Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 2: The Sam Bankman, freed on trial in Manhattan Federal Court
Speaker 2: looks different from the Sam Bankman freed that presided over
Speaker 2: a crypto empire. Gone are the thick, unkempt curls that
Speaker 2: became his trademark and the subject of a series of memes.
Speaker 2: The baggy cargo shorts, the T shirts and sneakers. In
Speaker 2: their place, a neat, close cut hairstyle reportedly done by
Speaker 2: a fellow inmate, a navy business suit, dress shirt, tie
Speaker 2: in shoes. A jury of nine women and three men
Speaker 2: were sworn in today along with six alternates, and the
Speaker 2: prosecution and defense laid out their cases for the jury
Speaker 2: in opening statements. Joining me from the courthouse is Bloomberg
Speaker 2: Legal reporter Ava Benny Morrison, who was in the courtroom today.
Speaker 2: Did Sam Bankman freed look different from the way we've
Speaker 2: seen him before his arrest?
Speaker 3: Yes, definitely. That was one of the things that first
Speaker 3: struck me when he walked in the courtroom. He looked
Speaker 3: a lot thinner than he has in the past several months,
Speaker 3: and his trademark hair was no longer it was cut
Speaker 3: a lot shorter. You might remember he's always had this
Speaker 3: very messy, curly head of hair. And the weight loss,
Speaker 3: I guess has happened over the past several weeks when
Speaker 3: he's been in the Metropolitan Detention Center in Brooklin. His
Speaker 3: lawyers have complained that he's only been able to eat
Speaker 3: peanut butter and bread and water because he's a vegan
Speaker 3: and they don't have any meals that accommodate him. In
Speaker 3: terms of his mannerism, he seemed pretty cool, calm and collected.
Speaker 3: He engaged a lot with his lawyers. He was keeping
Speaker 3: notes on his own laptop in a XL spreadsheet. He
Speaker 3: was pointing at different potential jurors during the jury selection process.
Speaker 3: He was having jokes and smiling with his lawyers. So
Speaker 3: he seemed to be in a pretty good spirit.
Speaker 2: And the jury tell us about the jury that was
Speaker 2: finally selected.
Speaker 3: The jury that was selected was nine women and three men.
Speaker 3: Most of them are public service jobs worked for the government.
Speaker 3: There is a train conductor on the jury, a retired
Speaker 3: corrections officer who used to work in a prison, a
Speaker 3: special ed teacher, someone who works at a hospital. So
Speaker 3: it was a real mix, but it was a very
Speaker 3: long process to get there.
Speaker 2: The prosecution laid out its case in opening statements and
Speaker 2: painted this picture of Sam Bankman Freed as a calculating criminal.
Speaker 2: Tell us what struck you?
Speaker 4: Yes?
Speaker 3: The theme throughout the prosecution's opening address was that Sam
Speaker 3: Bankman Freed single handedly orchestrated this multi billion dollar forward
Speaker 3: at FTX, and that he tricked all of his customers
Speaker 3: and investors and people who loan money to Alameda Research,
Speaker 3: which was the hedge fund affiliated with FTX. They painted
Speaker 3: him as this sort of criminal mastermind who woodwinked everyone
Speaker 3: over many many years. They said that he only told
Speaker 3: a few people within in a circle about the secret
Speaker 3: borrowing relationship that existed between FTX and Alameda, and those
Speaker 3: people were Caroline Ellison and Gary Wang and Nishad Scene. Now,
Speaker 3: the prosecution didn't mention those three witnesses by name, but
Speaker 3: we know that they are more than likely going to
Speaker 3: testify against them.
Speaker 2: Bankma Free at this trial, and the defense wants the
Speaker 2: jury to see him as a math nerd.
Speaker 5: Yes.
Speaker 3: So the defense's response to what the prosecution's allegations were
Speaker 3: that this is being spun to suit their case essentially,
Speaker 3: and that he's just a math nerd who doesn't party,
Speaker 3: doesn't drink, worked really hard, went to MIT and built
Speaker 3: a multi billion dollar company and was extremely successful, and
Speaker 3: that the loss of customer funds was partly due to
Speaker 3: market downturns last year that were outside of his control
Speaker 3: and also poor risk management at his company. There was
Speaker 3: a bit of a hint in the defense statement. The
Speaker 3: defense said that Sam Batemantrey trusted and relied on Carolina,
Speaker 3: his ex girlfriend and the CEO of al Ameter Research
Speaker 3: to one Alameda because he had taken a backward steps
Speaker 3: from it a couple of years ago to really concentrate
Speaker 3: on what was happening with FTX, But in hindsight, there
Speaker 3: was some four risk management going on at the company.
