WEBVTT - Jury Offers Split Verdict in Nomura Trader Case (Audio) 0:00:00.080 --> 0:00:03.520 The split verdict of a Connecticut jury reveals the challenges 0:00:03.560 --> 0:00:06.600 of policing fraud in the market. The jury convicted one 0:00:06.680 --> 0:00:10.000 former Nomura bond trader of conspiring to light of clients 0:00:10.039 --> 0:00:13.880 about mortgage bond prices, but cleared another of all charges, 0:00:14.120 --> 0:00:17.680 while clearing a third trader of all but the conspiracy charge, 0:00:17.760 --> 0:00:21.680 which jurors could not decide on. Defense attorneys have argued 0:00:21.720 --> 0:00:25.960 that bond trading takes place between sophisticated professionals who can't 0:00:25.960 --> 0:00:30.639 be fooled by bluffing or puffing. My guests are John Coffey, 0:00:30.640 --> 0:00:34.159 of professor Columbia Law School and Robert Hockett, a professor 0:00:34.280 --> 0:00:39.000 Cornell University Law School. Jack. The jury acquitted the traders 0:00:39.159 --> 0:00:43.160 or deadlocked on everything but the conspiracy charges. They found 0:00:43.240 --> 0:00:47.760 Michael Gramman's guilty of conspiracy, Tyler Peter's not guilty, and 0:00:47.800 --> 0:00:51.920 they deadlocked on conspiracy. As far as Rod Shapiro, what 0:00:52.080 --> 0:00:55.800 does that show, Well, let's just underlinine how severe a 0:00:55.920 --> 0:00:58.920 defeat this was in reality for the government. There were 0:00:59.000 --> 0:01:02.360 twenty seven They got a conviction on one of those. 0:01:02.360 --> 0:01:05.720 Twenty seven three, as you said, brahone and twenty three 0:01:05.760 --> 0:01:10.120 were acquittals. Moreover, this case follows an earlier Connecticut case 0:01:10.400 --> 0:01:14.959 in January involving Jesse Litteck, who was also charged with 0:01:15.360 --> 0:01:19.160 ten counts of very similar kind of misconduct, and they're 0:01:19.319 --> 0:01:23.759 the jury acquitted on nine convicted on one. So it 0:01:23.760 --> 0:01:26.080 looks like the governments had in a great deal of 0:01:26.120 --> 0:01:31.720 difficulty convincing the jury that there's something truly culpable here. Uh. 0:01:31.720 --> 0:01:35.399 And I think the fact that they convicted Michael Gramman's 0:01:36.080 --> 0:01:39.640 may be explained by his being the only defendant where 0:01:39.680 --> 0:01:43.440 they had a tape recording of him instructing others on 0:01:43.560 --> 0:01:46.600 how to lie to the clients. Bad evidence really hit 0:01:46.640 --> 0:01:50.480 the jury, whereas every other case the witnesses seifying for 0:01:50.560 --> 0:01:53.400 the government were cross examined and they had to admit 0:01:53.480 --> 0:01:56.240 they had done the same thing and looked equally bad. Oh. 0:01:56.320 --> 0:01:59.480 That I think left the jury pretty confused. But what's 0:01:59.480 --> 0:02:04.400 your case gone this mixed jury verdict? Well, of course 0:02:04.400 --> 0:02:07.520 it very much matches Jack. I think the main thing 0:02:07.520 --> 0:02:11.680 to know is that it remains difficult to secure conviction 0:02:11.720 --> 0:02:13.959 and the securities from the case of this kind on 0:02:14.280 --> 0:02:18.600 not only the materiality UH portion of the large but 0:02:18.680 --> 0:02:21.560 also the intense UH portion of the tribes. I think 0:02:21.560 --> 0:02:25.359 it's not. It's not without significance that the count that 0:02:25.480 --> 0:02:28.760 was the easiest to secure conviction on was that that 0:02:28.880 --> 0:02:34.480 involved the smokiest of all possible smoking guns and Jack, 0:02:34.680 --> 0:02:38.560 does this show that the jury didn't buy the theory 0:02:38.760 --> 0:02:42.480 that the puffing and line by bond traders is fraud 0:02:42.840 --> 0:02:47.959 or that the prosecutors just didn't give the jury enough evidence. Well, 0:02:47.960 --> 0:02:50.560 we'd have to interview the jurors to really answer there. 