --> 00:36:21,040
Speaker 3: it adopt any of the Court's principles regarding equitable remedies

624
00:36:21,239 --> 00:36:25,000
Speaker 3: from the Liu case. The irony is, if Congress had

625
00:36:25,080 --> 00:36:28,920
Speaker 3: been more direct in defining its newer version of disgorgements,

626
00:36:29,120 --> 00:36:31,480
Speaker 3: we wouldn't have this issue to start with, it is

627
00:36:31,520 --> 00:36:32,440
Speaker 3: so complicated.

628
00:36:32,480 --> 00:36:36,280
Speaker 2: Thanks so much for your explanations, Anthony. That's Anthony Sabino,

629
00:36:36,360 --> 00:36:38,759
Speaker 2: a professor in the Department of Law at the Peter J.

630
00:36:38,880 --> 00:36:43,000
Speaker 2: Tobin College of Business at Saint John's University. And that's

631
00:36:43,000 --> 00:36:46,000
Speaker 2: it for this edition of the Bloomberg Law Podcast. Remember

632
00:36:46,000 --> 00:36:48,719
Speaker 2: you've can always get the latest legal news by subscribing

633
00:36:48,760 --> 00:36:52,200
Speaker 2: and listening to the show on Apple Podcasts, Spotify, and

634
00:36:52,320 --> 00:36:56,319
Speaker 2: at Bloomberg dot com, slash podcast, Slash Law. I'm June

635
00:36:56,320 --> 00:36:58,480
Speaker 2: Grosso and this is Bloomberg