1 00:00:00,080 --> 00:00:03,520 Speaker 1: The split verdict of a Connecticut jury reveals the challenges 2 00:00:03,560 --> 00:00:06,600 Speaker 1: of policing fraud in the market. The jury convicted one 3 00:00:06,680 --> 00:00:10,000 Speaker 1: former Nomura bond trader of conspiring to light of clients 4 00:00:10,039 --> 00:00:13,880 Speaker 1: about mortgage bond prices, but cleared another of all charges, 5 00:00:14,120 --> 00:00:17,680 Speaker 1: while clearing a third trader of all but the conspiracy charge, 6 00:00:17,760 --> 00:00:21,680 Speaker 1: which jurors could not decide on. Defense attorneys have argued 7 00:00:21,720 --> 00:00:25,960 Speaker 1: that bond trading takes place between sophisticated professionals who can't 8 00:00:25,960 --> 00:00:30,639 Speaker 1: be fooled by bluffing or puffing. My guests are John Coffey, 9 00:00:30,640 --> 00:00:34,159 Speaker 1: of professor Columbia Law School and Robert Hockett, a professor 10 00:00:34,280 --> 00:00:39,000 Speaker 1: Cornell University Law School. Jack. The jury acquitted the traders 11 00:00:39,159 --> 00:00:43,160 Speaker 1: or deadlocked on everything but the conspiracy charges. They found 12 00:00:43,240 --> 00:00:47,760 Speaker 1: Michael Gramman's guilty of conspiracy, Tyler Peter's not guilty, and 13 00:00:47,800 --> 00:00:51,920 Speaker 1: they deadlocked on conspiracy. As far as Rod Shapiro, what 14 00:00:52,080 --> 00:00:55,800 Speaker 1: does that show, Well, let's just underlinine how severe a 15 00:00:55,920 --> 00:00:58,920 Speaker 1: defeat this was in reality for the government. There were 16 00:00:59,000 --> 00:01:02,360 Speaker 1: twenty seven They got a conviction on one of those. 17 00:01:02,360 --> 00:01:05,720 Speaker 1: Twenty seven three, as you said, brahone and twenty three 18 00:01:05,760 --> 00:01:10,120 Speaker 1: were acquittals. Moreover, this case follows an earlier Connecticut case 19 00:01:10,400 --> 00:01:14,959 Speaker 1: in January involving Jesse Litteck, who was also charged with 20 00:01:15,360 --> 00:01:19,160 Speaker 1: ten counts of very similar kind of misconduct, and they're 21 00:01:19,319 --> 00:01:23,759 Speaker 1: the jury acquitted on nine convicted on one. So it 22 00:01:23,760 --> 00:01:26,080 Speaker 1: looks like the governments had in a great deal of 23 00:01:26,120 --> 00:01:31,720 Speaker 1: difficulty convincing the jury that there's something truly culpable here. Uh. 24 00:01:31,720 --> 00:01:35,399 Speaker 1: And I think the fact that they convicted Michael Gramman's 25 00:01:36,080 --> 00:01:39,640 Speaker 1: may be explained by his being the only defendant where 26 00:01:39,680 --> 00:01:43,440 Speaker 1: they had a tape recording of him instructing others on 27 00:01:43,560 --> 00:01:46,600 Speaker 1: how to lie to the clients. Bad evidence really hit 28 00:01:46,640 --> 00:01:50,480 Speaker 1: the jury, whereas every other case the witnesses seifying for 29 00:01:50,560 --> 00:01:53,400 Speaker 1: the government were cross examined and they had to admit 30 00:01:53,480 --> 00:01:56,240 Speaker 1: they had done the same thing and looked equally bad. Oh. 31 00:01:56,320 --> 00:01:59,480 Speaker 1: That I think left the jury pretty confused. But what's 32 00:01:59,480 --> 00:02:04,400 Speaker 1: your case gone this mixed jury verdict? Well, of course 33 00:02:04,400 --> 00:02:07,520 Speaker 1: it very much matches Jack. I think the main thing 34 00:02:07,520 --> 00:02:11,680 Speaker 1: to know is that it remains difficult to secure conviction 35 00:02:11,720 --> 00:02:13,959 Speaker 1: and the securities from the case of this kind on 36 00:02:14,280 --> 00:02:18,600 Speaker 1: not only the materiality UH portion of the large but 37 00:02:18,680 --> 00:02:21,560 Speaker 1: also the intense UH portion of the tribes. I think 38 00:02:21,560 --> 00:02:25,359 Speaker 1: it's not. It's not without significance that the count that 39 00:02:25,480 --> 00:02:28,760 Speaker 1: was the easiest to secure conviction on was that that 40 00:02:28,880 --> 00:02:34,480 Speaker 1: involved the smokiest of all possible smoking guns and Jack, 41 00:02:34,680 --> 00:02:38,560 Speaker 1: does this show that the jury didn't buy the theory 42 00:02:38,760 --> 00:02:42,480 Speaker 1: that the puffing and line by bond traders is fraud 43 00:02:42,840 --> 00:02:47,959 Speaker 1: or that the prosecutors just didn't give the jury enough evidence. Well, 44 00:02:47,960 --> 00:02:50,560 Speaker 1: we'd have to interview the jurors to really answer there. 