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

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Speaker 2: Donald Trump is asking for a mistrial in New York

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Speaker 2: States two hundred and fifty million dollars civil fraud lawsuit

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Speaker 2: that threatens the former president's real estate empire. Trump alleges

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Speaker 2: the judge has tainted the proceedings with tangible and overwhelming bias.

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Speaker 2: The request is just another clash between Trump's legal team

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Speaker 2: and Judge Arthur and Goron. It has almost no chance

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Speaker 2: of success because the judge himself will be making the

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Speaker 2: decision on the mistrial motion as well as on the

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Speaker 2: ultimate outcome in the case. Joining me is former federal prosecutor.

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Speaker 2: Jennifer Rogers, an adjunct professor at NYU Law School, tell

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Speaker 2: us what this mistrial motion is about.

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Speaker 3: Well, it's really the same complaints that they've been making

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Speaker 3: in court about the judge and specifically his law clerk.

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Speaker 3: The defense has been really up in arms about the

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Speaker 3: law clerk and accusing her of making facial expressions she

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Speaker 3: shouldn't make, and passing notes and taking a greater role

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Speaker 3: than they think she should be taking in the trial.

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Speaker 3: And they've been making those objections in court, and that

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Speaker 3: really is the focus of the mistrial motion, that the

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Speaker 3: clerk is taking an outsized role, and the judge himself

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Speaker 3: is also biased against the defendants, and so putting those

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Speaker 3: things together, they allege that a mistrial should be granted.

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Speaker 2: I have to say, it does seem like the judge

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Speaker 2: is a little unorthodox with what's happening in the courtroom.

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Speaker 2: But is there anything wrong with having the law clerk

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Speaker 2: pass him notes and asking her questions and things like that.

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Speaker 2: Is there anything wrong with that?

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Speaker 3: Not the way that you put it, there's certainly nothing

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Speaker 3: wrong with relying on your law clerk to help you

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Speaker 3: try the matter, do research and give you the results,

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Speaker 3: even give her a opinion about what's happening. You know,

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Speaker 3: there are no rules around really how you're supposed to

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Speaker 3: use your law clerks in that way. The only issue

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Speaker 3: would be if there were demonstrated bias. I mean, I

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Speaker 3: do think that if they could show an actual bias

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Speaker 3: on the part of the judge or the clerk, and

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Speaker 3: then they would try to show that, you know, the

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Speaker 3: law clerk's bias is infecting the judge, then you know,

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Speaker 3: you could see a court saying and it's certainly not

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Speaker 3: going to be this court right, because this judge doesn't

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Speaker 3: believe anything wrong is happening, and he's not going to

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Speaker 3: grant this motion. But then of course it goes up

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Speaker 3: on appeal. So you could see in theory and appellate

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Speaker 3: court saying, wow, you know, the law clerk told the judge,

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Speaker 3: you know, all these untrue and really prejudical things about

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Speaker 3: one of the parties, and the judge said that he

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Speaker 3: took that into account and that's why he's ruling against them.

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Speaker 3: I mean, that's the sort of hypothetical that you could

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Speaker 3: see an appellate court saying, well, wait a minute, that

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Speaker 3: seems like bias to us, and you know, maybe we'll

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Speaker 3: consider this, But we don't have anything like that here.

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Speaker 3: You know, we have some allegations that aren't even true,

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Speaker 3: you know, the nonsense about the law clerk dating Chuck Schumer,

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Speaker 3: and then there's a couple of like the law clerk

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Speaker 3: had made a donation to a Democrat, and those sorts

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Speaker 3: of things are never going to rise to the level

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Speaker 3: of demonstrating bias. If you give to someone of a

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Speaker 3: political party that's the opposite of the political party of

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Speaker 3: one of the litigants, that's just never going to rise

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Speaker 3: to the level of any sort of demonstrated bias.

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Speaker 2: Let's turn to Trump's defense, and I'm going to sort

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Speaker 2: of go through what I see as the defense. So

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Speaker 2: one is the valuation of properties like the ones listed

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Speaker 2: on Donald Trump's financial statements is not an exact science.

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Speaker 2: It's more like an art than a science. And not

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Speaker 2: only did Trump testify to this, but they've had accounting

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Speaker 2: experts testified. One said the process of determining the estimated

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Speaker 2: value of a property could result in a range of value,

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Speaker 2: no one of which is the right or wrong answer.

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Speaker 2: It's a judgment call.

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Speaker 3: Yeah, I mean, listen, this is the defense that they

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Speaker 3: have to make. The judge has effectively already rejected this

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Speaker 3: by finding that there was fraud here, because the judge found,

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Speaker 3: you know, it's not so much like that the statement

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Speaker 3: said ten thousand, and a more reasonable amount would be

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Speaker 3: five thousand. I mean, the judge found that there were

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Speaker 3: magnitudes of difference between what's an accurate assessment and the

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Speaker 3: assessments that were given by the defendants on the financial statement.

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Speaker 3: So it's not even a close call. So even if

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Speaker 3: you say, listen, we put in proof that it's not

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Speaker 3: an exact science. It's like, okay, fair enough, but is

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Speaker 3: it not an exact science enough to talk about, you know,

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Speaker 3: hundreds of percentages, you know, by the magnitude of one

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Speaker 3: of the properties that was like twenty three hundred times

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Speaker 3: or something between what the judge found was a reasonable

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Speaker 3: assessment and the assessment on the papers. You know, at

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Speaker 3: some point you can say all that, but it doesn't

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Speaker 3: really get you as far as you need to go.

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Speaker 3: And the heart of this has already been decided.

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Speaker 1: By the judge.

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Speaker 3: So I don't think he's going to be swayed by

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Speaker 3: testimony that says, hey, it's not an exact science, you know,

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Speaker 3: let's treat it more as an art and cut on

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Speaker 3: some slack.

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Speaker 2: For that reason, Another defense seems to be, instead of

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Speaker 2: blaming the lawyers, as Trump may do in other cases,

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Speaker 2: blame the accountants. So Eric Trump testified that he relied

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Speaker 2: on the accounting firms to assure the financial statements were accurate.

