Speaker 1: This is Bloomberg Law with June Grosso from Bloomberg Radio.
Speaker 2: Welcome to the Bloomberg Law Show. I'm June Grosso. Donald
Speaker 2: Trump wants a mistrial in his civil fraud case. The
Speaker 2: Supreme Court's new ethics code is much ado about nothing.
Speaker 2: A First Amendment challenge to charges over false election robocalls
Speaker 2: and crypto investors sue SBF and celebrity promoters.
Speaker 3: I have a rogue judge who rules that properties are
Speaker 3: worth a tiny fraction one one hundred, a tiny fraction
Speaker 3: of what they actually are.
Speaker 2: It was almost like Donald Trump was forecasting his motion
Speaker 2: for a mistrial even before his civil fraud trial began
Speaker 2: last month. He's arguing that the judge has tainted the
Speaker 2: proceedings with tangible and overwhelming bias. The New York Attorney
Speaker 2: General took six weeks to present her case that the
Speaker 2: former president deliberately inflated his net worth to fool banks
Speaker 2: and insurers into giving him better terms on hundreds of
Speaker 2: millions of dollars in loans, and as the Trump team
Speaker 2: kicked off its case on Monday, the first witness, Donald
Speaker 2: Trump Junior, gave a snapshot of the defense that his
Speaker 2: father has been harping on basically, no harm, no foul.
Speaker 1: You guysn't got to think about the precedent that this
Speaker 1: case sets if an attorney general ken years later after
Speaker 1: all parties of transactions are paid back in full with interest,
Speaker 1: making hundreds of millions of dollars where they have no
Speaker 1: complaint where they said they wouldn't have done anything Differently.
Speaker 2: Joining me is former federal prosecutor Jennifer Rogers and adjunct
Speaker 2: professor at NYU Law School. So Jennifer tell us about
Speaker 2: this mistrial motion that everyone knows is going nowhere.
Speaker 4: Well, it's really the same complaint that they've been making
Speaker 4: in court about the judge and specifically his law clerk.
Speaker 4: The defense has been really up in arms about the
Speaker 4: law clerk and accusing her of making facial expressions she
Speaker 4: shouldn't make, and passing notes and taking a greater role
Speaker 4: than they think she should be taking in the trial.
Speaker 4: And they've been making those objections in court, and that
Speaker 4: really is the focus of the mistrial motion, that the
Speaker 4: clerk is taking an outsized role, and the judge himself
Speaker 4: is also biased against the defendants, and so putting those
Speaker 4: things together, they allege that a mistrial should be granted,
Speaker 4: I have to say, it.
Speaker 2: Does seem like the judge is a little unorthodox with
Speaker 2: what's happening in the courtroom. But is there anything wrong
Speaker 2: with having the law clerk pass him notes and asking
Speaker 2: her questions and things like that.
Speaker 4: Not the way that you put it, there's certainly nothing
Speaker 4: wrong with relying on your law clerk to help you
Speaker 4: try the matter, do research and give you the results,
Speaker 4: even give her opinion about what's happening. You know, there
Speaker 4: are no rules around really how you're supposed to use
Speaker 4: your law clerks in that way. The only issue would
Speaker 4: be if there were demonstrated bias. I mean, I do
Speaker 4: think that if they could show an actual bias on
Speaker 4: the part of the judge or the clerk, and then
Speaker 4: they would try to show that, you know, the law
Speaker 4: clerk's bias is infecting the judge, then you know, you
Speaker 4: could see a court saying, and it's certainly not going
Speaker 4: to be this court right, because this judge doesn't believe
Speaker 4: anything wrong is happening, and he's not going to grant
Speaker 4: this motion. But then of course it goes up on appeal.
Speaker 4: So you could see in theory and appellate court saying, wow,
Speaker 4: you know, the law clerk told the judge all these
Speaker 4: untrue and really prejudical things about one of the parties,
Speaker 4: and the judge said that he took that into account
Speaker 4: and that's why he's ruling against them. I mean, that's
Speaker 4: the sort of hypothetical that you could see an appellate
Speaker 4: court saying, well, wait a minute, that seems like bias
Speaker 4: to us, and you know, maybe we'll consider this, But
Speaker 4: we don't have anything like that here. You know, we
Speaker 4: have some allegations that aren't even true, you know, the
Speaker 4: nonsense about the law clerk dating Chuck Schumer, and then
Speaker 4: there's a couple of like the law clerk had made
Speaker 4: a donation to a Democrat, and those sorts of things
Speaker 4: are never going to rise to the level of demonstrating bias.
