Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 1: A case in the Western District of Texas is one
Speaker 1: of the biggest fights over abortion since the Supreme Court
Speaker 1: overturned Roe v. Wade and the constitutional right to abortion.
Speaker 1: As we've seen, what starts in Texas doesn't stay in Texas.
Speaker 1: It often has grave national implications. That's Wendy Davis of
Speaker 1: Planned Parenthood Texas Votes talking about the case where anti
Speaker 1: abortion groups are trying to block the sales of a
Speaker 1: key abortion pill nationwide, a pill which was approved by
Speaker 1: the FDA decades ago, and they've brought their case in Amarillo, Texas,
Speaker 1: where they're one certain of getting Judge Matthew kesmeric a
Speaker 1: Trump appointee who's been criticized for his views opposing abortion
Speaker 1: and LGBTQ rights. It's an illustration of the problem with
Speaker 1: single judge divisions and judge shopping something, just as Alena
Speaker 1: Kagan complained about in a case this term in Texas,
Speaker 1: there are divisions within districts. You can pick your trial
Speaker 1: court judge. You know, you play by the rules, that's fine,
Speaker 1: but you pick your trial court judge. One judge stops
Speaker 1: a federal immigration policy in its tracks. Joining me is
Speaker 1: Professor Stephen Vlanik of the University of Texas Law School,
Speaker 1: who's been studying this issue and written about it. Steve,
Speaker 1: we've all heard about forum shopping. How is what's happening
Speaker 1: in Texas any different? And I think it's worth distinguishing
Speaker 1: between two different factories. So, in any legal system that
Speaker 1: has relatively permissive rules about where you can file a lawsuit,
Speaker 1: you know that doesn't just narrow it down to one
Speaker 1: jurisdiction for every single lawsuit, You're gonna have forum shopping.
Speaker 1: That is that you're going to have efforts by whoever
Speaker 1: controls where the case is filed to file in a
Speaker 1: place that is strategically advantageous, either because the general composition
Speaker 1: of the bench is favorable, or because the jury pool
Speaker 1: is favorable, or because maybe it's more geographically convenient to
Speaker 1: one side of the case and not the other. June.
Speaker 1: That is, to a degree inevitable and unavoidable in our
Speaker 1: legal system. What we're seeing a lot more of these
Speaker 1: days is what I think because a far more nefarious
Speaker 1: version of that, which is judge shopping, filing in tiny,
Speaker 1: usually single judge subdivisions of federal district courts where by
Speaker 1: filing in that particular place you have a one hundred
Speaker 1: percent chance of drawing a specific judge, where basically the
Speaker 1: plantiff can choose not just where to file, but by
Speaker 1: choosing where to file, the plantiffs can say, I want
Speaker 1: my case to be heard by Judge Smith. And I
Speaker 1: think that's not a brand new phenomenon, but we're seeing,
Speaker 1: and I think being exploited a lot more systemically and
Speaker 1: a lot more visibly in cases with partisan valances than
Speaker 1: was the case really at any recent point in the
Speaker 1: history of our legal system, and a lot more in Texas.
Speaker 1: So yeah, I mean, so Texas is not unique. You know,
Speaker 1: the headlines are all out of Texas, and there are
Speaker 1: some reasons for that, but it's worth stressing there are
Speaker 1: single judge divisions in a decent minority, probably around thirty
Speaker 1: five percent of the federal district courts in the country
Speaker 1: have at least somewhere where if you file, maybe you
Speaker 1: get it assigned to a single judge. What I think
Speaker 1: mixed Texas union because we've got a lot of So
Speaker 1: of the twenty seven total divisions in Texas across our
Speaker 1: four district courts, there are eight that are single judge divisions,
Speaker 1: and you know, June, I think we should say a
Speaker 1: single judge divisions staffed by judges who I think are
Speaker 1: relatively outliers when it comes to the ideological spectrum, and
Speaker 1: in the fifth Circuit right where you have a fairly
Speaker 1: sympathetic appellate bench as well. And so I think there's
Speaker 1: a reason why we've seen the state of Texas steer
Speaker 1: lawsuit after lawsuit against the Biden administration to the single
Speaker 1: judge divisions. Why we've seen this mythopristone case filed of
Speaker 1: all places in the country in Amarillo, Texas, so that
Speaker 1: it could be assigned to Dge Matthew kaz Marit. I
Speaker 1: think it's the pattern that's the problem, not just individual
Speaker 1: instances there. Ope, has Texas denied that it's filing in
Speaker 1: these districts to get conservative judges? No, I mean the
Speaker 1: irony is, though, you know, in three of the cases
Speaker 1: Texas has filed against the federal government, the federal government
Speaker 1: has now moved the transfer either to a different venue,
Speaker 1: like to a different district court, or at least to
Speaker 1: a different division within the same district court. And the
Speaker 1: first of those a case unhelpfully called Texas versus Department
Speaker 1: of Homeland Security. There was a hearing where Texas represented
Speaker 1: on the record in open court that they filed that
Speaker 1: particular lawsuit in the Victoria Division of the Southern Districtive
Speaker 1: of Texas because they wanted Judge Tipton. And you know
Speaker 1: what's remarkable of that is that, notwithstanding that concession, Judge
Speaker 1: Tipton still denied DJ's motion to transfer, basically because DJ
Speaker 1: wouldn't publicly accuse him of being biased. And you know, June,
Speaker 1: to me that miss is the point. The question is
Speaker 1: not whether Judge Tipton is or whether Judge Kasmarica is biased.
