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

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Speaker 2: The Department of Defense is leading an important effort now

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Speaker 2: to evaluate and review the national security implications and most important,

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Speaker 2: to conduct a review of the methods of excess accountability

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Speaker 2: and control procedures that the Department has so that something

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Speaker 2: like this can never happen again.

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Speaker 3: Attorney General Merrick Garland says the Department of Defense is

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Speaker 3: conducting a review of the nation's security protocols after a

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Speaker 3: twenty one year old Massachusetts Air National guardsman allegedly lea

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Speaker 3: classified documents in what's been described as one of the

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Speaker 3: most damaging intelligence disclosures in a decade. Republican Senator Lindsay

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Speaker 3: Graham questioned while a low level IT specialist had access

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Speaker 3: to such sensitive and wide ranging information, allegedly from military

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Speaker 3: operations in Ukraine to intel on both the America's adversaries

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Speaker 3: and allies. I am stunned as somebody at that level

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Speaker 3: could have so much access. So the question is how

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Speaker 3: did he get it and why did he do it?

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Speaker 3: Jack to Share has been charged with the unlawful retention

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Speaker 3: and transmission of national defense information and classified material under

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Speaker 3: the Espionage Act. Charges that carry a maximum of fifteen

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Speaker 3: years in prison. My guest is national security law expert

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Speaker 3: Bradley Moss, a partner Mark Zaid. Brad do officials know

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Speaker 3: the extent.

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Speaker 1: Of this leak yet?

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Speaker 4: So as far as we can tell, they don't necessarily

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Speaker 4: know the full extent of what was extracted and what

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Speaker 4: was put out there, whether on discord chats or on

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Speaker 4: other media platforms. That's part of why though they took

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Speaker 4: action now before they had the full universe, was they

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Speaker 4: couldn't risk anything more coming out. They couldn't risk any

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Speaker 4: additional leaks from this particular individual. They wanted to shut

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Speaker 4: down the source of the threat, and then they can

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Speaker 4: always supplement up the indictment once they have a better

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Speaker 4: understanding of the full universe of what went on here

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Speaker 4: and what was leaked out.

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Speaker 3: But we do know that it was top secret or

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Speaker 3: sci level.

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Speaker 4: Documents up to an including. I don't think it was

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Speaker 4: all top secret, but it was up to an including

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Speaker 4: top secret information with sensitive compartmented information access required. It's

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Speaker 4: a very sensitive information. It's on par with a lot

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Speaker 4: of the kind of stuff that Edward Snowden and Chelsea

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Speaker 4: Banning leaked out, with some of our more sensitive secrets,

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Speaker 4: and for a lot of it requires not only specific

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Speaker 4: authorized access to control of it, but it's in very

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Speaker 4: narrow confined areas. It's electronic, it's the particular terminal you

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Speaker 4: have to use. If it's a physical document, it's a

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Speaker 4: particular space you have to go into. So part of

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Speaker 4: this investigation and it'sulted in the ongoing prosecution, this individual

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Speaker 4: will be determined how he got this stuff out and

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Speaker 4: where internal security procedures broke down.

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Speaker 3: I understand that it's not so much about his age,

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Speaker 3: but rather how such a low level IT specialists got

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Speaker 3: access to such a wide range of sensitive information.

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Speaker 4: So it's not unusual for someone even at eighteen to

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Speaker 4: have a top SACER clearance. All that means is that

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Speaker 4: the nature of your position and the requirements for you

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Speaker 4: to do your job require you to be authorized to

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Speaker 4: see information up to that level. That doesn't mean that

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Speaker 4: on day one, with your top seaker clearance, with SCI

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Speaker 4: access eligibility, that you can just start searching up anything

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Speaker 4: you want. You're still supposed to be limited to what

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Speaker 4: you have what is called the required need to know,

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Speaker 4: So you're only supposed to be able to see things

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Speaker 4: up to that level that you, for purpose of your position,

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Speaker 4: have a need to know. This young individual was basically

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Speaker 4: sort of like a junior level IT network professional, So

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Speaker 4: his job may have permitted access to these documents, not

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Speaker 4: to know, generally review them and rely upon them to

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Speaker 4: create products or to do brief individuals, but rather to

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Speaker 4: sort of be the glorified engineer who's ensuring everything can

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Speaker 4: get transferred through that the higher level policy people and

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Speaker 4: analysts have access to it no matter where they are,

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Speaker 4: no matter which system it's on. He's there to ensure

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Speaker 4: the data flows properly.

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Speaker 3: He first posted text of classified information in this Discord

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Speaker 3: chat room in December. Should authorities have discovered this leak sooner?

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Speaker 3: And you know why to take the media to uncover

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Speaker 3: so much of the information.

