1 00:00:03,200 --> 00:00:08,719 Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio. 2 00:00:09,720 --> 00:00:14,360 Speaker 2: In the Conservative justices drive to curb federal regulators. They're 3 00:00:14,440 --> 00:00:18,400 Speaker 2: considering overturning a forty year old precedent, which would mean 4 00:00:18,520 --> 00:00:22,520 Speaker 2: a major legal shift that would crimp agency power over 5 00:00:22,600 --> 00:00:27,160 Speaker 2: everything from workplace conditions and drug safety to climate change 6 00:00:27,200 --> 00:00:32,360 Speaker 2: and cryptocurrency. Four of the conservative justices have previously signaled 7 00:00:32,440 --> 00:00:36,880 Speaker 2: opposition to the Chevron doctrine, which requires judges to defer 8 00:00:36,920 --> 00:00:40,720 Speaker 2: to agencies when they offer a reasonable interpretation of an 9 00:00:40,760 --> 00:00:45,640 Speaker 2: ambiguous statute. Here's Justice Neil Gorsuch. Does the judge addicate 10 00:00:45,720 --> 00:00:50,839 Speaker 2: that responsibility and say automatically whatever the agency says wins? 11 00:00:51,080 --> 00:00:54,880 Speaker 2: But the three liberal justices argued against the shift of 12 00:00:55,000 --> 00:01:00,480 Speaker 2: power to judges, emphasizing that agencies have expertise that judges 13 00:01:00,560 --> 00:01:03,080 Speaker 2: don't have. Here's Justice Elena Kagan. 14 00:01:03,520 --> 00:01:06,920 Speaker 3: You know, the best option is to listen carefully and 15 00:01:07,160 --> 00:01:11,520 Speaker 3: to defer if it's reasonable and if it's consistent with 16 00:01:11,600 --> 00:01:14,360 Speaker 3: everything that we know that Congress has said. To defer 17 00:01:14,400 --> 00:01:17,520 Speaker 3: to people who actually know things about these things, but 18 00:01:17,880 --> 00:01:21,480 Speaker 3: you know, to people who understand the way particular questions 19 00:01:21,840 --> 00:01:24,920 Speaker 3: fit within a broader statutory and regulatory scheme. 20 00:01:25,440 --> 00:01:28,160 Speaker 2: The decision may depend on the votes of Chief Justice 21 00:01:28,240 --> 00:01:32,280 Speaker 2: John Roberts Injustice Amy Coney Barrett, who voiced concerned about 22 00:01:32,319 --> 00:01:35,959 Speaker 2: illegal upheaval if Chevron is reversed, alluding to the more 23 00:01:36,000 --> 00:01:39,679 Speaker 2: than fifteen thousand court cases that have cited Chevron. 24 00:01:40,480 --> 00:01:44,039 Speaker 1: So maybe nothing happens immediately to those cases. But isn't 25 00:01:44,080 --> 00:01:47,960 Speaker 1: the door then opened for litigants to come back and say, well, 26 00:01:48,080 --> 00:01:52,200 Speaker 1: stationary source really means X or you know, broadband or 27 00:01:52,240 --> 00:01:55,800 Speaker 1: whatever the specific term was in brand X. So isn't 28 00:01:55,840 --> 00:01:58,720 Speaker 1: it inviting a flood of litigation? Even if for the 29 00:01:58,800 --> 00:02:00,000 Speaker 1: moment those holding states. 30 00:02:00,080 --> 00:02:03,080 Speaker 2: In the three and a half hours of oral arguments, 31 00:02:03,400 --> 00:02:06,040 Speaker 2: there was very little discussion about the facts of the 32 00:02:06,080 --> 00:02:10,320 Speaker 2: two cases where fishermen are challenging a National Marine Fisheries 33 00:02:10,400 --> 00:02:14,160 Speaker 2: Service rule that herring fishermen pay for the government monitors 34 00:02:14,280 --> 00:02:18,160 Speaker 2: who track their fish intake, a regulation that was suspended 35 00:02:18,280 --> 00:02:22,360 Speaker 2: last year. Joining me is constitutional law expert Harold Krant, 36 00:02:22,360 --> 00:02:25,240 Speaker 2: a professor at the Chicago Kent College of Law. The 37 00:02:25,320 --> 00:02:29,080 Speaker 2: Chevron doctrine, by the way, champion by conservatives when it 38 00:02:29,160 --> 00:02:32,440 Speaker 2: was established in a case that cut back on regulations, 39 00:02:32,760 --> 00:02:36,519 Speaker 2: but now vilified by them, tell us how it's used 40 00:02:36,600 --> 00:02:39,280 Speaker 2: in practice, what the practical application is. 41 00:02:40,000 --> 00:02:43,520 Speaker 4: The preprol application of Chevron is enormous. It allows a 42 00:02:43,720 --> 00:02:48,400 Speaker 4: structured way for courts to determine whether to uphold agency 43 00:02:48,440 --> 00:02:51,680 Speaker 4: interpretations of statutes, whether it's in wool making or in 44 00:02:51,720 --> 00:02:55,560 Speaker 4: a case and judication. And so if the statute is 45 00:02:55,760 --> 00:02:59,000 Speaker 4: vague a reasonable size for a truck or in the 46 00:02:59,040 --> 00:03:02,760 Speaker 4: famous case of run itself but to stationary source, a 47 00:03:02,800 --> 00:03:05,960 Speaker 4: court will have to decide whether Congress has been clear. 48 00:03:06,000 --> 00:03:08,440 Speaker 4: And if Congress has been clear, that's the end of 49 00:03:08,639 --> 00:03:12,280 Speaker 4: the matter, and the court's interpretation will hold. The agency 50 00:03:12,320 --> 00:03:14,400 Speaker 4: can appeal to if it disagrees, up to the Supreme Court. 51 00:03:14,520 --> 00:03:16,840 Speaker 4: But in many cases the courts are left with doubt. 52 00:03:17,000 --> 00:03:20,360 Speaker 4: I mean, what is a reasonable investigation? What is an 53 00:03:20,440 --> 00:03:24,560 Speaker 4: adequate measure? And they're not certain how to interpret it, 54 00:03:24,600 --> 00:03:27,840 Speaker 4: and so then the court will defer to any kind 55 00:03:27,919 --> 00:03:33,760 Speaker 4: of reasonable agency interpretation. That of course gives agencies more power, 56 00:03:33,840 --> 00:03:38,000 Speaker 4: and it gives agencies the ability to change their interpretation 57 00:03:38,080 --> 00:03:41,920 Speaker 4: of regulations as social or political conditions evolve, and that 58 00:03:41,960 --> 00:03:45,960 Speaker 4: has enormous significance both for business and for individuals regulated 59 00:03:45,960 --> 00:03:46,640 Speaker 4: by the government. 60 00:03:47,000 --> 00:03:52,600 Speaker 2: Many of the conservative justices have expressed opposition to Chevron. 61 00:03:53,040 --> 00:03:56,080 Speaker 2: Why are they so opposed to Chevron just. 62 00:03:56,360 --> 00:03:59,080 Speaker 4: As I oppose, I think for two different reasons. The 63 00:03:59,120 --> 00:04:02,880 Speaker 4: first is, in all other contexts, judges make the final 64 00:04:02,920 --> 00:04:06,400 Speaker 4: call as to what Congress meant in passing statutes. So 65 00:04:06,440 --> 00:04:09,880 Speaker 4: if there's ambiguity, courts have the final say. That's what 66 00:04:09,960 --> 00:04:12,520 Speaker 4: courts do, and courts think that they're better at it, 67 00:04:12,560 --> 00:04:16,240 Speaker 4: and that's their special function. So under Chevron, the courts 68 00:04:16,279 --> 00:04:19,320 Speaker 4: have to share this special function with agencies who they 69 00:04:19,400 --> 00:04:23,120 Speaker 4: view as sort of unelected bureaucrats or politicians. So that's 70 00:04:23,160 --> 00:04:26,480 Speaker 4: an affront to judicial respect. I think that's one argument. 71 00:04:26,560 --> 00:04:29,560 Speaker 4: The other argument or reason them is that this particular 72 00:04:29,680 --> 00:04:34,200 Speaker 4: court is very skeptical of administrative agencies and administrative agencies power. 73 00:04:34,360 --> 00:04:37,360 Speaker 4: They love presidential power, they don't like the power of 74 00:04:37,480 --> 00:04:40,880 Speaker 4: the bureaucrats beneath him. And there's no question but that 75 00:04:41,160 --> 00:04:45,839 Speaker 4: agencies under both Republican and democratic administration have more authority 76 00:04:46,080 --> 00:04:49,760 Speaker 4: and more influenced if the Chevron Document is applied accurately. 