1
00:00:03,480 --> 00:00:07,560
Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

2
00:00:07,640 --> 00:00:10,440
Speaker 1: day we bring you insight and analysis into the most

3
00:00:10,480 --> 00:00:13,399
Speaker 1: important legal news of the day. You can find more

4
00:00:13,480 --> 00:00:18,040
Speaker 1: episodes of the Bloomberg Law Podcast on Apple Podcasts, SoundCloud

5
00:00:18,320 --> 00:00:22,439
Speaker 1: and on Bloomberg dot com slash Podcasts. Speaking before the

6
00:00:22,480 --> 00:00:26,520
Speaker 1: Senate Banking Committee earlier this year, SEC Chief Jay Clayton

7
00:00:26,680 --> 00:00:30,840
Speaker 1: explained his views on the rapid rise of cryptocurrencies. The

8
00:00:30,840 --> 00:00:34,120
Speaker 1: funny thing about these cryptocurrencies is they only work if

9
00:00:34,120 --> 00:00:37,680
Speaker 1: they're integrated with They only work for their purported purpose

10
00:00:38,240 --> 00:00:42,360
Speaker 1: if they're integrated with the financial system, and that integration

11
00:00:42,520 --> 00:00:46,160
Speaker 1: is top of mind for the SEC official overseeing regulation

12
00:00:46,200 --> 00:00:50,200
Speaker 1: of the cryptocurrency agency joining us as Ben Bain, Bloomberg

13
00:00:50,200 --> 00:00:53,520
Speaker 1: News financial regulation reporter, who has written about the SEC's

14
00:00:53,600 --> 00:00:56,520
Speaker 1: new cryptos are so, Ben, tell us a little bit

15
00:00:56,520 --> 00:00:59,360
Speaker 1: about her. She's a twenty year SEC vetter and why

16
00:00:59,440 --> 00:01:04,080
Speaker 1: was she given the job? Sure? Thanks a lot um so, Yeah,

17
00:01:04,200 --> 00:01:06,920
Speaker 1: Valerie Sapanics, as you mentioned, you know, twenty years in

18
00:01:06,959 --> 00:01:10,240
Speaker 1: the agency and actually in the agency's enforcement division, which

19
00:01:10,840 --> 00:01:12,680
Speaker 1: you know, if if you think about kind of the

20
00:01:13,040 --> 00:01:15,720
Speaker 1: famous cases that the SEC has brought against Big Wall

21
00:01:15,720 --> 00:01:18,640
Speaker 1: street firms. That's the unit that does it. UH. This

22
00:01:18,680 --> 00:01:20,920
Speaker 1: new job is in a different division, which is more

23
00:01:20,959 --> 00:01:23,679
Speaker 1: focused on kind of corporate filings, some of the more

24
00:01:23,800 --> 00:01:27,039
Speaker 1: mundane aspects that the SEC does. So what they did

25
00:01:27,160 --> 00:01:30,520
Speaker 1: is they tapped um miss Stepan. I moved her over

26
00:01:30,560 --> 00:01:34,319
Speaker 1: into this kind of less threatening division. And the idea

27
00:01:34,520 --> 00:01:38,120
Speaker 1: is to get crypto firms, which are kind of notoriously

28
00:01:38,880 --> 00:01:42,480
Speaker 1: reticent to engage with government. Certainly it has its UM,

29
00:01:42,520 --> 00:01:47,960
Speaker 1: you know, very kind of libertarian UH origins cryptocurrency to

30
00:01:48,080 --> 00:01:50,960
Speaker 1: come in and talk to the SEC so regulators can

31
00:01:51,000 --> 00:01:53,400
Speaker 1: get a little bit better idea what's going on. They

32
00:01:53,440 --> 00:01:55,320
Speaker 1: spent the last year really trying to get their arms

33
00:01:55,320 --> 00:01:57,720
Speaker 1: around this, and I think the hope is that the

34
00:01:57,760 --> 00:02:00,480
Speaker 1: regulator is going to be able to UH age more