Speaker 1: The question is whether the reasonable person looking at this
Speaker 1: behavior by playing dist you know, by Texas buy on
Speaker 1: all these lawsuits in these district cords, would say that
Speaker 1: this looks like the system is being manipulated. And if
Speaker 1: the answer is yes, then that ought to be a
Speaker 1: pretty compelling reason for judges to say, you know, we
Speaker 1: don't want to abide that, we don't want to enable that,
Speaker 1: we don't want to support that, and yet here we are.
Speaker 1: Is the real problem, or a secondary problem, the issuance
Speaker 1: of nationwide injunctions. So you have a judge in Amarillo,
Speaker 1: Texas issuing an injunction that applies to the whole country.
Speaker 1: I think nationwide injunctions compound the problem June, because you know,
Speaker 1: among other things, they ratchet up the stakes of each
Speaker 1: of these individual cases. But you know, I think an
Speaker 1: individual district judge, even without a nationwide injunction, could still
Speaker 1: cause a stair amount of mischief by him or herself.
Speaker 1: So the nationwide injunctions I think have made this worse
Speaker 1: and more visible. But actually I think the sort of
Speaker 1: the judge shopping phenomenon is a problem no matter what
Speaker 1: kind of relief the parties receive, king especially where you
Speaker 1: have a defendant like the federal government that, even if
Speaker 1: not such a to a nationwide injunction right would probably
Speaker 1: still do its best to comply with a more geographically
Speaker 1: limited court order. So nation wide injunctions I think are
Speaker 1: part of why we're now paying more attention to this phenomenon.
Speaker 1: But I don't think there's a problem here. As far
Speaker 1: as the case before, Judge Kasmeric trying to block sales
Speaker 1: of the abortion pill nationwide. So he told the lawyer's
Speaker 1: last Wednesday that he would delay putting the hearing on
Speaker 1: the docket until late Tuesday to try to minimize disruptions
Speaker 1: and possible protests. Were his actions unconstitutional, I wouldn't go
Speaker 1: that far. I mean, I think the reality is that
Speaker 1: Judge Kasmaric didn't close the hearing to the public, and
Speaker 1: so from the first memo perspective, I don't think there's
Speaker 1: any issues. But the broader point here is that I
Speaker 1: think folks would have reacted to that new a lot
Speaker 1: differently if there hadn't been Judge shopping here. That is
Speaker 1: to say, if you know the plaintiffs seeking to revoke
Speaker 1: the FDA has approval of missa pristone had randomly drawn
Speaker 1: a randomly assigned district judge, I don't think there'd be
Speaker 1: nearly the sort of fear that the sticks is in
Speaker 1: anytime you see an unusual procedural order like this. So
Speaker 1: in that respect, I actually think Judge Kasmaris probably is
Speaker 1: a victim of nothing other than the playstiff's manipulation of
Speaker 1: his docket, where what he really thought was in the
Speaker 1: best interest of he and his family's personal safety. The courthouse, yeah,
Speaker 1: looks that much more sinister because of the transparent Judge
Speaker 1: shopping with the plays engaged in to get the case
Speaker 1: to him in the first place, it has the federal
Speaker 1: government moved to change venue in that case. It hasn't,
Speaker 1: because what the plaintiffs did in that case was they
Speaker 1: created a corporate form in Amarillo as a way of
Speaker 1: basically trying to manufacture venue there. So there's actually a
Speaker 1: stronger arguments somehow that Amarilla is an appropriate venue totally
Speaker 1: because of the paper steps the planets took to create
Speaker 1: an Amarilla based planiff. That's why the Texas cases are different,
Speaker 1: because Texas the states can't just sort of change where
Speaker 1: it's located. And so that's why I think that's where
Speaker 1: we've seen DJ fight on the transfer question, at least
Speaker 1: thus far unsuccessfully. Could they ask the judge to recuse
Speaker 1: himself because of his long held positions prior legal work
Speaker 1: and decision since becoming a judge, I mean that since
Speaker 1: they could, I think if they were going through they
Speaker 1: would have already. And you know, I think that sort
Speaker 1: of again misses what to me is the real problem here.