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Speaker 4: So the reality is for security officials and even counterintelligence

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Speaker 4: officials that they can't easily get into private platforms and

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Speaker 4: non public chat rooms, whether it's on Discord, if it's

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Speaker 4: on Twitter, if it's on Facebook. You can't just barge

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Speaker 4: in there without breaking the law. They have to have

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Speaker 4: some type of legal authorization to go in there, and

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Speaker 4: they don't have the time and effort and resources to

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Speaker 4: patrol the social media universe writ large, they would spend

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Speaker 4: all day doing it. They wouldn't even you know, crack

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Speaker 4: the surface of it. So it's not unusual that for

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Speaker 4: someone such as this individual who was posting on this

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Speaker 4: private discord chat, that no one else was really aware

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Speaker 4: of it until it started leaking out. That's certainly plausible.

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Speaker 4: In our current interconnected world, there's only so much security

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Speaker 4: officials are going to be able to do. They just

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Speaker 4: don't have the time to patrol the Internet, for lack

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Speaker 4: of a better phrase, and quite candidly, if they were

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Speaker 4: to try to do that, there'd be serious political backlash.

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Speaker 3: One question is whether the leaker was enticed by another

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Speaker 3: nation's intelligence agencies, because it's believed that they've infiltrated some

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Speaker 3: online gaming community. So I understand they're still investigating that

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Speaker 3: whether or not it was another country, possibly Russia.

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Speaker 4: Yes, So I haven't seen any specific evidence of that yet.

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Speaker 4: It's not out of the realm of possibility. Some of

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Speaker 4: the people in this discord chat, so we know some

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Speaker 4: were foreign nationals. According to the reporting, that some of

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Speaker 4: them may have been sort of provoking him, you know,

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Speaker 4: and instigating it so that he would do something along

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Speaker 4: these lines. But ultimately this was his choice. If the

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Speaker 4: allegations are proven true, he's presumed innis and of course,

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Speaker 4: but this was apparently his choice to do so, to

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Speaker 4: take this information to try to you know, show off

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Speaker 4: to these other individuals and post this class by data

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Speaker 4: and information in the discord chat. So whether he knew

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Speaker 4: he was being played and duped is something to be

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Speaker 4: determined later. But from all I can see, it was

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Speaker 4: a stupid young man who made a dumb mistake and

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Speaker 4: he's going to pay for it now, most likely with

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Speaker 4: several years in prison.

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Speaker 3: This case is different from the other League cases that

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Speaker 3: we've heard about, you know, Wiki leaks and Pentagon papers,

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Speaker 3: because it doesn't appear he was acting like a whistle blower.

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Speaker 3: Doesn't appear he was acting as a foreign agent.

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Speaker 4: Now, there doesn't seem to be any whist the blower

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Speaker 4: elements this. He wasn't you know, bringing this information out

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Speaker 4: and giving it to the media, for example, in order

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Speaker 4: to try to say, shine the light on what he

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Speaker 4: would view as the difference between public statements of the

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Speaker 4: government versus their private assessments about the Warren He was

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Speaker 4: doing anything like that, He was showing off to a

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Speaker 4: bunch of friends in a discord chat. Maybe he was

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Speaker 4: trying to impress a girl. I have no idea, but

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Speaker 4: there's no indication he was doing this for anything remotely

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Speaker 4: similar to the reported you know, public interest argument that

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Speaker 4: a Chelsea Manning or Edward Snowden or a reality winner

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Speaker 4: had and argued at sentencing, this is something where he

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Speaker 4: just let his ego get ahead of him. If he

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Speaker 4: is convicted, whether it's a plea deal or a prosecution,

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Speaker 4: he's going to almost certainly have his lawyers argue with

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Speaker 4: sentencing that he just got you know, tied up in this.

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Speaker 4: He was stupid and young, you know, try to mitigate

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Speaker 4: some of the punishments so that he still has some

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Speaker 4: hope for a life in fifteen years.

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Speaker 3: Attorney General Merrick Garland made clear that the US wanted

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Speaker 3: the charges to make others think twice before sharing secrets.

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Speaker 3: But are these charges a stretch or are they sort

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Speaker 3: of expected?

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Speaker 4: These charges are certainly expected, and I have pretty considerable

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Speaker 4: confidence that he will be convicted in some form, whether

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Speaker 4: through a plea deal or through a conviction at trial.

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Speaker 4: This is something they have to do. They can't allow

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Speaker 4: clearance holders to just run off with these documents, especially

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Speaker 4: t SSECI documents, and post them where they can be

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Speaker 4: stolen and shared glue or worldwide without some kind of.

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Speaker 1: Punishment as you refer to.

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Speaker 3: It seems like this case is not going to be

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Speaker 3: too difficult for the prosecution. There's an electronic trail. But

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Speaker 3: what could a possible.

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Speaker 4: Defense be The best defense, assuming he intends to make one,

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Speaker 4: part of the best defense will be to attack this

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Speaker 4: deficiency of the government's case. There's no way I would

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Speaker 4: ever put this kid on the stand to try to

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Speaker 4: explain anything at trial. It's sentencing, and you can bring

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Speaker 4: out all the tears and the family members of everything.

