1
00:00:03,200 --> 00:00:08,000
Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.

2
00:00:09,560 --> 00:00:12,880
Speaker 2: The Sam Bankman, freed on trial in Manhattan Federal Court

3
00:00:13,320 --> 00:00:16,599
Speaker 2: looks different from the Sam Bankman freed that presided over

4
00:00:16,640 --> 00:00:20,439
Speaker 2: a crypto empire. Gone are the thick, unkempt curls that

5
00:00:20,520 --> 00:00:24,160
Speaker 2: became his trademark and the subject of a series of memes.

6
00:00:24,600 --> 00:00:28,159
Speaker 2: The baggy cargo shorts, the T shirts and sneakers. In

7
00:00:28,240 --> 00:00:32,519
Speaker 2: their place, a neat, close cut hairstyle reportedly done by

8
00:00:32,520 --> 00:00:35,960
Speaker 2: a fellow inmate, a navy business suit, dress shirt, tie

9
00:00:36,040 --> 00:00:38,960
Speaker 2: in shoes. A jury of nine women and three men

10
00:00:39,040 --> 00:00:42,760
Speaker 2: were sworn in today along with six alternates, and the

11
00:00:42,800 --> 00:00:46,640
Speaker 2: prosecution and defense laid out their cases for the jury

12
00:00:46,720 --> 00:00:50,599
Speaker 2: in opening statements. Joining me from the courthouse is Bloomberg

13
00:00:50,680 --> 00:00:54,880
Speaker 2: Legal reporter Ava Benny Morrison, who was in the courtroom today.

14
00:00:55,320 --> 00:00:58,000
Speaker 2: Did Sam Bankman freed look different from the way we've

15
00:00:58,040 --> 00:00:59,880
Speaker 2: seen him before his arrest?

16
00:01:00,320 --> 00:01:02,800
Speaker 3: Yes, definitely. That was one of the things that first

17
00:01:02,800 --> 00:01:05,240
Speaker 3: struck me when he walked in the courtroom. He looked

18
00:01:05,280 --> 00:01:08,560
Speaker 3: a lot thinner than he has in the past several months,

19
00:01:08,640 --> 00:01:12,280
Speaker 3: and his trademark hair was no longer it was cut

20
00:01:12,319 --> 00:01:15,280
Speaker 3: a lot shorter. You might remember he's always had this

21
00:01:15,480 --> 00:01:18,600
Speaker 3: very messy, curly head of hair. And the weight loss,

22
00:01:18,760 --> 00:01:21,800
Speaker 3: I guess has happened over the past several weeks when

23
00:01:21,800 --> 00:01:25,280
Speaker 3: he's been in the Metropolitan Detention Center in Brooklin. His

24
00:01:25,319 --> 00:01:28,119
Speaker 3: lawyers have complained that he's only been able to eat

25
00:01:28,160 --> 00:01:30,760
Speaker 3: peanut butter and bread and water because he's a vegan

26
00:01:30,800 --> 00:01:33,000
Speaker 3: and they don't have any meals that accommodate him. In

27
00:01:33,080 --> 00:01:37,119
Speaker 3: terms of his mannerism, he seemed pretty cool, calm and collected.

28
00:01:37,160 --> 00:01:39,639
Speaker 3: He engaged a lot with his lawyers. He was keeping

29
00:01:39,680 --> 00:01:42,959
Speaker 3: notes on his own laptop in a XL spreadsheet. He

30
00:01:43,040 --> 00:01:46,480
Speaker 3: was pointing at different potential jurors during the jury selection process.

31
00:01:46,560 --> 00:01:49,240
Speaker 3: He was having jokes and smiling with his lawyers. So

32
00:01:49,320 --> 00:01:50,639
Speaker 3: he seemed to be in a pretty good spirit.

33
00:01:50,840 --> 00:01:53,120
Speaker 2: And the jury tell us about the jury that was

34
00:01:53,160 --> 00:01:54,160
Speaker 2: finally selected.

35
00:01:54,680 --> 00:01:58,600
Speaker 3: The jury that was selected was nine women and three men.

36
00:01:59,200 --> 00:02:02,440
Speaker 3: Most of them are public service jobs worked for the government.

37
00:02:02,840 --> 00:02:07,400
Speaker 3: There is a train conductor on the jury, a retired

38
00:02:07,560 --> 00:02:10,440
Speaker 3: corrections officer who used to work in a prison, a

39
00:02:10,480 --> 00:02:13,920
Speaker 3: special ed teacher, someone who works at a hospital. So

40
00:02:14,120 --> 00:02:16,000
Speaker 3: it was a real mix, but it was a very

41
00:02:16,040 --> 00:02:17,639
Speaker 3: long process to get there.

42
00:02:18,600 --> 00:02:22,680
Speaker 2: The prosecution laid out its case in opening statements and

43
00:02:22,960 --> 00:02:27,600
Speaker 2: painted this picture of Sam Bankman Freed as a calculating criminal.

44
00:02:28,040 --> 00:02:29,160
Speaker 2: Tell us what struck you?

45
00:02:30,000 --> 00:02:30,240
Speaker 4: Yes?

46
00:02:30,360 --> 00:02:33,720
Speaker 3: The theme throughout the prosecution's opening address was that Sam

47
00:02:33,760 --> 00:02:38,080
Speaker 3: Bankman Freed single handedly orchestrated this multi billion dollar forward

48
00:02:38,080 --> 00:02:41,480
Speaker 3: at FTX, and that he tricked all of his customers

49
00:02:41,520 --> 00:02:46,000
Speaker 3: and investors and people who loan money to Alameda Research,

50
00:02:46,080 --> 00:02:49,520
Speaker 3: which was the hedge fund affiliated with FTX. They painted

51
00:02:49,600 --> 00:02:53,320
Speaker 3: him as this sort of criminal mastermind who woodwinked everyone

52
00:02:53,440 --> 00:02:57,280
Speaker 3: over many many years. They said that he only told

53
00:02:57,400 --> 00:03:00,919
Speaker 3: a few people within in a circle about the secret

54
00:03:01,200 --> 00:03:05,320
Speaker 3: borrowing relationship that existed between FTX and Alameda, and those

55
00:03:05,360 --> 00:03:09,920
Speaker 3: people were Caroline Ellison and Gary Wang and Nishad Scene. Now,

56
00:03:09,919 --> 00:03:12,960
Speaker 3: the prosecution didn't mention those three witnesses by name, but

57
00:03:13,040 --> 00:03:15,520
Speaker 3: we know that they are more than likely going to

58
00:03:15,560 --> 00:03:16,960
Speaker 3: testify against them.

59
00:03:17,000 --> 00:03:20,079
Speaker 2: Bankma Free at this trial, and the defense wants the

60
00:03:20,200 --> 00:03:22,440
Speaker 2: jury to see him as a math nerd.

61
00:03:22,960 --> 00:03:23,160
Speaker 5: Yes.

62
00:03:23,280 --> 00:03:27,320
Speaker 3: So the defense's response to what the prosecution's allegations were

63
00:03:27,800 --> 00:03:32,280
Speaker 3: that this is being spun to suit their case essentially,

64
00:03:32,320 --> 00:03:35,040
Speaker 3: and that he's just a math nerd who doesn't party,

65
00:03:35,240 --> 00:03:39,160
Speaker 3: doesn't drink, worked really hard, went to MIT and built

66
00:03:39,240 --> 00:03:42,840
Speaker 3: a multi billion dollar company and was extremely successful, and

67
00:03:42,880 --> 00:03:46,200
Speaker 3: that the loss of customer funds was partly due to

68
00:03:46,640 --> 00:03:50,000
Speaker 3: market downturns last year that were outside of his control

69
00:03:50,360 --> 00:03:54,080
Speaker 3: and also poor risk management at his company. There was

70
00:03:54,320 --> 00:03:56,800
Speaker 3: a bit of a hint in the defense statement. The

71
00:03:56,840 --> 00:04:00,000
Speaker 3: defense said that Sam Batemantrey trusted and relied on Carolina,

72
00:04:00,600 --> 00:04:03,240
Speaker 3: his ex girlfriend and the CEO of al Ameter Research

73
00:04:03,360 --> 00:04:06,000
Speaker 3: to one Alameda because he had taken a backward steps

74
00:04:06,040 --> 00:04:08,880
Speaker 3: from it a couple of years ago to really concentrate

75
00:04:08,920 --> 00:04:12,560
Speaker 3: on what was happening with FTX, But in hindsight, there

76
00:04:12,720 --> 00:04:16,159
Speaker 3: was some four risk management going on at the company.

