Speaker 1: Hello, and welcome to the Votes and Verdicts podcast, hosted
Speaker 1: by the Litigation and policy team at Bloomberg Intelligence, the
Speaker 1: investment research platform of Bloomberg LP. Bloomberg Intelligence has five
Speaker 1: hundred analysts and strategists working across the globe focused on
Speaker 1: all major markets. Our coverage includes over two thousand equities
Speaker 1: and credits, and we have outlooks on more than ninety
Speaker 1: industries and one hundred market industries, currencies, and commodities. This
Speaker 1: podcast series examines the intersection of business policy and law,
Speaker 1: and today we'll be looking at the litigation and policy
Speaker 1: catalysts that we're watching in March twenty twenty five and
Speaker 1: that we think will impact companies across a number of
Speaker 1: different sectors. My name is Elliott Stein. I'm a senior
Speaker 1: litigation analyst covering litigation in the financial sector, and I'll
Speaker 1: be your host for today, February twenty eighth, twenty twenty five.
Speaker 1: If you have any questions about any of the matters
Speaker 1: that we'll be discussing on this episode, please don't hesitate
Speaker 1: to reach out to us at your convenience with questions.
Speaker 1: So we'll be discussing a handful of sectors and issues today. First,
Speaker 1: Matt Schettenhelm, who covers TMT policy and litigation for US.
Speaker 1: We'll discuss the March nineteenth court hearing where Nextstar and
Speaker 1: other broadcasters will present their arguments and a challenge to
Speaker 1: the FCC's limits on TV and radio station ownership. After that,
Speaker 1: Holly Frome, who covers consumer and industrials litigation and policy,
Speaker 1: and also healthcare litigation. We'll discuss the March twenty fourth
Speaker 1: here into bar experts and suits alleging that infant formulas
Speaker 1: made by Abbott and Records meet Johnson Unit caused necritizing
Speaker 1: terra colitis. After that, we'll talk antitrust, and we'll bring
Speaker 1: in Jen Reed to talk about Epic Games versus Apple
Speaker 1: and an anticipated ruling by the judge in that litigation
Speaker 1: on whether to sanction Apple for violating an injunction imposed
Speaker 1: after its app store rules were found to violate California law.
Speaker 1: After that, Justin Teresi will discuss the rule and he
Speaker 1: expects in litigation by Elon Musk and XAI against Sam
Speaker 1: Altman and others seeking to halt open ais conversion to
Speaker 1: for profit status. Then we'll move on to healthcare and
Speaker 1: we'll bring in Dwayne Wright, who covers health care policy
Speaker 1: out of Washington, DC, and he'll update us on potential
Speaker 1: cuts of ten billion dollars to medicare advantage as part
Speaker 1: of the ongoing budget negotiations and why that matters for
Speaker 1: companies like Humana and United Health. Well, then close out
Speaker 1: with financials. First, we'll bring in Nathan Dean, our financials
Speaker 1: policy analyst also in Washington, d C, to talk some
Speaker 1: more about reconciliation and FED chair Jerome Powells testimony recently
Speaker 1: concerned and in bank capital rules. And then I'll wrap
Speaker 1: it all up with a pair of cases I'm watching
Speaker 1: challenging Biden era financial regulations, one concerning the CFPB rule
Speaker 1: that would cost credit card issuers about ten billion dollars
Speaker 1: in late fees, and the other is the SEC's climate
Speaker 1: disclosure rule. All of our research is available on the
Speaker 1: Bloomberg terminal at bi GO. But with all that out
Speaker 1: of the way, let's get started with the content. Matt Settinhelm,
Speaker 1: let's start with you. Bring you in to talk about
Speaker 1: limits on TV and radio station ownership. You're tracking litigation
Speaker 1: by Nextstar and other broadcasters they sued to challenge such limits,
Speaker 1: and it sounds like there's a key hearing you'll be
Speaker 1: watching on March nineteenth. In that case, you want to
Speaker 1: come in, Yes, tell us about the case, tell us
Speaker 1: about the hearing and why it all matters.
Speaker 2: Yeah, thanks Elliott. Yes, circle March nineteenth on your calendar.
Speaker 2: If you're an investor in US broadcast companies. One of
Speaker 2: the things that most interesting for broadcasters under the Trump
Speaker 2: administration is whether they're finally going to escape longstanding regulation
Speaker 2: that they face that their competition from, you know, internet
Speaker 2: based companies don't face. And one of the most important
Speaker 2: areas of regulation is is these FCC media ownership rules
Speaker 2: that limit how many TV and radio stations these US
Speaker 2: companies can own. They've been on the books for decades,
Speaker 2: and I think finally there's a chance for the companies
Speaker 2: to chip away at them. So what happens March nineteenth?
Speaker 2: That's the day that the National Association of Broadcasters and
Speaker 2: Nexstar and other companies will present oral argument to a
Speaker 2: three judge panel at the a Circuit Court of Appeals,
Speaker 2: a federal Court of Appeals in Saint Louis, and the
Speaker 2: broadcasters are challenging a Biden era FCC order from decem
Speaker 2: member of twenty twenty three that basically said, look, we're
Speaker 2: going to keep all of our broadcast ownership rules in place,
Speaker 2: and in some cases, we're even going to tighten those rules.
Speaker 2: And so what's at issue here is a challenge to
Speaker 2: that decision by the Biden.
Speaker 3: FCC to keep the rules.