0:02:50.880 --> 0:02:54.280 But do recall that in securities fraud case, you have 0:02:54.360 --> 0:02:58.400 to prove not simply that the defendant broke a legal rule, 0:02:58.760 --> 0:03:00.720 you have to prove that he will fully did so, 0:03:00.960 --> 0:03:03.640 that it was his to liberate intent to violate the law. 0:03:04.080 --> 0:03:06.360 And that may have looked greater, particularly in the case 0:03:06.440 --> 0:03:09.200 of the junior employees, who look like they were just 0:03:09.320 --> 0:03:13.840 taking instructions from their superiors. So the wilfulness problem here 0:03:13.960 --> 0:03:17.239 it may have been the biggest obstacle, because one defendant 0:03:17.320 --> 0:03:19.720 did look like he'd willfully done this, and they did 0:03:19.760 --> 0:03:23.160 convict him on at least one count. But it does 0:03:23.280 --> 0:03:27.120 look like the government has difficulty explaining why this behavior 0:03:27.240 --> 0:03:30.280 is truly criminal when the defendants keeps saying everybody was 0:03:30.320 --> 0:03:36.000 doing it well, Bob, even after the defense attorney's also 0:03:36.040 --> 0:03:39.920 got one of the alleged victims, Putnam Investments portfolio manager 0:03:40.040 --> 0:03:43.200 Zachary Harrison, to admit under cross examination that he had 0:03:43.240 --> 0:03:48.480 lied during negotiations and he wasn't charged with anything. So, Mike, 0:03:48.560 --> 0:03:51.400 the jury have been thinking, well, where's the crime here? 0:03:53.640 --> 0:03:56.640 I suppose that's that's that's possible. I mean that the 0:03:56.680 --> 0:03:59.560 trouble I think was figuring out exactly what was pompting 0:03:59.560 --> 0:04:03.040 the juries decision at the case that so much evidence 0:04:03.320 --> 0:04:06.080 going in so many different directions, and worse, it's also 0:04:06.160 --> 0:04:09.720 a relatively complex charge that was brought. That's hard is 0:04:09.800 --> 0:04:12.720 brought against the defense where themselves relatively complex as well, 0:04:12.720 --> 0:04:15.160 and so it's actually quite difficult appear at exactly what 0:04:15.160 --> 0:04:19.000 what it mattered both uh to the jurors. Maybe one 0:04:19.000 --> 0:04:21.000 other point of making this connection is that there is 0:04:21.040 --> 0:04:23.560 in a sense that kind of an underlying link between 0:04:23.600 --> 0:04:26.640 the intention elements of the offense on the one hand 0:04:26.880 --> 0:04:28.839 and the materiality part of the offense on the other. 0:04:29.080 --> 0:04:33.000 And that is as fall as if somebody believes that 0:04:33.240 --> 0:04:36.120 the person to whom one is selling something, he's taking 0:04:36.160 --> 0:04:39.240 what he is saying with the grain of salt. Anyway, 0:04:39.400 --> 0:04:41.920 then it's all the more difficult right to show that 0:04:41.960 --> 0:04:44.440 the person actually intended to defraud the person, because the 0:04:44.440 --> 0:04:47.600 person actually thinks that the counterparty is in fact taking 0:04:47.640 --> 0:04:49.560 but he says with the grain of solvent, he gets 0:04:49.600 --> 0:04:51.840 harder to show that he's actually thinking himself to be 0:04:51.960 --> 0:04:58.120 committing a fraud. E Jack. The defendants did not take 0:04:58.160 --> 0:05:02.520 the stand. They didn't even present a evidence, and I 0:05:02.560 --> 0:05:06.120 wonder if some of them are reconsidering that at this point. 0:05:06.160 --> 0:05:08.960 But does the split verdicts show that that didn't make 0:05:08.960 --> 0:05:12.480 any difference, or can't we really read anything into that. Well, 0:05:12.520 --> 0:05:15.599 of course, it's the normal position of what colored defense 0:05:15.680 --> 0:05:19.120 counsel to resist having the defendant take the stand, because 0:05:19.120 --> 0:05:22.280 you could easily get a perjury conviction coming out of 0:05:22.279 --> 0:05:24.800 that if you deny guilt and the court thinks you 0:05:24.839 --> 0:05:28.200 were lying about that. Uh So it's it's the normal 0:05:28.240 --> 0:05:31.400 case to attack the witnesses rather than to try to 0:05:31.440 --> 0:05:34.039 put the defendant on the stand to tell his side 0:05:34.080 --> 0:05:37.000 of the story. All in all, the significance of this 0:05:37.120 --> 0:05:41.160 is the government has wanted best a very weak peric victory, 0:05:41.480 --> 0:05:44.279 and I think it may deter his apartments justice from 0:05:44.279 --> 0:05:48.640 bringing similar cases it has in the past. Bob might 0:05:48.720 --> 0:05:53.640 