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Speaker 1: Here's the lyft, and only if you find all the

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Speaker 1: evidence to back this up, I'll do it. I'll take

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Speaker 1: it on all right, than mister master, Yeah, remind me

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Speaker 1: of that, But I'm filing for bankruptcy.

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Speaker 2: First, there was the Oscar winning legal drama Aaron Brockovich

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Speaker 2: that catapulted the already successful lawyer Thomas Girardi into the

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Speaker 2: national limelight. That was back in two thousand. Then in

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Speaker 2: twenty fifteen.

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Speaker 3: This season on the Real Housewives of Beverly Hills.

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Speaker 2: There was his wife, Erica Jane, becoming one of the

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Speaker 2: Real Housewives of Beverly Hills with her ostentatious displays of

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Speaker 2: wealth even for a real housewife. Now, that lavish lifestyle,

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Speaker 2: including the mansion in Pasadena, two private jets, luxury cars,

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Speaker 2: extravagant jewelry, and exclusive golf clubs, is part of the

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Speaker 2: prosecution's case against the eighty five year old Girardi. He's

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Speaker 2: charged with four counts of wire fraud for allegedly stealing

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Speaker 2: fifteen million dollars in settlement funds that were supposed to

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Speaker 2: go to his clients to support that extravagant lifestyle. Girardi's

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Speaker 2: lawyers blamed the law firm CFO, saying he stole millions

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Speaker 2: of dollars in the course of a decade. Joining me

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Speaker 2: is former federal prosecutor Augustina Rosco, a partner at Crowl

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Speaker 2: and Mooring. What was Thomas Girardi's reputation before this all

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Speaker 2: came out.

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Speaker 1: Yeah, you know, Tom Girardi was a big name in

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Speaker 1: the Los Angeles legal market. You know, I went to

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Speaker 1: Liola Law School and there were buildings named after him.

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Speaker 1: You know, you often saw his law firm sponsoring a

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Speaker 1: number of events. He usually saw him at a number

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Speaker 1: of networking events around Los Angeles. You know, everyone knew

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Speaker 1: who he was. Obviously, his reputation precedes him with the

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Speaker 1: Aaron Brockovich movie and so, you know, it was hard

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Speaker 1: to be an attorney in Los Angeles and I know

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Speaker 1: who Thomas Girardi was.

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Speaker 2: When did these allegations of unethical conduct start to come out?

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Speaker 1: I think a lot of it started with the Chicago

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Speaker 1: case that came out a couple of years ago. I

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Speaker 1: think the Chicago and Diamond was the first time people

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Speaker 1: really started hearing about the misdeeds of Girardi and his

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Speaker 1: law firm, and things trickled down from there. You had

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Speaker 1: the state bar allegation and then you had the endicatment

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Speaker 1: out of the Central District, California. But memory serves me correct.

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Speaker 3: It was the.

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Speaker 1: Chicago case that really started the public public knowledge of

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Speaker 1: his legal issues.

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Speaker 4: Yeah.

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Speaker 2: In the Chicago case, he's charged with stealing millions in

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Speaker 2: settlement awards from Boeing to families of a plane crash

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Speaker 2: that killed one hundred and eighty nine people. What is

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Speaker 2: he being tried for?

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Speaker 1: In Los Angeles, Dom Girardi is being prosecuted for wire fraud.

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Speaker 1: And what wirefraud is. It's a statute essentially that criminalized

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Speaker 1: this conduct when you defraud a victim an individual company

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Speaker 1: while using interstate wires. And what it does essentially is

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Speaker 1: it says, did this defendant, did the person being accused

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Speaker 1: of this crime make a misrepresentation or omission to the

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Speaker 1: victim in order to deprive the victim of money or property?

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Speaker 1: And did they use interstate wires in the process. And

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Speaker 1: the wires really is just the jurisdictional hook. Really, the

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Speaker 1: meat of it is, did you make an intentional misrepresentation

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Speaker 1: in order to steal money from this other person?

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Speaker 2: And tell me about the allegations that he was using

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Speaker 2: his client's trust accounts and giving them different stories about

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Speaker 2: why he couldn't get the money to them.

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Speaker 1: If you look at what the Wires Fraud Statute criminalizes again,

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Speaker 1: it criminalizes, did you make a misrepresentation or an omission

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Speaker 1: in order to deprive somebody of money or property. If

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Speaker 1: you look at the ethical rules that all lawyers must

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Speaker 1: follow and can California, they require you whenever you have

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Speaker 1: client funds, just put them in a client trust account

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Speaker 1: and the money stays in that client trust account until

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Speaker 1: it's appropriately been divided to your client and to any

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Speaker 1: other experts or agents that you've retained throughout the case.