77
00:04:16,560 --> 00:04:20,840
Speaker 3: And the defense also said that Sam had approached Caroline

78
00:04:21,000 --> 00:04:23,960
Speaker 3: in twenty twenty two when there were the market volatility

79
00:04:24,240 --> 00:04:27,280
Speaker 3: in the crypto industry and said, hey, I need you

80
00:04:27,400 --> 00:04:32,080
Speaker 3: to pedge the Alameda to protect against the possible market

81
00:04:32,080 --> 00:04:34,800
Speaker 3: downturns last year, and she didn't do that. The defense

82
00:04:34,839 --> 00:04:36,920
Speaker 3: didn't stay out right that you know, this is all

83
00:04:36,960 --> 00:04:40,880
Speaker 3: Caroline's fault, but there was certainly a flavor that she

84
00:04:41,040 --> 00:04:43,919
Speaker 3: may wear some of the blame in their case, so

85
00:04:44,000 --> 00:04:46,040
Speaker 3: you did get a little bit of a flavor of

86
00:04:46,279 --> 00:04:47,680
Speaker 3: a blank game going on here.

87
00:04:47,960 --> 00:04:49,560
Speaker 2: Did they call any witnesses today?

88
00:04:50,000 --> 00:04:53,400
Speaker 3: We heard from two witnesses. One was a customer of

89
00:04:53,520 --> 00:04:56,800
Speaker 3: FTX who lost more than one hundred thousand dollars. He

90
00:04:56,960 --> 00:04:59,960
Speaker 3: sort of explained how he signed up, what his expectation

91
00:05:00,040 --> 00:05:01,640
Speaker 3: who were in terms of what they would do with

92
00:05:02,040 --> 00:05:05,520
Speaker 3: his customer funds. And then we also heard from a

93
00:05:05,680 --> 00:05:10,320
Speaker 3: former STX developer who worked at the company for a

94
00:05:10,320 --> 00:05:12,920
Speaker 3: couple of years, was best friends with Sam growing up.

95
00:05:12,960 --> 00:05:15,080
Speaker 3: They went to MIT together and they lived in the

96
00:05:15,080 --> 00:05:17,760
Speaker 3: Bahamas with the thirty million dollar pen house together.

97
00:05:18,200 --> 00:05:21,000
Speaker 2: And finally, do you know what witnesses are coming up tomorrow?

98
00:05:21,240 --> 00:05:25,160
Speaker 3: Yes, we're going to continue hearing from the former STX

99
00:05:25,160 --> 00:05:29,279
Speaker 3: developer who testimony started today, and we're also going to

100
00:05:29,360 --> 00:05:33,160
Speaker 3: hear maybe from one of the cooperating witnesses, Gary Wong,

101
00:05:33,480 --> 00:05:36,600
Speaker 3: and the prostitution indicated this afternoon that he would be

102
00:05:36,640 --> 00:05:39,360
Speaker 3: one of two witnesses who would take the case till

103
00:05:39,400 --> 00:05:40,040
Speaker 3: the end of the week.

104
00:05:40,520 --> 00:05:42,840
Speaker 2: I know you're going to be in the courtroom tomorrow

105
00:05:42,880 --> 00:05:46,400
Speaker 2: as well, and we'll talk to you then. Thanks so much, Eva,

106
00:05:46,520 --> 00:05:50,719
Speaker 2: that's Bloomberg legal reporter Eva Benni Morrison coming up next

107
00:05:51,200 --> 00:05:54,640
Speaker 2: more analysis of the case against Sam Bankman Fried. I'm

108
00:05:54,720 --> 00:05:57,480
Speaker 2: Jim Grass when you're listening to Bloomberg. Joining me is

109
00:05:57,560 --> 00:06:00,279
Speaker 2: John George Aarres, a partner at the Warren Lage Group.

110
00:06:00,800 --> 00:06:06,200
Speaker 2: Before the prospective jurors came into the courtroom, the prosecutor

111
00:06:06,400 --> 00:06:10,400
Speaker 2: said that no plea discussions were ever held with Bankman Freed,

112
00:06:10,520 --> 00:06:14,200
Speaker 2: and no offers for a plea deal were made. They

113
00:06:14,200 --> 00:06:17,600
Speaker 2: made plea deals with three other top people at FTX

114
00:06:17,800 --> 00:06:20,359
Speaker 2: and Alameda. Do you find that odd that they didn't

115
00:06:20,400 --> 00:06:22,440
Speaker 2: offer Sam Bankman free to deal.

116
00:06:22,920 --> 00:06:28,200
Speaker 5: Typically the prosecutor's office will offer a deal, but I

117
00:06:28,240 --> 00:06:31,880
Speaker 5: think this case is unique because of the size of

118
00:06:31,920 --> 00:06:35,839
Speaker 5: the fraud. I mean, the crypto industry. This is easily

119
00:06:35,880 --> 00:06:39,000
Speaker 5: the largest fraud that's impacted it, and I think the

120
00:06:39,040 --> 00:06:42,599
Speaker 5: prosecutors have taken a very hard line position from the

121
00:06:42,640 --> 00:06:47,640
Speaker 5: first announcement of the indictment that they want to hold

122
00:06:47,720 --> 00:06:51,840
Speaker 5: Sam Bankman Freed responsible for what they're viewing as an

123
00:06:51,880 --> 00:06:56,200
Speaker 5: ady to one hundred billion dollar fraud, and the fact

124
00:06:56,240 --> 00:06:58,760
Speaker 5: that they didn't offer him a deal, and the fact

125
00:06:58,800 --> 00:07:02,520
Speaker 5: that they have three other individuals who were really at

126
00:07:02,560 --> 00:07:05,600
Speaker 5: the top of FPX, and they have Caroline Ellison who

127
00:07:05,839 --> 00:07:10,520
Speaker 5: was his former partner and also running Almata Research. They

128
00:07:10,600 --> 00:07:14,240
Speaker 5: must feel strongly that the evidence that's going to be

129
00:07:14,280 --> 00:07:16,960
Speaker 5: presented and the testimony that's going to be brought forward

130
00:07:17,520 --> 00:07:20,920
Speaker 5: is so powerful that they're going to be successful on

131
00:07:21,000 --> 00:07:24,440
Speaker 5: their claims. A prosecutor may head to their bets or

132
00:07:24,920 --> 00:07:27,960
Speaker 5: may notice some weaknesses in their case and say, what's

133
00:07:28,000 --> 00:07:31,680
Speaker 5: cut a deal? But I think a the unique nature

134
00:07:31,720 --> 00:07:34,720
Speaker 5: of this case and the size of the fraud, and

135
00:07:34,800 --> 00:07:37,160
Speaker 5: be the strength of the evidence they believe they have

136
00:07:37,840 --> 00:07:41,440
Speaker 5: has led to this result, which is no offer, no deal.

137
00:07:42,120 --> 00:07:46,160
Speaker 2: How much does the prosecution's case depend on the testimony

138
00:07:46,240 --> 00:07:50,800
Speaker 2: of those three cooperating witnesses you mentioned.