deter the Department of Justice from retrying the two defendants 0:05:53.680 --> 0:05:59.000 on the deadlock counts. That's a call, um, I mean, 0:05:59.640 --> 0:06:01.720 it might almost be a kind of mood point at 0:06:01.720 --> 0:06:03.880 this point, right, because I have a funny feeling that 0:06:03.920 --> 0:06:06.640 the Justice departments during the Trunk years, he's going to 0:06:06.720 --> 0:06:09.359 be a little bit less to sell us about prosecutions 0:06:09.360 --> 0:06:11.960 of this kind in any of that. Um. On the 0:06:12.000 --> 0:06:14.200 other hands, you know where things different. Right, let's assume 0:06:14.200 --> 0:06:15.800 that we were still, you know, the middle of the 0:06:15.839 --> 0:06:20.680 Obama era. Um, would this future prosecutions. I tend to 0:06:20.760 --> 0:06:22.640 think not. Actually, I tend to think that they're going 0:06:22.680 --> 0:06:24.600 to sort of keep at that. They would keep at it, 0:06:25.080 --> 0:06:28.279 uh in hopes of making a point and at least 0:06:28.279 --> 0:06:32.960 sort of frightening market participants with the possibility of prosecution, uh, 0:06:33.000 --> 0:06:36.480 and thereby frighten them into maybe making puppery a little 0:06:36.520 --> 0:06:39.359 bit less common of practice or less sort of central 0:06:39.400 --> 0:06:44.760 to their common practices today, Jack, have these cases cases, 0:06:44.960 --> 0:06:47.800 excuse me, have these cases, including the lip fact case 0:06:47.839 --> 0:06:50.120 that you were talking about, and some of the please 0:06:50.839 --> 0:06:54.440 been a wake up call for traders who believed once 0:06:54.520 --> 0:06:57.000 that they could do anything to sell a bond. Oh, 0:06:57.120 --> 0:06:59.600 I think it has I think it has them very concerned. 0:06:59.800 --> 0:07:02.880 The problem is they may just be hiding their behavior better. 0:07:03.279 --> 0:07:05.719 Some of them are now using encryptic codes that the 0:07:05.760 --> 0:07:08.479 government can't correct. Some of them are doing face to 0:07:08.520 --> 0:07:12.720 face conversations. I think it has affected the industry because 0:07:13.120 --> 0:07:16.280 these are intelligent people and they have been surprised to 0:07:16.320 --> 0:07:19.040 find out that the government has been studying them and 0:07:19.160 --> 0:07:22.360 tape recording them, and they know they are generally susceptible 0:07:22.400 --> 0:07:24.840 to such tape recording. By the way, I think what's 0:07:24.920 --> 0:07:27.440 likely to happen here is that the government will give 0:07:27.480 --> 0:07:31.080 them something like a deferred prosecution agreement, because the government 0:07:31.200 --> 0:07:35.160 usually when there's been a mistrial does offer reduced charges, 0:07:35.520 --> 0:07:38.760 and here reduced charges would likely be something like a 0:07:38.800 --> 0:07:42.960 deferred prosecution agreement for the two who are not convicted. Bob, 0:07:43.680 --> 0:07:46.800 do you believe that the scrutiny by the government has 0:07:46.920 --> 0:07:52.160 pushed questionable sales tactics farther into the shadows rather than 0:07:52.880 --> 0:07:57.440 making people change the way that they do business. Well, 0:07:57.480 --> 0:07:59.800 I think I think it's really raised the incentive, of course, 0:08:00.000 --> 0:08:02.600 people to push more of what they do in the shadows. Um, 0:08:02.680 --> 0:08:05.640 But I don't know that that's actually a problem as such. 0:08:05.680 --> 0:08:08.560 I mean, for for two reasons, right. The first is, uh, 0:08:08.640 --> 0:08:12.200 the shadow kinds of communications are themselves problematic as far 0:08:12.240 --> 0:08:14.480 as the law is concerned. Uh, And so there are 0:08:14.640 --> 0:08:16.239 you know, in the sense, what you're doing is pushing 0:08:16.240 --> 0:08:18.560 people into committing another kind of offense if you persisted 0:08:18.640 --> 0:08:21.080 doing that, and that's of course going to render them vulnerable. 0:08:21.600 --> 0:08:24.040 Charges along those lines are just sort of actions brought. 