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Speaker 1: And if you look at this Girardy case, what they're

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Speaker 1: saying is that Girardi took the money from settlements that

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Speaker 1: belong to his clients, and instead of following these ethical

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Speaker 1: rules about storing the money and the client trust account

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Speaker 1: and appropriately dividing the money up amongst those who needed

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Speaker 1: the money, notably his clients, before taking his percentage of

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Speaker 1: those settlements. Instead, what he was doing is almost essentially

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Speaker 1: running a Ponzi scheme where he was taking the client

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Speaker 1: settlement funds using the funds for his own personal expenses.

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Speaker 1: And then when clients were finding out he was intentionally

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Speaker 1: lying to them about why they weren't receiving their settlement funds,

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Speaker 1: and then using the settlement's funds from other clients in

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Speaker 1: order to pay off those clients that were already catching

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Speaker 1: on to the fact that he might have been misrepresenting

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Speaker 1: what was going on in their cases and intentionally withholding

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Speaker 1: their money.

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Speaker 2: So now let's talk about his wife, because during the

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Speaker 2: opening statements, the prosecutor alleged that he used some of

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Speaker 2: the money to support the entertainment career of his wife,

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Speaker 2: used more than twenty five million dollars to pay the

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Speaker 2: expenses of her entertainment company. Of course, her lawyer denies

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Speaker 2: all that. Why isn't she being called as a witness?

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Speaker 1: Do you think they haven't said why she's not being

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Speaker 1: called as a witness. You know, there could be a

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Speaker 1: number of factors involved. First, is the marital privilege applies,

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Speaker 1: and so she's allowed to say that statement made by

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Speaker 1: Girardi to her over the course of their marriages privileged

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Speaker 1: and protected under the marital privileged doctrine. In addition, you know,

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Speaker 1: she potentially has some exposure here as well, and so

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Speaker 1: she has the right under the Fifth Amendment to remain

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Speaker 1: silent and not make statements that could potentially incriminate her.

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Speaker 1: So my instincts are that she's refraining from giving statements

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Speaker 1: and claiming both Fifth Amendment and marital privilege as protections

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Speaker 1: for those statements.

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Speaker 2: The defense he's been in cognitive decline and he's actually

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Speaker 2: been diagnosed with dementia and lives in a memory care facility.

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Speaker 2: Why is he even on trial if that's the case.

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Speaker 1: The defense made emotion months ago asking, you know, the

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Speaker 1: court to find Girrity not competent to stand trial, And

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Speaker 1: the question for competency is, you know, can you assist

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Speaker 1: your lawyers in your defense at the time of the trial,

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Speaker 1: and medical experts weigh in on both sides, and the

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Speaker 1: judge ultimately held that Girardi is competent to stand trial. Now,

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Speaker 1: the issues of this competentency or slightly different during trial.

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Speaker 1: The question during trial now is whether at the time

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Speaker 1: Girardi made these misrepresentations or omissions to his clients in

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Speaker 1: order to keep the settlement amounts that were due to them,

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Speaker 1: whether Girarity was in such a cognitive decline that he

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Speaker 1: couldn't properly form the right mental state or intent to

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Speaker 1: defraud his clients, and so that's now one of the

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Speaker 1: defenses of the defense is raising during trial. But the

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Speaker 1: issue of competency, whether he's competent to stand trial, is

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Speaker 1: an issue that can be raised again even after the

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Speaker 1: court already finds that he's competent to stand trial, and

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Speaker 1: to the extent new evidence arises, that wouldn't be surprised

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Speaker 1: if his lawyers raised that motion again during trial.

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Speaker 2: How does the defense show that he wasn't competent at

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Speaker 2: the time that these incidents happened. He wasn't diagnosed at

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Speaker 2: that point, So how do they go back to show that.

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Speaker 1: There's a number of ways they can show it. One

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Speaker 1: is through precipium witnesses. If they have witnesses that can

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Speaker 1: testify that at the time these alleged misrepresentations were being

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Speaker 1: made to clients that in other facet of his life

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Speaker 1: or even in other cases, or are at the law

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Speaker 1: firm or at home, the gerarity was already showing the

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Speaker 1: inability to remember certain things and was making misstatements or

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Speaker 1: was confused and disoriented throughout that period. They also are

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Speaker 1: going to have a medical expert testify as to his

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Speaker 1: medical condition. And if that medical expert is able to

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Speaker 1: do so, and I assume she will, which is why

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Speaker 1: she's going to testify at trial, she would say that,

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Speaker 1: you know that his medical condition is one that it

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Speaker 1: would have started years ago and would have been already

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Speaker 1: affecting him at the time that he was making these

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Speaker 1: allegedments representations.

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Speaker 2: So, even if the defense isn't able to prove cognitive

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Speaker 2: decline at the time, do you think that just having

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Speaker 2: that evidence before the jury will make them feel sympathy

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Speaker 2: for him? You know, why is the prosecution going after

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Speaker 2: this guy, this eighty five year old who has dementia

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Speaker 2: and is being cared for in a facility.

