1 00:00:02,759 --> 00:00:07,480 Speaker 1: This is Bloomberg Law with June Grossel from Bloomberg Radio. 2 00:00:09,039 --> 00:00:11,480 Speaker 2: I'm grateful that the court ended the case against me, 3 00:00:11,560 --> 00:00:16,759 Speaker 2: which was a prosecution based on malevolence and incompetence, and 4 00:00:16,800 --> 00:00:19,320 Speaker 2: a reflection of what the Department of Justice has become 5 00:00:19,480 --> 00:00:22,880 Speaker 2: under Donald Trump, which is heartbreaking. But I was also 6 00:00:22,920 --> 00:00:26,239 Speaker 2: inspired by the example of the career people who refuse 7 00:00:26,360 --> 00:00:30,240 Speaker 2: to be part of this travesty. I know that Donald 8 00:00:30,240 --> 00:00:33,040 Speaker 2: Trump will probably come after me again, and my attitude 9 00:00:33,080 --> 00:00:35,959 Speaker 2: is going to be the same. I'm innocent, i am 10 00:00:36,040 --> 00:00:40,360 Speaker 2: not afraid, and I believe in an independent federal judiciary. 11 00:00:41,040 --> 00:00:44,920 Speaker 3: Former FBI Director James call Me took a victory lap 12 00:00:44,960 --> 00:00:49,320 Speaker 3: of sorts after a federal judge throughout the criminal charges 13 00:00:49,320 --> 00:00:53,400 Speaker 3: against him and New York Attorney General Letitia James, ruling 14 00:00:53,440 --> 00:00:57,600 Speaker 3: that the prosecutor who brought the cases had been illegally appointed. 15 00:00:58,040 --> 00:01:02,320 Speaker 3: Lindsay Halligan was abruptly installed as the US Attorney for 16 00:01:02,400 --> 00:01:07,160 Speaker 3: the Eastern District of Virginia in September after her predecessor 17 00:01:07,360 --> 00:01:11,319 Speaker 3: resigned under pressure to bring charges against Comy and James. 18 00:01:11,640 --> 00:01:16,280 Speaker 3: Federal Judge Cameron McGowan Curry concluded that the attorney General's 19 00:01:16,319 --> 00:01:20,920 Speaker 3: attempt to install Halligan as interim u S Attorney was invalid. 20 00:01:21,360 --> 00:01:25,200 Speaker 3: She dismissed the charges against Comy and James without prejudice, 21 00:01:25,480 --> 00:01:29,480 Speaker 3: meaning that prosecutors may be able to refile the cases. 22 00:01:29,920 --> 00:01:33,160 Speaker 3: In a statement, James said, I am heartened by today's 23 00:01:33,240 --> 00:01:36,680 Speaker 3: victory and grateful for the prayers and support I've received 24 00:01:36,680 --> 00:01:40,080 Speaker 3: from around the country. I remain fearless in the face 25 00:01:40,160 --> 00:01:43,640 Speaker 3: of these baseless charges as I continue fighting for New 26 00:01:43,720 --> 00:01:46,920 Speaker 3: Yorkers every single day. The White House says it will 27 00:01:46,920 --> 00:01:50,960 Speaker 3: appeal the decision. Here's Press Secretary Caroline Leavitt. 28 00:01:51,480 --> 00:01:53,800 Speaker 4: I know there was a judge who is clearly trying 29 00:01:53,800 --> 00:01:58,680 Speaker 4: to shield Letitia James and James Comy from receiving accountability, 30 00:01:59,200 --> 00:02:02,440 Speaker 4: and that's why they this unprecedented action to throw away 31 00:02:02,600 --> 00:02:06,120 Speaker 4: the indictments against these two individuals. But the Department of 32 00:02:06,240 --> 00:02:08,960 Speaker 4: Justice will be appealing very soon. And it is our 33 00:02:09,000 --> 00:02:12,160 Speaker 4: position that Lindsay Halligan is extremely qualified for this position, 34 00:02:12,200 --> 00:02:14,600 Speaker 4: but more importantly, was legally appointed to it. 35 00:02:15,160 --> 00:02:18,840 Speaker 3: Joining me is constitutional law Professor David Souper of Georgetown 36 00:02:18,960 --> 00:02:23,280 Speaker 3: Law explain why this judge, and this is the judge 37 00:02:23,320 --> 00:02:27,040 Speaker 3: from South Carolina who was just considering the Lindsay Halligan appointment, 38 00:02:27,080 --> 00:02:29,560 Speaker 3: explain why she dismissed the cases. 39 00:02:30,480 --> 00:02:34,520 Speaker 5: She dismissed the cases against mister Cromee and Mss James 40 00:02:34,960 --> 00:02:40,200 Speaker 5: because she found that the US Attorney was not properly appointed. 41 00:02:40,639 --> 00:02:43,080 Speaker 5: And since there was no one else in the room 42 00:02:43,160 --> 00:02:47,040 Speaker 5: with the grand jury except Miss Halligan, if Miss Halligan 43 00:02:47,120 --> 00:02:49,920 Speaker 5: had no powers, then no one presented the case to 44 00:02:49,960 --> 00:02:53,040 Speaker 5: the grand jury and it has to be dismissed in 45 00:02:53,120 --> 00:02:54,040 Speaker 5: the judges view. 46 00:02:55,040 --> 00:02:58,519 Speaker 3: So Attorney generals have authority to name an interim US 47 00:02:58,639 --> 00:03:01,240 Speaker 3: attorney who can serve for one hundred and twenty days. 48 00:03:01,840 --> 00:03:04,359 Speaker 3: And the judge said that that one hundred and twenty 49 00:03:04,440 --> 00:03:09,680 Speaker 3: days began when Halligan's predecessor, Eric Siebert was appointed on 50 00:03:09,800 --> 00:03:13,280 Speaker 3: January twenty first, and when the clock expired on May 51 00:03:13,280 --> 00:03:17,720 Speaker 3: twenty first, so did the Attorney general's appointment authority. Is 52 00:03:17,760 --> 00:03:19,840 Speaker 3: that a controversial interpretation? 53 00:03:20,600 --> 00:03:24,800 Speaker 5: It is controversial. The statute isn't terribly well written, but 54 00:03:25,320 --> 00:03:30,560 Speaker 5: I think she follows most of the rules of statutory interpretation. 55 00:03:31,160 --> 00:03:35,600 Speaker 5: And she says, if the Attorney General can just keep 56 00:03:35,680 --> 00:03:39,480 Speaker 5: reappointing people for additional one hundred and twenty day slots, 57 00:03:39,720 --> 00:03:42,040 Speaker 5: then why would the president ever bother to go to 58 00:03:42,120 --> 00:03:46,960 Speaker 5: Congress for confirmations. And why has the statute even mentioned 59 00:03:47,000 --> 00:03:51,440 Speaker 5: district courts, since presumably the Attorney General would take that 60 00:03:51,640 --> 00:03:53,560 Speaker 5: power if it was there, we would never let it 61 00:03:53,600 --> 00:03:57,640 Speaker 5: fall to the district court. That's part of her reasoning. 62 00:03:57,680 --> 00:03:59,480 Speaker 5: The other part of it that I think is also 63 00:04:01,000 --> 00:04:04,120 Speaker 5: is that Congress changed this rule for about a year 64 00:04:04,640 --> 00:04:09,200 Speaker 5: and then went back. So Congress had an arrangement where 65 00:04:09,240 --> 00:04:12,280 Speaker 5: the Attorney General could appoint people for as long as 66 00:04:12,320 --> 00:04:15,400 Speaker 5: she wanted, and they thought about it for a year 67 00:04:15,560 --> 00:04:17,960 Speaker 5: and they said, no, thanks, we don't want any more 68 00:04:18,000 --> 00:04:23,000 Speaker 5: of that. So the judge asked, quite reasonably, if Congress 69 00:04:23,040 --> 00:04:26,919 Speaker 5: had allowed the arrangement that the Justice Department applies today 70 00:04:27,480 --> 00:04:30,400 Speaker 5: and they changed the law to end it, why aren't 71 00:04:30,400 --> 00:04:32,039 Speaker 5: we honoring Congress's decision. 