Speaker 1: One can believe that all of these judges are active
Speaker 1: in good state, you know, perhaps coming from just a
Speaker 1: different set of priors than some of us might have,
Speaker 1: and still think that it ought to be incumbent upon
Speaker 1: them to appreciate what it looks like to outsiders that
Speaker 1: cases are being deliberately steered to them that have a
Speaker 1: remarkable alignment with views they've previously taken publicly. To put
Speaker 1: a different way, I would have thought that spederal judges
Speaker 1: who are worried about the appearance of impropriety would be
Speaker 1: the first to push back if plaintiffs were so obviously
Speaker 1: in transparently trying to manipulate their dockets. At least thus
Speaker 1: bar June, they've been the last. And I think that's
Speaker 1: part of the story here. Well, if Judge Kazmeric doesn't
Speaker 1: know by now that people have focused on this issue,
Speaker 1: there have been so many articles about it and discussions
Speaker 1: about the fact that he has this particular case and
Speaker 1: the way it got to him, it seems like he
Speaker 1: doesn't care. I think that's right, and I think the
Speaker 1: question then is why not. This is not about Judge Kasmaric.
Speaker 1: I think this is about any of the judges who
Speaker 1: are seeing these cases being scared to them. I mean,
Speaker 1: it's pretty remarkable June that you know, over the twenty
Speaker 1: nine lawsuit Texas is file that comes to Biden administration
Speaker 1: in Texas dish records in the last two plus years.
Speaker 1: None of them have been filed in Austin, which is
Speaker 1: where the Texas government is. None in Houston, none in Dallas,
Speaker 1: none in San Antonio, non Inel Pasto. And so I
Speaker 1: guess the question is why isn't it more trouble and
Speaker 1: too judges who are having all of these cases steered
Speaker 1: to them that the plainists in these cases are behavior
Speaker 1: this way, and I think the irony is June that's
Speaker 1: what's reinforced and charges that this is the MANI playing
Speaker 1: on the system. That the judges themselves are refusing to
Speaker 1: see this as manipulation. Those on the other side of
Speaker 1: this will say, well, the Democrats did it when Trump
Speaker 1: was in office. Yes, there's a lot of what abouts
Speaker 1: them in response here. So two responses, I think. One
Speaker 1: is that President Trump was subject to a lot of
Speaker 1: lawsuits by Democratic attorneys general, and one is that there
Speaker 1: have always been single judge division. Factually, both of those
Speaker 1: things are true, but those are pretty different circumstances. Let's
Speaker 1: say California, right, So, California is sued the Trump administration
Speaker 1: on a number of occasions, and most of those losses
Speaker 1: I think almost all of them were brought in Oakland,
Speaker 1: in the Northern District of California. Well, one, there is
Speaker 1: a pretty large office of the California Attorney General in Oakland,
Speaker 1: and so it's not like Texas going to Amarillo, where
Speaker 1: there's no Attorney General's office, and so in that respect
Speaker 1: you don't see the same kind of manipulating where you
Speaker 1: can file. And to June, the Northern District is not
Speaker 1: divided the way that Texas is courted bar there's no
Speaker 1: place in California where you can file a lawsuit you
Speaker 1: can have a one percent chance of drawing a particular
Speaker 1: federal district judge. Right, The real compoint of those who
Speaker 1: would defend the Trump administration in this context is that
Speaker 1: the overall district court bench in the northern districts of
Speaker 1: California is heavily staffed with Democratic appointees. And that just
Speaker 1: goes back to the difference between forum shopping and judge shopping. Right,
Speaker 1: there's a degree to which forum shopping is always going
Speaker 1: to be unavoidable. But unless you think that every single
Speaker 1: judge appointed by a president of the same party is
Speaker 1: going to rule the same way in every case, there
Speaker 1: ought to be a pretty big difference between having a
Speaker 1: case randomly assigned to one of say, ten Democratic appointed
Speaker 1: district judges, and having a case that was brought in
Speaker 1: Amarillo for the specific purpose of being assigned not just
Speaker 1: to a Republican appointed district judge, but to a particular
Speaker 1: Republican appointed judge. That's the difference that I think it's
Speaker 1: good been lost in these responses. As you mentioned in
Speaker 1: your article, Justice Elena Kagan call the Texas Solicitor General
Speaker 1: on this. Is there anything the Supreme Court can do?
Speaker 1: I mean I think there is so. First, of course,
Speaker 1: the venue statutes, our statue said the Supreme Court could interpret.