45 00:02:50,880 --> 00:02:54,280 Speaker 1: But do recall that in securities fraud case, you have 46 00:02:54,360 --> 00:02:58,400 Speaker 1: to prove not simply that the defendant broke a legal rule, 47 00:02:58,760 --> 00:03:00,720 Speaker 1: you have to prove that he will fully did so, 48 00:03:00,960 --> 00:03:03,640 Speaker 1: that it was his to liberate intent to violate the law. 49 00:03:04,080 --> 00:03:06,360 Speaker 1: And that may have looked greater, particularly in the case 50 00:03:06,440 --> 00:03:09,200 Speaker 1: of the junior employees, who look like they were just 51 00:03:09,320 --> 00:03:13,840 Speaker 1: taking instructions from their superiors. So the wilfulness problem here 52 00:03:13,960 --> 00:03:17,239 Speaker 1: it may have been the biggest obstacle, because one defendant 53 00:03:17,320 --> 00:03:19,720 Speaker 1: did look like he'd willfully done this, and they did 54 00:03:19,760 --> 00:03:23,160 Speaker 1: convict him on at least one count. But it does 55 00:03:23,280 --> 00:03:27,120 Speaker 1: look like the government has difficulty explaining why this behavior 56 00:03:27,240 --> 00:03:30,280 Speaker 1: is truly criminal when the defendants keeps saying everybody was 57 00:03:30,320 --> 00:03:36,000 Speaker 1: doing it well, Bob, even after the defense attorney's also 58 00:03:36,040 --> 00:03:39,920 Speaker 1: got one of the alleged victims, Putnam Investments portfolio manager 59 00:03:40,040 --> 00:03:43,200 Speaker 1: Zachary Harrison, to admit under cross examination that he had 60 00:03:43,240 --> 00:03:48,480 Speaker 1: lied during negotiations and he wasn't charged with anything. So, Mike, 61 00:03:48,560 --> 00:03:51,400 Speaker 1: the jury have been thinking, well, where's the crime here? 62 00:03:53,640 --> 00:03:56,640 Speaker 1: I suppose that's that's that's possible. I mean that the 63 00:03:56,680 --> 00:03:59,560 Speaker 1: trouble I think was figuring out exactly what was pompting 64 00:03:59,560 --> 00:04:03,040 Speaker 1: the juries decision at the case that so much evidence 65 00:04:03,320 --> 00:04:06,080 Speaker 1: going in so many different directions, and worse, it's also 66 00:04:06,160 --> 00:04:09,720 Speaker 1: a relatively complex charge that was brought. That's hard is 67 00:04:09,800 --> 00:04:12,720 Speaker 1: brought against the defense where themselves relatively complex as well, 68 00:04:12,720 --> 00:04:15,160 Speaker 1: and so it's actually quite difficult appear at exactly what 69 00:04:15,160 --> 00:04:19,000 Speaker 1: what it mattered both uh to the jurors. Maybe one 70 00:04:19,000 --> 00:04:21,000 Speaker 1: other point of making this connection is that there is 71 00:04:21,040 --> 00:04:23,560 Speaker 1: in a sense that kind of an underlying link between 72 00:04:23,600 --> 00:04:26,640 Speaker 1: the intention elements of the offense on the one hand 73 00:04:26,880 --> 00:04:28,839 Speaker 1: and the materiality part of the offense on the other. 74 00:04:29,080 --> 00:04:33,000 Speaker 1: And that is as fall as if somebody believes that 75 00:04:33,240 --> 00:04:36,120 Speaker 1: the person to whom one is selling something, he's taking 76 00:04:36,160 --> 00:04:39,240 Speaker 1: what he is saying with the grain of salt. Anyway, 77 00:04:39,400 --> 00:04:41,920 Speaker 1: then it's all the more difficult right to show that 78 00:04:41,960 --> 00:04:44,440 Speaker 1: the person actually intended to defraud the person, because the 79 00:04:44,440 --> 00:04:47,600 Speaker 1: person actually thinks that the counterparty is in fact taking 80 00:04:47,640 --> 00:04:49,560 Speaker 1: but he says with the grain of solvent, he gets 81 00:04:49,600 --> 00:04:51,840 Speaker 1: harder to show that he's actually thinking himself to be 82 00:04:51,960 --> 00:04:58,120 Speaker 1: committing a fraud. E Jack. The defendants did not take 83 00:04:58,160 --> 00:05:02,520 Speaker 1: the stand. They didn't even present a evidence, and I 84 00:05:02,560 --> 00:05:06,120 Speaker 1: wonder if some of them are reconsidering that at this point. 85 00:05:06,160 --> 00:05:08,960 Speaker 1: But does the split verdicts show that that didn't make 86 00:05:08,960 --> 00:05:12,480 Speaker 1: any difference, or can't we really read anything into that. Well, 87 00:05:12,520 --> 00:05:15,599 Speaker 1: of course, it's the normal position of what colored defense 88 00:05:15,680 --> 00:05:19,120 Speaker 1: counsel to resist having the defendant take the stand, because 89 00:05:19,120 --> 00:05:22,280 Speaker 1: you could easily get a perjury conviction coming out of 90 00:05:22,279 --> 00:05:24,800 Speaker 1: that if you deny guilt and the court thinks you 91 00:05:24,839 --> 00:05:28,200 Speaker 1: were lying about that. Uh So it's it's the normal 92 00:05:28,240 --> 00:05:31,400 Speaker 1: case to attack the witnesses rather than to try to 93 00:05:31,440 --> 00:05:34,039 Speaker 1: put the defendant on the stand to tell his side 94 00:05:34,080 --> 00:05:37,000 Speaker 1: of the story. All in all, the significance of this 95 00:05:37,120 --> 00:05:41,160 Speaker 1: is the government has wanted best a very weak peric victory, 96 00:05:41,480 --> 00:05:44,279 Speaker 1: and I think it may deter his apartments justice from 97 00:05:44,279 --> 00:05:48,640 Speaker 1: bringing similar cases it has in the past. Bob might 98 00:05:48,720 --> 00:05:53,640 Speaker 1: deter the Department of Justice from retrying the two defendants 99 00:05:53,680 --> 00:05:59,000 Speaker 1: on the deadlock counts. That's a call, um, I mean, 100 00:05:59,640 --> 00:06:01,720 Speaker 1: it might almost be a kind of mood point at 101 00:06:01,720 --> 00:06:03,880 Speaker 1: this point, right, because I have a funny feeling that 102 00:06:03,920 --> 00:06:06,640 Speaker 1: the Justice departments during the Trunk years, he's going to 103 00:06:06,720 --> 00:06:09,359 Speaker 1: be a little bit less to sell us about prosecutions 