Speaker 3: And the defense also said that Sam had approached Caroline
Speaker 3: in twenty twenty two when there were the market volatility
Speaker 3: in the crypto industry and said, hey, I need you
Speaker 3: to pedge the Alameda to protect against the possible market
Speaker 3: downturns last year, and she didn't do that. The defense
Speaker 3: didn't stay out right that you know, this is all
Speaker 3: Caroline's fault, but there was certainly a flavor that she
Speaker 3: may wear some of the blame in their case, so
Speaker 3: you did get a little bit of a flavor of
Speaker 3: a blank game going on here.
Speaker 2: Did they call any witnesses today?
Speaker 3: We heard from two witnesses. One was a customer of
Speaker 3: FTX who lost more than one hundred thousand dollars. He
Speaker 3: sort of explained how he signed up, what his expectation
Speaker 3: who were in terms of what they would do with
Speaker 3: his customer funds. And then we also heard from a
Speaker 3: former STX developer who worked at the company for a
Speaker 3: couple of years, was best friends with Sam growing up.
Speaker 3: They went to MIT together and they lived in the
Speaker 3: Bahamas with the thirty million dollar pen house together.
Speaker 2: And finally, do you know what witnesses are coming up tomorrow?
Speaker 3: Yes, we're going to continue hearing from the former STX
Speaker 3: developer who testimony started today, and we're also going to
Speaker 3: hear maybe from one of the cooperating witnesses, Gary Wong,
Speaker 3: and the prostitution indicated this afternoon that he would be
Speaker 3: one of two witnesses who would take the case till
Speaker 3: the end of the week.
Speaker 2: I know you're going to be in the courtroom tomorrow
Speaker 2: as well, and we'll talk to you then. Thanks so much, Eva,
Speaker 2: that's Bloomberg legal reporter Eva Benni Morrison coming up next
Speaker 2: more analysis of the case against Sam Bankman Fried. I'm
Speaker 2: Jim Grass when you're listening to Bloomberg. Joining me is
Speaker 2: John George Aarres, a partner at the Warren Lage Group.
Speaker 2: Before the prospective jurors came into the courtroom, the prosecutor
Speaker 2: said that no plea discussions were ever held with Bankman Freed,
Speaker 2: and no offers for a plea deal were made. They
Speaker 2: made plea deals with three other top people at FTX
Speaker 2: and Alameda. Do you find that odd that they didn't
Speaker 2: offer Sam Bankman free to deal.
Speaker 5: Typically the prosecutor's office will offer a deal, but I
Speaker 5: think this case is unique because of the size of
Speaker 5: the fraud. I mean, the crypto industry. This is easily
Speaker 5: the largest fraud that's impacted it, and I think the
Speaker 5: prosecutors have taken a very hard line position from the
Speaker 5: first announcement of the indictment that they want to hold
Speaker 5: Sam Bankman Freed responsible for what they're viewing as an
Speaker 5: ady to one hundred billion dollar fraud, and the fact
Speaker 5: that they didn't offer him a deal, and the fact
Speaker 5: that they have three other individuals who were really at
Speaker 5: the top of FPX, and they have Caroline Ellison who
Speaker 5: was his former partner and also running Almata Research. They
Speaker 5: must feel strongly that the evidence that's going to be
Speaker 5: presented and the testimony that's going to be brought forward
Speaker 5: is so powerful that they're going to be successful on
Speaker 5: their claims. A prosecutor may head to their bets or
Speaker 5: may notice some weaknesses in their case and say, what's
Speaker 5: cut a deal? But I think a the unique nature
Speaker 5: of this case and the size of the fraud, and
Speaker 5: be the strength of the evidence they believe they have
Speaker 5: has led to this result, which is no offer, no deal.
Speaker 2: How much does the prosecution's case depend on the testimony
Speaker 2: of those three cooperating witnesses you mentioned.