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Speaker 4: We try to mitigate things, but for purposes of liability

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Speaker 4: for trial, this is about can the government make its

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Speaker 4: case to track it specifically to him, the track specifically

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Speaker 4: the details of him taking the records out of the

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Speaker 4: secure location and putting them in this unauthorized area, namely

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Speaker 4: the discord chat. If they can do so, that's pretty

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Speaker 4: much the ballgame. But that's the government's obligation to prove.

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Speaker 3: President Biden at first downplayed the severity of the leak.

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Speaker 3: Danny said the US was still determining the validity of

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Speaker 3: the documents, is he just not saying everything.

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Speaker 4: Or well, there is a non trivial chance that some

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Speaker 4: of the records that have been found on various platforms

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Speaker 4: now whether it's Telegram or Twitter wherever, that some of

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Speaker 4: them have since been altered from their original state. So

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Speaker 4: the government is still assessing the validity the authenticity of

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Speaker 4: the documents they can find. They're still determining to what

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Speaker 4: extent any of them were modified. We do know that

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Speaker 4: there appears to have been efforts by the Russians and

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Speaker 4: the Chinese once these documents started showing up outside of Discord,

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Speaker 4: that there were efforts to download the original source data

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Speaker 4: and alter it for purposes of disinformation. That's something that

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Speaker 4: the government is still going to have to evaluate, and

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Speaker 4: that's going to likely take months to do that full

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Speaker 4: after action damage or or to determine what leaked out

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Speaker 4: in what's actually authentic out there.

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Speaker 3: There have been so many of these highly publicized leaks.

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Speaker 3: Why haven't adequate safeguards been put in place already? Why

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Speaker 3: are they like rushing now to try to put things

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Speaker 3: into effect?

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Speaker 4: So security is always fighting the last war in terms

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Speaker 4: of trying to prevent future leaks. With Chelsea Manning. They

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Speaker 4: started cracking down on CDs being used on classified systems

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Speaker 4: With Edward Snowden, it was splash drive. The problem that

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Speaker 4: security officials face is there are something like three million

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Speaker 4: people who hold a security clearance at some level or another,

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Speaker 4: and I think at least one million of them hold

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Speaker 4: top secret security clearances. They face an environment where US personnel,

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Speaker 4: whether the contractors, government, civilians, or military personnel, are all

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Speaker 4: over the world. In addition to being in the United States.

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Speaker 4: They need to have constant, consistent access to the relevant

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Speaker 4: records electronically, to say nothing of in certain circumstances physically,

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Speaker 4: and they have to do so in a way that

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Speaker 4: is up to date technology wise. That they have to

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Speaker 4: permit a lot of information sharing cross agencies and within offices,

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Speaker 4: and there's not a perfect solution to do all that

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Speaker 4: without some risk. And part of the risk analysis you

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Speaker 4: do here as a security official is we have cleared

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Speaker 4: these individuals with extensive vetting to have clearances. There's all

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Speaker 4: these things we can do, and then there's things that

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Speaker 4: we could do an addition, that would completely disrupt government

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Speaker 4: operations that we choose not to do because ultimately there

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Speaker 4: has to be an element of honor and trust that

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Speaker 4: we put in the people who we've given clearances to.

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Speaker 3: It seems to happen more in the United States than

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Speaker 3: anywhere else.

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Speaker 1: Why is that?

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Speaker 4: One reason is just the amount of classified data. We produce,

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Speaker 4: an exorbitant amount of information that we classify that you

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Speaker 4: have to then oversee and manage. But the other part is, well,

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Speaker 4: let's think of what you'd be facing here for leaking

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Speaker 4: versus what you would face, and say Russia or in China,

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Speaker 4: here you might face. You know, if you're a reality winner,

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Speaker 4: you spent a few years in jail. If you're Chelsea Manning,

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Speaker 4: you spent a few years of jail at your sense

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Speaker 4: with commuted you do this. In China, you're executed. You

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Speaker 4: to this. In Russia you fall out in open elevator shaft.

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Speaker 4: So there's an element of fear there that isn't going

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Speaker 4: to be, you know, something that you're going to see here,

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Speaker 4: given that we are a constitutional republic and the punishment

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Speaker 4: is not quite the same.

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Speaker 3: Our allies response has been muted, but apparently privately they've

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Speaker 3: expressed some consternation about our apparent inability to keep their

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Speaker 3: secrets safe. Do you think that in the long term,

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Speaker 3: we lose access to some methods of documents or collections

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Speaker 3: because of these leaks.

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Speaker 4: That's certainly always the concern. I mean, we saw a

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Speaker 4: lot of that after Chelsea Manning leaked out the State

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Speaker 4: Department cables and things like that back in twenty ten.