Speaker 2: But what's really fascinating about it is is that the
Speaker 2: broadcasters aren't just asking this court to strike down that
Speaker 2: order keeping the rules. They're asking the court to go
Speaker 2: further and just wipe the rules off the books entirely,
Speaker 2: these long standing rules. That's an unusual request, not something
Speaker 2: that a court of appeals would typically do. But the
Speaker 2: FCC's response to it was was pretty weak in my view.
Speaker 2: And the key thing to know here is that this
Speaker 2: is a very favorable court for the industry. The case
Speaker 2: will be heard by three Republican appointed judges. Again, this
Speaker 2: is at the Eighth Circuit Court of Appeals in Saint Louis.
Speaker 2: And so my question isn't whether the FCC will lose.
Speaker 2: I think it will lose. The question is how badly
Speaker 2: will it lose? And so you know, I put it
Speaker 2: about an eighty percent chance of an FCC loss, but
Speaker 2: a forty percent chance of sort of that drastic remedy
Speaker 2: that the industry is seeking, that these rules just get
Speaker 2: stricken from the books entirely. And so that's a real
Speaker 2: possibility here. So and the reason that matters is timing.
Speaker 2: If the court keeps the rules on the books, the
Speaker 2: Trump FCC, I do think, is going to work to
Speaker 2: tear those rules down, to take them down, but that
Speaker 2: has to go through the Administrative Procedure Act, and so
Speaker 2: that takes six to nine months in a rule making.
Speaker 2: If the court rules in this case to wipe the
Speaker 2: rules off the books, that could expedite the deregulation. So again,
Speaker 2: hearing March nineteenth, we'll get a chance to look at
Speaker 2: how these three judges are thinking about this case. They'll
Speaker 2: issue a decision three to six months later. I think
Speaker 2: it should go well for the industry. The only question
Speaker 2: is how well with that. I'll toss it back to you.
Speaker 3: Great.
Speaker 1: Thanks a lot, Matt. We'll definitely look forward to seeing
Speaker 1: your updates after the hearing. All right, Holly from Let's
Speaker 1: bring you in to talk about Abbott and Recorts meet
Speaker 1: Johnson Unit. Those companies are facing lawsuits alleging that their
Speaker 1: pre term infant formulas caused necritizing enterra colitis. Can you
Speaker 1: tell us more about that litigation and what you're watching
Speaker 1: for this March twenty fourth, Here into bar.
Speaker 4: Experts, Thanks Elliott, Abbot and recorts meet Johnson, having sued
Speaker 4: over one thousand buy over one thousand plaintiffs alleging preterm
Speaker 4: infant formula causes necrotizing intro colitis, which is an intestinal disease.
Speaker 5: It's very serious, it could be to lifelong complications. Plaintiffs
Speaker 5: counsel at a hearing suggested that there could ultimately be
Speaker 5: ten thousand cases filed, so the motions coming up are
Speaker 5: very important. There have been three verdicts so far, all
Speaker 5: from state court. Two were for plainus and collectively they
Speaker 5: totaled over a halfn billion dollars, and there was also
Speaker 5: one defense for an We estimate about half of the
Speaker 5: cases so far have been filed in federal court. Where
Speaker 5: as you mentioned, we were waiting hearings on bidstabur or
Speaker 5: plaintiff's experts. Those hearings are set to take place March
Speaker 5: twenty fourth. If those motions are granted, federal cases likely
Speaker 5: get dismissed because plaintiffs cannot prove their case without an expert.
Speaker 5: We've said we think plaintiffs will have a harder time
Speaker 5: in federal court admitting experts. From what we've read in
Speaker 5: the briefing, it looks like plainiffs experts will have weaknesses,
Speaker 5: primarily because they cannot identify the dose required to cause
Speaker 5: a problem, and one causation expert relies on animal studies
Speaker 5: rather than human studies, which are known to be you know,
Speaker 5: have a less evidentiary persuasion than human studies. Still, the
Speaker 5: briefing is incomplete, but we expect we may get a
Speaker 5: better idea of what the judge is thinking at the
Speaker 5: hearing in March, and we expect a decision on that
Speaker 5: motion before the first trial, which is set for May.
Speaker 5: And with that, I'll turn it back to you, Elliott.
Speaker 1: Great, Thanks Oli. All right, Jenrie, let's bring you into
Speaker 1: talk antitrust Epic Games versus Apple. I know, from what
Speaker 1: you've told me before, the judge previously found that Apple's
Speaker 1: app store rules violated California law. But it sounds like
Speaker 1: maybe Apple is in violation of an injunction related to that.
Speaker 1: Why don't you come in remind us what the case
Speaker 1: is about, what type of sanctions Apple might face if
Speaker 1: the court finds it is indeed in violation of an injunction.
Speaker 6: Yeah, thanks Elliott. So really, honestly, this is a continuing
Speaker 6: saga of a matter that should have concluded a long
Speaker 6: time ago, because Epic Games originally sued Apple in August
Speaker 6: of twenty twenty, and the litigation completed in total January
Speaker 6: of last year, when the Supreme Court refused to hear
Speaker 6: appeals by both companies, Epic and Apple of a Ninth
Speaker 6: Circuit ruling. So finally, Apple's reckoning on this is kind
Speaker 6: of coming and I think soon in the next couple months.
