WEBVTT - Trump Wants a Mistrial & Short Seller Tipsters 0:00:03.200 --> 0:00:08.000 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:00:09.039 --> 0:00:12.120 Donald Trump is asking for a mistrial in New York 0:00:12.160 --> 0:00:15.600 States two hundred and fifty million dollars civil fraud lawsuit 0:00:15.960 --> 0:00:20.320 that threatens the former president's real estate empire. Trump alleges 0:00:20.440 --> 0:00:24.800 the judge has tainted the proceedings with tangible and overwhelming bias. 0:00:25.360 --> 0:00:28.880 The request is just another clash between Trump's legal team 0:00:29.200 --> 0:00:32.840 and Judge Arthur and Goron. It has almost no chance 0:00:32.880 --> 0:00:36.040 of success because the judge himself will be making the 0:00:36.080 --> 0:00:39.000 decision on the mistrial motion as well as on the 0:00:39.120 --> 0:00:42.880 ultimate outcome in the case. Joining me is former federal prosecutor. 0:00:43.000 --> 0:00:47.640 Jennifer Rogers, an adjunct professor at NYU Law School, tell 0:00:47.720 --> 0:00:52.159 us what this mistrial motion is about. 0:00:52.080 --> 0:00:55.440 Well, it's really the same complaints that they've been making 0:00:55.480 --> 0:01:00.480 in court about the judge and specifically his law clerk. 0:01:00.640 --> 0:01:04.800 The defense has been really up in arms about the 0:01:04.959 --> 0:01:09.200 law clerk and accusing her of making facial expressions she 0:01:09.240 --> 0:01:12.840 shouldn't make, and passing notes and taking a greater role 0:01:12.920 --> 0:01:15.600 than they think she should be taking in the trial. 0:01:16.160 --> 0:01:19.119 And they've been making those objections in court, and that 0:01:19.200 --> 0:01:22.440 really is the focus of the mistrial motion, that the 0:01:22.520 --> 0:01:25.840 clerk is taking an outsized role, and the judge himself 0:01:25.959 --> 0:01:29.600 is also biased against the defendants, and so putting those 0:01:29.640 --> 0:01:33.520 things together, they allege that a mistrial should be granted. 0:01:34.240 --> 0:01:36.240 I have to say, it does seem like the judge 0:01:36.360 --> 0:01:39.720 is a little unorthodox with what's happening in the courtroom. 0:01:40.080 --> 0:01:43.160 But is there anything wrong with having the law clerk 0:01:43.240 --> 0:01:47.560 pass him notes and asking her questions and things like that. 0:01:47.680 --> 0:01:49.360 Is there anything wrong with that? 0:01:50.080 --> 0:01:52.720 Not the way that you put it, there's certainly nothing 0:01:52.760 --> 0:01:55.760 wrong with relying on your law clerk to help you 0:01:55.880 --> 0:01:58.760 try the matter, do research and give you the results, 0:01:58.800 --> 0:02:01.880 even give her a opinion about what's happening. You know, 0:02:01.880 --> 0:02:05.000 there are no rules around really how you're supposed to 0:02:05.200 --> 0:02:07.880 use your law clerks in that way. The only issue 0:02:07.880 --> 0:02:10.320 would be if there were demonstrated bias. I mean, I 0:02:10.360 --> 0:02:14.240 do think that if they could show an actual bias 0:02:14.639 --> 0:02:17.520 on the part of the judge or the clerk, and 0:02:17.520 --> 0:02:19.480 then they would try to show that, you know, the 0:02:19.760 --> 0:02:23.080 law clerk's bias is infecting the judge, then you know, 0:02:23.160 --> 0:02:26.360 you could see a court saying and it's certainly not 0:02:26.400 --> 0:02:28.760 going to be this court right, because this judge doesn't 0:02:28.760 --> 0:02:30.880 believe anything wrong is happening, and he's not going to 0:02:30.960 --> 0:02:32.760 grant this motion. But then of course it goes up 0:02:32.800 --> 0:02:35.400 on appeal. So you could see in theory and appellate 0:02:35.480 --> 0:02:39.240 court saying, wow, you know, the law clerk told the judge, 0:02:39.320 --> 0:02:42.919 you know, all these untrue and really prejudical things about 0:02:42.919 --> 0:02:45.600 one of the parties, and the judge said that he 0:02:45.760 --> 0:02:48.480 took that into account and that's why he's ruling against them. 0:02:48.520 --> 0:02:50.680 I