Speaker 5: I think from the prosecutor's view, obviously someone needs to
Speaker 5: tell the story, so they need these individuals to talk
Speaker 5: about the impropriety that was going on with STX, and
Speaker 5: really at the core of this is misuse of customer
Speaker 5: funds and mining to customers. These are individual retail investors
Speaker 5: that put their money into FDx and believe that the
Speaker 5: money was being held there. The reality appears to be
Speaker 5: much different. The reality appears to be that this money
Speaker 5: was being used for many different things, including Sam Bagminfreed
Speaker 5: buying properties for himself as well as making political contributions
Speaker 5: and investing in our Nator research. I think there will
Speaker 5: be enough documents to show the flow of funds, but
Speaker 5: I do think that it's important for the individuals to
Speaker 5: testify to stay and give context to the jury about
Speaker 5: what the internal conversations were and what was happening in
Speaker 5: this ecosystem and everything around it. So could they prove
Speaker 5: the case solely based on documents and show the flow
Speaker 5: of funds. I think that they could make a strong
Speaker 5: case that these funds were exiting FTX and going to
Speaker 5: places that they shouldn't have been. But it's obviously important
Speaker 5: to them that these three individuals, Gary wang Nischad Singh
Speaker 5: and Caroline Ellison all give context to that, and I
Speaker 5: think that will be very important.
Speaker 2: Caroline Ellison had an on again, off again romantic relationship
Speaker 2: with bankman Freed. Does that complicate her testimony well?
Speaker 5: From the defensi's point of view, it's very typical in
Speaker 5: a way collar case to attack the credibility of the witnesses.
Speaker 5: That will certainly be a part of their story. Potentially
Speaker 5: they could say she's a scorned ex lover. She has
Speaker 5: a motivation to say negative things about Sam Bankman Freed.
Speaker 5: But in addition to that, they also have the plea deals,
Speaker 5: and they're going to use those plea deals. This is
Speaker 5: the they're going to use those free deals to say, Caroline,
Speaker 5: you got a deal that is helping you avoid the
Speaker 5: highest level of prosecution. You struck that deal, and you're
Speaker 5: making these statements today not because they're truthful, but because
Speaker 5: you basically saved yourself. So I think it's really two things.
Speaker 5: But I do believe that their relationship is something they
Speaker 5: can mine into and that the defense will probe and
Speaker 5: say you are saying these things because your relationship with
Speaker 5: Sam bankmin Free did not work out.
Speaker 2: Can you explain you know what the prosecution is alleging
Speaker 2: happened here.
Speaker 5: Absolutely, So there's seven criminal charges. They're pretty broad, but
Speaker 5: it's why are fraud securities, fraud, money laundering And there's
Speaker 5: a couple different components. The first component is lying to
Speaker 5: the retail investors, lying to them in that the funds
Speaker 5: that they deposit on FTX would be made available to them.
Speaker 5: They can make withdraws and transactions with the funds that
Speaker 5: they deposited freely and as they chose to, but in
Speaker 5: reality the funds that they had depositive were usurped for
Speaker 5: Almada research. There were transfers of I think around eight
Speaker 5: billion dollars ends up, for lack of a better word,
Speaker 5: going missing. And this goes into the political donations that
Speaker 5: Sambang and Freed made, This goes into Almada research, and
Speaker 5: this goes into him buying personal properties for himself. So
Speaker 5: one component is the lying to the investors, and then
Speaker 5: there are other components which are lying to potential creditors
Speaker 5: and lenders of FTX stating that the financial health of
Speaker 5: FTX is completely fine, when in reality the funds that
Speaker 5: are supposed to be held and FTX were no longer there.
Speaker 5: So the core conduct is the same that all stems
Speaker 5: out of the money that were deposited were essentially misappropriated
Speaker 5: in use for other things, and that led to defrauding investors,
Speaker 5: that led to defrauding lenders, and that led to essentially
Speaker 5: money laundering and misappropriating funds for something that was other
Speaker 5: than their intended use, which is an investment in FTX.
Speaker 2: Prosecutors have something like fifty potential witnesses and they've produced
Speaker 2: so far thirteen hundred exhibits ahead of trial. You know, cryptocurrency,
Speaker 2: altering code, flow of money between FTX and Alameda financial transactions.
Speaker 2: Is it a difficult case to keep simple enough or
Speaker 2: interesting enough for a jury.
Speaker 5: I think that the prosecution's focus will be on exactly
Speaker 5: that keeping it simple. At the core of this case
Speaker 5: crypto and the fact that it was crypto and that
Speaker 5: it involves code, and that it's a new digital asset.
Speaker 5: I believe it's something that they're going to try and minimize,
Speaker 5: and they're just going to focus on what is a
Speaker 5: traditional fraud. You lied to people about what you were
Speaker 5: going to do with the money they entrusted you with, period,
Speaker 5: You lied to lenders about the financial viability of the company. Period.