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Speaker 1: So the prosecutors are looking at the facts and applaying

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Speaker 1: those facts to the law. Obviously, what we have here,

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Speaker 1: if you take the indictment at face value and believe

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Speaker 1: all the allegations in the indictment, you have some pretty

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Speaker 1: serious allegations with respect to a notable attorney who was

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Speaker 1: making misrepresentations and flat out lies to his clients in

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Speaker 1: order to deprive them of money that was due to them.

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Speaker 1: And when you have a situation like this, when you

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Speaker 1: have an attorney a person that's in the position of

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Speaker 1: trust of his victims, taking advantage of his victims. That's

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Speaker 1: going to be a case that the United States Attorney's

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Speaker 1: Office is going to take very seriously and take a

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Speaker 1: hard look at him. And presumably they've looked at the evidence,

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Speaker 1: and you know, they've made those statements now in court,

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Speaker 1: both in court filing and in outside of the presence

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Speaker 1: of the jury, and now in the presence of the jury,

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Speaker 1: that you know, they have evidence to show that at

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Speaker 1: the time these misrepresentations were made that he wasn't in

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Speaker 1: a competative decline. Assuming all that's true, you know, that

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Speaker 1: would be a big reason why they found it important

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Speaker 1: to pursue this claim, uh sorry, pursue these targets against

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Speaker 1: against Girardi and now and you have the bigger issue

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Speaker 1: of protecting the public and deterrence. You want to ensure

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Speaker 1: that this conduct you know, doesn't take place and it's

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Speaker 1: not pervasive amongst the legal community in the US Attorney's office,

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Speaker 1: because the movie wants to show that regardless of the situation,

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Speaker 1: that they're going to take these cases seriously.

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Speaker 2: But do you think jurors might feel sympathy for him

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Speaker 2: because of that despite the facts.

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Speaker 1: Yeah, it's one of the reasons why that's a big

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Speaker 1: part of the defense. Of course, you know jurors or

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Speaker 1: human beings, they're going to be ad supply back to law.

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Speaker 1: But it's hard to separate the emotion from the cold

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Speaker 1: heart facts into the extent Girarti looks sympathetic, and there's

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Speaker 1: going to be evidence shown to the jury during trial

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Speaker 1: that shows him as sympathetic in this case because of

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Speaker 1: his connective issues that could work in his favors.

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Speaker 2: Coming up next in the Bloomberg Law Show more on

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Speaker 2: the Girardi trial. He's blaming the CFO of the law firm.

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Speaker 2: What effect does it have that the CFO is not

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Speaker 2: being tried with him. I'm June Grosso and you're listening

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Speaker 2: to Bloomberg. Federal prosecutor has introduced Thomas Girardi to a

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Speaker 2: Los Angeles jury as a celebrity attorney turned villain who

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Speaker 2: stole from the clients he promised to champion and said

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Speaker 2: he treated client trust accounts like a personal piggybank. Girardi's

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Speaker 2: lawyers argued that the real story is not a Hollywood movie,

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Speaker 2: but is more nuanced and complicated by the folding of

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Speaker 2: his law firm, the theft of billions of dollars by

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Speaker 2: his former CFO, and his mental decline. While the jurors

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Speaker 2: saw a diminished Girardi, now eighty five years old, bankrupt

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Speaker 2: and disbarred, the prosecution tried to remind them of the

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Speaker 2: celebrity attorney he once was, one they say used his

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Speaker 2: notoriety to steal from clients. I've been talking to former

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Speaker 2: federal prosecutor Augustine Rotzko, a partner at Crowland Mooring. We've

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Speaker 2: been talking about some possible defenses that Girardi might raise.

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Speaker 2: Another one involves the former CFO of his law firm,

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Speaker 2: Christopher Kaman, who was indicted, but a judge ruled that

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Speaker 2: they'll be tried separately. Is that severance basically a gift

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Speaker 2: to Girardi.

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Speaker 1: It definitely plays in Girardi's favor, because it's harder to

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Speaker 1: point the finger at somebody else when they're sitting at

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Speaker 1: the fence table next to you and making the same

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Speaker 1: arguments throughout trial in terms of being not guilty of

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Speaker 1: the charges in front of them. And so the fact

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Speaker 1: that the CFO was not there, the fact that Girardi

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Speaker 1: seemed to make that a focal point of their defense

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Speaker 1: that this person was a real culpable person here, that

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Speaker 1: he was in charge of running the books and Girardi

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Speaker 1: had deferred to him, you know, all aspects of the

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Speaker 1: financial portion of the law firm, and that Girardi was

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Speaker 1: busy being a lawyer. And on top of the fact

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Speaker 1: that he had this cognitive decline and made Girarity in

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Speaker 1: addition to his clients, a victim of the CFO. You know,

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Speaker 1: it lined up perfectly for Girardi to put together.