77 00:04:50,200 --> 00:04:54,599 Speaker 2: The liberal justices defended Chevron and the status quo, just 78 00:04:54,600 --> 00:04:58,800 Speaker 2: as Elena Kagan gave some practical examples like should courts 79 00:04:58,880 --> 00:05:01,880 Speaker 2: defer to an agency these expertise as to whether a 80 00:05:01,920 --> 00:05:06,040 Speaker 2: cholesterol lowering products should be classified as a dietary supplement 81 00:05:06,279 --> 00:05:10,200 Speaker 2: or a drug. So, I mean those arguments seem to 82 00:05:10,279 --> 00:05:13,440 Speaker 2: make sense when you consider you know on the ground 83 00:05:13,560 --> 00:05:15,760 Speaker 2: level what agencies are deciding. 84 00:05:16,000 --> 00:05:19,000 Speaker 4: In addition to that, there's long been a debate about 85 00:05:19,040 --> 00:05:22,520 Speaker 4: what Congress intends. There's been studies that suggest that Congress 86 00:05:22,560 --> 00:05:26,479 Speaker 4: is comfortable with Chevron, understand Chevron, and indeed would want 87 00:05:26,560 --> 00:05:30,240 Speaker 4: the agency to fill in statutory gaps or clarify statutory 88 00:05:30,360 --> 00:05:34,040 Speaker 4: language as opposed to the court. Why because agencies are 89 00:05:34,080 --> 00:05:37,960 Speaker 4: seen as Congress's partner in trying to look at safe 90 00:05:38,000 --> 00:05:40,839 Speaker 4: drug policy, or try to understand immigration policy, or try 91 00:05:40,880 --> 00:05:43,799 Speaker 4: to understand how to regulate the airway. So Congress indeed 92 00:05:43,800 --> 00:05:47,480 Speaker 4: would prefer or intend for courts to help them interstitially 93 00:05:47,520 --> 00:05:51,279 Speaker 4: by trying to clarify ambiguous language, as opposed to the court, 94 00:05:51,440 --> 00:05:54,120 Speaker 4: which doesn't have the same kind of expertise some kind 95 00:05:54,120 --> 00:05:57,840 Speaker 4: of flexibility in trying to figure out what statutes mean. 96 00:05:57,920 --> 00:06:00,240 Speaker 4: So I view from that perspective, Chevron is and be 97 00:06:00,360 --> 00:06:04,599 Speaker 4: consistent with separation of powers. Conservative justices like antonin Scalia 98 00:06:04,839 --> 00:06:09,280 Speaker 4: used to applaud it because it reflects Congress's intent that 99 00:06:09,320 --> 00:06:12,679 Speaker 4: the two entities, Congress and agencies are really working together 100 00:06:12,800 --> 00:06:14,719 Speaker 4: to accomplish a similar mission. 101 00:06:15,279 --> 00:06:19,360 Speaker 2: Did it seem like there were four Justices Clarence Thomas, 102 00:06:19,640 --> 00:06:24,279 Speaker 2: Neil Gorsuch, Brett Kavanaugh, and Samuel Alito who were ready 103 00:06:24,440 --> 00:06:26,600 Speaker 2: to completely jettison Chevron. 104 00:06:27,080 --> 00:06:29,640 Speaker 4: My guess would be that the four justices you mentioned 105 00:06:29,839 --> 00:06:33,719 Speaker 4: were clearly opposed to Chevron, but it's not clear whether 106 00:06:33,760 --> 00:06:37,919 Speaker 4: there is a majority of justice who want to overturn 107 00:06:38,040 --> 00:06:43,400 Speaker 4: Chevron outright, Whereas Justice Barrett and two Justice Roberts were 108 00:06:43,400 --> 00:06:47,000 Speaker 4: more on the fence in terms of what kind of 109 00:06:47,200 --> 00:06:49,479 Speaker 4: response to the court you take. Should the Court go 110 00:06:49,560 --> 00:06:53,159 Speaker 4: all the way and over rule Chevron or should they 111 00:06:53,279 --> 00:06:57,360 Speaker 4: just limit Chevron even further than previously limited by the 112 00:06:57,360 --> 00:07:00,760 Speaker 4: major question socrament and as was definitely marked upon in 113 00:07:00,880 --> 00:07:04,000 Speaker 4: oral argument, And if Chevron's overturned, that would cause a 114 00:07:04,000 --> 00:07:07,360 Speaker 4: great deal of instability, because the question would then be, 115 00:07:07,960 --> 00:07:10,480 Speaker 4: what about all these cases have been decided in reliance 116 00:07:10,560 --> 00:07:12,960 Speaker 4: upon Chevron? Does that mean that they will have to 117 00:07:13,000 --> 00:07:17,480 Speaker 4: be reopened to determine whether courts want to rethink? What 118 00:07:17,640 --> 00:07:22,040 Speaker 4: is the correct interpretation to give to the statute that 119 00:07:22,320 --> 00:07:23,360 Speaker 4: was challenged. 120 00:07:23,720 --> 00:07:27,880 Speaker 2: Yeah, I'm Barrett express concerns about the disruptive consequences of 121 00:07:27,960 --> 00:07:29,360 Speaker 2: overturning the precedent. 122 00:07:29,760 --> 00:07:30,000 Speaker 5: Yeah. 123 00:07:30,000 --> 00:07:33,280 Speaker 4: So one of the things that litigators don't remember today 124 00:07:33,440 --> 00:07:36,400 Speaker 4: is what life was like before Chevron. And the problem 125 00:07:36,440 --> 00:07:40,360 Speaker 4: that arises is when the agency makes an interpretation, it 126 00:07:40,400 --> 00:07:43,960 Speaker 4: can be challenged in many different circuits around the country, 127 00:07:44,080 --> 00:07:48,360 Speaker 4: and then oftentimes different district court judges will interpret ambiguous 128 00:07:48,400 --> 00:07:51,679 Speaker 4: statutory language differently, and so you will have the prospect 129 00:07:51,720 --> 00:07:55,880 Speaker 4: again if Chevron's overturned, of having a disarray seven different 130 00:07:56,000 --> 00:07:59,400 Speaker 4: or three different interpretations of one statute that are in 131 00:07:59,520 --> 00:08:02,720 Speaker 4: force in different circuits, and that makes planning and makes 132 00:08:02,880 --> 00:08:05,920 Speaker 4: even stability for businesses very difficult. That's the kind of 133 00:08:05,920 --> 00:08:09,520 Speaker 4: a cacophony that was discussed in oral argument, and I 134 00:08:09,520 --> 00:08:12,440 Speaker 4: think it's very real. It happened before Chevron, and one 135 00:08:12,440 --> 00:08:14,720 Speaker 4: of the advantages with Chevron was trying to get the 136 00:08:14,840 --> 00:08:18,520 Speaker 4: uniformity of approach to limit the splits among the circuits 137 00:08:18,760 --> 00:08:23,000 Speaker 4: and the delay in trying to get an interpretation approved, and. 138 00:08:23,320 --> 00:08:27,240 Speaker 2: Just noting that in these cases both the DC circuit 139 00:08:27,520 --> 00:08:31,440 Speaker 2: and the first circuit sided with the federal government affirming 140 00:08:31,560 --> 00:08:34,400 Speaker 2: lower court decisions. So this wasn't a case where the 141 00:08:34,520 --> 00:08:36,760 Speaker 2: justices had to take it. It was a case where 142 00:08:36,880 --> 00:08:39,280 Speaker 2: four of the justices, and I think we probably know 143 00:08:39,320 --> 00:08:42,640 Speaker 2: which four took it to change things up right, I think? 144 00:08:42,679 --> 00:08:45,920 Speaker 4: So what's intriguing about the case too? This was a 145 00:08:46,280 --> 00:08:49,800 Speaker 4: policy that was adopted by the Trump administration and defended 146 00:08:49,840 --> 00:08:52,840 Speaker 4: by the Biden administration. You know, would suggests it's a 147 00:08:52,880 --> 00:08:56,480 Speaker 4: good vehicle for Chevron because it's not a case that 148 00:08:56,600 --> 00:09:00,640 Speaker 4: looks more republican, it looks more democratic. This just looks governmental. 