Speaker 4: If you give to someone of a political party that's
Speaker 4: the opposite of the political party of one of the litigants,
Speaker 4: that's just never going to rise to the level of
Speaker 4: any sort of demonstrated bias.
Speaker 2: Let's turn to Trump's defense, and I'm going to sort
Speaker 2: of go through what I see as the defense. So
Speaker 2: one is the valuation of properties like the ones listed
Speaker 2: on Donald Trump's financial statements is not an exact science.
Speaker 2: It's more like an art than a science. And not
Speaker 2: only did Trump testify to this, but they've had accounting
Speaker 2: experts testified. One said the process of determining the estimated
Speaker 2: value of a property could result in a range of values,
Speaker 2: no one of which is the right or wrong answer.
Speaker 2: It's a judgment call.
Speaker 4: Yeah, I mean, listen, this is the defense that they
Speaker 4: have to make. The judge has effectively already rejected this
Speaker 4: by finding that there was fraud here because the judge found,
Speaker 4: you know, it's not so much that the statement said
Speaker 4: ten thousand and a more reasonable amount would be five thousand.
Speaker 4: I mean, the judge found that there were magnitudes of
Speaker 4: difference between what's an accurate assessment and the assessments that
Speaker 4: were given by the defendants on the financial statement. So
Speaker 4: it's not even a close call. So even if you say, listen,
Speaker 4: we put in proof that it's not an exact science,
Speaker 4: it's like, okay, fair enough, but is it not an
Speaker 4: exact science enough to talk about you know, hundreds of percentages,
Speaker 4: you know, one of the properties that was like twenty
Speaker 4: three hundred times or something between what the judge found
Speaker 4: was a reasonable assessment and the assessment on the papers.
Speaker 4: So at some point you can say all that, but
Speaker 4: it doesn't really get you as far as you need
Speaker 4: to go. And the heart of this has already been
Speaker 4: decided by the judge, So I don't think he's going
Speaker 4: to be by testimony that says, hey, it's not an
Speaker 4: exact science, you know, let's treat it more as an
Speaker 4: art and cut on some slack.
Speaker 2: For that reason, another defense seems to be, instead of
Speaker 2: blaming the lawyers, as Trump may do in other cases,
Speaker 2: blame the accountants. So Eric Trump testified that he relied
Speaker 2: on the accounting firms to assure the financial statements were accurate.
Speaker 2: Donald Trump Junior testified he signed off on the statements
Speaker 2: but left the work to outside accountants. And Trump himself
Speaker 2: has said, you know, I paid the accounts all this money.
Speaker 2: Where does that get them?
Speaker 4: Yeah, I don't think this was going to work either,
Speaker 4: for largely the same reason. So judge has already considered
Speaker 4: that as part of his finding that the defendants did
Speaker 4: commit fraud. Here, I mean that the statements themselves talk
Speaker 4: about what it was that the accountants were doing and
Speaker 4: described it as more of a compilation, right, that they're
Speaker 4: relying on the documents and the actuity of the documents
Speaker 4: provided by the organization, and they're not attesting to that themselves,
Speaker 4: the accountants. So I don't think that the just going
Speaker 4: to buy that particular argument that you know, I'm not responsible.
Speaker 4: Someone said, it's kind of like I can't be convicted
Speaker 4: of tax fraud. You have to go after my accountant,
Speaker 4: even though you know I lied to him about what
Speaker 4: I was paying in taxes or what this particular property
Speaker 4: was worth or so on. You can't get away with
Speaker 4: it by just kind of saying, hey, you know, I
Speaker 4: have an accountant, so therefore I'm free and clear of
Speaker 4: all liability.
Speaker 2: Another thing is Trump testified and Ivanka testified about the
Speaker 2: relationship with Deutsche Bank, and Trump said that Deutsche Bank
Speaker 2: was extremely happy and thrilled with him. Does it matter
Speaker 2: if the person or entity being defrauded doesn't realize it
Speaker 2: or doesn't care.