139
00:07:51,160 --> 00:07:54,760
Speaker 5: I think from the prosecutor's view, obviously someone needs to

140
00:07:54,800 --> 00:07:59,440
Speaker 5: tell the story, so they need these individuals to talk

141
00:07:59,480 --> 00:08:03,040
Speaker 5: about the impropriety that was going on with STX, and

142
00:08:03,440 --> 00:08:06,800
Speaker 5: really at the core of this is misuse of customer

143
00:08:06,880 --> 00:08:11,880
Speaker 5: funds and mining to customers. These are individual retail investors

144
00:08:11,920 --> 00:08:15,520
Speaker 5: that put their money into FDx and believe that the

145
00:08:15,560 --> 00:08:18,760
Speaker 5: money was being held there. The reality appears to be

146
00:08:18,840 --> 00:08:22,119
Speaker 5: much different. The reality appears to be that this money

147
00:08:22,240 --> 00:08:26,800
Speaker 5: was being used for many different things, including Sam Bagminfreed

148
00:08:27,160 --> 00:08:31,320
Speaker 5: buying properties for himself as well as making political contributions

149
00:08:31,680 --> 00:08:35,120
Speaker 5: and investing in our Nator research. I think there will

150
00:08:35,160 --> 00:08:39,920
Speaker 5: be enough documents to show the flow of funds, but

151
00:08:40,040 --> 00:08:44,000
Speaker 5: I do think that it's important for the individuals to

152
00:08:44,120 --> 00:08:48,960
Speaker 5: testify to stay and give context to the jury about

153
00:08:49,000 --> 00:08:53,000
Speaker 5: what the internal conversations were and what was happening in

154
00:08:53,040 --> 00:08:57,040
Speaker 5: this ecosystem and everything around it. So could they prove

155
00:08:57,040 --> 00:08:59,439
Speaker 5: the case solely based on documents and show the flow

156
00:08:59,440 --> 00:09:02,240
Speaker 5: of funds. I think that they could make a strong

157
00:09:02,360 --> 00:09:05,880
Speaker 5: case that these funds were exiting FTX and going to

158
00:09:05,920 --> 00:09:09,800
Speaker 5: places that they shouldn't have been. But it's obviously important

159
00:09:09,800 --> 00:09:14,680
Speaker 5: to them that these three individuals, Gary wang Nischad Singh

160
00:09:14,720 --> 00:09:18,559
Speaker 5: and Caroline Ellison all give context to that, and I

161
00:09:18,600 --> 00:09:19,960
Speaker 5: think that will be very important.

162
00:09:20,400 --> 00:09:24,680
Speaker 2: Caroline Ellison had an on again, off again romantic relationship

163
00:09:24,840 --> 00:09:29,840
Speaker 2: with bankman Freed. Does that complicate her testimony well?

164
00:09:29,880 --> 00:09:33,760
Speaker 5: From the defensi's point of view, it's very typical in

165
00:09:33,800 --> 00:09:39,600
Speaker 5: a way collar case to attack the credibility of the witnesses.

166
00:09:40,400 --> 00:09:44,559
Speaker 5: That will certainly be a part of their story. Potentially

167
00:09:44,600 --> 00:09:48,559
Speaker 5: they could say she's a scorned ex lover. She has

168
00:09:48,600 --> 00:09:53,560
Speaker 5: a motivation to say negative things about Sam Bankman Freed.

169
00:09:53,920 --> 00:09:56,600
Speaker 5: But in addition to that, they also have the plea deals,

170
00:09:57,120 --> 00:09:59,760
Speaker 5: and they're going to use those plea deals. This is

171
00:09:59,800 --> 00:10:04,880
Speaker 5: the they're going to use those free deals to say, Caroline,

172
00:10:05,040 --> 00:10:09,800
Speaker 5: you got a deal that is helping you avoid the

173
00:10:10,240 --> 00:10:14,120
Speaker 5: highest level of prosecution. You struck that deal, and you're

174
00:10:14,120 --> 00:10:18,560
Speaker 5: making these statements today not because they're truthful, but because

175
00:10:18,880 --> 00:10:23,200
Speaker 5: you basically saved yourself. So I think it's really two things.

176
00:10:23,559 --> 00:10:26,320
Speaker 5: But I do believe that their relationship is something they

177
00:10:26,320 --> 00:10:30,000
Speaker 5: can mine into and that the defense will probe and

178
00:10:30,120 --> 00:10:34,800
Speaker 5: say you are saying these things because your relationship with

179
00:10:35,200 --> 00:10:36,920
Speaker 5: Sam bankmin Free did not work out.

180
00:10:37,120 --> 00:10:40,920
Speaker 2: Can you explain you know what the prosecution is alleging

181
00:10:41,080 --> 00:10:41,800
Speaker 2: happened here.

182
00:10:42,360 --> 00:10:46,960
Speaker 5: Absolutely, So there's seven criminal charges. They're pretty broad, but

183
00:10:47,040 --> 00:10:52,360
Speaker 5: it's why are fraud securities, fraud, money laundering And there's

184
00:10:52,520 --> 00:10:58,720
Speaker 5: a couple different components. The first component is lying to

185
00:10:58,760 --> 00:11:03,199
Speaker 5: the retail investors, lying to them in that the funds

186
00:11:03,200 --> 00:11:06,559
Speaker 5: that they deposit on FTX would be made available to them.

187
00:11:06,840 --> 00:11:10,520
Speaker 5: They can make withdraws and transactions with the funds that

188
00:11:10,559 --> 00:11:14,360
Speaker 5: they deposited freely and as they chose to, but in

189
00:11:14,400 --> 00:11:19,400
Speaker 5: reality the funds that they had depositive were usurped for

190
00:11:19,679 --> 00:11:23,800
Speaker 5: Almada research. There were transfers of I think around eight

191
00:11:24,280 --> 00:11:27,800
Speaker 5: billion dollars ends up, for lack of a better word,

192
00:11:27,880 --> 00:11:32,120
Speaker 5: going missing. And this goes into the political donations that

193
00:11:32,240 --> 00:11:36,360
Speaker 5: Sambang and Freed made, This goes into Almada research, and

194
00:11:36,400 --> 00:11:40,199
Speaker 5: this goes into him buying personal properties for himself. So

195
00:11:40,920 --> 00:11:44,640
Speaker 5: one component is the lying to the investors, and then

196
00:11:44,920 --> 00:11:49,520
Speaker 5: there are other components which are lying to potential creditors

197
00:11:49,520 --> 00:11:53,200
Speaker 5: and lenders of FTX stating that the financial health of

198
00:11:53,600 --> 00:11:58,720
Speaker 5: FTX is completely fine, when in reality the funds that

199
00:11:58,800 --> 00:12:02,240
Speaker 5: are supposed to be held and FTX were no longer there.

200
00:12:02,679 --> 00:12:06,080
Speaker 5: So the core conduct is the same that all stems

201
00:12:06,120 --> 00:12:10,920
Speaker 5: out of the money that were deposited were essentially misappropriated

202
00:12:10,960 --> 00:12:15,240
Speaker 5: in use for other things, and that led to defrauding investors,

203
00:12:15,640 --> 00:12:19,720
Speaker 5: that led to defrauding lenders, and that led to essentially

204
00:12:19,840 --> 00:12:24,040
Speaker 5: money laundering and misappropriating funds for something that was other

205
00:12:24,320 --> 00:12:27,880
Speaker 5: than their intended use, which is an investment in FTX.

206
00:12:28,920 --> 00:12:33,120
Speaker 2: Prosecutors have something like fifty potential witnesses and they've produced

207
00:12:33,160 --> 00:12:38,920
Speaker 2: so far thirteen hundred exhibits ahead of trial. You know, cryptocurrency,

208
00:12:39,120 --> 00:12:44,720
Speaker 2: altering code, flow of money between FTX and Alameda financial transactions.

209
00:12:45,360 --> 00:12:48,400
Speaker 2: Is it a difficult case to keep simple enough or

210
00:12:48,520 --> 00:12:50,720
Speaker 2: interesting enough for a jury.

211
00:12:52,440 --> 00:12:56,800
Speaker 5: I think that the prosecution's focus will be on exactly

212
00:12:56,920 --> 00:13:01,240
Speaker 5: that keeping it simple. At the core of this case

213
00:13:02,000 --> 00:13:04,800
Speaker 5: crypto and the fact that it was crypto and that

214
00:13:04,840 --> 00:13:08,720
Speaker 5: it involves code, and that it's a new digital asset.

215
00:13:09,280 --> 00:13:13,079
Speaker 5: I believe it's something that they're going to try and minimize,

216
00:13:13,440 --> 00:13:16,160
Speaker 5: and they're just going to focus on what is a

217
00:13:16,360 --> 00:13:20,719
Speaker 5: traditional fraud. You lied to people about what you were

218
00:13:20,760 --> 00:13:24,720
Speaker 5: going to do with the money they entrusted you with, period,

219
00:13:25,160 --> 00:13:30,120
Speaker 5: You lied to lenders about the financial viability of the company. Period.