Speaker 6: And honestly, it could cost the company billions of dollars
Speaker 6: in app store revenue. So as a recap because it
Speaker 6: has been a winding road. When Epics sued Apple back
Speaker 6: in August of twenty twenty, it was about rules for
Speaker 6: its app store and iOS. Generally, Apple operates as a
Speaker 6: walled garden, and what that means is that it generally
Speaker 6: maintains control of any apps that you can download on
Speaker 6: its mobile devices. So the app store, you know, as
Speaker 6: we know, whoever has an Apple phone is the only
Speaker 6: distribution point for apps that you might want. And if
Speaker 6: you make any app purchases that takes place in the
Speaker 6: App Store and always flows through Apple's own payment processing systems. Now,
Speaker 6: Epic is a really big digital gaming company, and it
Speaker 6: wanted its own storefront on Apple devices. Google too, but
Speaker 6: that's a whole different litigation. And it wanted the ability
Speaker 6: to use its own payment processors for purchases of its
Speaker 6: games in the app Store. Now, this is not just
Speaker 6: because it wants to sell apps and make some money
Speaker 6: doing that, but it also didn't want to pay Apple's fees,
Speaker 6: and those fees are pretty high. So for transactions in
Speaker 6: the app Store, they are fifteen percent and thirty percent,
Speaker 6: depending on the size of the developer, whether they're under
Speaker 6: a million in revenue per year or over. So when
Speaker 6: it sued Apple from anopolization, it claimed that it was
Speaker 6: unlawfully monopolizing the distribution of apps on iOS devices and
Speaker 6: the payment for apps. Now, oddly, because I just set
Speaker 6: a reckonings coming for Apple, Epic did lose on all
Speaker 6: of its anti trust claims, and that's mostly because the
Speaker 6: judge disagreed with the way Epic defined the market In antitrust,
Speaker 6: this can often be the downfall of plaintiffs. It's really
Speaker 6: kind of a dispositive issue. Epic kind of said, Apple
Speaker 6: doesn't compete with any other entity, but the judge said, well,
Speaker 6: it's really a mobile digital gaming market where Apple does
Speaker 6: compete with others and doesn't have monopoly power. But the
Speaker 6: thing is that judge did find that one of Apple's
Speaker 6: rules violated a California's state law prohibiting unfair business practices,
Speaker 6: and these are Apple's anti steering rules. These prevent developers
Speaker 6: from communicating with users within the app in the app store.
Speaker 6: So if the developer, let's say, offer that app for
Speaker 6: a lower price on its own way website, they can't
Speaker 6: communicate that to a user within the app, as that
Speaker 6: user may be opening the app for the first time.
Speaker 6: So she ordered Apple to drop the rules and then
Speaker 6: also to allow developers to communicate within the app to
Speaker 6: users and to include a link so a user could
Speaker 6: click that link to take them out of the app
Speaker 6: store into the web, and they could pay for the
Speaker 6: purchase in the web if they wanted to. Apple had
Speaker 6: to comply. Once the Supreme Court ruled in January of
Speaker 6: twenty twenty four, I guess I should say refuse to
Speaker 6: hear the appeal, and it said it had done so.
Speaker 6: In March of last year, but Epic challenged its compliance
Speaker 6: and asked the court to find Apple in contempt. And
Speaker 6: that's because as part of its compliance, what Apple did,
Speaker 6: which is that it charged developers twelve percent and twenty
Speaker 6: seven percent as opposed to the fifteen percent and thirty
Speaker 6: percent for any purchases that started in the app store
Speaker 6: but then ultimately were made on the web. Now here's
Speaker 6: the thing. Developers have to pay at least three percent
Speaker 6: or more for payment processing in their own website, so
Speaker 6: this didn't change their costs and it essentially disincentivized any
Speaker 6: developer from actually taking up this option of including this link.
Speaker 6: So there were hearings on epics challenge last May last
Speaker 6: year and also this week. The judge is expecting post
Speaker 6: heering briefing on both sets of hearings by March seventh,
Speaker 6: and she has said she's going to rule very quickly
Speaker 6: after that, So in my mind, I think that's going
Speaker 6: to be about a month. She is visibly angry with Apple,
Speaker 6: so I think not only is she going to find
Speaker 6: the company in contempt civil contempt, I think there will
Speaker 6: be ramifications for the injunction and compliance with the injunction.
Speaker 6: Now a contemporarily might just mean a fine, which I
Speaker 6: don't think will be material to Apple. But where they're
Speaker 6: going to end up here is that they're going to
Speaker 6: have to charge much lower fees or no fees at
Speaker 6: all for these purchases that are linked out of the
Speaker 6: app store. Apple makes billions of dollars in App store revenue,
Speaker 6: and the majority of that comes from the twenty to
Speaker 6: thirty biggest apps. Those are the ones that can easily
Speaker 6: set up payment within their own websites and use this
Speaker 6: linking out option. And Apple's own finance department has modeled
Speaker 6: the impact on Apple of a lower fee or even
Speaker 6: no fee. Now, those figures were kept confidential in the hearings,
Speaker 6: but what was clear is that it could be in
Speaker 6: the multimillions, if not billions of dollars if they have
Speaker 6: to drastically lower that fee. So, like I said, the
Speaker 6: judge is going to decide soon within a month. I
Speaker 6: think after that it's just going to just give Apple
Speaker 6: whatever time it technically it needs to make the technological
Speaker 6: changes to implement whatever it needs to implement here. And
Speaker 6: so that means very likely this year, and that is it.
