Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 2: Donald Trump was on and off the witness stand in
Speaker 2: less than four minutes today at the defamation trial by e.
Speaker 2: Gene Carroll, the writer who won a related sexual abuse
Speaker 2: case against him last year. Federal Judge Lewis Kaplan, who's
Speaker 2: overseeing the trial, has already held Trump libel for defaming Carroll,
Speaker 2: and now the jury in this second trial will decide
Speaker 2: the damages shall be awarded. Joining me from the courthouse
Speaker 2: is Bloomberg Legal reporter Patricia Hurtado, who was in the
Speaker 2: courtroom for Trump's testimony. So Patty tell us about this
Speaker 2: brief appearance on the stand by Trump.
Speaker 3: Donald Trump is on the stand unbelievably brief, four minutes
Speaker 3: at most, unlike the four hours he spent railing at
Speaker 3: the system in the New York State Civil FRAU trial
Speaker 3: in November when he testified. The judge took great pains
Speaker 3: to strictly limit what Trump was allowed to say, and
Speaker 3: he made Trump's lawyer, Elena Hobbock, answer specifically what was
Speaker 3: the question she was going to ask him and what
Speaker 3: was the answer Trump was going to get. So the
Speaker 3: judge wanted to put the guardrails out there, and no
Speaker 3: strain off of reservation on this one. Don't go off
Speaker 3: on the off land, you're not allowed. So you could
Speaker 3: hear some grumbling going on because Trump was muttering to
Speaker 3: himself and to his lawyers and Sean Crowley, she's another
Speaker 3: Carol lawyer. She said, mister Trump is making statements such as,
Speaker 3: I don't know who this woman is. I never met her,
Speaker 3: I don't know who this woman is before this trial.
Speaker 3: And so the judge basically shot a grant at Trump, like,
Speaker 3: you know, cool it, and then that the judge continued
Speaker 3: to ask Trump's lawyer these questions. He said, very pointedly,
Speaker 3: will mister Trump comply basically to his lawyer? Of course,
Speaker 3: Trump is not supposed to speak, and Trump started mouthing
Speaker 3: off and saying something, and the judge shot him down
Speaker 3: and said, quote, I'm sorry, mister Trump, you're talking as
Speaker 3: your lawyer is talking. But he really stern with him,
Speaker 3: and then Trump looked grumpy and annoyed and stopped talking.
Speaker 3: So basically the judge put these rules on and the
Speaker 3: judge ruled before trial in September that the statements that
Speaker 3: Trump has made about miss Carroll are as infanatory. So
Speaker 3: now this story is just determining damages, right, So it's
Speaker 3: sort of game over. So Trump was not allowed to
Speaker 3: get on the stand and claim I never said this,
Speaker 3: she's a liar. He couldn't say any extra stuff. He
Speaker 3: had to limit it very carefully to you know, like
Speaker 3: why did you make these statements? And Olena Habba tried
Speaker 3: to get in the judge to allow Trump to testify
Speaker 3: what was his state of mom when he made the
Speaker 3: statements originally back in twenty nineteen that our defanatory and
Speaker 3: the judge shut that down. So I think it was
Speaker 3: a grand total of four minutes Trump was on the stand.
Speaker 2: Judge Kaplin does run a tight courtroom. So what exactly
Speaker 2: did Trump testify to in those four minutes?
Speaker 3: For example, do you stand by your testimony and your
Speaker 3: deposition answer one hundred percent? Yet did you make these statements? Yes,
Speaker 3: she said some things I took as falsely accusatory, and
Speaker 3: then the judge said sustained because it's not false anymore.
Speaker 3: The judges found them not to be false. Did you ever?
Speaker 3: And ten? And basically Carol alleges that she was just
Speaker 3: saying because Trump's comments from the White House triggered a
Speaker 3: barrage of hate speech at her from Trump's followers, and
Speaker 3: that she got death threats, and so Alena Haba, Trump
Speaker 3: flayer was able to ask did you ever intend for
Speaker 3: anyone to harm her? And he said no, I just
Speaker 3: wanted to defend myself, my family, and in fact the presidency.
Speaker 3: The judge shot back part of this, answered is stricken.
Speaker 3: I just wanted to defend myself. It was the only
Speaker 3: part he was allowed, and the judge told the jury ignore,
Speaker 3: I wanted to defend my family, and then back the presidency.
Speaker 4: That was it.
Speaker 3: That was it for direct and then cross Ervererta Catlan.
Speaker 3: Carol's lawyer said, you gave a deposition in October twenty
Speaker 3: twenty two, didn't you, And he goes, I believe so, yes.
Speaker 3: And after that, months after that, there was a trial
Speaker 3: that took place in this very courtroom, and then from
Speaker 3: Claire objected and the judge sustained it, so that jury
Speaker 3: to ignore them. She literally got four questions off, two
Speaker 3: of which were sustained, and the jury was told to
Speaker 3: ignore them. Are you aware that was another trial? And
Speaker 3: then Trump answered yes, But then Lena Haba objected, and
Speaker 3: then the judge said, yes, sustained, and and Lena always
Speaker 3: wants to have the last word, and she said, thank you, judge.
