WEBVTT - Former SEC Chairman Gary Gensler Talks Recent Insider Trading Investigations

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. A federal government agency

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<v Speaker 1>is reportedly investigating possible insider trading involving big swings in

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<v Speaker 1>oil markets ahead of a major policy announcement by President Trump.

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<v Speaker 2>The Body of Futures Trading Commission has examined at least

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<v Speaker 2>two instances where trading volumes surged right before those announcements

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<v Speaker 2>were made. Joining us now is Gary against Through, the

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<v Speaker 2>former chairman of the CFTC. He also served as the

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<v Speaker 2>chairman of the SEC and has a new podcast called

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<v Speaker 2>Power and Consequences. It's you and the Nobel Laureate Simon

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<v Speaker 2>Johnson dealing with a lot of these issues prediction markets

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<v Speaker 2>as we want to talk the most about. But let

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<v Speaker 2>me ask you quickly about this story. You helm the

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<v Speaker 2>agency after the global financial crisis, there were a lot

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<v Speaker 2>of raised eyebrows afterward of this trade came out. What

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<v Speaker 2>is your read on what's happening here and maybe take

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<v Speaker 2>us behind the scenes of what the CFDC might be

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<v Speaker 2>doing as it looks into this one.

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<v Speaker 3>The only way that the American public can have confidence

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<v Speaker 3>in markets is they think that insiders can't get ahead

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<v Speaker 3>of them with material information.

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<v Speaker 4>I mean, that's just not fair, right.

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<v Speaker 3>But two, the only way we can have confidence in

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<v Speaker 3>our government is that we don't think that somebody in

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<v Speaker 3>government or their friends or family are trading ahead of us.

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<v Speaker 4>Right.

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<v Speaker 3>So those two things are really important. And we knew

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<v Speaker 3>that sixteen years ago, after the financial crisis, we were

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<v Speaker 3>putting reforms in place, and I was honored to head

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<v Speaker 3>this thing called the CFTC, and we were going to Congress.

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<v Speaker 4>And I have to tell you a little story about

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<v Speaker 4>Eddie Murphy.

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<v Speaker 2>Okay, the comedian.

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<v Speaker 3>The comedian, yeah, an actor, and he had done this

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<v Speaker 3>movie Trading Place.

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<v Speaker 1>So the legendary movie in my household. I never understood

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<v Speaker 1>the end of it until like a year ago. But yes,

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<v Speaker 1>this is an amazing.

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<v Speaker 3>And it's an amazing movie where Eddie Murphy is trading

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<v Speaker 3>these things called futures.

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<v Speaker 4>It's a contract where it's.

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<v Speaker 1>Right concentrated orange juice.

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<v Speaker 3>There you go, there you go. But do you remember, Christina,

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<v Speaker 3>what he was trading it on. He was trading it

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<v Speaker 3>on and a report from the Department of Agriculture about

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<v Speaker 3>the orange crop.

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<v Speaker 1>He basically had inside information.

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<v Speaker 3>Yes, yeah, So I get to the Commodity Futures Trading Commission.

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<v Speaker 3>I asked the staff. I said, well that's illegal, right,

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<v Speaker 3>and they go, well, Boss. There was a lot of

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<v Speaker 3>mumble mumble and wonderful people. So we went to Congress

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<v Speaker 3>in the midst of all that, and we said we've

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<v Speaker 3>got to get something. And I used to say it

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<v Speaker 3>was the Eddie Murphy provision. It's got to be illegal.

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<v Speaker 3>Well guess what we were successful. Al Frankin, who was

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<v Speaker 3>in that movie, was a senator, had a great yuch,

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<v Speaker 3>great yucks on a couch in his office. But it's

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<v Speaker 3>here's where it is today. It is illegal for a

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<v Speaker 3>government actor, somebody who works in the government to pass

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<v Speaker 3>on information to somebody and to have that person knowingly

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<v Speaker 3>or with reckless disregard of the knowledge, trade on that information.

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<v Speaker 3>Also it's illegal for that government actors doing so. It's

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<v Speaker 3>both the government act or somebody passing on.

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<v Speaker 4>So it's illegal.

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<v Speaker 1>But how do you prosecute it because it can't be

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<v Speaker 1>easy because it's not like these trades all have the

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<v Speaker 1>person's name on them. They go through intermediaries, they go

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<v Speaker 1>through trading dust talk to us about how the investigation works.

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<v Speaker 1>You have to figure out who did it, when they

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<v Speaker 1>did it, what information they have, and if it was

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<v Speaker 1>public information or not, it's hard.

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<v Speaker 4>It's hard.

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<v Speaker 3>And I was honored to run federal law enforcement agencies twice,

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<v Speaker 3>one in the commodity space, one in the security space.