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Speaker 4: You know, there was a lot of behind the scenes

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Speaker 4: diplomatic playing nice for lack of a better phrase, with

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Speaker 4: somebody these individuals saying we're sorry for this. You know,

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Speaker 4: we're doing these things to make sure this never happens again,

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Speaker 4: and that's going to happen. Look, we're still the world's

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Speaker 4: foremost superpower. Everybody still wants to be able to share

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Speaker 4: access with us and to share information to further their interests.

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Speaker 4: But yes, each time you have a major leak like this,

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Speaker 4: you're going to have an international relations problem, and the

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Speaker 4: diplomats are going to now have to do their job

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Speaker 4: to reduce the temperature and alleviate some of the anger

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Speaker 4: that our various allies are going to have.

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Speaker 3: Finally, I mean, you mentioned all the problems that three

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Speaker 3: thousand people who have clear and technology. There's so much

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Speaker 3: technology out there, but do you think anything substantive will

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Speaker 3: be done in light of this.

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Speaker 4: I certainly believe there should be some considerable, an extensive

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Speaker 4: review of where the security superscedures broke down here to

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Speaker 4: figure out one whether or not this was just human

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Speaker 4: error and laziness by security officials to implement the existing procedures,

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Speaker 4: or two if this spoke to a larger problem in

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Speaker 4: terms of how compartmentalized. We just don't know the answer

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Speaker 4: to that question yet, you know, reading the statement of

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Speaker 4: facts in the current version of the indictment, I'm surprised

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Speaker 4: he was able to pull off some of what he

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Speaker 4: did in terms of getting the documents out without anyone noticing,

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Speaker 4: And so it raises questions for me basically of where

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Speaker 4: were the security officials? Were they asleep on the job

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Speaker 4: for lack of a better phrase. Those are the things

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Speaker 4: we're gonna have to figure out first.

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Speaker 3: Thanks as always, brad. That's Bradley Moss of Mark Zaid.

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Speaker 3: The Supreme Court's latest dint in the so called administrative

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Speaker 3: state came in a decision that opened up a new

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Speaker 3: avenue for fighting off complaints by the Securities and Exchange

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Speaker 3: Commission and the Federal Trade Commission. The Justice is unanimously

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Speaker 3: said that companies and people facing agency investigations or complaints

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Speaker 3: can go straight to federal court to challenge the agency's

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Speaker 3: constitutional authority instead of waiting for an in house judge's decision,

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Speaker 3: a requirement for decades. Some of the justice is hinted

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Speaker 3: at the ruling during the oral arguments. Here are Chief

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Speaker 3: Justice John Roberts and Justice Samuel Alito.

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Speaker 5: Given that laundry list of cases where the government didn't prevail,

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Speaker 5: and I gather the one in the Fifth Circuit as well,

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Speaker 5: doesn't that underscore the need for a direct proceeding to

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Speaker 5: raise the constitutional claim rather than waiting, however, many years

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Speaker 5: before the agency.

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Speaker 2: What sense does it make for a claim that goes

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Speaker 2: to the very structure of the.

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Speaker 4: Agency having to go through the administrative process.

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Speaker 3: My guest is James Park, a professor at UCLI Law School. So, Jim,

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Speaker 3: what does this decision really mean?

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Speaker 6: I think in the short term it's going to mean

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Speaker 6: that there will be an increase in the number of

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Speaker 6: cases raising constitutional challenges to the sec that are filed

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Speaker 6: in federal court. And what the case basically says is

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Speaker 6: that if you have a constitutional challenge to the system

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Speaker 6: of administrative adjudication, that you don't have to raise that

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Speaker 6: issue in the administrative proceeding, you can file a separate

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Speaker 6: federal court action in order to challenge the constitutionality of

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Speaker 6: the overall administrative system itself. And so I think in

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Speaker 6: the short run we may see more constitutional challenges in

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Speaker 6: administrative adjudications, but there are only a handful of viable

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Speaker 6: arguments that the system is unconstitutional, And so I think

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Speaker 6: after a few years, as the court's work their way

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Speaker 6: through the constitutional issues, I'm not sure that over the

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Speaker 6: long run this is going to really change administrative practice

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Speaker 6: before the SEC or the Federal Trade Commission.

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Speaker 3: So basically, what this said is that the litigans don't

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Speaker 3: have to wait for an in house judge's decision as

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Speaker 3: it has for decades on.

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Speaker 6: A constitutional issue, on that particular type of argument, if

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Speaker 6: you can frame it in terms of a content institutional

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Speaker 6: issue with respect to the structure of the administrative law courts,

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Speaker 6: then you can file that separately in federal court. Now,

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Speaker 6: if you have other arguments with respect to, you know,

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Speaker 6: the basics of the administrative adjudication, you're going to still

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Speaker 6: have to litigate that in administrative court. It's only these

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Speaker 6: constitutional issues that are saying that the administrative law judges

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Speaker 6: themselves are unconstitutional for some reason that can be raised

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Speaker 6: in a separate federal district court proceeding. And you know,

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Speaker 6: it's a unanimous decision, and I think that you know,

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Speaker 6: we could see sort of the reasoning is that, you know,

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Speaker 6: can the administrative law judge decide on the constitutionality of

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Speaker 6: their own job? Is that something within their unique competence?