104 00:06:09,360 --> 00:06:11,960 Speaker 1: of this kind in any of that. Um. On the 105 00:06:12,000 --> 00:06:14,200 Speaker 1: other hands, you know where things different. Right, let's assume 106 00:06:14,200 --> 00:06:15,800 Speaker 1: that we were still, you know, the middle of the 107 00:06:15,839 --> 00:06:20,680 Speaker 1: Obama era. Um, would this future prosecutions. I tend to 108 00:06:20,760 --> 00:06:22,640 Speaker 1: think not. Actually, I tend to think that they're going 109 00:06:22,680 --> 00:06:24,600 Speaker 1: to sort of keep at that. They would keep at it, 110 00:06:25,080 --> 00:06:28,279 Speaker 1: uh in hopes of making a point and at least 111 00:06:28,279 --> 00:06:32,960 Speaker 1: sort of frightening market participants with the possibility of prosecution, uh, 112 00:06:33,000 --> 00:06:36,480 Speaker 1: and thereby frighten them into maybe making puppery a little 113 00:06:36,520 --> 00:06:39,359 Speaker 1: bit less common of practice or less sort of central 114 00:06:39,400 --> 00:06:44,760 Speaker 1: to their common practices today, Jack, have these cases cases, 115 00:06:44,960 --> 00:06:47,800 Speaker 1: excuse me, have these cases, including the lip fact case 116 00:06:47,839 --> 00:06:50,120 Speaker 1: that you were talking about, and some of the please 117 00:06:50,839 --> 00:06:54,440 Speaker 1: been a wake up call for traders who believed once 118 00:06:54,520 --> 00:06:57,000 Speaker 1: that they could do anything to sell a bond. Oh, 119 00:06:57,120 --> 00:06:59,600 Speaker 1: I think it has I think it has them very concerned. 120 00:06:59,800 --> 00:07:02,880 Speaker 1: The problem is they may just be hiding their behavior better. 121 00:07:03,279 --> 00:07:05,719 Speaker 1: Some of them are now using encryptic codes that the 122 00:07:05,760 --> 00:07:08,479 Speaker 1: government can't correct. Some of them are doing face to 123 00:07:08,520 --> 00:07:12,720 Speaker 1: face conversations. I think it has affected the industry because 124 00:07:13,120 --> 00:07:16,280 Speaker 1: these are intelligent people and they have been surprised to 125 00:07:16,320 --> 00:07:19,040 Speaker 1: find out that the government has been studying them and 126 00:07:19,160 --> 00:07:22,360 Speaker 1: tape recording them, and they know they are generally susceptible 127 00:07:22,400 --> 00:07:24,840 Speaker 1: to such tape recording. By the way, I think what's 128 00:07:24,920 --> 00:07:27,440 Speaker 1: likely to happen here is that the government will give 129 00:07:27,480 --> 00:07:31,080 Speaker 1: them something like a deferred prosecution agreement, because the government 130 00:07:31,200 --> 00:07:35,160 Speaker 1: usually when there's been a mistrial does offer reduced charges, 131 00:07:35,520 --> 00:07:38,760 Speaker 1: and here reduced charges would likely be something like a 132 00:07:38,800 --> 00:07:42,960 Speaker 1: deferred prosecution agreement for the two who are not convicted. Bob, 133 00:07:43,680 --> 00:07:46,800 Speaker 1: do you believe that the scrutiny by the government has 134 00:07:46,920 --> 00:07:52,160 Speaker 1: pushed questionable sales tactics farther into the shadows rather than 135 00:07:52,880 --> 00:07:57,440 Speaker 1: making people change the way that they do business. Well, 136 00:07:57,480 --> 00:07:59,800 Speaker 1: I think I think it's really raised the incentive, of course, 137 00:08:00,000 --> 00:08:02,600 Speaker 1: people to push more of what they do in the shadows. Um, 138 00:08:02,680 --> 00:08:05,640 Speaker 1: But I don't know that that's actually a problem as such. 139 00:08:05,680 --> 00:08:08,560 Speaker 1: I mean, for for two reasons, right. The first is, uh, 140 00:08:08,640 --> 00:08:12,200 Speaker 1: the shadow kinds of communications are themselves problematic as far 141 00:08:12,240 --> 00:08:14,480 Speaker 1: as the law is concerned. Uh, And so there are 142 00:08:14,640 --> 00:08:16,239 Speaker 1: you know, in the sense, what you're doing is pushing 143 00:08:16,240 --> 00:08:18,560 Speaker 1: people into committing another kind of offense if you persisted 144 00:08:18,640 --> 00:08:21,080 Speaker 1: doing that, and that's of course going to render them vulnerable. 145 00:08:21,600 --> 00:08:24,040 Speaker 1: Charges along those lines are just sort of actions brought. 146 00:08:24,160 --> 00:08:26,680 Speaker 1: They are predicted on those behaviors. The second point, I 147 00:08:26,720 --> 00:08:29,160 Speaker 1: think that it's very often said, right that you shouldn't 148 00:08:29,200 --> 00:08:31,840 Speaker 1: regulate this or that, because then you'll push this or 149 00:08:31,880 --> 00:08:34,040 Speaker 1: that into some sort of realm where it's harder to 150 00:08:34,120 --> 00:08:36,800 Speaker 1: regulate it. But that's a bit like uh see. To me, 151 00:08:36,920 --> 00:08:39,000 Speaker 1: that's something bit like saying, you know, you shouldn't constitute 152 00:08:39,040 --> 00:08:41,720 Speaker 1: any crime at all because otherwise people become us secretive 153 00:08:42,080 --> 00:08:44,560 Speaker 1: in committing your crimes. I mean, that's no, there's no 154 00:08:44,640 --> 00:08:46,880 Speaker 1: real answer. It's not it's not a good reason not 155 00:08:47,040 --> 00:08:49,679 Speaker 1: to prosecute something if it on otherwise to be prosecuted. 