Speaker 1: Bloomberg Audio Studios, podcasts, radio news. A federal government agency
Speaker 1: is reportedly investigating possible insider trading involving big swings in
Speaker 1: oil markets ahead of a major policy announcement by President Trump.
Speaker 2: The Body of Futures Trading Commission has examined at least
Speaker 2: two instances where trading volumes surged right before those announcements
Speaker 2: were made. Joining us now is Gary against Through, the
Speaker 2: former chairman of the CFTC. He also served as the
Speaker 2: chairman of the SEC and has a new podcast called
Speaker 2: Power and Consequences. It's you and the Nobel Laureate Simon
Speaker 2: Johnson dealing with a lot of these issues prediction markets
Speaker 2: as we want to talk the most about. But let
Speaker 2: me ask you quickly about this story. You helm the
Speaker 2: agency after the global financial crisis, there were a lot
Speaker 2: of raised eyebrows afterward of this trade came out. What
Speaker 2: is your read on what's happening here and maybe take
Speaker 2: us behind the scenes of what the CFDC might be
Speaker 2: doing as it looks into this one.
Speaker 3: The only way that the American public can have confidence
Speaker 3: in markets is they think that insiders can't get ahead
Speaker 3: of them with material information.
Speaker 4: I mean, that's just not fair, right.
Speaker 3: But two, the only way we can have confidence in
Speaker 3: our government is that we don't think that somebody in
Speaker 3: government or their friends or family are trading ahead of us.
Speaker 4: Right.
Speaker 3: So those two things are really important. And we knew
Speaker 3: that sixteen years ago, after the financial crisis, we were
Speaker 3: putting reforms in place, and I was honored to head
Speaker 3: this thing called the CFTC, and we were going to Congress.
Speaker 4: And I have to tell you a little story about
Speaker 4: Eddie Murphy.
Speaker 2: Okay, the comedian.
Speaker 3: The comedian, yeah, an actor, and he had done this
Speaker 3: movie Trading Place.
Speaker 1: So the legendary movie in my household. I never understood
Speaker 1: the end of it until like a year ago. But yes,
Speaker 1: this is an amazing.
Speaker 3: And it's an amazing movie where Eddie Murphy is trading
Speaker 3: these things called futures.
Speaker 4: It's a contract where it's.
Speaker 1: Right concentrated orange juice.
Speaker 3: There you go, there you go. But do you remember, Christina,
Speaker 3: what he was trading it on. He was trading it
Speaker 3: on and a report from the Department of Agriculture about
Speaker 3: the orange crop.
Speaker 1: He basically had inside information.
Speaker 3: Yes, yeah, So I get to the Commodity Futures Trading Commission.
Speaker 3: I asked the staff. I said, well that's illegal, right,
Speaker 3: and they go, well, Boss. There was a lot of
Speaker 3: mumble mumble and wonderful people. So we went to Congress
Speaker 3: in the midst of all that, and we said we've
Speaker 3: got to get something. And I used to say it
Speaker 3: was the Eddie Murphy provision. It's got to be illegal.
Speaker 3: Well guess what we were successful. Al Frankin, who was
Speaker 3: in that movie, was a senator, had a great yuch,
Speaker 3: great yucks on a couch in his office. But it's
Speaker 3: here's where it is today. It is illegal for a
Speaker 3: government actor, somebody who works in the government to pass
Speaker 3: on information to somebody and to have that person knowingly
Speaker 3: or with reckless disregard of the knowledge, trade on that information.
Speaker 3: Also it's illegal for that government actors doing so. It's
Speaker 3: both the government act or somebody passing on.
Speaker 4: So it's illegal.
Speaker 1: But how do you prosecute it because it can't be
Speaker 1: easy because it's not like these trades all have the
Speaker 1: person's name on them. They go through intermediaries, they go
Speaker 1: through trading dust talk to us about how the investigation works.
Speaker 1: You have to figure out who did it, when they
Speaker 1: did it, what information they have, and if it was
Speaker 1: public information or not, it's hard.
Speaker 4: It's hard.
Speaker 3: And I was honored to run federal law enforcement agencies twice,
Speaker 3: one in the commodity space, one in the security space.
