WEBVTT - Unions Are on the Rise Again 0:00:03.160 --> 0:00:07.960 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:00:08.960 --> 0:00:12.560 The upstart Amazon Labor union decisively won an election to 0:00:12.640 --> 0:00:16.080 represent workers at a warehouse in Staten Island last month, 0:00:16.440 --> 0:00:19.480 the first time organized labor has gained a foothold at 0:00:19.480 --> 0:00:22.919 one of the e commerce giants US facilities. But that's 0:00:22.960 --> 0:00:26.040 far from the end of the matter. Amazon is challenging 0:00:26.079 --> 0:00:30.120 the result, and now US Labor Board prosecutors have determined 0:00:30.120 --> 0:00:33.640 that anti union meetings held by Amazon prior to the 0:00:33.720 --> 0:00:38.000 union vote violated federal law. Joining me is Kate Andreas, 0:00:38.080 --> 0:00:42.440 a professor at Columbia Law School. Amazon has fired two 0:00:42.479 --> 0:00:47.600 employees with ties to the successful union effort, but it 0:00:47.720 --> 0:00:51.360 claims that there's no connection. Explain the issues here. So 0:00:51.600 --> 0:00:56.640 the National Labor Relations Back prohibits employers from coursing employees 0:00:56.920 --> 0:00:59.760 when they try to organize the union or from retaliating 0:00:59.800 --> 0:01:02.480 a of them, And so the employees in this case 0:01:02.760 --> 0:01:05.880 and the National Labor Relations Board believes that Amazon is 0:01:06.000 --> 0:01:10.240 actually firing them as retaliation for their union activity. So 0:01:10.280 --> 0:01:13.080 it becomes a question of motives. Was the reason for 0:01:13.120 --> 0:01:16.520 the firing something else like poor work performance or did 0:01:16.600 --> 0:01:20.360 their union activity play of motivating role in the termination. 0:01:21.240 --> 0:01:24.800 I'm surprised that Amazon would fire them so quickly. On 0:01:24.880 --> 0:01:29.000 its face, it looks bad, yes, um, But unfortunately employers 0:01:29.120 --> 0:01:34.160 routinely violate the law and retaliate against workers for organizing union. 0:01:34.520 --> 0:01:37.280 So if you look kind of at employer behavior and 0:01:37.400 --> 0:01:41.480 union organizing campaigns over time, that isn't actually all that surprising. 0:01:41.880 --> 0:01:45.520 What isn't some ways more surprising is how effectively and 0:01:45.560 --> 0:01:49.840 aggressively the National Labor Relations Board is pursuing the charges, 0:01:50.400 --> 0:01:53.560 and that I think complain an important role perhaps in 0:01:53.600 --> 0:01:56.680 the future in disputing employers from engaging in this kind 0:01:56.720 --> 0:02:00.600 of activity. What can the Labor Board do if it 0:02:00.760 --> 0:02:05.520 finds that it was an unfair labor practice. So in 0:02:05.720 --> 0:02:09.280 many cases in the past what has happened is that 0:02:09.600 --> 0:02:11.720 it takes a long time to litigate the case, and 0:02:11.880 --> 0:02:15.960 ultimately if the Labor Board is successful improving that the 0:02:16.240 --> 0:02:19.560 terminations were because of union activity or in part because 0:02:19.600 --> 0:02:23.440 of union activity, then the workers are reinstated with back pay. 0:02:23.840 --> 0:02:25.480 That can take a long time, though, and so what 0:02:25.560 --> 0:02:28.200 the Labor Board has begun to do more frequently is 0:02:28.200 --> 0:02:30.600 something that is long than within its power, which to 0:02:31.120 --> 0:02:35.320 seek a temporary injunction and try to get the workers 0:02:35.320 --> 0:02:39.240 reinstated in the meantime while the case is ending, but 0:02:39.400 --> 0:02:42.560 ultimately the remedy is for the workers to be reinstated 0:02:42.600 --> 0:02:45.600 with back pay. I want to talk about, you know, 0:02:45.680 --> 0:02:49.520 the dues and don't of union campaigns. What the employer 0:02:49.639 --> 0:02:54.280 can or can't do. Amazon allegedly violated the National Labor 0:02:54.320 --> 0:02:58.720 Relations Act by holding mandatory anti union meetings and threatening 0:02:58.760 --> 0:03:03.200 workers during those gatherings. Are these so called captive audience 0:03:03.280 --> 0:03:07.880 meetings allowed and what's the line? So Under the current 0:03:07.880 --> 0:03:13.320 interpretation of the law, employer can hold mandatory meetings during 0:03:13.360 --> 0:03:16.720 which they can campaign against the union, excepts in the 0:03:16.720 --> 0:03:20.919 twenty four hours prior to an election. What they can't do, however, 0:03:21.200 --> 0:03:24.519 is coerce employees who are trying to organize the union. 