156 00:08:49,880 --> 00:08:51,200 Speaker 1: What it's a good reason to do is to make 157 00:08:51,240 --> 00:08:53,960 Speaker 1: sure that you actually be hunt your enforcement in these 158 00:08:54,080 --> 00:08:56,880 Speaker 1: sort of shadow realms as well. If that's where the 159 00:08:56,880 --> 00:09:01,120 Speaker 1: behavior moves after, it's kind of uh wished out of 160 00:09:01,160 --> 00:09:05,640 Speaker 1: lawyer sort of legitimate or well wit days Jeff. Market 161 00:09:05,760 --> 00:09:11,280 Speaker 1: analysts say because of this change in traders in the 162 00:09:11,320 --> 00:09:13,959 Speaker 1: way they're doing business, whether they're cleaning up their act 163 00:09:14,160 --> 00:09:19,880 Speaker 1: or doing it um more surreptitiously, that liquidity has been reduced. 164 00:09:20,320 --> 00:09:23,680 Speaker 1: Do you see that, I really don't. I think that 165 00:09:23,720 --> 00:09:28,280 Speaker 1: the bond markets are robust, there's tremendous demand. I believe 166 00:09:28,360 --> 00:09:31,200 Speaker 1: we should have stronger enforcement, but I have to say 167 00:09:31,320 --> 00:09:34,959 Speaker 1: it's easier said than done. It is very difficult to 168 00:09:35,040 --> 00:09:37,480 Speaker 1: interfere with traders who are going to move off the 169 00:09:37,559 --> 00:09:41,400 Speaker 1: normal venues into a non paper corded settings. I think 170 00:09:41,400 --> 00:09:44,640 Speaker 1: we'll deter some people and will cause others to go underground. 171 00:09:45,200 --> 00:09:48,000 Speaker 1: I still believe we should have stronger enforcement, but I 172 00:09:48,040 --> 00:09:50,760 Speaker 1: have to say these kinds of defeats are going to 173 00:09:50,920 --> 00:09:53,800 Speaker 1: chill the government. Young use attorneys do not like to 174 00:09:53,880 --> 00:09:56,880 Speaker 1: effectively lose cases, and I think the government may go 175 00:09:56,960 --> 00:10:00,000 Speaker 1: back to things they're easier to prosecute, like insider trade. 176 00:10:00,120 --> 00:10:04,920 Speaker 1: We're having a much better track record, Bobby, do you 177 00:10:04,960 --> 00:10:09,320 Speaker 1: believe that it's clear to traders, to bond traders what 178 00:10:09,679 --> 00:10:14,000 Speaker 1: exactly fraudy is whether an omission can have the same 179 00:10:14,000 --> 00:10:19,240 Speaker 1: effect as a misrepresentation for example. Yeah, I think it's 180 00:10:19,280 --> 00:10:22,240 Speaker 1: been somewhat unclear actually in recent years. And and one 181 00:10:22,280 --> 00:10:25,240 Speaker 1: way of interpreting what has been doing in these cases 182 00:10:25,640 --> 00:10:27,800 Speaker 1: is actually the triberally impose a bit of player life. 183 00:10:27,880 --> 00:10:30,720 Speaker 1: I mean, a line is fairly difficult to draw between 184 00:10:30,720 --> 00:10:33,480 Speaker 1: each adjuration or puffery on the one hand and just 185 00:10:33,640 --> 00:10:35,640 Speaker 1: outright lining on the other, so that at least he 186 00:10:35,800 --> 00:10:37,720 Speaker 1: was kind of gray. And that's actually one reason that 187 00:10:37,760 --> 00:10:40,160 Speaker 1: this case was kind of gray, and why I suspect 188 00:10:40,200 --> 00:10:42,880 Speaker 1: it is the case that some of the charges were 189 00:10:42,880 --> 00:10:46,160 Speaker 1: sort of easier for the diary to find sort of 190 00:10:46,160 --> 00:10:48,719 Speaker 1: convincing than others. But one way to deal with that 191 00:10:48,800 --> 00:10:51,679 Speaker 1: in a problem, it's precisely to sort of reimpose a 192 00:10:51,760 --> 00:10:54,520 Speaker 1: certain bright line rules such as the rule is simply 193 00:10:54,600 --> 00:10:56,839 Speaker 1: not to lie. Right if you actually, if it's a 194 00:10:56,960 --> 00:10:58,800 Speaker 1: nice cut and dried answer to how much you pay 195 00:10:58,880 --> 00:11:02,440 Speaker 1: for exture security that you're not now trying to sell, Um, 196 00:11:02,480 --> 00:11:05,440 Speaker 1: it's not that difficult to understand, right, all right, don't 197 00:11:05,480 --> 00:11:07,600 Speaker 1: tell people that you paid at different price than you 198 00:11:07,640 --> 00:11:10,240 Speaker 1: actually pay. Right, it's very easy I think to impose 199 00:11:10,280 --> 00:11:12,959 Speaker 1: a bright line with respect of that kind of uh 200 00:11:13,000 --> 00:11:15,439 Speaker 1: talk that's in a communication, something in the way of 201 00:11:15,480 --> 00:11:18,400 Speaker 1: bright line order lines. Here at least with respect of 202 00:11:18,440 --> 00:11:20,720 Speaker 1: these questions, where the easy about to impose those sense 203 00:11:20,760 --> 00:11:22,959 Speaker 1: of wines and that will actually then clarify the beginning 204 00:11:23,000 --> 00:11:26,000 Speaker 1: of fraud. I suspect to market participants on both sides 205 00:11:26,040 --> 00:11:30,120 Speaker 1: of trades. Jack, How is the SEC proceeding in this 206 00:11:30,320 --> 00:11:36,040 Speaker 1: area in tandem with the federal prosecutors or separately? Oh? Yes, 207 00:11:36,120 --> 00:11:38,839 Speaker 1: they very very much act in tandem. But there's one 208 00:11:38,880 --> 00:11:42,480 Speaker 1: big difference. The SEC brings about eighty percent of their 209 00:11:42,640 --> 00:11:46,480 Speaker 1: enforcement cases in front of the administrative law judges in 210 00:11:46,600 --> 00:11:50,559 Speaker 1: inherse proceedings. That means there's no jury, and the administrative 211 00:11:50,640 --> 00:11:53,199 Speaker 1: lawd judge is someone who's a specialist in securities law. 212 00:11:53,559 --> 00:11:56,320 Speaker 1: It's much easier to convince that kind of judge than 213 00:11:56,400 --> 00:11:59,120 Speaker 1: a somewhat innocent jury that doesn't really know what's going on. 214 00:11:59,559 --> 00:12:03,040 Speaker 1: And I quiffe some of these cases moved back to 215 00:12:03,480 --> 00:12:10,240 Speaker 1: civil sec enforcement in administrative law proceedings, Bob, if you 216 00:12:10,320 --> 00:12:15,200 Speaker 1: could explain about the bond market and why for so long, 217 00:12:15,559 --> 00:12:18,840 Speaker 1: it has been more difficult to deal with, and the 218 00:12:18,880 --> 00:12:22,040 Speaker 1: government has sort of left it alone till about four 219 00:12:22,120 --> 00:12:25,160 Speaker 1: years ago the actions of bond traders and then decided 220 00:12:25,240 --> 00:12:30,040 Speaker 1: to crack down. Okay, so we've lost Bob for a 221 00:12:30,040 --> 00:12:32,920 Speaker 1: few minutes, Jack, Can you talk a little bit about 222 00:12:32,960 --> 00:12:37,760 Speaker 1: the bond the bond business and why there was this 223 00:12:37,840 --> 00:12:40,920 Speaker 1: crackdown started about four and a half years ago on 224 00:12:41,040 --> 00:12:45,320 Speaker 1: bond traders actions when they had basically been dealing in 225 00:12:45,400 --> 00:12:48,320 Speaker 1: this level where they said that they were dealing in 226 00:12:48,360 --> 00:12:53,160 Speaker 1: sophisticated transactions and they didn't have to behave in the 227 00:12:53,240 --> 00:12:56,880 Speaker 1: same way that other people did, other business people did, 228 00:12:56,920 --> 00:13:00,920 Speaker 1: other traders. The bond market has always been very opaque. 229 00:13:01,160 --> 00:13:04,240 Speaker 1: You're not trading against the backdrop of a constant stream 230 00:13:04,280 --> 00:13:08,360 Speaker 1: of prices going across one market. There's possibility that different 231 00:13:08,400 --> 00:13:11,840 Speaker 1: prices are occurring at the same time between different traders, 232 00:13:12,200 --> 00:13:15,400 Speaker 1: and because it's much more opaque, there was more room 233 00:13:15,480 --> 00:13:18,840 Speaker 1: for people to engage in little white lies. A trader 234 00:13:18,960 --> 00:13:21,520 Speaker 1: would tell the other side, I can't sell it that 235 00:13:21,640 --> 00:13:23,719 Speaker 1: price because that's less than I pay for it. I 236 00:13:23,760 --> 00:13:25,880 Speaker 1: don't want to report a loss, and the other side 237 00:13:25,960 --> 00:13:27,200 Speaker 1: was like, all right, I'll give you an eighth of 238 00:13:27,200 --> 00:13:29,680 Speaker 1: a point more, so we don't have to do that. Uh, 239 00:13:29,880 --> 00:13:33,520 Speaker 1: those little white lies were the culture of treading, and 240 00:13:33,559 --> 00:13:36,880 Speaker 1: I think the government, after the financial crisis decided they 241 00:13:36,880 --> 00:13:40,200 Speaker 1: were no longer going to accept this cultural story of 242 00:13:40,240 --> 00:13:43,520 Speaker 1: little white lies, and they found some pretty egregious cases 243 00:13:43,520 --> 00:13:50,920 Speaker 1: where public investors were regularly hurt injured by phony trading data. 244 00:13:52,360 --> 00:13:55,720 Speaker 1: Welcome back, fam, I understand your back on the phone. 245 00:13:55,760 --> 00:13:58,400 Speaker 1: We lost you for a moment there. Let's talk a 246 00:13:58,480 --> 00:14:01,839 Speaker 1: little bit about Jesse. It's fact who whenever you hear 247 00:14:01,880 --> 00:14:05,800 Speaker 1: about bond cases, you'd hear about Jesse lit fact because 248 00:14:05,880 --> 00:14:11,280 Speaker 1: he was tried twice and found guilty twice. So let's 249 00:14:11,320 --> 00:14:13,480 Speaker 1: talk a little bit about that case and what it's 250 00:14:13,480 --> 00:14:18,040 Speaker 1: sort of established. Yeah. So, really this was sort of 251 00:14:18,080 --> 00:14:20,840 Speaker 1: the font of all of the cases that we've been 252 00:14:20,840 --> 00:14:23,240 Speaker 1: talking about along these lines lately. Right, I mean, this 253 00:14:23,360 --> 00:14:25,200 Speaker 1: was the first sort of mark of a sea change, 254 00:14:25,240 --> 00:14:27,800 Speaker 1: so that the government was no longer going to treat 255 00:14:28,400 --> 00:14:30,760 Speaker 1: uh little white lines, as says Jack was calling them, 256 00:14:30,840 --> 00:14:33,000 Speaker 1: or even larger white lines, uh, as if they were 257 00:14:33,000 --> 00:14:34,920 Speaker 1: sort of innocent. Right. This was the first sort of 258 00:14:35,000 --> 00:14:37,960 Speaker 1: signal that the guvernment was going to get curious about 259 00:14:38,000 --> 00:14:42,520 Speaker 1: at least ensuring