Speaker 4: So this is actually the most interesting to me because
Speaker 4: in a way, it doesn't right. This suit is not
Speaker 4: being brought by the bank saying we've been harmed, we
Speaker 4: want you know, our money back, or whatever, being brought
Speaker 4: by the Attorney General, who's really standing in the place
Speaker 4: of New Yorkers and saying New Yorkers, the state, and
Speaker 4: as a people in the state have an interest in
Speaker 4: these financial institutions not being duped, right, not being lied
Speaker 4: to by companies. We don't want companies to behave that way,
Speaker 4: and if you do, we're going to sue you. So
Speaker 4: it's not that the banks have to be harmed. But
Speaker 4: all of that said, it is really interesting, not so
Speaker 4: much that the banks weren't harmed and he paid back
Speaker 4: the loans, and that's an excuse that goes absolutely nowhere,
Speaker 4: because then the comeback was well. But if the banks
Speaker 4: knew that these loans were as risky as they were
Speaker 4: because the valuations were so off, perhaps you wouldn't have
Speaker 4: gotten such a low interest rate, right, We would have
Speaker 4: taken that risk and charged you more for it, so
Speaker 4: that we made more money and we lost out on
Speaker 4: that additional money. What's puzzling to me is that the
Speaker 4: Attorney General really didn't get any witness to say that
Speaker 4: they had relied on them, and that they would have,
Speaker 4: for example, charged a higher interest rate if they knew
Speaker 4: the worth of the properties were being exaggerated. And I
Speaker 4: can only think that they didn't ask those direct questions
Speaker 4: and get that evidence because they wouldn't have, right, the
Speaker 4: witnesses weren't going to say that. So that is kind
Speaker 4: of interesting because I do think it goes to the
Speaker 4: amount ultimately that the judge will find should be paid. Right,
Speaker 4: the fine, the disgorgement amount. Really it is impacted by
Speaker 4: how much the banks would have made compared to what
Speaker 4: they did make. And if they're saying we don't care,
Speaker 4: we really didn't set the interest rate with the values
Speaker 4: of the property in mind, the accurate values of the property,
Speaker 4: then I think that probably does impact the damages amount here.
Speaker 4: So I do think that's an interesting argument that has
Speaker 4: some legs here because of the way the trial played out,
Speaker 4: and because of the fact that they didn't get this
Speaker 4: testimony that I frankly expected they would get that, someone
Speaker 4: would say, sure, it matters to me because I've got
Speaker 4: to set an interest amount and it's going to be
Speaker 4: impacted by the value of the assets that's behind it.
Speaker 2: And why do you think the defense team keeps bringing
Speaker 2: up the disclaimer on the financial statements, saying it absolves
Speaker 2: him from any LA even though the judge has rejected
Speaker 2: that argument several times.
Speaker 4: Large part, they're kind of laying their appeal record right.
Speaker 4: They have to make these arguments and they want them
Speaker 4: to be fleshed out with their witnesses and so on
Speaker 4: so that the appellate Court can consider them. Listen, they're
Speaker 4: taking their shot.
Speaker 2: Trump did have a win in the case. On Thursday,
Speaker 2: a New York Cappella judge temporarily lifted judging Goren's gag
Speaker 2: order that had barred Trump from commenting about court personnel.
Speaker 2: Thanks so much, Jennifer. That's former federal prosecutor Jennifer Rogers
Speaker 2: coming up the Supreme Court's new Ethics Code. I'm June
Speaker 2: Grasso and you're listening to Bloomberg. You have to take
Speaker 2: me to shaulf according to the Code of the Order
Speaker 2: of the person.
Speaker 1: Your return to show was not part of our negotiations
Speaker 1: nor our agreement, so I must do nothing. And secondly,
Speaker 1: you must be a pirate for the Pirate's Code. You
Speaker 1: reply and you're not. And thirdly, the code is more
Speaker 1: what you're called guideline it stelectual rules. Welcome aboard the
Speaker 1: Black Code.
Speaker 2: The Supreme Court's new Ethics Code aims a lot like
Speaker 2: the Pirate's Code, more like guidelines than actual rules for
Speaker 2: the first time the Justices have adopted a code of conduct,
Speaker 2: responding to pressure from a stream of ethics controversies. But
Speaker 2: the code won't necessarily mean any changes in the way
Speaker 2: the nine justices conduct themselves. In fact, the Justices basically
Speaker 2: admit that in the introduction, saying, for the most part,
Speaker 2: these rules and principles are not new. Joining me, is
Speaker 2: constitutional law expert David Souper, a professor at Georgetown Law,
Speaker 2: is anything different for the justices because they've adopted this code.
Speaker 5: This is an astute pr move, That's all it is.
Speaker 5: They've done a number of disclosures of extremely questionable activities
Speaker 5: by several justices, most prominently Justices Thomas and Alito, receiving
Speaker 5: valuable trips other financial favors from rich, ideologically committed donors,
Speaker 5: many of whom have business in front of the Court.
Speaker 5: So the Court, i think, felt that it needed to
Speaker 5: do something. There were justices calling for an ethics code,
Speaker 5: and my assumption is that the compromise they reached between
Speaker 5: no ethics code and an ethics code was something that
Speaker 5: is in name in ethics code, but that has few
Speaker 5: with any of the functions of an ethics code.
Speaker 2: In the statement of the court that precedes the code.