149 00:09:00,960 --> 00:09:04,080 Speaker 4: And Justice did have an interesting comment that just like 150 00:09:04,440 --> 00:09:07,960 Speaker 4: if we get rid of Chevron, businesses will be advantaged, 151 00:09:08,160 --> 00:09:12,679 Speaker 4: but at the same time, so may immigrants, veterans, and 152 00:09:12,800 --> 00:09:16,360 Speaker 4: social security claimants because all of those individuals who litigate 153 00:09:16,440 --> 00:09:20,320 Speaker 4: against the government have the burden of trying to persuade 154 00:09:20,320 --> 00:09:25,160 Speaker 4: the court that the statutory language has been attributed incorrectly 155 00:09:25,360 --> 00:09:27,840 Speaker 4: by the agency. But they can do that more readily 156 00:09:27,880 --> 00:09:30,640 Speaker 4: if Chevron doesn't exist, because otherwise they have to overcome 157 00:09:30,640 --> 00:09:34,760 Speaker 4: the presumption that the agency's interpretation is correct. And if 158 00:09:34,920 --> 00:09:39,280 Speaker 4: Chevron were totally overturned, then if these theoretically and it 159 00:09:39,320 --> 00:09:42,120 Speaker 4: would be true in some cases that individuals would have 160 00:09:42,240 --> 00:09:45,680 Speaker 4: more advantage in litigating against the government, But of course, 161 00:09:45,720 --> 00:09:47,520 Speaker 4: at the same time, so wol businesses. 162 00:09:47,720 --> 00:09:50,319 Speaker 2: This is one of the most important cases of the term. 163 00:09:50,520 --> 00:09:53,400 Speaker 2: Thanks so much. How that's Professor Harold Krent of the 164 00:09:53,480 --> 00:09:57,280 Speaker 2: Chicago Kent College of Law coming up next. A judge 165 00:09:57,320 --> 00:10:01,839 Speaker 2: grounds the Jet Blue Spirit merger, and you're listening to Bloomberg. 166 00:10:02,120 --> 00:10:05,959 Speaker 2: The proposed merger of Jet Blue Airways and Spirit Airlines 167 00:10:06,360 --> 00:10:09,920 Speaker 2: won't be getting off the ground. A federal judge blocked 168 00:10:09,920 --> 00:10:12,880 Speaker 2: the three point eight billion dollar deal, saying it would 169 00:10:12,920 --> 00:10:16,920 Speaker 2: hurt competition and travelers who rely on Spirit's low fares. 170 00:10:17,240 --> 00:10:19,880 Speaker 2: While the decision means Jet Blue will continue to be 171 00:10:20,000 --> 00:10:24,720 Speaker 2: relegated to second tier status behind the industry's big four carriers, 172 00:10:25,120 --> 00:10:28,880 Speaker 2: the consequences for Spirit may be dire. Joining me is 173 00:10:28,880 --> 00:10:33,680 Speaker 2: Bloomberg Intelligence senior litigation analyst Jenniferree, just how big a 174 00:10:33,720 --> 00:10:36,640 Speaker 2: win is this for the Biden administration, which has been 175 00:10:36,679 --> 00:10:39,000 Speaker 2: aggressive in antitrust enforcement. 176 00:10:39,480 --> 00:10:42,040 Speaker 6: Now, I guess I would classify it as a big 177 00:10:42,160 --> 00:10:44,760 Speaker 6: win on the M and a challenge front, But in 178 00:10:44,840 --> 00:10:48,040 Speaker 6: terms of this specific case, I don't necessarily see it 179 00:10:48,080 --> 00:10:51,040 Speaker 6: as surprising or a big win, because this just seemed 180 00:10:51,320 --> 00:10:53,800 Speaker 6: like an anti competitive deal from the beginning, and it 181 00:10:53,880 --> 00:10:56,320 Speaker 6: seemed like it should have been an easy case for 182 00:10:56,400 --> 00:10:58,679 Speaker 6: the Department of Justice to win. So it's not a 183 00:10:58,720 --> 00:11:01,800 Speaker 6: great feat in other ways that they succeeded in court, 184 00:11:01,880 --> 00:11:04,720 Speaker 6: but just generally, I think in stopping any kind of 185 00:11:04,760 --> 00:11:08,720 Speaker 6: consolidation and in kind of furthering the aggressive push to 186 00:11:08,720 --> 00:11:11,560 Speaker 6: stop consolidation and to stop a lot of deals. In 187 00:11:11,600 --> 00:11:12,720 Speaker 6: that way, it's a big win. 188 00:11:13,160 --> 00:11:15,679 Speaker 2: So why did the judge decide against the merger? 189 00:11:16,080 --> 00:11:18,200 Speaker 6: You know, I think what this really came down to 190 00:11:19,080 --> 00:11:22,160 Speaker 6: is the fact that there are flights that Spirit flies 191 00:11:22,200 --> 00:11:25,640 Speaker 6: where Jet Blue doesn't. So it's odd because most deals 192 00:11:25,640 --> 00:11:27,480 Speaker 6: will come down to where they compete, but I think 193 00:11:27,520 --> 00:11:29,760 Speaker 6: this came down to where they do not compete because 194 00:11:29,840 --> 00:11:32,400 Speaker 6: Jet Blue was very clear about plans to take those 195 00:11:32,400 --> 00:11:35,760 Speaker 6: Spirit flights, retrofit the planes to the Jet Blue model, 196 00:11:35,840 --> 00:11:39,800 Speaker 6: and probably therefore raise the fares and lower capacity because 197 00:11:39,800 --> 00:11:42,319 Speaker 6: the seats would be bigger and there would be fewer passengers. 198 00:11:42,360 --> 00:11:45,199 Speaker 6: And for those routes, there's no way from an antitrust 199 00:11:45,240 --> 00:11:48,800 Speaker 6: perspective that you can fix those higher prices for routes 200 00:11:48,840 --> 00:11:50,920 Speaker 6: where they compete. They could sell the route to a 201 00:11:51,000 --> 00:11:54,319 Speaker 6: Legiant or two frontier that might continue to compete as 202 00:11:54,360 --> 00:11:58,120 Speaker 6: a very low, unbundled fair option. But now what you're 203 00:11:58,120 --> 00:12:01,120 Speaker 6: doing is taking Spirit, which is considered an ultra low 204 00:12:01,160 --> 00:12:04,679 Speaker 6: cost carrier and offers these very low unbundled fares. You're 205 00:12:04,720 --> 00:12:07,240 Speaker 6: taking them out of the market for certain routes altogether. 206 00:12:07,440 --> 00:12:10,440 Speaker 6: And there are absolutely consumers that depended on those low 207 00:12:10,480 --> 00:12:13,000 Speaker 6: fares for those particular routes and they would be hurt 208 00:12:13,040 --> 00:12:15,880 Speaker 6: by this deal. And that's what the judge ultimately decided. 209 00:12:16,320 --> 00:12:19,319 Speaker 2: So does this mean then that Jet Blue will continue 210 00:12:19,320 --> 00:12:22,760 Speaker 2: to be at a disadvantage to the four biggest airlines 211 00:12:22,840 --> 00:12:26,839 Speaker 2: pricing power and bigger fleets with no real path to grow. 212 00:12:27,480 --> 00:12:30,640 Speaker 6: You know, I guess it does. And Jet Blue argued, look, 213 00:12:30,679 --> 00:12:33,320 Speaker 6: we need to combine with Spirit in order to grow. 214 00:12:33,440 --> 00:12:36,320 Speaker 6: That's really the only way nowadays to grow as an airline. 215 00:12:36,400 --> 00:12:40,000 Speaker 6: And if we grow, we can compete more vigorously against 216 00:12:40,000 --> 00:12:43,360 Speaker 6: the legacy airlines like Delta, United American in Southwest and 217 00:12:43,440 --> 00:12:46,079 Speaker 6: that would be a good thing for consumers. That's pro competitive. 218 00:12:46,440 --> 00:12:48,960 Speaker 6: And the judge actually agreed with that that this would 219 00:12:49,080 --> 00:12:51,360 Speaker 6: help Jet Blue if it could combine with Spirit help 220 00:12:51,400 --> 00:12:54,960 Speaker 6: it to grow, increase its map, and better compete with 221 00:12:55,000 --> 00:12:57,320 Speaker 6: some of the bigger airlines. But it wasn't enough. It 222 00:12:57,400 --> 00:12:59,840 Speaker 6: wasn't enough to overcome the harm to the consumers that 223 00:12:59,840 --> 00:13:02,600 Speaker 6: I just talked about. And I think that's why, in 224 00:13:02,640 --> 00:13:06,000 Speaker 6: a way, yes, the decision does tend to relegate Jet 225 00:13:06,000 --> 00:13:09,040 Speaker 6: Blue to its position sort of as a second tier. 226 00:13:09,240 --> 00:13:11,160 Speaker 6: But one of the things that happened here June that 227 00:13:11,240 --> 00:13:14,520 Speaker 6: was pretty effective is that what the Department of Justice 228 00:13:14,640 --> 00:13:17,520 Speaker 6: argued is that look, in this kind of second tier 229 00:13:17,720 --> 00:13:21,280 Speaker 6: place that Jet bluestits now, it's kind of a maverick, right, 230 00:13:21,400 --> 00:13:24,160 Speaker 6: it does something called the Jet Blue effect. It really 231 00:13:24,200 --> 00:13:27,199 Speaker 6: competes hard against the legacy airlines, and when it enters 232 00:13:27,200 --> 00:13:29,679 Speaker 6: a route or the route ST's in, it forces these 233 00:13:29,720 --> 00:13:32,920 Speaker 6: airlines to bring down their prices. And what they argued is, look, 234 00:13:32,920 --> 00:13:35,880 Speaker 6: if they buy Spirit, they're telling you they'll better compete 235 00:13:35,880 --> 00:13:38,600 Speaker 6: against the legacies, but in fact they're really just going 236 00:13:38,600 --> 00:13:40,880 Speaker 6: to become just like one of them. They're going to 237 00:13:40,920 --> 00:13:43,040 Speaker 6: be bigger, they're going to be in a position that's 238 00:13:43,080 --> 00:13:45,760 Speaker 6: more similar to the legacy airlines. They're going to take 239 00:13:45,760 --> 00:13:48,120 Speaker 6: on a huge amount of debt, from buying Spirit, and 240 00:13:48,160 --> 00:13:50,520 Speaker 6: they're going to need to keep their prices up, So 241 00:13:50,600 --> 00:13:54,360 Speaker 6: instead of actually continuing to exert this competitive pressure, they 242 00:13:54,440 --> 00:13:57,120 Speaker 6: just become like the legacies and they increase their prices. 243 00:13:58,040 --> 00:14:00,679 Speaker 2: The market appeared to like the news for Jet Blue. 244 00:14:00,840 --> 00:14:04,640 Speaker 2: Jet Blue stock rows almost five percent after the news. 245 00:14:05,280 --> 00:14:07,680 Speaker 2: Is that, you think because the company won't have to 246 00:14:07,720 --> 00:14:11,160 Speaker 2: shell out billions of dollars and be saddled with a 247 00:14:11,240 --> 00:14:12,240 Speaker 2: discount carrier. 248 00:14:12,600 --> 00:14:14,839 Speaker 6: I think so. I mean, first, it was a very 249 00:14:14,920 --> 00:14:16,840 Speaker 6: large amount of debt they would have taken on to 250 00:14:16,840 --> 00:14:19,960 Speaker 6: finish this acquisition. That's the first thing. Their debt debt 251 00:14:20,360 --> 00:14:22,760 Speaker 6: ratio would have been much worse than it's been in 252 00:14:22,800 --> 00:14:25,360 Speaker 6: the past. And they themselves aren't really doing all that 253 00:14:25,440 --> 00:14:27,600 Speaker 6: well right now. You know, all the airlines are struggling 254 00:14:27,640 --> 00:14:31,120 Speaker 6: a little bit with air traffic controller shortages and airline shortages, 255 00:14:31,160 --> 00:14:33,800 Speaker 6: and there's some engine problems for some planes, and you know, 256 00:14:33,840 --> 00:14:37,360 Speaker 6: everybody's recovering after COVID. And then at the same time, 257 00:14:37,720 --> 00:14:40,240 Speaker 6: what they're paying for Spirit now seems like an overpayment 258 00:14:40,280 --> 00:14:42,720 Speaker 6: given what Spirit is worth today. So I think many 259 00:14:42,760 --> 00:14:45,280 Speaker 6: analysts actually saw getting out of this deal is a 260 00:14:45,280 --> 00:14:47,760 Speaker 6: good thing for Jet Blue, for Spirit. 261 00:14:48,040 --> 00:14:51,520 Speaker 2: Not so much. It shares we're cut in half Tuesday 262 00:14:51,680 --> 00:14:55,760 Speaker 2: and their worst loss ever. And if Spirit doesn't survive, 263 00:14:56,280 --> 00:14:59,440 Speaker 2: doesn't that mean the judges analysis was wrong or at 264 00:14:59,520 --> 00:15:01,000 Speaker 2: least was not press the end. 265 00:15:01,120 --> 00:15:04,120 Speaker 6: Well, I think what happened here is that Spirits lawyers 266 00:15:04,160 --> 00:15:07,560 Speaker 6: could have made a more full throated flailing firm or 267 00:15:07,600 --> 00:15:11,240 Speaker 6: failing firm defense. Within the guidelines that the agencies used 268 00:15:11,240 --> 00:15:13,240 Speaker 6: to assess the deal, there is a defense to an 269 00:15:13,240 --> 00:15:16,840 Speaker 6: otherwise anti competitive deal called a failing firm defense or 270 00:15:16,880 --> 00:15:19,640 Speaker 6: a flailing firm defense, And it was sort of suggested 271 00:15:19,680 --> 00:15:23,280 Speaker 6: in trial that Spirit's not doing well. They're struggling financially, 272 00:15:23,400 --> 00:15:26,280 Speaker 6: they don't expect to make money next year, they don't 273 00:15:26,280 --> 00:15:29,480 Speaker 6: know when they'll be in a better financial position going forward, 274 00:15:29,520 --> 00:15:31,720 Speaker 6: and some of the issues they're having were outlined, and 275 00:15:31,760 --> 00:15:34,080 Speaker 6: the judge said, look, you know, they didn't really meet 276 00:15:34,120 --> 00:15:36,720 Speaker 6: the elements they need to meet. Legal cases have set 277 00:15:36,720 --> 00:15:39,400 Speaker 6: out the precedent, set out what has to be proven 278 00:15:39,520 --> 00:15:42,200 Speaker 6: in order to establish that defense, and the companies just 279 00:15:42,280 --> 00:15:44,880 Speaker 6: didn't do it. They didn't meet that defense, and that's 280 00:15:44,920 --> 00:15:47,600 Speaker 6: why the judge rejected it. And I sat through most 281 00:15:47,640 --> 00:15:49,480 Speaker 6: of the trial, and I tend to agree. I don't 282 00:15:49,520 --> 00:15:52,480 Speaker 6: think that they provided the evidence they needed to provide 283 00:15:52,840 --> 00:15:55,040 Speaker 6: that would have allowed the judge to say, Okay, I'll 284 00:15:55,120 --> 00:15:58,160 Speaker 6: let an otherwise anti competitive deal go forwards because of 285 00:15:58,200 --> 00:16:01,200 Speaker 6: the fact that Spirit might actually wonder if we don't 286 00:16:01,400 --> 00:16:02,480 Speaker 6: allow the deal to close. 287 00:16:02,760 --> 00:16:05,720 Speaker 2: In a joint statement, Jet Blue and Spirit said they're 288 00:16:05,760 --> 00:16:09,600 Speaker 2: evaluating their next steps as part of the legal process. 289 00:16:10,000 --> 00:16:13,640 Speaker 2: So that means will they appeal or won't they appeal exactly? 290 00:16:14,000 --> 00:16:16,600 Speaker 2: And what do you think about their chances on appeal? 291 00:16:16,800 --> 00:16:19,600 Speaker 6: You know, I think their chances aren't great, and it's 292 00:16:19,680 --> 00:16:23,600 Speaker 6: because this was really a question of interpreting the evidence, 293 00:16:23,840 --> 00:16:27,600 Speaker 6: the testimony by the experts and the documents, and ultimately 294 00:16:28,000 --> 00:16:31,760 Speaker 6: deciding which arguments were stronger and more valid than others. 295 00:16:31,920 --> 00:16:34,440 Speaker 6: And that kind of a decision is given deference by 296 00:16:34,480 --> 00:16:37,280 Speaker 6: an appellate panel because it needs to be shown that 297 00:16:37,320 --> 00:16:40,360 Speaker 6: it was clearly erroneous, and that's hard to meet. So 298 00:16:40,480 --> 00:16:42,920 Speaker 6: I do think an appeal would probably be an uphill 299 00:16:42,920 --> 00:16:45,280 Speaker 6: climb for the airlines. And time is a little bit 300 00:16:45,320 --> 00:16:48,160 Speaker 6: tight too, because it could take five to six months, 301 00:16:48,360 --> 00:16:50,840 Speaker 6: let's say, from notice of appeal to decision, and they 302 00:16:50,880 --> 00:16:53,360 Speaker 6: do have a merger end date of July twenty fourth, 303 00:16:53,600 --> 00:16:55,200 Speaker 6: so the timing's a little tight there too. 304 00:16:55,720 --> 00:17:00,200 Speaker 2: Could this ruling spell trouble for Jet Blue's rival, well 305 00:17:00,240 --> 00:17:04,280 Speaker 2: Alaska Airlines and its acquisition of Hawaiian You know, I. 306 00:17:04,280 --> 00:17:07,840 Speaker 6: May be in the minority here, but I don't actually 307 00:17:07,840 --> 00:17:10,000 Speaker 6: think it makes any difference, And I'll tell you why, 308 00:17:10,400 --> 00:17:13,680 