Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 1: The upstart Amazon Labor union decisively won an election to
Speaker 1: represent workers at a warehouse in Staten Island last month,
Speaker 1: the first time organized labor has gained a foothold at
Speaker 1: one of the e commerce giants US facilities. But that's
Speaker 1: far from the end of the matter. Amazon is challenging
Speaker 1: the result, and now US Labor Board prosecutors have determined
Speaker 1: that anti union meetings held by Amazon prior to the
Speaker 1: union vote violated federal law. Joining me is Kate Andreas,
Speaker 1: a professor at Columbia Law School. Amazon has fired two
Speaker 1: employees with ties to the successful union effort, but it
Speaker 1: claims that there's no connection. Explain the issues here. So
Speaker 1: the National Labor Relations Back prohibits employers from coursing employees
Speaker 1: when they try to organize the union or from retaliating
Speaker 1: a of them, And so the employees in this case
Speaker 1: and the National Labor Relations Board believes that Amazon is
Speaker 1: actually firing them as retaliation for their union activity. So
Speaker 1: it becomes a question of motives. Was the reason for
Speaker 1: the firing something else like poor work performance or did
Speaker 1: their union activity play of motivating role in the termination.
Speaker 1: I'm surprised that Amazon would fire them so quickly. On
Speaker 1: its face, it looks bad, yes, um, But unfortunately employers
Speaker 1: routinely violate the law and retaliate against workers for organizing union.
Speaker 1: So if you look kind of at employer behavior and
Speaker 1: union organizing campaigns over time, that isn't actually all that surprising.
Speaker 1: What isn't some ways more surprising is how effectively and
Speaker 1: aggressively the National Labor Relations Board is pursuing the charges,
Speaker 1: and that I think complain an important role perhaps in
Speaker 1: the future in disputing employers from engaging in this kind
Speaker 1: of activity. What can the Labor Board do if it
Speaker 1: finds that it was an unfair labor practice. So in
Speaker 1: many cases in the past what has happened is that
Speaker 1: it takes a long time to litigate the case, and
Speaker 1: ultimately if the Labor Board is successful improving that the
Speaker 1: terminations were because of union activity or in part because
Speaker 1: of union activity, then the workers are reinstated with back pay.
Speaker 1: That can take a long time, though, and so what
Speaker 1: the Labor Board has begun to do more frequently is
Speaker 1: something that is long than within its power, which to
Speaker 1: seek a temporary injunction and try to get the workers
Speaker 1: reinstated in the meantime while the case is ending, but
Speaker 1: ultimately the remedy is for the workers to be reinstated
Speaker 1: with back pay. I want to talk about, you know,
Speaker 1: the dues and don't of union campaigns. What the employer
Speaker 1: can or can't do. Amazon allegedly violated the National Labor
Speaker 1: Relations Act by holding mandatory anti union meetings and threatening
Speaker 1: workers during those gatherings. Are these so called captive audience
Speaker 1: meetings allowed and what's the line? So Under the current
Speaker 1: interpretation of the law, employer can hold mandatory meetings during
Speaker 1: which they can campaign against the union, excepts in the
Speaker 1: twenty four hours prior to an election. What they can't do, however,
Speaker 1: is coerce employees who are trying to organize the union.
Speaker 1: During those meetings, they can't make threats or promises. The
Speaker 1: current General Council has made clear that she thinks that
Speaker 1: the very act of holding mandatory meetings basically telling workers
Speaker 1: who have to be here on work time and if
Speaker 1: you don't come and listen to a campaign against the union,
Speaker 1: you'll lose your job, that that is actually coercive and
Speaker 1: therefore they should be understood to violate the law. Currently
Speaker 1: under the doctrine that isn't the case. Employers can hold
Speaker 1: the mandatory meetings, but the General Council of the n
Speaker 1: l RB is seeking to change the interpretation of the law.