72 00:04:32,800 --> 00:04:37,200 Speaker 3: So there have been judges in New Jersey and in 73 00:04:37,440 --> 00:04:41,200 Speaker 3: Los Angeles who've come to the same conclusion about this 74 00:04:42,080 --> 00:04:45,279 Speaker 3: one hundred and twenty day rule. And the Alina Haba 75 00:04:45,400 --> 00:04:50,120 Speaker 3: appointment to lead the New Jersey US Attorney's Office is 76 00:04:50,160 --> 00:04:53,159 Speaker 3: before the Third Circuit. If the Third Circuit comes down 77 00:04:53,200 --> 00:04:56,520 Speaker 3: with a decision saying no, this is okay, you can 78 00:04:56,560 --> 00:04:59,239 Speaker 3: do this does that have any effect on what happens 79 00:04:59,279 --> 00:04:59,599 Speaker 3: here in the. 80 00:04:59,600 --> 00:05:04,120 Speaker 5: Fourth The Third Circuit doesn't have jurisdiction over this court. 81 00:05:04,640 --> 00:05:09,400 Speaker 5: This court's appeals go to the Fourth Circuit. Obviously a 82 00:05:09,640 --> 00:05:15,160 Speaker 5: federal circuit court's views are influential. But the judge here 83 00:05:15,279 --> 00:05:17,640 Speaker 5: does not seem to think this is a close case, 84 00:05:17,720 --> 00:05:21,880 Speaker 5: and I tend to agree with her. So I think 85 00:05:22,000 --> 00:05:26,080 Speaker 5: even if the administration wins Alina Hobbit case, they're still 86 00:05:26,080 --> 00:05:28,279 Speaker 5: going to have a real challenge on appeal. 87 00:05:28,320 --> 00:05:33,560 Speaker 3: In this case, the substantive issues about vindictive prosecution and 88 00:05:34,080 --> 00:05:36,360 Speaker 3: about what was said in the grand jury room by 89 00:05:36,400 --> 00:05:41,040 Speaker 3: Lindsay Halligan that are before Judge Neckmanoff. Does that go away? 90 00:05:41,120 --> 00:05:41,280 Speaker 6: Now? 91 00:05:41,320 --> 00:05:41,800 Speaker 3: Is that over? 92 00:05:42,640 --> 00:05:46,960 Speaker 5: If the government agreed to drop the case, then that 93 00:05:47,040 --> 00:05:51,040 Speaker 5: stuff might be over. And on the principle that discretion 94 00:05:51,200 --> 00:05:53,320 Speaker 5: is the better part of valor, that would be the 95 00:05:53,360 --> 00:05:56,960 Speaker 5: smart thing for the administration to do. But given that 96 00:05:57,040 --> 00:06:01,000 Speaker 5: the President has been tweeting instructions to get these people 97 00:06:01,080 --> 00:06:04,640 Speaker 5: now now, now, I have trouble believing that will happen. 98 00:06:05,040 --> 00:06:10,840 Speaker 5: So I think that the vindictive prosecution matter is likely 99 00:06:10,920 --> 00:06:15,279 Speaker 5: to go to decision because the government will appeal this thing. 100 00:06:15,520 --> 00:06:19,000 Speaker 5: And if this decision is overturned, then whether it's a 101 00:06:19,080 --> 00:06:22,159 Speaker 5: vindictive prosecution would come to the fore again. 102 00:06:22,760 --> 00:06:26,640 Speaker 3: So now they are going to appeal, no surprise, The 103 00:06:26,680 --> 00:06:29,560 Speaker 3: White House spokesperson said, the facts of the indictments against 104 00:06:29,600 --> 00:06:32,960 Speaker 3: Comium James have not changed, and this will not be 105 00:06:33,040 --> 00:06:36,080 Speaker 3: the final word on this matter. So let's say they 106 00:06:36,160 --> 00:06:38,960 Speaker 3: take it to the Fourth Circuit and the Fourth Circuit 107 00:06:38,960 --> 00:06:42,040 Speaker 3: could affirms what the judge ruled here, So then they 108 00:06:42,040 --> 00:06:43,359 Speaker 3: would go to the Supreme Court. 109 00:06:44,440 --> 00:06:49,800 Speaker 5: They would, And I'm sure this judge understands that and 110 00:06:49,920 --> 00:06:55,520 Speaker 5: has peppered her opinion with citations to Justice Scalia, Justice Thomas, 111 00:06:55,720 --> 00:07:00,120 Speaker 5: Justice cour such, all the lions of conservative status, to 112 00:07:00,120 --> 00:07:05,599 Speaker 5: our interpretation. So the Supreme Court can reverse her only 113 00:07:05,640 --> 00:07:06,960 Speaker 5: by reversing itself. 114 00:07:07,640 --> 00:07:10,720 Speaker 3: And I believe she also cited what was a controversial 115 00:07:10,800 --> 00:07:16,080 Speaker 3: decision by Florida Judge Eileen Cannon dismissing the classified documents 116 00:07:16,160 --> 00:07:17,760 Speaker 3: case against President Trump. 117 00:07:18,480 --> 00:07:22,200 Speaker 5: She did, she did. I think that's a little gratuitous 118 00:07:22,240 --> 00:07:24,480 Speaker 5: and less central to us. But she's got some basic 119 00:07:24,520 --> 00:07:29,680 Speaker 5: statue totory interpretation problems here, and she is hewing very 120 00:07:29,720 --> 00:07:33,440 Speaker 5: closely to the procedures the Supreme Court has said, and 121 00:07:34,120 --> 00:07:37,800 Speaker 5: hardly takes a move without citing a Supreme Court statutetory 122 00:07:37,880 --> 00:07:43,280 Speaker 5: interpretation case. I teach statutory interpretation, and I will be 123 00:07:43,920 --> 00:07:47,600 Speaker 5: likely assigning this case because it's such a nice summary 124 00:07:47,680 --> 00:07:49,360 Speaker 5: of all the moves you're supposed to make. 125 00:07:50,080 --> 00:07:53,840 Speaker 3: Next stop, fourth Circuit. I'm sure, Thanks so much, David. 126 00:07:54,120 --> 00:07:58,280 Speaker 3: That's Professor David Super of Georgetown Law coming up nixt 127 00:07:58,320 --> 00:08:02,480 Speaker 3: on the Bloomberg Law Show. A global insider trading case 128 00:08:02,920 --> 00:08:06,280 Speaker 3: that sounds like a movie script. I'm June Grosso and 129 00:08:06,320 --> 00:08:12,520 Speaker 3: you're listening to Bloomberg. The global insider trading ring allegedly 130 00:08:12,600 --> 00:08:15,800 Speaker 3: started at a meal at a Paris restaurant owned by 131 00:08:15,800 --> 00:08:20,640 Speaker 3: an ex Merrill Lynch investment banker, with members using burner phones, 132 00:08:20,680 --> 00:08:24,760 Speaker 3: coded language, and encrypted messaging apps to conceal its activity 133 00:08:25,320 --> 00:08:29,360 Speaker 3: and payments for insider tips being made using cash transfers, 134 00:08:29,840 --> 00:08:34,640 Speaker 3: shell companies, fake invoices, and even a plastic bag stumped 135 00:08:34,679 --> 00:08:38,160 Speaker 3: with one hundred thousand euros in a Vienna cafe. And 136 00:08:38,320 --> 00:08:42,040 Speaker 3: prosecutors say the ring raked in more than seventeen million 137 00:08:42,160 --> 00:08:46,520 Speaker 3: dollars from a staggering number of insider tips on more 138 00:08:46,559 --> 00:08:51,400 Speaker 3: than fifteen deal targets. My guest is former federal prosecutor 139 00:08:51,480 --> 00:08:56,520 Speaker 3: Stephen Frank, a partner at Quinn Emmanuel. This global insider 140 00:08:56,559 --> 00:08:59,520 Speaker 3: trading ring sounds a little like a movie script. At 141 00:08:59,520 --> 00:09:01,199 Speaker 3: some point, it does. 142 00:09:01,040 --> 00:09:03,080 Speaker 1: Sound like a movie script, and that's because it is 143 00:09:03,120 --> 00:09:04,320 Speaker 1: a lot like a movie script. 144 00:09:04,480 --> 00:09:05,600 Speaker 2: What this case is. 145 00:09:05,600 --> 00:09:13,840 Speaker 1: About really is an incredibly sophisticated, long running worldwide insider 146 00:09:13,920 --> 00:09:19,079 Speaker 1: trading scheme involving insiders at a number of different companies, 147 00:09:19,360 --> 00:09:23,360 Speaker 1: and they haven't actually been charged yet, along with a 148 00:09:23,480 --> 00:09:28,199 Speaker 1: web of traders all around the world who are exchanging 149 00:09:28,280 --> 00:09:33,520 Speaker 1: messages and exchanging inside information in incredibly difficult to detect ways, 150 00:09:33,880 --> 00:09:40,280 Speaker 1: sometimes in person, sometimes over encrypted apps, often using burner 151 00:09:40,360 --> 00:09:46,679 Speaker 1: phones with simcards that they are swapping regularly, and laundering 152 00:09:46,720 --> 00:09:53,520 Speaker 1: the funds through complicated transactions, sometimes in cash, sometimes using 153 00:09:53,679 --> 00:09:59,040 Speaker 1: a variety of bank accounts, sometimes sending cash through the 154 00:09:59,080 --> 00:10:04,800 Speaker 1: mail off disguised as gifts or other types of things. 