220
00:13:30,640 --> 00:13:34,760
Speaker 5: The defense will certainly try to put forward the story

221
00:13:35,160 --> 00:13:38,400
Speaker 5: that the terms in use of FTX gave them broad

222
00:13:38,480 --> 00:13:41,480
Speaker 5: latitude to move funds as they chose to fit, and

223
00:13:41,520 --> 00:13:45,200
Speaker 5: that maybe they didn't have proper risk management tools, but

224
00:13:45,280 --> 00:13:48,840
Speaker 5: it didn't arise to the level of fraud. So I

225
00:13:48,840 --> 00:13:52,640
Speaker 5: think the government has an interesting story from the perspective

226
00:13:52,720 --> 00:13:55,360
Speaker 5: of this is a huge sum of money, This is

227
00:13:55,360 --> 00:13:58,520
Speaker 5: a very public figure, and I believe that they'll be

228
00:13:58,559 --> 00:14:01,520
Speaker 5: able to boil it down to the base level of

229
00:14:01,559 --> 00:14:04,600
Speaker 5: the conduct that occurred here. However, that is a complication

230
00:14:04,720 --> 00:14:06,960
Speaker 5: that they faced. You know, I do believe that the

231
00:14:07,000 --> 00:14:11,199
Speaker 5: defense is going to put the spotlight on the complexity

232
00:14:11,240 --> 00:14:14,040
Speaker 5: of crypto and how maybe the jury should not treat

233
00:14:14,040 --> 00:14:19,320
Speaker 5: this as just a typical, normal financial transaction. But in

234
00:14:19,400 --> 00:14:22,000
Speaker 5: some I do think that the government will be able

235
00:14:22,080 --> 00:14:24,440
Speaker 5: to boil this down to a base level where a

236
00:14:24,520 --> 00:14:26,360
Speaker 5: jury can really understand what happened.

237
00:14:27,480 --> 00:14:30,520
Speaker 2: The judge has issued a number of pre trial rulings

238
00:14:30,560 --> 00:14:35,200
Speaker 2: that were setbacks for SBF, including revoking his bail and

239
00:14:35,280 --> 00:14:38,640
Speaker 2: jailing him. He ruled that bankmin Freed couldn't call seven

240
00:14:38,680 --> 00:14:42,080
Speaker 2: expert witnesses, and he made a decision this week that

241
00:14:42,160 --> 00:14:45,280
Speaker 2: his lawyers couldn't refer in the opening statements to the

242
00:14:45,360 --> 00:14:49,120
Speaker 2: advice of counsel defense, which they wanted to use to

243
00:14:49,240 --> 00:14:53,480
Speaker 2: show that bankman Freed didn't have criminal intent here and

244
00:14:53,640 --> 00:14:57,000
Speaker 2: was relying on the advice of his attorneys. How serious

245
00:14:57,040 --> 00:14:57,960
Speaker 2: are these setbacks?

246
00:14:58,480 --> 00:15:02,720
Speaker 5: These are fairly serious facts, the first one being revoking

247
00:15:02,760 --> 00:15:06,800
Speaker 5: bailn being put in prison, and that was because there

248
00:15:06,880 --> 00:15:10,760
Speaker 5: was alleged tampering of witnesses occurring in advance of trial.

249
00:15:11,200 --> 00:15:14,840
Speaker 5: So that shows that SBS is a bad actor trying

250
00:15:14,840 --> 00:15:18,080
Speaker 5: to influence the tropil ahead of time. And SDS has been,

251
00:15:18,600 --> 00:15:22,480
Speaker 5: probably much to his lawyers this day, very public about

252
00:15:22,560 --> 00:15:26,800
Speaker 5: saying things, very public about saying I messed up, that

253
00:15:26,920 --> 00:15:29,520
Speaker 5: people need to know the truth. He did, I believe,

254
00:15:29,520 --> 00:15:33,360
Speaker 5: a sixty minute interview on this. He really went out

255
00:15:33,440 --> 00:15:35,800
Speaker 5: and put himself in the public sphere and already made

256
00:15:35,840 --> 00:15:39,040
Speaker 5: a ton of statements that I'm sure the government is

257
00:15:39,080 --> 00:15:41,320
Speaker 5: going to use against him. But as for the pre

258
00:15:41,400 --> 00:15:45,840
Speaker 5: trial rulings, the judge is narrowing the case down to

259
00:15:45,880 --> 00:15:49,080
Speaker 5: what the relevant defenses are that can be presented, and

260
00:15:49,160 --> 00:15:52,200
Speaker 5: the fact that the judge struck down the reliance on

261
00:15:52,320 --> 00:15:56,800
Speaker 5: council defense. It's a very very powerful defense if you

262
00:15:56,840 --> 00:16:01,720
Speaker 5: are able to show that an individual well fully disclosed

263
00:16:01,760 --> 00:16:04,680
Speaker 5: what was happening to an attorney and that an attorney

264
00:16:04,760 --> 00:16:09,480
Speaker 5: rendered advice, and then the individual who gave him the

265
00:16:09,520 --> 00:16:13,880
Speaker 5: advice followed that punctiliously and went along with what the

266
00:16:13,960 --> 00:16:17,880
Speaker 5: lawyer said. What the judge's ruling indicates to me is

267
00:16:17,920 --> 00:16:22,440
Speaker 5: that there were likely some communications about what was happening,

268
00:16:22,800 --> 00:16:26,040
Speaker 5: but it didn't rise to the formal level of an

269
00:16:26,080 --> 00:16:30,280
Speaker 5: advice of council defense, which is very formulaic and it

270
00:16:30,360 --> 00:16:34,280
Speaker 5: has to be laid out clearly with evidence otherwise, you know,

271
00:16:34,400 --> 00:16:37,480
Speaker 5: anyone that had a passing conversation with an attorney would say,

272
00:16:37,880 --> 00:16:40,320
Speaker 5: or even an accountant would say, oh, well, I relied

273
00:16:40,320 --> 00:16:44,760
Speaker 5: on their advice, and that should exonerate me completely. It's

274
00:16:44,800 --> 00:16:49,960
Speaker 5: a blow for the defense because their story is getting

275
00:16:50,080 --> 00:16:52,720
Speaker 5: narrowed in advance of trial, and what they're going to

276
00:16:52,760 --> 00:16:58,280
Speaker 5: have to focus on most likely is that, yes, things

277
00:16:58,320 --> 00:17:02,280
Speaker 5: happen that may have been in proper from a business perspective,

278
00:17:02,920 --> 00:17:07,120
Speaker 5: but it did not rise to the level of criminal intent.

279
00:17:07,600 --> 00:17:10,399
Speaker 5: And looping back on one of our earlier questions, I

280
00:17:10,520 --> 00:17:14,280
Speaker 5: believe that's where the three witnesses that were formerly at

281
00:17:14,280 --> 00:17:17,080
Speaker 5: the top of SPX and Almeta, we'll be able to

282
00:17:17,080 --> 00:17:20,480
Speaker 5: give a lot of context into what those conversations were

283
00:17:20,840 --> 00:17:22,600
Speaker 5: between themselves and SBS.

284
00:17:23,240 --> 00:17:26,240
Speaker 2: The judge has left it open they can't refer to

285
00:17:26,280 --> 00:17:29,960
Speaker 2: the advice of council defense and opening statements, but later

286
00:17:30,040 --> 00:17:32,400
Speaker 2: on in the trial he may allow them to use it.

287
00:17:33,240 --> 00:17:37,480
Speaker 5: So what the judge is signaling is that formal defense

288
00:17:37,680 --> 00:17:39,919
Speaker 5: in order for it to be advanced. It's going to

289
00:17:40,000 --> 00:17:43,560
Speaker 5: have to be laid out through witnesses, through documents. Right,

290
00:17:43,600 --> 00:17:46,520
Speaker 5: there has to be an attorney client relationship in the

291
00:17:46,560 --> 00:17:49,640
Speaker 5: first instance. Then there has to be disclosure of what's

292
00:17:49,680 --> 00:17:53,040
Speaker 5: happening at STX. Then there has to be advice, and

293
00:17:53,080 --> 00:17:58,200
Speaker 5: then following that advice. So at this point, the judge

294
00:17:58,440 --> 00:18:03,359
Speaker 5: is likely not wanting to cloud the jury's mind with

295
00:18:03,560 --> 00:18:07,600
Speaker 5: evidence that has yet to come forward, and a defense counsel,

296
00:18:08,200 --> 00:18:11,960
Speaker 5: especially in a criminal trial, you want to be flexible

297
00:18:12,400 --> 00:18:15,359
Speaker 5: and you also want to play your cards close to

298
00:18:15,440 --> 00:18:18,919
Speaker 5: your chest. When it's time to reveal the evidence, you

299
00:18:19,000 --> 00:18:22,040
Speaker 5: start revealing it because burden in all these cases, right,

300
00:18:22,160 --> 00:18:25,880
Speaker 5: the burden of proof for a criminal prosecution is on

301
00:18:26,280 --> 00:18:29,080
Speaker 5: the government and they have to meet that burden of proof.