that people don't affirmatively mislead or affirmatively 260 00:14:42,640 --> 00:14:45,560 Speaker 1: lie uh to to those to the counterparties or two 261 00:14:45,520 --> 00:14:47,400 Speaker 1: others in the park. That's I mean, one of the 262 00:14:47,400 --> 00:14:49,560 Speaker 1: things that to keep in mind here is, you know, 263 00:14:49,640 --> 00:14:52,680 Speaker 1: even a common law outright line was that it was 264 00:14:52,720 --> 00:14:55,640 Speaker 1: a problem, I was what would would constitute drawing. And 265 00:14:55,680 --> 00:14:57,800 Speaker 1: one of the innovations made by the securities laws was 266 00:14:57,880 --> 00:15:00,080 Speaker 1: to sort of adds to sort of traditional commissi of 267 00:15:00,240 --> 00:15:03,720 Speaker 1: fraud a category of omissive fraud. And that's the sense 268 00:15:03,720 --> 00:15:06,400 Speaker 1: in which securities laws and securities regulations can be here 269 00:15:06,440 --> 00:15:08,200 Speaker 1: to sort of having pushed a kind of envelope. But 270 00:15:08,320 --> 00:15:10,720 Speaker 1: sort of ironic, I think about all of these post 271 00:15:10,760 --> 00:15:14,000 Speaker 1: lift back cases, including the case itself actually uh is 272 00:15:14,160 --> 00:15:17,560 Speaker 1: these were cases of actual commissive fraud. Uh. And the 273 00:15:17,600 --> 00:15:19,960 Speaker 1: thought that that these would have been controversial, or that 274 00:15:20,000 --> 00:15:21,600 Speaker 1: it would be thought to be sort of odd that 275 00:15:21,680 --> 00:15:24,480 Speaker 1: the should be prosecuted, I think is itself quite odd. 276 00:15:24,480 --> 00:15:26,400 Speaker 1: It sort of tells us something about where we've come 277 00:15:26,440 --> 00:15:29,360 Speaker 1: as a sort of financial culture. Uh. And and and 278 00:15:29,400 --> 00:15:31,120 Speaker 1: I think as as Jack was suggesting, and as I 279 00:15:31,200 --> 00:15:33,560 Speaker 1: was suggesting earlier, I mean One way of doing what 280 00:15:33,600 --> 00:15:36,040 Speaker 1: the government's been doing of lage is is saying, okay, look, 281 00:15:36,080 --> 00:15:38,320 Speaker 1: let's get back at least to a sort of standards 282 00:15:38,320 --> 00:15:41,400 Speaker 1: pursuance which you can't just sort of outright lie to 283 00:15:41,480 --> 00:15:44,000 Speaker 1: your counterparties. Uh and and and hope to sort of 284 00:15:44,040 --> 00:15:46,440 Speaker 1: get away with if I think, well, everybody discounts where 285 00:15:46,480 --> 00:15:48,480 Speaker 1: I say anyway, because it's sort of expected that we 286 00:15:48,600 --> 00:15:53,000 Speaker 1: lie here, that's just not going to cut it any longer. Jack, 287 00:15:53,280 --> 00:15:58,440 Speaker 1: do you see more plea deals or less plea deals 288 00:15:58,480 --> 00:16:01,520 Speaker 1: because we see some people getting off. As you said, 289 00:16:01,520 --> 00:16:05,080 Speaker 1: this wasn't a roaring victory for the government. To put 290 00:16:05,120 --> 00:16:08,760 Speaker 1: it mildly, well, a government, of course, can point to 291 00:16:08,800 --> 00:16:11,760 Speaker 1: the fact that one trader was convicted and that will 292 00:16:11,800 --> 00:16:14,920 Speaker 1: destroy his career. He'll never be a trader ever. Again, 293 00:16:15,400 --> 00:16:18,200 Speaker 1: it's only one count out of twenty seven. But they 294 00:16:18,280 --> 00:16:22,360 Speaker 1: do have an effective body on which they can hinge 295 00:16:22,400 --> 00:16:25,320 Speaker 1: a little bit of general deterrence. I do think, however, 296 00:16:25,600 --> 00:16:28,440 Speaker 1: we're going to see the government push more of these 297 00:16:28,480 --> 00:16:32,480 Speaker 1: cases into administrative proceedings where they avoid the difficulties of 298 00:16:32,560 --> 00:16:37,520 Speaker 1: juries and have an administrative law judge make the decision. Bobby, 299 00:16:37,920 --> 00:16:41,320 Speaker 1: is it actually more fitting for these kinds of cases 300 00:16:41,480 --> 00:16:47,080 Speaker 1: to be um SEC cases with civil penalties rather than 301 00:16:47,160 --> 00:16:49,960 Speaker 1: criminal cases. I mean, this is also the talk of 302 00:16:50,160 --> 00:16:52,680 Speaker 1: about insider trading as well. A lot you know, is 303 00:16:52,720 --> 00:16:58,320 Speaker 1: it is it really criminal or should it more be civil? Right? Well, 304 00:16:58,600 --> 00:17:01,360 Speaker 1: you know, I sind to think that in it if 305 00:17:02,040 --> 00:17:04,800 Speaker 1: in these kinds of cases it makes sense for the 306 00:17:04,840 --> 00:17:07,480 Speaker 1: greater part of them to be regulatory offenses or for 307 00:17:07,520 --> 00:17:10,399 Speaker 1: the sec to belcats. But it's very helpful for you know, 308 00:17:10,840 --> 00:17:14,359 Speaker 1: some some smallish attraction of such cases I think to 309 00:17:14,400 --> 00:17:17,280 Speaker 1: be prosecuted as criminal offenses, because that really sends the 310 00:17:17,320 --> 00:17:19,760 Speaker 1: signal much more dramatically. Right. And as you know, one 311 00:17:19,800 --> 00:17:22,560 Speaker 1: of the principal criticisms has been sort of leveled against 312 00:17:22,640 --> 00:17:25,280 