mean, that's the sort of hypothetical that you could 0:02:50.680 --> 0:02:53.080 see an appellate court saying, well, wait a minute, that 0:02:53.080 --> 0:02:55.720 seems like bias to us, and you know, maybe we'll 0:02:55.760 --> 0:02:59.160 consider this, But we don't have anything like that here. 0:02:59.560 --> 0:03:03.760 You know, we have some allegations that aren't even true, 0:03:03.800 --> 0:03:07.200 you know, the nonsense about the law clerk dating Chuck Schumer, 0:03:07.520 --> 0:03:09.720 and then there's a couple of like the law clerk 0:03:09.760 --> 0:03:13.359 had made a donation to a Democrat, and those sorts 0:03:13.360 --> 0:03:15.720 of things are never going to rise to the level 0:03:15.760 --> 0:03:19.520 of demonstrating bias. If you give to someone of a 0:03:19.560 --> 0:03:22.920 political party that's the opposite of the political party of 0:03:23.120 --> 0:03:25.919 one of the litigants, that's just never going to rise 0:03:25.960 --> 0:03:28.520 to the level of any sort of demonstrated bias. 0:03:29.320 --> 0:03:32.080 Let's turn to Trump's defense, and I'm going to sort 0:03:32.080 --> 0:03:35.560 of go through what I see as the defense. So 0:03:36.040 --> 0:03:40.200 one is the valuation of properties like the ones listed 0:03:40.240 --> 0:03:44.160 on Donald Trump's financial statements is not an exact science. 0:03:44.520 --> 0:03:47.680 It's more like an art than a science. And not 0:03:47.720 --> 0:03:51.440 only did Trump testify to this, but they've had accounting 0:03:51.520 --> 0:03:56.920 experts testified. One said the process of determining the estimated 0:03:57.000 --> 0:04:00.280 value of a property could result in a range of value, 0:04:00.520 --> 0:04:03.200 no one of which is the right or wrong answer. 0:04:03.320 --> 0:04:04.480 It's a judgment call. 0:04:05.040 --> 0:04:08.920 Yeah, I mean, listen, this is the defense that they 0:04:08.960 --> 0:04:13.880 have to make. The judge has effectively already rejected this 0:04:14.000 --> 0:04:17.919 by finding that there was fraud here, because the judge found, 0:04:18.040 --> 0:04:20.760 you know, it's not so much like that the statement 0:04:20.839 --> 0:04:24.000 said ten thousand, and a more reasonable amount would be 0:04:24.000 --> 0:04:26.800 five thousand. I mean, the judge found that there were 0:04:27.040 --> 0:04:31.960 magnitudes of difference between what's an accurate assessment and the 0:04:32.000 --> 0:04:35.760 assessments that were given by the defendants on the financial statement. 0:04:35.880 --> 0:04:38.520 So it's not even a close call. So even if 0:04:38.560 --> 0:04:40.919 you say, listen, we put in proof that it's not 0:04:41.000 --> 0:04:44.159 an exact science. It's like, okay, fair enough, but is 0:04:44.200 --> 0:04:47.200 it not an exact science enough to talk about, you know, 0:04:47.720 --> 0:04:51.280 hundreds of percentages, you know, by the magnitude of one 0:04:51.279 --> 0:04:54.640 of the properties that was like twenty three hundred times 0:04:54.760 --> 0:04:57.800 or something between what the judge found was a reasonable 0:04:57.839 --> 0:05:00.680 assessment and the assessment on the papers. You know, at 0:05:00.680 --> 0:05:03.159 some point you can say all that, but it doesn't 0:05:03.160 --> 0:05:05.080 really get you as far as you need to go. 0:05:05.480 --> 0:05:08.360 And the heart of this has already been decided. 0:05:08.040 --> 0:05:08.599 By the judge. 0:05:08.600 --> 0:05:10.560 So I don't think he's going to be swayed by 0:05:11.040 --> 0:05:14.520 testimony that says, hey, it's not an exact science, you know, 0:05:14.640 --> 0:05:16.440 let's treat it more as an art and cut on 0:05:16.560 --> 0:05:17.039 some slack. 0:05:17.080 --> 0:05:20.560 For that reason, Another defense seems to be, instead of 0:05:20.600 --> 0:05:23.839 blaming the lawyers, as Trump may do in other cases, 0:05:24.120 --> 0:05:27.880 blame the accountants. So Eric Trump testified that he relied 0:05:27.920 --> 0:05:32.040 on the accounting firms to assure the financial statements were accurate. 