35
00:02:00,600 --> 00:02:03,960
Speaker 1: by having someone who's not an enforcement reaching out to

36
00:02:03,960 --> 00:02:07,440
Speaker 1: the industry. So do what do analysts say, does the

37
00:02:07,600 --> 00:02:11,520
Speaker 1: SEC have its hands around crypto now? Well, if you

38
00:02:11,520 --> 00:02:14,400
Speaker 1: look at the numbers, UM, you know, the SEC, UH,

39
00:02:14,480 --> 00:02:17,520
Speaker 1: you know, has been warning about the dangers of initial

40
00:02:17,560 --> 00:02:20,880
Speaker 1: coin offerings. UM. The chairman you played a clip from

41
00:02:20,960 --> 00:02:23,799
Speaker 1: him earlier has warned that, you know, this market is

42
00:02:23,840 --> 00:02:26,919
Speaker 1: kind of righte with fraud. But you know, in June

43
00:02:26,919 --> 00:02:28,679
Speaker 1: of this year, it was a record month for i

44
00:02:28,800 --> 00:02:30,640
Speaker 1: c o is. More than five and a half billion

45
00:02:30,720 --> 00:02:33,919
Speaker 1: dollars were raised. That's according to coin scheduled data. So

46
00:02:34,240 --> 00:02:36,520
Speaker 1: you know what we're seeing is, yes, certainly the SEC

47
00:02:36,639 --> 00:02:39,040
Speaker 1: has a much better idea of where things are than

48
00:02:39,080 --> 00:02:41,520
Speaker 1: they were, uh than they did a year ago, let's say,

49
00:02:41,600 --> 00:02:44,200
Speaker 1: but it's still very much uh, you know, a quick

50
00:02:44,280 --> 00:02:47,120
Speaker 1: changing market and they haven't been able to uh to

51
00:02:47,360 --> 00:02:49,800
Speaker 1: you know, to stop firms from from raising money and

52
00:02:49,880 --> 00:02:54,359
Speaker 1: what they say are unregistered securities offerings. So ben as

53
00:02:54,400 --> 00:02:58,120
Speaker 1: you write, the Justice Department, Commodities Future Trading Commission also

54
00:02:58,320 --> 00:03:02,320
Speaker 1: have people involved in this. So what is sapanics approach

55
00:03:02,480 --> 00:03:04,480
Speaker 1: and how is she going to work if at all

56
00:03:04,520 --> 00:03:07,440
Speaker 1: with those other agencies. I mean, these these regulars, they

57
00:03:07,440 --> 00:03:09,320
Speaker 1: all talk to each other, you know all the time.

58
00:03:09,840 --> 00:03:11,720
Speaker 1: I think, what what what we're seeing happening here in

59
00:03:11,760 --> 00:03:15,240
Speaker 1: Washington with cryptocurrencies is it doesn't really fit neatly into

60
00:03:15,440 --> 00:03:18,079
Speaker 1: the jurisdiction of any one of these agencies. So the SEC,

61
00:03:18,600 --> 00:03:21,320
Speaker 1: you know, they're responsible for overseeing securities. So you think

62
00:03:21,320 --> 00:03:24,240
Speaker 1: about stocks, you think about you know, kind of traditional

63
00:03:24,720 --> 00:03:30,160
Speaker 1: equity like products, the CFTC overseas commodities. Um. You know,

64
00:03:30,160 --> 00:03:31,880
Speaker 1: so you have all these different agencies kind of trying

65
00:03:31,880 --> 00:03:35,360
Speaker 1: to figure out their lane. So when it comes to

66
00:03:35,360 --> 00:03:38,560
Speaker 1: to you know, uh, miss Sapanics job, she's going to

67
00:03:38,640 --> 00:03:43,240
Speaker 1: be dealing with how the SEC looks at securities, which

68
00:03:43,240 --> 00:03:45,680
Speaker 1: which you know, the SEC has said a lot of

69
00:03:45,720 --> 00:03:49,440
Speaker 1: these initial coin offerings are, but also um, the broker