Speaker 1: regulators or against the sort of the general governmental response 313 00:17:25,680 --> 00:17:28,800 Speaker 1: UH to financial broad and financial misdeeds in the wake 314 00:17:28,880 --> 00:17:32,520 Speaker 1: of the crashes, because it has been precisely the fact 315 00:17:32,600 --> 00:17:34,439 Speaker 1: that there's been so little in the way of criminal 316 00:17:34,480 --> 00:17:38,159 Speaker 1: prosecution done and so much more in the way of 317 00:17:37,600 --> 00:17:41,080 Speaker 1: UH regulatory settlements UH. And the why um and and 318 00:17:41,080 --> 00:17:43,840 Speaker 1: and the reason for the criticism might think is precisely 319 00:17:43,880 --> 00:17:46,440 Speaker 1: because people sort of understand that even one or two 320 00:17:46,880 --> 00:17:49,720 Speaker 1: criminal cases UH can carry a great deal of sort 321 00:17:49,720 --> 00:17:52,640 Speaker 1: of symbolic value and in that sense exercise a great 322 00:17:52,680 --> 00:17:56,440 Speaker 1: deal of the turrent effects. Uh, even if the great 323 00:17:56,480 --> 00:17:58,800 Speaker 1: bulk of cases are are brought by the regulators rather 324 00:17:58,840 --> 00:18:06,080 Speaker 1: than prosecutors. Jack insider trading was Preet Barra's domain. Let's 325 00:18:06,119 --> 00:18:08,720 Speaker 1: say he became famous as a sheriff of Wall Street 326 00:18:08,760 --> 00:18:13,600 Speaker 1: for prosecuting insider trading. Have the bond cases centered more 327 00:18:13,800 --> 00:18:23,560 Speaker 1: in Connecticut, Jack s c h C chairman have gone 328 00:18:23,560 --> 00:18:26,840 Speaker 1: out and lobbied U S attorneys to bring more criminal cases. 329 00:18:27,200 --> 00:18:31,760 Speaker 1: But generally federal criminal prosecutors want a very clear cut 330 00:18:31,840 --> 00:18:34,960 Speaker 1: case with much stronger evidence, with a real witness, with 331 00:18:35,040 --> 00:18:38,000 Speaker 1: a real victim. And that's why there's been very few 332 00:18:38,000 --> 00:18:41,720 Speaker 1: of these cases insider trading or bond trading brought outside 333 00:18:41,840 --> 00:18:45,200 Speaker 1: one or two jurisdictions, most notably the Southern District of 334 00:18:45,240 --> 00:18:47,879 Speaker 1: New York, which likes to bring these cases, has gotten 335 00:18:47,960 --> 00:18:50,560 Speaker 1: very experienced and very good at them. And it's also 336 00:18:50,640 --> 00:18:53,400 Speaker 1: possible that New York juries are a little bit more 337 00:18:53,400 --> 00:18:57,080 Speaker 1: skeptical of investment bankers and brokers and traders um. But 338 00:18:57,160 --> 00:19:01,520 Speaker 1: getting criminal enforcement brought outside of the Northeast is really 339 00:19:01,600 --> 00:19:04,360 Speaker 1: quite rare and I think that's still an area where 340 00:19:04,359 --> 00:19:06,919 Speaker 1: their sec and the government has got a lobby and 341 00:19:07,280 --> 00:19:10,080 Speaker 1: proselytiz all u S attorneys that they need to look 342 00:19:10,119 --> 00:19:15,040 Speaker 1: at white collar crime more than just street crime. And 343 00:19:15,040 --> 00:19:20,120 Speaker 1: and uh, Bob, what's what's your answer to that? If 344 00:19:20,160 --> 00:19:24,399 Speaker 1: you remember the question theory, remember whether whether it seems 345 00:19:24,400 --> 00:19:27,000 Speaker 1: as if there there is more of a focus There 346 00:19:27,080 --> 00:19:31,359 Speaker 1: wasn't as much of a focus in in Manhattan on 347 00:19:31,359 --> 00:19:34,320 Speaker 1: on this on bond trading. It was more you know, 348 00:19:34,480 --> 00:19:37,600 Speaker 1: insider trading, and it was all about insider trading that 349 00:19:37,760 --> 00:19:42,560 Speaker 1: really brought free Berrara into the spotlight, right right, Yeah, 350 00:19:42,640 --> 00:19:44,600 Speaker 1: So so part of it, of course, it's the fact 351 00:19:44,600 --> 00:19:47,560 Speaker 1: that the way to bond trading, uh trade that goes 352 00:19:47,680 --> 00:19:50,359 Speaker 1: that it's not centered as as as as much of 353 00:19:50,400 --> 00:19:53,760 Speaker 1: Manhattan as a lot of other securities trading is. And 354 00:19:53,760 --> 00:19:56,439 Speaker 1: that's probably part of the reason. And a lot of 355 00:19:56,440 --> 00:19:58,560 Speaker 1: it in that does occur right out of Connecticut, So 356 00:19:58,680 --> 00:20:01,040 Speaker 1: it sort of makes sense. I is right that there 357 00:20:01,040 --> 00:20:03,359 Speaker 1: will be more focused on it there than in New York. 358 00:20:05,680 --> 00:20:08,920 Speaker 1: So where do you see the investigations going now, Jack, 359 00:20:09,080 --> 00:20:14,760 Speaker 1: do you see them even even more investigations as far 360 00:20:14,840 --> 00:20:17,359 Speaker 1: as some of the things that traders may be doing 361 00:20:17,480 --> 00:20:20,760 Speaker 1: now to try to hide what they're doing. For example, 362 00:20:21,160 --> 00:20:26,760 Speaker 1: you talked about using encrypted messaging apps or personal cell phones. 363 00:20:27,359 --> 00:20:31,760 Speaker 1: So do you see the SEC or the federal prosecutors 364 00:20:31,800 --> 00:20:35,520 Speaker 1: trying to look into that which seems like it's difficult. Well, 365 00:20:35,560 --> 00:20:38,640 Speaker 1: they have in the recent prosecution of the Wall Street gambler. 