155 00:10:05,040 --> 00:10:10,080 Speaker 1: And so it's been able to survive all these years 156 00:10:10,120 --> 00:10:13,640 Speaker 1: in part because there are so many different traders involved. 157 00:10:14,400 --> 00:10:18,760 Speaker 1: The information is being dispersed so far and wide that 158 00:10:18,920 --> 00:10:21,880 Speaker 1: it's incredibly difficult to trace. 159 00:10:22,360 --> 00:10:24,480 Speaker 3: Did it go for almost ten years? 160 00:10:24,880 --> 00:10:26,760 Speaker 1: Nothing like that? I mean, it's been going for a 161 00:10:26,840 --> 00:10:29,280 Speaker 1: number of years. I think it's hard to discern exactly 162 00:10:29,280 --> 00:10:31,240 Speaker 1: how long it's been going on. We can sort of 163 00:10:31,320 --> 00:10:36,080 Speaker 1: trace when the initial contact between certain of the players happened, 164 00:10:36,120 --> 00:10:39,079 Speaker 1: but I don't think we know the initial origins of 165 00:10:39,120 --> 00:10:39,959 Speaker 1: the entire scheme. 166 00:10:40,520 --> 00:10:45,319 Speaker 3: Were there specific types of trades that they shared inside 167 00:10:45,360 --> 00:10:48,440 Speaker 3: information on or was it a variety. 168 00:10:49,120 --> 00:10:51,960 Speaker 1: It was a variety. It was in different industries, It 169 00:10:52,120 --> 00:10:55,559 Speaker 1: was in all different types of companies, some that trade 170 00:10:55,559 --> 00:10:58,440 Speaker 1: in the US, some that don't. And that's what also 171 00:10:58,520 --> 00:11:01,360 Speaker 1: made it so difficult to TechEd, but also kind of 172 00:11:01,400 --> 00:11:04,360 Speaker 1: what gives it away, right, It's clear that there is 173 00:11:04,480 --> 00:11:09,200 Speaker 1: no one insider at any one company who's sharing this information. 174 00:11:09,360 --> 00:11:12,120 Speaker 1: It's clear that there are insiders at a variety of 175 00:11:12,160 --> 00:11:17,120 Speaker 1: different companies who are sharing information. That's almost unprecedented in 176 00:11:17,679 --> 00:11:21,000 Speaker 1: these types of schemes. You know, insider trading traditionally was 177 00:11:21,640 --> 00:11:24,440 Speaker 1: you know, a tip passed, you know, over a glass 178 00:11:24,480 --> 00:11:27,160 Speaker 1: of wine or a beer at a country club or 179 00:11:27,200 --> 00:11:30,680 Speaker 1: on a golf course in a single company at a 180 00:11:30,720 --> 00:11:34,680 Speaker 1: single time. It's unusual to have cases that where there's 181 00:11:35,160 --> 00:11:38,920 Speaker 1: different iterations of information being passed over time. It's still 182 00:11:38,960 --> 00:11:42,600 Speaker 1: far more unusual to have so many different companies where 183 00:11:42,600 --> 00:11:46,760 Speaker 1: information is being passed, and over such an extended period 184 00:11:46,800 --> 00:11:49,480 Speaker 1: of time, with so many different traders involved. That's what's 185 00:11:49,480 --> 00:11:52,000 Speaker 1: really quite fascinating about this scheme. 186 00:11:52,280 --> 00:11:56,520 Speaker 3: Is there any indication how the authorities first got wind. 187 00:11:56,240 --> 00:11:58,800 Speaker 1: Of this, Well, I should say I was involved in 188 00:11:58,840 --> 00:12:02,439 Speaker 1: the original invest mitigation and then handed it off when 189 00:12:02,440 --> 00:12:05,360 Speaker 1: I left the government to go into private practice. So 190 00:12:05,440 --> 00:12:08,839 Speaker 1: the way that the authorities first got involved in this 191 00:12:09,080 --> 00:12:11,880 Speaker 1: sort of first figured out that something was amiss is 192 00:12:12,440 --> 00:12:18,959 Speaker 1: simply by seeing the repeated trading in certain companies. There 193 00:12:18,960 --> 00:12:22,840 Speaker 1: was one company in particular where various subsidiaries of the 194 00:12:22,840 --> 00:12:26,200 Speaker 1: company were involved in transactions over time, and there was 195 00:12:26,559 --> 00:12:30,040 Speaker 1: trading ahead of those transactions that was suspicious. But really 196 00:12:30,040 --> 00:12:34,600 Speaker 1: what happened was you had certain individuals who kept popping 197 00:12:34,720 --> 00:12:39,440 Speaker 1: up on the radar of law enforcement and of international 198 00:12:39,480 --> 00:12:44,360 Speaker 1: securities regulators, and law enforcement and regulators looked closely at 199 00:12:44,400 --> 00:12:48,840 Speaker 1: those individuals, looked closely at their transactions, their financial transactions, 200 00:12:49,160 --> 00:12:53,560 Speaker 1: and put this together over many years of investigation, through 201 00:12:53,800 --> 00:12:57,920 Speaker 1: just painstaking investigative work. I mean, the amount of investigation 202 00:12:58,040 --> 00:13:01,119 Speaker 1: that goes into an indictment like this is pretty incredible, 203 00:13:01,160 --> 00:13:06,960 Speaker 1: and it involves sophisticated techniques like you know, search warrants 204 00:13:07,000 --> 00:13:13,319 Speaker 1: for electronic accounts or email accounts, for Facebook accounts, for 205 00:13:13,920 --> 00:13:17,760 Speaker 1: iCloud accounts, and then sifting through all of that information 206 00:13:18,640 --> 00:13:21,920 Speaker 1: in a painstaking way, much of it not in English, 207 00:13:22,000 --> 00:13:26,200 Speaker 1: and putting little little pieces together over time. But it 208 00:13:26,240 --> 00:13:30,480 Speaker 1: was really the result of incredible collaboration between US law 209 00:13:30,559 --> 00:13:34,640 Speaker 1: enforcement and regulators in the United States, as well as 210 00:13:34,679 --> 00:13:38,280 Speaker 1: regulators in law enforcement in England, in France, and in 211 00:13:38,320 --> 00:13:39,040 Speaker 1: other countries. 212 00:13:39,240 --> 00:13:41,319 Speaker 3: So I was going to ask, you know, how much 213 00:13:41,400 --> 00:13:45,240 Speaker 3: that complicates the investigation when you're dealing, you know, with 214 00:13:45,400 --> 00:13:49,640 Speaker 3: other countries and with things happening abroad. 215 00:13:50,720 --> 00:13:53,720 Speaker 1: It makes it incredibly complicated. And that's why these schemes 216 00:13:53,760 --> 00:13:56,319 Speaker 1: are able to persist because they know that and they 217 00:13:56,360 --> 00:13:59,200 Speaker 1: take advantage of that. No one country can put a 218 00:13:59,240 --> 00:14:02,600 Speaker 1: case like this together all by itself. It really requires 219 00:14:02,640 --> 00:14:08,480 Speaker 1: collaboration among different law enforcement and regulatory authorities with different mandates, 220 00:14:08,840 --> 00:14:15,360 Speaker 1: different evidentiary rules, different procedural rules, and then figuring out 221 00:14:15,400 --> 00:14:17,760 Speaker 1: how to share that information in ways that it can 222 00:14:17,800 --> 00:14:21,520 Speaker 1: be used by different countries. I mean, even just the 223 00:14:21,600 --> 00:14:24,480 Speaker 1: fact that there are different time zones involved makes things 224 00:14:24,520 --> 00:14:28,680 Speaker 1: complicated and really requires people to work off hours, to 225 00:14:28,720 --> 00:14:32,520 Speaker 1: work around the clock, to travel internationally just to gather 226 00:14:32,680 --> 00:14:35,160 Speaker 1: the bits and pieces of evidence that's required to put 227 00:14:35,200 --> 00:14:37,800 Speaker 1: a case like this together. It's extremely complicated. 