Speaker 6: Back to you, elliott O.
Speaker 1: Thanks Jen All right, justin let's bring you in to
Speaker 1: talk some Elon, Musk and Ai, because I mean, how
Speaker 1: can we have an episode that doesn't touch on either
Speaker 1: of those things, much less both. At the same time,
Speaker 1: you're following this case where Musk and his company Xai
Speaker 1: are trying to stop Sam Altman from converting open Ai
Speaker 1: from a non time to a for profit. Hopefully I
Speaker 1: have that all right, But why don't you come in
Speaker 1: and make sure I have that right and get us
Speaker 1: up to speed on the case and why it's important
Speaker 1: for investors exactly.
Speaker 3: I know that that's really right, And you know, Matt
Speaker 3: and I have been taking a look at this case here.
Speaker 3: It's everybody's favorite subjects I think rolled into one litigation
Speaker 3: at least at the moment, we've got Elon and Musk
Speaker 3: on one side, Sam Altman on the other, and we're
Speaker 3: really looking at Ai and the development of both of
Speaker 3: their companies moving forward here from a competitive standpoint. If
Speaker 3: this one seems a little bit haywire, that's because it
Speaker 3: really is. So we're looking here at the third amendic
Speaker 3: complaint now in a lawsuit. The last two were withdrawn
Speaker 3: by Musk and Xai before a court could even rule
Speaker 3: on the dismissal for the case. So we're really getting
Speaker 3: our first look here as to whether or not there's
Speaker 3: anything to the allegations that have been brought by Musk.
Speaker 3: And here this is where the case gets a little crazy.
Speaker 3: There are twenty six distinct, distinct counts claims in this
Speaker 3: case alone, so really every corner of the law that
Speaker 3: you could think of is involved with this litigation. Really,
Speaker 3: looking back to my own first year of law school here,
Speaker 3: I can't tell you how many different classes have really
Speaker 3: come into play, but trying to understand what's happening with
Speaker 3: the litigation here moving forward, the case appears personal in
Speaker 3: several different ways. It's really aimed at slowing the growth
Speaker 3: of a open AI, we think, but it does purport
Speaker 3: to open a space to more AI competitors for consumer
Speaker 3: facing aspects of AI and how it develops moving forward. So,
Speaker 3: originally the case was just Elon Musk and XAI versus
Speaker 3: Sam Altman and open AI on a series of claims
Speaker 3: that stemmed from Musk's original fifty million dollar donation to
Speaker 3: open AI that was made several years ago. Other claims
Speaker 3: in the lawsuit now are really the standing comes in
Speaker 3: on the grounds of Xai being a competitor of open ai.
Speaker 3: And the chief issue here is really Musks asked to
Speaker 3: block open ai from becoming a for profit entity on
Speaker 3: grounds that that would violate open AI's nonprofit charter, which
Speaker 3: generally says that it's supposed to exist for the greater
Speaker 3: good of humanity. So Musk's claim was relation to that,
Speaker 3: is that to convert to a for profit status, it'd
Speaker 3: be a breach of treedable trust under California state of law. Now,
Speaker 3: whether Mosk has any standing to bring that particular claim,
Speaker 3: that is in and of itself a whole issue that
Speaker 3: is about to be the subject of ongoing motion to
Speaker 3: dismiss briefing in the case. The case has also got
Speaker 3: claims related to breaches of fiduciary duty, breaches of contract,
Speaker 3: reco violations, you name it. It is here in this
Speaker 3: litigation every last kind of claim you could think of
Speaker 3: in a business context. The most recent complaint added Microsoft
Speaker 3: and Microsoft's Cena Templeton along with ried Hoffman, has defended
Speaker 3: in the case, and this is really on the basis
Speaker 3: of Microsoft's fourteen billion dollar investment into open Ai and
Speaker 3: their partnership that involves exchange of technology is back and
Speaker 3: forth between each other to develop their consumer facing products.
Speaker 3: So that's really caused us to take note now that
Speaker 3: there's Microsoft involved in the case. It continues to be
Speaker 3: organized in chief open AI as a nonprofit entity, but
Speaker 3: there's several arms of the organization that are LLC's and
Speaker 3: also named as defendants in the litigation. I kind of
Speaker 3: piggyback in what Jen was saying just now about Epic vehple.
Speaker 3: The same judge hearing that case is hearing this litigation.
Speaker 3: She's very steep in technological issues, very steep in edge
Speaker 3: a dress law, which we'll get to in a minute,
Speaker 3: and the original hearing she had on a preliminary injunction
Speaker 3: related to some of these claims. She expressed her to state,
Speaker 3: I think at the litigants involved in the litigation, she said, quote,
Speaker 3: I've got billionaires versus billionaires involved in this litigation. She
Speaker 3: couldn't believe that there was no contract in place for
Speaker 3: a fifty million dollar donation that Mosk made to open AI.
Speaker 3: Just really critical of this whole situation before her in
Speaker 3: the courtroom. And what we have here is there's a
Speaker 3: practice around a preliminary injunction and emotion to dismiss happening
Speaker 3: at the very same time, we think there's an eighty
Speaker 3: percent chance that preliminary injunction fails on the grounds that
Speaker 3: the accounts that were included as part of that motion,
Speaker 3: there's really not a showing of a reparable harm here
Speaker 3: that would meet that standard for issuing a preliminary injunction.