Speaker 3: And then Carol lawyer, the final question is is this
Speaker 3: the first time you've been at a trial that's involving
Speaker 3: Miss Carol that you've actually attended And he said yes,
Speaker 3: and that was it. So it was very very limited.
Speaker 2: This is about the damages. How effective was it when
Speaker 2: the jury was shown a video of Trump bragging about
Speaker 2: his wealth in a deposition.
Speaker 3: Very powerful, and you have to remember, this jury is
Speaker 3: sort of like a clean slate. They don't know what
Speaker 3: the earlier jury and the first Carol trial saw, but
Speaker 3: the jury saw a videotape deposition that Trump gave in
Speaker 3: the State simple broadcase in which he's asked how much
Speaker 3: money or you were, and Trump brags that he has
Speaker 3: at least four hundred million dollars in cash, and he
Speaker 3: also claimed that he's worth quote unquote billions of dollars,
Speaker 3: and he said that his brand is almost like Coca cola.
Speaker 3: It's worth billions of dollars. So that money isn't even
Speaker 3: counting the billions of dollars the Trump name is worth.
Speaker 3: So now the jury has bat to rollover that Trump's
Speaker 3: worth quite a chunk of change in his own estimation,
Speaker 3: he's like a billionaire.
Speaker 4: And then the.
Speaker 3: Jury saw the deposition he gave in the Eging Carol case,
Speaker 3: where you know, it's quite powerful, where he says, this
Speaker 3: woman's not my type. I've never met her. So then ROBERTA. Kaplan,
Speaker 3: Carol's lawyer, shows Trump a black and white photo from
Speaker 3: the nineteen eighties or early nineties of Egen Carrol as
Speaker 3: a young woman, her then husband, and there's Evanna Trump,
Speaker 3: Trump's first wife, and Donald Trump in some kind of
Speaker 3: black tie event and everyone's wearing foremost and he goes, oh,
Speaker 3: in fact, that's my second wife. That's Marlon Marla Maple.
Speaker 3: And then his own lawyer has to correct Trump and go,
Speaker 3: that's Eging Carroll Trump and mistook eg and Carroll for
Speaker 3: Marlon Mabeles, his second wife.
Speaker 2: Why did the judge let that in that seems like
Speaker 2: that's already been determined. Why did he let this jury
Speaker 2: hear that?
Speaker 3: Because this jury gets to see it again to show
Speaker 3: that there is the lie to Trump saying that none
Speaker 3: of this is true. Because they have to determine damages
Speaker 3: and if there's any doubt in their mind. There is
Speaker 3: that very limited portion of the deposition that wasn't long.
Speaker 3: It's limited to very brief statements that Trump made while
Speaker 3: president of the United States. I've never met this woman.
Speaker 3: She's not my type. And there's the lie to those two. Right,
Speaker 3: he had met her before and she looked, according to him,
Speaker 3: like his second wife. So that's why it was allowed
Speaker 3: in to basically in case the jury needed any kind
Speaker 3: of comfort that yes, he had met her before, and
Speaker 3: here's exhibit A that they had met.
Speaker 2: In an attempt to limit damages, the defense brought out
Speaker 2: testimony that Carol enjoyed the fame that came with coming forward.
Speaker 2: How did that go over?
Speaker 3: It's kind of a very hard argument to believe, because
Speaker 3: you know, she says she basically lost jobs after she
Speaker 3: accuses Trump. She loses her job, as they asked Egene Carroll,
Speaker 3: columns in El magazine and all of her TV appearances
Speaker 3: and writing assignments all dry up only for the limited
Speaker 3: purposes of what do you have to say about Donald Trump?
Speaker 3: And that's the only time she's ever been on TV
Speaker 3: or been asked to write an article. Is please tell
Speaker 3: us again about what happened? To you with Donald Trump.
Speaker 3: So the harm that her expert was testifying about is,
Speaker 3: you know, how do you repair your reputation when the
Speaker 3: President of the United States on the lawn of the
Speaker 3: White House has is getting into the President's helicopter to
Speaker 3: go to Camp David and calls her a liar. How
Speaker 3: do you repair the reputation from the statement that is
Speaker 3: made by one of the most powerful men in the
Speaker 3: world who calls you a liar? And how do you
Speaker 3: repair it? So that's what she's alleged. And so the
Speaker 3: argument you could say is your name gets out there,
Speaker 3: but you're not popular. Your name gets out there because
Speaker 3: people are talking trash about you. So you're mentioned seventy
Speaker 3: five thousand times, but it's not in a good way.
Speaker 3: And that's what she was saying. You know, you can't
Speaker 3: make money off Twitter, and she has no job anymore.
Speaker 3: She can't really make money off substat columns she's writing,
Speaker 3: but she's everything is basically dried up for her. What
Speaker 3: was her testimony like, it's a much more muted eging Carol.