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Speaker 2: Donald Trump Junior testified he signed off on the statements

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Speaker 2: but left the work to outside accountants. And Trump himself

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Speaker 2: has said, you know, I paid the accounts all this money,

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Speaker 2: Where does that get them?

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Speaker 3: Yeah, I don't think this was going to work either

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Speaker 3: for largely the same reason. So judge has already considered

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Speaker 3: that as part of his finding that the defendants did

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Speaker 3: commit fraud. Here, I mean that the statements themselves talk

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Speaker 3: about what it was that the accountants were doing, and

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Speaker 3: described it as more of a compilation, right, that they're

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Speaker 3: relying on the documents and the actuity of the documents

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Speaker 3: provided by the organization, and they're not attesting to that themselves,

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Speaker 3: the accountants. So I don't think that the judge is

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Speaker 3: going to buy that particular argument that you know, I'm

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Speaker 3: not responsible. Someone said, it's kind of like, you know,

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Speaker 3: I can't be convicted of tax fraud. You have to

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Speaker 3: go after my accountant, even though you know I lied

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Speaker 3: to him about what I was paying in taxes or

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Speaker 3: what this particular property was worth or so on. You

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Speaker 3: can't get away with it by just kind of saying, hey,

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Speaker 3: you know, I have an accountant, so therefore I'm free

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Speaker 3: and clear of all liability.

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Speaker 2: So now Trump has said this inside and outside the courtroom.

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Speaker 2: He points to the disclaimers on the financial statements and

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Speaker 2: says that that insulates him from liability for discrepancies or misstatements.

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Speaker 2: He said that the banks have to do their own

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Speaker 2: due diligence. The judge, I know, has ruled against that,

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Speaker 2: but they keep bringing it up.

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Speaker 3: Well, listen, in large part, they're kind of laying their

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Speaker 3: appeal record, right. They have to make these arguments and

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Speaker 3: they want them to be fleshed out with their witnesses

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Speaker 3: and so on so that the Appella court can consider them.

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Speaker 3: You know, the judge rejected this, But this is an

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Speaker 3: interesting one to me. It's just on the one hand,

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Speaker 3: he's of course fighting this trying to avoid a big

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Speaker 3: judgment against him and trying to win because he's a

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Speaker 3: winner and all these other reasons, but he's also kind

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Speaker 3: of fighting for the reputation that he's cultivated so carefully,

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Speaker 3: right over all these decades of him as a successful

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Speaker 3: businessman and a really rich billionaire and so on, and

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Speaker 3: so it's just kind of funny to me that part

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Speaker 3: of his defense is, you know, well, even if I

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Speaker 3: was lying and puffing and all of that stuff, like

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Speaker 3: I basically told the banks that they had to be

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Speaker 3: responsible themselves because I can't be trusted, you know, the

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Speaker 3: notion that he would kind of come out and say

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Speaker 3: this is worthless. You know, my numbers that I put

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Speaker 3: on this can't be trusted. You're on your own. I

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Speaker 3: don't know. It's just kind of a funny contra to

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Speaker 3: then going out there and saying, oh, my properties are

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Speaker 3: worth so much more in kind of doing the puffing

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Speaker 3: and then turning around and saying, you know, but if

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Speaker 3: they're not, it's not my fault. You have to check

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Speaker 3: it out yourself. So you know, yes, this is a

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Speaker 3: legal claim that they're making. They're trying to set it

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Speaker 3: out for appeal. But I think it's kind of an

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Speaker 3: interesting one when you think about it that way. But listen,

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Speaker 3: they're taking their shot, and I don't think this judge

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Speaker 3: is going to be swayed by that one either. But

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Speaker 3: you know, I guess they got.

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Speaker 1: To do it.

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Speaker 2: Another thing is Trump testified and Ivanka testified about the

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Speaker 2: relationship with Deutsche Bank, and Trump said that Deutsche Bank

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Speaker 2: was extremely happy and thrilled with him. Does it matter

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Speaker 2: if the person or entity being defrauded doesn't realize it

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Speaker 2: or doesn't care.

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Speaker 3: So this is actually the most interesting thing to me

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Speaker 3: because in a way, it doesn't right. This suit is

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Speaker 3: not being brought by the bank saying we've been harmed.

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Speaker 3: We want, you know, our money back or whatever being

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Speaker 3: brought by the Attorney General, who's really standing in the

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Speaker 3: place of New Yorkers and saying New Yorkers, we as

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Speaker 3: a state and as a people in the state, have

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Speaker 3: an interest in these financial institutions not being duped, right,

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Speaker 3: not being lied to by companies. We don't want companies

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Speaker 3: to behave that way, and if you do, we're going

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Speaker 3: to sue you. So it's not that the banks have

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Speaker 3: to be harmed. But all of that said, it is

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Speaker 3: really interesting, not so much that the banks weren't harmed

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Speaker 3: and he paid back the loans, and that's an excuse

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Speaker 3: because that goes absolutely nowhere because then the comeback was well.

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Speaker 3: But if the banks knew that these loans were as

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Speaker 3: risky as they were because the valuations were so off,

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Speaker 3: perhaps you wouldn't have gotten such a flow interest rate, right.

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Speaker 3: We would have taken that risk and charged you more

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Speaker 3: for it, so that we made more money and we

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Speaker 3: lost out on that additional money. What's puzzling to me

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Speaker 3: is that the Attorney General really didn't get any witness

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Speaker 3: to say that they had relied on them and that

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Speaker 3: they would have, for example, charged a higher interest rate

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Speaker 3: if they knew that the properties were being exaggerated the

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Speaker 3: worth of the properties. So I don't know, you know,

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Speaker 3: and I can only think that they didn't ask those

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Speaker 3: direct questions and get that evidence because they wouldn't have,

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Speaker 3: right the witnesses weren't going to say that. So that

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Speaker 3: is kind of interesting because I do think it goes

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Speaker 3: to the amount ultimately that the judge will find should

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Speaker 3: be paid, right the fine, the disgorgement amount. Really it

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Speaker 3: is impacted by how much the banks would have made

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Speaker 3: compared to what they did make. And if they're saying,

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Speaker 3: we don't care, we really didn't set the interest rate

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Speaker 3: with the values of the property in mind, the accurate

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Speaker 3: values of the property, then I think that probably does

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Speaker 3: impact the damage's amount here. So that is an important piece.