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<v Speaker 3>And so the staff is doing this, not the political pointees,

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<v Speaker 3>but this staff is doing it with a lot of

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<v Speaker 3>technology now using our artificial intelligence as well, tracking and

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<v Speaker 3>looking for patterns, just like you do it Bloomberg, looking

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<v Speaker 3>for patterns. Is there a spike in trading for three

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<v Speaker 3>minutes before something happens like we saw late in March

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<v Speaker 3>I think it was March twenty third, like you've all reported,

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<v Speaker 3>we saw again on April seventh, Like various members of

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<v Speaker 3>the House and Senate on both sides of the have

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<v Speaker 3>written Senator Warren, but others also Center White House and

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<v Speaker 3>others have written, And so I would think, yes, the

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<v Speaker 3>government's going to investigate these things. But to your point, Christina,

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<v Speaker 3>it's horrid because it's about pattern recognition and then getting

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<v Speaker 3>behind that and saying, well, who actually traded And even

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<v Speaker 3>if you identified David, I'm not saying you did this,

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<v Speaker 3>but if David, somebody in your production booth, your control room,

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<v Speaker 3>and the one second delay that we have here traded

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<v Speaker 3>on whatever information, even in that one second, they might

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<v Speaker 3>be trading on material non public information. I'm not saying

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<v Speaker 3>they all.

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<v Speaker 4>Know, of course, not right, We'll follow up after it.

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<v Speaker 1>If they don't show up for their shift, we'll know

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<v Speaker 1>something's happened. But so far our team is all still here.

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<v Speaker 4>Is that right? Right?

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<v Speaker 3>But then what happens if all those government actors show

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<v Speaker 3>up for their shifts they're in a situation room or

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<v Speaker 3>maybe they're handling President Trump's tweet? Yeah, or are they

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<v Speaker 3>call it x now our Truth Social? Yes?

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<v Speaker 4>Right, So that's important.

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<v Speaker 3>Look, I think also Congress is looking at whether to

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<v Speaker 3>ban certain contracts prediction markets.

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<v Speaker 4>Think about it.

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<v Speaker 2>Well, let me use that as a segue. We had

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<v Speaker 2>Alyssa Slopkin on the show talking about a band that

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<v Speaker 2>she's suggesting to be put in place for government official

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<v Speaker 2>they shouldn't be able to make bets staffirs, And in

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<v Speaker 2>that interview it was kind of clear that there was

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<v Speaker 2>some ambiguity surrounding who's regulating these spaces. So as we

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<v Speaker 2>talk about prediction markets and you want a recent podcast

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<v Speaker 2>episode point out people embedding on things for centuries, I'm

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<v Speaker 2>betting on the pope.

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<v Speaker 4>Who's that going to be? Back in you know, fifteenth century, whatever.

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<v Speaker 2>Is it well regulated? When we look at Calshi, which

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<v Speaker 2>is domicile here in the United States, polymarkets is not

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<v Speaker 2>its overseas and subject to less regulation. Is there an

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<v Speaker 2>adequate regulator apparatus surrounding all of this right now?

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<v Speaker 3>I think that collectively people will probably agree no, no,

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<v Speaker 3>right now, no.

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<v Speaker 4>One.

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<v Speaker 3>You're right Americans. Humans have been betting on things since antiquity,

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<v Speaker 3>but how it's regulated, and at least in sports betting,

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<v Speaker 3>we've done that.

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<v Speaker 4>At the state level.

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<v Speaker 3>And I worked on that reform back in twenty ten.

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<v Speaker 3>I don't remember a single member of Congress, a single Senator,

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<v Speaker 3>House member, saying, oh, we're going to give you your little agency, Gensler,

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<v Speaker 3>We're going to give you authority to regulate all this gaming.

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<v Speaker 1>And this also isn't a really pro regulatory environment right now.

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<v Speaker 1>That's just not where the wins of federal government seemed

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<v Speaker 1>to be.

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<v Speaker 4>No.

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<v Speaker 3>No, But I can tell you this, the majority leader

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<v Speaker 3>at the time, Senator Harry Reid, would have never voted

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<v Speaker 3>for something to basically preempt Nevada gaming.

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<v Speaker 4>No.

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<v Speaker 3>So it's rather absurd to think that's what Congress meant

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<v Speaker 3>to do. Now, the courts that will play out. That's

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<v Speaker 3>about sports betting. But now you have these geopolitical events.

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<v Speaker 3>And we did work with Congress at the time to

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<v Speaker 3>have a prohibition put in place on any contracts on assassination, war, terrorism, gaming,

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<v Speaker 3>and otherwise unlawful acts. And that was something that they

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<v Speaker 3>gave to the CFGC that we could prohibit. I thought

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<v Speaker 3>we voted on that. I remember voting on that. It

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<v Speaker 3>was a rule forty one to one, I think, and

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<v Speaker 3>so I thought we voted on that.

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<v Speaker 4>Settled.

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<v Speaker 3>Well, sometimes in life, things that you think are settled

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<v Speaker 3>aren't settled.