228 00:14:38,360 --> 00:14:42,040 Speaker 3: Is there competition I read that French investigators have been 229 00:14:42,160 --> 00:14:47,680 Speaker 3: conducting a parallel investigation for years. Is there competition among 230 00:14:47,840 --> 00:14:52,480 Speaker 3: the regulators of the different countries to bring the indictments first. 231 00:14:53,520 --> 00:14:55,960 Speaker 1: That's a great question. There is some of that, and 232 00:14:56,600 --> 00:15:00,800 Speaker 1: there's certainly a desire by regular in law enforcement in 233 00:15:00,840 --> 00:15:03,000 Speaker 1: each country to be the first to put the biggest 234 00:15:03,040 --> 00:15:07,160 Speaker 1: case together. But ultimately there's also a recognition that this 235 00:15:07,240 --> 00:15:11,560 Speaker 1: is a big enough scheme, it's sprawling enough that there's 236 00:15:11,600 --> 00:15:14,240 Speaker 1: something in it for everybody, and there's more than any 237 00:15:14,280 --> 00:15:17,680 Speaker 1: one country can do on its own. So it's ultimately 238 00:15:18,120 --> 00:15:21,760 Speaker 1: figuring out what makes the most sense in dividing up 239 00:15:21,800 --> 00:15:25,960 Speaker 1: the pie. One of the things that US law enforcement 240 00:15:26,080 --> 00:15:31,240 Speaker 1: has as an advantage is that sentencing here for these 241 00:15:31,280 --> 00:15:35,520 Speaker 1: types of crimes is substantially greater than it is in 242 00:15:35,600 --> 00:15:38,520 Speaker 1: most other countries, and in Europe in particular, and so 243 00:15:39,440 --> 00:15:43,560 Speaker 1: ultimately what all regulators, whatever country they're in, want to 244 00:15:43,600 --> 00:15:47,040 Speaker 1: do is take down these types of schemes that are 245 00:15:47,080 --> 00:15:53,120 Speaker 1: really taking advantage of innocent investors and making markets an 246 00:15:53,240 --> 00:15:56,320 Speaker 1: unlevel playing field, right, I mean, ultimately, if investors don't 247 00:15:56,320 --> 00:15:59,520 Speaker 1: have confidence in the securities markets, they're not going to invest. 248 00:15:59,560 --> 00:16:02,080 Speaker 1: And that's true in the United States, but it's also 249 00:16:02,080 --> 00:16:05,280 Speaker 1: true in France, and it's also true in England. So ultimately, 250 00:16:05,280 --> 00:16:08,720 Speaker 1: their regulators realize that if they're able to cooperate and 251 00:16:08,760 --> 00:16:11,160 Speaker 1: come down with a heavy hand on schemes like this 252 00:16:11,280 --> 00:16:14,920 Speaker 1: and make it clear that however much profit insider trading 253 00:16:15,400 --> 00:16:17,360 Speaker 1: might generate in the short term, in the long run, 254 00:16:17,400 --> 00:16:19,520 Speaker 1: it's going to put you behind bars for an extended 255 00:16:19,560 --> 00:16:22,640 Speaker 1: period of time. That's in everybody's best interest because that 256 00:16:22,680 --> 00:16:25,560 Speaker 1: protects markets here, but it also protects markets over there. 257 00:16:25,840 --> 00:16:32,960 Speaker 3: When administrations change and priorities of administrations change in enforcement actions, 258 00:16:33,360 --> 00:16:37,400 Speaker 3: do some investigations fall by the wayside? And why did 259 00:16:37,400 --> 00:16:39,720 Speaker 3: this one not fall by the wayside? 260 00:16:40,120 --> 00:16:42,720 Speaker 1: Well, a couple of things. I'll say this one was 261 00:16:42,760 --> 00:16:47,040 Speaker 1: in a pretty advanced state by the time the administrations 262 00:16:47,480 --> 00:16:51,960 Speaker 1: changed over. But also it's pretty clear that in this administration, 263 00:16:52,160 --> 00:16:56,800 Speaker 1: as in past administrations, securities fraud and insider trading remains 264 00:16:57,400 --> 00:17:00,080 Speaker 1: a point of focus. So if you look at the 265 00:17:00,120 --> 00:17:05,080 Speaker 1: statistics over the past year of this administration. What you'll 266 00:17:05,119 --> 00:17:10,240 Speaker 1: see is that while white collar crime enforcement in general 267 00:17:10,520 --> 00:17:15,199 Speaker 1: is down, there are fewer cases being brought, and on 268 00:17:15,280 --> 00:17:19,840 Speaker 1: the sec side as well, there are fewer enforcement actions 269 00:17:19,880 --> 00:17:25,000 Speaker 1: being brought, particularly against corporate actors, securities fraud, and in particular, 270 00:17:25,080 --> 00:17:28,720 Speaker 1: insider trading cases have held steady and perhaps even trended 271 00:17:28,800 --> 00:17:31,639 Speaker 1: up a little bit. And that's because I think Chairman 272 00:17:31,720 --> 00:17:36,440 Speaker 1: Atkins and others in the administration see crimes against the 273 00:17:36,480 --> 00:17:40,320 Speaker 1: markets and crimes against individual investors as crimes they really 274 00:17:40,359 --> 00:17:42,960 Speaker 1: need to pursue because of the reasons I just said, 275 00:17:43,040 --> 00:17:46,480 Speaker 1: because it undermines confidence in the markets. And one thing 276 00:17:46,520 --> 00:17:49,480 Speaker 1: that this administration has in common with prior administrations is 277 00:17:49,960 --> 00:17:52,879 Speaker 1: they want the markets to remain strong in investors to 278 00:17:52,880 --> 00:17:55,919 Speaker 1: have confidence in them. And that's why we've seen pretty 279 00:17:56,040 --> 00:17:59,680 Speaker 1: rigorous enforcement and a number of cases being brought against 280 00:18:00,080 --> 00:18:04,520 Speaker 1: insider trading schemes over the past year. And not every scheme, obviously, 281 00:18:04,600 --> 00:18:06,520 Speaker 1: is as complicated as this one. This one is really 282 00:18:06,600 --> 00:18:12,080 Speaker 1: unprecedented in its sweep and sophistication, but we've seen cases 283 00:18:12,640 --> 00:18:16,800 Speaker 1: across the United States really against just ordinary insider trading schemes, 284 00:18:16,840 --> 00:18:18,840 Speaker 1: the types of one off schemes. I was talking about 285 00:18:18,840 --> 00:18:22,960 Speaker 1: a moment ago where information is being passed on a 286 00:18:22,960 --> 00:18:26,919 Speaker 1: cocktail mapkin across the bar, or even insiders trading in 287 00:18:26,960 --> 00:18:29,919 Speaker 1: their own companies, which is the least sophisticated kind of scheme. 288 00:18:30,359 --> 00:18:34,359 Speaker 1: Finding out information that's not public that can move a 289 00:18:34,440 --> 00:18:37,160 Speaker 1: stock in your own company and trading on it, either 290 00:18:37,200 --> 00:18:38,879 Speaker 1: in your own account or in the account of a 291 00:18:38,920 --> 00:18:41,560 Speaker 1: friend or a relative. Those are relatively easy to discover, 292 00:18:41,600 --> 00:18:43,240 Speaker 1: and they're surprisingly commonplace. 