Speaker 2: There's a little bit of griping about this misunderstanding that
Speaker 2: justices regard themselves as unrestricted by any ethics rules. Go figure,
Speaker 2: and it says the Court has long had the equivalent
Speaker 2: of common law ethics rules. Does that statement mean that
Speaker 2: these are the same rules that Justice Clarence Thomas, for example,
Speaker 2: followed in accepting all those luxury trips the underwriting of
Speaker 2: the rv et cetera.
Speaker 5: The fact that he did that and that there has
Speaker 5: been no action about that on the Court suggest that
Speaker 5: this so called common law ethics rules are largely useless.
Speaker 5: If any judge on a lower court had done this,
Speaker 5: they would be facing serious problems.
Speaker 2: Unlike the rules for a lower court judges. There's no
Speaker 2: enforcement mechanism at all in this code.
Speaker 5: That's correct. The failure of this code is twofold. One,
Speaker 5: its content is extraordinarily weak, and second, there is no
Speaker 5: procedure for enforcing it. It is certainly true that the
Speaker 5: Supreme Court is not and should not be subject to
Speaker 5: the executive branch or the legislative branch, but it could
Speaker 5: set up its own enforcement mechanism. It could, for example,
Speaker 5: as a process for people to file complaints, have an
Speaker 5: office that investigates those complaints and makes recommendations to the court,
Speaker 5: and a procedure for the Court itself to act on
Speaker 5: these matters. It could also have a procedure where a
Speaker 5: justice's behavior is particularly problematic of referring that information to Congress,
Speaker 5: which does have the power to begin impeachment proceedings.
Speaker 2: Of course, Congress hasn't impeached a justice since the early
Speaker 2: eighteen hundreds. But moving on, there have been a lot
Speaker 2: of complaints about the justices not recusing themselves in cases
Speaker 2: where it seems like they should. So when it comes
Speaker 2: to recusals, the justices include a line that's not in
Speaker 2: the Code of Conduct for United States judges. It says,
Speaker 2: quote the rule of necessity may override the rule of disqualification.
Speaker 2: Tell us what they mean by that.
Speaker 5: What they are basically saying is that even if they
Speaker 5: have a conflict of interest or some other compelling reason
Speaker 5: why they shouldn't sit on a case, that the desirability
Speaker 5: of having nine justices sit on a case may justify
Speaker 5: disregarding that conflict of interest. Nationale is that while we
Speaker 5: have many lower courts and many lower court judges, and
Speaker 5: most lower courts don't sit as a complete body. Ever,
Speaker 5: the Supreme Court is unique, and if you have a
Speaker 5: decision rendered by less than all of the justices, it
Speaker 5: may not get five votes for any result, and that
Speaker 5: leaves the state of the law uncertain. That's a problem
Speaker 5: the Supreme Court has dealt with many times over the
Speaker 5: years when justices have properly refused themselves for any number
Speaker 5: of reasons, and occasionally it does create pickups in the
Speaker 5: law or uncertainties. But the same thing can happen when
Speaker 5: all nine justices sit and they can't agree on any
Speaker 5: one resolution to a case. So this is not a
Speaker 5: huge problem, but it does signal a lack of seriousness
Speaker 5: of bet ethic.
Speaker 2: Better to have a hiccup in a case than to
Speaker 2: have a justice sitting who should be recused. Also, while
Speaker 2: lower court judges are told they quote shall disqualify when
Speaker 2: their impartiality might be questioned, the justice has changed the
Speaker 2: word shall to should disqualify. So are their rules for
Speaker 2: accusal less stringent than the rules that they set out
Speaker 2: for lower court judges.
Speaker 5: Yes, they are. Indeed, the word shall does not appear
Speaker 5: anywhere in their code. It appears several places in the
Speaker 5: code for lower court judges, but nowhere in this new
Speaker 5: code for the Supreme Court. So they've chosen not to
Speaker 5: live by the standards they impose on lower court judges.
Speaker 5: The standards they impose on lower court judges are appropriate.
Speaker 5: I wouldn't want to see them loosened, but it's telling
Speaker 5: that they're unwilling to live by the same standards themselves.
Speaker 2: Let's take the major tax code case that's coming up,
Speaker 2: where Justice Alito was interviewed a friendly interview for the
Speaker 2: Wall Street Journal by one of the lawyers. Under this code,
Speaker 2: should Justice Alito recuse himself from that case?
Speaker 5: The code is rather vague. I think as a matter
Speaker 5: of common sense, Justice Leto absolutely should. He was under
Speaker 5: public criticism and this attorney gave him help in defending
Speaker 5: himself against that public criticism, which is a very valuable thing.