0:05:32.160 --> 0:05:36.560 Donald Trump Junior testified he signed off on the statements 0:05:36.560 --> 0:05:40.080 but left the work to outside accountants. And Trump himself 0:05:40.080 --> 0:05:42.720 has said, you know, I paid the accounts all this money, 0:05:42.920 --> 0:05:44.240 Where does that get them? 0:05:44.760 --> 0:05:46.599 Yeah, I don't think this was going to work either 0:05:46.839 --> 0:05:50.200 for largely the same reason. So judge has already considered 0:05:50.240 --> 0:05:53.000 that as part of his finding that the defendants did 0:05:53.120 --> 0:05:56.479 commit fraud. Here, I mean that the statements themselves talk 0:05:56.520 --> 0:05:58.880 about what it was that the accountants were doing, and 0:05:58.920 --> 0:06:01.680 described it as more of a compilation, right, that they're 0:06:01.720 --> 0:06:04.719 relying on the documents and the actuity of the documents 0:06:04.760 --> 0:06:09.200 provided by the organization, and they're not attesting to that themselves, 0:06:09.240 --> 0:06:12.359 the accountants. So I don't think that the judge is 0:06:12.400 --> 0:06:15.720 going to buy that particular argument that you know, I'm 0:06:15.760 --> 0:06:18.840 not responsible. Someone said, it's kind of like, you know, 0:06:18.960 --> 0:06:21.839 I can't be convicted of tax fraud. You have to 0:06:21.880 --> 0:06:24.440 go after my accountant, even though you know I lied 0:06:24.480 --> 0:06:27.000 to him about what I was paying in taxes or 0:06:27.040 --> 0:06:29.320 what this particular property was worth or so on. You 0:06:29.360 --> 0:06:31.960 can't get away with it by just kind of saying, hey, 0:06:32.080 --> 0:06:34.240 you know, I have an accountant, so therefore I'm free 0:06:34.279 --> 0:06:35.520 and clear of all liability. 0:06:36.640 --> 0:06:41.159 So now Trump has said this inside and outside the courtroom. 0:06:41.200 --> 0:06:45.880 He points to the disclaimers on the financial statements and 0:06:46.000 --> 0:06:50.960 says that that insulates him from liability for discrepancies or misstatements. 0:06:50.960 --> 0:06:53.039 He said that the banks have to do their own 0:06:53.120 --> 0:06:56.120 due diligence. The judge, I know, has ruled against that, 0:06:56.240 --> 0:06:58.159 but they keep bringing it up. 0:06:58.400 --> 0:07:01.360 Well, listen, in large part, they're kind of laying their 0:07:01.400 --> 0:07:04.600 appeal record, right. They have to make these arguments and 0:07:04.640 --> 0:07:07.200 they want them to be fleshed out with their witnesses 0:07:07.240 --> 0:07:09.640 and so on so that the Appella court can consider them. 0:07:10.000 --> 0:07:12.680 You know, the judge rejected this, But this is an 0:07:12.680 --> 0:07:15.960 interesting one to me. It's just on the one hand, 0:07:15.960 --> 0:07:18.240 he's of course fighting this trying to avoid a big 0:07:18.320 --> 0:07:22.000 judgment against him and trying to win because he's a 0:07:22.040 --> 0:07:23.960 winner and all these other reasons, but he's also kind 0:07:24.000 --> 0:07:27.880 of fighting for the reputation that he's cultivated so carefully, 0:07:27.960 --> 0:07:30.440 right over all these decades of him as a successful 0:07:30.480 --> 0:07:34.720 businessman and a really rich billionaire and so on, and 0:07:34.800 --> 0:07:36.960 so it's just kind of funny to me that part 0:07:37.040 --> 0:07:40.760 of his defense is, you know, well, even if I 0:07:40.920 --> 0:07:43.440 was lying and puffing and all of that stuff, like 0:07:43.480 --> 0:07:46.680 I basically told the banks that they had to be 0:07:46.760 --> 0:07:49.600 responsible themselves because I can't be trusted, you know, the 0:07:49.600 --> 0:07:51.400 notion that he would kind of come out and say 0:07:51.800 --> 0:07:54.400 this is worthless. You know, my numbers that I put 0:07:54.440 --> 0:07:57.400 on this can't be trusted. You're on your own. I 0:07:57.440 --> 0:08:00.560 don't know. It's just kind of a funny contra to 0:08:01.480 --> 0:08:04.920 then going out there and saying, oh, my properties are 0:08:04.920 --> 0:08:07.280 worth so much