0:03:24.800 --> 0:03:28.280 During those meetings, they can't make threats or promises. The 0:03:28.440 --> 0:03:32.520 current General Council has made clear that she thinks that 0:03:32.639 --> 0:03:36.080 the very act of holding mandatory meetings basically telling workers 0:03:36.080 --> 0:03:38.400 who have to be here on work time and if 0:03:38.440 --> 0:03:41.000 you don't come and listen to a campaign against the union, 0:03:41.240 --> 0:03:44.480 you'll lose your job, that that is actually coercive and 0:03:44.520 --> 0:03:48.080 therefore they should be understood to violate the law. Currently 0:03:48.200 --> 0:03:51.520 under the doctrine that isn't the case. Employers can hold 0:03:51.520 --> 0:03:53.880 the mandatory meetings, but the General Council of the n 0:03:54.000 --> 0:03:57.520 l RB is seeking to change the interpretation of the law. 0:03:58.120 --> 0:04:02.480 Can employers hold one on one meetings with employees a 0:04:02.520 --> 0:04:08.160 supervisor meeting with an employee about unions? Again under the 0:04:08.200 --> 0:04:10.680 existing interpretation of the law, which has you know, it 0:04:10.840 --> 0:04:14.400 is varied over time. But under the existing interpretation employers 0:04:14.440 --> 0:04:17.040 have been able to hold such meetings. But what they 0:04:17.040 --> 0:04:20.080 can't do again as coerce employees during the course of 0:04:20.120 --> 0:04:23.800 those meetings, or make threats or promises in order to 0:04:23.839 --> 0:04:27.279 try to commence workers not to organized unions. But again, 0:04:27.440 --> 0:04:29.599 the very act of holding one on one meetings that 0:04:29.640 --> 0:04:32.360 are mandatory their condition of unemployment. You can see how 0:04:32.400 --> 0:04:36.240 that is inherently coercive. And that is a position at 0:04:36.279 --> 0:04:38.400 times in the past support has taken, and one that 0:04:38.520 --> 0:04:42.320 the General Council is again suggesting as the correct interpretation 0:04:42.360 --> 0:04:46.440 of the law. Petitions for union representation in the first 0:04:46.440 --> 0:04:50.200 half of two are up nearly sixty from last year, 0:04:50.720 --> 0:04:53.760 and public approval of unions is at its highest level 0:04:53.800 --> 0:04:56.520 since nineteen sixty five. How do you account for that 0:04:56.640 --> 0:05:00.560 change because unions have been out of favor for so long. 0:05:01.120 --> 0:05:03.200 I think there's a number of things going on. I mean, 0:05:03.240 --> 0:05:06.480 one thing is that the conditions under many workers are 0:05:06.520 --> 0:05:10.039 working are really atrocious. Low wages, lack of dignity on 0:05:10.040 --> 0:05:14.600 the job, unsafe working conditions. Meanwhile, employers like Amazon are 0:05:14.640 --> 0:05:19.240 making record profits extraordinary like billions of dollars for just dases, 0:05:19.320 --> 0:05:22.320 So that's growing inequality and the really terrible conditions that 0:05:22.360 --> 0:05:25.120 many workers are forced to work under is one factor 0:05:25.160 --> 0:05:28.200 that explains the rives and interest in organizing unions, which 0:05:28.240 --> 0:05:31.520 is really the most effective way of changing those underlying conditions. 0:05:31.560 --> 0:05:34.200 A second factor I think is the tight labor market. 0:05:34.520 --> 0:05:38.159 Because of low unemployment rate, workers are under less threat 0:05:38.200 --> 0:05:40.520 and the sense of losing jobs and not having somewhere 0:05:40.520 --> 0:05:42.680 else to go. And then a third factor, I think 0:05:42.680 --> 0:05:45.719 it's just the success that workers have had. So as 0:05:45.839 --> 0:05:49.400 more and more workers organized and there's media attention to 0:05:49.600 --> 0:05:53.400 those victories, more workers learn about their rights and decide 0:05:53.440 --> 0:05:56.400 to exercise them, and that, combined with the fact that 0:05:56.480 --> 0:05:59.920 the labor world is actually effectively