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Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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Speaker 1: day we bring you insight and analysis into the most

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Speaker 1: important legal news of the day. You can find more

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Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud

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Speaker 1: and on Bloomberg dot com slash podcasts. Earlier this month,

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Speaker 1: Elon Musk sent shockwaves through Wall Street, the automotive industry,

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Speaker 1: in the tech world when he announced on Twitter that

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Speaker 1: he was considering taking Tesla private on Friday night, he

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Speaker 1: put an end to the world when that ensued in

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Speaker 1: a blog post where he said he would keep Tesla public.

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Speaker 1: Joining me is Peter Henning, former federal prosecutor and professor

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Speaker 1: at Wayne State University Law School. Peter, what do you

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Speaker 1: make of the unraveling of the go private plan in

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Speaker 1: about eighteen days? Well, I don't think there was that

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Speaker 1: much of a chance that he would take Tesla private,

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Speaker 1: given the kinds of companies that we've seen who are

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Speaker 1: taken private have posit of cash flow and a growing business. Now,

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Speaker 1: Tesla's business is growing, but it has been burning through

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Speaker 1: cash over the last couple of years, and they can't

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Speaker 1: even seem to hit some of their targets for production, So,

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Speaker 1: you know, was this a likely possibility even though Musk

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Speaker 1: said that he could have gotten the funding for it.

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Speaker 1: I really think it was doubtful that the going private

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Speaker 1: was ever really going to happen. The SEC is investigating

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Speaker 1: Tesla and Musk going private tweet plus other things. Will

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Speaker 1: this decision not to go private have any effect on

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Speaker 1: the SEC investigation? Well, it may have some small effect

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Speaker 1: in that the urgency of the investigation likely is going

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Speaker 1: to be dialed back. Tesla is not going to be

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Speaker 1: taken private, and so there would be a number of

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Speaker 1: fundraising issues related to that. But it certainly doesn't end

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Speaker 1: it because the impact of his tweet back on August

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Speaker 1: seven drove the stock price up a little over ten percent,

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Speaker 1: and you had a number of investors that day who

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Speaker 1: were trading on the basis of that statement, specifically the

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Speaker 1: funding secured um statement that he had there, which indicates

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Speaker 1: that the going private was pretty much of a done deal.

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Speaker 1: So I don't think the SEC is going to say, well,

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Speaker 1: you know, never mind um to quote Emily Littella from

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Speaker 1: long ago, that you don't get a do over on

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Speaker 1: this when you put that kind of information out and

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Speaker 1: it has that kind of an effect on the market,

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Speaker 1: and certainly driving the stock price up ten percent is

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Speaker 1: a significant effect. You worked on market manipulation cases while

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Speaker 1: you were an attorney at the SEC, So is this

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Speaker 1: likely to end in a fine or something more? Well,

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Speaker 1: it's a good question. I mean, the SEC could pass

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Speaker 1: on it or um. There are ways for the SEC

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Speaker 1: to send a signal. For example, they could issue a

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Speaker 1: report of investigation criticizing the company if the SEC were

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Speaker 1: to pursue an enforcement action. Proving market manipulation is difficult

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Speaker 1: because you have to prove that the defendant's purpose was

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Speaker 1: to affect the market price, and I suspect Musk and

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Speaker 1: his lawyers could offer any number of reasons he made

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Speaker 1: the statement, one of which he talked about, which was transparency.

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Speaker 1: I just want to let shareholders know and I didn't

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Speaker 1: mean to manipulate the price, whether he did or not.

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Speaker 1: So I'm not sure if it would be a market

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Speaker 1: manipulation case. It could be a more standard ten five

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Speaker 1: case will tend B five, which prohibits misstatements or emissions

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Speaker 1: of material fact, and that might be the basis for

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Speaker 1: a case, although even there that's not really an easy

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Speaker 1: case to make because you have to show the defendant's

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Speaker 1: intent or at least recklessness. So this still leaves the

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Speaker 1: questions that were being asked before the going private tweet,

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Speaker 1: some of which have been now amplified by Musk's behavior

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Speaker 1: in his tearful interview with The New York Times. What's

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Speaker 1: one of the top concerns there? Is it getting a

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Speaker 1: CFO and involved? Well, I do think there's an important

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Speaker 1: corporate governance issue at Tesla that if you're going to

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Speaker 1: talk about taking a company private, and especially if it's

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Speaker 1: a large shareholder like Elon Musk, then there's certain things