293 00:18:43,880 --> 00:18:46,639 Speaker 3: It sounds like this might be a tough case to 294 00:18:46,760 --> 00:18:49,199 Speaker 3: try to put this all together for a jury. What 295 00:18:49,240 --> 00:18:53,200 Speaker 3: do you think is the strongest evidence that the prosecution has. 296 00:18:54,560 --> 00:18:56,960 Speaker 1: Well, if you read the superseding indictment in this case, 297 00:18:57,000 --> 00:18:59,960 Speaker 1: the prosecution has really put together a pretty compelling case, 298 00:19:01,440 --> 00:19:07,159 Speaker 1: replete with very devastating text messages, really text messages that 299 00:19:07,200 --> 00:19:09,960 Speaker 1: are going to be difficult for the defendants to explain, 300 00:19:10,560 --> 00:19:13,680 Speaker 1: in which they're speaking in code, but it's a barely 301 00:19:13,720 --> 00:19:19,040 Speaker 1: disguised code. They're talking about swapping phones and sin cards 302 00:19:19,119 --> 00:19:23,480 Speaker 1: as socks and shoes. They're talking about money as greens. 303 00:19:24,119 --> 00:19:28,199 Speaker 1: They talk about financial transactions sometimes as meat put in 304 00:19:28,240 --> 00:19:33,160 Speaker 1: a refrigerator. It's almost comical the way that they use 305 00:19:33,320 --> 00:19:36,760 Speaker 1: this code. But ultimately, when you put all of these 306 00:19:36,800 --> 00:19:40,280 Speaker 1: conversations together, it really becomes pretty compelling. And then when 307 00:19:40,280 --> 00:19:43,920 Speaker 1: you combine those with the cash, the financial transactions, and 308 00:19:44,000 --> 00:19:47,480 Speaker 1: the stock trading, it really becomes overwhelming. What's interesting about 309 00:19:47,480 --> 00:19:50,480 Speaker 1: this indictment is it was unsealed even though many of 310 00:19:50,480 --> 00:19:53,840 Speaker 1: these players have not yet been arrested. So one individual 311 00:19:54,119 --> 00:19:57,360 Speaker 1: was arrested and extradited to the United States, and other 312 00:19:57,720 --> 00:20:01,840 Speaker 1: individuals in Singapore and is fighting extra edition. Other individuals 313 00:20:01,840 --> 00:20:06,119 Speaker 1: have been charged and named but not yet arrested or 314 00:20:06,200 --> 00:20:08,840 Speaker 1: extradited into the United States. Now those individuals are going 315 00:20:08,920 --> 00:20:12,760 Speaker 1: to find their ability to travel freely severely constrained, and 316 00:20:13,040 --> 00:20:15,840 Speaker 1: many of them probably will be picked up over time. 317 00:20:16,240 --> 00:20:18,600 Speaker 1: But that doesn't mean that the evidence about them doesn't 318 00:20:18,640 --> 00:20:21,800 Speaker 1: come in. Because this is charged as a conspiracy, and 319 00:20:21,920 --> 00:20:26,640 Speaker 1: in the US legal system, evidence of communications among conspirators 320 00:20:26,760 --> 00:20:30,080 Speaker 1: in furtherance of a conspiratorial aim can all come in. 321 00:20:30,160 --> 00:20:33,480 Speaker 1: So all of this evidence about all of the different 322 00:20:33,480 --> 00:20:35,960 Speaker 1: players in this conspiracy is going to be admissible for 323 00:20:36,040 --> 00:20:38,680 Speaker 1: prosecutors if and when this proceeds to trial. 324 00:20:38,920 --> 00:20:42,880 Speaker 3: The prosecution has a cooperator. How important is his testimony. 325 00:20:43,320 --> 00:20:46,159 Speaker 1: It's always important, particularly when you have these types of 326 00:20:46,200 --> 00:20:49,359 Speaker 1: coded communications or a cooperating witness, to be able to 327 00:20:49,359 --> 00:20:51,600 Speaker 1: get up on the stand and say, this is what 328 00:20:51,640 --> 00:20:55,240 Speaker 1: we were talking about, this is the terminology that we used. 329 00:20:55,600 --> 00:20:58,679 Speaker 1: These are the types of techniques that we used to 330 00:20:59,400 --> 00:21:02,600 Speaker 1: hide our communmunications make them more difficult to discover. The 331 00:21:02,640 --> 00:21:05,159 Speaker 1: most compelling thing, though, about any cooperating witness is the 332 00:21:05,160 --> 00:21:07,199 Speaker 1: fact that he's going to get up there in all 333 00:21:07,359 --> 00:21:10,919 Speaker 1: likelihood and say I committed this crime. I was a 334 00:21:10,920 --> 00:21:14,199 Speaker 1: part of this scheme, this was a conspiracy, and the 335 00:21:14,240 --> 00:21:17,600 Speaker 1: defendant was in it with me. That's really devastating evidence 336 00:21:17,640 --> 00:21:21,360 Speaker 1: that's very difficult to undermine, particularly when that individual has 337 00:21:21,400 --> 00:21:23,840 Speaker 1: accepted responsibility for their own collaps. 338 00:21:24,320 --> 00:21:28,000 Speaker 3: Do you envision the prosecution sort of presenting this like 339 00:21:28,040 --> 00:21:31,000 Speaker 3: a movie, like here we are at the French restaurant 340 00:21:31,200 --> 00:21:33,320 Speaker 3: and blah blah, blah blah blah. 341 00:21:33,359 --> 00:21:36,119 Speaker 1: It is pretty cinematic. So if they're smart about it, 342 00:21:36,400 --> 00:21:38,640 Speaker 1: and they are, and I'm sure they'll do this, they 343 00:21:38,680 --> 00:21:41,040 Speaker 1: will present it in that way. They will have First 344 00:21:41,040 --> 00:21:43,200 Speaker 1: of all, these communications are so devastating, they're going to 345 00:21:43,240 --> 00:21:45,480 Speaker 1: be put up on a screen and even though there's 346 00:21:45,480 --> 00:21:48,680 Speaker 1: no audio in these communications, there wasn't a wiretap involved 347 00:21:48,680 --> 00:21:51,920 Speaker 1: in this case, you'll nevertheless be able to see these 348 00:21:51,960 --> 00:21:55,760 Speaker 1: communications and play out these transactions almost in real time, 349 00:21:56,240 --> 00:21:59,639 Speaker 1: and then you'll have it narrated by somebody like this 350 00:21:59,680 --> 00:22:01,480 Speaker 1: coper O breading witness who's going to be able to 351 00:22:01,480 --> 00:22:04,280 Speaker 1: say I was there and I was passing this cash, 352 00:22:04,520 --> 00:22:06,840 Speaker 1: you know, in a paper bag or whatever the case 353 00:22:06,880 --> 00:22:10,960 Speaker 1: may be, and it's really captivating for jurors. I've been 354 00:22:10,960 --> 00:22:15,160 Speaker 1: on cases similar to this before where jurors have said 355 00:22:15,200 --> 00:22:18,639 Speaker 1: afterwards that they were really just so enthralled by the 356 00:22:18,640 --> 00:22:22,360 Speaker 1: presentation of the evidence, because it really is even though 357 00:22:22,400 --> 00:22:26,600 Speaker 1: these are just financial transactions, the level of greed involved 358 00:22:26,760 --> 00:22:29,600 Speaker 1: and the lengths that people will go to to disguise 359 00:22:29,640 --> 00:22:32,600 Speaker 1: these transactions is pretty incredible. 360 00:22:32,760 --> 00:22:34,879 Speaker 3: You're a prosecutor for a long time. Now you're on 361 00:22:34,920 --> 00:22:37,480 Speaker 3: the other side. I mean, do you see a possible 362 00:22:37,640 --> 00:22:38,440 Speaker 3: defense here. 363 00:22:39,160 --> 00:22:41,320 Speaker 1: It's going to be interesting. I mean, I think any 364 00:22:41,359 --> 00:22:44,280 Speaker 1: defense attorney is going to, you know, do some basic things. 