Speaker 1: Can employers hold one on one meetings with employees a
Speaker 1: supervisor meeting with an employee about unions? Again under the
Speaker 1: existing interpretation of the law, which has you know, it
Speaker 1: is varied over time. But under the existing interpretation employers
Speaker 1: have been able to hold such meetings. But what they
Speaker 1: can't do again as coerce employees during the course of
Speaker 1: those meetings, or make threats or promises in order to
Speaker 1: try to commence workers not to organized unions. But again,
Speaker 1: the very act of holding one on one meetings that
Speaker 1: are mandatory their condition of unemployment. You can see how
Speaker 1: that is inherently coercive. And that is a position at
Speaker 1: times in the past support has taken, and one that
Speaker 1: the General Council is again suggesting as the correct interpretation
Speaker 1: of the law. Petitions for union representation in the first
Speaker 1: half of two are up nearly sixty from last year,
Speaker 1: and public approval of unions is at its highest level
Speaker 1: since nineteen sixty five. How do you account for that
Speaker 1: change because unions have been out of favor for so long.
Speaker 1: I think there's a number of things going on. I mean,
Speaker 1: one thing is that the conditions under many workers are
Speaker 1: working are really atrocious. Low wages, lack of dignity on
Speaker 1: the job, unsafe working conditions. Meanwhile, employers like Amazon are
Speaker 1: making record profits extraordinary like billions of dollars for just dases,
Speaker 1: So that's growing inequality and the really terrible conditions that
Speaker 1: many workers are forced to work under is one factor
Speaker 1: that explains the rives and interest in organizing unions, which
Speaker 1: is really the most effective way of changing those underlying conditions.
Speaker 1: A second factor I think is the tight labor market.
Speaker 1: Because of low unemployment rate, workers are under less threat
Speaker 1: and the sense of losing jobs and not having somewhere
Speaker 1: else to go. And then a third factor, I think
Speaker 1: it's just the success that workers have had. So as
Speaker 1: more and more workers organized and there's media attention to
Speaker 1: those victories, more workers learn about their rights and decide
Speaker 1: to exercise them, and that, combined with the fact that
Speaker 1: the labor world is actually effectively enforcing the law, encouraged
Speaker 1: as more workers to organize. Kate, you had that first
Speaker 1: successful union vote at the Amazon warehouse in Staten Island,
Speaker 1: it got so much attention, and then another union vote
Speaker 1: right in the vicinity another warehouse failed. Is there any
Speaker 1: explanation for that? So I don't know enough about the
Speaker 1: particular details on the ground, but what I can say
Speaker 1: is that in some ways the second election, the one
Speaker 1: that the workers didn't want, is much more typical of
Speaker 1: recent years because the employers have such extraordinary course of
Speaker 1: authority over workers and the law allows them so much
Speaker 1: ability to campaign against union. So it's not at all
Speaker 1: a typical even when workers want to organize the union,
Speaker 1: for them to ultimately lose an election. So I think
Speaker 1: there's probably a couple of things that we're going on.
Speaker 1: One is, the first warehouse had extremely effective workers leaders
Speaker 1: from within the within the work site who built a
Speaker 1: very strong organization. So it seems likely that there might
Speaker 1: have been less strength of organization among the existing workers.
Speaker 1: And my understanding it's that there are a lot of
Speaker 1: part time workers. Is that the second facility, and frequently
Speaker 1: when you have a lot of part time workers and
Speaker 1: their connection to one another and to the work site
Speaker 1: is less strong, so it makes it harder to build
Speaker 1: an organization. And it's also possible that Amazon stepped up
Speaker 1: at anti union campaigning and did even more to try
Speaker 1: to dissuade workers or coerce them into not organizing. But
Speaker 1: it's not surprising, and in fact, we saw the prior
Speaker 1: election in Alabama where the workers also there was a
Speaker 1: lot of interest in organizing very pro working conditions. But
Speaker 1: the first election at least was unsuccessful. Amazon committed enough