366 00:20:38,840 --> 00:20:41,600 Speaker 1: There could be of these Las Vegas gambler. Mr Walters, Uh, 367 00:20:41,800 --> 00:20:45,320 Speaker 1: he used encrypted phones and that sounded very very suspicious 368 00:20:45,320 --> 00:20:49,399 Speaker 1: to the jury. Um, I think we do have. Southern 369 00:20:49,440 --> 00:20:52,919 Speaker 1: District prosecuters have become very attempt they now how to 370 00:20:53,000 --> 00:20:57,240 Speaker 1: bring certain kinds of criminal prosecutions. The SEC has well 371 00:20:57,280 --> 00:21:00,880 Speaker 1: known priorities they advertise with their priority. These are one 372 00:21:00,920 --> 00:21:03,359 Speaker 1: of their largest priorities, which is where I think future 373 00:21:03,400 --> 00:21:07,000 Speaker 1: criminal cases will come from, is the Foreign Corrupt Practices Act. 374 00:21:07,320 --> 00:21:10,600 Speaker 1: They are very eager to find people paying foreign bribes 375 00:21:10,960 --> 00:21:12,879 Speaker 1: on behalf of the U. S Company or a foreign 376 00:21:12,920 --> 00:21:16,520 Speaker 1: company that's trying to broad to obtain business, and that 377 00:21:16,720 --> 00:21:19,160 Speaker 1: I think will be the source of quite a few 378 00:21:19,400 --> 00:21:23,159 Speaker 1: future criminal prosecutions. So well, money laundering, those are somewhat 379 00:21:23,200 --> 00:21:26,360 Speaker 1: easier cases to bring. They don't get you involved with 380 00:21:26,680 --> 00:21:29,280 Speaker 1: what it means when you make a particular crypto comment 381 00:21:29,400 --> 00:21:32,439 Speaker 1: to another in a quick phone conversation. They look at 382 00:21:32,440 --> 00:21:34,840 Speaker 1: the follow the money and you see hundreds of thousands 383 00:21:34,840 --> 00:21:39,480 Speaker 1: of dollars moving, and the jury understands that that's money laundering. Bob. 384 00:21:39,680 --> 00:21:44,640 Speaker 1: When you teach your students UH is bond or bond trading? 385 00:21:44,720 --> 00:21:47,560 Speaker 1: Is that is that an area that they're very interested in? 386 00:21:47,680 --> 00:21:52,240 Speaker 1: Or do they go more towards UH securities and and 387 00:21:52,400 --> 00:21:57,440 Speaker 1: insider trading? Well, I mean my stings are quite unenlinded. 388 00:21:57,480 --> 00:22:00,040 Speaker 1: It seems about what kind of UH financial practice of 389 00:22:00,119 --> 00:22:02,080 Speaker 1: going in, going to go into but of course make 390 00:22:02,160 --> 00:22:05,480 Speaker 1: it right now. Contact is it's very hot. Hedge funds, 391 00:22:05,480 --> 00:22:08,080 Speaker 1: private equity are very hot as well. If this assumed 392 00:22:08,080 --> 00:22:11,240 Speaker 1: to be a great deal of interest in bond trading 393 00:22:11,400 --> 00:22:14,280 Speaker 1: as such. But I think a part of that is because, um, 394 00:22:14,320 --> 00:22:17,439 Speaker 1: you know, the students at that stage are not really 395 00:22:17,480 --> 00:22:19,960 Speaker 1: fully aware of all of the differences that that's sort 396 00:22:20,000 --> 00:22:22,200 Speaker 1: of finer distinctions about what the life of a bond 397 00:22:22,200 --> 00:22:24,320 Speaker 1: trader looks like on the one hand, and the bond 398 00:22:24,359 --> 00:22:26,760 Speaker 1: they felt life of a security trader or securities underwriter 399 00:22:26,960 --> 00:22:29,000 Speaker 1: looks like on the other hand. They do know, however, 400 00:22:29,040 --> 00:22:31,960 Speaker 1: that there's something kind of vaguely sexy sounding or a 401 00:22:32,320 --> 00:22:35,280 Speaker 1: sort of exciting and futuristic sounding about things like skin 402 00:22:35,359 --> 00:22:40,000 Speaker 1: tech and startup law and UH and again private equity 403 00:22:40,119 --> 00:22:44,000 Speaker 1: operations UM cases like this. I don't know, perhaps they'll 404 00:22:44,000 --> 00:22:45,920 Speaker 1: make bond trading with a little bit wor it because 405 00:22:46,240 --> 00:22:47,560 Speaker 1: at least in the sense that this sort of thing 406 00:22:47,880 --> 00:22:50,680 Speaker 1: has become a public topics again in a certain sense 407 00:22:50,680 --> 00:22:52,320 Speaker 1: of it hadn't been for a while. But but I 408 00:22:52,359 --> 00:22:54,359 Speaker 1: have a funny feeling that the future, as far as 409 00:22:54,720 --> 00:22:57,280 Speaker 1: again the sort of being coming cohorted student systems learned 410 00:22:57,640 --> 00:22:59,840 Speaker 1: UH is still going to be with again the intact 411 00:22:59,880 --> 00:23:02,520 Speaker 1: of private equity at the startup type stuff for a 412 00:23:02,520 --> 00:23:04,760 Speaker 1: while now. Well, I thank you both for being on 413 00:23:04,840 --> 00:23:07,560 Speaker 1: Bloomberg Law. That's Robert Hack and he's a professor at 414 00:23:07,560 --> 00:23:11,680 Speaker 1: Cornell University Law School and John Coffee, professor at Columbia 415 00:23:11,760 --> 00:23:14,199 Speaker 1: Law School and two of our favorite guests here on 416 00:23:14,320 --> 00:23:16,720 Speaker 1: Bloomberg Law. Thank you both for being here.