70
00:03:49,480 --> 00:03:52,080
Speaker 1: dealers that that work in them, uh, you know, banks

71
00:03:52,080 --> 00:03:55,920
Speaker 1: and investment funds that are increasingly trying to get involved. Uh,

72
00:03:55,960 --> 00:04:00,400
Speaker 1: and and also exchanges or platforms which haven't registered uh

73
00:04:00,440 --> 00:04:02,440
Speaker 1: to actually be trading these things, which the SEC has

74
00:04:02,440 --> 00:04:04,240
Speaker 1: also warned them about. So there's a whole bunch of

75
00:04:04,240 --> 00:04:06,440
Speaker 1: things on their plate, not to mention, uh you know,

76
00:04:06,480 --> 00:04:09,360
Speaker 1: the push for an exchange traded fund based on cryptocurrencies,

77
00:04:09,480 --> 00:04:14,040
Speaker 1: which the SEC rejected again last week. So you talked

78
00:04:14,040 --> 00:04:16,960
Speaker 1: about all the regulators trying to find their find their

79
00:04:17,080 --> 00:04:21,360
Speaker 1: lanes with regulation of crypto whors? Congress is it doing

80
00:04:21,400 --> 00:04:23,719
Speaker 1: anything to try and clarify this? Does it plan to?

81
00:04:24,480 --> 00:04:27,839
Speaker 1: I mean, so so far Congress has kind of stayed

82
00:04:27,880 --> 00:04:30,240
Speaker 1: out of it. Um, there's been a couple of bills,

83
00:04:30,720 --> 00:04:32,680
Speaker 1: uh you know that have popped up, but haven't really

84
00:04:32,680 --> 00:04:36,719
Speaker 1: gone anywhere UM, And it seems like right now, uh,

85
00:04:36,760 --> 00:04:40,479
Speaker 1: there's nothing on kind of the front burner. Congress hasn't said,

86
00:04:40,760 --> 00:04:43,240
Speaker 1: you know, who's ultimately going to be responsible. We kind

87
00:04:43,240 --> 00:04:45,599
Speaker 1: of have to remember when we're talking about cryptocurrencies, is

88
00:04:45,640 --> 00:04:47,719
Speaker 1: that in the spot market? Right? We talked about the

89
00:04:47,760 --> 00:04:52,599
Speaker 1: cash market, So who's trading cryptocurrencies we might think about UM.

90
00:04:52,760 --> 00:04:57,040
Speaker 1: No regulator really has clear direct jurisdiction over that. So

91
00:04:57,080 --> 00:04:58,960
Speaker 1: there's a question about whether Congress needs to come in

92
00:04:59,000 --> 00:05:01,880
Speaker 1: and say, hey, as SEC, you handle that, or hey

93
00:05:02,000 --> 00:05:05,920
Speaker 1: Commodity Future Trading Commissioners CFTC, you handle that, or Treasury

94
00:05:05,920 --> 00:05:10,120
Speaker 1: Department or another regulator altogether. So, uh, the short answer

95
00:05:10,200 --> 00:05:13,160
Speaker 1: is no, Congress is focusing on other stuff right now.

96
00:05:14,080 --> 00:05:16,200
Speaker 1: So Ben, you say that she's going to try this

97
00:05:16,400 --> 00:05:20,320
Speaker 1: less confrontational approach, how long will she try that and

98
00:05:20,400 --> 00:05:23,200
Speaker 1: when will that turn into a more aggressive approach? What

99
00:05:23,200 --> 00:05:25,200
Speaker 1: would make her get more aggressive? Well, I think what

100
00:05:25,200 --> 00:05:27,200
Speaker 1: I mean, what the SEC says is that they are

101
00:05:27,240 --> 00:05:30,080
Speaker 1: being aggressive. You know, on the one hand, they're going

102
00:05:30,160 --> 00:05:33,680
Speaker 1: after UM instances, which they, you know, consider to be

103
00:05:34,000 --> 00:05:38,240
Speaker 1: kind of blatant violations. You know, fraudulent uh type of