Speaker 1: un fair labor practices that the National Relations Board ordered
Speaker 1: to rerun, and we still don't know the outcome of
Speaker 1: the second election, but it often takes multiple attempts before
Speaker 1: workers are successful given the kind of anti unique campaigning
Speaker 1: that employers engage in. This may be a naive question,
Speaker 1: but besides threats, what is the anti union message? What's
Speaker 1: the bad that will come from a union for these words? Yeah,
Speaker 1: so the threats are pretty considerable, and they can range
Speaker 1: from threats either explicit or implicit that if you do this,
Speaker 1: you might lose your job, that you might actually your conditions,
Speaker 1: that work might get worse in one way or another,
Speaker 1: that we might actually close down. Much of that is
Speaker 1: illegal to say explicitly, but um, it's possible to rephrase
Speaker 1: those kinds of threats of backs or opinions and evade
Speaker 1: the law, or its possible to just violate the law
Speaker 1: because the penalties are so low. So threats and being
Speaker 1: required at work to listen to threats, being campaigns at
Speaker 1: by your supervisor or someone who's blown in from headquarters
Speaker 1: can be quite effective. Another thing that often happens during
Speaker 1: the course of organizing campaigns is for employers to make
Speaker 1: promises like we didn't realize how bad it was, We're
Speaker 1: going to make things better. If you vote against the
Speaker 1: union will fix everything. If you don't, you won't, or
Speaker 1: at least to imply that, and that can also be
Speaker 1: really effective because people want to improve their work place
Speaker 1: and they know that the employer does have with the
Speaker 1: authority to do so. So threats and promises um sometimes
Speaker 1: actually just making changes. So we saw recently that Starbucks
Speaker 1: raised the wages of workers who didn't organize the union,
Speaker 1: So that's an implicit um, Well, if you don't organize
Speaker 1: the union, good things happen, and if you do, bad
Speaker 1: things happen. So not just threaten promises, but actually unilateral
Speaker 1: changes and work to try to persuade workers not to
Speaker 1: organize the union is that legal to raise the pay
Speaker 1: of some who are non union. No, not if it's
Speaker 1: done as a way to try to display the workers
Speaker 1: from organizing the union, or if it has that effect.
Speaker 1: But again, because the penalties are so low, and because
Speaker 1: historically the labor board hasn't been terribly effective and enforcing
Speaker 1: the law is often to employers advantage to violate the
Speaker 1: law or its edges because what they ultimately don't want
Speaker 1: is for there to be an organization that they have
Speaker 1: to deal with in the long term, so it's more
Speaker 1: cost effective to try to knof it out in the beginning. Now,
Speaker 1: of course, not all employers behave that way. Many are
Speaker 1: respect a law, and many have good working relationships with
Speaker 1: their unions and their workers. But employers like Amazon and
Speaker 1: Starbucks that have engaged in such wide bread unfairly p
Speaker 1: practices often make the calculation that is better to do
Speaker 1: so than to risk organization. Our labor organizers doing something different.
Speaker 1: Are they using different tactics? Well, one thing that's exciting
Speaker 1: is a lot of the energy is coming from workers
Speaker 1: themselves and from new organizations that they are building, including,
Speaker 1: for examples, that Amazon Labor Union, which was started by
Speaker 1: workers at the warehouses Staaten Island. We also see a
Speaker 1: lot of less traditional worker organizations like those organizing taxi
Speaker 1: workers for example, and then more established unions are also
Speaker 1: engaging in new cerally new organizing, but kind of returning
Speaker 1: to basics and engaging workers and building real organizations again,
Speaker 1: whether that's at Starbucks or at Apple, and really engaging
Speaker 1: in the work of helping workers build their own organizations
Speaker 1: so that they have a voice at work to play
Speaker 1: devil's advocate for a moment. Are we making too much
Speaker 1: of this wave of unionizing, because if you look at Amazon,
Speaker 1: that was one win out of eight hundred Amazon warehouse
Speaker 1: facilities and none of the company's nine thousand corporate stores.