Speaker 6: because I always thought that that deal would probably get 309 00:17:13,760 --> 00:17:16,800 Speaker 6: challenged by the DOJ. They just simply think that the 310 00:17:16,840 --> 00:17:20,040 Speaker 6: airline industry is already too consolidated, and if they go 311 00:17:20,119 --> 00:17:23,879 Speaker 6: in with that position, they may be more interested in 312 00:17:23,960 --> 00:17:26,199 Speaker 6: trying to challenge this deal in court than allowing it 313 00:17:26,240 --> 00:17:28,440 Speaker 6: to go through. So I've always thought that there was 314 00:17:28,480 --> 00:17:31,200 Speaker 6: a chance of that. I think that that deal's much 315 00:17:31,240 --> 00:17:34,640 Speaker 6: easier to fix than this deal is, because really that's 316 00:17:34,800 --> 00:17:39,119 Speaker 6: just a straightforward combination of two competitors that overlap for 317 00:17:39,680 --> 00:17:43,159 Speaker 6: I understand, a pretty small number of routes overall, and 318 00:17:43,200 --> 00:17:45,960 Speaker 6: then they can divest those routes to other carriers, which 319 00:17:45,960 --> 00:17:49,399 Speaker 6: is generally the way stairline mergers have been remediated in 320 00:17:49,440 --> 00:17:51,840 Speaker 6: the past. And I think that if they can divest 321 00:17:51,880 --> 00:17:54,960 Speaker 6: a sufficient number of routes to the right buyers, it 322 00:17:55,040 --> 00:17:57,000 Speaker 6: seems to me they have a very good chance of 323 00:17:57,040 --> 00:17:59,680 Speaker 6: winning in court with jeb Blue and Spirit. You had 324 00:17:59,680 --> 00:18:02,920 Speaker 6: this whole other problem of these routes where they didn't compete, 325 00:18:03,040 --> 00:18:05,359 Speaker 6: where it was only Spirit flying the route, but it 326 00:18:05,400 --> 00:18:07,360 Speaker 6: was now going to become Jet Blue and the prices 327 00:18:07,359 --> 00:18:09,639 Speaker 6: we're going to go up. So they had a different 328 00:18:09,680 --> 00:18:12,840 Speaker 6: problem then will exist with the Hawaiian Alaska combination. 329 00:18:13,600 --> 00:18:16,160 Speaker 2: This is the second time in less than a year 330 00:18:16,240 --> 00:18:19,760 Speaker 2: that Jet Blue has lost a federal anti trust challenge? 331 00:18:20,000 --> 00:18:21,320 Speaker 2: Is it time to just give up? 332 00:18:22,800 --> 00:18:24,399 Speaker 6: I would have said it was time to give up 333 00:18:24,440 --> 00:18:27,760 Speaker 6: before they end said the merger agreement with Spirit. I 334 00:18:27,800 --> 00:18:30,760 Speaker 6: don't think it's really any big surprise that that deal 335 00:18:30,880 --> 00:18:33,320 Speaker 6: was challenged and that the DOJ won it in court. 336 00:18:33,680 --> 00:18:36,960 Speaker 6: And I still wonder sometimes whether the whole reason for 337 00:18:37,119 --> 00:18:40,040 Speaker 6: entering that agreement was just to stop Frontier and Spirit 338 00:18:40,119 --> 00:18:42,560 Speaker 6: from merging. That's the very skeptical side of me. 339 00:18:42,640 --> 00:18:45,520 Speaker 2: I guess lawyers are supposed to be skeptical. 340 00:18:45,040 --> 00:18:48,560 Speaker 6: So exactly I'm supposed to approach this skeptically. You know, 341 00:18:48,720 --> 00:18:51,200 Speaker 6: I think it's pretty clear that they'd have a tough 342 00:18:51,240 --> 00:18:54,440 Speaker 6: time buying up another airline. You know, at the very 343 00:18:54,520 --> 00:18:56,760 Speaker 6: least they would be challenged and have to fight it 344 00:18:56,800 --> 00:18:58,080 Speaker 6: in court and try to win in. 345 00:18:58,040 --> 00:19:01,359 Speaker 2: Court something they haven't been very good so far. Thanks 346 00:19:01,359 --> 00:19:06,200 Speaker 2: so much, Jen. That's Bloomberg Intelligence senior litigation analyst Jenniferree 347 00:19:06,359 --> 00:19:10,399 Speaker 2: Coming up next. Coinbase and the SEC face off in court. 348 00:19:10,720 --> 00:19:13,720 Speaker 2: I'm June Grosse. When you're listening to Bloomberg, Wrick, I. 349 00:19:13,680 --> 00:19:15,480 Speaker 7: Got Pink, then I got Peggy. 350 00:19:15,680 --> 00:19:17,960 Speaker 1: I got pep and Pad in the same week, Board 351 00:19:18,040 --> 00:19:20,480 Speaker 1: Vanessa catched something ten beanie baby. 352 00:19:21,160 --> 00:19:22,200 Speaker 7: Now what McDonald's. 353 00:19:22,280 --> 00:19:24,800 Speaker 5: Your kids can get teeny beanie babies in a happy meal. 354 00:19:25,119 --> 00:19:29,200 Speaker 2: Remember the beanie baby craze, the stuffed animals that became 355 00:19:29,280 --> 00:19:35,080 Speaker 2: a sensation in the early nineties and then became collectibles. Well, surprisingly, 356 00:19:35,320 --> 00:19:38,199 Speaker 2: beanie babies were part of the oral arguments in a 357 00:19:38,240 --> 00:19:42,359 Speaker 2: federal case that's key to the SEC's goal of regulating 358 00:19:42,400 --> 00:19:46,840 Speaker 2: the crypto market. Coinbase, the largest US crypto exchange, is 359 00:19:46,920 --> 00:19:49,879 Speaker 2: trying to get a judge to throw out the SEC's 360 00:19:49,960 --> 00:19:54,480 Speaker 2: lawsuit accusing it of selling unregistered securities, and its lawyer 361 00:19:54,560 --> 00:19:59,960 Speaker 2: said buying cryptocurrency on exchange is more like collecting beanie baby. 362 00:20:00,040 --> 00:20:03,439 Speaker 2: He's then investing in stocks or bonds. Joining me is 363 00:20:03,440 --> 00:20:06,960 Speaker 2: securities law expert Robert him a partner at Tartar Krinsky 364 00:20:07,080 --> 00:20:10,119 Speaker 2: and Drogan Bob. What's at stake in this case. 365 00:20:10,720 --> 00:20:13,159 Speaker 7: There's a lot of stake in this case, particularly for 366 00:20:13,359 --> 00:20:16,919 Speaker 7: Coinbase as well as the broader crypto industry. Here, the 367 00:20:17,000 --> 00:20:20,679 Speaker 7: judge has to decide whether the cryptocurrencies that traded on 368 00:20:20,800 --> 00:20:25,439 Speaker 7: the coinbase platform are securities under the statutory definition and 369 00:20:25,480 --> 00:20:28,480 Speaker 7: the rules that the SEC enforces, or whether they come 370 00:20:28,520 --> 00:20:31,439 Speaker 7: outside of that statutory framework. And it's really going to 371 00:20:31,440 --> 00:20:35,600 Speaker 7: have a fundamental impact on whether crypto exchanges can operate 372 00:20:35,640 --> 00:20:38,159 Speaker 7: in the United States and under what rules and how 373 00:20:38,240 --> 00:20:40,080 Speaker 7: much regulation they're going to be subject to. 374 00:20:40,840 --> 00:20:45,760 Speaker 2: So is the question whether crypto assets constitute an investment 375 00:20:45,880 --> 00:20:47,400 Speaker 2: contract or something else. 376 00:20:47,840 --> 00:20:51,720 Speaker 7: Yes, under the statute, which was enacted in nineteen thirty three, 377 00:20:51,880 --> 00:20:54,520 Speaker 7: So going back a long time, there's a definition of 378 00:20:54,560 --> 00:20:58,560 Speaker 7: securities in one of the categories is called an investment contract, 379 00:20:59,000 --> 00:21:01,679 Speaker 7: and that term is designed to be almost to catch 380 00:21:01,720 --> 00:21:04,919 Speaker 7: all within the statute because it specifically says stocks and 381 00:21:05,000 --> 00:21:08,240 Speaker 7: bonds and then it says investment contracts. So the litigation 382 00:21:08,320 --> 00:21:11,959 Speaker 7: that the SEC brought against Coinbase is really designed and 383 00:21:12,000 --> 00:21:15,399 Speaker 7: the judge has to decide whether the crypto assets that 384 00:21:15,440 --> 00:21:18,639 Speaker 7: were trading on the coin based platform fell within this 385 00:21:18,800 --> 00:21:24,120 Speaker 7: category called investment contracts, and Coinbase's entire argument is that 