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Speaker 3: I don't know what the judge is ultimately going to

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Speaker 3: find with all of that and what he's going to

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Speaker 3: impose as far as monetary finds and damages go, but

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Speaker 3: I do think that's an interesting argument that has legs here.

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Speaker 3: Because of the way the trial played out, and because

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Speaker 3: of the fact that they didn't get this testimony that

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Speaker 3: I frankly expected they would get that someone would say, sure,

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Speaker 3: it matters to me, because I've got to set an

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Speaker 3: interest amount and it's going to be impacted by the

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Speaker 3: value of the assets that's behind it.

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Speaker 2: The state did have an expert witness that calculated that

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Speaker 2: the lenders lost one hundred and sixty eight million dollars

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Speaker 2: in potential interest between twenty fourteen and twenty twenty three.

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Speaker 2: That's still a far away from the two point fifty

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Speaker 2: that she's looking for.

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Speaker 3: Yeah, and I don't think I may be wrong on this.

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Speaker 3: I wouldn't be surprised if you followed it more closely,

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Speaker 3: you know, witnessed by witness. But I don't think the

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Speaker 3: witnesses from the bank Deetche bank that gave the loans

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Speaker 3: actually said that.

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Speaker 2: No, No, it was an expert witness by the state.

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Speaker 3: Yeah, more theoretical saying like in theory, banks should charge

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Speaker 3: more if the risk is higher, and therefore they would

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Speaker 3: have made you know, But that's different from the actual

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Speaker 3: bank saying, listen, we wouldn't have changed the numbers for

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Speaker 3: there's no in other words, there's no discouragement of ill

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Speaker 3: gotten games. Right, So that's really the argument, and I

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Speaker 3: think it is an interesting one, and I'm interested to

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Speaker 3: see what the what the judge does about that.

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Speaker 2: Now, I just want to touch on the first witness

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Speaker 2: for the defense was Donald Trump Junior, and you know,

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Speaker 2: the judge a lot of melat of leeway. He spent

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Speaker 2: more than an hour narrating a slide show titled the

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Speaker 2: Trump Story, and you know, talked about his father's vision,

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Speaker 2: he was an artist with real estate, et cetera, et cetera,

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Speaker 2: et cetera. I mean, what is the point of his

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Speaker 2: testimony in this case?

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Speaker 3: Interesting question. If the cameras were in the courtroom, I

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Speaker 3: would say the point is almost certainly just public facing.

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Speaker 3: You know. The only point I can see that might

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Speaker 3: be semi legitimate other than just kind of tooting our

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Speaker 3: own horn, is that anytime you're a defendant and you're

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Speaker 3: facing either a sentence or you know, in this case,

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Speaker 3: that damage is a word, you want to be humanized, right.

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Speaker 3: You want the person making that decision or the jury

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Speaker 3: making that decision knowing you a little bit. You know,

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Speaker 3: it's harder to hammer someone that you don't know, So

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Speaker 3: maybe it was you could look at it as an

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Speaker 3: attempt to humanize them or say, you know, there's a

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Speaker 3: different side, We've done something good here. You know, don't

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Speaker 3: think we're such bad guys. You know, we're impressive too

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Speaker 3: in our own way. So I guess, in that limited sense,

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Speaker 3: you could say that the judge should have given them

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Speaker 3: leeway to do that. He also is smart to give

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Speaker 3: them leeway, because then it's not an appellet issue, right.

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Speaker 3: They say, Oh, he shut us down. He wouldn't let

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Speaker 3: us talk about our amazing, glossy slideshow of all of

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Speaker 3: our properties. So we'll just kind of sit there for

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Speaker 3: the hour and let him do his thing. But you know,

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Speaker 3: I can see some very small benefits to kind of

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Speaker 3: let us tell you about who we are and our

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Speaker 3: family and our story and as a way to kind

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Speaker 3: of humanize us and make you maybe like us a

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Speaker 3: little bit more than you do.

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Speaker 2: Well, there's a lot to come with this trial. The

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Speaker 2: defense is expected to last until mid December. Thanks so much, Jennifer.

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Speaker 2: That's former federal prosecutor Jennifer Rogers. Donald Trump did have

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Speaker 2: a win in the case. Today, a New York Capella

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Speaker 2: judge lifted Judge in Gorn's gag order that barred Trump

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Speaker 2: from commenting about court personnel. The suspension will allow the

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Speaker 2: former president to speak freely about court staff while a

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Speaker 2: longer appeals process plays out. Wall Street's cops are partnering

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Speaker 2: with unlikely tipsters against misbehaving firms. Short Sellers, including big

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Speaker 2: name short sellers like Nate Anderson, Kyle Bass, and Carson Blanc,

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Speaker 2: are tipping off the SEC's whistleblower office. Short Sellers are

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Speaker 2: quietly sharing their research about sketchy accounting and other misdeeds

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Speaker 2: in the hopes of making some extra money up to

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Speaker 2: thirty percent of the proceeds if the SEC ends up

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Speaker 2: exacting a fine, and that's on top of an profit

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Speaker 2: they might make by betting on the stocks decline. For example,

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Speaker 2: Block got fourteen million dollars for one of his leads.

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Speaker 2: Joining me is Sean mckesse, a partner at Phillips and Cohen.

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Speaker 2: He was the first chief of the SEC's Whistleblower Office.

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Speaker 2: We think of whistleblowers as being these anonymous people, and

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Speaker 2: now we have these big name short sellers among the tipsters.

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Speaker 2: I mean, is it because it's such a lucrative business.

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Speaker 1: Well, you know, I think there's probably a number of

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Speaker 1: things that go into it. But I would say that

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Speaker 1: the success of the program, which I am honestly and

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Speaker 1: very proud of, has attracted people to it. You know,

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Speaker 1: there have been efforts by the government agencies to encourage

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Speaker 1: people to come forward to see something, say something, and

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Speaker 1: if they didn't succeed, then nobody ever knew about it.