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Speaker 6: And also, is it fair for the person who is

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Speaker 6: on trial in the administrative law court to have to

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Speaker 6: wait for the administrative law proceeding to end and go

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Speaker 6: through the system of appeals in order to challenge its

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Speaker 6: constitutionality when the main argument is that the harm I'm

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Speaker 6: suffering is that I am in front of an unconstitutional

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Speaker 6: administrative law judge. Right should I be forced to raise

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Speaker 6: that argument only in the administrative law proceeding or should

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Speaker 6: I be able to file a separate case in federal

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Speaker 6: court that makes that argument? And I think the Supreme

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Speaker 6: Court was right on that procedural issue.

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Speaker 3: Was this based on separation of powers questions?

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Speaker 6: Yes, it is a separation of power issues. And the

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Speaker 6: basic argument is that administrative law judges are officers under

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Speaker 6: the US Constitution. And if they are officers, then the

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Speaker 6: President of the United States has to have some ability

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Speaker 6: to supervise those officers. And the claim is that the

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Speaker 6: way administrative law judges are basically regulated by the SEC

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Speaker 6: is that they have certain tenure protections where they can

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Speaker 6: only be fired for good cause pursuing to the merit

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Speaker 6: system's protection Board. And so because the president doesn't have

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Speaker 6: enough direct influence over whether and an administrative law judge

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Speaker 6: should be in office, the argument is that this sort

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Speaker 6: of violates the separation of powers because the president is

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Speaker 6: supposed to have that power and instead it's been sort

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Speaker 6: of funneled into this vague administrative agency which is not

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Speaker 6: in the constitution right. And there's an argument that the

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Speaker 6: administrative state is intension with the separation of powers, and

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Speaker 6: that you need the president to be able to supervise

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Speaker 6: administrative law judges to some extent. That's the constitutional argument

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Speaker 6: that will be raised. That was raised by Michelle Cochrane

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Speaker 6: in her part of this particular litigation.

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Speaker 3: So, Jim, why doesn't the Supreme Court just decide the

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Speaker 3: constitutional issue? We keep seeing case after case challenging you know,

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Speaker 3: the agencies. Why don't they just decide that issue, get

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Speaker 3: it over with the.

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Speaker 6: Top issue, and it has potentially far reaching implications, and

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Speaker 6: I think the Supreme Court wants to take its time

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Speaker 6: on the issue, and that it's content with sort of

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Speaker 6: nibbling around the edges of the issue and clarifying certain

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Speaker 6: procedural rules before it takes on the more meaty challenge

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Speaker 6: of defining what could potentially be far reaching limitations on

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Speaker 6: the ability of administrative agencies to use administrative law judges.

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Speaker 6: It could be a very momentous decision one way or

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Speaker 6: the other, and so I think that they would prefer

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Speaker 6: to take their time and allow different cases to percolate

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Speaker 6: up through the system. They themselves are probably thinking about

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Speaker 6: it to the extent that they have time to do. So.

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Speaker 6: They want to see the various parties on both sides

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Speaker 6: continue to develop and think about the arguments, and at

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Speaker 6: some point they will decide this issue.

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Speaker 3: Justice, as Clarence Thomas and Neil Gorsuch said, I would

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Speaker 3: have issued a more sweeping ruling.

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Speaker 6: Yes, that's right. I think Justice Thomas in particular is

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Speaker 6: very skeptical of administrative courts and administrative law judges, and

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Speaker 6: he's clearly signaling that to him, the system is unconstitutional.

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Speaker 6: I think Gorsuch has a little bit more of a

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Speaker 6: subtle view. It's unclear I think as to what he

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Speaker 6: thinks of the system as a whole. But he simply

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Speaker 6: made the basic points that if I have a federal

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Speaker 6: constitutional claim, I should always be able to bring that

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Speaker 6: in federal court. And he doesn't like the test that

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Speaker 6: the Supreme Court applied in this case, which says that

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Speaker 6: when Congress is set up an administrative system of adjudication,

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Speaker 6: that for the most part, claims have to be decided

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Speaker 6: within that system. He doesn't like that doctorate, he thinks

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Speaker 6: is too confusing. His basic point is that if I

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Speaker 6: have a constitutional claim with respect to an issue, I

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Speaker 6: should always be able to bring that in.

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Speaker 3: Federal You know, as you mentioned, the Supreme Court has

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Speaker 3: been chipping away at the administrative state. Doesn't that all

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Speaker 3: give more power to the judiciary.