386 00:21:24,200 --> 00:21:27,639 Speaker 7: on the secondary market, there really is no contract in 387 00:21:27,720 --> 00:21:32,040 Speaker 7: place where purchasers of these digital assets and tokens would 388 00:21:32,080 --> 00:21:36,040 Speaker 7: have some contractual right to profits from the blockchain or 389 00:21:36,080 --> 00:21:39,960 Speaker 7: the company that the crypto relates to, And the sec 390 00:21:40,119 --> 00:21:43,560 Speaker 7: is arguing, well, that's too much of a specific, narrow definition, 391 00:21:43,720 --> 00:21:46,639 Speaker 7: and that generally speaking, the court should go off of 392 00:21:46,680 --> 00:21:49,800 Speaker 7: what they seemed to be the expectations of the people 393 00:21:49,840 --> 00:21:52,560 Speaker 7: buying these tokens and whether or not they have an 394 00:21:52,600 --> 00:21:56,000 Speaker 7: expectation of profit, regardless of whether it's in the form 395 00:21:56,000 --> 00:21:57,359 Speaker 7: of a written contract or not. 396 00:21:57,720 --> 00:21:59,640 Speaker 2: And why did beanie babies come up? 397 00:22:00,000 --> 00:22:03,679 Speaker 7: Coinbase made an interesting analogy in court compared the digital 398 00:22:03,720 --> 00:22:06,280 Speaker 7: assets and the crypto to beanie babies, you know, the 399 00:22:06,320 --> 00:22:09,520 Speaker 7: phenomena in the eighties and nineties, and collectibles is a 400 00:22:09,560 --> 00:22:13,200 Speaker 7: broader category, and Coinbase's point is that there's a lot 401 00:22:13,200 --> 00:22:15,760 Speaker 7: of different things that people invest in with the expectation 402 00:22:15,840 --> 00:22:19,359 Speaker 7: of a profit, including beanie babies, including baseball cards, and 403 00:22:19,400 --> 00:22:22,159 Speaker 7: not all of those things are securities. So just because 404 00:22:22,200 --> 00:22:25,920 Speaker 7: someone has the expectation that one day their purchase will 405 00:22:25,960 --> 00:22:28,359 Speaker 7: be more valuable in the future, does not convert that 406 00:22:28,440 --> 00:22:31,320 Speaker 7: over to a security And the SEC seemed to have 407 00:22:31,359 --> 00:22:33,840 Speaker 7: a little bit of a problem coming back from that argument, 408 00:22:33,960 --> 00:22:36,800 Speaker 7: because the SEC is taking a very broad view of 409 00:22:36,800 --> 00:22:40,320 Speaker 7: what constitutes security and what comes under its jurisdiction. And 410 00:22:40,400 --> 00:22:43,600 Speaker 7: I think those arguments from coinbase were really resonating with 411 00:22:43,760 --> 00:22:46,760 Speaker 7: the trial judge because she was concerned that she doesn't 412 00:22:46,760 --> 00:22:50,400 Speaker 7: want to overly broaden the definition of security and include 413 00:22:50,400 --> 00:22:53,159 Speaker 7: these things like collectibles and other things that are clearly 414 00:22:53,200 --> 00:22:55,119 Speaker 7: intended to be outside the statute. 415 00:22:55,200 --> 00:22:57,880 Speaker 2: I was surprised that beanie babies came up in the 416 00:22:58,000 --> 00:23:02,320 Speaker 2: oral arguments and the judge really seem to focus on 417 00:23:02,440 --> 00:23:04,440 Speaker 2: the idea of collectibles. 418 00:23:05,119 --> 00:23:07,199 Speaker 7: Well, it is a good analogy, and this is one 419 00:23:07,240 --> 00:23:10,199 Speaker 7: of the centerpieces of Coinbase's argument is that the SEC 420 00:23:10,440 --> 00:23:14,040 Speaker 7: is taking an overly expansive view of its own jurisdiction 421 00:23:14,280 --> 00:23:18,199 Speaker 7: and over the types of instruments it has regulatory authority 422 00:23:18,280 --> 00:23:22,080 Speaker 7: over and under our system, Congress has to pass a 423 00:23:22,119 --> 00:23:25,879 Speaker 7: statute and delegate specific powers to the SEC of what 424 00:23:25,920 --> 00:23:29,159 Speaker 7: it can and can't regulate, and Coinbas's whole argument is 425 00:23:29,160 --> 00:23:32,400 Speaker 7: that these crypto assets are not covered in the statute 426 00:23:32,440 --> 00:23:36,200 Speaker 7: and therefore the SEC has no ability to regulate them 427 00:23:36,280 --> 00:23:40,240 Speaker 7: until Congress chooses to amend the statute. And so Coinbase 428 00:23:40,320 --> 00:23:43,280 Speaker 7: brought up the example of collectibles and beanie babies and 429 00:23:43,359 --> 00:23:46,679 Speaker 7: saying that once you go down the slippery slope of 430 00:23:46,840 --> 00:23:49,880 Speaker 7: going outside of what really is defined in the statute, 431 00:23:49,920 --> 00:23:53,439 Speaker 7: almost anything that people buy, like a collectible, could be 432 00:23:53,480 --> 00:23:56,479 Speaker 7: a security. And the judge was particularly concerned about that 433 00:23:56,600 --> 00:23:59,639 Speaker 7: because she was concerned about opening the doors to a 434 00:23:59,640 --> 00:24:04,360 Speaker 7: lot more litigation and specifically mentioned class actions where these 435 00:24:04,400 --> 00:24:07,040 Speaker 7: class action lawyers could seize on a ruling in the 436 00:24:07,080 --> 00:24:09,800 Speaker 7: SEC's favor on this point and try to argue almost 437 00:24:09,880 --> 00:24:12,680 Speaker 7: anything could be a security and start suing companies that 438 00:24:12,760 --> 00:24:14,360 Speaker 7: create and promote collectibles. 439 00:24:14,680 --> 00:24:16,840 Speaker 2: So tell me what you think of the SEC argument 440 00:24:16,960 --> 00:24:22,080 Speaker 2: from Patrick Costello that securities differ from purchases of collectibles 441 00:24:22,119 --> 00:24:25,560 Speaker 2: like baseball cards or beanie babies. When they buy this token, 442 00:24:25,640 --> 00:24:29,159 Speaker 2: they're investing into the network behind it. One cannot be 443 00:24:29,320 --> 00:24:30,520 Speaker 2: separated from the other. 444 00:24:30,960 --> 00:24:34,040 Speaker 7: Well, I really don't think that the SEC's argument is 445 00:24:34,200 --> 00:24:37,520 Speaker 7: all that meritorious and that particular point, because when you 446 00:24:37,560 --> 00:24:40,439 Speaker 7: look at collectibles and you look at beanie babies, the 447 00:24:40,520 --> 00:24:43,600 Speaker 7: people and the companies that create, for instance, the Beanie Babies. 448 00:24:43,640 --> 00:24:47,320 Speaker 7: You know, they're very astute in terms of releasing special 449 00:24:47,480 --> 00:24:53,399 Speaker 7: edition beanie babies or limiting the supply or having particular promotions. 450 00:24:53,440 --> 00:24:56,639 Speaker 7: So it's not just like Beanie Babies took off on 451 00:24:56,680 --> 00:24:59,159 Speaker 7: their own, so to speak. A lot of thought and 452 00:24:59,320 --> 00:25:02,040 Speaker 7: marketing and other things that you could consider to be 453 00:25:02,160 --> 00:25:04,439 Speaker 7: kind of an enterprise. You know, we're in place. So 454 00:25:04,520 --> 00:25:07,960 Speaker 7: the SEC's attempt to distinguish a collectible's market from a 455 00:25:08,000 --> 00:25:11,920 Speaker 7: securities market really wasn't persuasive in that instance. But I 456 00:25:11,960 --> 00:25:15,560 Speaker 7: think the SEC's broader and stronger argument is that the 457 00:25:15,640 --> 00:25:18,919 Speaker 7: Securities Act of nineteen thirty three, even though it's old, 458 00:25:19,160 --> 00:25:22,160 Speaker 7: has a lot of flexibility built into it and has 459 00:25:22,200 --> 00:25:24,840 Speaker 7: been able to be adopted to new types of investment 460 00:25:25,000 --> 00:25:28,000 Speaker 7: products over the years, like real estate investment trust and 461 00:25:28,240 --> 00:25:32,879 Speaker 7: complex sorts of financing instruments. And the SEC's argument is 462 00:25:32,920 --> 00:25:36,280 Speaker 7: that that was exactly what this Act is designed to do, 463 00:25:36,520 --> 00:25:39,840 Speaker 7: and that crypto fits within that sort of category of 464 00:25:39,880 --> 00:25:43,320 Speaker 7: a new financial investment, that it is comfortably within the 465 00:25:43,400 --> 00:25:45,200 Speaker 7: concept of an investment contract. 