more in kind of doing the puffing 0:08:07.280 --> 0:08:09.520 and then turning around and saying, you know, but if 0:08:09.560 --> 0:08:11.600 they're not, it's not my fault. You have to check 0:08:11.640 --> 0:08:14.240 it out yourself. So you know, yes, this is a 0:08:14.440 --> 0:08:16.720 legal claim that they're making. They're trying to set it 0:08:16.720 --> 0:08:19.280 out for appeal. But I think it's kind of an 0:08:19.400 --> 0:08:23.120 interesting one when you think about it that way. But listen, 0:08:23.240 --> 0:08:26.040 they're taking their shot, and I don't think this judge 0:08:26.080 --> 0:08:28.760 is going to be swayed by that one either. But 0:08:29.040 --> 0:08:30.120 you know, I guess they got. 0:08:29.920 --> 0:08:30.280 To do it. 0:08:30.600 --> 0:08:34.720 Another thing is Trump testified and Ivanka testified about the 0:08:34.800 --> 0:08:38.480 relationship with Deutsche Bank, and Trump said that Deutsche Bank 0:08:38.600 --> 0:08:42.960 was extremely happy and thrilled with him. Does it matter 0:08:43.200 --> 0:08:48.320 if the person or entity being defrauded doesn't realize it 0:08:48.480 --> 0:08:49.400 or doesn't care. 0:08:50.160 --> 0:08:53.640 So this is actually the most interesting thing to me 0:08:54.240 --> 0:08:57.120 because in a way, it doesn't right. This suit is 0:08:57.160 --> 0:08:59.560 not being brought by the bank saying we've been harmed. 0:08:59.600 --> 0:09:02.120 We want, you know, our money back or whatever being 0:09:02.120 --> 0:09:04.400 brought by the Attorney General, who's really standing in the 0:09:04.440 --> 0:09:08.800 place of New Yorkers and saying New Yorkers, we as 0:09:08.840 --> 0:09:10.720 a state and as a people in the state, have 0:09:10.760 --> 0:09:16.079 an interest in these financial institutions not being duped, right, 0:09:16.160 --> 0:09:19.040 not being lied to by companies. We don't want companies 0:09:19.080 --> 0:09:21.800 to behave that way, and if you do, we're going 0:09:21.840 --> 0:09:24.240 to sue you. So it's not that the banks have 0:09:24.480 --> 0:09:27.880 to be harmed. But all of that said, it is 0:09:28.000 --> 0:09:31.520 really interesting, not so much that the banks weren't harmed 0:09:31.520 --> 0:09:33.680 and he paid back the loans, and that's an excuse 0:09:33.760 --> 0:09:37.600 because that goes absolutely nowhere because then the comeback was well. 0:09:38.000 --> 0:09:40.360 But if the banks knew that these loans were as 0:09:40.440 --> 0:09:43.240 risky as they were because the valuations were so off, 0:09:43.520 --> 0:09:45.840 perhaps you wouldn't have gotten such a flow interest rate, right. 0:09:45.880 --> 0:09:48.440 We would have taken that risk and charged you more 0:09:48.520 --> 0:09:50.120 for it, so that we made more money and we 0:09:50.200 --> 0:09:53.560 lost out on that additional money. What's puzzling to me 0:09:53.840 --> 0:09:56.559 is that the Attorney General really didn't get any witness 0:09:56.679 --> 0:10:00.360 to say that they had relied on them and that 0:10:00.440 --> 0:10:03.719 they would have, for example, charged a higher interest rate 0:10:03.800 --> 0:10:07.040 if they knew that the properties were being exaggerated the 0:10:07.080 --> 0:10:10.080 worth of the properties. So I don't know, you know, 0:10:10.280 --> 0:10:12.440 and I can only think that they didn't ask those 0:10:12.520 --> 0:10:15.839 direct questions and get that evidence because they wouldn't have, 0:10:16.000 --> 0:10:18.560 right the witnesses weren't going to say that. So that 0:10:18.720 --> 0:10:21.199 is kind of interesting because I do think it goes 0:10:21.320 --> 0:10:25.120 to the amount ultimately that the judge will find should 0:10:25.120 --> 0:10:29.640 be paid, right the fine, the disgorgement amount. Really it 0:10:29.720 --> 0:10:32.960 is impacted by how much the banks would have made 0:10:32.960 --> 0:10:35.640 compared to what they did make. And if they're saying, 0:10:36.160 --> 0:10:39.000 we don't care, we really didn't set the interest rate 0:10:39.120 --> 0:10:42.000 with the values of the property in mind, the accurate 0:10:42.080 --> 0:10:44.800 values of the property, then I think that probably does 0:10:44.880 --> 0:10:48.560 impact the damage's amount here. So that is an important piece. 