302
00:18:29,640 --> 00:18:33,160
Speaker 5: So when it comes time for the defense to lay

303
00:18:33,200 --> 00:18:37,199
Speaker 5: out what their narrative is, what their defenses are, the

304
00:18:37,280 --> 00:18:40,880
Speaker 5: judge appears to be giving them the opportunity to do that,

305
00:18:41,320 --> 00:18:43,639
Speaker 5: but they're saying, we haven't seen any of that. At

306
00:18:43,640 --> 00:18:47,439
Speaker 5: this stage, you don't get to just baldly refer to

307
00:18:47,480 --> 00:18:50,240
Speaker 5: an advice of counsel of defense without making the proper

308
00:18:50,240 --> 00:18:51,359
Speaker 5: evidentiary show.

309
00:18:52,320 --> 00:18:55,600
Speaker 2: Most defendants don't testify at their own trials. But how

310
00:18:55,720 --> 00:18:57,520
Speaker 2: likely do you think it is that he will take

311
00:18:57,560 --> 00:18:58,080
Speaker 2: the stand.

312
00:18:58,880 --> 00:19:02,720
Speaker 5: It's a very difficult question because he does have so

313
00:19:02,920 --> 00:19:06,760
Speaker 5: many prior statements out there, and he may need to

314
00:19:06,800 --> 00:19:09,960
Speaker 5: give them some context. He may need to make certain

315
00:19:10,000 --> 00:19:13,360
Speaker 5: things clear that when he was saying he messed up,

316
00:19:13,840 --> 00:19:16,959
Speaker 5: that he didn't have the intent to mess up. It

317
00:19:17,000 --> 00:19:20,119
Speaker 5: was just that he didn't have the proper risk controls

318
00:19:20,160 --> 00:19:23,080
Speaker 5: in place, you know, given the stakes that we have here,

319
00:19:23,240 --> 00:19:27,119
Speaker 5: right if SBS is convicted of these charges, the sentencing

320
00:19:27,119 --> 00:19:29,960
Speaker 5: guidelines provide that he could be in jail for I

321
00:19:30,000 --> 00:19:33,760
Speaker 5: mean over one hundred years, so with his life on

322
00:19:34,320 --> 00:19:37,919
Speaker 5: the line. Essentially, it may come a time after the

323
00:19:37,920 --> 00:19:40,840
Speaker 5: government presents their case, which it appears it's going to

324
00:19:40,920 --> 00:19:44,240
Speaker 5: take them about a month in total. You had mentioned

325
00:19:44,240 --> 00:19:46,160
Speaker 5: the amount of documents that are out there, the amount

326
00:19:46,200 --> 00:19:49,520
Speaker 5: of witnesses that they might profer for the hearing, It'll

327
00:19:49,520 --> 00:19:52,080
Speaker 5: take them about a month to lay it out, and

328
00:19:52,119 --> 00:19:56,400
Speaker 5: then based on the nature of that testimony, if they

329
00:19:56,760 --> 00:20:01,880
Speaker 5: feel the defense Council feels that they can put SBF

330
00:20:01,960 --> 00:20:05,919
Speaker 5: on the stand and have him contextualize or explain some

331
00:20:06,000 --> 00:20:09,480
Speaker 5: things in a better way. They may call him, but

332
00:20:09,560 --> 00:20:12,359
Speaker 5: there's a huge risk in doing that, because if you

333
00:20:12,480 --> 00:20:16,080
Speaker 5: call the defendant as a witness, you are opening up

334
00:20:16,680 --> 00:20:20,399
Speaker 5: them to cross examination on everything that they testified about,

335
00:20:20,680 --> 00:20:23,040
Speaker 5: and that might be a moment for the government to

336
00:20:23,320 --> 00:20:27,639
Speaker 5: really go at SBF and damage him and put the

337
00:20:27,720 --> 00:20:29,800
Speaker 5: nail on the proverbial caulsin.

338
00:20:29,960 --> 00:20:30,760
Speaker 6: For his case.

339
00:20:31,119 --> 00:20:34,800
Speaker 5: So it's a very very difficult question, and you've rightly

340
00:20:34,840 --> 00:20:40,399
Speaker 5: pointed out that a defendant rarely testifies in their own case.

341
00:20:41,600 --> 00:20:45,840
Speaker 2: For SBS, this is freedom on the line for the prosecutors.

342
00:20:46,480 --> 00:20:47,160
Speaker 2: What's at stake.

343
00:20:47,480 --> 00:20:54,000
Speaker 5: It's extremely important because they are staking their credibility. They

344
00:20:54,000 --> 00:20:59,720
Speaker 5: are staking the regulatory environment of the crypto industry. On

345
00:20:59,800 --> 00:21:05,399
Speaker 5: this case, FTX before the collapse was the darling of

346
00:21:05,680 --> 00:21:11,080
Speaker 5: the crypto industry. We have individual celebrities like Tom Brady

347
00:21:11,440 --> 00:21:15,160
Speaker 5: endorsing them. They were all over Super Bowl at they

348
00:21:15,200 --> 00:21:19,879
Speaker 5: were very had a huge public profile. So when the

349
00:21:19,880 --> 00:21:22,520
Speaker 5: government takes on a case like this, it's a heavy

350
00:21:22,520 --> 00:21:25,840
Speaker 5: burden for them. They have shown to the public, or

351
00:21:25,840 --> 00:21:29,080
Speaker 5: made allegations to the public that this was a resoundingly

352
00:21:29,200 --> 00:21:32,720
Speaker 5: large fraud and that there are issues with the crypto

353
00:21:32,800 --> 00:21:35,239
Speaker 5: industry and the people that are operating it. And this

354
00:21:35,280 --> 00:21:37,719
Speaker 5: also sends a message to the crypto industry in general,

355
00:21:38,040 --> 00:21:41,040
Speaker 5: which is you will be prosecuted under the laws that

356
00:21:41,080 --> 00:21:43,879
Speaker 5: we have in place if you do not follow them.

357
00:21:44,359 --> 00:21:48,159
Speaker 5: So this is a major pressure for the government to

358
00:21:48,200 --> 00:21:51,200
Speaker 5: get this right, which is why I think they're going

359
00:21:51,280 --> 00:21:56,040
Speaker 5: to go through an extremely detailed and lengthy presentation. Four

360
00:21:56,080 --> 00:21:59,960
Speaker 5: weeks of putting on evidence in and of itself showed

361
00:22:00,640 --> 00:22:03,440
Speaker 5: how much evidence that they have and how seriously they're

362
00:22:03,480 --> 00:22:07,600
Speaker 5: taking this. So it is a big task for the government.

363
00:22:07,680 --> 00:22:10,520
Speaker 5: I'm not sure that it's a huge risk because they

364
00:22:10,520 --> 00:22:14,080
Speaker 5: seem fairly comfortable with the evidence that they have, but

365
00:22:14,359 --> 00:22:19,240
Speaker 5: obviously if SBF is exonerated and he's found not guilty

366
00:22:19,320 --> 00:22:21,920
Speaker 5: on these charges, it is a major blow to the government.

367
00:22:22,119 --> 00:22:24,480
Speaker 2: Thanks so much for being on the show. That's John

368
00:22:24,520 --> 00:22:27,760
Speaker 2: George Aris, a partner at the Warren Law Group. Coming

369
00:22:27,840 --> 00:22:30,840
Speaker 2: up next, the Supreme Court appears ready to reject a

370
00:22:31,000 --> 00:22:35,280
Speaker 2: challenge to the Consumer Financial Protection Board. You're listening to Bloomberg.