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Speaker 1: The sec was the Blow program, as by all accounts,

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Speaker 1: been successful, and you know, success freed attention, and attention

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Speaker 1: breed additional information. You know, when it comes to short

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Speaker 1: sellers specifically, you know they've been playing the game, if

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Speaker 1: that's the way to put it, long before the Wistful

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Speaker 1: program came around, right, I mean, people have been setting

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Speaker 1: up rightly or wrongly, you know, positions counting on equidies

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Speaker 1: to fall and profit when they do. And the business

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Speaker 1: model behind that is you don't just randomly pick something.

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Speaker 1: You know, you do some research and you come to

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Speaker 1: feel and invest your money accordingly that things seem to

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Speaker 1: be too good to be true. And so I'm going

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Speaker 1: to bet this smoke and mirrors is going to clear

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Speaker 1: and things are going to fail. And if they do

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Speaker 1: and I'm right, then I can profit it. If I'm wrong,

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Speaker 1: then I don't. So if you think about what does

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Speaker 1: the whistle Bull program set up to do, It's set

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Speaker 1: up to attract people to come forward if they has

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Speaker 1: information that for the protection investors it is important for

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Speaker 1: the SEC to know about, and it turns out to

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Speaker 1: be true and it turns out to help the SEC

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Speaker 1: bring a successful action, then you can profit of it.

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Speaker 1: You can get awarded for helping the SEC bring in

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Speaker 1: action that either stops a fraud, prevents a fraud, or

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Speaker 1: or minimizes the damage of a fraud. Well, isn't that

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Speaker 1: what we all ultimately want? And you know, I think

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Speaker 1: the paradigm between a short seller who prior to the

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Speaker 1: Wistlow program wanted a parrot out wrongdoing and you know

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Speaker 1: if a profit came after it, so be it. It's

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Speaker 1: the same general philosophy of the wistle World program. Come

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Speaker 1: forward with information that might be helpful, and if it is,

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Speaker 1: you know, you're not going to be paid upfront. You

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Speaker 1: get paid only if it turns out your information is

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Speaker 1: right and it helps the SEC bring a successful action.

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Speaker 2: So then you don't think there's anything particularly new about this.

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Speaker 1: I think the only thing that's of note now is

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Speaker 1: that some of the bigger name short sellers are now

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Speaker 1: being ad public that they have actually been doing this

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Speaker 1: because of litigation. But I think that short folks have

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Speaker 1: been doing the kinds of things that the whistlel program

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Speaker 1: is intended to encourage for a long time, which is,

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Speaker 1: you know, if you're really smart and you're a good

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Speaker 1: analyst of what's going on in the market, and you

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Speaker 1: uncover something that seems like it's too good to be

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Speaker 1: true and you act on it, you can be successful. So,

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Speaker 1: you know, So I don't know if there's anything new.

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Speaker 1: I just think it's really something that's more out of

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Speaker 1: the shadows, and I understand that it's a matching a

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Speaker 1: piece over. You know, a big name short seller you know,

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Speaker 1: quote unquote wins on his bet, you know, takes the

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Speaker 1: short position that ends up being successful, and then on

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Speaker 1: top of it, gets paid, you know, assuming the SEC

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Speaker 1: brings his good action. I think it's much adew about

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Speaker 1: nothing at the end of the day, because the only

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Speaker 1: way a whistle blower gets paid under the program is

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Speaker 1: if they bring good information that the SEC is able

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Speaker 1: to use to bring successful action that again prevents the

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Speaker 1: fraud or stops from getting worse. And nobody is for

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Speaker 1: the worst when that happens, regardless of whether it was

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Speaker 1: the short seller who reported it or a regular person.

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Speaker 1: At the end of the day. The program is intended

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Speaker 1: to incentivize people to help the SEC stop fraud, and

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Speaker 1: you only get paid if you actually have done that.

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Speaker 1: And I don't know how anybody, understanding what the outcome

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Speaker 1: is would look back and say, well, I wish it

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Speaker 1: wasn't a short seller who reported this and stops the straw.

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Speaker 1: I think you know, anybody who participates in the market,

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Speaker 1: and we all do in a sun level, wants fraud

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Speaker 1: to be stopped and wants to prevent massive investor losses.

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Speaker 1: When if fraud goes undertected for too long and until

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Speaker 1: it's too late.

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Speaker 2: It can be a very long process the process of

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Speaker 2: being a whistleblower. So tell us a little about the process.

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Speaker 1: Sure, you know, that's another thing that I think takes

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Speaker 1: away from this theory that you know short sellers are

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Speaker 1: trying to be opportunistic and grab another quick buck in

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Speaker 1: the space, because it requires quite a bit of work

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Speaker 1: to be a whistle blower, and it takes a lot

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Speaker 1: of time. So you know, the life cycle a whistleblower

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Speaker 1: is whistleblower uncovers information that's using the short seller contact

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Speaker 1: and not a true insider. But you know they've done

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Speaker 1: their analysis and they believe that there's something wrong with

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00:19:44,359 --> 00:19:47,360
Speaker 1: you know, a particular entity or an industry, and they

380
00:19:47,359 --> 00:19:51,119
Speaker 1: put together what's called a TCR TIS Complaint and Referral form,

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Speaker 1: which is basically, you know, the way to present to

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Speaker 1: the SEC information and avail yourself with a whistlebow program,

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Speaker 1: and you include generally a narrative. You know, here's what

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Speaker 1: my analysis shows, and here's why I think this is

385
00:20:03,440 --> 00:20:06,720
Speaker 1: where the SEC's attention. And you know, then that goes

386
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Speaker 1: into the the SEC's PCR system, which is where they

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00:20:09,800 --> 00:20:11,919
Speaker 1: gather all the intelligence that comes in. Whistle blower and

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Speaker 1: other intelligence all goes in the same computer system. And

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Speaker 1: then there's a tree odd process where a couple of

390
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Speaker 1: lawyers in the Office of Market Intelligence will review every

391
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Speaker 1: tip that comes in and decide he is just one already,

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Speaker 1: you know, relative to something the SEC is already working on,