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Speaker 2: At the sense and how much is the prosecution's case this,

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Speaker 2: you know, celebrity lawyer and the housewives of Beverly Hills

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Speaker 2: and all that star power and the jets and the

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Speaker 2: luxury lifestyle. How much will the judge let the prosecution

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Speaker 2: introduce evidence of that?

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Speaker 1: You know, the judge evidence in as long as it's

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Speaker 1: relevant and the prejudicial nature of the evidence does not

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Speaker 1: outweigh the probat value of that evidence, and so some

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Speaker 1: of that is going to be allowed. In of course,

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Speaker 1: some of it is extremely relevant, you know, if he

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Speaker 1: was engaging in the lavish lifestyle, and engaging in the

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Speaker 1: lavish lifestyle helps rebut the defense that the CFO was

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Speaker 1: the one that wasn't bazzling all the money and not Girardi.

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Speaker 1: You know that's going to be allowed in, but it's

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Speaker 1: extended to the point where you know, it's not extremely

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Speaker 1: relevant and it's going to be more prejudicial to the defense,

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Speaker 1: and it would be relevant to the trial, and the

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Speaker 1: court going to cut that off.

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Speaker 2: The defense seems to be indicating that it's going to

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Speaker 2: try to make things boring and technical for the jury.

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Speaker 2: The defense lawyer spent something like ten minutes in his

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Speaker 2: opening statement talking about financial documents and warning the jury

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Speaker 2: about boring details. Can that really work?

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Speaker 1: You know, when you're defense attorney in one of these files,

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Speaker 1: you're already kind of behind the eight ball. You have

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Speaker 1: the United States government putting forth charges, you have United

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Speaker 1: States Government stating that the allegations in those indictments are true.

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Speaker 1: And your job is then to raise a defense and

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Speaker 1: poke holes in the government's investigation. And one of the

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Speaker 1: ways to do that is to dig deep into the

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Speaker 1: documents and to show that there's flaws and the analysis

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Speaker 1: that was done, and so yes, will that work? It

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Speaker 1: can work. It can work if you can show to

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Speaker 1: the jury that once you dig deep into these these

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Speaker 1: documents and you step away from these high level narratives

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Speaker 1: that there are serious issues in the investigation that was conducted.

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Speaker 2: The trials going to center on five former clients involved

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Speaker 2: in personal injury cases. So these will be sympathetic witnesses,

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Speaker 2: no doubt. Will it be difficult for the defense to

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Speaker 2: cross them?

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Speaker 1: The answer is yes. I think it's you have to

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Speaker 1: be very careful when you have sympathetic witness up on

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Speaker 1: the stet, especially a sympathetic victim. And here, as you noted,

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Speaker 1: all five of the victims that were chosen to testify

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Speaker 1: have extremely sympathetic stories with serious issues that led them

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Speaker 1: to go to Girardi for help and then misrepresentations to

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Speaker 1: them in order to deprive them of money. And so

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Speaker 1: the defense is going to have to be very careful

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Speaker 1: and cross examine them because the defense doesn't want to

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Speaker 1: come off as being the bad guys here. Their story

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Speaker 1: is that Girardi is also a victim. You know, they're

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Speaker 1: going to cross examine the victims to get information out

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Speaker 1: of them as to see whether they actually knew that

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Speaker 1: Girardi was lying to them at the time, and other

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Speaker 1: questions maybe to help them and their defense to prove

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Speaker 1: up their argument about Girardi's commented decline, but they're going

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Speaker 1: to be very careful not to come off as bullies

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Speaker 1: or attacking these sympathetic victims.

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Speaker 2: So does it seem as if the prosecution has a

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Speaker 2: strong case. I only got the witnesses. They played a

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Speaker 2: voicemail of Girardi explaining to one of his clients why

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Speaker 2: she wasn't getting the money or he wasn't getting the

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Speaker 2: money right away, and they had said they have emails

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Speaker 2: and letters, they have the clients, the five clients, and

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Speaker 2: then they are non lawyers who work with the firm

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Speaker 2: as well. I mean, does it sound like it's a

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Speaker 2: pretty strong.

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Speaker 1: Case so far. We've only heard testimony from the government's witnesses,

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Speaker 1: but you know, from everything we've seen so far, it

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Speaker 1: seems like a pretty strong case. You have victims who

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Speaker 1: are claiming, you know, Girardi himself made misrepresentations to them

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Speaker 1: directly about the state of their case, and that these

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Speaker 1: these statements by Girardi, you know, when looked at the

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Speaker 1: cold heart facts, were objectively false.

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Speaker 3: Right.