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Speaker 1: you have to go through. Tesla is a Delaware corporation,

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Speaker 1: and so you would have to get independent directors and

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Speaker 1: conduct some type of negotiations and make it at least

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Speaker 1: look like um more typical arms length negotiations. The company

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Speaker 1: did none of that, and so I think from a

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Speaker 1: corporate governance point of view, they really need to rethink

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Speaker 1: how they are operating. That you can't have important information

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Speaker 1: tweeted out and there needs to be a bit more

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Speaker 1: of a deliberate the process, which probably means Mr Musk

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Speaker 1: is going to have to give up some of his

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Speaker 1: control over the company and actually listen to the board

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Speaker 1: of directors. So from what we know about him, how

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Speaker 1: likely is that, well that Tesla is Musk and Musk

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Speaker 1: is Tesla. Oh absolutely, Although you know, when you're talking

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Speaker 1: about a business that is trying to mature UM, you

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Speaker 1: know there are any number of businesses that are tied

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Speaker 1: to the founder, but then you need to move beyond

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Speaker 1: the founder. Apple is a good example of that with

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Speaker 1: Steve Jobs that there was all the concern that when

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Speaker 1: Steve Jobs died the company wouldn't do anything. It's now

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Speaker 1: a trillion dollar company. And so if Tesla really wants

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Speaker 1: to move forward, they can't be subject to the whims,

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Speaker 1: shall we say, of Elon Musk or or his statements.

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Speaker 1: They need to put in a little bit better UM

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Speaker 1: management team, and that may mean getting in a stronger CFO,

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Speaker 1: a stronger chief operating officer, someone who's going to let

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Speaker 1: him be the visionary for the company but not the

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Speaker 1: day to day manager of the company. Peter, what about

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Speaker 1: the company's cash position which you mentioned before, and also

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Speaker 1: its ability to meet mass market produced goals which it

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Speaker 1: hasn't been able to. No, and it's the old phrase

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Speaker 1: on Wall Street, I think has been under promise and

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Speaker 1: overperform UM and in a lot of ways, uh Tesla

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Speaker 1: has been doing almost the opposite, where you know, they say, well,

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Speaker 1: we're going to produce this many vehicles, this many vehicles,

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Speaker 1: and then they don't do it. UM. So they're going

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Speaker 1: to need to UM get their public statements in line

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Speaker 1: with their actual operations. And that's what Wall Street is

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Speaker 1: gonna want to see. Certainly, investors um and there are

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Speaker 1: a number who are devote it to the company, but

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Speaker 1: some investors I think may have lost or questioned his

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Speaker 1: credibility going forward. All right, thanks so much, as always,

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Speaker 1: Peter for your insights. That's Peter Henning, professor at Wayne

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Speaker 1: State University Law School. As he paid his legal threats

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Speaker 1: on several fronts. President Trump continues to lash out at

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Speaker 1: Attorney General Jeff Sessions, scaling up attacks on Twitter over

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Speaker 1: the weekend. Speaking with Fox News last Thursday, the President

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Speaker 1: once again complained about Sessions recusing himself from the Russia investigation.

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Speaker 1: Even my enemies say that Jeff Sessions should have told

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Speaker 1: you that he was going to recuse himself, and then

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Speaker 1: you wouldn't have put him in. He took the job,

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Speaker 1: and then he said I'm going to recuse myself. I said,

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Speaker 1: what kind of a man is this? Joining me is

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Speaker 1: Ellie Honike, a former federal prosecutor and special counsel at

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Speaker 1: Lowenstein Sandler. Ellie Trump has been seeming trying to bait

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Speaker 1: Jeff Sessions and tweets and interviews for more than a year.

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Speaker 1: It hasn't worked. But when they have a meeting in

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Speaker 1: the Oval Office after that inflammatory interview on Thursday, nothing

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Speaker 1: is said when they're face to face. What do you

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Speaker 1: make of this? So one of the President's primary misunderstanding

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Speaker 1: seems to be this notion that the Department of Justice

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Speaker 1: the Attorney General work for him personally Donald J. Trump,

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Speaker 1: But in fact, the Department of Justice represents the American people,

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Speaker 1: and the Attorney General's job is not protect the president's

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Speaker 1: best interest, and the President's been struggling with that ever

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Speaker 1: since he took office. Um, and this battle of words

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Speaker 1: is really unprecedented. Its stunning. Is somebody who worked for

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Speaker 1: Department of Justice for eight years, and as you noted,