Speaker 1: So I just wonder if these small union victories are
Speaker 1: being amplified. Yeah, I think that it's certainly possible that
Speaker 1: this will turn out to be more of a blip
Speaker 1: than any major turning point. We don't know. It's too
Speaker 1: early to know, but what we do know is that
Speaker 1: the underlying conditions facing workers are really difficult and are
Speaker 1: ones that workers want to change. We also know that
Speaker 1: workers want to build unions, and we've definitely see an
Speaker 1: upsurge and activity both among workers who are already organized
Speaker 1: and then kind of across the range of workplaces from
Speaker 1: journalists to graduate students to athletes to Starbucks workers and
Speaker 1: Amazon workers. Whether or not that energy, the desire, the
Speaker 1: change will be enough to give in the kind of
Speaker 1: back crowned legal regime and the background kind of conditions
Speaker 1: in our economy, whether it will be enough to be
Speaker 1: a kind of deep resurgence in the labor movement, I
Speaker 1: think is an open question. Are the odds against the
Speaker 1: unions and for the employers in most situations of organizing. Yes,
Speaker 1: in the sense that the legal regime remains stacked against
Speaker 1: employees in many ways, despite the fact that it formally
Speaker 1: protects the right to organize. It is the obstacles to
Speaker 1: successfully organizing and then successfully winning a contract are significant
Speaker 1: that said workers in the past, at various times in
Speaker 1: our history, have been able to overcome those obstacles and
Speaker 1: really transform conditions that work. So, yes, the odds or
Speaker 1: in favor of employers, but they're not insurmountable odds. The
Speaker 1: Amazon union in Staten Island do are they negotiating with
Speaker 1: Amazon at this point? So Amazon now does have a
Speaker 1: duty to bargain in good faith with those workers but um,
Speaker 1: Amazon is challenging the results of the election, And so
Speaker 1: frequently when employers challenged the results of the election, they
Speaker 1: refused to bargain, and they wait and they continue to
Speaker 1: refuse to bargain until the litigation is resolved. So they
Speaker 1: do have a duty to bargain. How quickly they will
Speaker 1: do so, I think will depend on what happens in
Speaker 1: the cases, how much public pressure is brought to there
Speaker 1: on Amazon, and probably also whether there's additional successful organizing.
Speaker 1: Let's say it's found that Amazon did violate federal law
Speaker 1: with the anti union meetings prior to the vote. What
Speaker 1: are the possible penalties. Well, there are a range of
Speaker 1: possible punishments. One the most common one is essentially in
Speaker 1: order not to do it again and for there to
Speaker 1: be a notice posted at the work site where it
Speaker 1: makes clear that Amazon violated the law and makes a
Speaker 1: commitment not to do so again. But there are additional
Speaker 1: remedies that the board might explore and might pursue, ranging
Speaker 1: from having you know, even the head of Amazon read
Speaker 1: a statement admitting or dating that the company has been
Speaker 1: found to be in violation of potentially offering equal time
Speaker 1: to the union. The future elections to make sure that
Speaker 1: both the union and the workers who want to organize
Speaker 1: the union are getting to express their views as well.
Speaker 1: But unfortunately, existing law does not have punitive damages or
Speaker 1: the kinds of penalties that many other laws have, and
Speaker 1: so the remedies aren't tend to be more kind of
Speaker 1: prospective than financial. But then there's all sorts of potential
Speaker 1: challenges if the board does pursue some of those moreographive
Speaker 1: remedies and if those cases end up at the Supreme Court.
Speaker 1: This court has not been sympathetic to union causes. To
Speaker 1: put it mildly, last term, the Court rejected the right
Speaker 1: of unions to organize farm workers by getting access to
Speaker 1: the farms, and a few years ago the Court overturned
Speaker 1: a thirty year precedent in the Janice case, rejecting agency
Speaker 1: fees for employees who don't join the union but who
Speaker 1: still benefit from the deals it makes. So has this
Speaker 1: court basically undermine unions? The Supreme Court, in a string
Speaker 1: of cases has held against unions and against workers, and
Speaker 1: an injustice leader in particular action we've been hearing a
Speaker 1: lot about in Resons weeks has repeatedly overruled path precedents
Speaker 1: in ways that weekend unions, and so I think if
Speaker 1: we do see an upsurge in union activity and more
Speaker 1: favorable interpretations of the law by the nationally, relations for
Speaker 1: some of those cases are likely to wind up in
Speaker 1: the courts of appeal, the maybe eventually in the Supreme Court.
Speaker 1: Union laws haven't been significantly updated since n is that
Speaker 1: what's really needed a change in the laws to make
Speaker 1: a better balance between union and employer. Yes, I think
Speaker 1: that labor law reform as essential and although ultimately as
Speaker 1: important as are the efforts of workers themselves to build unions,
Speaker 1: unless they are doing so against a fair process and
Speaker 1: against the fair kind of legal regime, it's very very
Speaker 1: hard to win, and reforming federal labor law is extremely important.