Speaker 3: Musk is saying, Look, if you allow this entity to
Speaker 3: convert to a for profit status, it's going to be
Speaker 3: too difficult to unwind that later on. If you don't
Speaker 3: issue preliminary injunction as to interlocked boards of directors, then
Speaker 3: that's a problem for later on too. But at the moment,
Speaker 3: there's no interlocking of the boards. And the last thing
Speaker 3: that Musk is really accusing here under the preliminary injunction
Speaker 3: bucket is that there's this fund no competitors edict that
Speaker 3: basically claiming that open Ai and Sam Altman told folks
Speaker 3: who were investing in open Ai as part of a
Speaker 3: funding round that they couldn't invest in Xai or other competitors,
Speaker 3: and that's proceeding under this group boycott theory of anti
Speaker 3: dress law. We'll get to that why that's a little
Speaker 3: bit of a weak argument a second, but I think
Speaker 3: more importantly for the complaint itself and the preliminary injunction asks,
Speaker 3: there's really no evidence outside of just anecdotes in the
Speaker 3: media that these kinds of prohibitations were made on folks
Speaker 3: looking to invest in both open ai and Xai. So
Speaker 3: you know, again, Judge very skeptical of that claim. We
Speaker 3: think there's a seventy percent chance that the antitrust claims
Speaker 3: in the case are tossed as part of the dismissed
Speaker 3: but it does appear, based on our judges comments, at
Speaker 3: least some of these claims are going to make their
Speaker 3: way through to discovery and possibly on to trial. The
Speaker 3: one that really stood out as having an issue in
Speaker 3: the judge based on the judge's comments, was this issue
Speaker 3: of interlocked boards. Right, You've got Microsoft, who claims to
Speaker 3: be a competitor with consumer facing AI products, you know,
Speaker 3: with open Ai. But there are folks for Microsoft and
Speaker 3: out Temple To namely in the past, who served in
Speaker 3: an advisory function as an kind of an overseer on
Speaker 3: the board of directors and open Ai. The judge had
Speaker 3: had an issue with that, even though that's not in
Speaker 3: place anymore. Saw some problems with how that was kind
Speaker 3: of shape and how that rolls out from a competition standpoint,
Speaker 3: So we could see that Clayton that claim continuing on
Speaker 3: pass emotion to dismiss. Now, though the amended complaint doesn't
Speaker 3: really outline monetary damages that are sought, we think the
Speaker 3: real risk here probably stems to threats to Microsoft's partnership
Speaker 3: with and its investment in open Ai, including that effort
Speaker 3: to halt that conversion from open Ai to afford profitity
Speaker 3: and what we think, you know, also what be an
Speaker 3: issue here is alleged favorable pricing terms between the duo.
Speaker 3: Open ais technology is said to be behind many of
Speaker 3: Microsoft's new product launches, which could increase cloud revenue by
Speaker 3: five to seven billion dollars in the next year for Microsoft,
Speaker 3: outside of its cloud offerings like Microsoft three sixty five
Speaker 3: Copilot could bring in another one to two billion in
Speaker 3: sales during that span the next coming year. So not
Speaker 3: small change from Microsoft here with relation to its partnership
Speaker 3: with OpenAI. But really we think the risk here for
Speaker 3: this partnership comes from other sources. The FTC completed a
Speaker 3: six p study related to these Ai partnership situations just
Speaker 3: before Lena Khan left in January. Whether the new FTC
Speaker 3: will continue to be involved in competition issues related to
Speaker 3: this partnership, that remains to be seen. We're all kind
Speaker 3: of scratching our heads still as to what new leadership
Speaker 3: at the FTC will do. We also note there are
Speaker 3: already discussions underway with the California Attorney General's Office and
Speaker 3: the Delaware Attorney General's Office taking interest in this particular case.
Speaker 3: We think development's happening there from an enforcement perspective could
Speaker 3: have a greater impact than what a few sure of
Speaker 3: this partnership looks like versus this actual litigation between Musk
Speaker 3: and allmen. And lastly, just kind of zeroing in here
Speaker 3: on those those anti trust issues again, you know, the
Speaker 3: pricing issues between the two. The judge was very skeptical
Speaker 3: as to whether those could continue. And with relation again
Speaker 3: to that fund of competitor's edicts where XAI is saying, look,
Speaker 3: this isn't fair, we can't we can't be funded, you know,
Speaker 3: if folks are banned from funding us if they participate
Speaker 3: in open AI. The judges again to point out that
Speaker 3: XAI is raised successfully billions and billions of dollars as
Speaker 3: parts of funding arounds, we're on our way I think
Speaker 3: to a seventy five dollars billion dollar there's discussions on
Speaker 3: our way to a seventy five billion dollar valuation at XAI.
Speaker 3: If that were the case that folks couldn't invest in XAI,
Speaker 3: I think she kind of indicate already at the preliminary
Speaker 3: injunction phase that it's hard to believe that that such
Speaker 3: an edict could be in place with the amount of
Speaker 3: funding that's actually happening. There, so a lot going on.
Speaker 3: We think of ruling on that preliminary injunction is luckily
Speaker 3: to deep be denied sometime in March, and a ruling
Speaker 3: on the motion dismiss we're expecting that other than a
Speaker 3: second or third order this year.