Speaker 1: But second, in the Supreme Court I think has a
Speaker 1: bully pulpit. I mean Chief Justice Robert in his year
Speaker 1: end report in twenty twenty one, when out of his
Speaker 1: way to single out how there was a judge in
Speaker 1: Waco who was basically trying to hijack the nationwide docket
Speaker 1: of patent cases, and how one of the ways who
Speaker 1: was doing that was by saying, if you file your
Speaker 1: patent losses in Waco, there's a one hundred percent chance
Speaker 1: it will be assigned to meet Robert said that was
Speaker 1: a problem and last year, the Dishre Court changed its
Speaker 1: rule so that it could no longer have a one
Speaker 1: assignment policy. So I think the Supreme Court can do
Speaker 1: things formally. June, I think the Supreme Court can do
Speaker 1: things vocally to sort of push back against this practice.
Speaker 1: But I also think the dishre courts can fix it themselves.
Speaker 1: I mean, the dishre courts have the power to change
Speaker 1: their vision of business rules. That's what happened with cases
Speaker 1: in Waco, and so I think the real question is
Speaker 1: why don't disrecords realize that it's in their interest to
Speaker 1: avoid these kinds of appearances and change their own rules
Speaker 1: proactively going forward. Can one federal judge in Texas change
Speaker 1: that or does it require more well, So, Congress has
Speaker 1: delegated the power to divide business within disrecords to the
Speaker 1: chief judges of each disrecord. Now, of course, the chief judges,
Speaker 1: you know, they have colleagues. They're not trying to offend
Speaker 1: their colleagues. So the chief judges are going to change
Speaker 1: those rules, usually in concert with their colleagues. But it
Speaker 1: is ultimately up to the chief judges. And if the
Speaker 1: chief churches aren't going to do it themselves, then Congress
Speaker 1: ought to be consider whether we want that power to
Speaker 1: be held by disrecords in the first place. It's such
Speaker 1: an important point, Steve, thanks so much. That's Professor Stephen
Speaker 1: Vladdock of the University of Texas Law School. After the
Speaker 1: failure of the second and third largest banks in US history,
Speaker 1: President Joe Biden sought to reassure jittery consumers and markets
Speaker 1: that the US financial system is on solid footing. He
Speaker 1: also promised to hold those responsible accountable. There are important
Speaker 1: questions of how these banks got into the circumstance in
Speaker 1: the first place. We must get the full accounting of
Speaker 1: what happened and why those responsible can be held accountable.
Speaker 1: And my administration no one in mindment. No one is
Speaker 1: above the law. The Justice Department and the Securities and
Speaker 1: Exchange Commission have launched investigations into the Silicon Valley bank
Speaker 1: collapse and possible misconduct by bank officers, and according to
Speaker 1: Bloomberg's sources, both agencies were already investigating Signature Bank and
Speaker 1: potential money laundering by its crypto clients. Both banks have
Speaker 1: also been hit with class action investor lawsuits. Joining me
Speaker 1: is security litigator Anthony Sabino of Sabino and Sabino. He's
Speaker 1: also a professor of law at Saint John's University. Is
Speaker 1: it much of a surprise that the Justice Department and
Speaker 1: the sec are investigating after these banks failures? No, not
Speaker 1: at all, for the simple reason that banks are a
Speaker 1: matter of public trusts. And again, while they are private
Speaker 1: institutions and they're owned by the shareholders, the point is
Speaker 1: that it's a matter of maintaining the integrity of the
Speaker 1: banks and the overall banking system and assuring the public
Speaker 1: that these institutions are trustworthy. Also, especially in these troubled times,
Speaker 1: we have the many new challenges that are affective us
Speaker 1: in all industries and including the banking sector. So, for example,
Speaker 1: one of the things that's become recently known is that
Speaker 1: apparently the Justice Department was looking into, and emphasized looking into,
Speaker 1: no actual action taken yet signature banks dealings with respect
Speaker 1: to cryptocurrency holdings. And since that is such a nascent
Speaker 1: field and we're not too sure about that. Obviously, law
Speaker 1: enforcement has concerns about cryptocurrency being manipulated by persons for
Speaker 1: purposes of money laundering, so on and so forth, and
Speaker 1: again there's really nothing new about that. June for the
Speaker 1: reason that the anti money Laundering laws otherwise known as
Speaker 1: AML have been around for decades, and it's a routine
Speaker 1: matter for the Justice Department, the Treasure Department, so on,
Speaker 1: and so forth to look into this to make sure
Speaker 1: no one is engaging in money laundering, whether it is
Speaker 1: in cold, hard cash as you might have had in
Speaker 1: the cocaine wars of the nineteen eighties or nowadays in
Speaker 1: the twenty twenties. With respect to cryptocurrency, SEC chair Gary
Speaker 1: Gensler said, we at the SEC are particularly focused on
Speaker 1: monitoring for market stability and identifying and prosecuting any form
Speaker 1: of misconduct that might threaten investors. So they and the
Speaker 1: Justice Department are looking for misconduct by bank executives. What
Speaker 1: kind of misconduct might they be looking at? Well, first
Speaker 1: of all, we have to distinguish these two distinct threads here,
Speaker 1: as follows Chairman Gensler. Okay, while he's looking for purposes
Speaker 1: to maintain the integrity in the market, what his job
Speaker 1: is and what he's doing to his credit is his
Speaker 1: concern is the integrity of the securities market. Because again,
Speaker 1: as we've seen both signature as a VB and any
Speaker 1: other number of institutions. They're owned by shareholders, therefore separate
Speaker 1: and apart from the stability or in some cases the
Speaker 1: seizure and or collapse of the banks as a bank.