0:08:24.160 --> 0:08:26.680 They are predicted on those behaviors. The second point, I 0:08:26.720 --> 0:08:29.160 think that it's very often said, right that you shouldn't 0:08:29.200 --> 0:08:31.840 regulate this or that, because then you'll push this or 0:08:31.880 --> 0:08:34.040 that into some sort of realm where it's harder to 0:08:34.120 --> 0:08:36.800 regulate it. But that's a bit like uh see. To me, 0:08:36.920 --> 0:08:39.000 that's something bit like saying, you know, you shouldn't constitute 0:08:39.040 --> 0:08:41.720 any crime at all because otherwise people become us secretive 0:08:42.080 --> 0:08:44.560 in committing your crimes. I mean, that's no, there's no 0:08:44.640 --> 0:08:46.880 real answer. It's not it's not a good reason not 0:08:47.040 --> 0:08:49.679 to prosecute something if it on otherwise to be prosecuted. 0:08:49.880 --> 0:08:51.200 What it's a good reason to do is to make 0:08:51.240 --> 0:08:53.960 sure that you actually be hunt your enforcement in these 0:08:54.080 --> 0:08:56.880 sort of shadow realms as well. If that's where the 0:08:56.880 --> 0:09:01.120 behavior moves after, it's kind of uh wished out of 0:09:01.160 --> 0:09:05.640 lawyer sort of legitimate or well wit days Jeff. Market 0:09:05.760 --> 0:09:11.280 analysts say because of this change in traders in the 0:09:11.320 --> 0:09:13.959 way they're doing business, whether they're cleaning up their act 0:09:14.160 --> 0:09:19.880 or doing it um more surreptitiously, that liquidity has been reduced. 0:09:20.320 --> 0:09:23.680 Do you see that, I really don't. I think that 0:09:23.720 --> 0:09:28.280 the bond markets are robust, there's tremendous demand. I believe 0:09:28.360 --> 0:09:31.200 we should have stronger enforcement, but I have to say 0:09:31.320 --> 0:09:34.959 it's easier said than done. It is very difficult to 0:09:35.040 --> 0:09:37.480 interfere with traders who are going to move off the 0:09:37.559 --> 0:09:41.400 normal venues into a non paper corded settings. I think 0:09:41.400 --> 0:09:44.640 we'll deter some people and will cause others to go underground. 0:09:45.200 --> 0:09:48.000 I still believe we should have stronger enforcement, but I 0:09:48.040 --> 0:09:50.760 have to say these kinds of defeats are going to 0:09:50.920 --> 0:09:53.800 chill the government. Young use attorneys do not like to 0:09:53.880 --> 0:09:56.880 effectively lose cases, and I think the government may go 0:09:56.960 --> 0:10:00.000 back to things they're easier to prosecute, like insider trade. 0:10:00.120 --> 0:10:04.920 We're having a much better track record, Bobby, do you 0:10:04.960 --> 0:10:09.320 believe that it's clear to traders, to bond traders what 0:10:09.679 --> 0:10:14.000 exactly fraudy is whether an omission can have the same 0:10:14.000 --> 0:10:19.240 effect as a misrepresentation for example. Yeah, I think it's 0:10:19.280 --> 0:10:22.240 been somewhat unclear actually in recent years. And and one 0:10:22.280 --> 0:10:25.240 way of interpreting what has been doing in these cases 0:10:25.640 --> 0:10:27.800 is actually the triberally impose a bit of player life. 0:10:27.880 --> 0:10:30.720 I mean, a line is fairly difficult to draw between 0:10:30.720 --> 0:10:33.480 each adjuration or puffery on the one hand and just 0:10:33.640 --> 0:10:35.640 outright lining on the other, so that at least he 0:10:35.800 --> 0:10:37.720 was kind of gray. And that's actually one reason that 0:10:37.760 --> 0:10:40.160 this case was kind of gray, and why I suspect 0:10:40.200 --> 0:10:42.880 it is the case that some of the charges were 0:10:42.880 --> 0:10:46.160 sort of easier for the diary to find sort of 0:10:46.160 --> 0:10:48.719 convincing than others. But one way to deal with that 0:10:48.800 --> 0:10:51.679 in a problem, it's precisely to sort of reimpose a 0:10:51.760 --> 0:10:54.520 certain bright line rules such as the rule is simply 0:10:54.600 --> 0:10:56.839 not to lie. Right if you actually, if it's a 0:10:56.960 --> 0:10:58.800 nice cut and dried answer to how much you pay 0:10:58.880 --> 0:11:02.440 for exture security that you're not now trying to sell, Um, 0:11:02.480 --> 0:11:05.440 it's not that difficult to understand, right, all right, don't 0:11:05.480 --> 0:11:07.600 tell people that you paid at different price than you 0:11:07.640 --> 0:11:10.240 actually pay. Right, it's