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Speaker 1: The question is whether Girardi actually intended to make, you know,

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Speaker 1: a misstatement and lie to his clients at the time,

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Speaker 1: or whether he was confused because of is declined in

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Speaker 1: cognitive state. But when you add on top of that

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Speaker 1: the fact that they have attorneys and non lawyers at

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Speaker 1: the firm were testifying to Girardi's competency at the time

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Speaker 1: to also testifying about them being confused and being led

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Speaker 1: to as to why these victims were not getting the

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Speaker 1: money that they deserved. And that you know, these these

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Speaker 1: former lawyers from from the law firm or even quitting

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Speaker 1: their jobs because they were so frustrated with the way

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Speaker 1: things are being mismanaged. All that really adds up to

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Speaker 1: a really strong care an uphill battle for the defense.

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Speaker 2: I'm wondering what kind of penalty you think if he's convicted,

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Speaker 2: what kind of penalty he's facing considering that he is

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Speaker 2: in this care facility.

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Speaker 1: You know, the judge is going to, you know, levy

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Speaker 1: a sentence pursuing to United the United States sentencing guidelines,

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Speaker 1: and those are really going to be driven by the

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Speaker 1: lost amount that is established that trial. And here the

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Speaker 1: lost mountain is pretty significant. So he's looking at potentially

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Speaker 1: a pretty severe prison sentence in federal prison. But his

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Speaker 1: defense attorneys will will raise the cognitive issue at sentencing

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Speaker 1: and will raise the fact that he'll need appropriate accommodations,

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Speaker 1: and the court is going to listen to those and

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Speaker 1: take the steps necessary. Now, the Bureau of Prisons does

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Speaker 1: have medical facilities that can help facilitate that, and there's

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Speaker 1: been other instances where the court has found that, you know,

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Speaker 1: putting the defendant in the care of the Bureau of Prisons,

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Speaker 1: given the advent stage, given health issues, isn't appropriate. And

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Speaker 1: so it's going to be interesting to see how how

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Speaker 1: the court weighs those considerations and ultimately rules on on

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Speaker 1: the appropriate pass forward for Girardi. If he is sound

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Speaker 1: convicted that trial, and this is not.

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Speaker 2: His only trial, he faces another trial in Illinois.

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Speaker 1: That's right, he's facing another trial in Illinois based on

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Speaker 1: similar charges with respect to a plane crank's case he

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Speaker 1: had from a number of years ago. Whatere. The victims

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Speaker 1: are alleging essentially the same thing that he was held

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Speaker 1: money that was due to them because of the settlement

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Speaker 1: and led to them with respect to what was going

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Speaker 1: on in the case. And so the Central District case,

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Speaker 1: he's really you know, the first domino to fall, and

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Speaker 1: so to the extent he's found convicted in his case,

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Speaker 1: and be interesting to see what strategy he employees going forward.

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Speaker 1: With respect to his second criminal case in Chicago.

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Speaker 2: That trial was tentatively scheduled for next year, but it's

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Speaker 2: on hold until the conclusion of this trial in California.

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Speaker 2: That's Augustina Rotsko, former federal prosecutor and partner at Crowl

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Speaker 2: and Mooring, coming up next on the Bloomberg Lawn Show.

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Speaker 2: Donald Trump made a lot of promises when he spoke

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Speaker 2: at the Bitcoin twenty twenty four conference, including the promise

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Speaker 2: to create a national bitcoin stockpile with the crypto currency

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Speaker 2: currently held by the US government. Why that promise is

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Speaker 2: alarming to former federal prosecutors, This is Bloomberg.

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Speaker 5: America will become the world's undisputed bitcoin mining powerhouse.

359
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Speaker 4: You'll be a bitcoin mining powerhouse.

360
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Speaker 5: You will not have to move your family to China.

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Speaker 4: You will not be moving to China.

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Speaker 2: Donald Trump made a lot of promises when he spoke

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Speaker 2: at the Bitcoin twenty twenty four conference. He promised to

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Speaker 2: pick crypto friendly regulators, to form a crypto industry Presidential

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Speaker 2: Advisory Council, to create a stable coin framework, and call

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Speaker 2: for a scaleback in enforcement. But one of his promises

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Speaker 2: in particular has alarmed former federal prosecutors. Trump said he'll

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Speaker 2: create a national bitcoin stockpile with the crypto currency currently

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Speaker 2: held by the US government because he says, the government

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Speaker 2: is violating the cardinal rule of bitcoin.

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Speaker 4: Never sell your bitcoin.

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Speaker 5: And so, as the final part of my plan today,

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Speaker 5: I am announcing that if I am elected, it will

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Speaker 5: be the policy of my administration United States of America

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Speaker 5: to keep one hundred percent of all the bitcoin the

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Speaker 5: US government currently holds or acquires into the future.

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Speaker 4: We'll keep one hundred percent. I hope you do well. Please.