0:10:49.000 --> 0:10:51.000 I don't know what the judge is ultimately going to 0:10:51.080 --> 0:10:53.320 find with all of that and what he's going to 0:10:53.400 --> 0:10:57.360 impose as far as monetary finds and damages go, but 0:10:57.559 --> 0:11:00.800 I do think that's an interesting argument that has legs here. 0:11:01.120 --> 0:11:04.040 Because of the way the trial played out, and because 0:11:04.080 --> 0:11:05.920 of the fact that they didn't get this testimony that 0:11:05.960 --> 0:11:09.160 I frankly expected they would get that someone would say, sure, 0:11:09.160 --> 0:11:11.640 it matters to me, because I've got to set an 0:11:11.640 --> 0:11:14.560 interest amount and it's going to be impacted by the 0:11:14.679 --> 0:11:16.600 value of the assets that's behind it. 0:11:16.960 --> 0:11:20.160 The state did have an expert witness that calculated that 0:11:20.240 --> 0:11:23.720 the lenders lost one hundred and sixty eight million dollars 0:11:23.720 --> 0:11:28.480 in potential interest between twenty fourteen and twenty twenty three. 0:11:28.920 --> 0:11:30.880 That's still a far away from the two point fifty 0:11:30.960 --> 0:11:32.240 that she's looking for. 0:11:32.920 --> 0:11:35.679 Yeah, and I don't think I may be wrong on this. 0:11:35.840 --> 0:11:38.120 I wouldn't be surprised if you followed it more closely, 0:11:38.280 --> 0:11:40.160 you know, witnessed by witness. But I don't think the 0:11:40.280 --> 0:11:43.200 witnesses from the bank Deetche bank that gave the loans 0:11:43.760 --> 0:11:44.560 actually said that. 0:11:44.760 --> 0:11:47.280 No, No, it was an expert witness by the state. 0:11:47.600 --> 0:11:50.920 Yeah, more theoretical saying like in theory, banks should charge 0:11:50.920 --> 0:11:53.280 more if the risk is higher, and therefore they would 0:11:53.280 --> 0:11:56.559 have made you know, But that's different from the actual 0:11:56.640 --> 0:12:00.280 bank saying, listen, we wouldn't have changed the numbers for 0:12:00.760 --> 0:12:04.200 there's no in other words, there's no discouragement of ill 0:12:04.240 --> 0:12:07.240 gotten games. Right, So that's really the argument, and I 0:12:07.280 --> 0:12:09.480 think it is an interesting one, and I'm interested to 0:12:09.520 --> 0:12:11.640 see what the what the judge does about that. 0:12:12.400 --> 0:12:15.720 Now, I just want to touch on the first witness 0:12:16.040 --> 0:12:19.800 for the defense was Donald Trump Junior, and you know, 0:12:20.160 --> 0:12:22.360 the judge a lot of melat of leeway. He spent 0:12:22.440 --> 0:12:26.880 more than an hour narrating a slide show titled the 0:12:26.920 --> 0:12:30.560 Trump Story, and you know, talked about his father's vision, 0:12:30.760 --> 0:12:33.800 he was an artist with real estate, et cetera, et cetera, 0:12:33.800 --> 0:12:36.880 et cetera. I mean, what is the point of his 0:12:37.000 --> 0:12:39.000 testimony in this case? 0:12:40.200 --> 0:12:43.439 Interesting question. If the cameras were in the courtroom, I 0:12:43.440 --> 0:12:46.959 would say the point is almost certainly just public facing. 0:12:47.200 --> 0:12:50.360 You know. The only point I can see that might 0:12:50.400 --> 0:12:53.040 be semi legitimate other than just kind of tooting our 0:12:53.080 --> 0:12:56.720 own horn, is that anytime you're a defendant and you're 0:12:56.760 --> 0:13:00.280 facing either a sentence or you know, in this case, 0:13:00.280 --> 0:13:03.080 that damage is a word, you want to be humanized, right. 