Speaker 5: If I was being criticized the way Justice Ledo did,
Speaker 5: I would prefer that friendly interview to one hundred thousand dollars.
Speaker 5: So it is giving a justice something of great value.
Speaker 5: As a case that's involving you is going in front
Speaker 5: of the court, it seems obvious he should refuse himself.
Speaker 5: But the code is so vague that it certainly does
Speaker 5: not compel him to do so and provides no means
Speaker 5: for the public to complain if he doesn't do so.
Speaker 2: Would this code have prevented the Conservative justices from attending
Speaker 2: the Federalist Society gala last week that was headlined by
Speaker 2: Justice Amy Cony Barrett.
Speaker 5: No, it doesn't prevent much of anything, and it certainly
Speaker 5: wouldn't prevent that, like that is raising money for an
Speaker 5: organization that is pursuing a litigation agenda before the Court
Speaker 5: that is directed at the court. So you are helping
Speaker 5: fund one side of many cases that you will be hearing.
Speaker 5: That would seem to be entirely inappropriate. We wouldn't want
Speaker 5: a judge to be making contributions to the lawyers on
Speaker 5: either side, and being a headliner at a gala and
Speaker 5: boost ticket sales has the same effect.
Speaker 2: The Court has always been shrouded in secrecy. The public
Speaker 2: doesn't know how it goes about its work, really, and
Speaker 2: there's no transparency in this either. There's no way to
Speaker 2: tell even whether a justice has violated the code, at
Speaker 2: least until a pro public a story or something comes
Speaker 2: out about it.
Speaker 5: So no, this is not at all transparent, and this
Speaker 5: is going to lead to further erosion of public confidence
Speaker 5: in the court. Things of this kind that came out
Speaker 5: in earlier generations ended justice's careers. Justice Abe Fortis was
Speaker 5: forced off the court or involvements with potential litigants that
Speaker 5: were far thinner than the ones we're seeing right now,
Speaker 5: and members of both parties and justices across the ideological
Speaker 5: spectrum insisted that he stepped down, and he ultimately did.
Speaker 5: We've completely changed our practices and our ethics standards are
Speaker 5: not keeping.
Speaker 2: Up, and it doesn't appear this code is going to
Speaker 2: help much. Thanks so much, David. That's Professor David Super
Speaker 2: of Georgetown Law coming up. FTX, investors, sue SBF and celebrities.
Speaker 2: I'm June Gross. When you're listening to Bloomberg, I.
Speaker 1: Call it the wheel.
Speaker 4: I don't think so.
Speaker 3: What does it do the rules? Yeah?
Speaker 5: So does a bagel?
Speaker 2: Okay, a Bengel here can he one of the worst
Speaker 2: ideas I've ever heard.
Speaker 1: Like I was saying, it's FTX, it's a safe and
Speaker 1: easy way to get into the crypto.
Speaker 5: I don't think so, and I'm never wrong about this stuff.
Speaker 2: Never remember that Larry David commercial for FTX that had
Speaker 2: them laughing at the Super Bowl in twenty twenty two.
Speaker 2: Tom Brady, Giselle Bunchen, Steph Curry, and Shaquille O'Neill were
Speaker 2: among the celebrities who also chatted the cryptocurrency exchange in commercials.
Speaker 1: Well.
Speaker 2: Investors who claimed they lost billions in the collapse of
Speaker 2: FTX are trying to pin the blame not just on
Speaker 2: Sam Bankman Freed in his inner circle, but also on
Speaker 2: the celebrities who were paid to endorse it, as well
Speaker 2: as its accountants, lawyers, and bankers. Joining me is Braden Perry,
Speaker 2: a former federal regulatory enforcement attorney and a partner at
Speaker 2: Kenny Hurtz Perry. So, Braiden tell us about this sweeping
Speaker 2: class action lawsuit that was filed in Miami federal court.
Speaker 6: Yeah, so this is a loss that is brought by
Speaker 6: a number of individuals who, whether investors or had some
Speaker 6: sort of financial interest in FTX, and they brought it
Speaker 6: against a number of entities, including celebrity endorsers, accountants, the
Speaker 6: actual members of FTX itself, as well as others. So
Speaker 6: it's a wide ranging case that essentially boils down to
Speaker 6: FTX was falsely providing information to the public and the
Speaker 6: public somehow either invested or had some sort of financial
Speaker 6: interest in FTX and therefore were harmed.
Speaker 2: So let's start with the celebrities, because that's where everyone starts.
Speaker 6: Correct.
Speaker 2: So what does the law require of celebrity endorsers?