Speaker 1: Per se Gensler in the sec their paramount concern is
Speaker 1: whether there's been truthful disclosure to shareholders, because that impacts
Speaker 1: those individual shareholders, the integrity of the market, so on
Speaker 1: and so forth. So all Chairman Gensler is doing the same. Look,
Speaker 1: we have the anti fraud provisions of the securities laws.
Speaker 1: That's what we're here to enforce. So that's his bailiwick,
Speaker 1: that's his jurisdiction, and rightly so, the Justice Department has
Speaker 1: a wider portfolio, if you will, And what that involves
Speaker 1: is again looking into banking transactions as banking transactions, to
Speaker 1: assure that the anti money laundering laws are followed, that
Speaker 1: there's no manipulation of bank assets, so on and so forth,
Speaker 1: and also in a broader sense, to see if there
Speaker 1: was any fraud of manipulation, not necessarily just a security
Speaker 1: So that comes within the jurisdiction as well to some degree,
Speaker 1: but more so was their fraud with respect to defrauding
Speaker 1: the depositors. And here June we have to draw the
Speaker 1: important distinction. Let's take as a VB bank, for example,
Speaker 1: there's two distinct groups of parties who've been injured. Here.
Speaker 1: On the one hand, there are the folks who are stockholders,
Speaker 1: and so that agains the the sec and also on
Speaker 1: the criminal side of that, the Justice Department saying, okay,
Speaker 1: did you lie to your shareholders and injured them in
Speaker 1: terms of the stock market aspect of this. On the
Speaker 1: other hand, okay, the other group are the depositors who, thankfully,
Speaker 1: because of the government's action, it looks like they're going
Speaker 1: to be made whole or if I may use a
Speaker 1: crew term bailed out. But the bottom line is the
Speaker 1: concern of the Justice Department in that regard is to
Speaker 1: make sure that if there was any deception of depositors,
Speaker 1: in essence, nothing more complicated than people put money in
Speaker 1: any of these institutions, they thought it was safe, and
Speaker 1: as it turned out, they were deceived. So that's something
Speaker 1: that obviously the Justice departments crack down upon. You use
Speaker 1: the term bailout, and the Biden administration doesn't like that word, Well,
Speaker 1: that's politics, okay. And again it's been called everything from
Speaker 1: rescue to bailout etc. Etc. Okay, and there were genuine
Speaker 1: issues here that have been brought to the fore and
Speaker 1: need to be discussed. Certainly, we're all aware that since
Speaker 1: the nineteen thirties under FDR there is banking insurance. But
Speaker 1: again that has limits here, and a question has been raised.
Speaker 1: It's a legitimate one that needs to be examined in
Speaker 1: an objective and dispassionate way. Is well, wait a minute,
Speaker 1: all right, are you fulfilling what the law requires as
Speaker 1: far as the insurance. That's clearly happened, But have you
Speaker 1: gone overboard? And are you also providing funding rescuing folks
Speaker 1: with deposits that exceed the statutory limit or depositors for
Speaker 1: various endeavors. I think it would be certain businesses, so
Speaker 1: on and so forth. So again that's a matter more
Speaker 1: for the political arena, but it's still worthy of discussion
Speaker 1: because one of the things that and let me be frank,
Speaker 1: that troubles me most of all is the danger of
Speaker 1: as we call it, the moral hazard. Because my personal interpretation,
Speaker 1: free enterprise has always been free to succeed but also
Speaker 1: free to fail, so to the extent that the government
Speaker 1: comes in and says, okay, well, here's SVB. All right,
Speaker 1: we'll make everybody whole. That's nice. All right, if they
Speaker 1: do the same thing with signature, that's nice. But where
Speaker 1: does it end? Where does it end? Where fifteen years
Speaker 1: remove from governments? I'll use a less pejorative term assistance too,
Speaker 1: the major order makers, the financial sectors, so on and
Speaker 1: so forth. But we're still paying the price for that,
Speaker 1: all right. Where does government interventions stop? Where do we
Speaker 1: allow free enterprise to be truly free again to succeed
Speaker 1: or conversely to fail? And certainly there's always the danger
Speaker 1: that our free enterprise system is going to be damaged
Speaker 1: by government assistance. Government rescues turns into government intervention and
Speaker 1: maybe government control. Those are very scary words, and I
Speaker 1: say them with great trepidation, but they should be out
Speaker 1: there to be discussed in any event. It's something we
Speaker 1: have to watch out for. So one thing that apparently