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Speaker 6: It does give more power, It could give more power,

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Speaker 6: but it also could mean more burden, more responsibility. Where

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Speaker 6: are the two or three hundred administrative cases that are

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Speaker 6: filed before the SEC going to go If we don't

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Speaker 6: have administrative law judges, well, federal courts are going to

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Speaker 6: have to hear those cases. Federal judges are very busy

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Speaker 6: as it is, and these cases will still be filed.

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Speaker 6: They will be filed in settle court, and that's going

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Speaker 6: to increase the workload of federal judges who are not

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Speaker 6: experts in this area, and so it's going to give

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Speaker 6: them more power potentially, but it's also going to increase

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Speaker 6: the number of cases that the federal judiciary is going

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Speaker 6: to have to hear.

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Speaker 3: And do you think that agencies will have to hire

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Speaker 3: more lawyers to handle this shift questions?

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Speaker 6: They might. I think that they potentially would have more

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Speaker 6: work to do if they have to file these cases

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Speaker 6: in settle court as opposed to before an administrative law judge.

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Speaker 6: On the other hand, the vast majority of these cases settle,

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Speaker 6: even the ones that are filed and settled for, and

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Speaker 6: so it may simply be that they have to just

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Speaker 6: simply shift the expertise of the lawyers they're hiring, and

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Speaker 6: so it's unclear to me. I think it may may

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Speaker 6: lead to more work, it may not necessarily lead to

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Speaker 6: more work. Will more defendants take cases to trial if

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Speaker 6: they have the right to a jury?

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Speaker 4: They might.

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Speaker 6: They might, and so you may have to hire more

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Speaker 6: trial attorneys. But I still think that the percentage of

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Speaker 6: defendants who actually go to a jury trial is going

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Speaker 6: to be a fairly small percentage, even if the cases

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Speaker 6: are filed in settle court.

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Speaker 3: You mentioned a couple one hundred cases. The FTC has

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Speaker 3: only one administrative law judge in house, and the SEC

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Speaker 3: in recent years has shifted from using in house judges

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Speaker 3: to filing.

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Speaker 1: Disputes in federal courts.

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Speaker 3: So will this really take away a lot of their

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Speaker 3: power or their leverage?

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Speaker 6: That's right, they have shifted to some extent. But I'm

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Speaker 6: you know, looking at the most recent numbers of twenty

439
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Speaker 6: twenty two right now in terms of the SEC's cases,

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Speaker 6: and they're still filing two hundred and thirty one cases

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Speaker 6: in administrative court. And that's compared to two hundred and

442
00:24:29,680 --> 00:24:33,920
Speaker 6: thirty one civil actions in federal court. And so there

443
00:24:33,960 --> 00:24:37,280
Speaker 6: are you know, a few hundreds still filed in administrative court.

444
00:24:37,320 --> 00:24:41,080
Speaker 6: And they're also smaller follow on proceedings that are filed

445
00:24:41,080 --> 00:24:45,200
Speaker 6: in administrative court. So the SEC has shifted to some extent,

446
00:24:45,680 --> 00:24:48,600
Speaker 6: but they still are filing a substantial number of cases

447
00:24:48,680 --> 00:24:50,280
Speaker 6: in administrative court.

448
00:24:50,320 --> 00:24:51,320
Speaker 4: Now, two or.

449
00:24:51,240 --> 00:24:54,280
Speaker 6: Three years ago, they might have been filing three or

450
00:24:54,280 --> 00:24:57,840
Speaker 6: four hundred cases in administrative court versus maybe a couple

451
00:24:57,960 --> 00:25:01,720
Speaker 6: hundred in federal court has been a shift, but there

452
00:25:01,760 --> 00:25:04,520
Speaker 6: still are a substantial number of cases that the SEC

453
00:25:04,600 --> 00:25:09,200
Speaker 6: filed in administrative court, and quite frankly, administrative court goes

454
00:25:09,280 --> 00:25:12,440
Speaker 6: faster for defendants and the parties. You know, if you're

455
00:25:12,480 --> 00:25:15,800
Speaker 6: filing in federal court, you are in line with cases

456
00:25:15,920 --> 00:25:19,800
Speaker 6: on all sorts of different subject matters and the process

457
00:25:19,880 --> 00:25:22,440
Speaker 6: will be much slower in federal court. So there still

458
00:25:22,480 --> 00:25:26,840
Speaker 6: are advantages to allowing the SEC to file in administrative court,

459
00:25:26,840 --> 00:25:29,119
Speaker 6: and you have a trained administrative law judge who is

460
00:25:29,160 --> 00:25:33,240
Speaker 6: an expert in very complicated securities law. Federal court judges

461
00:25:33,280 --> 00:25:35,439
Speaker 6: also are very good and competent, but they may not

462
00:25:35,560 --> 00:25:39,520
Speaker 6: have that expertise, and so they may even be more

463
00:25:39,560 --> 00:25:40,879
Speaker 6: deferential to the SEC.