365 00:22:44,359 --> 00:22:46,080 Speaker 1: One is you're going to try and keep out as 366 00:22:46,119 --> 00:22:49,240 Speaker 1: much evidence as you possibly can, right go after the 367 00:22:49,280 --> 00:22:52,840 Speaker 1: search warrants and try to figure out some way legal 368 00:22:52,920 --> 00:22:56,960 Speaker 1: or otherwise that they are invalid. Another thing is, obviously, 369 00:22:57,280 --> 00:22:59,760 Speaker 1: you know, a top the cooperating witness, try to undermine 370 00:22:59,800 --> 00:23:03,240 Speaker 1: the cutibility of the cooperator and suggest that they're doing 371 00:23:03,280 --> 00:23:06,879 Speaker 1: it really to obtain leniency in their own sentencing, but 372 00:23:06,960 --> 00:23:08,840 Speaker 1: that they are really just telling a story that the 373 00:23:08,880 --> 00:23:12,520 Speaker 1: prosecution wants them to tell. Another piece of it is 374 00:23:12,560 --> 00:23:14,600 Speaker 1: to point to the empty chair right to say that 375 00:23:14,640 --> 00:23:17,000 Speaker 1: there are all these other players involved, but where are 376 00:23:17,040 --> 00:23:20,280 Speaker 1: they and try and undermine the case that way. But 377 00:23:20,680 --> 00:23:22,920 Speaker 1: when you have a case that's been put together over 378 00:23:23,080 --> 00:23:27,080 Speaker 1: years with as much evidence as it appears the prosecutors 379 00:23:27,119 --> 00:23:32,080 Speaker 1: have in this case, it's tough. And sometimes defendants take 380 00:23:32,119 --> 00:23:34,760 Speaker 1: their shot because they figure they have nothing to lose, 381 00:23:34,800 --> 00:23:37,160 Speaker 1: But other times they try to work out a deal. 382 00:23:37,240 --> 00:23:40,040 Speaker 1: And no doubt, given the number of people who still 383 00:23:40,080 --> 00:23:42,439 Speaker 1: haven't been apprehended, and the number of others who are 384 00:23:42,480 --> 00:23:45,160 Speaker 1: undoubtedly involved in the scheme and haven't even been charged, 385 00:23:45,520 --> 00:23:48,320 Speaker 1: including the insiders at some of these companies, there's going 386 00:23:48,400 --> 00:23:51,200 Speaker 1: to be a real incentive as the trial data approaches 387 00:23:51,680 --> 00:23:54,160 Speaker 1: for some of these people to flip themselves and try 388 00:23:54,160 --> 00:23:55,680 Speaker 1: and work out a deal for themselves. 389 00:23:56,000 --> 00:23:58,600 Speaker 3: It seems like this would be a great trial to watch. 390 00:23:59,040 --> 00:24:02,040 Speaker 1: It's a really cool case. It's a pretty unprecedented case. 391 00:24:02,280 --> 00:24:04,480 Speaker 1: It's unusual for a case like this to be brought 392 00:24:04,720 --> 00:24:07,840 Speaker 1: in a place like Boston, which isn't you know, as 393 00:24:07,880 --> 00:24:11,040 Speaker 1: big a financial center as New York or even San Francisco. 394 00:24:11,480 --> 00:24:14,199 Speaker 1: But it's really a testament to the work of you know, 395 00:24:14,280 --> 00:24:17,680 Speaker 1: individual prosecutors and FBI agents and folks at the SEC 396 00:24:17,760 --> 00:24:19,479 Speaker 1: to put a case like this together. I mean that 397 00:24:19,520 --> 00:24:22,080 Speaker 1: the amount of work is really it's not apparent at 398 00:24:22,080 --> 00:24:25,000 Speaker 1: the first glance, but it really it's literally years of work. 399 00:24:25,359 --> 00:24:29,160 Speaker 3: It's been a fascinating conversation. Thanks so much. That's former 400 00:24:29,240 --> 00:24:34,520 Speaker 3: federal prosecutor Stephen Frank, a partner at Quinn Emmanuel. The 401 00:24:34,560 --> 00:24:39,400 Speaker 3: Securities and Exchange Commission is dropping its landmark lawsuit against 402 00:24:39,440 --> 00:24:43,560 Speaker 3: Solar Winds that accuse the company of covering up internal 403 00:24:43,640 --> 00:24:48,520 Speaker 3: problems ahead of a massive cyber attack. The agency said 404 00:24:48,560 --> 00:24:52,360 Speaker 3: the decision to seek dismissal is quote in the exercise 405 00:24:52,400 --> 00:24:56,920 Speaker 3: of its discretion and does not necessarily reflect the Commission's 406 00:24:56,960 --> 00:25:01,200 Speaker 3: position on any other case. The move 's a controversial 407 00:25:01,280 --> 00:25:05,280 Speaker 3: case for the SEC, which faced criticism from Wall Street 408 00:25:05,320 --> 00:25:09,200 Speaker 3: and beyond that it's allegations against Solar Winds went far 409 00:25:09,280 --> 00:25:14,399 Speaker 3: afield of the agency's typical enforcement remit. My guest is 410 00:25:14,440 --> 00:25:18,760 Speaker 3: securities law expert James Park, a professor at UCLA Law School. 411 00:25:19,240 --> 00:25:21,160 Speaker 3: Jim tell us about the SEC suit. 412 00:25:21,760 --> 00:25:28,639 Speaker 7: This is a major cybersecurity disclosure case involving a company 413 00:25:28,720 --> 00:25:34,840 Speaker 7: in Austin that developed network monitoring software, basically software that 414 00:25:34,880 --> 00:25:41,040 Speaker 7: you use to monitor the performance of your network. And obviously, 415 00:25:41,200 --> 00:25:44,520 Speaker 7: for software like this, you know, cybersecurity is very important 416 00:25:44,520 --> 00:25:47,600 Speaker 7: because somebody could come in and see everything that's going 417 00:25:47,640 --> 00:25:52,160 Speaker 7: on in your network. And they have a major cyber 418 00:25:52,440 --> 00:25:57,639 Speaker 7: attack on something called the Orian software platform that generated 419 00:25:57,920 --> 00:26:02,320 Speaker 7: almost half of their revenue. Their stock price goes down, 420 00:26:02,400 --> 00:26:06,159 Speaker 7: and then the SEC brings a case saying that various 421 00:26:06,200 --> 00:26:11,800 Speaker 7: disclosures they made with respect to their cybersecurity practices were 422 00:26:12,440 --> 00:26:18,120 Speaker 7: materially misleading. That was litigated by the company, which does 423 00:26:18,160 --> 00:26:21,640 Speaker 7: not always happen. A lot of defendants settle SEC cases 424 00:26:21,760 --> 00:26:26,359 Speaker 7: rather than pursue dismissal, but they litigated in the Southern 425 00:26:26,400 --> 00:26:29,960 Speaker 7: District of New York. Judge Engelmeyer dismissed part of the 426 00:26:30,040 --> 00:26:32,680 Speaker 7: SEC's claims, not all of them, but some of them. 427 00:26:33,200 --> 00:26:35,080 Speaker 7: I mean, this was about a year or so ago, 428 00:26:35,280 --> 00:26:37,560 Speaker 7: and then we just got news last week that the 429 00:26:37,600 --> 00:26:41,439 Speaker 7: SEC has chosen not to go forward with the case. 430 00:26:42,000 --> 00:26:45,000 Speaker 3: I mean, did this case diverge in any way from 431 00:26:45,160 --> 00:26:49,199 Speaker 3: a normal or the usual SEC enforcement actions. 432 00:26:50,080 --> 00:26:54,640 Speaker 7: One way it diverged, I think is the defendant litigated 433 00:26:54,760 --> 00:26:57,840 Speaker 7: the case. And you know, another is that you know, 434 00:26:57,920 --> 00:27:01,119 Speaker 7: when you bring a major case like this, you usually 435 00:27:01,119 --> 00:27:03,520 Speaker 7: pursue it to the end, and I think that's usually 436 00:27:03,600 --> 00:27:08,439 Speaker 7: the practice with the SEC. Even when the administration changes, 437 00:27:09,080 --> 00:27:13,160 Speaker 7: you have enforcement cases that often are left over from 438 00:27:13,200 --> 00:27:16,080 Speaker 7: prior years because they take a long time to resolve, 439 00:27:16,119 --> 00:27:19,880 Speaker 7: and then you know, the enforcement staff is they continue 440 00:27:19,880 --> 00:27:22,720 Speaker 7: to litigate those cases, even if there might be some 441 00:27:23,080 --> 00:27:25,320 Speaker 7: disagreement with the new commission. 442 00:27:25,520 --> 00:27:27,960 Speaker 6: And so it is a bit unusual. 443 00:27:28,359 --> 00:27:33,280 Speaker 7: They're not unprecedented for the SEC to stop pursuing a case. 444 00:27:33,800 --> 00:27:36,040 Speaker 7: Of course, this did happen as well with the various 445 00:27:36,040 --> 00:27:39,800 Speaker 7: crypto enforcement cases. So for this SEC, it's not unprecedented. 