104
00:05:38,880 --> 00:05:41,920
Speaker 1: action uh, you know going on in these markets. But

105
00:05:42,279 --> 00:05:44,880
Speaker 1: at the same time, what they're what they're realizing, what

106
00:05:44,920 --> 00:05:47,960
Speaker 1: they've come to realize, is that to really understand these markets,

107
00:05:47,960 --> 00:05:50,200
Speaker 1: they need to have you know, an open door, if

108
00:05:50,200 --> 00:05:52,599
Speaker 1: you will, the ability for firms to come in. So

109
00:05:52,600 --> 00:05:55,680
Speaker 1: I don't think they're necessarily you know, exclusive in the

110
00:05:55,720 --> 00:05:57,840
Speaker 1: sense that I think they can continue to have missed

111
00:05:57,839 --> 00:06:00,760
Speaker 1: sepanic uh, you know, having firms I'm in and and

112
00:06:00,760 --> 00:06:03,440
Speaker 1: and and some of the other UH divisions that aren't

113
00:06:03,560 --> 00:06:06,159
Speaker 1: enforcement uh, you know, trying to get their hand hand

114
00:06:06,279 --> 00:06:09,080
Speaker 1: heads around this market. But at the same time, you know,

115
00:06:09,120 --> 00:06:11,480
Speaker 1: we understand there are there is a lot of enforcement activity.

116
00:06:11,520 --> 00:06:14,320
Speaker 1: There's been several cases, but you know, we understand there's

117
00:06:14,320 --> 00:06:16,760
Speaker 1: a big pipeline as well. But when you mentioned that

118
00:06:16,800 --> 00:06:20,719
Speaker 1: she also knows jiu jitsu, so that's what I was

119
00:06:20,760 --> 00:06:26,480
Speaker 1: going to go for that. Yes, the crypto companies take

120
00:06:26,640 --> 00:06:29,640
Speaker 1: take anything away from that, well, I mean, you know,

121
00:06:29,680 --> 00:06:33,080
Speaker 1: it's uh, you know, certainly, you know, an interesting uh

122
00:06:33,120 --> 00:06:35,760
Speaker 1: in an interesting element here, um, you know, kind of

123
00:06:35,800 --> 00:06:39,159
Speaker 1: someone who practices jiu jitsu in here in her spare time. UM,

124
00:06:39,200 --> 00:06:41,760
Speaker 1: you know, not you know, certainly someone who's who's going

125
00:06:41,800 --> 00:06:44,440
Speaker 1: to take this very seriously. Um, And you know she

126
00:06:44,440 --> 00:06:47,720
Speaker 1: she was kind of one of the first regulators here

127
00:06:47,760 --> 00:06:50,640
Speaker 1: in Washington to start paying attention to this, even like

128
00:06:50,720 --> 00:06:53,440
Speaker 1: six years ago. Um, you know she was. She was

129
00:06:53,520 --> 00:06:55,600
Speaker 1: kind of poking around and digging around it. And at

130
00:06:55,640 --> 00:06:57,640
Speaker 1: that point, UM, I'm not sure too many of us

131
00:06:57,760 --> 00:07:00,359
Speaker 1: had ever heard of bitcoin. Well, um, and we have

132
00:07:00,400 --> 00:07:03,080
Speaker 1: to end it there. It's really interesting article. And yes,

133
00:07:03,120 --> 00:07:05,560
Speaker 1: she also has an engineering degree of a different kind

134
00:07:05,560 --> 00:07:09,200
Speaker 1: of secer re person. That's Ben Bain, Bloomberg News financial

135
00:07:09,240 --> 00:07:17,960
Speaker 1: regulation reporter. Two jury trials to convictions, a seven month

136
00:07:18,000 --> 00:07:21,760
Speaker 1: prison stay, two appeals, and two convictions tossed out by

137
00:07:21,760 --> 00:07:25,200
Speaker 1: the Second Circuit. But now the five year legal odyssey

138
00:07:25,200 --> 00:07:28,560
Speaker 1: of former Jeffreys managing director Jesse lit Fac is over.