Speaker 1: There's a bill that's pending in Congress that has passed
Speaker 1: the House called the Proact, which would make several really
Speaker 1: important reforms to labor law, and if that were to pass,
Speaker 1: it would make it a lot easier for workers to
Speaker 1: organized unions and to win contracts. Thanks for your insights, Kate.
Speaker 1: That's Kate Andreas, a professor at Columbia Law School, a
Speaker 1: former no more a senior bond trader, was found not
Speaker 1: liable for defrauding the bank's clients by lying to them
Speaker 1: about the prices of commercial mortgage backed securities. James m
Speaker 1: who led the firm CMBs desk from two thousand nine
Speaker 1: until two thousand and fourteen, was accused by the Securities
Speaker 1: and ex Range Commission of Securities fraud. The jury verdict
Speaker 1: is another blow to the government's attempts to raining in
Speaker 1: questionable practices by bond traders. Joining me is James Park,
Speaker 1: a professor at u c l A law school, dart
Speaker 1: by telling us what were the charges or the allegations
Speaker 1: against James M. So, James Inn was a trader of
Speaker 1: bond traders who worked for the bank Nomura, and the
Speaker 1: basic allegation is that he lied while facilitating a market
Speaker 1: for trading in bonds backed by mortgages and his case,
Speaker 1: mortgages on commercial properties. And really there are four or
Speaker 1: five instances identified in the complaint where him would basically
Speaker 1: buy a bond for seventy dollars and then he would
Speaker 1: claim to someone else that he had paid seventy five
Speaker 1: dollars for it, and so he would then mark up
Speaker 1: the price of the bond based on the fall dollar
Speaker 1: pride as opposed to the lower seventy price and basically
Speaker 1: get a higher markup for himself and no Moura, and
Speaker 1: the sec basically argued that this was security fraud. He
Speaker 1: took the stand in his own defense, and he admitted
Speaker 1: to lyne to clients, but he said that everyone did it.
Speaker 1: It is remarkable. It is remarkable that he did not
Speaker 1: deny that he was lying. And the thing that's interesting
Speaker 1: about the case and and the results here is that
Speaker 1: even if you lie about a security's transaction doesn't necessarily
Speaker 1: mean you violated the securities laws. There's a requirement that
Speaker 1: the lie has to be about a material matter, something
Speaker 1: that's important to the investors decision making process. And I
Speaker 1: believe his argument was that because of the industry practice,
Speaker 1: the investors who bought the bond from him would have
Speaker 1: known not to believe him, and therefore those statements were
Speaker 1: not material and could not constitute securities fraud. There are
Speaker 1: responses I think that one can make to that argument,
Speaker 1: but I think that's the gist of what he argued,
Speaker 1: and the defense was successful. Tell me the responses. Because
Speaker 1: the prosecution has not been so successful in these cases,
Speaker 1: I think the best response is well, if it was
Speaker 1: not important to investors and investor decision making, why does
Speaker 1: the defendant have to lie in the first place, Why
Speaker 1: did they misrepresent the price that they bought the bond debt?
Speaker 1: And you know what him and some others in these
Speaker 1: cases of argued is that these are sophisticated investors who
Speaker 1: rely upon valuation models to determine what the price of
Speaker 1: the bond should be, and that they're relying on the
Speaker 1: valuation models and if they don't want to buy the bonds,
Speaker 1: they can always walk away from the transaction that they
Speaker 1: think that the price is unfair. But you know, valuation
Speaker 1: models are very imprecise, and the best evidence the value
Speaker 1: of a bond at a particular point in time is
Speaker 1: the last transaction at which that bond traded at. And
Speaker 1: to the extent that m live and UH and others
Speaker 1: did as well, then that to me is certainly arguably material.