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<v Speaker 4>Spoken as a true lawyer, no, I'm not a lawyer.

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<v Speaker 3>I'm a market's guide, but I would say this, I

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<v Speaker 3>think the prediction markets some things we might just say

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<v Speaker 3>as a society, we're going to ban. And you talked

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<v Speaker 3>about the pope in fifteen ninety one, Gregory the fourteen

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<v Speaker 3>said no, no betting on papal conclaves.

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<v Speaker 4>They off the table. That's just off the table.

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<v Speaker 3>But guess what in that reform effort in twenty ten,

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<v Speaker 3>Congress said we can't bet on movie that's right, that's

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<v Speaker 3>right on box office receipts. Howard Ludnik was running Canter

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<v Speaker 3>Fitzgerald at the time. He's now the Secretary of COMMRESCE.

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<v Speaker 3>He came in to us and said, we want to

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<v Speaker 3>start a contract on movie futures. What do you think,

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<v Speaker 3>CFTC And we looked at it and we voted. It

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<v Speaker 3>was a split vote, three to two. We lost one

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<v Speaker 3>Republican one Democrat actually, but we voted, and we said,

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<v Speaker 3>there's an economic purpose here. You're hedging some risk the

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<v Speaker 3>movie industry. Hollywood reacted negatively and they had a vehicle

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<v Speaker 3>this reform thing going through. Senator Patrick Leahey from Vermont

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<v Speaker 3>took that side, got an amendment in that is illegal.

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<v Speaker 3>You cannot bet on movie futures in this country. Nor

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<v Speaker 3>can you bet on onions. And that was Gerald Ford

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<v Speaker 3>in the nineteen fifty.

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<v Speaker 1>Okay, so we can't bet on movie futures, but we cant.

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<v Speaker 1>I covered DC for seventeen years. But you can now

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<v Speaker 1>bet on going to war. You can bet on all

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<v Speaker 1>these really huge.

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<v Speaker 3>Outcome, but not on assassination, war or terrorism. I thought

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<v Speaker 3>I voted on that sixteen years ago.

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<v Speaker 1>But I mean, talk to us about the larger picture

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<v Speaker 1>of this, because we're in an era of so much

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<v Speaker 1>data and commoditization and you were finding everything down to

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<v Speaker 1>the numbers. I do worry, and I'm not a very

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<v Speaker 1>touchy feely person, but I do worry about what it

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<v Speaker 1>does to us when you are marketizing things like acts

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<v Speaker 1>of war and people dying in conflicts and these huge

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<v Speaker 1>geopolitical events.

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<v Speaker 2>Which could have economic consequences.

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<v Speaker 4>I should end of course, of course, absolutely absolutely.

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<v Speaker 3>And there's day trading, and people who watch this show

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<v Speaker 3>know that people can trade on options that are expiring

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<v Speaker 3>the same day, and we we try to allow the

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<v Speaker 3>retail public and the big institutions to aid and meet

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<v Speaker 3>in those markets, or even to buy and sell and

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<v Speaker 3>speculate on the price of oil if it's well regulated,

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<v Speaker 3>and we guard against insider trading and the like. But

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<v Speaker 3>then there's some things that you would say, really, do

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<v Speaker 3>they have economic consequences?

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<v Speaker 4>Do we want to have that?

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<v Speaker 3>Why we banned onions in the nineteen fifties and why

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<v Speaker 3>we ban movie futures in the twenty ten. But assassination

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<v Speaker 3>wore terrorism death contracts, like even in eighteenth century England,

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<v Speaker 3>and this was a real problem at Lloyd's of London's,

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<v Speaker 3>which was out of a coffee shop. King George the

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<v Speaker 3>Second in the seventeen forties had to deal with his

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<v Speaker 3>noble lords, say, hey, we're losing too many times to

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<v Speaker 3>the pirates. Can we ban betting on ships going down?

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<v Speaker 3>They use different words admiralty insurance. You have to have

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<v Speaker 3>an insurable interest in the ship. So maybe you have

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<v Speaker 3>to have an insurable interest to have terrorismage.

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<v Speaker 2>We have got a minute left here. Where do you

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<v Speaker 2>see this? How do you see this developing here? Over

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<v Speaker 2>the next year, ground swell of public interest and leads to.

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<v Speaker 4>What it's a challenge.

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<v Speaker 3>I think that this administration will try to do their

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<v Speaker 3>best to push out insider trading, and that's because they

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<v Speaker 3>have an interest in promoting this to the courts will

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<v Speaker 3>play out. I don't think it was Congress's intent to

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<v Speaker 3>preempt state gaming laws, but this administration wants to take

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<v Speaker 3>that on and have a little agency of five hundred

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<v Speaker 3>people be a national gaming regulator. I think, I don't know,

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<v Speaker 3>and then I think Congress. I hope Congress takes up

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<v Speaker 3>some prohibitions on certain death in assassination contracts.