139
00:07:29,000 --> 00:07:31,720
Speaker 1: Federal prosecutors have decided not to try and for a

140
00:07:31,800 --> 00:07:35,000
Speaker 1: third time, for fraud for lying to clients about mortgage

141
00:07:35,000 --> 00:07:39,360
Speaker 1: bond prices while negotiating trades. Is the federal crackdown on

142
00:07:39,480 --> 00:07:43,880
Speaker 1: questionable bond trading tactics also over joining us. As Robert Hockett,

143
00:07:43,880 --> 00:07:47,760
Speaker 1: professor at Cornell University Law School, bob the Second Circuit

144
00:07:47,840 --> 00:07:51,920
Speaker 1: throughout lick Fax conviction on technical legal grounds, but found

145
00:07:51,960 --> 00:07:55,240
Speaker 1: there was evidence enough to support the guilty verdicts. So,

146
00:07:55,360 --> 00:07:58,560
Speaker 1: after all the effort the prosecutors put into it, are

147
00:07:58,560 --> 00:08:02,200
Speaker 1: you surprised that they gave up? Uh? You know, in

148
00:08:02,440 --> 00:08:05,080
Speaker 1: a way I am in a way I'm not June um. So,

149
00:08:05,240 --> 00:08:07,720
Speaker 1: I mean, basically, there's been an ambivalence when it comes

150
00:08:07,760 --> 00:08:10,720
Speaker 1: to this particular charge all, you know, sort of right

151
00:08:10,720 --> 00:08:13,120
Speaker 1: from the get go. Right. The ambivalence is basically this,

152
00:08:13,600 --> 00:08:15,760
Speaker 1: what do you do in a case where there's no

153
00:08:15,880 --> 00:08:19,920
Speaker 1: question but that the defendant has done something wrongful, but

154
00:08:20,040 --> 00:08:23,800
Speaker 1: there is question about how much the victims, you know,

155
00:08:23,840 --> 00:08:26,200
Speaker 1: sort of were responsible themselves, how much they should have known.

156
00:08:26,520 --> 00:08:28,120
Speaker 1: It used to be that the rule that we had

157
00:08:28,240 --> 00:08:30,640
Speaker 1: was we could say, look, just be honest, you know,

158
00:08:31,040 --> 00:08:33,760
Speaker 1: as far as the defendant is concerned, just be honest,

159
00:08:33,880 --> 00:08:36,280
Speaker 1: and we were not going to require anything in particular

160
00:08:36,440 --> 00:08:39,200
Speaker 1: of the alleged victims. Um. And then you know, sort

161
00:08:39,200 --> 00:08:41,280
Speaker 1: of overtime in order to kind of lessen the number

162
00:08:41,280 --> 00:08:43,640
Speaker 1: of cases that were actually brought before the courts. Uh,

163
00:08:43,679 --> 00:08:45,600
Speaker 1: the course began to sort of fashion a sort of

164
00:08:45,600 --> 00:08:48,520
Speaker 1: a halfway house doctrine where sometimes they'd say well, you know,

165
00:08:49,000 --> 00:08:51,440
Speaker 1: if the victims should have known better or were saving

166
00:08:51,520 --> 00:08:54,800
Speaker 1: enough to know better, we won't actually recognize an action

167
00:08:54,840 --> 00:08:56,720
Speaker 1: against them. And there's been a kind of a back

168
00:08:56,760 --> 00:08:59,199
Speaker 1: and courth over that particular issue under the rubric of

169
00:08:59,280 --> 00:09:02,480
Speaker 1: so called material reality. Oh, for the last thirty forty

170
00:09:02,520 --> 00:09:04,840
Speaker 1: fifty years, it looked like we were kind of going

171
00:09:04,880 --> 00:09:07,079
Speaker 1: back to the old ways or in recent years where

172
00:09:07,120 --> 00:09:09,920
Speaker 1: we're saying just be honest. Um. But then all of

173
00:09:09,960 --> 00:09:12,040
Speaker 1: a sudden, the second Circuit weighed in as you as

174
00:09:12,040 --> 00:09:14,760
Speaker 1: you've just noted a couple of times. Uh, And I

175
00:09:14,800 --> 00:09:17,360
Speaker 1: think that's done either of two things to the Justice Department.