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Speaker 1: it's sort of I think what often happens with bullies

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Speaker 1: is they say there they talk one way, uh, you know,

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Speaker 1: behind someone's back, but then when they're face to face,

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Speaker 1: they they backed down. So I don't know what the

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Speaker 1: president's ultimate end goal is, but that could be what's

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Speaker 1: going on. Well, now, it also seems that there are

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Speaker 1: a few centers who are falling in line, and Trump

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Speaker 1: quoted from one of them, Lindsey Graham and his tweet

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Speaker 1: on Saturday. Every president deserves an attorney general they have

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Speaker 1: confidence in. So is it likely in your mind that

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Speaker 1: after the mid terms we might see Trump fired Jeff

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Speaker 1: Sessions and then what happens is that a constitutional crisis

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Speaker 1: or not at that point? Unfortunately, I think it is likely.

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Speaker 1: I think all the signals are there, and the president

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Speaker 1: cannot have possibly had six with this anymore. Clearly, look

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Speaker 1: at his whole string of tweets attacking the good sense

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Speaker 1: and even the sort of manhood I guess of Jeff Sessions.

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Speaker 1: So I think that's pretty clearly evidence that he intends

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Speaker 1: to get rid of Sessions, and if he does, I'm

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Speaker 1: going to have a constitutional crisis. No, I don't think so.

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Speaker 1: I think we're gonna I think it's gonna be problematic. Um,

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Speaker 1: what would happen then is the president would get to

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Speaker 1: a point an acting attorney general who would still in

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Speaker 1: the role pending senatorial approval, and I think the first

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Speaker 1: order of business of that person will be to do

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Speaker 1: the president's fitting too, at least oversee and I would

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Speaker 1: hope not any more than that the Rosenstein and Mueller investigation.

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Speaker 1: So I think that is the game plan, and I

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Speaker 1: think we're seeing signals of that, not only from the

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Speaker 1: President's own words, but also, as you said, for members

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Speaker 1: of Progress, Senator Jeff Flake said yesterday, the concern is

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Speaker 1: that sessions termination would be the first domino to fall

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Speaker 1: and the Justice Department's investigation into Russian interference. Do you

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Speaker 1: agree with that? I do think so. I think it would.

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Speaker 1: I think it would set in motion the president reasserting,

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Speaker 1: through his chosen Attorney general, reasserting control over Lawler's investigation.

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Speaker 1: And I think the more he does that, the more

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Speaker 1: problematic it is. I think there remains to be seen.

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Speaker 1: His options would range from have the new person shut

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Speaker 1: it down, perhaps even as a precondition to the appointment,

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Speaker 1: to anywhere to you know, keep a close eye on it,

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Speaker 1: monitor it, and let's make sure it will go a

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Speaker 1: direction that concerns me. I think either of those is problematic,

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Speaker 1: but the different degree. So we've seen this assault on

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Speaker 1: Jeff Sessions in tweets, etcetera for more than a year.

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Speaker 1: But it seems that a real trouble for Trump right

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Speaker 1: now is the Michael Cullen play and investigations in the

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Speaker 1: Southern District of New York, where the U. S. Attorney,

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Speaker 1: also appointed by Trump, also refused himself. But Trump doesn't

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Speaker 1: seem to be seeing that as as much of a

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Speaker 1: betrayal as the Sessions. I suppose he doesn't see it

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Speaker 1: perhaps has played as much of a threat. Um. Right

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Speaker 1: that the US attorney for the stuff that district did

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Speaker 1: recuse himself, and as with the Department of Justice, the

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Speaker 1: number two guy, the deputy U S. Attorney, has taken over. Ultimately,

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Speaker 1: I guess I'm given some face by the fact that

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Speaker 1: you can't fire the entire Department of Justice, can't fire

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Speaker 1: the entire Southern District of New York. Um. I think

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Speaker 1: that independent will ultimately prevail. And UM I'd also add

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Speaker 1: think there's now evidence that reporting that the New York

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Speaker 1: State Attorney General and the District Attorney of New York

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Speaker 1: in Manhattan are looking at presidential potential issues for the

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Speaker 1: president as well. And there's there's something the person I

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Speaker 1: can do to derail roads. Ellie, how much does the

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Speaker 1: Attorney General. Let's let's just take it away from this

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Speaker 1: and just say another attorney general, another investigation. How much,

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Speaker 1: say so, do they have in the Southern District's investigations.