Speaker 1: BAK to you, Elliott, great, thanks justin. All right, let's
Speaker 1: move on to healthcare, Dwayne. Let's bring you in. Lots
Speaker 1: of talk, lots of drama with the budget negotiations going
Speaker 1: on in DC. You've written that Humana and United Health
Speaker 1: and other Medicare advantage plans could see over ten billion
Speaker 1: dollars in cuts as early as twenty twenty seven. Why
Speaker 1: don't you come in tell us more about that and
Speaker 1: how you think that might play out.
Speaker 7: Thanks Elliott, So I would say at this point, you know,
Speaker 7: a maid's not on the table in terms of potential cuts.
Speaker 7: The focus has been on Medicaid, but when you hear
Speaker 7: stories about the DOJ and Senator Grassley looking into billing
Speaker 7: practices for these companies, specifically targeting United Health, it does
Speaker 7: make me wonder if the door does become a bit
Speaker 7: more open to Medicare cuts, especially given the pushback we've
Speaker 7: seen from Republicans about potential Medicaid cuts. And so maybe
Speaker 7: to take a small step back to provide some background,
Speaker 7: private health plans in Medicare get extra payment for beneficiaries
Speaker 7: that are above average in terms of their risk profile.
Speaker 7: In other words, they're less healthy than your average Medicare beneficiary.
Speaker 7: And the goal is twofold one to ensure that these
Speaker 7: plans don't market to a select group of patients that
Speaker 7: are healthier, and to ensure that every beneficiary does have
Speaker 7: access to these plans. And then also these insurers are
Speaker 7: adequately compensated for treatment. But there's evidence that these plans
Speaker 7: upcode or and or search for more diagnoses codes to
Speaker 7: get more revenue. But there's a lack of evidence of
Speaker 7: corresponding care. Now, the underlying law already recognizes this and
Speaker 7: accounts for this so called upcoding by shaving off about
Speaker 7: five point nine percent six percent of payments to health plans,
Speaker 7: and this is called the coding intensity adjustment. There have
Speaker 7: been calls for this to go higher, and that's largely
Speaker 7: based on evidence from the Office of the Inspector General, lawsuits,
Speaker 7: whistleblower lawsuits, and other events that have focused the spotlight
Speaker 7: or shined the spotlight on these billing practices. Now, in
Speaker 7: most cases where health plans have been dinged for this,
Speaker 7: they've settled out the court. The cost of business of
Speaker 7: doing this or the punishment was not all that high
Speaker 7: given the amount of money that they bring in. But
Speaker 7: I think we need to look at the Grassly Letter,
Speaker 7: the dog investigation in a different light now because, as
Speaker 7: I mentioned earlier, Republicans are trying to pass a reconciliation
Speaker 7: bill that may look for offsets to offset tax cuts
Speaker 7: or new spending if they can't get all of that
Speaker 7: from certain programs like Medicaid or from hospitals. And one
Speaker 7: could make the argument that Medicare advantage could be on
Speaker 7: the table. Given some concerns here. Now, let's put this
Speaker 7: in perspective though, when you had mentioned the potential ten
Speaker 7: billion dollars in cuts, when you go over ten years,
Speaker 7: that's probably about one hundred and forty hundred and fifty billion,
Speaker 7: depending on when you start it. Medicare payment for private
Speaker 7: health plans by twenty thirty three will be about one
Speaker 7: trillion dollars. It's about half of all Medicare spending. So
Speaker 7: it's a bit of a drop in the bucket for
Speaker 7: some of these companies and for this sector as a whole.
Speaker 7: But for the purposes of meeting revenue targets or saving targets,
Speaker 7: this could be a place to go with these billing
Speaker 7: concerns as an excuse. Now it's early innings. We still
Speaker 7: need the House and Senate to agree on a budget
Speaker 7: and then to find the underlying cuts, So stay tuned
Speaker 7: for some potential clarity on where they'll go overall and
Speaker 7: how this may or may not impact Medicare advantage. And
Speaker 7: with that, I'll turn it back to you.
Speaker 1: Great, thanks a lot, Dwayne. All Right, let's stick with
Speaker 1: d C, but let's move over to the financial sector. Nathan.
Speaker 1: Let's bring you in to talk a little bit more
Speaker 1: about reconciliation. Dwayne touched on it, but what are you
Speaker 1: looking at in terms of the financial sector? And also,
Speaker 1: I know FED shared your own Powell testified before Congress,
Speaker 1: I don't know last week of the week before. Wanted
Speaker 1: to remind us what he said, in particular the future
Speaker 1: of bank capital rules.
Speaker 8: Yeah, so let's start with the Federal Reserve first. I mean,
Speaker 8: so today we're recording this on February twenty eighth. This
Speaker 8: is also the date that Michael Barr, who is the
Speaker 8: FED Vice Chair for Supervision, is going to leave that post. Now,
Speaker 8: he's going to remain as a board governor, but he's
Speaker 8: not going to be the FED Vice chair anymore. And
Speaker 8: that position is the one who really drives the regulatory
Speaker 8: agenda now. Dream Powell testified to Senate Banking and House
Speaker 8: Financial Services. He essentially said a couple of things. He
Speaker 8: said first that this position, the FED Vice chair position,
Speaker 8: does bring a little bit more political instability to the FED.
Speaker 8: And that's certainly interesting because our working theory at this
Speaker 8: point is because Michael Barr is staying on the FED
Speaker 8: board but not leaving. President Trump's replacements or potential replacements
Speaker 8: that he could pick is fairly fairly limited. I mean,
Speaker 8: there is some thought out there that FED Governor Michelle
Speaker 8: Bowman could be the next Vice Chair of Supervision. But
Speaker 8: our take is is that we think that this position
Speaker 8: is essentially going to be left open for a while.