Speaker 1: is being investigated is whether stock sales by executives violated
Speaker 1: trading rules. According to Bloomberg sources, security filing showed that
Speaker 1: the CEO Gregory Becker and the CFO Daniel Beck both
Speaker 1: so shares the week before the bank collapsed. Both sales
Speaker 1: were done under the ten B five one plans file
Speaker 1: thirty days earlier. So if they were done within that,
Speaker 1: is there any problem. Well, again, this matter requires examination,
Speaker 1: but on its face, everything appears to be above board
Speaker 1: because what you've commented upon, and what you're able colleagues
Speaker 1: have already reported on within the last twenty four hours
Speaker 1: is the fact that federal law explicitly provides that high
Speaker 1: level corporate executives may, according to a stipulated plan basically
Speaker 1: a plan made in advance, may sell shares in their
Speaker 1: own companies. And that does not violate the law. It
Speaker 1: does not qualify as inside of trading. And the reason
Speaker 1: if that is simply this. Okay. Even the highest corporate
Speaker 1: executives june their people just like us. So they need
Speaker 1: to pay their bills, and sometimes that involves selling their
Speaker 1: stockholdings in their own companies. And also, like any prudent investor,
Speaker 1: they want to diversify their holdings and say, okay, a
Speaker 1: lot of my personal world is tied up in the
Speaker 1: company where I am the CEO, CFO, whatever, So that
Speaker 1: corporate executive says to herself, well, I need to diversify
Speaker 1: a little bit. Okay. Now, the problem is when they
Speaker 1: make these sales. Are they making them at a certain
Speaker 1: point in time based upon inside information that only they
Speaker 1: are privy too, that the market doesn't know, and oh
Speaker 1: that's a huge problem. That's inside or trading. The reason
Speaker 1: the statute says explicitly what it does is you've finally
Speaker 1: quoted it is the fact that if you have a
Speaker 1: plan that you do in advance and make the appropriate
Speaker 1: filing with the governments, they look, okay, I'm going to
Speaker 1: sell shares in this amount at specific intervals. Basically, since
Speaker 1: you have a plan and you stick to it, you're
Speaker 1: working on information you had at that time which is
Speaker 1: in the public domain. So there can be no real accusation.
Speaker 1: Oh you're used insider trading and basically you're violating the
Speaker 1: law in that regard. All right, but once again that's
Speaker 1: what the law says, and that's the theory, and again
Speaker 1: no action has been taken, no accusation should be made.
Speaker 1: But the government has the obligation as well as the
Speaker 1: right to examine this and basically assure that in fact,
Speaker 1: everything was done according to those plans. Okay, those then
Speaker 1: one C plans and was carried out appropriately. If it
Speaker 1: is something on toward where these plans were modified at
Speaker 1: the last minute or something else that's call it peculiar
Speaker 1: went on, and it would appear that these sales were
Speaker 1: made contrary to these prior arrangements. Then that's something to
Speaker 1: talk about, and that's something that could get them folks
Speaker 1: in trouble. But again, I'm not saying there is a problem,
Speaker 1: but I'm also not saying there isn't a problem. Okay,
Speaker 1: it requires further examination by law enforcement. It seems like
Speaker 1: a lot is being made of the fact that SVB
Speaker 1: did not have a chief risk officer for much of
Speaker 1: last year. Does that mean management was hiding something or
Speaker 1: didn't want to disclose something, or doesn't mean not much
Speaker 1: of anything. Well, again, my answer to that would be
Speaker 1: not necessarily okay, but it is something that should be
Speaker 1: looked at, can be looked at. Okay. Once again, people
Speaker 1: come and go from jobs all the time, whether it's
Speaker 1: the CEO, whether it's the janitor. So people change jobs
Speaker 1: all the time. So there's nothing sinister at all about
Speaker 1: the fact that their former chief risk officer was in
Speaker 1: fact former and a new person came in. There's nothing
Speaker 1: necessarily insidious about the fact that there appears to be
Speaker 1: And I stress appears to be some sort of gap
Speaker 1: where the cro office was vacant for a period of time. However, okay,
Speaker 1: given those events, it is worthy of further examination. And
Speaker 1: again I stress examination, not accusations. There is none. Will
Speaker 1: need to cast dispersions around, but the bottom line, it's
Speaker 1: worth looking at because it could be indicative that maybe
Speaker 1: there was a gap in terms of the office being filled.