Speaker 6: So generally the law requires not much. And what it
Speaker 6: requires is that the celebrity endorser knows what the product
Speaker 6: is and how it works. And to that, generally there's
Speaker 6: some sort of disclaimer, ordinarily at the bottom of the
Speaker 6: advertisement or elsewhere it indicates celebrity endorser is a paid
Speaker 6: endorser for that product, as well as the truthfulness and
Speaker 6: so the endorser cannot provide information that's false or misleading
Speaker 6: to the public.
Speaker 2: Does that mean that Jennifer Garner actually has to use
Speaker 2: the drugstore creams she claims she uses.
Speaker 6: Generally that's the case, and so you'll see these advertisements
Speaker 6: with certain restaurants where celebrities are at, or certain products
Speaker 6: that they're using, and it's not an exclusive use, and
Speaker 6: so it can be a very high level. So if
Speaker 6: Jenner Garner has used a product that's been provided to her,
Speaker 6: she can certainly endorse that product, and so it's not
Speaker 6: a lifelong or a over the top type of use requirement.
Speaker 6: But generally, yeah, if the celebrity endorser is going to
Speaker 6: endorse a product, that celebrity endorsers should be using that product.
Speaker 2: So does that mean that Tom Brady and Larry David
Speaker 2: and all the others should have been invested in FTX.
Speaker 6: Yeah, I don't know if they should have been invested
Speaker 6: in the FTX. Obviously they should have known what FTX
Speaker 6: is and what it does, and that would likely be
Speaker 6: their exchange of choice if they were going to be
Speaker 6: part of the crypto movement. Not necessarysarily a needed part
Speaker 6: of that movement.
Speaker 2: That's why I'm wondering, when sophisticated investors didn't know about
Speaker 2: FTX and the government found out much later, how are
Speaker 2: celebrities supposed to know?
Speaker 6: And that's a big question that's going to be the
Speaker 6: legal question is what did the celebrities know? What influence
Speaker 6: did they have on these investments? And that's really the
Speaker 6: crux of the legal argument in this case. The class
Speaker 6: action is so wide with all the different entities associated
Speaker 6: with FTX. You know, the accountant standbackmen Freed is one
Speaker 6: of the defendants. All these celebrity endorsers. Everyone is involved,
Speaker 6: and so there's going to be from the defense side
Speaker 6: lots of finger pointing as to who knew what and
Speaker 6: when and where and how, and so that's really going
Speaker 6: to be what the plans need to prove, is whether
Speaker 6: or not these celebrity endorsers were intricate in this false
Speaker 6: and misleading product.
Speaker 2: Besides the finger pointing tell us what some lines of defense.
Speaker 6: Might be, the defense teams have several different lines of defense.
Speaker 6: You know, they weren't specific to the actual accounts. They
Speaker 6: didn't provide terms or conditions of the accounts. They weren't
Speaker 6: detailing what the accounts could or could not do, and
Speaker 6: so that's general of defense to the claims. However, they
Speaker 6: knew or should have known, that there was misleading information
Speaker 6: by not providing some of that information about these accounts,
Speaker 6: and that can be counterproductive to their case. Also, if
Speaker 6: I'm sitting on the defense table and I see that
Speaker 6: the main group, the head of FTX, has been convicted
Speaker 6: of crimes, I'm certainly pointing to that saying, hey, these
Speaker 6: people were committing crimes, were victims just as much as
Speaker 6: you were.
Speaker 2: Yeah, So the Sam Bankman freed conviction and the guilty,
Speaker 2: please of his inner circle should be helpful to the
Speaker 2: defendants here. Now, some of the other targets of the
Speaker 2: lawsuit are professional advisors, ranging from an accounting firm, investment firm,
Speaker 2: and a bank. Those seem like more reasonable defendants to me.
Speaker 6: Yeah, and they should be. And ordinarily, when you look
Speaker 6: at the history of massive frauds in finance, made off
Speaker 6: as the best picture of that, there is still ongoing
Speaker 6: litigation involving countants, professional individuals who had some part of
Speaker 6: his scheme. That's the case here. You know, obviously, the accountants,
Speaker 6: the investment firms, all of these pieces were part of
Speaker 6: the ongoing massive dollars that FTX was bringing in and
Speaker 6: maintaining during its lifetime. And those are the traditional defendants
Speaker 6: you'd see celebrity endorsers Frankly, you don't see that often.
Speaker 6: And a group settled just because likely they didn't want
Speaker 6: to be bothered with the litigation or part of the litigation,
Speaker 6: And there's a valid reason to settle and get out.