Speaker 1: Results.
Speaker 8: You know, you may have heard me say this in
Speaker 8: other broadcasts, but you know, bank capital and bank regulation
Speaker 8: is going to have this great pause of twenty twenty five.
Speaker 2: Now.
Speaker 8: Jerome Paul also said a couple of things in this
Speaker 8: hearing that were interesting. First, he reiterated the calls for
Speaker 8: the Bosle three endgame to be renewed, reproposed, and finalized. Now,
Speaker 8: if this happens, and we think if there's a decent
Speaker 8: chance of it happening, it would happen in twenty twenty
Speaker 8: six after Jerome Paul leaves. Because remember, in order to
Speaker 8: do anything, you really need the Office of the Controur
Speaker 8: or the Currency and the FDIC to come on board.
Speaker 8: But if the Basil three endgame were to be reproposed,
Speaker 8: we think it would be done in a capital neutral layer,
Speaker 8: or in capital neutral manner so as to not increase
Speaker 8: capital requirements like the proposed nine percent that we were
Speaker 8: seeing under the end of the Biden administration. But again,
Speaker 8: there's a couple of folks here in Washington that think
Speaker 8: that the BOSAL three endgame shouldn't be finalized at all,
Speaker 8: and I think that debate is going to have to
Speaker 8: take place over the next six to nine months. But
Speaker 8: the more interesting thing that Jerome Paul said is he
Speaker 8: called for the enhanced supplemental the leverage ratio. This is
Speaker 8: a proposal that goes back to twenty sixteen. This takes
Speaker 8: what's known as the SLR or the EESLR in case
Speaker 8: for the g sibs, the Bank of Americas, the JP
Speaker 8: Morgans to the city groups of the world, puts the
Speaker 8: American SLR on par with how it's constructed internationally. Now,
Speaker 8: this is a proposal that was originally proposed to twenty sixteen,
Speaker 8: wasn't done during the Trump administration, wasn't completed during the
Speaker 8: Biden administration, and I don't think it's going to be
Speaker 8: completed anytime soon this year. But within that proposal, or
Speaker 8: within the idea of the SR, relief banks have been
Speaker 8: pushing for treasuries and centrally clear deposits to be held
Speaker 8: at the FED to be excluded from the SLR. This
Speaker 8: happened during COVID times. It was actually a temporary emergency measure,
Speaker 8: and State straight Bank of New York and Northern Trust
Speaker 8: we're able to permanently get this type of relief through
Speaker 8: a bill that passed in twenty eighteen. But the JP
Speaker 8: Morgans and the city groups and the Bank of Americas
Speaker 8: now want this same relief. I actually think this could happen.
Speaker 8: So we have to wait and see what happens with
Speaker 8: the OCC in the FDIC, but I could see this
Speaker 8: proposal coming out later this year, so stay tuned on that.
Speaker 8: I certainly think that was one of the more interesting
Speaker 8: pieces that comes up from his testifying now when it
Speaker 8: comes to reconciliation. Just to further support what Dwayne was
Speaker 8: talking about, I wanted to talk about the Inflation Reduction
Speaker 8: Act a little bit because you know, if you haven't
Speaker 8: talked to our colleague Andrew Silverman about the tax reform,
Speaker 8: you know, to extend the Trump air tax cuts using
Speaker 8: the current baseline as policy would cost around four point
Speaker 8: five trillion dollars to do that, and as a result,
Speaker 8: Republicans are gonna be looking for pay for us, whether
Speaker 8: it's Dwayne's Medicare cuts, you know, and other types of aspects.
Speaker 8: But there are other things to keep in mind, and
Speaker 8: that is the Inflation Reduction Act. Now, the Inflation Reduction Act,
Speaker 8: this was passed to via reconciliation under the Biden administration
Speaker 8: back in twenty twenty two. It's about four hundred and
Speaker 8: thirty three billion dollars in terms of grants, loans, tax incentives.
Speaker 8: Now the Trump administration has already frozen the grants. You
Speaker 8: know that money has already been frozen. He can do
Speaker 8: that via the executive branch. I mean, obviously there's going
Speaker 8: to be lawsuits about this, and there are lawsuits about this,
Speaker 8: But I want to talk about the congressional aspect because
Speaker 8: Republicans have said that they would like to repeal the
Speaker 8: ira IS as a way to help pay for these
Speaker 8: tax cuts, and our piece that we put out on
Speaker 8: the terminal essentially says that we don't think that's going
Speaker 8: to happen, at least not in its entirety. The tax
Speaker 8: cuts of many of those bush that boost US domestic
Speaker 8: energy production, like the forty A five X tax credit
Speaker 8: or the forty five C tax credit, A lot of
Speaker 8: that has popularity within Republican states, especially Republican states in
Speaker 8: the South, there's a lot of non US cap X
Speaker 8: that's coming into those states that are building factories, and
Speaker 8: you know, seven hundred jobs here, nine hundred jobs there.
Speaker 8: And we've already seen statements, including a letter from eighteen
Speaker 8: House Republicans to Speaker Mike Johnson saying please don't touch
Speaker 8: these tax credits. So you know, as we get into
Speaker 8: further debate of reconciliation, we're still just in the early
Speaker 8: stages of this, but our message to clients is that
Speaker 8: we do think the IRA is going to be tweaked.