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Speaker 2: That cryptocurrency that the government is holding has been seized

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Speaker 2: in criminal and civil forfeiture cases brought by federal prosecutors

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Speaker 2: and overseen by US judges. Here to explain why former

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Speaker 2: federal prosecutors are finding Trump's suggestion alarming, is Bloomberg Legal

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Speaker 2: reporter David Voriakis. David start by telling us about Trump's

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Speaker 2: crypto promises.

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Speaker 3: Trump made an appearance at the Bitcoin to twenty four

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Speaker 3: conference at the end of July, and he promised that

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Speaker 3: he would take all of the bitcoin that's been seized

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Speaker 3: by the federal government and create a stockpile, and that

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Speaker 3: he will hold it and presumably this is a way

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Speaker 3: for the federal government to make money. This is a

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Speaker 3: longtime dream of some crypto advocates that it would put,

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Speaker 3: you know, the full faith and credit of the US

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Speaker 3: government behind bitcoin, which the government has not been willing

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Speaker 3: to do. Trump did this as he's looking for campaign contributions,

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Speaker 3: and there's a number of people in the crypto world

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Speaker 3: who said that they now support Donald Trump.

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Speaker 2: How much bitcoin does the government have?

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Speaker 3: The government has about twelve billion dollars worth of cryptocurrency,

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Speaker 3: including more than two hundred thousand bitcoin.

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Speaker 2: And so where did all that come from? Is it

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Speaker 2: just from criminal and civil seizures?

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Speaker 3: It is almost exclusively that. So that in criminal cases,

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Speaker 3: big criminal cases, or cases brought by the SEC or

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Speaker 3: other civil regulators, as part of the case, part of

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Speaker 3: the resolution of cases, the government takes custody of cryptocurrencies.

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Speaker 2: So this is just like you know, the government is

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Speaker 2: seizing the Lamborghini, seizing the house, seizing all the cash.

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Speaker 2: Let's say it's the same thing when it's seizing the cryptocurrency.

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Speaker 3: These are considered the proceeds or instruments of crime. They're

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Speaker 3: either the way that people enrich themselves, as with cash, cars, houses, yachts, planes,

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Speaker 3: or that it's used in executing crimes, primarily money laundering operations.

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Speaker 3: So the government holds that crypto and they're supposed to

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Speaker 3: at the appropriate time sell it, and the proceeds of

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Speaker 3: that sale goes either to victims of crimes to help

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Speaker 3: make them whole or to support law enforcement operations. Now,

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Speaker 3: the triggering point is typically an order by a judge

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Speaker 3: who says essentially that the title is free and clear

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Speaker 3: and no one else has claim to these digital assets.

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Speaker 2: You talked to several former prosecutors who said, this just

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Speaker 2: can't be done. You can't take that money that's set

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Speaker 2: aside by the courts and just take it and put

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Speaker 2: it someplace else.

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Speaker 3: It's set up under federal statute and regulations that dictate

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Speaker 3: how the assets are supposed to be handled, and it's

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Speaker 3: not really different than other federal assets that are seized.

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Speaker 3: And so it would take an Act of Congress to

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Speaker 3: do what Donald Trump has proposed doing.

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Speaker 2: And it would also be against the whole philosophy of

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Speaker 2: seizing these assets to help get the victim some restitution.

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Speaker 3: Right, the whole philosophy of these funds, which are held

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Speaker 3: either by the Justice Department or the Treasury Department is

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Speaker 3: to again make victims whole or support law enforcement. It's

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Speaker 3: not considered an investment vehicle. It's not if you will

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Speaker 3: buy and hold opportunity. And the government is not supposed

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Speaker 3: to time the market either say oh well, if we

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Speaker 3: wait another month or two, bitcoin's going to go up.

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Speaker 3: They're supposed to try to sell it as quickly as

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Speaker 3: they can, as quickly as they're legally allowed to do. Now,

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Speaker 3: I would say there have been problems in the last

439
00:26:51,600 --> 00:26:55,960
Speaker 3: few years in how the US Marshals have handled the assets,

440
00:26:56,080 --> 00:27:00,960
Speaker 3: and so they have contracted out with coinbased do a

441
00:27:01,040 --> 00:27:05,679
Speaker 3: large portion of that. They recently awarded that contract, and

442
00:27:05,720 --> 00:27:09,320
Speaker 3: so there's been some changes in how the government actually

443
00:27:10,040 --> 00:27:14,600
Speaker 3: holds and sells these assets, but the principle remains the same.

444
00:27:14,920 --> 00:27:17,720
Speaker 2: I was wondering if there is a problem because of

445
00:27:17,760 --> 00:27:21,280
Speaker 2: the nature of bitcoin. Normally, you'll see there's an auction,

446
00:27:21,840 --> 00:27:25,040
Speaker 2: you know, the federal government auctions off these cars, etc.

447
00:27:25,359 --> 00:27:28,000
Speaker 2: They've seized. But do they do that with bitcoin.