446 00:27:39,840 --> 00:27:42,840 Speaker 7: For prior secs, I think it's unusual. I think that 447 00:27:42,840 --> 00:27:43,800 Speaker 7: would be fair to say. 448 00:27:44,080 --> 00:27:46,800 Speaker 3: And also, is it the first time they suit a 449 00:27:46,880 --> 00:27:53,240 Speaker 3: computer security executive for a cybersecurity related issue? That companies 450 00:27:53,240 --> 00:27:55,639 Speaker 3: said that they were trying to expand their turf. 451 00:27:56,800 --> 00:28:00,280 Speaker 7: That is unusual, right the chief Information Security office, sir, 452 00:28:00,400 --> 00:28:02,840 Speaker 7: who you know, it's not the CEO, it's not the 453 00:28:02,920 --> 00:28:06,760 Speaker 7: chief financial officer. And I don't know if they've ever 454 00:28:07,000 --> 00:28:10,720 Speaker 7: sued a chief information security officer before, but this is 455 00:28:10,760 --> 00:28:14,600 Speaker 7: certainly something that was relatively new. And so that was 456 00:28:14,640 --> 00:28:17,160 Speaker 7: another interesting aspect. 457 00:28:16,720 --> 00:28:17,680 Speaker 6: Of the case. 458 00:28:18,160 --> 00:28:21,680 Speaker 3: Why did the judge dismiss a lot of the case. 459 00:28:21,760 --> 00:28:26,600 Speaker 7: You know, I think one reason was that the statements, 460 00:28:26,600 --> 00:28:30,040 Speaker 7: some of the statements the SEC alleged were misleading. Were 461 00:28:31,000 --> 00:28:37,399 Speaker 7: these broad statements about there's a risk of cybersecurity breach, 462 00:28:38,160 --> 00:28:41,400 Speaker 7: and these are the types of disclosures. 463 00:28:40,640 --> 00:28:44,520 Speaker 6: That are made by a lot of companies. And what 464 00:28:44,600 --> 00:28:46,880 Speaker 6: the SEC was saying is that the reason. 465 00:28:46,640 --> 00:28:51,560 Speaker 7: Those generic disclosures were misleading is that they were never 466 00:28:51,600 --> 00:28:55,640 Speaker 7: really updated even when it became clear to the company 467 00:28:55,800 --> 00:28:58,880 Speaker 7: that its cybersecurity was insufficient. 468 00:28:59,200 --> 00:29:02,080 Speaker 6: And so the SEC was saying that you. 469 00:29:02,200 --> 00:29:08,840 Speaker 7: Basically were putting out this generic disclosure to keep investors satisfied, 470 00:29:09,160 --> 00:29:12,440 Speaker 7: but you are not updating it when new developments came 471 00:29:12,480 --> 00:29:16,560 Speaker 7: along and investors would want you to update those risk disclosures. 472 00:29:17,440 --> 00:29:22,160 Speaker 7: And really, what the judge said as well, the risk disclosures. 473 00:29:22,360 --> 00:29:25,640 Speaker 7: They were enough to tell the investors that this was 474 00:29:25,680 --> 00:29:31,880 Speaker 7: a type of risk, and investors they understand that companies 475 00:29:31,960 --> 00:29:35,520 Speaker 7: talk in generalities like this. There's a doctrine called the 476 00:29:35,520 --> 00:29:40,320 Speaker 7: Puffrey doctrine where everyone understands companies are always going to 477 00:29:40,360 --> 00:29:44,000 Speaker 7: try to put a rosy tone on things, and they 478 00:29:44,200 --> 00:29:47,600 Speaker 7: speak in a very optimistic way. So they do this, 479 00:29:47,640 --> 00:29:49,920 Speaker 7: and investors know this, and they know that they shouldn't 480 00:29:49,960 --> 00:29:54,680 Speaker 7: trust these broad statements on face value, and so that 481 00:29:54,800 --> 00:29:56,480 Speaker 7: was the main reason a good chunk of the case 482 00:29:56,560 --> 00:30:00,480 Speaker 7: was dismissed. Now, there were statements that were more pacific 483 00:30:00,680 --> 00:30:03,960 Speaker 7: that were published on the company's website, which the judge 484 00:30:04,000 --> 00:30:07,520 Speaker 7: said could proceed. The claims could proceed because they made 485 00:30:07,600 --> 00:30:14,120 Speaker 7: much more specific statements that the company was using strong cybersecurity, 486 00:30:14,160 --> 00:30:17,200 Speaker 7: that they had gone through a rigorous development process, that 487 00:30:17,240 --> 00:30:21,840 Speaker 7: they were very sort of diligent in evaluating their internal 488 00:30:21,880 --> 00:30:25,640 Speaker 7: cybersecurity controls, and those statements might have been misleading. 489 00:30:25,720 --> 00:30:27,280 Speaker 6: According to Judge. 490 00:30:27,120 --> 00:30:30,360 Speaker 3: Ingle Meyer, what do you think the SEC caved here? 491 00:30:30,760 --> 00:30:36,160 Speaker 7: I think that cybersecurity has been controversial in terms of 492 00:30:36,200 --> 00:30:40,200 Speaker 7: whether this is an area where the SEC should be 493 00:30:40,280 --> 00:30:45,240 Speaker 7: significantly involved, and it's only been fairly recently that we 494 00:30:45,320 --> 00:30:50,600 Speaker 7: think of cybersecurity as something that the high level managers 495 00:30:50,640 --> 00:30:54,960 Speaker 7: of the company must be really vigilant about. You know, 496 00:30:55,000 --> 00:30:56,480 Speaker 7: I think there was a time when we thought of 497 00:30:56,480 --> 00:30:59,120 Speaker 7: cybersecurity issues as being you know, this is what the 498 00:30:59,200 --> 00:31:02,160 Speaker 7: IT department is responsible for. It's not something that the 499 00:31:02,200 --> 00:31:06,680 Speaker 7: board really should be knowledgeable about, because the board quite 500 00:31:06,720 --> 00:31:10,680 Speaker 7: frankly doesn't have the expertise in evaluating a company cybersecurity. 501 00:31:10,720 --> 00:31:12,360 Speaker 6: And so there's been a big shift. 502 00:31:12,000 --> 00:31:16,960 Speaker 7: Though to require disclosure about cybersecurity and to require the 503 00:31:17,000 --> 00:31:22,080 Speaker 7: board to evaluate the adequacy of cybersecurity. I think that's 504 00:31:22,120 --> 00:31:26,760 Speaker 7: been controversial, although I think it still is an expectation. 505 00:31:27,520 --> 00:31:32,560 Speaker 7: And you know, in addition to cybersecurity efforts being generally controversial, 506 00:31:32,640 --> 00:31:37,280 Speaker 7: I think enforcement relating to cybersecurity disclosures might have been 507 00:31:37,320 --> 00:31:42,840 Speaker 7: even more controversial because the critics would say, you know, basically, 508 00:31:42,880 --> 00:31:44,760 Speaker 7: this is a company that was a victim of a 509 00:31:44,800 --> 00:31:48,440 Speaker 7: cyber attack, and so they were victims, and now you're 510 00:31:48,480 --> 00:31:52,840 Speaker 7: saying that they should also pay for misleading investors, and 511 00:31:52,920 --> 00:31:58,360 Speaker 7: so there might be something off putting or problematic about 512 00:31:58,720 --> 00:32:01,080 Speaker 7: saying that, well, you are the victim of the cyber attack, 513 00:32:01,640 --> 00:32:05,560 Speaker 7: plus you also have to pay money to your investors 514 00:32:05,600 --> 00:32:07,800 Speaker 7: because you didn't stop it. I think that's kind of 515 00:32:07,800 --> 00:32:10,880 Speaker 7: the argument here, is that you know, it's almost punishing 516 00:32:10,920 --> 00:32:13,520 Speaker 7: you twice for being the victim of a cyber attech. Now, 517 00:32:13,600 --> 00:32:14,960 Speaker 7: on the other hand, you could say, well, this is 518 00:32:14,960 --> 00:32:17,840 Speaker 7: a company with cyber security matters a lot, and so 519 00:32:17,880 --> 00:32:20,720 Speaker 7: they should have made more timely disclosures. That's the argument 520 00:32:20,760 --> 00:32:23,320 Speaker 7: on the other side. But I think that maybe what 521 00:32:23,400 --> 00:32:26,640 Speaker 7: the SEC was thinking here is that we want to 522 00:32:26,680 --> 00:32:29,000 Speaker 7: pull back a bit on cybersecurity enforcement. 