176
00:09:17,360 --> 00:09:19,920
Speaker 1: They've either decided, well, all right, we can't really win

177
00:09:19,960 --> 00:09:22,360
Speaker 1: these cases anymore because the courts are beginning to get

178
00:09:22,360 --> 00:09:24,240
Speaker 1: a bit more strict again about which sorts of suits

179
00:09:24,280 --> 00:09:27,480
Speaker 1: they'll let go through, or they've just decided that they

180
00:09:27,480 --> 00:09:30,920
Speaker 1: don't care that much about this sort of thing anyway.

181
00:09:30,960 --> 00:09:35,480
Speaker 1: Are there any other outstanding cases out there that might

182
00:09:35,480 --> 00:09:38,520
Speaker 1: be affected by this, Yeah, yes there are. There are

183
00:09:38,520 --> 00:09:41,760
Speaker 1: a number of other defendants, as as you guys know,

184
00:09:41,800 --> 00:09:45,439
Speaker 1: who have been being investigated and prosecuted along with Mr

185
00:09:45,520 --> 00:09:48,120
Speaker 1: Litt back um, and I would say that between the

186
00:09:48,160 --> 00:09:51,000
Speaker 1: two second circuits, the recent second circuit decisions on the

187
00:09:51,000 --> 00:09:53,600
Speaker 1: one hand, at the d o j's decision not to

188
00:09:53,640 --> 00:09:56,160
Speaker 1: kind of keep pursuing this. On the other hand, Uh,

189
00:09:56,240 --> 00:09:58,400
Speaker 1: this might you know, sort of be good news for

190
00:09:58,480 --> 00:10:01,280
Speaker 1: those other defendants, even if not exactly for the bond markets.

191
00:10:02,679 --> 00:10:07,000
Speaker 1: Let fax arrest in sent shock waves through Wall Street,

192
00:10:07,080 --> 00:10:10,560
Speaker 1: and there was the resignation suspensions of dozens of traders.

193
00:10:10,800 --> 00:10:15,680
Speaker 1: Did it change behavior in the bond industry at all, Well,

194
00:10:16,240 --> 00:10:18,400
Speaker 1: it seems to have induced a little bit of caution,

195
00:10:18,480 --> 00:10:20,319
Speaker 1: which is exactly what the point would have been, right.

196
00:10:20,360 --> 00:10:22,640
Speaker 1: The idea of of a sort of a high profile

197
00:10:22,679 --> 00:10:24,960
Speaker 1: case like this is to send a signal, right, to

198
00:10:24,960 --> 00:10:27,160
Speaker 1: tell the traders out there, and the and the bond

199
00:10:27,160 --> 00:10:29,480
Speaker 1: sellers out there that look, we're not going to let

200
00:10:29,520 --> 00:10:34,200
Speaker 1: you rest on the possible sophistication of your victims. When

201
00:10:34,200 --> 00:10:36,959
Speaker 1: it comes to sort of policing your honesty in these markets,

202
00:10:37,160 --> 00:10:39,320
Speaker 1: it's always easy to tell the truth. Just say what

203
00:10:39,360 --> 00:10:41,679
Speaker 1: you really did pay for the bonds, and that will

204
00:10:41,720 --> 00:10:43,560
Speaker 1: be the default rule. And that seems to have had

205
00:10:43,559 --> 00:10:45,200
Speaker 1: an effect, right, I mean, people seem to have been

206
00:10:45,200 --> 00:10:47,520
Speaker 1: a little bit more careful for a while while these

207
00:10:47,520 --> 00:10:51,080
Speaker 1: suits were pending. I suspect that they're probably now thinking, well,

208
00:10:51,200 --> 00:10:53,760
Speaker 1: all right, thank god, that's over. That five year nightmare