Speaker 1: Who was fulfilling the CRORO function was the Board of directors,
Speaker 1: which has a fiduciary duty to oversee the operations of
Speaker 1: that bank, like with any other corporation, especially a publicly
Speaker 1: held corporation. Were they being kept properly informed? Was the
Speaker 1: board itself exercising its fiduciary duty of care in making
Speaker 1: sure that it was up to date and informed about
Speaker 1: the levels of risk that SVB was taking, so on
Speaker 1: and so forth. So once again, I'm not saying there
Speaker 1: is a problem, but I'm also not saying there isn't
Speaker 1: a problem. It needs to be looked at, and that's
Speaker 1: what the government is doing and that's appropriate. But let's
Speaker 1: see what they find first before we make any wild accusations.
Speaker 1: That would be my cautionary note. A class action lawsuit.
Speaker 1: The first one has been filed against SVB in the
Speaker 1: top executives by shareholders who allege they concealed from investors
Speaker 1: the impact that high interest rates would have on the
Speaker 1: tech and VC focused firm's business, leaving it particularly susceptible
Speaker 1: to a bank run. What kind of charges do you
Speaker 1: have to prove to succeed in one of these investor
Speaker 1: fraud lawsuits? Well, again, the standard for proven security supports
Speaker 1: is very high. And again that follows the thousand year
Speaker 1: old tradition that anytime you accuse anyone of any kind
Speaker 1: of fraud, it's a higher legal standard. And the legal
Speaker 1: standard under federal law for securities fraud violations is exceedingly
Speaker 1: high as well it should be. And to give you
Speaker 1: just a quick summary, it has to be proven that managers,
Speaker 1: okay the managements knowingly or with a reckless disregard for
Speaker 1: the truth, made material misrepresentations and or omissions, and that
Speaker 1: these were disseminated to the investing public and the public
Speaker 1: relied upon that, and as consequently when the truth came out,
Speaker 1: they suffered a loss. So, in short form of June,
Speaker 1: what the class action plaintiffs have to do is, first
Speaker 1: of all, by the way, they have to be approved
Speaker 1: as a class, and there are rigorous procedures for that
Speaker 1: under the federal rules that govern such things. They have
Speaker 1: to demonstrate that there were misreps as we shorthand them
Speaker 1: misreps and or emissions, they were material in nature. And
Speaker 1: also they have to prove the important elements that either
Speaker 1: management knew or should have known. That's what we call
Speaker 1: cienter in other words, evil intent, as in I'm lying,
Speaker 1: I know, I'm lying. I want to lie to you. Okay,
Speaker 1: to put in those pedestrian terms, so they have enough
Speaker 1: will battle that regard. But again, one cannot understate the
Speaker 1: seriousness of these charges because what it demonstrates is if
Speaker 1: these allegations were to be proven true, then it demonstrates
Speaker 1: a willful disregard for being truthful with shareholders. And once again,
Speaker 1: put aside the fact for a moment that it's SVB
Speaker 1: or any banking institution. This would be true for any business,
Speaker 1: whether you're making donuts or cell phones or whatever. The
Speaker 1: bottom line is, when you sell your stock to the public,
Speaker 1: management is obligated by law to be truthful and displod
Speaker 1: two investors. That preserves market integrity, and that's got to
Speaker 1: be our concern here abof on that count. There's a
Speaker 1: similar lawsuit against Signature Bank, also overclaimed that there were
Speaker 1: materially false or misleading statements. Right. One of the statements
Speaker 1: was that the chief executive officer claimed Signature was a
Speaker 1: well diversified bank within excess of one hundred billion dollars
Speaker 1: in assets. Is that the kind of statement that you
Speaker 1: can sue over. Yes, it is, indeed, of course, provided
Speaker 1: you can prove that it was untrue and that the
Speaker 1: speaker of that statement, okay, knew it was untrue or
Speaker 1: had a reckless just regard for the truth. And again
Speaker 1: I'm basically couching in the words of the Supreme Court.
Speaker 1: And the lawsuit against Signature, which was foiled in federal
Speaker 1: court in Brooklyn, New York, is very interesting because it's
Speaker 1: a counterpoint to the SVB lawsuit. As you've stated at
Speaker 1: my compliments, the SMVB lawsuit, the essence of the allegations
Speaker 1: is that, Okay, Managements, you did not disclose the risk
Speaker 1: with respect to changes in the interest rate. Okay, So
Speaker 1: we're faulting you for that that you've allegedly deceived investors
Speaker 1: as to the risks the bank was subject to its
Speaker 1: exposure to changes in the interest rate environment, which we're
Speaker 1: going to now. The Signature lawsuit in Brooklyn also accuses
Speaker 1: for material misreps and omissions, as you've said June, but
Speaker 1: this is very different. What they're saying is just prior
Speaker 1: to the seizure over this past weekend by the State
Speaker 1: of New York and other authorities. They're claiming that management
Speaker 1: misled investors by saying the bank is stable. And once
Speaker 1: again you've mentioned the very press releases that came out
Speaker 1: actually supposedly last Thursday, March nine, which are quoted extensively
Speaker 1: in the complaint in that Brooklyn federal court action, and
Speaker 1: in essence they've quoted and I should add selectively because
Speaker 1: that's what lawyers do. Okay, that's the way we litigate
Speaker 1: these cases. But you choose what's best for making your case.