enforcing the law, encouraged 0:06:00.000 --> 0:06:02.760 as more workers to organize. Kate, you had that first 0:06:02.760 --> 0:06:07.679 successful union vote at the Amazon warehouse in Staten Island, 0:06:07.680 --> 0:06:12.599 it got so much attention, and then another union vote 0:06:13.000 --> 0:06:16.599 right in the vicinity another warehouse failed. Is there any 0:06:16.640 --> 0:06:20.000 explanation for that? So I don't know enough about the 0:06:20.040 --> 0:06:22.839 particular details on the ground, but what I can say 0:06:22.960 --> 0:06:25.560 is that in some ways the second election, the one 0:06:25.600 --> 0:06:28.400 that the workers didn't want, is much more typical of 0:06:28.480 --> 0:06:32.560 recent years because the employers have such extraordinary course of 0:06:32.640 --> 0:06:35.560 authority over workers and the law allows them so much 0:06:35.560 --> 0:06:37.840 ability to campaign against union. So it's not at all 0:06:37.880 --> 0:06:40.640 a typical even when workers want to organize the union, 0:06:41.000 --> 0:06:43.640 for them to ultimately lose an election. So I think 0:06:43.680 --> 0:06:45.840 there's probably a couple of things that we're going on. 0:06:45.839 --> 0:06:50.280 One is, the first warehouse had extremely effective workers leaders 0:06:50.320 --> 0:06:53.200 from within the within the work site who built a 0:06:53.279 --> 0:06:56.440 very strong organization. So it seems likely that there might 0:06:56.440 --> 0:06:59.640 have been less strength of organization among the existing workers. 0:07:00.040 --> 0:07:01.479 And my understanding it's that there are a lot of 0:07:01.560 --> 0:07:04.479 part time workers. Is that the second facility, and frequently 0:07:04.480 --> 0:07:06.080 when you have a lot of part time workers and 0:07:06.240 --> 0:07:08.720 their connection to one another and to the work site 0:07:08.760 --> 0:07:10.480 is less strong, so it makes it harder to build 0:07:10.480 --> 0:07:13.800 an organization. And it's also possible that Amazon stepped up 0:07:13.840 --> 0:07:16.920 at anti union campaigning and did even more to try 0:07:16.960 --> 0:07:21.840 to dissuade workers or coerce them into not organizing. But 0:07:21.960 --> 0:07:24.600 it's not surprising, and in fact, we saw the prior 0:07:24.640 --> 0:07:27.320 election in Alabama where the workers also there was a 0:07:27.360 --> 0:07:30.680 lot of interest in organizing very pro working conditions. But 0:07:30.800 --> 0:07:34.600 the first election at least was unsuccessful. Amazon committed enough 0:07:34.640 --> 0:07:39.120 un fair labor practices that the National Relations Board ordered 0:07:39.160 --> 0:07:41.240 to rerun, and we still don't know the outcome of 0:07:41.280 --> 0:07:45.239 the second election, but it often takes multiple attempts before 0:07:45.240 --> 0:07:48.840 workers are successful given the kind of anti unique campaigning 0:07:48.840 --> 0:07:52.360 that employers engage in. This may be a naive question, 0:07:52.440 --> 0:07:57.280 but besides threats, what is the anti union message? What's 0:07:57.320 --> 0:08:01.240 the bad that will come from a union for these words? Yeah, 0:08:01.240 --> 0:08:03.440 so the threats are pretty considerable, and they can range 0:08:03.440 --> 0:08:06.360 from threats either explicit or implicit that if you do this, 0:08:06.480 --> 0:08:09.080 you might lose your job, that you might actually your conditions, 0:08:09.080 --> 0:08:11.239 that work might get worse in one way or another, 0:08:11.440 --> 0:08:14.080 that we might actually close down. Much of that is 0:08:14.120 --> 0:08:17.880 illegal to say explicitly, but um, it's possible to rephrase 0:08:18.320 --> 0:08:21.840 those kinds of threats of backs or opinions and evade 0:08:21.880 --> 0:08:23.880 the law, or its possible to just violate the law 0:08:24.040 --> 0:08:27.119 because the penalties are so low. So threats and being 0:08:27.360 --> 0:08:31.040 required at work to listen to threats, being campaigns at 0:08:31.040 --> 0:08:34.640 by your supervisor or someone who's blown in from headquarters 0:08:34.720 --> 0:08:38.240 can be quite effective. Another thing that often happens during 0:08:38.280 --> 0:08:40.920 the course of organizing campaigns is