very easy I think to impose 0:11:10.280 --> 0:11:12.959 a bright line with respect of that kind of uh 0:11:13.000 --> 0:11:15.439 talk that's in a communication, something in the way of 0:11:15.480 --> 0:11:18.400 bright line order lines. Here at least with respect of 0:11:18.440 --> 0:11:20.720 these questions, where the easy about to impose those sense 0:11:20.760 --> 0:11:22.959 of wines and that will actually then clarify the beginning 0:11:23.000 --> 0:11:26.000 of fraud. I suspect to market participants on both sides 0:11:26.040 --> 0:11:30.120 of trades. Jack, How is the SEC proceeding in this 0:11:30.320 --> 0:11:36.040 area in tandem with the federal prosecutors or separately? Oh? Yes, 0:11:36.120 --> 0:11:38.839 they very very much act in tandem. But there's one 0:11:38.880 --> 0:11:42.480 big difference. The SEC brings about eighty percent of their 0:11:42.640 --> 0:11:46.480 enforcement cases in front of the administrative law judges in 0:11:46.600 --> 0:11:50.559 inherse proceedings. That means there's no jury, and the administrative 0:11:50.640 --> 0:11:53.199 lawd judge is someone who's a specialist in securities law. 0:11:53.559 --> 0:11:56.320 It's much easier to convince that kind of judge than 0:11:56.400 --> 0:11:59.120 a somewhat innocent jury that doesn't really know what's going on. 0:11:59.559 --> 0:12:03.040 And I quiffe some of these cases moved back to 0:12:03.480 --> 0:12:10.240 civil sec enforcement in administrative law proceedings, Bob, if you 0:12:10.320 --> 0:12:15.200 could explain about the bond market and why for so long, 0:12:15.559 --> 0:12:18.840 it has been more difficult to deal with, and the 0:12:18.880 --> 0:12:22.040 government has sort of left it alone till about four 0:12:22.120 --> 0:12:25.160 years ago the actions of bond traders and then decided 0:12:25.240 --> 0:12:30.040 to crack down. Okay, so we've lost Bob for a 0:12:30.040 --> 0:12:32.920 few minutes, Jack, Can you talk a little bit about 0:12:32.960 --> 0:12:37.760 the bond the bond business and why there was this 0:12:37.840 --> 0:12:40.920 crackdown started about four and a half years ago on 0:12:41.040 --> 0:12:45.320 bond traders actions when they had basically been dealing in 0:12:45.400 --> 0:12:48.320 this level where they said that they were dealing in 0:12:48.360 --> 0:12:53.160 sophisticated transactions and they didn't have to behave in the 0:12:53.240 --> 0:12:56.880 same way that other people did, other business people did, 0:12:56.920 --> 0:13:00.920 other traders. The bond market has always been very opaque. 0:13:01.160 --> 0:13:04.240 You're not trading against the backdrop of a constant stream 0:13:04.280 --> 0:13:08.360 of prices going across one market. There's possibility that different 0:13:08.400 --> 0:13:11.840 prices are occurring at the same time between different traders, 0:13:12.200 --> 0:13:15.400 and because it's much more opaque, there was more room 0:13:15.480 --> 0:13:18.840 for people to engage in little white lies. A trader 0:13:18.960 --> 0:13:21.520 would tell the other side, I can't sell it that 0:13:21.640 --> 0:13:23.719 price because that's less than I pay for it. I 0:13:23.760 --> 0:13:25.880 don't want to report a loss, and the other side 0:13:25.960 --> 0:13:27.200 was like, all right, I'll give you an eighth of 0:13:27.200 --> 0:13:29.680 a point more, so we don't have to do that. Uh, 0:13:29.880 --> 0:13:33.520 those little white lies were the culture of treading, and 0:13:33.559 --> 0:13:36.880 I think the government, after the financial crisis decided they 0:13:36.880 --> 0:13:40.200 were no longer going to accept this cultural story of 0:13:40.240 --> 0:13:43.520 little white lies, and they found some pretty egregious cases 0:13:43.520 --> 0:13:50.920 where public investors were regularly hurt injured by phony trading data. 0:13:52.360 --> 0:13:55.720 Welcome back, fam, I understand your back on the phone. 