393
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Speaker 1: and if so, send it to that group. If it's

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Speaker 1: a new matter, is it worth the precious resources that

395
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Speaker 1: the SEC has, And if so, you know which group

396
00:20:33,640 --> 00:20:36,159
Speaker 1: or lawyer's enforcement attorney should be assigned to it. And

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Speaker 1: then once that process works its way out, then the

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Speaker 1: enforcement attorney gets the tip and then it's to the

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Speaker 1: enforcement staff on how the investigation is conducted. Sometimes that

400
00:20:45,440 --> 00:20:48,600
Speaker 1: means going back to the whistleblower and conducting interviews. Sometimes

401
00:20:48,600 --> 00:20:52,040
Speaker 1: it doesn't, But ultimately, from the whistle blower's perspective, once

402
00:20:52,080 --> 00:20:54,200
Speaker 1: that tip goes in the system, the control of the

403
00:20:54,240 --> 00:20:58,200
Speaker 1: whistleblower is relatively null in terms of you know whether

404
00:20:58,240 --> 00:21:02,240
Speaker 1: the investigation happens, how it happens, and the whist lawer's role

405
00:21:02,280 --> 00:21:06,320
Speaker 1: is there to be supportive of the enforcement's attorney's efforts

406
00:21:06,359 --> 00:21:09,439
Speaker 1: and respond if needed, but ultimately it's up the enforcement

407
00:21:09,480 --> 00:21:13,040
Speaker 1: staff to decide. Assuming things go well, from the whistler's perspective,

408
00:21:13,119 --> 00:21:17,160
Speaker 1: the enforcement staff ends up bringing a successful action on average,

409
00:21:17,160 --> 00:21:19,840
Speaker 1: and investigation take three years from the time of kit

410
00:21:19,880 --> 00:21:22,760
Speaker 1: comes in the door. And then, assuming that that goes well,

411
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Speaker 1: either there's a court order that holds the bad guys

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Speaker 1: accountable or there's a settlement worth over a million dollars.

413
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Speaker 1: Either way, there has to be sanctions imposed exceeding a

414
00:21:30,840 --> 00:21:34,200
Speaker 1: million dollars to trip the eligibility requirement score a case

415
00:21:34,280 --> 00:21:37,760
Speaker 1: to be eligible for a whistleblower award. And now you've

416
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Speaker 1: got the second phase of this process, which is now

417
00:21:40,880 --> 00:21:42,919
Speaker 1: you get to apply for an award and the award

418
00:21:43,440 --> 00:21:47,680
Speaker 1: of application. Process and processing an award payouts can take

419
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Speaker 1: anywhere from three to four to five years, depending on

420
00:21:50,920 --> 00:21:53,639
Speaker 1: the complexity of things, but general the way the process

421
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Speaker 1: works is the SEC will put out an announcement we

422
00:21:56,920 --> 00:21:58,840
Speaker 1: brought a case worth over a million dollars. If you

423
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Speaker 1: think you can try to it, now's your ninety day

424
00:22:01,720 --> 00:22:04,960
Speaker 1: window to submit an application. You know what it was.

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Speaker 1: The blower believes that he contributed or she contributed to

426
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Speaker 1: the matter, and you know why. The whistleblower believes he

427
00:22:11,000 --> 00:22:13,560
Speaker 1: or she should get close to thirty percent as opposed

428
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Speaker 1: to the minimal ten percent award the whistle blower office.

429
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Speaker 1: Then well, let's says all claims in connection with a

430
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Speaker 1: specific case and make a recommendation to senior members of

431
00:22:22,880 --> 00:22:26,680
Speaker 1: enforcement staff as to a whether that particular whistleblower is eligible,

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Speaker 1: and b, if so, where an attended thirty percent range

433
00:22:29,880 --> 00:22:32,640
Speaker 1: the award should call, At which point the wistle blow

434
00:22:32,640 --> 00:22:36,600
Speaker 1: will be will receive a preliminary determination which says, we

435
00:22:37,000 --> 00:22:38,960
Speaker 1: have found you to be eligible and we are recommending

436
00:22:39,040 --> 00:22:41,520
Speaker 1: let's say twenty percent. At that point, the whist blower

437
00:22:41,520 --> 00:22:44,439
Speaker 1: will say, you know, twenty percent of little light and

438
00:22:44,480 --> 00:22:47,480
Speaker 1: they'll have one opportunity to go back and ask for reconsideration,

439
00:22:47,680 --> 00:22:49,440
Speaker 1: or they can say, look, that's great, we'll take twenty

440
00:22:49,480 --> 00:22:52,040
Speaker 1: percent and no payoff can go out till the commission

441
00:22:52,040 --> 00:22:57,120
Speaker 1: approves it. And so I've tried to streamline that moves across. See,

442
00:22:57,160 --> 00:22:59,720
Speaker 1: there's a lot of steps involved in what I call

443
00:22:59,840 --> 00:23:02,520
Speaker 1: now the second phase of the process. So now from

444
00:23:02,560 --> 00:23:04,480
Speaker 1: the life cycle of a whistleblower, you know, a year

445
00:23:04,520 --> 00:23:07,400
Speaker 1: to prepare, three years to investigate, now three to four

446
00:23:07,440 --> 00:23:10,600
Speaker 1: or five years to get your award payout to a

447
00:23:10,640 --> 00:23:13,200
Speaker 1: real commitment of time. I think if people are thinking

448
00:23:13,760 --> 00:23:16,240
Speaker 1: this is an easy way, a quick way to get

449
00:23:16,280 --> 00:23:19,720
Speaker 1: extra bucks out of a system, they don't really understand

450
00:23:19,920 --> 00:23:23,000
Speaker 1: how much of a committment requires and how much perseverance

451
00:23:23,200 --> 00:23:25,560
Speaker 1: is required, you know. And there's no guarantees of a

452
00:23:25,600 --> 00:23:28,600
Speaker 1: payout under these programs, right, So it's a lot of

453
00:23:28,680 --> 00:23:31,680
Speaker 1: risk to take on, and yes there's a possibility reward,

454
00:23:32,080 --> 00:23:34,080
Speaker 1: but not everyone is year enough to have that kind

455
00:23:34,080 --> 00:23:35,960
Speaker 1: of perseverance and take on that kind of risk.