0:13:03.120 --> 0:13:06.000 You want the person making that decision or the jury 0:13:06.040 --> 0:13:09.160 making that decision knowing you a little bit. You know, 0:13:09.200 --> 0:13:12.600 it's harder to hammer someone that you don't know, So 0:13:13.040 --> 0:13:15.080 maybe it was you could look at it as an 0:13:15.120 --> 0:13:19.160 attempt to humanize them or say, you know, there's a 0:13:19.160 --> 0:13:22.040 different side, We've done something good here. You know, don't 0:13:22.080 --> 0:13:24.480 think we're such bad guys. You know, we're impressive too 0:13:24.520 --> 0:13:27.920 in our own way. So I guess, in that limited sense, 0:13:28.000 --> 0:13:30.920 you could say that the judge should have given them 0:13:31.000 --> 0:13:33.400 leeway to do that. He also is smart to give 0:13:33.440 --> 0:13:36.120 them leeway, because then it's not an appellet issue, right. 0:13:36.120 --> 0:13:38.000 They say, Oh, he shut us down. He wouldn't let 0:13:38.040 --> 0:13:41.280 us talk about our amazing, glossy slideshow of all of 0:13:41.320 --> 0:13:44.000 our properties. So we'll just kind of sit there for 0:13:44.040 --> 0:13:46.520 the hour and let him do his thing. But you know, 0:13:46.640 --> 0:13:49.960 I can see some very small benefits to kind of 0:13:50.160 --> 0:13:51.800 let us tell you about who we are and our 0:13:51.840 --> 0:13:54.400 family and our story and as a way to kind 0:13:54.400 --> 0:13:57.040 of humanize us and make you maybe like us a 0:13:57.080 --> 0:13:58.080 little bit more than you do. 0:13:58.760 --> 0:14:02.040 Well, there's a lot to come with this trial. The 0:14:02.080 --> 0:14:07.160 defense is expected to last until mid December. Thanks so much, Jennifer. 0:14:07.520 --> 0:14:12.040 That's former federal prosecutor Jennifer Rogers. Donald Trump did have 0:14:12.080 --> 0:14:14.679 a win in the case. Today, a New York Capella 0:14:14.800 --> 0:14:18.760 judge lifted Judge in Gorn's gag order that barred Trump 0:14:18.800 --> 0:14:22.760 from commenting about court personnel. The suspension will allow the 0:14:22.800 --> 0:14:26.160 former president to speak freely about court staff while a 0:14:26.240 --> 0:14:30.560 longer appeals process plays out. Wall Street's cops are partnering 0:14:30.640 --> 0:14:36.840 with unlikely tipsters against misbehaving firms. Short Sellers, including big 0:14:36.920 --> 0:14:41.120 name short sellers like Nate Anderson, Kyle Bass, and Carson Blanc, 0:14:41.480 --> 0:14:45.880 are tipping off the SEC's whistleblower office. Short Sellers are 0:14:45.960 --> 0:14:50.520 quietly sharing their research about sketchy accounting and other misdeeds 0:14:50.840 --> 0:14:53.800 in the hopes of making some extra money up to 0:14:53.920 --> 0:14:57.360 thirty percent of the proceeds if the SEC ends up 0:14:57.440 --> 0:15:00.520 exacting a fine, and that's on top of an profit 0:15:00.600 --> 0:15:04.240 they might make by betting on the stocks decline. For example, 0:15:04.400 --> 0:15:07.680 Block got fourteen million dollars for one of his leads. 0:15:08.080 --> 0:15:11.120 Joining me is Sean mckesse, a partner at Phillips and Cohen. 0:15:11.320 --> 0:15:15.080 He was the first chief of the SEC's Whistleblower Office. 0:15:15.480 --> 0:15:19.640 We think of whistleblowers as being these anonymous people, and 0:15:19.680 --> 0:15:23.880 now we have these big name short sellers among the tipsters. 0:15:24.520 --> 0:15:26.840 I mean, is it because it's such a lucrative business. 0:15:27.640 --> 0:15:29.960 Well, you know, I think there's probably a number of 0:15:29.960 --> 0:15:31.680 things that go into it. But I would say that 0:15:31.760 --> 0:15:34.120 the success of the program, which I am honestly and 0:15:34.280 --> 0:15:37.840 very proud of, has attracted people to it. You know, 0:15:37.840 --> 0:15:40.760 there have been efforts by the government agencies to encourage 0:15:40.760 --> 0:15:43.320 people to come forward to see something, say something, and 0:15:43.400 --> 0:15:45.760 if they didn't succeed, then nobody ever knew about it. 0:15:46.320 --> 0:15:49.000 The sec was the Blow program, as by all accounts, 0:15:49.000 --> 0:15:53.280 been successful, and you know, success freed attention, and attention 0:15:53.560 --> 0:15:56.840 breed additional information. You know, when it comes to short 0:15:56.840 --> 0:16:00.920 sellers specifically, you know they've been playing the game, if 0:16:00.960 --> 0:16:02.920 that's the way to put it, long before the Wistful 0:16:03.000 --> 0:16:06.440 program came around, right, I mean, people have been setting 0:16:06.520 --> 0:16:10.080 up rightly or wrongly, you know, positions counting on equidies 0:16:10.160 --> 0:16:14.120 to fall and profit when they do. And the business 0:16:14.120 --> 0:16:17.240 model behind that is you don't just randomly pick something. 