Speaker 5: The defense will certainly try to put forward the story
Speaker 5: that the terms in use of FTX gave them broad
Speaker 5: latitude to move funds as they chose to fit, and
Speaker 5: that maybe they didn't have proper risk management tools, but
Speaker 5: it didn't arise to the level of fraud. So I
Speaker 5: think the government has an interesting story from the perspective
Speaker 5: of this is a huge sum of money, This is
Speaker 5: a very public figure, and I believe that they'll be
Speaker 5: able to boil it down to the base level of
Speaker 5: the conduct that occurred here. However, that is a complication
Speaker 5: that they faced. You know, I do believe that the
Speaker 5: defense is going to put the spotlight on the complexity
Speaker 5: of crypto and how maybe the jury should not treat
Speaker 5: this as just a typical, normal financial transaction. But in
Speaker 5: some I do think that the government will be able
Speaker 5: to boil this down to a base level where a
Speaker 5: jury can really understand what happened.
Speaker 2: The judge has issued a number of pre trial rulings
Speaker 2: that were setbacks for SBF, including revoking his bail and
Speaker 2: jailing him. He ruled that bankmin Freed couldn't call seven
Speaker 2: expert witnesses, and he made a decision this week that
Speaker 2: his lawyers couldn't refer in the opening statements to the
Speaker 2: advice of counsel defense, which they wanted to use to
Speaker 2: show that bankman Freed didn't have criminal intent here and
Speaker 2: was relying on the advice of his attorneys. How serious
Speaker 2: are these setbacks?
Speaker 5: These are fairly serious facts, the first one being revoking
Speaker 5: bailn being put in prison, and that was because there
Speaker 5: was alleged tampering of witnesses occurring in advance of trial.
Speaker 5: So that shows that SBS is a bad actor trying
Speaker 5: to influence the tropil ahead of time. And SDS has been,
Speaker 5: probably much to his lawyers this day, very public about
Speaker 5: saying things, very public about saying I messed up, that
Speaker 5: people need to know the truth. He did, I believe,
Speaker 5: a sixty minute interview on this. He really went out
Speaker 5: and put himself in the public sphere and already made
Speaker 5: a ton of statements that I'm sure the government is
Speaker 5: going to use against him. But as for the pre
Speaker 5: trial rulings, the judge is narrowing the case down to
Speaker 5: what the relevant defenses are that can be presented, and
Speaker 5: the fact that the judge struck down the reliance on
Speaker 5: council defense. It's a very very powerful defense if you
Speaker 5: are able to show that an individual well fully disclosed
Speaker 5: what was happening to an attorney and that an attorney
Speaker 5: rendered advice, and then the individual who gave him the
Speaker 5: advice followed that punctiliously and went along with what the
Speaker 5: lawyer said. What the judge's ruling indicates to me is
Speaker 5: that there were likely some communications about what was happening,
Speaker 5: but it didn't rise to the formal level of an
Speaker 5: advice of council defense, which is very formulaic and it
Speaker 5: has to be laid out clearly with evidence otherwise, you know,
Speaker 5: anyone that had a passing conversation with an attorney would say,
Speaker 5: or even an accountant would say, oh, well, I relied
Speaker 5: on their advice, and that should exonerate me completely. It's
Speaker 5: a blow for the defense because their story is getting
Speaker 5: narrowed in advance of trial, and what they're going to
Speaker 5: have to focus on most likely is that, yes, things
Speaker 5: happen that may have been in proper from a business perspective,
Speaker 5: but it did not rise to the level of criminal intent.
Speaker 5: And looping back on one of our earlier questions, I
Speaker 5: believe that's where the three witnesses that were formerly at
Speaker 5: the top of SPX and Almeta, we'll be able to
Speaker 5: give a lot of context into what those conversations were
Speaker 5: between themselves and SBS.
Speaker 2: The judge has left it open they can't refer to
Speaker 2: the advice of council defense and opening statements, but later
Speaker 2: on in the trial he may allow them to use it.