464
00:25:41,000 --> 00:25:41,960
Speaker 4: In certain cases.

465
00:25:42,080 --> 00:25:45,560
Speaker 6: They may simply say, I don't understand this complex body

466
00:25:45,560 --> 00:25:45,840
Speaker 6: of law.

467
00:25:45,880 --> 00:25:47,359
Speaker 4: I'm going to defer to what the.

468
00:25:47,240 --> 00:25:51,159
Speaker 6: SEC is telling me. That's certainly a possibility with cases

469
00:25:51,200 --> 00:25:52,320
Speaker 6: filed in federal court.

470
00:25:52,560 --> 00:25:54,880
Speaker 1: Is it also more expensive in federal court?

471
00:25:55,200 --> 00:25:58,960
Speaker 6: It is. It is a more expensive process overall, And

472
00:25:59,400 --> 00:26:03,520
Speaker 6: you know, the litigation process can be more drawn out

473
00:26:03,640 --> 00:26:08,119
Speaker 6: and involved and take longer, and so lawyer time is

474
00:26:08,160 --> 00:26:11,840
Speaker 6: going to cost more. In that context, there may be

475
00:26:12,000 --> 00:26:15,320
Speaker 6: inefficiencies in the process that make it a bit more

476
00:26:15,359 --> 00:26:19,080
Speaker 6: expensive than having a proceeding in administrative court. Now, the

477
00:26:19,160 --> 00:26:22,520
Speaker 6: defendants would say, though that you know, I'm willing to

478
00:26:22,520 --> 00:26:26,120
Speaker 6: bear that expense because I'm usually going to lose before

479
00:26:26,119 --> 00:26:29,760
Speaker 6: an administrative logic. That's the perception is that you know,

480
00:26:29,800 --> 00:26:33,320
Speaker 6: this is an administrative law judge who works at the SEC,

481
00:26:34,000 --> 00:26:37,320
Speaker 6: who is not independent, and so I'd rather take my

482
00:26:37,480 --> 00:26:41,840
Speaker 6: chances in federal court, and so I'd rather bear that expense.

483
00:26:41,840 --> 00:26:45,280
Speaker 6: I'd rather get to do more discovery, and so there

484
00:26:45,280 --> 00:26:48,320
Speaker 6: may be advantages in some cases, you know. So I

485
00:26:48,320 --> 00:26:50,680
Speaker 6: think that there are arguments on both sides, and this

486
00:26:51,040 --> 00:26:54,080
Speaker 6: is why they're making this argument that the system is unfair.

487
00:26:54,359 --> 00:26:55,479
Speaker 1: Jim, is that true?

488
00:26:55,600 --> 00:26:58,240
Speaker 3: I mean, are there stats or anything about how many

489
00:26:58,359 --> 00:27:02,160
Speaker 3: cases are one why the SEC or the MDC administrative

490
00:27:02,440 --> 00:27:05,680
Speaker 3: Is it true to defendants lose more before an SEC judge.

491
00:27:05,960 --> 00:27:08,679
Speaker 6: I think defendants seffly lose more. But some of that

492
00:27:08,760 --> 00:27:12,159
Speaker 6: may be selection biased because the SEC is, you know,

493
00:27:12,320 --> 00:27:16,199
Speaker 6: choosing carefully who it is bringing cases again, and so

494
00:27:16,240 --> 00:27:19,479
Speaker 6: they're bringing cases that are strong so that you know,

495
00:27:19,520 --> 00:27:23,119
Speaker 6: if you have an administrative agency that is bringing strong cases,

496
00:27:23,240 --> 00:27:26,720
Speaker 6: then you can expect the win rate to be fairly high.

497
00:27:27,080 --> 00:27:30,359
Speaker 6: The other factor to consider is most cases settle. The

498
00:27:30,400 --> 00:27:33,159
Speaker 6: vast majority of cases will settle. It's in the interest

499
00:27:33,200 --> 00:27:37,160
Speaker 6: of both parties to settle the case. But certainly only

500
00:27:37,200 --> 00:27:40,080
Speaker 6: a small percentage of the cases that end up being

501
00:27:40,119 --> 00:27:44,000
Speaker 6: decided by administrative law judge go against the SEC. And

502
00:27:44,040 --> 00:27:47,159
Speaker 6: that may point to some internal reforms the SEC should

503
00:27:47,600 --> 00:27:51,720
Speaker 6: consider in terms of its training for administrative law judges

504
00:27:52,000 --> 00:27:56,520
Speaker 6: and perhaps increasing the adversarial nature of the process. But

505
00:27:56,680 --> 00:27:59,959
Speaker 6: I do think that most administrative law judges they understand

506
00:28:00,119 --> 00:28:02,679
Speaker 6: that they're supposed to be independent and then that that