Speaker 1: And you know, on the issue of the industry defense,
Speaker 1: it's it's very hard to know what the industry practice
Speaker 1: really was, and I you know, have some doubts about
Speaker 1: to what extent was this really pervasive among all bond
Speaker 1: traders and was it everyone or was it just a
Speaker 1: few bad apples. Um, I'm skeptical that it was everyone
Speaker 1: who felt the need to make such specific lies about
Speaker 1: the price. But you know, in the end, I think
Speaker 1: the SEC may not have provided sufficient evidence on the
Speaker 1: industry practice. So I think there were responses to the defense,
Speaker 1: but they obviously failed in this particular case. Before this jury,
Speaker 1: the defense attorney equated what him did basically to a
Speaker 1: car salesman. Apparently that did catch the jury's imagination. But
Speaker 1: I mean, is that a good comparison. I wouldn't want
Speaker 1: a car salesman that lied to me about the price
Speaker 1: that he or she bought the car for. And I
Speaker 1: think that car salesman, of course, will exaggerate, they'll embellish,
Speaker 1: they may use some puppery, they may use a little
Speaker 1: bit of a you know, pressure technique to get you
Speaker 1: to buy the car. But to me, I think it
Speaker 1: would be extremely problematic if the car salesman lied about
Speaker 1: specific things about the car and it's condition. And I
Speaker 1: think that, you know, in my view, I would not
Speaker 1: want to do business with a bond trader who was
Speaker 1: made in specific wise. And I think there's a distinction
Speaker 1: between hard negotiations. Maybe a little bit of you know, embellishment, exaggeration,
Speaker 1: and lying about something that is very specific. Number agreed
Speaker 1: to repay customers million dollars to resolve claims that it
Speaker 1: failed to supervise traders. It seems striking that the government
Speaker 1: in these cases has basically been unable to get convictions
Speaker 1: or convictions that stick true. I think that the defense
Speaker 1: might say a corporation like Nomura has incentive to settle
Speaker 1: cases with the SEC, which is regulating it in a
Speaker 1: lot of different areas, whereas individuals have more than incentive
Speaker 1: to fight charges. And you know, I think it's something
Speaker 1: that you know, the SEC is not always correct, and individuals,
Speaker 1: of course have a right to make their arguments. Sometimes
Speaker 1: they succeed, sometimes they don't. Overall, I think it's a
Speaker 1: good thing when the SEC is challenged in litigation and
Speaker 1: occasionally has to bring cases to try it. So I
Speaker 1: think certainly defense attorneys are well, you know, within their
Speaker 1: bounds in litigating these sorts of cases. And you know,
Speaker 1: there have been some losses, but there have also been
Speaker 1: a few wins to a lot of individuals have also
Speaker 1: pre bargained or settled cases by and large, and the
Speaker 1: Second Circuit did stay in one of those cases involving
Speaker 1: another trader at no mora that these lies could be materials.
Speaker 1: They could be material it's just an issue for the jury,
Speaker 1: and so it's a legal matter. To me, this is
Speaker 1: a sound legal theory, and just because the SEC loss
Speaker 1: this case and maybe a few others, does not necessarily
Speaker 1: mean that it's a bad theory. The other interesting thing
Speaker 1: about some of the earlier cases is that they were
Speaker 1: criminal cases. Criminal cases largely brought by the U. S.
Speaker 1: Attorney's Office in Connecticut, and that's a higher standard of crew.
Speaker 1: And so one of the interesting things about the m
Speaker 1: quittle is that this is a civil case with a
Speaker 1: lower standard of proof. I mean, so I could see
Speaker 1: why the SEC would bring these sorts of cases under
Speaker 1: that lower standard. And then I think it's a significant
Speaker 1: thing that, even under the lower standard, that the SEC
Speaker 1: lost this particular case. And so that is a significant
Speaker 1: loss for the SEC. But I still think that these
Speaker 1: are good cases that the government should have brought, even
Speaker 1: though they could be challenging to win each and every
Speaker 1: one of them. Do you think it's a waste of
Speaker 1: money and resources for the SEC to keep bringing these cases.
Speaker 1: I don't think it's a waste of money. I think
Speaker 1: that UM, the SEC should take cases to trial when
Speaker 1: it has to UM. One of the criticisms of the
Speaker 1: SEC is that it just settles cases whether the defendants
Speaker 1: do not admit or deny ondoing, and they just pay
Speaker 1: a penalty. And I think that there should be cases
Speaker 1: where you go to court and go in front of
Speaker 1: a jury. You might have to defend a decision in
Speaker 1: front of an appellate court, and you know, when a
Speaker 1: court weighs in on a legal theory, that provides valuable
Speaker 1: clarity to the SEC and the industry as to what
Speaker 1: the law is. And so I don't think it's a
Speaker 1: waste of money for the SEC. UM. I think that
Speaker 1: they should build up this experience, even though it does
Speaker 1: take a lot of time in terms of attorney resources.