for employers to make 0:08:40.920 --> 0:08:43.720 promises like we didn't realize how bad it was, We're 0:08:43.720 --> 0:08:46.520 going to make things better. If you vote against the 0:08:46.600 --> 0:08:50.439 union will fix everything. If you don't, you won't, or 0:08:50.480 --> 0:08:52.720 at least to imply that, and that can also be 0:08:52.760 --> 0:08:55.760 really effective because people want to improve their work place 0:08:55.800 --> 0:08:57.960 and they know that the employer does have with the 0:08:58.000 --> 0:09:01.840 authority to do so. So threats and promises um sometimes 0:09:01.920 --> 0:09:06.000 actually just making changes. So we saw recently that Starbucks 0:09:06.080 --> 0:09:08.959 raised the wages of workers who didn't organize the union, 0:09:09.160 --> 0:09:12.320 So that's an implicit um, Well, if you don't organize 0:09:12.320 --> 0:09:14.760 the union, good things happen, and if you do, bad 0:09:14.800 --> 0:09:18.160 things happen. So not just threaten promises, but actually unilateral 0:09:18.240 --> 0:09:21.040 changes and work to try to persuade workers not to 0:09:21.280 --> 0:09:24.560 organize the union is that legal to raise the pay 0:09:24.640 --> 0:09:27.600 of some who are non union. No, not if it's 0:09:27.640 --> 0:09:30.480 done as a way to try to display the workers 0:09:30.480 --> 0:09:32.720 from organizing the union, or if it has that effect. 0:09:33.040 --> 0:09:35.920 But again, because the penalties are so low, and because 0:09:36.000 --> 0:09:39.360 historically the labor board hasn't been terribly effective and enforcing 0:09:39.360 --> 0:09:43.079 the law is often to employers advantage to violate the 0:09:43.160 --> 0:09:47.200 law or its edges because what they ultimately don't want 0:09:47.400 --> 0:09:49.920 is for there to be an organization that they have 0:09:49.960 --> 0:09:51.760 to deal with in the long term, so it's more 0:09:51.760 --> 0:09:54.960 cost effective to try to knof it out in the beginning. Now, 0:09:54.960 --> 0:09:57.160 of course, not all employers behave that way. Many are 0:09:57.400 --> 0:09:59.640 respect a law, and many have good working relationships with 0:09:59.720 --> 0:10:02.360 their unions and their workers. But employers like Amazon and 0:10:02.400 --> 0:10:05.839 Starbucks that have engaged in such wide bread unfairly p 0:10:05.840 --> 0:10:09.600 practices often make the calculation that is better to do 0:10:09.640 --> 0:10:15.680 so than to risk organization. Our labor organizers doing something different. 0:10:15.840 --> 0:10:19.800 Are they using different tactics? Well, one thing that's exciting 0:10:19.880 --> 0:10:21.800 is a lot of the energy is coming from workers 0:10:21.800 --> 0:10:25.240 themselves and from new organizations that they are building, including, 0:10:25.280 --> 0:10:28.360 for examples, that Amazon Labor Union, which was started by 0:10:28.440 --> 0:10:31.920 workers at the warehouses Staaten Island. We also see a 0:10:31.920 --> 0:10:36.200 lot of less traditional worker organizations like those organizing taxi 0:10:36.240 --> 0:10:40.160 workers for example, and then more established unions are also 0:10:40.200 --> 0:10:43.560 engaging in new cerally new organizing, but kind of returning 0:10:43.559 --> 0:10:47.480 to basics and engaging workers and building real organizations again, 0:10:47.520 --> 0:10:51.880 whether that's at Starbucks or at Apple, and really engaging 0:10:51.920 --> 0:10:55.280 in the work of helping workers build their own organizations 0:10:55.280 --> 0:10:57.880 so that they have a voice at work to play 0:10:57.920 --> 0:11:01.280 devil's advocate for a moment. Are we making too much 0:11:01.480 --> 0:11:05.480 of this wave of unionizing, because if you look at Amazon, 0:11:06.000 --> 0:11:10.240 that was one win out of eight hundred Amazon warehouse 0:11:10.280 --> 0:11:14.640 facilities and none of the company's nine thousand corporate stores. 