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Speaker 1: It's interesting, technically the Southern District is more than technically

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Speaker 1: the Southern District is part of the United States Department

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Speaker 1: of Justice. I laughed because I worked there and people

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Speaker 1: used to call us the Sovereign District of New York.

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Speaker 1: And that's a reflection of the fact that the Southern

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Speaker 1: District is historically fiercely independent, and I think that will prevail. Um,

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Speaker 1: Like I said, you can't fire the entire Southern District

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Speaker 1: of New York. Um. I think the Southern District is

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Speaker 1: going to do what it's gonna do. So in some

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Speaker 1: ways they're they're that independence, I think is a good thing,

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Speaker 1: and they make the Southern District even more of a

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Speaker 1: threat than, uh than Main Justice itself. Let's talk about

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Speaker 1: some of the immunity deals that were reached that we

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Speaker 1: found about about. Well, first of all, we know that

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Speaker 1: Michael Cohen made a deal and said the you know,

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Speaker 1: in court rather inflammatory things, but we also had um

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Speaker 1: American Media Chairman David Pecker, um making getting immunity, and

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Speaker 1: Alan Weiselberg, the CFO of the Trump organization. Now, where

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Speaker 1: do you see those fitting in to the Mueller probe?

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Speaker 1: Uh So, immunity, first of all, is sort of a

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Speaker 1: version of cooperation. It's where the prosecutors want to speak

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Speaker 1: with an individual witness who may have some level of

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Speaker 1: criminal exposure, but not quite enough exposure or not enough

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Speaker 1: proof to have that person fleaked guilty to a charge.

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Speaker 1: So immunity is a bit more limited, but enabled prosecutors

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Speaker 1: to get the testimony from those individuals. Um, it's clear

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Speaker 1: that what to me, what the Southern District is doing

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Speaker 1: is circling around these allocations of campaign finance reform that

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Speaker 1: Cohen pled guilty to count seven and eight of his plea.

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Speaker 1: Weislbrook obviously is evolved in those payments, and so is Pecker.

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Speaker 1: So I think that's where the Southern districts focus. Where

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Speaker 1: does it overlap with Mueller? Remember the southerns sure a

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Speaker 1: part of d O J. And you know, based on

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Speaker 1: my time there and based on history, there's pretty free

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Speaker 1: sharing of information. So if the Southern District develops information

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Speaker 1: or a cooperator it's relevant to Moller. I would have

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Speaker 1: every reason to think that would be shared across the line.

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Speaker 1: Let's turn to Paul Manafort for a moment, because the

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Speaker 1: talk of Trump granting him a pardon keeps coming up

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Speaker 1: over and over again, especially in light of some of

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Speaker 1: the comments that Trump made after the Manifort guilty verdicts.

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Speaker 1: What what do you see as the result if if

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Speaker 1: there were a plea agreement, if there were a pardon

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Speaker 1: given to Manafort, where would that lead? We have about

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Speaker 1: a minute here. I think, first of all, I think

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Speaker 1: he's quite likely to grant that pardon. He's been signaling

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Speaker 1: not just during the trial, but before the trial. He

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Speaker 1: said tweets saying, oh, it's metaphorts a good man and

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Speaker 1: it's a sad day. Unfortunately or I guess fortunately, depending

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Speaker 1: on your perspective. The part of her is very broad

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Speaker 1: and has almost never been challenged. I do think that

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Speaker 1: if there was proof that that the President's part in

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Speaker 1: Manafort to prevent h from cooperating, you could have an

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Speaker 1: obstruction case there. But he's already laid the foundation to

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Speaker 1: say no, it's not because I was trying to keep

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Speaker 1: them quiet because I felt bad. Firm and I felt

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Speaker 1: it was unjust. Maybe somebody disagrees, but I'm the president

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Speaker 1: and I had a very broad part of power, So

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Speaker 1: I do think it could go that way, and I

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Speaker 1: don't think there's a heck of a lot that could

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Speaker 1: be done to counteract it. Well, we shall see. That's

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Speaker 1: always on our list here things have talked about. Thanks

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Speaker 1: so much, Ellie. That's Ellie Hohnig. He's a special counts

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Speaker 1: up lowlan Stein Sandler. Thanks for listening to the Bloomberg

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Speaker 1: Law Podcast. You can subscribe and listen to the show

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Speaker 1: on Apple podcast, SoundCloud, and on Bloomberg dot com slash podcast.

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Speaker 1: I'm June Brolso this is Bloomberg