Speaker 5: So what the judge is signaling is that formal defense
Speaker 5: in order for it to be advanced. It's going to
Speaker 5: have to be laid out through witnesses, through documents. Right,
Speaker 5: there has to be an attorney client relationship in the
Speaker 5: first instance. Then there has to be disclosure of what's
Speaker 5: happening at STX. Then there has to be advice, and
Speaker 5: then following that advice. So at this point, the judge
Speaker 5: is likely not wanting to cloud the jury's mind with
Speaker 5: evidence that has yet to come forward, and a defense counsel,
Speaker 5: especially in a criminal trial, you want to be flexible
Speaker 5: and you also want to play your cards close to
Speaker 5: your chest. When it's time to reveal the evidence, you
Speaker 5: start revealing it because burden in all these cases, right,
Speaker 5: the burden of proof for a criminal prosecution is on
Speaker 5: the government and they have to meet that burden of proof.
Speaker 5: So when it comes time for the defense to lay
Speaker 5: out what their narrative is, what their defenses are, the
Speaker 5: judge appears to be giving them the opportunity to do that,
Speaker 5: but they're saying, we haven't seen any of that. At
Speaker 5: this stage, you don't get to just baldly refer to
Speaker 5: an advice of counsel of defense without making the proper
Speaker 5: evidentiary show.
Speaker 2: Most defendants don't testify at their own trials. But how
Speaker 2: likely do you think it is that he will take
Speaker 2: the stand.
Speaker 5: It's a very difficult question because he does have so
Speaker 5: many prior statements out there, and he may need to
Speaker 5: give them some context. He may need to make certain
Speaker 5: things clear that when he was saying he messed up,
Speaker 5: that he didn't have the intent to mess up. It
Speaker 5: was just that he didn't have the proper risk controls
Speaker 5: in place, you know, given the stakes that we have here,
Speaker 5: right if SBS is convicted of these charges, the sentencing
Speaker 5: guidelines provide that he could be in jail for I
Speaker 5: mean over one hundred years, so with his life on
Speaker 5: the line. Essentially, it may come a time after the
Speaker 5: government presents their case, which it appears it's going to
Speaker 5: take them about a month in total. You had mentioned
Speaker 5: the amount of documents that are out there, the amount
Speaker 5: of witnesses that they might profer for the hearing, It'll
Speaker 5: take them about a month to lay it out, and
Speaker 5: then based on the nature of that testimony, if they
Speaker 5: feel the defense Council feels that they can put SBF
Speaker 5: on the stand and have him contextualize or explain some
Speaker 5: things in a better way. They may call him, but
Speaker 5: there's a huge risk in doing that, because if you
Speaker 5: call the defendant as a witness, you are opening up
Speaker 5: them to cross examination on everything that they testified about,
Speaker 5: and that might be a moment for the government to
Speaker 5: really go at SBF and damage him and put the
Speaker 5: nail on the proverbial caulsin.
Speaker 6: For his case.
Speaker 5: So it's a very very difficult question, and you've rightly
Speaker 5: pointed out that a defendant rarely testifies in their own case.
Speaker 2: For SBS, this is freedom on the line for the prosecutors.
Speaker 2: What's at stake.
Speaker 5: It's extremely important because they are staking their credibility. They
Speaker 5: are staking the regulatory environment of the crypto industry. On
Speaker 5: this case, FTX before the collapse was the darling of
Speaker 5: the crypto industry. We have individual celebrities like Tom Brady
Speaker 5: endorsing them. They were all over Super Bowl at they
Speaker 5: were very had a huge public profile. So when the
Speaker 5: government takes on a case like this, it's a heavy
Speaker 5: burden for them. They have shown to the public, or
Speaker 5: made allegations to the public that this was a resoundingly
Speaker 5: large fraud and that there are issues with the crypto
Speaker 5: industry and the people that are operating it. And this
Speaker 5: also sends a message to the crypto industry in general,
Speaker 5: which is you will be prosecuted under the laws that
Speaker 5: we have in place if you do not follow them.
Speaker 5: So this is a major pressure for the government to
Speaker 5: get this right, which is why I think they're going
Speaker 5: to go through an extremely detailed and lengthy presentation. Four
Speaker 5: weeks of putting on evidence in and of itself showed
Speaker 5: how much evidence that they have and how seriously they're
Speaker 5: taking this. So it is a big task for the government.
Speaker 5: I'm not sure that it's a huge risk because they
Speaker 5: seem fairly comfortable with the evidence that they have, but
Speaker 5: obviously if SBF is exonerated and he's found not guilty
Speaker 5: on these charges, it is a major blow to the government.