456
00:23:36,119 --> 00:23:38,440
Speaker 2: Coming up next on the Bloomberg Lawn Show, I'll continue

457
00:23:38,440 --> 00:23:42,520
Speaker 2: this conversation with Sean mckessey and we'll talk about those

458
00:23:42,680 --> 00:23:47,080
Speaker 2: huge whistleblower awards you've probably heard about. The SEC is

459
00:23:47,119 --> 00:23:52,280
Speaker 2: finding itself partnering with an unlikely star witness against misbehaving firms,

460
00:23:52,680 --> 00:23:57,280
Speaker 2: short sellers. Big name short sellers like Nate Anderson, Kyle Bass,

461
00:23:57,320 --> 00:24:00,719
Speaker 2: and Carson Block are among those tipping off the SEC

462
00:24:01,359 --> 00:24:03,800
Speaker 2: in the hopes of making up to thirty percent of

463
00:24:03,840 --> 00:24:07,800
Speaker 2: the proceeds if the agency ends up levying a fine.

464
00:24:08,200 --> 00:24:11,080
Speaker 2: I've been talking to Sean mckessey, who served as the

465
00:24:11,119 --> 00:24:15,000
Speaker 2: first head of the SEC's whistleblower office. Sean, do you

466
00:24:15,000 --> 00:24:18,520
Speaker 2: think that short sellers sort of have an edge over

467
00:24:19,000 --> 00:24:22,440
Speaker 2: insiders who were CHIPsters because you know they've done all

468
00:24:22,480 --> 00:24:24,000
Speaker 2: this methodical research.

469
00:24:24,600 --> 00:24:27,720
Speaker 1: I'll answer that in two tears. First, whether a well

470
00:24:27,760 --> 00:24:30,560
Speaker 1: prepared tip short seller or not comes to the SEC

471
00:24:31,040 --> 00:24:34,760
Speaker 1: with somebody who has specific, timely, incredible information and has

472
00:24:34,800 --> 00:24:38,439
Speaker 1: the ability to provide ongoing assistance to the SEC staff

473
00:24:38,440 --> 00:24:41,960
Speaker 1: and an investigation, it is one hundred percent of the

474
00:24:42,000 --> 00:24:46,399
Speaker 1: time helpful for the SEC and improve the efficiency of

475
00:24:46,440 --> 00:24:48,680
Speaker 1: the case. And that doesn't matter whether you're a short

476
00:24:48,720 --> 00:24:51,840
Speaker 1: seller or an insider. And again, the program is designed

477
00:24:51,840 --> 00:24:53,919
Speaker 1: to attract that kind of person and that kind of

478
00:24:53,920 --> 00:24:56,160
Speaker 1: information When we go back to that ten to thirty

479
00:24:56,160 --> 00:24:58,360
Speaker 1: percent assessment of how big of an award a person

480
00:24:58,400 --> 00:25:01,080
Speaker 1: should get. One of the factors that the SEC's required

481
00:25:01,119 --> 00:25:05,040
Speaker 1: considers how cooperative was the whistleblower, how much resources is

482
00:25:05,119 --> 00:25:09,960
Speaker 1: the whistleblower health the SEC preserve by providing information that

483
00:25:09,960 --> 00:25:13,840
Speaker 1: they otherwise might be difficult to find, assisting investigation by saying, hey,

484
00:25:13,880 --> 00:25:16,320
Speaker 1: you should ask these people, you know, this department about

485
00:25:16,320 --> 00:25:21,000
Speaker 1: these documents. All that is built into the incentive process

486
00:25:21,200 --> 00:25:23,840
Speaker 1: of the program. We want people to come forward, and

487
00:25:23,880 --> 00:25:26,280
Speaker 1: we want them to help the SEC bring good cases.

488
00:25:26,720 --> 00:25:28,920
Speaker 1: And if you help bring good cases and they have

489
00:25:29,000 --> 00:25:32,720
Speaker 1: the more efficiently, everybody wins. And as a result, when

490
00:25:32,800 --> 00:25:34,800
Speaker 1: you're ten to thirty percent is being it said, if

491
00:25:34,840 --> 00:25:37,399
Speaker 1: you know, really move them all forward to the SEC.

492
00:25:37,440 --> 00:25:39,480
Speaker 1: Came with a fully day cake. For example, your tip

493
00:25:39,720 --> 00:25:42,760
Speaker 1: basically laid out the whole team, and then you know,

494
00:25:42,760 --> 00:25:45,240
Speaker 1: allow the SEC to leverage a very quick settlement. Then

495
00:25:45,280 --> 00:25:48,439
Speaker 1: you should get rewarded for that because to thirty percent.

496
00:25:48,840 --> 00:25:50,719
Speaker 1: So the answer to the question is short sellers, non

497
00:25:50,800 --> 00:25:54,439
Speaker 1: short sellers. Whistle blowers with good information can and have

498
00:25:54,760 --> 00:25:58,480
Speaker 1: and will continue to increase the efficiency of the SEC staff.

499
00:25:58,800 --> 00:26:00,879
Speaker 1: And that's why you sell me the interns wanting to

500
00:26:00,920 --> 00:26:04,520
Speaker 1: get good whistleblower matters. It helps them to bring very

501
00:26:04,600 --> 00:26:08,239
Speaker 1: high profile, important cases more efficiently than they would if

502
00:26:08,240 --> 00:26:11,040
Speaker 1: they didn't have somebody who had access to the information,

503
00:26:11,160 --> 00:26:13,560
Speaker 1: either through the research let's say a short seller, or

504
00:26:13,800 --> 00:26:17,359
Speaker 1: by being an insider and having direct information based on

505
00:26:17,400 --> 00:26:18,879
Speaker 1: what they saw or are seeing.