0:13:55.760 --> 0:13:58.400 We lost you for a moment there. Let's talk a 0:13:58.480 --> 0:14:01.839 little bit about Jesse. It's fact who whenever you hear 0:14:01.880 --> 0:14:05.800 about bond cases, you'd hear about Jesse lit fact because 0:14:05.880 --> 0:14:11.280 he was tried twice and found guilty twice. So let's 0:14:11.320 --> 0:14:13.480 talk a little bit about that case and what it's 0:14:13.480 --> 0:14:18.040 sort of established. Yeah. So, really this was sort of 0:14:18.080 --> 0:14:20.840 the font of all of the cases that we've been 0:14:20.840 --> 0:14:23.240 talking about along these lines lately. Right, I mean, this 0:14:23.360 --> 0:14:25.200 was the first sort of mark of a sea change, 0:14:25.240 --> 0:14:27.800 so that the government was no longer going to treat 0:14:28.400 --> 0:14:30.760 uh little white lines, as says Jack was calling them, 0:14:30.840 --> 0:14:33.000 or even larger white lines, uh, as if they were 0:14:33.000 --> 0:14:34.920 sort of innocent. Right. This was the first sort of 0:14:35.000 --> 0:14:37.960 signal that the guvernment was going to get curious about 0:14:38.000 --> 0:14:42.520 at least ensuring that people don't affirmatively mislead or affirmatively 0:14:42.640 --> 0:14:45.560 lie uh to to those to the counterparties or two 0:14:45.520 --> 0:14:47.400 others in the park. That's I mean, one of the 0:14:47.400 --> 0:14:49.560 things that to keep in mind here is, you know, 0:14:49.640 --> 0:14:52.680 even a common law outright line was that it was 0:14:52.720 --> 0:14:55.640 a problem, I was what would would constitute drawing. And 0:14:55.680 --> 0:14:57.800 one of the innovations made by the securities laws was 0:14:57.880 --> 0:15:00.080 to sort of adds to sort of traditional commissi of 0:15:00.240 --> 0:15:03.720 fraud a category of omissive fraud. And that's the sense 0:15:03.720 --> 0:15:06.400 in which securities laws and securities regulations can be here 0:15:06.440 --> 0:15:08.200 to sort of having pushed a kind of envelope. But 0:15:08.320 --> 0:15:10.720 sort of ironic, I think about all of these post 0:15:10.760 --> 0:15:14.000 lift back cases, including the case itself actually uh is 0:15:14.160 --> 0:15:17.560 these were cases of actual commissive fraud. Uh. And the 0:15:17.600 --> 0:15:19.960 thought that that these would have been controversial, or that 0:15:20.000 --> 0:15:21.600 it would be thought to be sort of odd that 0:15:21.680 --> 0:15:24.480 the should be prosecuted, I think is itself quite odd. 0:15:24.480 --> 0:15:26.400 It sort of tells us something about where we've come 0:15:26.440 --> 0:15:29.360 as a sort of financial culture. Uh. And and and 0:15:29.400 --> 0:15:31.120 I think as as Jack was suggesting, and as I 0:15:31.200 --> 0:15:33.560 was suggesting earlier, I mean One way of doing what 0:15:33.600 --> 0:15:36.040 the government's been doing of lage is is saying, okay, look, 0:15:36.080 --> 0:15:38.320 let's get back at least to a sort of standards 0:15:38.320 --> 0:15:41.400 pursuance which you can't just sort of outright lie to 0:15:41.480 --> 0:15:44.000 your counterparties. Uh and and and hope to sort of 0:15:44.040 --> 0:15:46.440 get away with if I think, well, everybody discounts where 0:15:46.480 --> 0:15:48.480 I say anyway, because it's sort of expected that we 0:15:48.600 --> 0:15:53.000 lie here, that's just not going to cut it any longer. Jack, 0:15:53.280 --> 0:15:58.440 do you see more plea deals or less plea deals 0:15:58.480 --> 0:16:01.520 because we see some people getting off. As you said, 0:16:01.520 --> 0:16:05.080 this wasn't a roaring victory for the government. To put 0:16:05.120 --> 0:16:08.760 it mildly, well, a government, of course, can point to 0:16:08.800 --> 0:16:11.760 the fact that one trader was convicted and that will 0:16:11.800 --> 0:16:14.920 destroy his career. He'll never be a trader ever. Again, 0:16:15.400 --> 0:16:18.200 it's only one count out of twenty seven. But they 0:16:18.280 --> 0:16:22.360 do have an effective body on which they can hinge 0:16:22.400 --> 0:16:25.320 a little bit of general deterrence. I do think, however, 0:16:25.600 --> 0:16:28.440 we're going to see the government push more of these 0:16:28.480 --> 0:16:32.480 cases into administrative proceedings where they avoid the difficulties of 0:16:32.560 --> 0:16:37.520 juries and have an administrative law judge make the decision. Bobby, 0:16:37.920 --> 0:16:41.320 is it actually more fitting for these kinds of cases 0:16:41.480 --> 