Speaker 1: And they've said that in these allegations, they've quoted various
Speaker 1: press releases by management at Signatures is saying in essence
Speaker 1: that everything's fine, we're diversified, we have plenty of assets,
Speaker 1: so on and so forth. So now these shareholders, which
Speaker 1: interestingly claiming a very compressed time frame of those who
Speaker 1: transacted in the stock or options to buy the stock
Speaker 1: and so forth. But they're saying that by making these disclosures,
Speaker 1: these statements, there was misrepresentations, will more properly put, misrepresentations
Speaker 1: of signature's financial soundness, and therefore that's misleading. And once again, okay,
Speaker 1: these are very serious charges. The plaintiffs definitely have an
Speaker 1: uphill battle to prove they are fourth under the rigorous
Speaker 1: test that's been applied under the statute and by the
Speaker 1: Supreme Court. But if they can be proven, okay, wow,
Speaker 1: all right, then the bank and the officers who were
Speaker 1: named defendants, they are in a heck of a lot
Speaker 1: of trouble. And not to mention, that's the civil litigation.
Speaker 1: And while it's on a separate yet parallel track, as
Speaker 1: you've mentioned earlier in our conversations today, there are inquiries
Speaker 1: by all sorts of regulatory authorities SEC. Okay, and the
Speaker 1: SEC is going to be interested in looking at this themselves.
Speaker 1: From the security for an angle, the justice departments, the
Speaker 1: DFS here in New York, Department of Financial Services, in
Speaker 1: other words, of the old Superintendent of Banks. So there's
Speaker 1: a lot of folks who are going to be poking
Speaker 1: and prodding and looking at these statements and whether they
Speaker 1: were truthful or accurate and so on. Do you expect
Speaker 1: a lot more lawsuits like this sort of a pylon
Speaker 1: until they see who's going to lead the class action
Speaker 1: if it's certified. Absolutely, okay, because that's what lawyers do.
Speaker 1: We love to pile on. Okay, that's a fact of life.
Speaker 1: In fact, if anything, I'm surprised that the best of
Speaker 1: my knowledge, I'll be it limited is I've only seen
Speaker 1: let's just say, rounded up to less than half a dozen.
Speaker 1: I expect again and even dozen of lawsuits to be
Speaker 1: filed by maybe even the end of this week, certainly
Speaker 1: by this time next week. And again, you've reached a
Speaker 1: very crucial question there under current federal rules of four
Speaker 1: class actions, the federal judge and again, as of this morning,
Speaker 1: this case, I looked at the docket June, it hadn't
Speaker 1: even been assigned it to a judge, but the judge
Speaker 1: and broke. For example, for the federal case that's depending
Speaker 1: in the federal courthouse in Brooklyn, the judge who will
Speaker 1: be signed, he or she will basically hear evidence and
Speaker 1: consider which plaintiff will be the lead plaintiff. Anybody can sue,
Speaker 1: but it's up to the judge decide. Okay, Miss Jones
Speaker 1: is most representative of the class. She has a law
Speaker 1: firm representing her and the putative classes we'd like to
Speaker 1: call it, that is most able, So the judge basically
Speaker 1: selects that. So you know it's going to be a
Speaker 1: competitive process, which is actually good because in essence, you
Speaker 1: will get a plaintiff who best can represent the class
Speaker 1: in terms of her involvement in the situation. Her ability
Speaker 1: to speak on behalf of what I'm going to guess.
Speaker 1: So are tens of thousands of investors and a law
Speaker 1: firm that's well experienced and well equipped to prosecute the
Speaker 1: case to its fullest. It's been great getting your insights, Anthony.
Speaker 1: That's Anthony Sabino of Sabino and Sabino. And that's it
Speaker 1: for this edition of The bloom Or Glas Show. Remember
Speaker 1: you can always get the latest legal news on our
Speaker 1: Bloomberg Law podcasts. You can find them on Apple Podcasts, Spotify,
Speaker 1: and at www dot Bloomberg dot com, Slash podcast, Slash Law,
Speaker 1: And remember to tune into The Bloomberg Glas Show every
Speaker 1: weeknight at ten pm Wall Street Time. I'm June Grosso
Speaker 1: and you're listening to Bloomberg