371
00:22:35,720 --> 00:22:39,040
Speaker 2: The fate of the Consumer Financial Protection Bureau was at

372
00:22:39,040 --> 00:22:42,440
Speaker 2: stake in a case asking the Supreme Court to declare

373
00:22:42,440 --> 00:22:47,480
Speaker 2: its funding system unconstitutional. But justice is across the ideological

374
00:22:47,560 --> 00:22:50,320
Speaker 2: Spectrum seemed to be struggling with that argument.

375
00:22:51,000 --> 00:22:52,959
Speaker 7: Is there not in the Constitution? Where do we get

376
00:22:53,000 --> 00:22:53,680
Speaker 7: I don't understand.

377
00:22:53,720 --> 00:22:57,240
Speaker 2: We can't just suddenly decide that things are troubling without

378
00:22:57,280 --> 00:22:59,560
Speaker 2: some kind of legal reference point.

379
00:23:00,040 --> 00:23:04,159
Speaker 7: Well, I'm trying to understand your argument that I'm a

380
00:23:04,240 --> 00:23:05,080
Speaker 7: total loss.

381
00:23:05,880 --> 00:23:10,720
Speaker 8: The word perpetual I'm having trouble with because it implies

382
00:23:10,960 --> 00:23:14,879
Speaker 8: that it's entrenched and that a future Congress couldn't change it,

383
00:23:14,960 --> 00:23:16,560
Speaker 8: but Congress could change it tomorrow.

384
00:23:17,480 --> 00:23:20,000
Speaker 1: This is the standard be Is it like an intelligible

385
00:23:20,040 --> 00:23:23,800
Speaker 1: principle of money spent? I mean, I think we're all

386
00:23:23,880 --> 00:23:26,600
Speaker 1: struggling to figure out, then, what's the standard that you

387
00:23:26,600 --> 00:23:28,480
Speaker 1: would use and just assuming that you're right.

388
00:23:28,920 --> 00:23:34,120
Speaker 2: Unlike most federal agencies, the CFPB, the federal government's consumer

389
00:23:34,200 --> 00:23:40,040
Speaker 2: financial watchdog, doesn't rely on the annual budget process in Congress. Instead,

390
00:23:40,160 --> 00:23:43,600
Speaker 2: it's funded directly by the Federal Reserve. But the Solicitor

391
00:23:43,680 --> 00:23:48,440
Speaker 2: General told the justices that the CFPB was indistinguishable from

392
00:23:48,440 --> 00:23:52,399
Speaker 2: many other federal agencies, including ones that date back to

393
00:23:52,480 --> 00:23:56,920
Speaker 2: the country's founding, and both liberal and conservative justices seem

394
00:23:57,000 --> 00:24:01,600
Speaker 2: to agree. Here are Justices Elena Kagan, Clarence Thomas.

395
00:24:01,760 --> 00:24:07,960
Speaker 7: Annual line item appropriations. We're some appropriations, but massively not

396
00:24:08,119 --> 00:24:11,399
Speaker 7: all appropriations, and so you're just flying in the face

397
00:24:11,960 --> 00:24:14,320
Speaker 7: of two hundred and fifty years of history.

398
00:24:14,800 --> 00:24:17,600
Speaker 4: I get your point that this is different, that it's unique,

399
00:24:17,680 --> 00:24:21,199
Speaker 4: that it's odd that they've never gone this far, but

400
00:24:21,320 --> 00:24:25,879
Speaker 4: that's not having gone as far is not a constitutional problem?

401
00:24:26,000 --> 00:24:28,400
Speaker 2: Joining me is Harold Krant, a professor at the Chicago

402
00:24:28,520 --> 00:24:31,520
Speaker 2: Kent College of Law, tell us about the question in

403
00:24:31,560 --> 00:24:35,640
Speaker 2: the case. It's based on the appropriations clause of the Constitution.

404
00:24:36,640 --> 00:24:40,360
Speaker 6: The propation clause in the Constitution is situated in Article one.

405
00:24:40,480 --> 00:24:44,000
Speaker 6: It's one of Congress's great powers to conteract any kind

406
00:24:44,119 --> 00:24:48,080
Speaker 6: of presidential overreach, because the president can't do anything or

407
00:24:48,080 --> 00:24:51,280
Speaker 6: the exectu bridge can't do anything unless Congress gives it

408
00:24:51,320 --> 00:24:55,000
Speaker 6: the money to perform certain functions. And the clause itself

409
00:24:55,080 --> 00:24:57,480
Speaker 6: says that no money shall be drawn from the treasury

410
00:24:57,640 --> 00:25:00,960
Speaker 6: but in consequence of appropriations by law law. And the

411
00:25:01,080 --> 00:25:04,960
Speaker 6: question that was raised in the case is does appropriations

412
00:25:04,960 --> 00:25:09,639
Speaker 6: by loss imply every year appropriations does it imply a

413
00:25:09,800 --> 00:25:13,359
Speaker 6: strict amount of money? Because in this case, under the

414
00:25:13,640 --> 00:25:18,439
Speaker 6: twenty ten law that created the agency, Congress gave it

415
00:25:18,720 --> 00:25:22,240
Speaker 6: an open ended funding mechanism which should actually be drawn

416
00:25:22,359 --> 00:25:26,080
Speaker 6: from another agency, the FED and the FED and the

417
00:25:26,720 --> 00:25:30,200
Speaker 6: amount of money that the CFPB could use the maximums

418
00:25:30,240 --> 00:25:35,280
Speaker 6: twelve percent of the Fed's budget. So the argument was

419
00:25:35,359 --> 00:25:39,480
Speaker 6: this is somewhat of an unusual appropriations decision. The fact

420
00:25:39,480 --> 00:25:43,840
Speaker 6: that Congress decided what the funding mechanism means is that enough.

421
00:25:44,320 --> 00:25:47,000
Speaker 6: And that's what the debate really was about in the

422
00:25:47,000 --> 00:25:50,320
Speaker 6: Supreme Court, and both sides had a hard time finding

423
00:25:50,359 --> 00:25:54,280
Speaker 6: some kind of line to draw to distinguish permissible congressional

424
00:25:54,280 --> 00:25:56,639
Speaker 6: appropriations from impermissible ones.

425
00:25:57,240 --> 00:26:02,200
Speaker 2: Justices on both sides seemed to be generally confused by

426
00:26:02,240 --> 00:26:06,440
Speaker 2: the arguments by former US Listener General Noel Francisco on

427
00:26:06,480 --> 00:26:08,720
Speaker 2: behalf of the trade associations, and.

428
00:26:08,720 --> 00:26:13,720
Speaker 6: Understandably because they were searching for some kind of intelligible

429
00:26:13,760 --> 00:26:16,520
Speaker 6: principle to use that term that they could use in

430
00:26:16,680 --> 00:26:21,080
Speaker 6: order to side with those attacking the CSPB, and there

431
00:26:21,160 --> 00:26:24,280
Speaker 6: was no intelligible principle. I mean, the former Stalist general

432
00:26:24,320 --> 00:26:27,480
Speaker 6: reached out for some factors that there's no real cap

433
00:26:27,520 --> 00:26:29,920
Speaker 6: in this case, no real cap of how much money

434
00:26:29,920 --> 00:26:32,280
Speaker 6: that can be spent. I mean that's not exactly true,

435
00:26:32,359 --> 00:26:34,720
Speaker 6: but I understand what he was saying. There's also no

436
00:26:34,960 --> 00:26:39,640
Speaker 6: time duration, meaning that with Congress doesn't act, the agency

437
00:26:39,640 --> 00:26:42,800
Speaker 6: bcves this money year after year. And finally, it's true

438
00:26:42,840 --> 00:26:46,439
Speaker 6: that this case is different is because another agency distributes

439
00:26:46,560 --> 00:26:50,640
Speaker 6: the money as opposed to Congress directly. But this former

440
00:26:50,680 --> 00:26:53,320
Speaker 6: Salister General couldn't say which one of these factors was

441
00:26:53,359 --> 00:26:57,080
Speaker 6: the most important. He basically said, well, this is sweet, generous.

442
00:26:57,560 --> 00:26:59,800
Speaker 6: All three of these things are going on in this case.

443
00:27:00,160 --> 00:27:04,080
Speaker 6: He also added sort of a subsidiary point that there's

444
00:27:04,160 --> 00:27:08,080
Speaker 6: no sort of market check on what the CFPB does.