Speaker 2: Thanks so much for being on the show. That's John
Speaker 2: George Aris, a partner at the Warren Law Group. Coming
Speaker 2: up next, the Supreme Court appears ready to reject a
Speaker 2: challenge to the Consumer Financial Protection Board. You're listening to Bloomberg.
Speaker 2: The fate of the Consumer Financial Protection Bureau was at
Speaker 2: stake in a case asking the Supreme Court to declare
Speaker 2: its funding system unconstitutional. But justice is across the ideological
Speaker 2: Spectrum seemed to be struggling with that argument.
Speaker 7: Is there not in the Constitution? Where do we get
Speaker 7: I don't understand.
Speaker 2: We can't just suddenly decide that things are troubling without
Speaker 2: some kind of legal reference point.
Speaker 7: Well, I'm trying to understand your argument that I'm a
Speaker 7: total loss.
Speaker 8: The word perpetual I'm having trouble with because it implies
Speaker 8: that it's entrenched and that a future Congress couldn't change it,
Speaker 8: but Congress could change it tomorrow.
Speaker 1: This is the standard be Is it like an intelligible
Speaker 1: principle of money spent? I mean, I think we're all
Speaker 1: struggling to figure out, then, what's the standard that you
Speaker 1: would use and just assuming that you're right.
Speaker 2: Unlike most federal agencies, the CFPB, the federal government's consumer
Speaker 2: financial watchdog, doesn't rely on the annual budget process in Congress. Instead,
Speaker 2: it's funded directly by the Federal Reserve. But the Solicitor
Speaker 2: General told the justices that the CFPB was indistinguishable from
Speaker 2: many other federal agencies, including ones that date back to
Speaker 2: the country's founding, and both liberal and conservative justices seem
Speaker 2: to agree. Here are Justices Elena Kagan, Clarence Thomas.
Speaker 7: Annual line item appropriations. We're some appropriations, but massively not
Speaker 7: all appropriations, and so you're just flying in the face
Speaker 7: of two hundred and fifty years of history.
Speaker 4: I get your point that this is different, that it's unique,
Speaker 4: that it's odd that they've never gone this far, but
Speaker 4: that's not having gone as far is not a constitutional problem?
Speaker 2: Joining me is Harold Krant, a professor at the Chicago
Speaker 2: Kent College of Law, tell us about the question in
Speaker 2: the case. It's based on the appropriations clause of the Constitution.
Speaker 6: The propation clause in the Constitution is situated in Article one.
Speaker 6: It's one of Congress's great powers to conteract any kind
Speaker 6: of presidential overreach, because the president can't do anything or
Speaker 6: the exectu bridge can't do anything unless Congress gives it
Speaker 6: the money to perform certain functions. And the clause itself
Speaker 6: says that no money shall be drawn from the treasury
Speaker 6: but in consequence of appropriations by law law. And the
Speaker 6: question that was raised in the case is does appropriations
Speaker 6: by loss imply every year appropriations does it imply a
Speaker 6: strict amount of money? Because in this case, under the
Speaker 6: twenty ten law that created the agency, Congress gave it
Speaker 6: an open ended funding mechanism which should actually be drawn
Speaker 6: from another agency, the FED and the FED and the
Speaker 6: amount of money that the CFPB could use the maximums
Speaker 6: twelve percent of the Fed's budget. So the argument was
Speaker 6: this is somewhat of an unusual appropriations decision. The fact
Speaker 6: that Congress decided what the funding mechanism means is that enough.
Speaker 6: And that's what the debate really was about in the
Speaker 6: Supreme Court, and both sides had a hard time finding
Speaker 6: some kind of line to draw to distinguish permissible congressional
Speaker 6: appropriations from impermissible ones.
Speaker 2: Justices on both sides seemed to be generally confused by
Speaker 2: the arguments by former US Listener General Noel Francisco on
Speaker 2: behalf of the trade associations, and.
Speaker 6: Understandably because they were searching for some kind of intelligible
Speaker 6: principle to use that term that they could use in
Speaker 6: order to side with those attacking the CSPB, and there
Speaker 6: was no intelligible principle. I mean, the former Stalist general
Speaker 6: reached out for some factors that there's no real cap
Speaker 6: in this case, no real cap of how much money
Speaker 6: that can be spent. I mean that's not exactly true,
Speaker 6: but I understand what he was saying. There's also no
Speaker 6: time duration, meaning that with Congress doesn't act, the agency
Speaker 6: bcves this money year after year. And finally, it's true
Speaker 6: that this case is different is because another agency distributes
Speaker 6: the money as opposed to Congress directly. But this former
Speaker 6: Salister General couldn't say which one of these factors was
Speaker 6: the most important. He basically said, well, this is sweet, generous.