0:16:17.360 --> 0:16:19.320 You know, you do some research and you come to 0:16:19.480 --> 0:16:23.360 feel and invest your money accordingly that things seem to 0:16:23.360 --> 0:16:25.880 be too good to be true. And so I'm going 0:16:25.960 --> 0:16:28.000 to bet this smoke and mirrors is going to clear 0:16:28.240 --> 0:16:29.960 and things are going to fail. And if they do 0:16:30.080 --> 0:16:33.160 and I'm right, then I can profit it. If I'm wrong, 0:16:33.240 --> 0:16:35.520 then I don't. So if you think about what does 0:16:35.560 --> 0:16:38.200 the whistle Bull program set up to do, It's set 0:16:38.280 --> 0:16:41.840 up to attract people to come forward if they has 0:16:41.920 --> 0:16:45.160 information that for the protection investors it is important for 0:16:45.160 --> 0:16:47.440 the SEC to know about, and it turns out to 0:16:47.440 --> 0:16:49.680 be true and it turns out to help the SEC 0:16:49.800 --> 0:16:52.440 bring a successful action, then you can profit of it. 0:16:52.600 --> 0:16:54.960 You can get awarded for helping the SEC bring in 0:16:55.040 --> 0:16:58.040 action that either stops a fraud, prevents a fraud, or 0:16:58.160 --> 0:17:00.720 or minimizes the damage of a fraud. Well, isn't that 0:17:01.160 --> 0:17:04.400 what we all ultimately want? And you know, I think 0:17:04.440 --> 0:17:07.680 the paradigm between a short seller who prior to the 0:17:07.720 --> 0:17:11.080 Wistlow program wanted a parrot out wrongdoing and you know 0:17:11.160 --> 0:17:13.919 if a profit came after it, so be it. It's 0:17:13.960 --> 0:17:16.679 the same general philosophy of the wistle World program. Come 0:17:16.760 --> 0:17:19.800 forward with information that might be helpful, and if it is, 0:17:19.880 --> 0:17:21.399 you know, you're not going to be paid upfront. You 0:17:21.400 --> 0:17:23.600 get paid only if it turns out your information is 0:17:23.680 --> 0:17:26.880 right and it helps the SEC bring a successful action. 0:17:27.680 --> 0:17:31.480 So then you don't think there's anything particularly new about this. 0:17:32.359 --> 0:17:34.840 I think the only thing that's of note now is 0:17:34.840 --> 0:17:38.119 that some of the bigger name short sellers are now 0:17:38.400 --> 0:17:40.520 being ad public that they have actually been doing this 0:17:40.640 --> 0:17:42.960 because of litigation. But I think that short folks have 0:17:43.040 --> 0:17:45.359 been doing the kinds of things that the whistlel program 0:17:45.359 --> 0:17:48.560 is intended to encourage for a long time, which is, 0:17:48.600 --> 0:17:50.600 you know, if you're really smart and you're a good 0:17:50.600 --> 0:17:53.680 analyst of what's going on in the market, and you 0:17:53.840 --> 0:17:56.080 uncover something that seems like it's too good to be 0:17:56.119 --> 0:17:59.560 true and you act on it, you can be successful. So, 0:17:59.800 --> 0:18:02.560 you know, So I don't know if there's anything new. 0:18:03.400 --> 0:18:05.480 I just think it's really something that's more out of 0:18:05.520 --> 0:18:07.960 the shadows, and I understand that it's a matching a 0:18:08.040 --> 0:18:11.399 piece over. You know, a big name short seller you know, 0:18:11.880 --> 0:18:14.480 quote unquote wins on his bet, you know, takes the 0:18:14.480 --> 0:18:17.439 short position that ends up being successful, and then on 0:18:17.480 --> 0:18:19.639 top of it, gets paid, you know, assuming the SEC 0:18:19.680 --> 0:18:23.080 brings his good action. I think it's much adew about 0:18:23.160 --> 0:18:25.600 nothing at the end of the day, because the only 0:18:25.600 --> 0:18:27.760 way a whistle blower gets paid under the program is 0:18:27.800 --> 0:18:30.080 if they bring good information that the SEC is able 0:18:30.119 --> 0:18:34.200 to use to bring successful action that again prevents the 0:18:34.240 --> 0:18:37.320 fraud or stops from getting worse. And nobody is for 0:18:37.440 --> 0:18:39.720 the worst when that happens, regardless of whether it was 0:18:39.800 --> 0:18:43.080 the short seller who reported it or a regular person. 