448
00:27:28,359 --> 00:27:30,879
Speaker 3: They did do that with bitcoin, but they've moved away

449
00:27:30,920 --> 00:27:35,480
Speaker 3: from that process and it's not the same auction format

450
00:27:35,520 --> 00:27:39,000
Speaker 3: as it used to be. So they have professionals who

451
00:27:39,080 --> 00:27:42,160
Speaker 3: work out sales with interested parties.

452
00:27:43,600 --> 00:27:47,840
Speaker 2: Is this contrary to what his position was when he

453
00:27:48,000 --> 00:27:49,160
Speaker 2: was president.

454
00:27:49,760 --> 00:27:52,680
Speaker 3: When he was president, he took a very dim view

455
00:27:52,760 --> 00:27:57,480
Speaker 3: of crypto and did not see it as a prized

456
00:27:57,600 --> 00:28:02,080
Speaker 3: asset the way you know digital advocates do. And so

457
00:28:02,680 --> 00:28:05,480
Speaker 3: this is happening at the same time, obviously, as he's

458
00:28:05,520 --> 00:28:08,360
Speaker 3: in a very tight presidential race and needs to raise

459
00:28:08,359 --> 00:28:11,679
Speaker 3: a lot of money, and cynics would say that he's

460
00:28:11,840 --> 00:28:15,840
Speaker 3: making a pitch to receive campaign contributions from the crypto industry,

461
00:28:16,240 --> 00:28:21,080
Speaker 3: which has been a very generous industry and has given

462
00:28:21,119 --> 00:28:23,840
Speaker 3: a lot of money to politicians in Washington to try

463
00:28:23,840 --> 00:28:27,879
Speaker 3: to influence a very unsettled regulatory environment.

464
00:28:28,600 --> 00:28:31,760
Speaker 2: Crypto industry donors have poured more money into the twenty

465
00:28:31,800 --> 00:28:36,359
Speaker 2: twenty four election than in all prior cycles combined, according

466
00:28:36,400 --> 00:28:41,800
Speaker 2: to Open Secrets, and Trump has discussed cryptocurrency policy with

467
00:28:42,120 --> 00:28:46,760
Speaker 2: Tesla's CEO Elon Musk, according to a person familiar with

468
00:28:46,840 --> 00:28:50,760
Speaker 2: the talks. He's hosted crypto money executives at his Mara

469
00:28:50,880 --> 00:28:55,720
Speaker 2: Lago resort and vowed to commute the sentence of Ross Albright,

470
00:28:56,080 --> 00:28:59,520
Speaker 2: who's serving a life sentence after he was convicted of

471
00:28:59,640 --> 00:29:05,320
Speaker 2: running the Silk Road marketplace where customers used virtual currencies

472
00:29:05,360 --> 00:29:10,400
Speaker 2: to buy illegal drugs and hacker tools. And significantly, Trump's

473
00:29:10,440 --> 00:29:13,680
Speaker 2: campaign said in May that it would begin accepting donations

474
00:29:13,760 --> 00:29:17,440
Speaker 2: in digital assets. Since then, it's raised four million dollars

475
00:29:17,440 --> 00:29:21,800
Speaker 2: from a mix of digital tokens. That's according to Bloomberg sources.

476
00:29:22,360 --> 00:29:26,680
Speaker 2: Let's turn now to b Riley Financial. It shares lost

477
00:29:26,720 --> 00:29:29,360
Speaker 2: more than half their value amid a new round of

478
00:29:29,400 --> 00:29:34,080
Speaker 2: write downs and a widening US investigation. Tell us more

479
00:29:34,120 --> 00:29:34,600
Speaker 2: about that.

480
00:29:35,720 --> 00:29:41,600
Speaker 3: On Monday, b Riley announced that it was taking a

481
00:29:41,640 --> 00:29:48,600
Speaker 3: substantial quarterly loss and that it was also cooperating in

482
00:29:48,640 --> 00:29:54,760
Speaker 3: an SEC investigation. We also Bloomberg reported earlier that there

483
00:29:54,920 --> 00:30:01,120
Speaker 3: was a widespread SEC investigation of the the soundness of

484
00:30:01,160 --> 00:30:04,280
Speaker 3: the financial reporting by b Riley. There's been a lot

485
00:30:04,320 --> 00:30:08,200
Speaker 3: of questions about how accurate their financial reporting is, whether

486
00:30:08,280 --> 00:30:13,960
Speaker 3: they're accurately reporting the underlying value of receivables that are

487
00:30:14,000 --> 00:30:17,640
Speaker 3: backing a number of their assets, and that the SEC

488
00:30:17,720 --> 00:30:22,640
Speaker 3: is looking at the relationship between b Riley's founder, Bryant Riley,

489
00:30:23,120 --> 00:30:28,560
Speaker 3: and another businessman, Brian Kahn, who used to be the

490
00:30:28,640 --> 00:30:32,360
Speaker 3: CEO of Franchise Group, Inc. Which owned a number of

491
00:30:32,680 --> 00:30:39,560
Speaker 3: retail franchising companies. B Riley helped take FRG public a

492
00:30:39,600 --> 00:30:43,160
Speaker 3: few years ago and last summer helped take them private.