0:11:15.120 --> 0:11:20.160 So I just wonder if these small union victories are 0:11:20.280 --> 0:11:24.880 being amplified. Yeah, I think that it's certainly possible that 0:11:24.920 --> 0:11:26.800 this will turn out to be more of a blip 0:11:27.040 --> 0:11:29.880 than any major turning point. We don't know. It's too 0:11:29.920 --> 0:11:32.440 early to know, but what we do know is that 0:11:32.480 --> 0:11:37.360 the underlying conditions facing workers are really difficult and are 0:11:37.400 --> 0:11:40.040 ones that workers want to change. We also know that 0:11:40.080 --> 0:11:43.040 workers want to build unions, and we've definitely see an 0:11:43.120 --> 0:11:46.120 upsurge and activity both among workers who are already organized 0:11:46.320 --> 0:11:49.120 and then kind of across the range of workplaces from 0:11:49.200 --> 0:11:53.640 journalists to graduate students to athletes to Starbucks workers and 0:11:53.679 --> 0:11:56.719 Amazon workers. Whether or not that energy, the desire, the 0:11:56.800 --> 0:11:59.680 change will be enough to give in the kind of 0:11:59.679 --> 0:12:03.200 back crowned legal regime and the background kind of conditions 0:12:03.200 --> 0:12:05.920 in our economy, whether it will be enough to be 0:12:05.960 --> 0:12:08.360 a kind of deep resurgence in the labor movement, I 0:12:08.400 --> 0:12:11.880 think is an open question. Are the odds against the 0:12:12.040 --> 0:12:18.120 unions and for the employers in most situations of organizing. Yes, 0:12:18.400 --> 0:12:22.840 in the sense that the legal regime remains stacked against 0:12:23.080 --> 0:12:27.319 employees in many ways, despite the fact that it formally 0:12:27.480 --> 0:12:30.760 protects the right to organize. It is the obstacles to 0:12:30.880 --> 0:12:35.280 successfully organizing and then successfully winning a contract are significant 0:12:35.880 --> 0:12:38.760 that said workers in the past, at various times in 0:12:38.760 --> 0:12:41.760 our history, have been able to overcome those obstacles and 0:12:41.800 --> 0:12:46.319 really transform conditions that work. So, yes, the odds or 0:12:46.360 --> 0:12:50.760 in favor of employers, but they're not insurmountable odds. The 0:12:50.840 --> 0:12:54.560 Amazon union in Staten Island do are they negotiating with 0:12:54.760 --> 0:12:58.600 Amazon at this point? So Amazon now does have a 0:12:58.760 --> 0:13:02.800 duty to bargain in good faith with those workers but um, 0:13:02.840 --> 0:13:06.120 Amazon is challenging the results of the election, And so 0:13:06.200 --> 0:13:09.079 frequently when employers challenged the results of the election, they 0:13:09.120 --> 0:13:12.520 refused to bargain, and they wait and they continue to 0:13:12.559 --> 0:13:16.360 refuse to bargain until the litigation is resolved. So they 0:13:16.400 --> 0:13:18.720 do have a duty to bargain. How quickly they will 0:13:18.760 --> 0:13:21.840 do so, I think will depend on what happens in 0:13:21.920 --> 0:13:25.280 the cases, how much public pressure is brought to there 0:13:25.360 --> 0:13:29.199 on Amazon, and probably also whether there's additional successful organizing. 0:13:30.400 --> 0:13:34.200 Let's say it's found that Amazon did violate federal law 0:13:34.800 --> 0:13:39.040 with the anti union meetings prior to the vote. What 0:13:39.120 --> 0:13:42.040 are the possible penalties. Well, there are a range of 0:13:42.040 --> 0:13:45.240 possible punishments. One the most common one is essentially in 0:13:45.400 --> 0:13:47.280 order not to do it again and for there to 0:13:47.320 --> 0:13:50.480 be a notice posted at the work site where it 0:13:50.520 --> 0:13:53.240 makes clear that Amazon violated the law and makes a 0:13:53.240 --> 0:13:56.040 commitment not to do so again. But there are additional 0:13:56.080 --> 0:14:00.400 remedies that the board might explore and might pursue, ranging 0:14:00.440 --> 0:14:03.160 from having you know, even the head of Amazon read 0:14:03.200 --> 0:14:07.040 a statement admitting or dating that the company has been 0:14:07.080 --> 0:14:10.959 found to be in violation of potentially offering equal time 0:14:11.040 --> 0:14:14.760 to the union. The future elections to make sure that 0:14:14.960 --> 0:14:17.880 both the union and the workers who want to organize 0:14:17.880 --> 0:14:20.240 the union are getting to express their views as well. 0:14:20.400 --> 0:14:25.480 But unfortunately, existing law does not have punitive damages or 0:14:25.920 --> 0:14:29.000 the kinds of penalties that many other laws have, and 0:14:29.080 --> 0:14:32.240 so the remedies aren't tend to be more kind of 0:14:32.280 --> 0:14:36.200 prospective than financial. But then there's all sorts of potential 0:14:36.360 --> 0:14:39.320 challenges if the board does pursue some of those moreographive 0:14:39.400 --> 0:14:43.560 remedies and if those cases end up at the Supreme Court. 