Speaker 3: And so the staff is doing this, not the political pointees,
Speaker 3: but this staff is doing it with a lot of
Speaker 3: technology now using our artificial intelligence as well, tracking and
Speaker 3: looking for patterns, just like you do it Bloomberg, looking
Speaker 3: for patterns. Is there a spike in trading for three
Speaker 3: minutes before something happens like we saw late in March
Speaker 3: I think it was March twenty third, like you've all reported,
Speaker 3: we saw again on April seventh, Like various members of
Speaker 3: the House and Senate on both sides of the have
Speaker 3: written Senator Warren, but others also Center White House and
Speaker 3: others have written, And so I would think, yes, the
Speaker 3: government's going to investigate these things. But to your point, Christina,
Speaker 3: it's horrid because it's about pattern recognition and then getting
Speaker 3: behind that and saying, well, who actually traded And even
Speaker 3: if you identified David, I'm not saying you did this,
Speaker 3: but if David, somebody in your production booth, your control room,
Speaker 3: and the one second delay that we have here traded
Speaker 3: on whatever information, even in that one second, they might
Speaker 3: be trading on material non public information. I'm not saying
Speaker 3: they all.
Speaker 4: Know, of course, not right, We'll follow up after it.
Speaker 1: If they don't show up for their shift, we'll know
Speaker 1: something's happened. But so far our team is all still here.
Speaker 4: Is that right? Right?
Speaker 3: But then what happens if all those government actors show
Speaker 3: up for their shifts they're in a situation room or
Speaker 3: maybe they're handling President Trump's tweet? Yeah, or are they
Speaker 3: call it x now our Truth Social? Yes?
Speaker 4: Right, So that's important.
Speaker 3: Look, I think also Congress is looking at whether to
Speaker 3: ban certain contracts prediction markets.
Speaker 4: Think about it.
Speaker 2: Well, let me use that as a segue. We had
Speaker 2: Alyssa Slopkin on the show talking about a band that
Speaker 2: she's suggesting to be put in place for government official
Speaker 2: they shouldn't be able to make bets staffirs, And in
Speaker 2: that interview it was kind of clear that there was
Speaker 2: some ambiguity surrounding who's regulating these spaces. So as we
Speaker 2: talk about prediction markets and you want a recent podcast
Speaker 2: episode point out people embedding on things for centuries, I'm
Speaker 2: betting on the pope.
Speaker 4: Who's that going to be? Back in you know, fifteenth century, whatever.
Speaker 2: Is it well regulated? When we look at Calshi, which
Speaker 2: is domicile here in the United States, polymarkets is not
Speaker 2: its overseas and subject to less regulation. Is there an
Speaker 2: adequate regulator apparatus surrounding all of this right now?
Speaker 3: I think that collectively people will probably agree no, no,
Speaker 3: right now, no.
Speaker 4: One.
Speaker 3: You're right Americans. Humans have been betting on things since antiquity,
Speaker 3: but how it's regulated, and at least in sports betting,
Speaker 3: we've done that.
Speaker 4: At the state level.
Speaker 3: And I worked on that reform back in twenty ten.
Speaker 3: I don't remember a single member of Congress, a single Senator,
Speaker 3: House member, saying, oh, we're going to give you your little agency, Gensler,
Speaker 3: We're going to give you authority to regulate all this gaming.
Speaker 1: And this also isn't a really pro regulatory environment right now.
Speaker 1: That's just not where the wins of federal government seemed
Speaker 1: to be.
Speaker 4: No.
Speaker 3: No, But I can tell you this, the majority leader
Speaker 3: at the time, Senator Harry Reid, would have never voted
Speaker 3: for something to basically preempt Nevada gaming.
Speaker 4: No.
Speaker 3: So it's rather absurd to think that's what Congress meant
Speaker 3: to do. Now, the courts that will play out. That's
Speaker 3: about sports betting. But now you have these geopolitical events.
Speaker 3: And we did work with Congress at the time to
Speaker 3: have a prohibition put in place on any contracts on assassination, war, terrorism, gaming,
Speaker 3: and otherwise unlawful acts. And that was something that they
Speaker 3: gave to the CFGC that we could prohibit. I thought
Speaker 3: we voted on that. I remember voting on that. It
Speaker 3: was a rule forty one to one, I think, and
Speaker 3: so I thought we voted on that.
Speaker 4: Settled.
Speaker 3: Well, sometimes in life, things that you think are settled
Speaker 3: aren't settled.