0:18:43.560 --> 0:18:45.240 At the end of the day. The program is intended 0:18:45.280 --> 0:18:48.320 to incentivize people to help the SEC stop fraud, and 0:18:48.359 --> 0:18:51.360 you only get paid if you actually have done that. 0:18:51.800 --> 0:18:55.280 And I don't know how anybody, understanding what the outcome 0:18:55.400 --> 0:18:57.320 is would look back and say, well, I wish it 0:18:57.359 --> 0:18:59.920 wasn't a short seller who reported this and stops the straw. 0:19:00.520 --> 0:19:02.600 I think you know, anybody who participates in the market, 0:19:02.600 --> 0:19:05.399 and we all do in a sun level, wants fraud 0:19:05.440 --> 0:19:08.919 to be stopped and wants to prevent massive investor losses. 0:19:08.920 --> 0:19:11.359 When if fraud goes undertected for too long and until 0:19:11.359 --> 0:19:12.200 it's too late. 0:19:12.560 --> 0:19:15.399 It can be a very long process the process of 0:19:15.440 --> 0:19:19.080 being a whistleblower. So tell us a little about the process. 0:19:20.000 --> 0:19:22.520 Sure, you know, that's another thing that I think takes 0:19:22.520 --> 0:19:25.040 away from this theory that you know short sellers are 0:19:25.160 --> 0:19:28.399 trying to be opportunistic and grab another quick buck in 0:19:28.440 --> 0:19:30.800 the space, because it requires quite a bit of work 0:19:30.800 --> 0:19:32.440 to be a whistle blower, and it takes a lot 0:19:32.440 --> 0:19:35.320 of time. So you know, the life cycle a whistleblower 0:19:35.359 --> 0:19:39.520 is whistleblower uncovers information that's using the short seller contact 0:19:39.560 --> 0:19:41.600 and not a true insider. But you know they've done 0:19:41.600 --> 0:19:44.199 their analysis and they believe that there's something wrong with 0:19:44.359 --> 0:19:47.360 you know, a particular entity or an industry, and they 0:19:47.359 --> 0:19:51.119 put together what's called a TCR TIS Complaint and Referral form, 0:19:51.320 --> 0:19:53.480 which is basically, you know, the way to present to 0:19:53.560 --> 0:19:57.159 the SEC information and avail yourself with a whistlebow program, 0:19:57.320 --> 0:20:00.159 and you include generally a narrative. You know, here's what 0:20:00.200 --> 0:20:03.439 my analysis shows, and here's why I think this is 0:20:03.440 --> 0:20:06.720 where the SEC's attention. And you know, then that goes 0:20:06.760 --> 0:20:09.760 into the the SEC's PCR system, which is where they 0:20:09.800 --> 0:20:11.919 gather all the intelligence that comes in. Whistle blower and 0:20:11.960 --> 0:20:15.040 other intelligence all goes in the same computer system. And 0:20:15.080 --> 0:20:17.560 then there's a tree odd process where a couple of 0:20:17.600 --> 0:20:20.160 lawyers in the Office of Market Intelligence will review every 0:20:20.160 --> 0:20:23.000 tip that comes in and decide he is just one already, 0:20:23.119 --> 0:20:25.399 you know, relative to something the SEC is already working on, 0:20:25.440 --> 0:20:27.640 and if so, send it to that group. If it's 0:20:27.640 --> 0:20:30.480 a new matter, is it worth the precious resources that 0:20:30.520 --> 0:20:33.280 the SEC has, And if so, you know which group 0:20:33.640 --> 0:20:36.159 or lawyer's enforcement attorney should be assigned to it. And 0:20:36.200 --> 0:20:38.320 then once that process works its way out, then the 0:20:38.400 --> 0:20:41.000 enforcement attorney gets the tip and then it's to the 0:20:41.080 --> 0:20:45.119 enforcement staff on how the investigation is conducted. Sometimes that 0:20:45.440 --> 0:20:48.600 means going back to the whistleblower and conducting interviews. Sometimes 0:20:48.600 --> 0:20:52.040