209
00:10:53,840 --> 00:10:55,959
Speaker 1: is done. We can get back to business as usual

210
00:10:56,080 --> 00:10:59,480
Speaker 1: as it was before. When you when you look at

211
00:10:59,480 --> 00:11:03,679
Speaker 1: the case, is do you see failures on the prosecution's

212
00:11:03,760 --> 00:11:08,000
Speaker 1: part or was it just that the appellate courts changed

213
00:11:08,040 --> 00:11:11,679
Speaker 1: the rules. I think it's more the latter. To tell

214
00:11:11,760 --> 00:11:13,600
Speaker 1: the truth, I mean, I think that that's the prosecution

215
00:11:13,640 --> 00:11:15,880
Speaker 1: to a fine job, I mean, as as good a

216
00:11:15,960 --> 00:11:18,160
Speaker 1: job as can be expected. I think they made the

217
00:11:18,200 --> 00:11:20,840
Speaker 1: case quite well, um, you know, and it was there

218
00:11:20,960 --> 00:11:23,320
Speaker 1: there was no question right but that these were just

219
00:11:23,600 --> 00:11:27,440
Speaker 1: flat out misstatements of fact that were made by Mr

220
00:11:27,480 --> 00:11:29,440
Speaker 1: litt Back and by other defendants in the same sort

221
00:11:29,440 --> 00:11:31,959
Speaker 1: of set of suits. Um, so you know, I I

222
00:11:32,520 --> 00:11:34,880
Speaker 1: find it hard to fault the prosecution in all of this.

223
00:11:35,280 --> 00:11:36,800
Speaker 1: I think it's just a case of the second Circuit

224
00:11:36,840 --> 00:11:39,800
Speaker 1: not exactly changing the law, but once again kind of

225
00:11:39,840 --> 00:11:44,160
Speaker 1: pendulum swinging in the direction of permissiveness, which again tends

226
00:11:44,200 --> 00:11:46,000
Speaker 1: to happen. Right, we seem to go through cycles on

227
00:11:46,040 --> 00:11:49,160
Speaker 1: that under this rubric of materiality. Sometimes they'll sort of

228
00:11:49,200 --> 00:11:52,160
Speaker 1: really hit materiality hard sometimes they'll hit it less hard,

229
00:11:52,520 --> 00:11:56,400
Speaker 1: and it's always basically riding on well, to what extent

230
00:11:56,480 --> 00:11:58,920
Speaker 1: are you going to give the defendant a free pass

231
00:11:59,360 --> 00:12:02,480
Speaker 1: when the alleged victim quote unquote should have known better?

232
00:12:02,559 --> 00:12:05,760
Speaker 1: In other words, you can always decide to say caveat emptor,

233
00:12:05,960 --> 00:12:08,520
Speaker 1: or you can decide to say, well, no, not caveat emptor,

234
00:12:08,600 --> 00:12:11,160
Speaker 1: but just let the sellers be honest. And we seem

235
00:12:11,200 --> 00:12:14,199
Speaker 1: to swing back and forth on that one over the years,

236
00:12:14,280 --> 00:12:16,480
Speaker 1: and it looks to me like the Second Circuit has

237
00:12:16,520 --> 00:12:18,400
Speaker 1: just decided to kind of swing back in that kind

238
00:12:18,440 --> 00:12:21,880
Speaker 1: of caveat em or direction again after about five years

239
00:12:21,960 --> 00:12:26,800
Speaker 1: worth of caution. Um uh inducing. So Bob, is the

240
00:12:26,800 --> 00:12:32,520
Speaker 1: crackdown over? Then? Can traders rest easy? Well? I very

241
00:12:32,600 --> 00:12:34,960
Speaker 1: much hope not June. But it's you know, I don't

242
00:12:34,960 --> 00:12:38,079
Speaker 1: see a lot of reason to to say no, um

243
00:12:38,120 --> 00:12:40,400
Speaker 1: at this point, right, I mean, all of the indications

244
00:12:40,440 --> 00:12:42,440
Speaker 1: at this point seem to be the Second Circuit's going

245
00:12:42,480 --> 00:12:44,160
Speaker 1: to be a bit permissive again when it comes to

246
00:12:44,720 --> 00:12:47,880
Speaker 1: um stretching the truth when you're selling something in the

247
00:12:47,920 --> 00:12:50,920
Speaker 1: bond market, and it's looking as the Department of Justice

248
00:12:50,960 --> 00:12:54,440
Speaker 1: is not inclined to fight that at the present time.