493
00:30:43,440 --> 00:30:49,520
Speaker 3: And there's a number of interlocking financial relationships involving loans

494
00:30:50,080 --> 00:30:57,200
Speaker 3: and receivables between Brian Kahn, his company, Bryant Riley, and

495
00:30:57,360 --> 00:30:58,840
Speaker 3: b Riley, And.

496
00:30:58,840 --> 00:31:04,560
Speaker 2: The SEC's civil investigation is proceeding along with a federal

497
00:31:04,600 --> 00:31:08,920
Speaker 2: criminal investigation in New Jersey. What are prosecutors looking at there?

498
00:31:09,400 --> 00:31:14,600
Speaker 3: And that is into yet another firm called Prophecy Asset

499
00:31:14,720 --> 00:31:19,600
Speaker 3: Management and one of its co founders in November pleaded

500
00:31:19,640 --> 00:31:22,560
Speaker 3: guilty in a two hundred and ninety four million dollar

501
00:31:22,800 --> 00:31:28,440
Speaker 3: fraud and in that case, the prosecutors said that Brian

502
00:31:28,600 --> 00:31:33,200
Speaker 3: Khan was an unindicted co conspirator and we reported that

503
00:31:33,280 --> 00:31:35,960
Speaker 3: last November. When that happened, there were a number of

504
00:31:36,480 --> 00:31:42,040
Speaker 3: questions raised about the relationship between Brian Khan and Bryant

505
00:31:42,160 --> 00:31:46,840
Speaker 3: Riley and that relationship goes back many years and spans

506
00:31:46,880 --> 00:31:48,280
Speaker 3: a number of businesses.

507
00:31:49,280 --> 00:31:51,320
Speaker 2: And what has their response been to this?

508
00:31:52,320 --> 00:31:56,200
Speaker 3: I would say that Brian Riley says that he did

509
00:31:56,280 --> 00:31:59,760
Speaker 3: nothing improper with Brian Khan. He has no knowledge of

510
00:31:59,800 --> 00:32:06,200
Speaker 3: a criminal activity, and the two internal investigations have essentially

511
00:32:06,320 --> 00:32:11,880
Speaker 3: cleared him of any wrongdoing, and his firm, Brian Kahn,

512
00:32:12,000 --> 00:32:15,320
Speaker 3: also said that he did nothing wrong. He hasn't been charged.

513
00:32:15,680 --> 00:32:20,600
Speaker 3: Brian Riley hasn't been charged, so it's possible nothing will

514
00:32:20,600 --> 00:32:24,120
Speaker 3: come of any of this. But investors have taken a

515
00:32:24,280 --> 00:32:29,360
Speaker 3: very dim view of the financial health of b Riley.

516
00:32:29,480 --> 00:32:34,080
Speaker 2: So how long has the SEC investigation been going on?

517
00:32:34,640 --> 00:32:38,440
Speaker 3: For many months at least, and it's recently escalated, is

518
00:32:38,480 --> 00:32:42,400
Speaker 3: what we've reported. They're continuing to look at a number

519
00:32:42,600 --> 00:32:47,320
Speaker 3: of questions about the financial disclosures, and the deeper they

520
00:32:47,320 --> 00:32:49,840
Speaker 3: get into it, the more questions they have.

521
00:32:50,760 --> 00:32:55,760
Speaker 2: Are the SEC investigators and the federal prosecutors working together

522
00:32:55,800 --> 00:32:56,520
Speaker 2: in any sense?

523
00:32:57,040 --> 00:33:00,600
Speaker 3: I believe that they are working on a parallel track,

524
00:33:00,880 --> 00:33:05,000
Speaker 3: that they are working cooperatively with each other. I mean

525
00:33:05,000 --> 00:33:12,160
Speaker 3: there's a specific legal meaning to having a formal cooperation

526
00:33:12,400 --> 00:33:15,680
Speaker 3: between the two, the Justice Department and the Securities in

527
00:33:15,760 --> 00:33:20,680
Speaker 3: Exchange Commission. I don't know the precise nature of that relationship,

528
00:33:20,680 --> 00:33:24,840
Speaker 3: but I do know that their attorneys and investigators have

529
00:33:24,960 --> 00:33:27,480
Speaker 3: been working along the same track.

530
00:33:28,000 --> 00:33:30,800
Speaker 2: Of course, it's a developing story, and I know you'll

531
00:33:30,880 --> 00:33:32,880
Speaker 2: keep us on top of it. David, thanks so much.

532
00:33:33,400 --> 00:33:35,880
Speaker 2: That's Bloomberg Legal reporter David Voriakis