0:14:43.560 --> 0:14:47.440 This court has not been sympathetic to union causes. To 0:14:47.520 --> 0:14:51.840 put it mildly, last term, the Court rejected the right 0:14:52.040 --> 0:14:57.040 of unions to organize farm workers by getting access to 0:14:57.080 --> 0:15:00.800 the farms, and a few years ago the Court overturned 0:15:00.880 --> 0:15:06.560 a thirty year precedent in the Janice case, rejecting agency 0:15:06.680 --> 0:15:10.280 fees for employees who don't join the union but who 0:15:10.400 --> 0:15:14.400 still benefit from the deals it makes. So has this 0:15:14.480 --> 0:15:18.680 court basically undermine unions? The Supreme Court, in a string 0:15:18.720 --> 0:15:22.360 of cases has held against unions and against workers, and 0:15:22.560 --> 0:15:25.840 an injustice leader in particular action we've been hearing a 0:15:25.880 --> 0:15:30.440 lot about in Resons weeks has repeatedly overruled path precedents 0:15:30.440 --> 0:15:33.320 in ways that weekend unions, and so I think if 0:15:33.320 --> 0:15:36.800 we do see an upsurge in union activity and more 0:15:36.800 --> 0:15:40.280 favorable interpretations of the law by the nationally, relations for 0:15:40.640 --> 0:15:42.880 some of those cases are likely to wind up in 0:15:42.920 --> 0:15:45.520 the courts of appeal, the maybe eventually in the Supreme Court. 0:15:46.160 --> 0:15:51.680 Union laws haven't been significantly updated since n is that 0:15:51.760 --> 0:15:54.920 what's really needed a change in the laws to make 0:15:54.960 --> 0:16:00.400 a better balance between union and employer. Yes, I think 0:16:00.400 --> 0:16:06.000 that labor law reform as essential and although ultimately as 0:16:06.040 --> 0:16:08.960 important as are the efforts of workers themselves to build unions, 0:16:09.040 --> 0:16:12.200 unless they are doing so against a fair process and 0:16:12.320 --> 0:16:14.840 against the fair kind of legal regime, it's very very 0:16:14.880 --> 0:16:19.640 hard to win, and reforming federal labor law is extremely important. 0:16:19.680 --> 0:16:22.600 There's a bill that's pending in Congress that has passed 0:16:22.600 --> 0:16:25.320 the House called the Proact, which would make several really 0:16:25.360 --> 0:16:29.000 important reforms to labor law, and if that were to pass, 0:16:29.560 --> 0:16:31.520 it would make it a lot easier for workers to 0:16:32.200 --> 0:16:36.200 organized unions and to win contracts. Thanks for your insights, Kate. 0:16:36.440 --> 0:16:41.920 That's Kate Andreas, a professor at Columbia Law School, a 0:16:42.040 --> 0:16:44.840 former no more a senior bond trader, was found not 0:16:45.040 --> 0:16:48.400 liable for defrauding the bank's clients by lying to them 0:16:48.440 --> 0:16:52.760 about the prices of commercial mortgage backed securities. James m 0:16:52.760 --> 0:16:55.960 who led the firm CMBs desk from two thousand nine 0:16:56.000 --> 0:16:59.600 until two thousand and fourteen, was accused by the Securities 0:16:59.600 --> 0:17:03.360 and ex Range Commission of Securities fraud. The jury verdict 0:17:03.440 --> 0:17:06.320 is another blow to the government's attempts to raining in 0:17:06.480 --> 0:17:10.800 questionable practices by bond traders. Joining me is James Park, 0:17:10.920 --> 0:17:13.800 a professor at u c l A law school, dart 0:17:13.880 --> 0:17:18.040 by telling us what were the charges or the allegations 0:17:18.080 --> 0:17:22.600 against James M. So, James Inn was a trader of 0:17:22.680 --> 0:17:26.480 bond traders who worked for the bank Nomura, and the 0:17:26.520 --> 0:17:31.200 basic allegation is that he lied while facilitating a market 0:17:31.280 --> 0:17:35.800 for trading in bonds backed by mortgages and his case, 0:17:35.880 --> 0:17:40.199 mortgages on commercial properties. And really there are four or 0:17:40.200 --> 0:17:44.920 five instances identified in the complaint where him would