506
00:26:19,400 --> 00:26:25,080
Speaker 2: You know, people see these huge whistleblower awards, they're like,

507
00:26:25,160 --> 00:26:27,720
Speaker 2: you know, when you hear about jury, vert etc. Like

508
00:26:27,960 --> 00:26:30,840
Speaker 2: winning the lottery. I mean you had the largest was

509
00:26:30,880 --> 00:26:34,080
Speaker 2: two hundred and seventy nine million in May of twenty

510
00:26:34,119 --> 00:26:37,879
Speaker 2: twenty three, but there have been hundreds of millions several times.

511
00:26:38,240 --> 00:26:42,119
Speaker 2: Thirty percent is a lot of percent. Are these whistleblowers

512
00:26:42,280 --> 00:26:45,800
Speaker 2: getting too much money? Especially when you think of short sellers,

513
00:26:45,920 --> 00:26:48,639
Speaker 2: they're doing it as part of their job. They find

514
00:26:48,680 --> 00:26:49,640
Speaker 2: these things out right.

515
00:26:49,960 --> 00:26:53,439
Speaker 1: I think there's a facial attractiveness to that narrative, but

516
00:26:53,560 --> 00:26:56,159
Speaker 1: I think it's shortsighted, and I think if people just

517
00:26:56,200 --> 00:26:58,720
Speaker 1: take a step back, and you know, this just echoes

518
00:26:59,119 --> 00:27:01,960
Speaker 1: the criticism that the SEC got when just to even

519
00:27:01,960 --> 00:27:04,200
Speaker 1: have the program, you know, a lot of mashing a

520
00:27:04,280 --> 00:27:06,080
Speaker 1: keyth you know, should people get paid for doing the

521
00:27:06,119 --> 00:27:08,959
Speaker 1: right thing, and a lot of you know, anxiety around it,

522
00:27:09,240 --> 00:27:11,800
Speaker 1: which causes people sometimes to get two far into the

523
00:27:11,840 --> 00:27:13,800
Speaker 1: week and don't take a step back and say, well,

524
00:27:13,840 --> 00:27:16,640
Speaker 1: wait a minute, why why were we doing this? Why

525
00:27:16,720 --> 00:27:19,080
Speaker 1: isn't it needed? And you know, I can give you

526
00:27:19,119 --> 00:27:22,840
Speaker 1: two words. Enron, world Com. These are entities where people

527
00:27:22,840 --> 00:27:25,600
Speaker 1: were aware of wrongdoing and for whatever reason, we're not

528
00:27:25,640 --> 00:27:28,000
Speaker 1: motivated reported in time to get it stopped so that

529
00:27:28,200 --> 00:27:31,720
Speaker 1: those two companies could still be in existence today if

530
00:27:31,760 --> 00:27:34,680
Speaker 1: somebody had come forward and provided the kind of information

531
00:27:34,720 --> 00:27:37,879
Speaker 1: that would have helped the SEC stopped ongoing cross before

532
00:27:37,880 --> 00:27:41,000
Speaker 1: they became company best. So, now how does that relate

533
00:27:41,040 --> 00:27:43,800
Speaker 1: to this question of you know, how much is too much? Well?

534
00:27:44,240 --> 00:27:47,480
Speaker 1: Ask someone who you know lost their life savings in

535
00:27:47,640 --> 00:27:50,600
Speaker 1: Enron or someone who worked for those companies who's and

536
00:27:50,680 --> 00:27:52,560
Speaker 1: I happen to know somebody personally who worked for the

537
00:27:52,600 --> 00:27:55,520
Speaker 1: company in world Com required all their employees to take

538
00:27:55,560 --> 00:27:57,560
Speaker 1: all of their floural one k and put it in

539
00:27:57,560 --> 00:27:59,600
Speaker 1: world Com stocks, and then when the company went down,

540
00:27:59,600 --> 00:28:02,240
Speaker 1: they ended up with nothing. Ask for those people if

541
00:28:02,359 --> 00:28:05,320
Speaker 1: a whistleblower had come forward and stopped the massive fraud

542
00:28:05,440 --> 00:28:09,040
Speaker 1: and kept your job kept the company in business. The

543
00:28:09,080 --> 00:28:11,000
Speaker 1: company had the right, let's say a billion dollar check,

544
00:28:11,320 --> 00:28:14,080
Speaker 1: but the fraud was stopped short of hundreds of billions

545
00:28:14,080 --> 00:28:16,000
Speaker 1: of dollars, And so the company is now still a

546
00:28:16,080 --> 00:28:18,119
Speaker 1: viable company. You still have your Form one, kay, you

547
00:28:18,200 --> 00:28:20,679
Speaker 1: still have a job, This industry still exists. Does it

548
00:28:20,720 --> 00:28:24,159
Speaker 1: matter to you if the reason that that happened is

549
00:28:24,200 --> 00:28:27,240
Speaker 1: because somebody came forward? And now do you care that

550
00:28:27,240 --> 00:28:30,399
Speaker 1: that person ended up getting paidage million dollars? Let's take

551
00:28:30,440 --> 00:28:32,960
Speaker 1: a step back. The awards is ten to thirty percent

552
00:28:33,000 --> 00:28:35,600
Speaker 1: of the amounts collected. So when you're talking about a

553
00:28:35,640 --> 00:28:39,400
Speaker 1: two hundred million dollars award, that means that the amounts

554
00:28:39,400 --> 00:28:42,360
Speaker 1: that the SEC collected in connection with whatever fraud that

555
00:28:42,560 --> 00:28:46,760
Speaker 1: was was massive. And when do massive clients get imposed

556
00:28:46,960 --> 00:28:50,840
Speaker 1: when the fraud is massive? And so rather than say well,

557
00:28:50,840 --> 00:28:53,320
Speaker 1: wait a second, why should a person get so much

558
00:28:53,360 --> 00:28:56,320
Speaker 1: money in connection with something, I think you should equip

559
00:28:56,400 --> 00:28:59,680
Speaker 1: it and say why shouldn't somebody who uncovered and helped

560
00:28:59,680 --> 00:29:03,480
Speaker 1: the sea, he exposed a massive, massive, massive frad Why

561
00:29:03,480 --> 00:29:06,320
Speaker 1: shouldn't they be massively rewarded for doing so? Isn't that

562
00:29:06,400 --> 00:29:09,080
Speaker 1: exactly what we want to have happen. They have those

563
00:29:09,160 --> 00:29:12,040
Speaker 1: kinds of de The company maybe bet in industry ruined

564
00:29:12,080 --> 00:29:15,680
Speaker 1: people's lives, that fraud gots stopped. Why are we questioning

565
00:29:15,840 --> 00:29:19,120
Speaker 1: how much a whistleblower should get in connection with stopping

566
00:29:19,400 --> 00:29:20,640
Speaker 1: massive frauds.