Speaker 6: But I think the ones that are still in there
Speaker 6: have relatively valid defenses that one they were victims two
Speaker 6: and two that their endorsements had no input on what
Speaker 6: the actual under line fraud of FDx was about.
Speaker 2: You mentioned the Bernie Madoff investor suits played out for
Speaker 2: well over a decade. Do you think the FDx case
Speaker 2: will be even more complicated to one wine than madeoff was?
Speaker 5: Yeah, I do.
Speaker 6: You know, we've been talking strictly about this one plane
Speaker 6: of case involves a number of celebrity endorsers. You have
Speaker 6: to remember that the criminal case is essentially over. There
Speaker 6: will be appeals, There will be other issues in this,
Speaker 6: although I don't think in the appeals will be successful.
Speaker 6: Then you got the regulatory action, so you got the CFTC,
Speaker 6: you got the sec Ordinarily, within these parallel criminal cases,
Speaker 6: those cases likely will be settled because there's not much
Speaker 6: else to go after. The big issue is going to
Speaker 6: be bankruptcy receiverships in the different jurisdictions and trying to
Speaker 6: claw back as much of this lost money as possible
Speaker 6: to provide to investors. So that's going to be the
Speaker 6: main focus for the next decade is the severship action
Speaker 6: to claw back all this individual funds from all these
Speaker 6: various entities. And then you'll have these civil cases that
Speaker 6: are trying to find those that may not have exposure
Speaker 6: otherwise so these celebrity endorsers, those types of things, and
Speaker 6: so it's going to be complicated. And the fact that
Speaker 6: crypto wasn't regulated like Madoff's Ponzi scheme was. There's no
Speaker 6: central regulator and you get the SEC, you got the
Speaker 6: CFTC that are part of this. But unlike Madeoff where
Speaker 6: you could point directly at the SEC, there's really no
Speaker 6: nexus of jurisdiction between anyone. So it's going to take
Speaker 6: a long time. You know FTX at offices all over
Speaker 6: the place, there's multiple jurisdictions. It will take a while
Speaker 6: to unwind what this is becoming. It could be could
Speaker 6: be longer than what Madoff's looked at.
Speaker 2: And at the sentencing of Sam Bankman, Freed and the
Speaker 2: three people who flipped, will the judge order restitution.
Speaker 6: The way it generally works when it comes to parallel
Speaker 6: criminal slash regulatory slash liquidation proceedings is anything the government gets,
Speaker 6: and so as part of the thing for Sam beckun Free,
Speaker 6: for Carolyn Ellison, for Wang, for all of these individuals,
Speaker 6: there'll be a restitution element as their sins and that
Speaker 6: will go into the bucket of the receiver. So you'll
Speaker 6: likely see any ill gotten gains these individuals received will
Speaker 6: be part of that restitution order under the sentencing that
Speaker 6: will flow into the receivership action that will be part
Speaker 6: of that bucket to provide to investors. So yeah, they
Speaker 6: will likely have large restitution positions as part of their sensing.
Speaker 2: Are there rather competing class action lawsuits? Or has the
Speaker 2: Miami lawsuit been certified as a class.
Speaker 6: When it comes to all of these different actions, the
Speaker 6: priority number one was the criminal case, and while criminal
Speaker 6: case is ongoing, generally all the civil cases are stayed.
Speaker 6: That's the case in the Florida action. At this point
Speaker 6: in time, there's been ongoing discovery about that class action.
Speaker 6: There's not been a decision to certify the class action
Speaker 6: as of yet. Now that the criminal case is over,
Speaker 6: I think all of these courts are going to get
Speaker 6: back in full gear addressing all of these issues now.
Speaker 6: I mean there's going to be a number of evidentiary
Speaker 6: issues from the trial. The vast government investigation could be
Speaker 6: a treasure trove of information for the plaintiffs when it
Speaker 6: comes to these types of things, and so the courts
Speaker 6: are now going to have to face that issue and
Speaker 6: begin moving again procedurally.
Speaker 2: On these cases, and there's always the possibility that some
Speaker 2: of these celebrities might want to settle just to put
Speaker 2: some distance between themselves and SBF. Thanks so much, Braiden.
Speaker 2: That's Braden Perry of Kenny Hurts Perry. Coming up next,
Speaker 2: The Michigan Supreme Court considers false election robocalls. I'm June
Speaker 2: Grasso and you're listening to Bloomberg.
Speaker 7: Mail in voting sounds great, but did you know that
Speaker 7: if you vote by mail, your personal information will be
Speaker 7: part of a public database that will be used by
Speaker 7: police departments to track down old warren and be used
Speaker 7: by credit card companies to collect outstanding debts.