0:16:47.080 to be um SEC cases with civil penalties rather than 0:16:47.160 --> 0:16:49.960 criminal cases. I mean, this is also the talk of 0:16:50.160 --> 0:16:52.680 about insider trading as well. A lot you know, is 0:16:52.720 --> 0:16:58.320 it is it really criminal or should it more be civil? Right? Well, 0:16:58.600 --> 0:17:01.360 you know, I sind to think that in it if 0:17:02.040 --> 0:17:04.800 in these kinds of cases it makes sense for the 0:17:04.840 --> 0:17:07.480 greater part of them to be regulatory offenses or for 0:17:07.520 --> 0:17:10.399 the sec to belcats. But it's very helpful for you know, 0:17:10.840 --> 0:17:14.359 some some smallish attraction of such cases I think to 0:17:14.400 --> 0:17:17.280 be prosecuted as criminal offenses, because that really sends the 0:17:17.320 --> 0:17:19.760 signal much more dramatically. Right. And as you know, one 0:17:19.800 --> 0:17:22.560 of the principal criticisms has been sort of leveled against 0:17:22.640 --> 0:17:25.280 regulators or against the sort of the general governmental response 0:17:25.680 --> 0:17:28.800 UH to financial broad and financial misdeeds in the wake 0:17:28.880 --> 0:17:32.520 of the crashes, because it has been precisely the fact 0:17:32.600 --> 0:17:34.439 that there's been so little in the way of criminal 0:17:34.480 --> 0:17:38.159 prosecution done and so much more in the way of 0:17:37.600 --> 0:17:41.080 UH regulatory settlements UH. And the why um and and 0:17:41.080 --> 0:17:43.840 and the reason for the criticism might think is precisely 0:17:43.880 --> 0:17:46.440 because people sort of understand that even one or two 0:17:46.880 --> 0:17:49.720 criminal cases UH can carry a great deal of sort 0:17:49.720 --> 0:17:52.640 of symbolic value and in that sense exercise a great 0:17:52.680 --> 0:17:56.440 deal of the turrent effects. Uh, even if the great 0:17:56.480 --> 0:17:58.800 bulk of cases are are brought by the regulators rather 0:17:58.840 --> 0:18:06.080 than prosecutors. Jack insider trading was Preet Barra's domain. Let's 0:18:06.119 --> 0:18:08.720 say he became famous as a sheriff of Wall Street 0:18:08.760 --> 0:18:13.600 for prosecuting insider trading. Have the bond cases centered more 0:18:13.800 --> 0:18:23.560 in Connecticut, Jack s c h C chairman have gone 0:18:23.560 --> 0:18:26.840 out and lobbied U S attorneys to bring more criminal cases. 0:18:27.200 --> 0:18:31.760 But generally federal criminal prosecutors want a very clear cut 0:18:31.840 --> 0:18:34.960 case with much stronger evidence, with a real witness, with 0:18:35.040 --> 0:18:38.000 a real victim. And that's why there's been very few 0:18:38.000 --> 0:18:41.720 of these cases insider trading or bond trading brought outside 0:18:41.840 --> 0:18:45.200 one or two jurisdictions, most notably the Southern District of 0:18:45.240 --> 0:18:47.879 New York, which likes to bring these cases, has gotten 0:18:47.960 --> 0:18:50.560 very experienced and very good at them. And it's also 0:18:50.640 --> 0:18:53.400 possible that New York juries are a little bit more 0:18:53.400 --> 0:18:57.080 skeptical of investment bankers and brokers and traders um. But 0:18:57.160 --> 0:19:01.520 getting criminal enforcement brought outside of the Northeast is really 0:19:01.600 --> 0:19:04.360 quite rare and I think that's still an area where 0:19:04.359 --> 0:19:06.919 their sec and the government has got a lobby and 0:19:07.280 --> 0:19:10.080 proselytiz all u S attorneys that they need to look 0:19:10.119 --> 0:19:15.040 at white collar crime more than just street crime. And 0:19:15.040 --> 0:19:20.120 and uh, Bob, what's what's your answer to that? If 0:19:20.160 --> 0:19:24.399 you remember the question theory, remember whether whether it seems 0:19:24.400 --> 0:19:27.000 as if there there is more of a focus There 0:19:27.080 --> 0:19:31.359 wasn't as much of a focus in in Manhattan on 0:19:31.359 --> 0:19:34.320 on this on bond trading. It was more you know, 0:19:34.480 --> 0:19:37.600 insider trading, and it was all about insider trading that 0:19:37.760 --> 0:19:42.560 really brought free Berrara into the spotlight, right right, Yeah, 0:19:42.640 --> 0:19:44.600 So so part of it, of