466 00:25:45,640 --> 00:25:49,080 Speaker 2: And do you agree with our Bloomberg Intelligence senior litigation 467 00:25:49,200 --> 00:25:53,400 Speaker 2: analyst Elliott Stein, who predicts the judge will back Coinbase 468 00:25:53,520 --> 00:25:55,320 Speaker 2: and dismiss the SEC suit. 469 00:25:55,720 --> 00:25:58,000 Speaker 7: Yeah, I do think that there's a very high likelihood 470 00:25:58,000 --> 00:26:01,040 Speaker 7: of that happening. And I think the judge could do 471 00:26:01,680 --> 00:26:05,040 Speaker 7: is say that trading on the secondary market, like what 472 00:26:05,280 --> 00:26:09,040 Speaker 7: happened on the coinbase platform, is not a security because 473 00:26:09,320 --> 00:26:13,600 Speaker 7: people are trading among themselves, and the blockchain companies don't 474 00:26:13,680 --> 00:26:16,800 Speaker 7: get that money. They're just you know, aftermarket purchasers that 475 00:26:16,840 --> 00:26:20,560 Speaker 7: are buying and selling among themselves and still keeping those 476 00:26:20,600 --> 00:26:24,479 Speaker 7: investor protections for when those tokens are initially issued, like 477 00:26:24,520 --> 00:26:27,480 Speaker 7: for instance, an initial coin offering. You know, those could 478 00:26:27,480 --> 00:26:30,560 Speaker 7: be securities because the company is getting the money from 479 00:26:30,560 --> 00:26:33,040 Speaker 7: that offering, they're using it to build out a platform, 480 00:26:33,160 --> 00:26:35,760 Speaker 7: they're using it to make the product more valuable. So 481 00:26:36,080 --> 00:26:38,320 Speaker 7: it's a much stronger case to say that that's a 482 00:26:38,359 --> 00:26:42,200 Speaker 7: security than the aftermarket trading. And I think the other 483 00:26:42,359 --> 00:26:45,720 Speaker 7: really good point that Coinbase brought up was that the 484 00:26:45,760 --> 00:26:49,000 Speaker 7: SEC allowed Coinbase to go public just three years ago. 485 00:26:49,320 --> 00:26:53,359 Speaker 7: So Coinbase filed their forms with the SEC, described a 486 00:26:53,440 --> 00:26:57,640 Speaker 7: business model the platform was operating, and the SEC approved 487 00:26:57,640 --> 00:27:00,880 Speaker 7: the IPO three years ago. So how can the SEC 488 00:27:00,920 --> 00:27:04,359 Speaker 7: come back three years later after approving the IPO and say, well, 489 00:27:04,760 --> 00:27:07,840 Speaker 7: your business was an illegal enterprise, you know, all along, 490 00:27:08,080 --> 00:27:10,679 Speaker 7: going back to twenty nineteen when you first started it, 491 00:27:10,720 --> 00:27:13,240 Speaker 7: even though we approved it to be offered to the public. 492 00:27:13,280 --> 00:27:14,480 Speaker 7: When twenty twenty one. 493 00:27:14,680 --> 00:27:19,000 Speaker 2: The question of whether digital tokens our securities has divided courts. 494 00:27:19,560 --> 00:27:23,000 Speaker 2: So another Manhattan Federal Judge, an Alisa Torrez, ruled in 495 00:27:23,119 --> 00:27:28,240 Speaker 2: July that exchange sales of Ripple Labs token weren't subject 496 00:27:28,240 --> 00:27:32,840 Speaker 2: to SEC jurisdiction, while Manhattan Federal Judge Jed Rakoff, I 497 00:27:32,880 --> 00:27:35,280 Speaker 2: think he just sits a floor apart from her, that 498 00:27:35,400 --> 00:27:39,240 Speaker 2: same month reached the opposite conclusion in the SEC's case 499 00:27:39,359 --> 00:27:43,640 Speaker 2: against Terrorform Labs. So how much influence will the decision 500 00:27:43,720 --> 00:27:45,040 Speaker 2: here by Judge. 501 00:27:44,760 --> 00:27:48,199 Speaker 7: Polkav Well, that's a really good point, June, because there 502 00:27:48,240 --> 00:27:50,680 Speaker 7: are a lot of decisions coming out of the Manhattan 503 00:27:50,680 --> 00:27:53,560 Speaker 7: Federal Court as well as other courts that are contradictory 504 00:27:53,600 --> 00:27:57,240 Speaker 7: and judges taking different approaches. And the judge in the 505 00:27:57,240 --> 00:28:01,119 Speaker 7: Coinbakes case, whatever way she ultimately the rules is going 506 00:28:01,160 --> 00:28:03,560 Speaker 7: to be one more decision in that mix. It's not 507 00:28:03,600 --> 00:28:06,320 Speaker 7: going to be a definitive answer either way, and I 508 00:28:06,400 --> 00:28:09,639 Speaker 7: suspect that at some point, either the appellate courts in 509 00:28:09,640 --> 00:28:12,399 Speaker 7: New York or even the Supreme Court is going to 510 00:28:12,400 --> 00:28:14,600 Speaker 7: have to issue a decision on this point because there 511 00:28:14,600 --> 00:28:18,400 Speaker 7: have been contradictory rulings. But ideally, as the judges pointing out, 512 00:28:18,480 --> 00:28:21,199 Speaker 7: this is more an issue for Congress in terms of 513 00:28:21,240 --> 00:28:25,600 Speaker 7: trying to pass a legislative framework for crypto that defines, 514 00:28:25,920 --> 00:28:28,520 Speaker 7: you know, what people have to do, how to regulate it, 515 00:28:28,600 --> 00:28:31,880 Speaker 7: which agency should be responsible for it. Because right now 516 00:28:32,000 --> 00:28:36,920 Speaker 7: you have this SEC, you have the CFTC, which regulates commodities, 517 00:28:37,160 --> 00:28:40,040 Speaker 7: and other agencies at the state level. We're all kind 518 00:28:40,080 --> 00:28:43,600 Speaker 7: of seert jurisdiction over crypto and it's very harmful for 519 00:28:43,680 --> 00:28:47,640 Speaker 7: the industry and it's hindering innovation and development because there 520 00:28:47,680 --> 00:28:51,400 Speaker 7: really is not a clear regulatory framework. So ideally Congress 521 00:28:51,440 --> 00:28:53,760 Speaker 7: would act, but I don't have high hopes for that 522 00:28:53,800 --> 00:28:55,000 Speaker 7: in this political climate. 523 00:28:55,320 --> 00:28:57,760 Speaker 2: Unfortunately, I have to agree with you there, Bob, Thanks 524 00:28:57,760 --> 00:29:01,280 Speaker 2: so much. That's Robert him a partner Tartar, Krinsky and 525 00:29:01,400 --> 00:29:06,120 Speaker 2: Drogan Coming up next, elon Musk's ultimatum to the Tesla board. 526 00:29:06,240 --> 00:29:08,360 Speaker 2: I'm June Grosso and you're listening to Bloomberg. 527 00:29:11,520 --> 00:29:16,080 Speaker 1: All right, it's been an incredible year. The SpaceX team, 528 00:29:16,240 --> 00:29:19,320 Speaker 1: I think is the best space team that has ever 529 00:29:19,360 --> 00:29:21,440 Speaker 1: been as severled on face the Earth by far. 530 00:29:21,640 --> 00:29:25,000 Speaker 2: There was applause for Elon Musk at SpaceX last week. 531 00:29:25,320 --> 00:29:28,600 Speaker 2: It completed a record ninety six missions to space last 532 00:29:28,720 --> 00:29:33,160 Speaker 2: year with usually positive headlines. Not so much so for 533 00:29:33,240 --> 00:29:36,400 Speaker 2: the rest of Musk's life, with his divisive political and 534 00:29:36,440 --> 00:29:40,720 Speaker 2: cultural comments, his drug use reported by The Wall Street Journal, 535 00:29:41,000 --> 00:29:44,560 Speaker 2: and his focus split as he continues to run SpaceX 536 00:29:44,760 --> 00:29:49,560 Speaker 2: X Corp, Twitter, and other ventures in addition to Tesla. Yet, 537 00:29:49,560 --> 00:29:53,200 Speaker 2: despite all this, Musk is leaning on Tesla's board to 538 00:29:53,240 --> 00:29:57,040 Speaker 2: give him another massive stock award that would nearly double 539 00:29:57,120 --> 00:30:00,480 Speaker 2: his current shares. In a series of posts on X, 540 00:30:01,040 --> 00:30:04,920 Speaker 2: the Tesla chief executive says he would be quote uncomfortable 541 00:30:05,080 --> 00:30:08,400 Speaker 2: growing Tesla to be a leader in AI and robotics 542 00:30:08,560 --> 00:30:12,160 Speaker 2: without having twenty five percent control and then the not 543 00:30:12,320 --> 00:30:15,800 Speaker 2: so veiled threat. Unless that is the case, I would 544 00:30:15,800 --> 00:30:19,400 Speaker 2: prefer to build products outside of Tesla. Joining me is 545 00:30:19,440 --> 00:30:23,200 Speaker 2: business law professor Eric Tally of Columbia Law School. Eric, 546 00:30:23,360 --> 00:30:24,400 Speaker 2: is this a real threat? 