Speaker 2: In the run up to the twenty twenty elections, thousands
Speaker 2: of Detroit residents got that robocall, falsely claiming that police,
Speaker 2: creditors and the CDC could use mail in voting data
Speaker 2: to issue warrants, collect on debts, and push mandatory vaccines.
Speaker 2: The Michigan Attorney General filed felony charges against Conservative operatives
Speaker 2: Jack Berkman and Jacob Wall, accusing them of orchestrating the
Speaker 2: robocalls aimed at suppressing the vote of predominantly black voters
Speaker 2: in Detroit. Berkman and Wall have already been sanctioned in
Speaker 2: other states on similar voter intimidation charges, but they're arguing
Speaker 2: to the Michigan Supreme Court that that state's law is
Speaker 2: too broad to enforce, joining me his First Amendment. Expert
Speaker 2: Eugene Vollick, a professor at UCLA Law School, is this
Speaker 2: conflict the role of the state to protect voters from
Speaker 2: intimidation and the Constitution's protections for speech political speech? Is
Speaker 2: this at the heart of a lot of US election laws.
Speaker 3: Depends what you mean by intimidation. So there's no doubt
Speaker 3: that trying to intimidate voters by threatening violence against them
Speaker 3: is a crime, and there's no First Amendment defense for
Speaker 3: threats of violence. On the other hand, courts have generally
Speaker 3: been quite skeptical, especially in recent years, of attempts to
Speaker 3: police false statements in election campaigns. So there have been
Speaker 3: laws that ban knowingly full statements in election campaigns, outright lies,
Speaker 3: and the courts still have struck down those laws, chiefly
Speaker 3: because they basically put too much power in the government's
Speaker 3: hands to decide what is true and what is false
Speaker 3: in an election campaign, with too much risk of kind
Speaker 3: of political enforcement. And part of the problem with the
Speaker 3: law in this case is that, at least in the
Speaker 3: government's understanding of it, it applies to basically trying to
Speaker 3: get people not to voter to vote differently through either
Speaker 3: possibly misleading statements about possible risks to them, or perhaps
Speaker 3: any statements that essentially use fear in order to change
Speaker 3: people's votes. That's a very broad category, especially given that
Speaker 3: the statute here talks about attempt by means of menace
Speaker 3: or other corrupt means or device to influence an elector's vote.
Speaker 3: So it looks like, under the government's theory, if there
Speaker 3: was a message sent out saying, if you vote for Trump,
Speaker 3: he's going to send your children off to some war,
Speaker 3: let's say that's an attempt to use fear. It's possibly
Speaker 3: an attempt to use misleading statements he's going to do that.
Speaker 3: How do we know he's going to do that? So
Speaker 3: generally speaking, most courts would say that's not something that
Speaker 3: the government can police for in elections, And yet under
Speaker 3: the state's theory in this case, it's possible that the
Speaker 3: law is as broad as that.
Speaker 2: During the oral argument, some of the Michigan justices questioned
Speaker 2: the application of the statute. Justice Elizabeth Welch asked, what
Speaker 2: about the scenario of the millions of mailers we get.
Speaker 2: What if someone says, don't vote, they're all crooks? And
Speaker 2: Justice David Viviano asked whether the law could be used
Speaker 2: to charge someone like Trump over his frequent statements that
Speaker 2: the absentee voting process is rigged. So does it seem
Speaker 2: like the justices were keying in to what you just said, right?
Speaker 3: I think the justices are worried that the statute in
Speaker 3: its face is very broad, and indeed claims don't vote
Speaker 3: by absentee. The absentee process is rigged. Under the government's theory.
Speaker 3: They may not be menacing in the sense that they
Speaker 3: don't have the element of possible threat that the government
Speaker 3: will do something to you. But under the government's theory,
Speaker 3: that would be a corrupt means or device, because it
Speaker 3: would be misleading or outright fall So I think the
Speaker 3: justices are recognizing that the statute has written quite broadly.
Speaker 3: It may well be that a narrower stack would be constitutional.
Speaker 3: It may well be that there's a narrow of statue
Speaker 3: that would be both constitutionals and broad enough to cover
Speaker 3: the speech of these particular defendants. But I'm not sure
Speaker 3: that this statute is one side check.
Speaker 2: Well, I noticed the defendant incited you in their brief, Eugene,
Speaker 2: so we'll see if the Michigan Supreme Court agrees. Thanks
Speaker 2: so much for being on the show. That's Professor Eugene
Speaker 2: Vulloch of UCLA Law School, and that's it for this
Speaker 2: edition of The Bloomberg Law Show. Remember you can always
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Speaker 2: at ten pm Wall Street Time. I'm June Grosso, and
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