basically 0:17:45.480 --> 0:17:48.680 buy a bond for seventy dollars and then he would 0:17:48.720 --> 0:17:52.520 claim to someone else that he had paid seventy five 0:17:52.640 --> 0:17:55.919 dollars for it, and so he would then mark up 0:17:55.960 --> 0:17:59.520 the price of the bond based on the fall dollar 0:17:59.640 --> 0:18:04.280 pride as opposed to the lower seventy price and basically 0:18:04.600 --> 0:18:08.240 get a higher markup for himself and no Moura, and 0:18:08.359 --> 0:18:13.520 the sec basically argued that this was security fraud. He 0:18:13.640 --> 0:18:16.960 took the stand in his own defense, and he admitted 0:18:17.119 --> 0:18:21.080 to lyne to clients, but he said that everyone did it. 0:18:21.080 --> 0:18:24.760 It is remarkable. It is remarkable that he did not 0:18:24.960 --> 0:18:28.760 deny that he was lying. And the thing that's interesting 0:18:28.800 --> 0:18:31.760 about the case and and the results here is that 0:18:32.080 --> 0:18:36.640 even if you lie about a security's transaction doesn't necessarily 0:18:36.680 --> 0:18:40.800 mean you violated the securities laws. There's a requirement that 0:18:40.880 --> 0:18:44.280 the lie has to be about a material matter, something 0:18:44.320 --> 0:18:49.000 that's important to the investors decision making process. And I 0:18:49.040 --> 0:18:53.840 believe his argument was that because of the industry practice, 0:18:54.400 --> 0:18:58.399 the investors who bought the bond from him would have 0:18:58.520 --> 0:19:03.040 known not to believe him, and therefore those statements were 0:19:03.040 --> 0:19:08.560 not material and could not constitute securities fraud. There are 0:19:08.880 --> 0:19:11.760 responses I think that one can make to that argument, 0:19:11.800 --> 0:19:14.840 but I think that's the gist of what he argued, 0:19:14.880 --> 0:19:18.800 and the defense was successful. Tell me the responses. Because 0:19:18.800 --> 0:19:22.240 the prosecution has not been so successful in these cases, 0:19:23.080 --> 0:19:27.879 I think the best response is well, if it was 0:19:27.960 --> 0:19:32.040 not important to investors and investor decision making, why does 0:19:32.040 --> 0:19:35.600 the defendant have to lie in the first place, Why 0:19:35.720 --> 0:19:39.400 did they misrepresent the price that they bought the bond debt? 0:19:39.800 --> 0:19:43.960 And you know what him and some others in these 0:19:44.000 --> 0:19:48.360 cases of argued is that these are sophisticated investors who 0:19:48.359 --> 0:19:52.199 rely upon valuation models to determine what the price of 0:19:52.200 --> 0:19:54.960 the bond should be, and that they're relying on the 0:19:55.040 --> 0:19:58.960 valuation models and if they don't want to buy the bonds, 0:19:59.000 --> 0:20:01.520 they can always walk away from the transaction that they 0:20:01.560 --> 0:20:05.040 think that the price is unfair. But you know, valuation 0:20:05.119 --> 0:20:10.160 models are very imprecise, and the best evidence the value 0:20:10.400 --> 0:20:14.000 of a bond at a particular point in time is 0:20:14.080 --> 0:20:18.399 the last transaction at which that bond traded at. And 0:20:18.480 --> 0:20:21.760 to the extent that m live and UH and others 0:20:21.800 --> 0:20:26.320 did as well, then that to me is certainly arguably material. 0:20:26.920 --> 0:20:29.800 And you know, on the issue of the industry defense, 0:20:29.880 --> 0:20:32.760 it's it's very hard to know what the industry practice 0:20:33.040 --> 0:20:36.919 really was, and I you know, have some doubts about 0:20:37.320 --> 0:20:42.000 to what extent was this really pervasive among all bond 0:20:42.359 --> 0:20:45.560 traders and was it everyone or was it just a 0:20:45.600 --> 0:20:49.040 few bad apples. Um, I'm skeptical that it was everyone 0:20:49.119 --> 0:20:53.280 who felt the need to make such specific lies about 0:20:53.320 --> 0:20:55.640 the price. But you know, in the end, I think 0:20:55.680 --> 0:20:59.040 the SEC may not have provided sufficient evidence on the 0:20:59.080 --> 0:21:03.359 industry practice. So I think there were responses to the defense, 0:21:03.480 --> 0:21:08.119 but they obviously failed in this particular case. Before this jury, 0:21:08.240 --> 0:21:12.000 