523 00:32:29,320 --> 00:32:33,160 Speaker 3: So officially, the SEC said that the decision to seek 524 00:32:33,200 --> 00:32:37,040 Speaker 3: dismissal is in the exercise of its discretion, does not 525 00:32:37,160 --> 00:32:41,800 Speaker 3: necessarily reflect the Commission's position on any other case. I mean, 526 00:32:41,840 --> 00:32:45,320 Speaker 3: do you think the SEC intends to continue to focus 527 00:32:45,400 --> 00:32:49,040 Speaker 3: on cybersecurity or this case says no. 528 00:32:50,240 --> 00:32:54,320 Speaker 7: Well it's a powerful statement, but I think the SEC 529 00:32:54,360 --> 00:32:59,440 Speaker 7: maybe leaving some room to change its mind. And you know, 530 00:32:59,480 --> 00:33:01,800 Speaker 7: if they're maybe there are a better set of facts 531 00:33:01,840 --> 00:33:06,880 Speaker 7: around that they might find. And so I think they 532 00:33:06,880 --> 00:33:10,520 Speaker 7: are leaving open the option to bring enforcement cases and 533 00:33:10,560 --> 00:33:13,440 Speaker 7: they're not saying that. You know that you can't sort 534 00:33:13,480 --> 00:33:18,280 Speaker 7: of violate security sprout provisions through misstatements about cybersecurity. But 535 00:33:18,680 --> 00:33:21,320 Speaker 7: I think they're saying, in this case, maybe the case 536 00:33:21,440 --> 00:33:23,640 Speaker 7: was not as strong as it as it could have been. 537 00:33:23,920 --> 00:33:26,600 Speaker 7: And I think it's a powerful signal with respect to 538 00:33:26,640 --> 00:33:28,560 Speaker 7: this particular SEC. 539 00:33:29,560 --> 00:33:33,920 Speaker 3: I guess chief information security officers are breathing a sigh 540 00:33:33,960 --> 00:33:38,000 Speaker 3: of relief with this because it would have meant personal liability. 541 00:33:38,560 --> 00:33:40,960 Speaker 7: Yeah, I think I think that's right. I think they're there. 542 00:33:41,000 --> 00:33:45,160 Speaker 7: Definitely is potential for liability. You know, of course, if 543 00:33:45,200 --> 00:33:48,240 Speaker 7: they settle the you know, the payment may be covered 544 00:33:48,240 --> 00:33:53,320 Speaker 7: by an insurance policy. But it's never easy when you 545 00:33:53,400 --> 00:33:58,360 Speaker 7: are specifically named in a complaint, and you know, I 546 00:33:58,360 --> 00:34:01,840 Speaker 7: think if you're the CFO, you fully understand that this 547 00:34:02,000 --> 00:34:05,840 Speaker 7: is something that could happen. Chief information security officer, maybe not, 548 00:34:06,080 --> 00:34:09,480 Speaker 7: but you know. This also speaks though to the difficulty 549 00:34:09,600 --> 00:34:14,320 Speaker 7: of bringing cases against individual corporate officers, which the SEC 550 00:34:14,360 --> 00:34:17,520 Speaker 7: says it wants to do more of. But you know, 551 00:34:17,560 --> 00:34:22,320 Speaker 7: when you single out a particular individual, there is sometimes 552 00:34:22,360 --> 00:34:25,680 Speaker 7: a question of is it fair to put so much 553 00:34:25,840 --> 00:34:28,919 Speaker 7: blame on a single person when you know it might 554 00:34:28,920 --> 00:34:32,239 Speaker 7: have been more of a systematic problem at the corporation 555 00:34:33,080 --> 00:34:35,719 Speaker 7: that the high level officer may not have really had 556 00:34:35,760 --> 00:34:39,800 Speaker 7: complete control over. So I think that's an interesting point, 557 00:34:39,880 --> 00:34:42,279 Speaker 7: is that in some ways this kind of acknowledges that 558 00:34:42,320 --> 00:34:45,920 Speaker 7: it's actually really hard to build cases against individuals, and 559 00:34:46,000 --> 00:34:48,240 Speaker 7: sometimes it may you may see them unfair. 560 00:34:48,600 --> 00:34:51,040 Speaker 3: Any final thoughts, Jim, I. 561 00:34:50,960 --> 00:34:57,279 Speaker 7: Think you might think of these cybersecurity cases as just 562 00:34:57,320 --> 00:35:01,200 Speaker 7: another form of a type of case at commonly brought, 563 00:35:01,239 --> 00:35:04,880 Speaker 7: which is that you know there's some business development that 564 00:35:04,960 --> 00:35:08,480 Speaker 7: the company knows about some business failure. You know, we 565 00:35:08,560 --> 00:35:10,520 Speaker 7: have a product we thought was going to be great, 566 00:35:10,719 --> 00:35:13,600 Speaker 7: but we know it's going to be delayed a long time, 567 00:35:13,640 --> 00:35:16,279 Speaker 7: it has a lot of flaws in it, and you 568 00:35:16,320 --> 00:35:19,240 Speaker 7: know we we don't tell investors. I think it's fairly 569 00:35:19,520 --> 00:35:23,319 Speaker 7: clear now, based on you know, thirty forty years of 570 00:35:23,600 --> 00:35:29,120 Speaker 7: case law, that lying about business developments can violate securities 571 00:35:29,120 --> 00:35:32,359 Speaker 7: fraud laws. And you know, there's an argument that if 572 00:35:32,400 --> 00:35:36,719 Speaker 7: you are lying about the strength of your cybersecurity controls, 573 00:35:37,320 --> 00:35:41,200 Speaker 7: that that's not all that different, right, because you know, 574 00:35:41,239 --> 00:35:44,000 Speaker 7: it's not a business failure, but it is a failure 575 00:35:44,239 --> 00:35:47,919 Speaker 7: in what you're supposed to be doing to protect your customers, 576 00:35:48,200 --> 00:35:53,040 Speaker 7: to protect investors, And so these disclosures can be important. 577 00:35:53,600 --> 00:35:54,840 Speaker 6: And I don't think. 578 00:35:54,640 --> 00:35:59,400 Speaker 7: The SEC's direction in this was completely unfounded because I think, 579 00:35:59,520 --> 00:36:03,480 Speaker 7: you know, just closures in business practices relating to treatment 580 00:36:03,480 --> 00:36:06,839 Speaker 7: of customers and so forth are pretty relevant to what 581 00:36:06,920 --> 00:36:10,520 Speaker 7: investors are looking at for companies like this. I do 582 00:36:10,600 --> 00:36:14,520 Speaker 7: agree though, that, you know, it is difficult to sort 583 00:36:14,560 --> 00:36:18,560 Speaker 7: of determine, you know, when exactly was it clear that 584 00:36:18,640 --> 00:36:22,480 Speaker 7: they were engaging in really really risky behaviors that were 585 00:36:22,920 --> 00:36:25,560 Speaker 7: so far below the industry norm that we would want 586 00:36:25,560 --> 00:36:29,000 Speaker 7: them to be accountable for not saying more about their 587 00:36:29,280 --> 00:36:31,520 Speaker 7: vulnerability to a cyber attech. I think that's a really 588 00:36:31,560 --> 00:36:33,239 Speaker 7: difficult question to answer as well. 589 00:36:33,600 --> 00:36:36,919 Speaker 3: Thanks so much, Jim. As always, that's Professor James Park 590 00:36:37,040 --> 00:36:40,040 Speaker 3: of UCLA Law School. And that's it for this edition 591 00:36:40,080 --> 00:36:42,719 Speaker 3: of The Bloomberg Law Show. Remember you can always get 592 00:36:42,719 --> 00:36:45,880 Speaker 3: the latest legal news on our Bloomberg Law Podcast. You 593 00:36:45,920 --> 00:36:50,000 Speaker 3: can find them on Apple Podcasts, Spotify, and at www 594 00:36:50,160 --> 00:36:54,440 Speaker 3: dot Bloomberg dot com, slash podcast Slash Law, And remember 595 00:36:54,440 --> 00:36:57,399 Speaker 3: to tune into The Bloomberg Law Show every weeknight at 596 00:36:57,440 --> 00:37:00,879 Speaker 3: ten pm Wall Street Time. I'm Jamie Grosso, and you're 597 00:37:01,000 --> 00:37:07,240 Speaker 3: listening to Bloomberg MHM.