507
00:28:02,760 --> 00:28:05,200
Speaker 6: in fact is why they cannot be fired unless there's

508
00:28:05,240 --> 00:28:08,000
Speaker 6: good cause. And sort of some of the irony here

509
00:28:08,119 --> 00:28:11,720
Speaker 6: is that they are arguing that the system is broken

510
00:28:11,880 --> 00:28:15,240
Speaker 6: because the judges cannot be fired by the president unless

511
00:28:15,240 --> 00:28:18,880
Speaker 6: there's good cause. But that's precisely what protects the independence

512
00:28:18,880 --> 00:28:22,560
Speaker 6: of these administrative lojects. I mean, that's you know, that's

513
00:28:22,600 --> 00:28:26,160
Speaker 6: the reason why they have sort of this insulation from

514
00:28:26,160 --> 00:28:30,080
Speaker 6: the political process. And that's what some advocates are saying

515
00:28:30,119 --> 00:28:34,080
Speaker 6: is unconstitutional. And so it certainly is a system that

516
00:28:34,600 --> 00:28:37,000
Speaker 6: doesn't have the same checks and balances within it as

517
00:28:37,040 --> 00:28:41,640
Speaker 6: an independent federal judge, But it is a system that

518
00:28:42,280 --> 00:28:46,360
Speaker 6: works if you have a responsible regulator, which I think

519
00:28:46,360 --> 00:28:47,160
Speaker 6: the SEC is.

520
00:28:48,120 --> 00:28:51,240
Speaker 3: Any final thoughts about the importance of this decision or

521
00:28:51,280 --> 00:28:54,000
Speaker 3: the implications, I.

522
00:28:53,960 --> 00:28:56,360
Speaker 6: Think, you know, it's a it's a very interesting case.

523
00:28:56,400 --> 00:29:01,440
Speaker 6: It's worth noting this trend. This trend towards greater administrative

524
00:29:01,560 --> 00:29:06,400
Speaker 6: scrutiny of agencies like the SEC, and I think while

525
00:29:06,440 --> 00:29:10,360
Speaker 6: it's uncomfortable for the SEC, I think that it could

526
00:29:10,360 --> 00:29:13,840
Speaker 6: make the agency better. And I think the agency is

527
00:29:14,560 --> 00:29:18,440
Speaker 6: certainly aware of the limits of its powers, and I

528
00:29:18,480 --> 00:29:22,200
Speaker 6: think having a bit of oversight by the courts in

529
00:29:22,240 --> 00:29:25,560
Speaker 6: the background, I think could improve the way the SEC

530
00:29:25,680 --> 00:29:28,520
Speaker 6: does thing. At the same time, I would urge the

531
00:29:28,560 --> 00:29:34,240
Speaker 6: court to be realistic and pragmatic as to which battles

532
00:29:34,280 --> 00:29:38,160
Speaker 6: to fight in which areas to limit these administrative agencies,

533
00:29:38,200 --> 00:29:41,480
Speaker 6: because they do play a very important role. And if

534
00:29:41,520 --> 00:29:43,719
Speaker 6: you go too far, who's going to suffer. It's going

535
00:29:43,760 --> 00:29:46,200
Speaker 6: to be the investors, It's going to be ordinary people,

536
00:29:46,240 --> 00:29:48,400
Speaker 6: it's going to be the capital market, it's going to

537
00:29:48,440 --> 00:29:51,480
Speaker 6: be our overall economy that is not going to be

538
00:29:51,520 --> 00:29:55,560
Speaker 6: able to function as effectively without an effective regulator, and

539
00:29:55,600 --> 00:29:58,600
Speaker 6: so I would urge the courts to be careful about

540
00:29:58,600 --> 00:30:01,480
Speaker 6: how far they gostrative Offord.

541
00:30:02,040 --> 00:30:05,360
Speaker 3: Thanks so much for your insights, Jim. That's Professor James

542
00:30:05,400 --> 00:30:08,400
Speaker 3: Park of UCLA Law School, and that's it for this

543
00:30:08,560 --> 00:30:11,280
Speaker 3: edition of The Bloomberg Law Show. Remember you can always

544
00:30:11,280 --> 00:30:14,280
Speaker 3: get the latest legal news on our Bloomberg Law podcasts.

545
00:30:14,520 --> 00:30:17,520
Speaker 3: You can find them on Apple Podcasts, Spotify, and at

546
00:30:17,680 --> 00:30:22,800
Speaker 3: www dot Bloomberg dot com slash podcast Slash Law, And.

547
00:30:22,800 --> 00:30:24,640
Speaker 1: Remember to tune into The Bloomberg Law.

548
00:30:24,520 --> 00:30:28,400
Speaker 3: Show every weeknight at ten pm Wall Street Time. I'm

549
00:30:28,480 --> 00:30:30,880
Speaker 3: June Grosso and you're listening to Bloomberg