547 00:30:24,600 --> 00:30:26,200 Speaker 5: It's really hard to tell. And first of all, I 548 00:30:26,200 --> 00:30:29,479 Speaker 5: guess it's kind of interesting that Elon Musk decided to 549 00:30:29,520 --> 00:30:33,239 Speaker 5: take his case for a raise. I guess not to 550 00:30:33,320 --> 00:30:36,800 Speaker 5: the Tesla board, but to the viewers of his ex 551 00:30:36,920 --> 00:30:40,280 Speaker 5: slash Twitter feed, to essentially make his case in the 552 00:30:40,320 --> 00:30:43,160 Speaker 5: court of public opinion, which is kind of a bizarre thing. Now, 553 00:30:43,240 --> 00:30:45,560 Speaker 5: it may well be the case that mister Musk has 554 00:30:45,680 --> 00:30:49,600 Speaker 5: already put forward this request and not having it received 555 00:30:49,640 --> 00:30:51,360 Speaker 5: as well as he would want it, but it's kind 556 00:30:51,360 --> 00:30:53,160 Speaker 5: of an interesting thing to decide. To you, he's going 557 00:30:53,200 --> 00:30:55,840 Speaker 5: to crowdsource people's opinions about whether he should have his 558 00:30:55,960 --> 00:30:59,240 Speaker 5: ownership stake increased to twenty five percent. Now, the guy 559 00:30:59,400 --> 00:31:03,920 Speaker 5: is an iconoclast who has a huge following all over 560 00:31:03,920 --> 00:31:06,480 Speaker 5: the place. Some of the following follows him into the 561 00:31:06,480 --> 00:31:08,840 Speaker 5: stock markets as well. So I think if you're sitting 562 00:31:08,920 --> 00:31:12,640 Speaker 5: on the board of Tesla, you probably don't want Elon 563 00:31:12,720 --> 00:31:16,400 Speaker 5: Musk becoming sour and sort of unhappy about his situation 564 00:31:16,840 --> 00:31:19,880 Speaker 5: at Tesla. Yeah. By the same token, there's a real 565 00:31:19,960 --> 00:31:23,600 Speaker 5: sense in which the types of reasons that mister Musk 566 00:31:23,720 --> 00:31:27,400 Speaker 5: gave in his fairly long tweet they don't really quite 567 00:31:27,640 --> 00:31:30,160 Speaker 5: pass the smell test. The main one that he gave 568 00:31:30,360 --> 00:31:33,400 Speaker 5: was that he needs that level of control so that 569 00:31:33,720 --> 00:31:37,440 Speaker 5: he has enough influence and power to help direct things 570 00:31:37,440 --> 00:31:41,240 Speaker 5: at Tesla. He's only sitting at thirteen percent now, which 571 00:31:41,280 --> 00:31:43,680 Speaker 5: by the way, is an amount that he brought himself 572 00:31:43,720 --> 00:31:46,360 Speaker 5: down to, having shed a bunch of his Tesla shares 573 00:31:46,400 --> 00:31:49,000 Speaker 5: so that he could afford his Twitter acquisition. And he 574 00:31:49,040 --> 00:31:51,320 Speaker 5: doesn't feel like he has the influence he wants. And 575 00:31:51,600 --> 00:31:54,479 Speaker 5: I don't really know of anyone who actually believes that. 576 00:31:54,720 --> 00:31:58,400 Speaker 5: You know, it's obvious to me that most retail investors 577 00:31:58,400 --> 00:32:02,160 Speaker 5: and almost certainly that board is hanging on every single 578 00:32:02,200 --> 00:32:05,360 Speaker 5: word that Elon Musk set so to claim that, you know, 579 00:32:05,400 --> 00:32:07,320 Speaker 5: if I don't have twenty five percent, I'm not going 580 00:32:07,360 --> 00:32:11,560 Speaker 5: to have enough influence. It just doesn't add up to me. 581 00:32:11,960 --> 00:32:15,080 Speaker 2: Is this a great time to be pressuring Tesla? With 582 00:32:15,320 --> 00:32:18,680 Speaker 2: the carmaker off to the worst start to any year 583 00:32:18,840 --> 00:32:20,080 Speaker 2: it's been a public company? 584 00:32:20,520 --> 00:32:22,120 Speaker 5: Yeah? How do I put this? Definitely this is a 585 00:32:22,240 --> 00:32:25,160 Speaker 5: terrible time to be pressuring Tesla. But you know, if 586 00:32:25,160 --> 00:32:27,960 Speaker 5: anyone could do it, possibly it is mister Musk first 587 00:32:27,960 --> 00:32:31,640 Speaker 5: and foremost realized that everyone like myself who teaches corporate 588 00:32:31,720 --> 00:32:35,280 Speaker 5: law has been sitting and waiting for a decision involving 589 00:32:35,320 --> 00:32:39,320 Speaker 5: mister Musk's own compensation package that was awarded to him 590 00:32:39,320 --> 00:32:42,160 Speaker 5: five and a half years ago that ended up paying 591 00:32:42,240 --> 00:32:45,920 Speaker 5: him almost sixty billion dollars worth of Tesla stock. We 592 00:32:45,920 --> 00:32:47,840 Speaker 5: don't know how that decision is going to come out 593 00:32:47,880 --> 00:32:51,320 Speaker 5: of Chancellor McCormack's chambers. Suppose she comes back and she says, yeah, 594 00:32:51,360 --> 00:32:53,880 Speaker 5: the shareholders have a point here. That may mean that 595 00:32:53,960 --> 00:32:55,520 Speaker 5: the cash flowers have to go in the reverse. He's 596 00:32:55,560 --> 00:32:57,200 Speaker 5: got to give back some of the value he's already 597 00:32:57,200 --> 00:32:59,720 Speaker 5: been paid her shares that he's received. So it's already 598 00:33:00,160 --> 00:33:02,280 Speaker 5: of a sketchy time to be saying, oh, let's just 599 00:33:02,440 --> 00:33:05,360 Speaker 5: reload this same package, or maybe even a richer package, 600 00:33:05,400 --> 00:33:07,480 Speaker 5: when we don't even know what the legal status of 601 00:33:07,520 --> 00:33:10,360 Speaker 5: the existing one was going to be. Second, one of 602 00:33:10,360 --> 00:33:13,600 Speaker 5: the things that has become clear is that the electric 603 00:33:13,680 --> 00:33:17,520 Speaker 5: vehicle space is both getting crowded by new entrants and 604 00:33:17,680 --> 00:33:20,560 Speaker 5: foreign competition, and you know, it's kind of an inflection 605 00:33:20,720 --> 00:33:23,280 Speaker 5: point about how heavily people are going to be diving 606 00:33:23,320 --> 00:33:27,240 Speaker 5: into additional purchases of electric vehicles. That's going to make 607 00:33:27,320 --> 00:33:30,360 Speaker 5: Tesla probably face even more of an uphill battle. It 608 00:33:30,480 --> 00:33:32,840 Speaker 5: So you've got this CEO who's saying I want you 609 00:33:32,880 --> 00:33:35,240 Speaker 5: to basically double my stake in the company, or else 610 00:33:35,280 --> 00:33:38,760 Speaker 5: I'm going to start directing business outside of Tesla. It's 611 00:33:38,840 --> 00:33:41,040 Speaker 5: not a great look and it's not a great moment 612 00:33:41,200 --> 00:33:42,040 Speaker 5: for that to happen. 613 00:33:42,280 --> 00:33:45,719 Speaker 2: Thanks Eric, Best, Professor Eric Tally of Columbia Law School, 614 00:33:46,080 --> 00:33:48,719 Speaker 2: And that's it for this edition of the Bloomberg Law Podcast. 615 00:33:49,040 --> 00:33:51,440 Speaker 2: Remember you've ben always get the latest legal news by 616 00:33:51,480 --> 00:33:55,320 Speaker 2: subscribing and listening to the show on Apple Podcasts, Spotify, 617 00:33:55,600 --> 00:33:59,400 Speaker 2: and at Bloomberg dot com, slash podcast, slash Law. I'm 618 00:33:59,480 --> 00:34:01,920 Speaker 2: June gram So, and this is Gloomberg