Speaker 1: The more you try complex cases in federal court, the
Speaker 1: better you'll get at and I think that's something that
Speaker 1: the SEC needs to continue to develop that expertise. But
Speaker 1: it is costly in terms of time and resources, but
Speaker 1: I think it's worth the cost because of this crackdown
Speaker 1: where there changes made in the industry. Are bond traders
Speaker 1: not engaging in this now? The main change, which is
Speaker 1: evidence from some of the papers I read in the
Speaker 1: case is that banks like Nomura now have fearer policies
Speaker 1: about lying in transactions like this, and I suspect that
Speaker 1: that is something that is very clear. But in this
Speaker 1: very case, even after Nomura has the policy which I
Speaker 1: think was after the lip back case which you referred to,
Speaker 1: this defendant continue to lie and so that's troubling. That's
Speaker 1: troubling to me that you have this sort of this
Speaker 1: conduct potentially continuing. I hope that it is an aberration,
Speaker 1: and I do believe that, um, the vast majority of
Speaker 1: folks who work on Wall Street are are ethical, honest people, UM,
Speaker 1: and especially when there's a clear policy on an issue,
Speaker 1: they will understand that there are certain lines that cannot
Speaker 1: be crossed. So I don't know if this market has changed,
Speaker 1: but I'm certain that the banks are more aware of
Speaker 1: the issue, and I hope that they are taking measures
Speaker 1: to ensure UM that this sort of misconduct does not continue.
Speaker 1: On a scale of one to tend, how damaging would
Speaker 1: you say this verdict is to the government's attempts to
Speaker 1: reign in questionable practices by bond traders, I would rate
Speaker 1: it about a six. I think that it is one case.
Speaker 1: On the other hand, it does raise some problems in
Speaker 1: the SEC's theory on materiality and what is material um.
Speaker 1: It also raises issues about from the protection of sophisticated investors,
Speaker 1: and it's plausible that the jury thought, you know, these
Speaker 1: are sophisticated investors who should protect themselves and they should
Speaker 1: not just rely upon these statements. There's also the challenge
Speaker 1: of bringing cases with respect to conduct that might be
Speaker 1: sanctioned by industry norm. It can be very difficult to
Speaker 1: challenge that sort of conduct as being illegal when it
Speaker 1: is the industry norm. I do think the SEC should try,
Speaker 1: and I think it was right for them to do
Speaker 1: it in this particular case. And so I think, you know,
Speaker 1: the occasional loss it's gonna happen when you are bringing
Speaker 1: cases like this, and to me, it's it's a loss
Speaker 1: and it's significant, but it's not a terrible blow to
Speaker 1: the SEC's work. You know. It's interesting to think about
Speaker 1: how the prosecutors and enforcement attorneys in the Bill Hawan
Speaker 1: cases we talked about a week or two ago might
Speaker 1: view this decision. And I sat that they're a little
Speaker 1: bit nervous about this result. It's the Manhattan jury. It
Speaker 1: was a case brought with a lower standard of proof,
Speaker 1: and you know, the jury found that these were lies,
Speaker 1: but they were not material because they were directed at
Speaker 1: sophisticated party and that to some extent described some of
Speaker 1: the misconduct in the Bill Fong case with respect to
Speaker 1: lies about the positions Wong Fund was taking and the
Speaker 1: amount of leverage that it had, because you know, these
Speaker 1: are sophisticated banks. On the other hand, I think we
Speaker 1: can differentiate this case because you know this it's not
Speaker 1: a case that you know, the m case is not
Speaker 1: one that shook the stock market or the bond market.
Speaker 1: These are lies that enabled Nomura and its traders to
Speaker 1: earn a little bit more in commissions and it didn't
Speaker 1: have really a huge impact on third parties, whereas the
Speaker 1: Wan case is one where the lies allegedly facilitated manipulation
Speaker 1: that literally shook the entire stock market. Thanks James. That's
Speaker 1: Professor James Park of u c l A Law School,
Speaker 1: And that's it for this edition of the Bloomberg Law Show.
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Speaker 1: Grosso and you're listening to Bloomberg