249
00:12:54,720 --> 00:12:57,280
Speaker 1: There's a certain irony, of course in this, given that

250
00:12:57,360 --> 00:13:00,839
Speaker 1: we were told during the campaign that, uh, the guy

251
00:13:00,880 --> 00:13:03,880
Speaker 1: who ultimately won whatever his own business dealings was at

252
00:13:03,920 --> 00:13:05,920
Speaker 1: least going to be a bit of a sheriff where

253
00:13:05,920 --> 00:13:08,680
Speaker 1: Wall Street is concerned. Um, but it's kind of looking

254
00:13:08,720 --> 00:13:13,480
Speaker 1: like we're returning to, you know again, businesses pre usual

255
00:13:13,840 --> 00:13:16,199
Speaker 1: on Wall Street. Uh. And it seems this this d

256
00:13:16,440 --> 00:13:18,839
Speaker 1: J is okay with that. Well, what does this say

257
00:13:19,000 --> 00:13:23,800
Speaker 1: about the system itself? Because you have Jesse litfac who

258
00:13:23,880 --> 00:13:29,160
Speaker 1: assume insurance paid for two jury trials, you know, two appeals.

259
00:13:29,240 --> 00:13:31,760
Speaker 1: I mean the amount over five years. I have no

260
00:13:31,840 --> 00:13:35,280
Speaker 1: idea what the cost would be. But yeah, a person

261
00:13:35,320 --> 00:13:38,160
Speaker 1: who wasn't insured or didn't have money couldn't have gone

262
00:13:38,200 --> 00:13:41,640
Speaker 1: through this. Yeah. So I think it's a I think

263
00:13:41,679 --> 00:13:44,600
Speaker 1: it's a nutty system. I don't I don't think there's

264
00:13:44,640 --> 00:13:47,160
Speaker 1: much that can recommend it. Uh. The easiest way to

265
00:13:47,200 --> 00:13:49,319
Speaker 1: fix it, it seems to me, would be for Congress

266
00:13:49,760 --> 00:13:54,679
Speaker 1: to pass legislation that clarifies that the anti fraud provisions

267
00:13:54,720 --> 00:13:57,280
Speaker 1: of both the thirty three and the thirty four Acts

268
00:13:57,559 --> 00:14:00,360
Speaker 1: really mean what they say. And among the things that

269
00:14:00,400 --> 00:14:03,680
Speaker 1: they say is, you know, thou shalt not lie, and

270
00:14:03,880 --> 00:14:07,120
Speaker 1: the you know, the sophistication or otherwise of your victim

271
00:14:07,240 --> 00:14:09,640
Speaker 1: is sort of neither dear nor there. It's just irrelevant.

272
00:14:09,880 --> 00:14:12,559
Speaker 1: We should bob. We have to end it there honesty.

273
00:14:13,040 --> 00:14:15,680
Speaker 1: Thanks so much. As always, that's Robert Hockett, a professor

274
00:14:15,720 --> 00:14:20,000
Speaker 1: at Cornell University Law School. Thanks for listening to the

275
00:14:20,000 --> 00:14:23,400
Speaker 1: Bloomberg Law Podcast. You can subscribe and listen to the

276
00:14:23,400 --> 00:14:27,320
Speaker 1: show on Apple Podcasts, SoundCloud, and on Bloomberg dot com

277
00:14:27,400 --> 00:14:35,240
Speaker 1: slash podcast. I'm June Brosso. This is Bloomberg. Yeah, yeah,