course, it's the fact 0:19:44.600 --> 0:19:47.560 that the way to bond trading, uh trade that goes 0:19:47.680 --> 0:19:50.359 that it's not centered as as as as much of 0:19:50.400 --> 0:19:53.760 Manhattan as a lot of other securities trading is. And 0:19:53.760 --> 0:19:56.439 that's probably part of the reason. And a lot of 0:19:56.440 --> 0:19:58.560 it in that does occur right out of Connecticut, So 0:19:58.680 --> 0:20:01.040 it sort of makes sense. I is right that there 0:20:01.040 --> 0:20:03.359 will be more focused on it there than in New York. 0:20:05.680 --> 0:20:08.920 So where do you see the investigations going now, Jack, 0:20:09.080 --> 0:20:14.760 do you see them even even more investigations as far 0:20:14.840 --> 0:20:17.359 as some of the things that traders may be doing 0:20:17.480 --> 0:20:20.760 now to try to hide what they're doing. For example, 0:20:21.160 --> 0:20:26.760 you talked about using encrypted messaging apps or personal cell phones. 0:20:27.359 --> 0:20:31.760 So do you see the SEC or the federal prosecutors 0:20:31.800 --> 0:20:35.520 trying to look into that which seems like it's difficult. Well, 0:20:35.560 --> 0:20:38.640 they have in the recent prosecution of the Wall Street gambler. 0:20:38.840 --> 0:20:41.600 There could be of these Las Vegas gambler. Mr Walters, Uh, 0:20:41.800 --> 0:20:45.320 he used encrypted phones and that sounded very very suspicious 0:20:45.320 --> 0:20:49.399 to the jury. Um, I think we do have. Southern 0:20:49.440 --> 0:20:52.919 District prosecuters have become very attempt they now how to 0:20:53.000 --> 0:20:57.240 bring certain kinds of criminal prosecutions. The SEC has well 0:20:57.280 --> 0:21:00.880 known priorities they advertise with their priority. These are one 0:21:00.920 --> 0:21:03.359 of their largest priorities, which is where I think future 0:21:03.400 --> 0:21:07.000 criminal cases will come from, is the Foreign Corrupt Practices Act. 0:21:07.320 --> 0:21:10.600 They are very eager to find people paying foreign bribes 0:21:10.960 --> 0:21:12.879 on behalf of the U. S Company or a foreign 0:21:12.920 --> 0:21:16.520 company that's trying to broad to obtain business, and that 0:21:16.720 --> 0:21:19.160 I think will be the source of quite a few 0:21:19.400 --> 0:21:23.159 future criminal prosecutions. So well, money laundering, those are somewhat 0:21:23.200 --> 0:21:26.360 easier cases to bring. They don't get you involved with 0:21:26.680 --> 0:21:29.280 what it means when you make a particular crypto comment 0:21:29.400 --> 0:21:32.439 to another in a quick phone conversation. They look at 0:21:32.440 --> 0:21:34.840 the follow the money and you see hundreds of thousands 0:21:34.840 --> 0:21:39.480 of dollars moving, and the jury understands that that's money laundering. Bob. 0:21:39.680 --> 0:21:44.640 When you teach your students UH is bond or bond trading? 0:21:44.720 --> 0:21:47.560 Is that is that an area that they're very interested in? 0:21:47.680 --> 0:21:52.240 Or do they go more towards UH securities and and 0:21:52.400 --> 0:21:57.440 insider trading? Well, I mean my stings are quite unenlinded. 0:21:57.480 --> 0:22:00.040 It seems about what kind of UH financial practice of 0:22:00.119 --> 0:22:02.080 going in, going to go into but of course make 0:22:02.160 --> 0:22:05.480 it right now. Contact is it's very hot. Hedge funds, 0:22:05.480 --> 0:22:08.080 private equity are very hot as well. If this assumed 0:22:08.080 --> 0:22:11.240 to be a great deal of interest in bond trading 0:22:11.400 --> 0:22:14.280 as such. But I think a part of that is because, um, 0:22:14.320 --> 0:22:17.439 you know, the students at that stage are not really 0:22:17.480 --> 0:22:19.960 fully aware of all of the differences that that's sort 0:22:20.000 --> 0:22:22.200 of finer distinctions about what the life of a bond 0:22:22.200 --> 0:22:24.320 trader looks like on the one hand, and the bond 0:22:24.359 --> 0:22:26.760 they felt life of a security trader or securities underwriter 0:22:26.960 --> 0:22:29.000 looks like on the other hand. They do know, however, 0:22:29.040 --> 0:22:31.960 that there's something kind of vaguely sexy sounding or a 0:22:32.320 --> 0:22:35.280