the defense attorney equated what him did basically to a 0:21:12.080 --> 0:21:16.720 car salesman. Apparently that did catch the jury's imagination. But 0:21:16.800 --> 0:21:20.160 I mean, is that a good comparison. I wouldn't want 0:21:20.160 --> 0:21:23.840 a car salesman that lied to me about the price 0:21:23.960 --> 0:21:27.800 that he or she bought the car for. And I 0:21:27.840 --> 0:21:34.000 think that car salesman, of course, will exaggerate, they'll embellish, 0:21:34.280 --> 0:21:37.200 they may use some puppery, they may use a little 0:21:37.200 --> 0:21:40.320 bit of a you know, pressure technique to get you 0:21:40.400 --> 0:21:43.720 to buy the car. But to me, I think it 0:21:43.720 --> 0:21:49.080 would be extremely problematic if the car salesman lied about 0:21:49.119 --> 0:21:53.280 specific things about the car and it's condition. And I 0:21:53.320 --> 0:21:55.680 think that, you know, in my view, I would not 0:21:55.840 --> 0:21:59.040 want to do business with a bond trader who was 0:21:59.720 --> 0:22:02.399 made in specific wise. And I think there's a distinction 0:22:02.480 --> 0:22:09.800 between hard negotiations. Maybe a little bit of you know, embellishment, exaggeration, 0:22:10.520 --> 0:22:13.960 and lying about something that is very specific. Number agreed 0:22:14.920 --> 0:22:19.199 to repay customers million dollars to resolve claims that it 0:22:19.280 --> 0:22:24.440 failed to supervise traders. It seems striking that the government 0:22:24.480 --> 0:22:29.040 in these cases has basically been unable to get convictions 0:22:29.280 --> 0:22:33.840 or convictions that stick true. I think that the defense 0:22:33.960 --> 0:22:38.520 might say a corporation like Nomura has incentive to settle 0:22:38.960 --> 0:22:42.000 cases with the SEC, which is regulating it in a 0:22:42.040 --> 0:22:46.480 lot of different areas, whereas individuals have more than incentive 0:22:46.600 --> 0:22:50.320 to fight charges. And you know, I think it's something 0:22:50.359 --> 0:22:54.199 that you know, the SEC is not always correct, and individuals, 0:22:54.200 --> 0:22:57.880 of course have a right to make their arguments. Sometimes 0:22:57.960 --> 0:23:01.200 they succeed, sometimes they don't. Overall, I think it's a 0:23:01.480 --> 0:23:04.960 good thing when the SEC is challenged in litigation and 0:23:04.960 --> 0:23:08.040 occasionally has to bring cases to try it. So I 0:23:08.080 --> 0:23:11.800 think certainly defense attorneys are well, you know, within their 0:23:11.840 --> 0:23:15.800 bounds in litigating these sorts of cases. And you know, 0:23:15.880 --> 0:23:18.679 there have been some losses, but there have also been 0:23:18.720 --> 0:23:22.000 a few wins to a lot of individuals have also 0:23:22.280 --> 0:23:26.840 pre bargained or settled cases by and large, and the 0:23:26.880 --> 0:23:29.720 Second Circuit did stay in one of those cases involving 0:23:29.760 --> 0:23:35.440 another trader at no mora that these lies could be materials. 0:23:35.600 --> 0:23:38.720 They could be material it's just an issue for the jury, 0:23:38.720 --> 0:23:40.800 and so it's a legal matter. To me, this is 0:23:40.840 --> 0:23:45.159 a sound legal theory, and just because the SEC loss 0:23:45.480 --> 0:23:48.760 this case and maybe a few others, does not necessarily 0:23:48.800 --> 0:23:52.120 mean that it's a bad theory. The other interesting thing 0:23:52.160 --> 0:23:55.040 about some of the earlier cases is that they were 0:23:55.080 --> 0:23:58.840 criminal cases. Criminal cases largely brought by the U. S. 0:23:58.880 --> 0:24:03.680 Attorney's Office in Connecticut, and that's a higher standard of crew. 0:24:04.040 --> 0:24:06.360 And so one of the interesting things about the m 0:24:06.600 --> 0:24:08.879 quittle is that this is a civil case with a 0:24:09.080 --> 0:24:12.240 lower standard of proof. I mean, so I could see 0:24:12.240 --> 0:24:16.720 why the SEC would bring these sorts of cases under 0:24:16.760 --> 0:24:19.480 that lower standard. And then I think it's a significant 0:24:19.520 --> 0:24:23.480 thing that, even under the lower standard, that the SEC 0:24:23.680 --> 0:24:27.280 lost this particular case. And so that is a significant 0:24:27.320 --> 0:24:29.920