Speaker 4: Spoken as a true lawyer, no, I'm not a lawyer.
Speaker 3: I'm a market's guide, but I would say this, I
Speaker 3: think the prediction markets some things we might just say
Speaker 3: as a society, we're going to ban. And you talked
Speaker 3: about the pope in fifteen ninety one, Gregory the fourteen
Speaker 3: said no, no betting on papal conclaves.
Speaker 4: They off the table. That's just off the table.
Speaker 3: But guess what in that reform effort in twenty ten,
Speaker 3: Congress said we can't bet on movie that's right, that's
Speaker 3: right on box office receipts. Howard Ludnik was running Canter
Speaker 3: Fitzgerald at the time. He's now the Secretary of COMMRESCE.
Speaker 3: He came in to us and said, we want to
Speaker 3: start a contract on movie futures. What do you think,
Speaker 3: CFTC And we looked at it and we voted. It
Speaker 3: was a split vote, three to two. We lost one
Speaker 3: Republican one Democrat actually, but we voted, and we said,
Speaker 3: there's an economic purpose here. You're hedging some risk the
Speaker 3: movie industry. Hollywood reacted negatively and they had a vehicle
Speaker 3: this reform thing going through. Senator Patrick Leahey from Vermont
Speaker 3: took that side, got an amendment in that is illegal.
Speaker 3: You cannot bet on movie futures in this country. Nor
Speaker 3: can you bet on onions. And that was Gerald Ford
Speaker 3: in the nineteen fifty.
Speaker 1: Okay, so we can't bet on movie futures, but we cant.
Speaker 1: I covered DC for seventeen years. But you can now
Speaker 1: bet on going to war. You can bet on all
Speaker 1: these really huge.
Speaker 3: Outcome, but not on assassination, war or terrorism. I thought
Speaker 3: I voted on that sixteen years ago.
Speaker 1: But I mean, talk to us about the larger picture
Speaker 1: of this, because we're in an era of so much
Speaker 1: data and commoditization and you were finding everything down to
Speaker 1: the numbers. I do worry, and I'm not a very
Speaker 1: touchy feely person, but I do worry about what it
Speaker 1: does to us when you are marketizing things like acts
Speaker 1: of war and people dying in conflicts and these huge
Speaker 1: geopolitical events.
Speaker 2: Which could have economic consequences.
Speaker 4: I should end of course, of course, absolutely absolutely.
Speaker 3: And there's day trading, and people who watch this show
Speaker 3: know that people can trade on options that are expiring
Speaker 3: the same day, and we we try to allow the
Speaker 3: retail public and the big institutions to aid and meet
Speaker 3: in those markets, or even to buy and sell and
Speaker 3: speculate on the price of oil if it's well regulated,
Speaker 3: and we guard against insider trading and the like. But
Speaker 3: then there's some things that you would say, really, do
Speaker 3: they have economic consequences?
Speaker 4: Do we want to have that?
Speaker 3: Why we banned onions in the nineteen fifties and why
Speaker 3: we ban movie futures in the twenty ten. But assassination
Speaker 3: wore terrorism death contracts, like even in eighteenth century England,
Speaker 3: and this was a real problem at Lloyd's of London's,
Speaker 3: which was out of a coffee shop. King George the
Speaker 3: Second in the seventeen forties had to deal with his
Speaker 3: noble lords, say, hey, we're losing too many times to
Speaker 3: the pirates. Can we ban betting on ships going down?
Speaker 3: They use different words admiralty insurance. You have to have
Speaker 3: an insurable interest in the ship. So maybe you have
Speaker 3: to have an insurable interest to have terrorismage.
Speaker 2: We have got a minute left here. Where do you
Speaker 2: see this? How do you see this developing here? Over
Speaker 2: the next year, ground swell of public interest and leads to.
Speaker 4: What it's a challenge.
Speaker 3: I think that this administration will try to do their
Speaker 3: best to push out insider trading, and that's because they
Speaker 3: have an interest in promoting this to the courts will
Speaker 3: play out. I don't think it was Congress's intent to
Speaker 3: preempt state gaming laws, but this administration wants to take
Speaker 3: that on and have a little agency of five hundred
Speaker 3: people be a national gaming regulator. I think, I don't know,
Speaker 3: and then I think Congress. I hope Congress takes up
Speaker 3: some prohibitions on certain death in assassination contracts.