445
00:27:08,400 --> 00:27:10,520
Speaker 6: They can just keep getting more and more money and

446
00:27:10,560 --> 00:27:13,640
Speaker 6: nobody will be upset by it because it's hidden through

447
00:27:13,760 --> 00:27:17,520
Speaker 6: the FED. And what the Justice is said, well, well,

448
00:27:17,560 --> 00:27:19,600
Speaker 6: where's the line. How do we apply this in the future.

449
00:27:20,000 --> 00:27:22,840
Speaker 6: Give us some kind of understanding about which is the

450
00:27:22,840 --> 00:27:26,080
Speaker 6: most important point, because if we take one and strictly,

451
00:27:26,400 --> 00:27:30,359
Speaker 6: the entire country fall apart. Because Congress has been giving

452
00:27:30,560 --> 00:27:33,080
Speaker 6: this kind of appropriation to one form or another. One

453
00:27:33,080 --> 00:27:38,600
Speaker 6: of these factors has been present in countless appropriations throughout history.

454
00:27:38,840 --> 00:27:43,120
Speaker 2: The decision came out of the ultra conservative Fifth Circuit

455
00:27:43,160 --> 00:27:47,440
Speaker 2: from a panel of three Trump appointed judges, and that

456
00:27:47,520 --> 00:27:51,639
Speaker 2: Circuit seems to be trying to push the envelope in

457
00:27:52,040 --> 00:27:55,160
Speaker 2: many cases that the Supreme Court is taking this term.

458
00:27:55,359 --> 00:27:57,600
Speaker 2: In other words, here this was a novel argument to

459
00:27:57,640 --> 00:27:59,600
Speaker 2: bas this on the appropriations clause.

460
00:28:00,480 --> 00:28:04,760
Speaker 6: I sense that the Court may be moderating slightly and

461
00:28:05,000 --> 00:28:08,600
Speaker 6: that it sort of understands that because of the signals

462
00:28:08,600 --> 00:28:11,080
Speaker 6: that is given in past cases, there are lower court

463
00:28:11,160 --> 00:28:14,399
Speaker 6: judges who are becoming more and more adventurous as the

464
00:28:14,400 --> 00:28:17,760
Speaker 6: ones in the Fifth Circuit. And there may be a

465
00:28:17,840 --> 00:28:20,520
Speaker 6: residual feeling not in all the justices, but in some

466
00:28:20,880 --> 00:28:23,760
Speaker 6: that that just goes too far, that you have to

467
00:28:23,800 --> 00:28:27,760
Speaker 6: have some kind of principled decision backed by history, which

468
00:28:27,800 --> 00:28:30,520
Speaker 6: in other context is very important to the court, and

469
00:28:30,800 --> 00:28:33,879
Speaker 6: this simply doesn't exist in this case. So it seems

470
00:28:34,000 --> 00:28:37,320
Speaker 6: relatively clear, though not for sure, of course, that the

471
00:28:37,359 --> 00:28:40,080
Speaker 6: Court will rebuff the Fifth Circuit saying that it went

472
00:28:40,440 --> 00:28:43,840
Speaker 6: just too far, because it'd be incredibly difficult to craft

473
00:28:43,880 --> 00:28:48,080
Speaker 6: an opinion that wouldn't jeopardize countless other agencies. I mean,

474
00:28:48,160 --> 00:28:51,640
Speaker 6: just give a couple of examples. The Post Office gets

475
00:28:51,680 --> 00:28:54,240
Speaker 6: to enlarge its budget depending upon what it brings in

476
00:28:54,280 --> 00:28:57,800
Speaker 6: with postal fees, as does any federal agency that relies

477
00:28:57,880 --> 00:29:02,320
Speaker 6: upon permit systems, and the Custom's Office was structured that

478
00:29:02,400 --> 00:29:05,840
Speaker 6: way as well. And the Congress has made sort of

479
00:29:05,880 --> 00:29:10,600
Speaker 6: perpetual delegations to fill Social Security checks every year, and

480
00:29:10,640 --> 00:29:12,880
Speaker 6: it doesn't have to re up those every year. So

481
00:29:12,920 --> 00:29:18,200
Speaker 6: each of these factors that the challengers raised exist in

482
00:29:18,280 --> 00:29:21,440
Speaker 6: many fundamental statutes. So it's very difficult, and the Court

483
00:29:21,480 --> 00:29:24,440
Speaker 6: is aware that if they try to draw aline it

484
00:29:24,520 --> 00:29:27,880
Speaker 6: may jeopardize very basics of executive branch government.

485
00:29:28,880 --> 00:29:32,960
Speaker 2: At stake is really every regulation and enforcement action the

486
00:29:33,000 --> 00:29:37,720
Speaker 2: CFPB has taken since its beginning, and organizations representing the

487
00:29:37,760 --> 00:29:41,480
Speaker 2: mortgage industry, housing industry, and realtors warn the court of

488
00:29:41,520 --> 00:29:46,400
Speaker 2: the potentially catastrophic consequences of a broad decision, saying that

489
00:29:46,440 --> 00:29:48,800
Speaker 2: it could set off a wave of challenges and the

490
00:29:48,880 --> 00:29:52,560
Speaker 2: housing market could descend into chaos to the detriment of

491
00:29:52,600 --> 00:29:54,360
Speaker 2: all mortgage borrowers.

492
00:29:54,760 --> 00:29:57,800
Speaker 6: The actual challenge was to a payday loan, and if

493
00:29:57,840 --> 00:30:02,400
Speaker 6: the Court focused only on knocking on the payday loan rule,

494
00:30:02,680 --> 00:30:05,720
Speaker 6: then the markets would not be rattled. But the concern

495
00:30:05,840 --> 00:30:08,560
Speaker 6: is realist. What's the remedy's going to be? It's hard

496
00:30:08,560 --> 00:30:12,480
Speaker 6: to conceive of what the Court could do if it

497
00:30:12,520 --> 00:30:16,200
Speaker 6: found this appropriation's defect. Would it make up an appropriation

498
00:30:16,280 --> 00:30:20,160
Speaker 6: from Congress? Would it say the entire statues unconstitutional and

499
00:30:20,200 --> 00:30:22,200
Speaker 6: send it back to Congress to decide what to do.

500
00:30:22,520 --> 00:30:24,320
Speaker 6: And if they did that, what's going to govern the

501
00:30:24,360 --> 00:30:27,720
Speaker 6: mortgage industry and their interim? And that was the concern. Now.

502
00:30:27,760 --> 00:30:31,600
Speaker 6: The good news is that no Justice during the Soter

503
00:30:31,680 --> 00:30:35,520
Speaker 6: General's argument, asked her what she thought about the appropriate remedy.

504
00:30:35,880 --> 00:30:38,680
Speaker 6: That might be another signal that the Court is not

505
00:30:38,720 --> 00:30:42,680
Speaker 6: going to hold this unconstitutional. There was some discussion later

506
00:30:42,920 --> 00:30:46,640
Speaker 6: with the challengers about what remedy they seek, but it's

507
00:30:46,800 --> 00:30:50,000
Speaker 6: very difficult to craft a remedy without roiling both the

508
00:30:50,040 --> 00:30:53,640
Speaker 6: mortgage and the credit markets, not to mention jeopardizing lump

509
00:30:53,640 --> 00:30:56,600
Speaker 6: sum appropriations to other industries and so forth.

510
00:30:56,800 --> 00:31:00,480
Speaker 2: Even Justice Clarence Thomas made a state meant that it

511
00:31:00,520 --> 00:31:05,840
Speaker 2: didn't seem unconstitutional. Defenders of the CFPB were worried about

512
00:31:05,840 --> 00:31:09,560
Speaker 2: this case. It was seen as the most significant test

513
00:31:09,600 --> 00:31:13,640
Speaker 2: of the agency's thirteen year existence. It's been before the

514
00:31:13,680 --> 00:31:16,320
Speaker 2: Court before in twenty twenty. Tell us what happened then?