Speaker 8: Things like the electric vehicle tax credit, or the Greenhouse
Speaker 8: Gas Fund or the energy efficiency rebates, those could be
Speaker 8: on the chopping block, but when it comes to these
Speaker 8: tax credits in particular that are key for the solar industry,
Speaker 8: we think they're sticking around. So with that, Elliott, I'll
Speaker 8: pass it back to you.
Speaker 1: Great, thanks a lot, Nathan. Okay, last, but not least,
Speaker 1: I'll jump in here to talk about a couple of
Speaker 1: cases I'm watching challenging Biden era financial regulations. One concerns
Speaker 1: the CFPB rule that would cost credit card issuers about
Speaker 1: ten billion dollars in late fees, and the other is
Speaker 1: the SEC's Climate Disclosure Rule, which would require enhanced emissions
Speaker 1: disclosures and climate risk disclosures for almost all companies. One
Speaker 1: of the major themes that we're tracking is what happens
Speaker 1: to all these Biden era rules and regulations and the
Speaker 1: lawsuits that were filed challenging them now that Trump's regulators
Speaker 1: are in place and no longer support the Biden error rules.
Speaker 1: The CFPB credit card fee case and the SEC Climate
Speaker 1: Disclosure Rule litigation are just a couple of example of
Speaker 1: how that process plays out. In both instances, the rules
Speaker 1: are on hold. In the CFPB credit card lakefee case,
Speaker 1: the industry groups challenging the rule one a preliminary injunction
Speaker 1: in court that put the rule on hold while the
Speaker 1: litigation plays out. And in the SEC Climate Disclosure rule case,
Speaker 1: the agency itself put the rule on hold after the
Speaker 1: litigation was filed so that you could see how the
Speaker 1: litigation plays out as well. In the CFIB case, the
Speaker 1: court reached just a couple of weeks ago asked the
Speaker 1: new CFB leadership to tell the court by March twelfth
Speaker 1: how it plans to proceed in that litigation. And in
Speaker 1: the SEC case, the new interim leadership at the SEC
Speaker 1: issued a statement that it no longer supports the SEC
Speaker 1: Climate Disclosure Rule, and it asked the Eighth Circuit or
Speaker 1: told the Eighth Circuit that the agency would update the
Speaker 1: court by March twenty eighth about how it wants to
Speaker 1: proceed in that litigation. Written arguments are done in the
Speaker 1: SEC Climate dis Disclosure Rule case, and so we're just
Speaker 1: waiting for the Eighth Circuit to schedule argument. And the
Speaker 1: SEC basically told the court, Hey, you know, before you
Speaker 1: schedule anything, let us tell you how we plan to proceed.
Speaker 1: So again, we think both these cases are good examples
Speaker 1: where the agency will no longer wish to defend the
Speaker 1: Biden era rules in court. But you know, I tend
Speaker 1: to think that the industry groups that sued may want
Speaker 1: to press on with their litigation because they probably have
Speaker 1: pretty strong convictions that they're likely to get good court decisions.
Speaker 1: And so in that scenario, if that happens and the
Speaker 1: agencies don't want to support the rules anymore, then most
Speaker 1: likely third parties, whether they be blue states or progressive
Speaker 1: trade groups might intervene in the litigation to defend the rules.
Speaker 1: If the Trump administration no longer wants to and If
Speaker 1: that happens, we expect both rules to fall in court
Speaker 1: on the merits. But again, these are just two examples
Speaker 1: that we're watching. Not every case will play out the
Speaker 1: same way. In some cases, you know, with some rules
Speaker 1: like the cfpp's overdraft rule, you know that's likely to
Speaker 1: get struck down by the Congressional Review Act. And then
Speaker 1: in other cases, you know, litigation may go on hold
Speaker 1: completely and the rule will then get rescinded via the
Speaker 1: regulatory process, which.
Speaker 3: Takes some time.
Speaker 1: And just one other thing I'm watching. There's a lot
Speaker 1: of cases I'm sure everyone is aware of these, in
Speaker 1: which the Trump administration has fired the head of a
Speaker 1: federal agency terminated that person, and that fired person then
Speaker 1: turns around ensues the administration, challenging the president's authority to
Speaker 1: fire them. The agencies so far that are involved in
Speaker 1: these cases are the National Labor Relations Board, the Office
Speaker 1: of Special Counsel, and the Merit Systems Protection Board. But
Speaker 1: I'm really watching these because I'm interested in what these
Speaker 1: cases mean for President Trump's ability to fire Federal Reserve
Speaker 1: Board members, including fed. Shared's your own Powell, I won't
Speaker 1: you know, in the interest of time, I'm not going
Speaker 1: to go into detail right now on this episode, but
Speaker 1: i have published a note on this on the terminal
Speaker 1: a couple of weeks ago, and I'm happy to answer
Speaker 1: any questions if any listeners want to reach out. But
Speaker 1: with that, we will wrap up this episode of Votes
Speaker 1: and Verdicts. As always, thank you for listening. As a reminder,
Speaker 1: you can find all of our research on the Bloomberg
Speaker 1: Terminal at big and we encourage you to reach out
Speaker 1: to us with any questions that you may have, and
Speaker 1: we also encourage you to listen to other episodes of
Speaker 1: Votes and Verdicts on whatever platform do you like to
Speaker 1: get your favorite podcasts. Thanks for listening and have a
Speaker 2: Great day at to