Speaker 6: All three of these things are going on in this case.
Speaker 6: He also added sort of a subsidiary point that there's
Speaker 6: no sort of market check on what the CFPB does.
Speaker 6: They can just keep getting more and more money and
Speaker 6: nobody will be upset by it because it's hidden through
Speaker 6: the FED. And what the Justice is said, well, well,
Speaker 6: where's the line. How do we apply this in the future.
Speaker 6: Give us some kind of understanding about which is the
Speaker 6: most important point, because if we take one and strictly,
Speaker 6: the entire country fall apart. Because Congress has been giving
Speaker 6: this kind of appropriation to one form or another. One
Speaker 6: of these factors has been present in countless appropriations throughout history.
Speaker 2: The decision came out of the ultra conservative Fifth Circuit
Speaker 2: from a panel of three Trump appointed judges, and that
Speaker 2: Circuit seems to be trying to push the envelope in
Speaker 2: many cases that the Supreme Court is taking this term.
Speaker 2: In other words, here this was a novel argument to
Speaker 2: bas this on the appropriations clause.
Speaker 6: I sense that the Court may be moderating slightly and
Speaker 6: that it sort of understands that because of the signals
Speaker 6: that is given in past cases, there are lower court
Speaker 6: judges who are becoming more and more adventurous as the
Speaker 6: ones in the Fifth Circuit. And there may be a
Speaker 6: residual feeling not in all the justices, but in some
Speaker 6: that that just goes too far, that you have to
Speaker 6: have some kind of principled decision backed by history, which
Speaker 6: in other context is very important to the court, and
Speaker 6: this simply doesn't exist in this case. So it seems
Speaker 6: relatively clear, though not for sure, of course, that the
Speaker 6: Court will rebuff the Fifth Circuit saying that it went
Speaker 6: just too far, because it'd be incredibly difficult to craft
Speaker 6: an opinion that wouldn't jeopardize countless other agencies. I mean,
Speaker 6: just give a couple of examples. The Post Office gets
Speaker 6: to enlarge its budget depending upon what it brings in
Speaker 6: with postal fees, as does any federal agency that relies
Speaker 6: upon permit systems, and the Custom's Office was structured that
Speaker 6: way as well. And the Congress has made sort of
Speaker 6: perpetual delegations to fill Social Security checks every year, and
Speaker 6: it doesn't have to re up those every year. So
Speaker 6: each of these factors that the challengers raised exist in
Speaker 6: many fundamental statutes. So it's very difficult, and the Court
Speaker 6: is aware that if they try to draw aline it
Speaker 6: may jeopardize very basics of executive branch government.
Speaker 2: At stake is really every regulation and enforcement action the
Speaker 2: CFPB has taken since its beginning, and organizations representing the
Speaker 2: mortgage industry, housing industry, and realtors warn the court of
Speaker 2: the potentially catastrophic consequences of a broad decision, saying that
Speaker 2: it could set off a wave of challenges and the
Speaker 2: housing market could descend into chaos to the detriment of
Speaker 2: all mortgage borrowers.
Speaker 6: The actual challenge was to a payday loan, and if
Speaker 6: the Court focused only on knocking on the payday loan rule,
Speaker 6: then the markets would not be rattled. But the concern
Speaker 6: is realist. What's the remedy's going to be? It's hard
Speaker 6: to conceive of what the Court could do if it
Speaker 6: found this appropriation's defect. Would it make up an appropriation
Speaker 6: from Congress? Would it say the entire statues unconstitutional and
Speaker 6: send it back to Congress to decide what to do.
Speaker 6: And if they did that, what's going to govern the
Speaker 6: mortgage industry and their interim? And that was the concern. Now.
Speaker 6: The good news is that no Justice during the Soter
Speaker 6: General's argument, asked her what she thought about the appropriate remedy.
Speaker 6: That might be another signal that the Court is not
Speaker 6: going to hold this unconstitutional. There was some discussion later
Speaker 6: with the challengers about what remedy they seek, but it's
Speaker 6: very difficult to craft a remedy without roiling both the
Speaker 6: mortgage and the credit markets, not to mention jeopardizing lump
Speaker 6: sum appropriations to other industries and so forth.