515
00:31:16,840 --> 00:31:20,480
Speaker 6: Yeah, the earlier case challenged in some ways, the very

516
00:31:20,520 --> 00:31:23,200
Speaker 6: existence of the agency is on the ground that it

517
00:31:23,240 --> 00:31:26,920
Speaker 6: had an unconstitutional structure in that there was only one

518
00:31:26,960 --> 00:31:31,440
Speaker 6: director of this agency, and the Court felt that because

519
00:31:31,440 --> 00:31:33,080
Speaker 6: it was just a single member at the head of

520
00:31:33,080 --> 00:31:36,320
Speaker 6: the agency, that the agency would be too independent of

521
00:31:36,480 --> 00:31:41,920
Speaker 6: presidential supervision. And even though there are some agencies also

522
00:31:42,120 --> 00:31:46,400
Speaker 6: having only one head, most of our independent agencies have

523
00:31:46,640 --> 00:31:50,520
Speaker 6: three or five people at the head, which dilutes the authority,

524
00:31:50,560 --> 00:31:54,360
Speaker 6: according to the Court, of any one individual commissioner or

525
00:31:54,480 --> 00:31:57,840
Speaker 6: director of an agency. So in the former case, in

526
00:31:57,920 --> 00:32:01,719
Speaker 6: some of law case, the Court also had a remedial question.

527
00:32:02,280 --> 00:32:05,160
Speaker 6: It could have punted the whole thing back to Congress,

528
00:32:05,160 --> 00:32:08,960
Speaker 6: and the Congress restructure the CFPB as it chose fit.

529
00:32:09,320 --> 00:32:11,520
Speaker 6: What it did was it gave the President the power

530
00:32:11,560 --> 00:32:14,440
Speaker 6: to remove the head of the agency at will as

531
00:32:14,480 --> 00:32:16,920
Speaker 6: a remedy. But the remedy that would have been just

532
00:32:16,960 --> 00:32:19,200
Speaker 6: as logical would have been to say that there are

533
00:32:19,240 --> 00:32:22,440
Speaker 6: now three members on the CFPB and then allow the

534
00:32:22,480 --> 00:32:26,160
Speaker 6: President to appoint two others, because that would have gotten

535
00:32:26,240 --> 00:32:29,800
Speaker 6: rid of the constitutional flaw that the Court identified.

536
00:32:30,560 --> 00:32:33,680
Speaker 2: What was the Fifth Circuit's remedy. Would the remedy have

537
00:32:33,720 --> 00:32:37,880
Speaker 2: been to dismantle the CFPB because there wouldn't have been funding.

538
00:32:37,800 --> 00:32:42,680
Speaker 6: So the remedy wasn't clear under the Fifth Circuit's decision. Certainly,

539
00:32:43,000 --> 00:32:47,200
Speaker 6: what the Court indicated was that the payday loan rules,

540
00:32:47,280 --> 00:32:49,320
Speaker 6: which were challenged in this case, they would have been

541
00:32:49,400 --> 00:32:52,320
Speaker 6: held unconstitutional. The question that, of course, would have been,

542
00:32:52,360 --> 00:32:55,960
Speaker 6: if just the payday loans rules were held unconstitutional, well,

543
00:32:56,200 --> 00:32:59,080
Speaker 6: what would happen to every other rule that was issued

544
00:32:59,080 --> 00:33:02,360
Speaker 6: by the agency With this is just ushered the stampede

545
00:33:02,360 --> 00:33:04,840
Speaker 6: to the court that no matter what kind of action

546
00:33:04,960 --> 00:33:08,520
Speaker 6: there was challenging enforcement action, a rule or whatever that

547
00:33:08,600 --> 00:33:12,120
Speaker 6: the agency issued, that the courts then falling fascifred president

548
00:33:12,360 --> 00:33:15,560
Speaker 6: would have had to knock those down as unconstitutional as well.

549
00:33:16,040 --> 00:33:18,880
Speaker 2: This is one of several cases coming before the Court

550
00:33:18,960 --> 00:33:25,360
Speaker 2: this term that challenge agency authority attack on the administrative state.

551
00:33:25,880 --> 00:33:30,440
Speaker 2: Do these CFPB arguments indicate that the conservative justices might

552
00:33:30,480 --> 00:33:34,160
Speaker 2: not go as far as conservatives who are against big

553
00:33:34,200 --> 00:33:37,120
Speaker 2: government might want, or is it just based on the

554
00:33:37,120 --> 00:33:38,080
Speaker 2: facts of this case?

555
00:33:38,560 --> 00:33:42,240
Speaker 6: Well, the Court ushered in all of these cases by

556
00:33:42,320 --> 00:33:45,480
Speaker 6: signaling that it was re examining the very sort of

557
00:33:45,520 --> 00:33:48,560
Speaker 6: accepted basis of the administrative state that's existed for in

558
00:33:48,600 --> 00:33:50,640
Speaker 6: some ways for seventy five years, in some ways since

559
00:33:50,640 --> 00:33:53,760
Speaker 6: our nation's history. So the Court has invited these kinds

560
00:33:53,760 --> 00:33:56,840
Speaker 6: of challenges, and I think now that so many challenges

561
00:33:56,880 --> 00:33:59,520
Speaker 6: are taking place, and course, like the Fifth Circuit or

562
00:33:59,640 --> 00:34:02,760
Speaker 6: chopping at the bid to pare down the authority of

563
00:34:02,800 --> 00:34:05,480
Speaker 6: executive branch officials, the Court is going to have to

564
00:34:05,480 --> 00:34:07,880
Speaker 6: make a tough call about where to draw the line.

565
00:34:08,040 --> 00:34:11,279
Speaker 6: Even though this case would have had tremendous significance and

566
00:34:11,400 --> 00:34:15,359
Speaker 6: still could if the agency loses. There's another case that's

567
00:34:15,360 --> 00:34:17,759
Speaker 6: penning and hasn't been set for a argument yet, the

568
00:34:17,840 --> 00:34:23,000
Speaker 6: Jocracy case, which itself has incredible seeds of doing great

569
00:34:23,000 --> 00:34:26,640
Speaker 6: mischief to the administrative state because they're both raised and

570
00:34:26,680 --> 00:34:31,040
Speaker 6: non delegation argument, which would limit the authority of agencies

571
00:34:31,080 --> 00:34:35,120
Speaker 6: to interpret broad congressional statutes in ways that they have

572
00:34:35,200 --> 00:34:38,040
Speaker 6: to as an everyday basis. But the other argument is

573
00:34:38,080 --> 00:34:42,000
Speaker 6: given is that agencies can no longer go before agencies

574
00:34:42,040 --> 00:34:45,520
Speaker 6: to bring most enforcement actions, but rather have to proceed

575
00:34:46,239 --> 00:34:49,560
Speaker 6: in court with a jury trial, which would take an

576
00:34:49,560 --> 00:34:52,880
Speaker 6: immense amount of time and money and lose the ability

577
00:34:53,040 --> 00:34:57,200
Speaker 6: of an expert tribunal to understand the facts of the case.

578
00:34:57,560 --> 00:35:00,120
Speaker 6: So if those arguments are held by the court, and

579
00:35:00,160 --> 00:35:03,960
Speaker 6: that's this circuit challenge, that would be again a shoe

580
00:35:04,120 --> 00:35:07,960
Speaker 6: tectonic shift in terms of a loss of agency, flexibility

581
00:35:08,160 --> 00:35:08,680
Speaker 6: and power.

582
00:35:09,000 --> 00:35:11,759
Speaker 2: Thanks for joining me, Hal. That's Professor Harold Krant of

583
00:35:11,840 --> 00:35:14,719
Speaker 2: the Chicago Kent College of Law. And that's it for

584
00:35:14,760 --> 00:35:17,399
Speaker 2: this edition of The Bloomberg Law Show. Remember you can

585
00:35:17,400 --> 00:35:20,600
Speaker 2: always get the latest legal news on our Bloomberg Law Podcast.

586
00:35:20,920 --> 00:35:23,960
Speaker 2: You can find them on Apple Podcasts, Spotify, and at

587
00:35:24,120 --> 00:35:29,160
Speaker 2: www dot bloomberg dot com slash podcast Slash Law, And

588
00:35:29,200 --> 00:35:32,279
Speaker 2: remember to tune into The Bloomberg Law Show every weeknight

589
00:35:32,360 --> 00:35:35,799
Speaker 2: at ten pm Wall Street Time. I'm June Grosso and

590
00:35:35,880 --> 00:35:37,360
Speaker 2: you're listening to Bloomberg