567
00:29:21,240 --> 00:29:24,640
Speaker 2: Whistleblower awards are confidential. So I just want you to

568
00:29:24,680 --> 00:29:28,240
Speaker 2: react to what a University of Kansas law professor Alexander

569
00:29:28,280 --> 00:29:31,520
Speaker 2: Platt said, The center of gravity in this program is

570
00:29:31,560 --> 00:29:34,920
Speaker 2: shifting to short sellers. I think the taxpayer should know

571
00:29:34,960 --> 00:29:38,440
Speaker 2: when fourteen million dollars of our money goes to Carson Block,

572
00:29:38,840 --> 00:29:41,720
Speaker 2: why is their secrecy? Why is this confidential?

573
00:29:42,160 --> 00:29:44,840
Speaker 4: I think that's a fallacy, to be honest. I'm familiar

574
00:29:44,880 --> 00:29:48,200
Speaker 4: with the professor's work and we've had conversations, and I

575
00:29:48,240 --> 00:29:51,520
Speaker 4: think we've misguided in some of his thought process. First

576
00:29:51,520 --> 00:29:54,080
Speaker 4: of all, and this is a minor point, it's not

577
00:29:54,160 --> 00:29:57,040
Speaker 4: taxpayer money. The money that whistleblowers are paid is paid

578
00:29:57,040 --> 00:30:00,480
Speaker 4: out of fund that is funded by SEC collection. The

579
00:30:00,560 --> 00:30:04,120
Speaker 4: idea that somehow the SEC should out whistle blowers because

580
00:30:04,320 --> 00:30:06,479
Speaker 4: you know, taxpayer should know where their money's going, that

581
00:30:06,520 --> 00:30:08,200
Speaker 4: doesn't connect. That's said.

582
00:30:08,640 --> 00:30:12,720
Speaker 1: The bigger issue is confidentiality, and I can tell you

583
00:30:13,000 --> 00:30:15,600
Speaker 1: having built the SEC wist the Work program, and now

584
00:30:15,640 --> 00:30:18,240
Speaker 1: having represented whistle bowers for the last seven years. On

585
00:30:18,280 --> 00:30:22,760
Speaker 1: the other side, the biggest question almost universally that potential

586
00:30:22,720 --> 00:30:26,680
Speaker 1: whistleblowers ask is will I be kept confidential? And the

587
00:30:26,720 --> 00:30:30,120
Speaker 1: reason for that is, unfortunately, there's a stigma against whistle blowers,

588
00:30:30,520 --> 00:30:33,360
Speaker 1: and bad things have historically happened to people who blew

589
00:30:33,400 --> 00:30:37,560
Speaker 1: the whistle, and oftentimes they're not celebrated until after they've

590
00:30:37,560 --> 00:30:40,080
Speaker 1: gone through a lot of pain and then they get

591
00:30:40,080 --> 00:30:43,200
Speaker 1: documentaries may for their heroic efforts. And that's the unfortunate

592
00:30:43,720 --> 00:30:46,360
Speaker 1: history that we have, and I think the SEC whistlebork

593
00:30:46,360 --> 00:30:48,840
Speaker 1: program and others is helping change that. But at the

594
00:30:48,920 --> 00:30:51,840
Speaker 1: end of the day, this is not about secrecy, you know, government,

595
00:30:52,000 --> 00:30:54,840
Speaker 1: you know, trying to hide in the shadows. The fact

596
00:30:54,880 --> 00:30:57,200
Speaker 1: of the matter is Congress in the Dot Frank Statute

597
00:30:57,320 --> 00:31:00,240
Speaker 1: said nobody at the SEC can directly or joy they

598
00:31:00,240 --> 00:31:03,440
Speaker 1: identify a whistle book. And that is to recognize that

599
00:31:03,520 --> 00:31:07,680
Speaker 1: whistlebowers wants to mean confidential and if you can't provide

600
00:31:07,680 --> 00:31:11,000
Speaker 1: them some monicum, a guarantee of confidentiality, you're going to

601
00:31:11,080 --> 00:31:12,600
Speaker 1: lose a whole pool of people and I can tell

602
00:31:12,640 --> 00:31:14,560
Speaker 1: you for sure if that's true, people will not come

603
00:31:14,560 --> 00:31:16,840
Speaker 1: forward if there's not at least a structure in place

604
00:31:17,000 --> 00:31:18,440
Speaker 1: to provide for confidentiality.

605
00:31:18,840 --> 00:31:21,440
Speaker 2: Well, there's a lot to learn about the process of

606
00:31:21,480 --> 00:31:25,400
Speaker 2: being a whistleblower. Thanks so much, Sean. That's John mckessey,

607
00:31:25,480 --> 00:31:28,160
Speaker 2: a partner at Phillips and Cohen. And that's it for

608
00:31:28,200 --> 00:31:30,840
Speaker 2: this edition of The Bloomberg Law Show. Remember you can

609
00:31:30,880 --> 00:31:34,080
Speaker 2: always get the latest legal news on our Bloomberg Law Podcast.

610
00:31:34,360 --> 00:31:37,400
Speaker 2: You can find them on Apple Podcasts, Spotify, and at

611
00:31:37,560 --> 00:31:42,600
Speaker 2: www dot Bloomberg dot com, slash podcast slash Law, and

612
00:31:42,680 --> 00:31:45,720
Speaker 2: remember to tune into The Bloomberg Law Show every weeknight

613
00:31:45,800 --> 00:31:49,280
Speaker 2: at ten pm Wall Street Time. I'm June Grosso and

614
00:31:49,320 --> 00:31:50,800
Speaker 2: you're listening to Bloomberg