Speaker 2: Even Justice Clarence Thomas made a state meant that it
Speaker 2: didn't seem unconstitutional. Defenders of the CFPB were worried about
Speaker 2: this case. It was seen as the most significant test
Speaker 2: of the agency's thirteen year existence. It's been before the
Speaker 2: Court before in twenty twenty. Tell us what happened then?
Speaker 6: Yeah, the earlier case challenged in some ways, the very
Speaker 6: existence of the agency is on the ground that it
Speaker 6: had an unconstitutional structure in that there was only one
Speaker 6: director of this agency, and the Court felt that because
Speaker 6: it was just a single member at the head of
Speaker 6: the agency, that the agency would be too independent of
Speaker 6: presidential supervision. And even though there are some agencies also
Speaker 6: having only one head, most of our independent agencies have
Speaker 6: three or five people at the head, which dilutes the authority,
Speaker 6: according to the Court, of any one individual commissioner or
Speaker 6: director of an agency. So in the former case, in
Speaker 6: some of law case, the Court also had a remedial question.
Speaker 6: It could have punted the whole thing back to Congress,
Speaker 6: and the Congress restructure the CFPB as it chose fit.
Speaker 6: What it did was it gave the President the power
Speaker 6: to remove the head of the agency at will as
Speaker 6: a remedy. But the remedy that would have been just
Speaker 6: as logical would have been to say that there are
Speaker 6: now three members on the CFPB and then allow the
Speaker 6: President to appoint two others, because that would have gotten
Speaker 6: rid of the constitutional flaw that the Court identified.
Speaker 2: What was the Fifth Circuit's remedy. Would the remedy have
Speaker 2: been to dismantle the CFPB because there wouldn't have been funding.
Speaker 6: So the remedy wasn't clear under the Fifth Circuit's decision. Certainly,
Speaker 6: what the Court indicated was that the payday loan rules,
Speaker 6: which were challenged in this case, they would have been
Speaker 6: held unconstitutional. The question that, of course, would have been,
Speaker 6: if just the payday loans rules were held unconstitutional, well,
Speaker 6: what would happen to every other rule that was issued
Speaker 6: by the agency With this is just ushered the stampede
Speaker 6: to the court that no matter what kind of action
Speaker 6: there was challenging enforcement action, a rule or whatever that
Speaker 6: the agency issued, that the courts then falling fascifred president
Speaker 6: would have had to knock those down as unconstitutional as well.
Speaker 2: This is one of several cases coming before the Court
Speaker 2: this term that challenge agency authority attack on the administrative state.
Speaker 2: Do these CFPB arguments indicate that the conservative justices might
Speaker 2: not go as far as conservatives who are against big
Speaker 2: government might want, or is it just based on the
Speaker 2: facts of this case?
Speaker 6: Well, the Court ushered in all of these cases by
Speaker 6: signaling that it was re examining the very sort of
Speaker 6: accepted basis of the administrative state that's existed for in
Speaker 6: some ways for seventy five years, in some ways since
Speaker 6: our nation's history. So the Court has invited these kinds
Speaker 6: of challenges, and I think now that so many challenges
Speaker 6: are taking place, and course, like the Fifth Circuit or
Speaker 6: chopping at the bid to pare down the authority of
Speaker 6: executive branch officials, the Court is going to have to
Speaker 6: make a tough call about where to draw the line.
Speaker 6: Even though this case would have had tremendous significance and
Speaker 6: still could if the agency loses. There's another case that's
Speaker 6: penning and hasn't been set for a argument yet, the
Speaker 6: Jocracy case, which itself has incredible seeds of doing great
Speaker 6: mischief to the administrative state because they're both raised and
Speaker 6: non delegation argument, which would limit the authority of agencies
Speaker 6: to interpret broad congressional statutes in ways that they have
Speaker 6: to as an everyday basis. But the other argument is
Speaker 6: given is that agencies can no longer go before agencies
Speaker 6: to bring most enforcement actions, but rather have to proceed
Speaker 6: in court with a jury trial, which would take an
Speaker 6: immense amount of time and money and lose the ability
Speaker 6: of an expert tribunal to understand the facts of the case.
Speaker 6: So if those arguments are held by the court, and
Speaker 6: that's this circuit challenge, that would be again a shoe
Speaker 6: tectonic shift in terms of a loss of agency, flexibility
Speaker 6: and power.
Speaker 2: Thanks for joining me, Hal. That's Professor Harold Krant of
Speaker 2: the Chicago Kent College of Law. And that's it for
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