Speaker 3: You know, she tells the story of I didn't want it,
Speaker 3: saying I wanted to be the truth teller about what women.
Speaker 3: You know that she writes this book describing different time
Speaker 3: she's been assaulted by men and do women really need men?
Speaker 1: What are meant for?
Speaker 3: As the book is titled. So, I mean, she comes
Speaker 3: off as kind of like a freewheeling, total New York
Speaker 3: woman who was for a brief period Saturday night live
Speaker 3: television show writer, and then she worked at, you know,
Speaker 3: a bunch of different magazines and whittled out a career
Speaker 3: for herself of being this advice columnist for Elle magazine.
Speaker 3: They just had the editor. Her former boss, Robbie Myers,
Speaker 3: testified about how she thought Eging Carroll was very, very
Speaker 3: popular with their readers, and she left EL in twenty seventeen,
Speaker 3: and she said that she had given Eging Carroll a
Speaker 3: raise because she thought she was so popular that people
Speaker 3: went to the magazine to read.
Speaker 2: Trump couldn't hold any press conferences in the halls of
Speaker 2: this federal courthouse. But I understand he had a mess
Speaker 2: for the media.
Speaker 3: As he was leaving the courtroom, he sauntered out of
Speaker 3: the courtroom. He knew their spectators in the audience, that
Speaker 3: there were reporters, and he turns to us and he muttered,
Speaker 3: this is not America. Not America. This is not America.
Speaker 3: And then he sauntered out. So he really wanted to
Speaker 3: have his stay to tell everybody in the courtroom, that included,
Speaker 3: you know, the likes of famous journalists that have covered
Speaker 3: him at the White House, that he didn't think that
Speaker 3: this trial is there.
Speaker 2: They'll be closing arguments tomorrow morning, and then the case
Speaker 2: will go to the jury, possibly as early as tomorrow afternoon.
Speaker 2: Egene Carol is asking for ten million dollars in damages
Speaker 2: plus punitive damages. So we'll see how the jury comes out.
Speaker 2: I know you'll be there, Patty. Thanks so much. That's
Speaker 2: Bloomberg Legal reporter Patricia Hurtado. Coming up next on the
Speaker 2: Bloomberg Law Show, a challenge to the SEC's controversial policy
Speaker 2: of silencing defendants who agree to settlements with the agency.
Speaker 2: I'm June Grosso and you're listening to Bloomberg. Billionaire Mark
Speaker 2: Cuban famously refused to settle the SEC's case against him
Speaker 2: for insider trading, instead going to trial, where a Texas
Speaker 2: jury cleared him in twenty thirteen, a rebuke to the SEC.
Speaker 2: Cuban described the trauma of that legal fight in an
Speaker 2: interview at CNBC.
Speaker 5: When you get accused of this, it isn't just about
Speaker 5: the money. It isn't just a fight. It's about your family,
Speaker 5: trying to explain to your kids during those eight years
Speaker 5: when I was fighting there, waking up in the middle
Speaker 5: of the night, sending emails, doing searches, looking for things,
Speaker 5: trying to find more information. It just consumes you when
Speaker 5: the government is fighting you on justly.
Speaker 2: And now a controversial SEC policy of silencing defendants who
Speaker 2: settle that's been challenged before by Cuban and Elon Musk
Speaker 2: is under fire again, and this time before a federal
Speaker 2: appeals court that's shown a willingness to strike down law
Speaker 2: longstanding practices of the agency. Christopher Novinger, a financial planner
Speaker 2: and radio host from Texas who settled with the SEC
Speaker 2: after he was accused in twenty fifteen of fraudulently selling securities,
Speaker 2: is making a constitutional challenge to the agency's policy of
Speaker 2: requiring defendants who settle to promise not to publicly deny
Speaker 2: the SEC's allegations. Joining me, a securities law expert, Anthony Sabino,
Speaker 2: a professor in the Department of Law at the Peter J.
Speaker 2: Tobin College of Business at Saint John's University tell us
Speaker 2: about the SEC's policy on settlements and this no deny policy,
Speaker 2: which is sometimes referred to as the gag rule.
Speaker 1: This is a policy that the Securities and Exchange Commission
Speaker 1: has had in place for many decades June. And basically
Speaker 1: what it says is here, we are the SEC. We
Speaker 1: have charged you, we have investigated you, we have brought
Speaker 1: an enforcement action, in other words, charging you with various
Speaker 1: wrongdoing under the federal securities laws. Now we've reached a
Speaker 1: settlement whereby you're going to pay money. Because once again,
Speaker 1: the SEC's jurisdiction is to bring civil actions seeking monetary
Speaker 1: relief and sometimes injunctive relief enjoined people from being in
Speaker 1: the industry and so forth, whereas the Department of Justice
Speaker 1: will bring criminal cases that involve prison time. And the
Speaker 1: SEC says, okay, fine, we've reached the settlement with you
Speaker 1: without going to trial. You're going to pay money, all right.
Speaker 1: And the benefit of this to the accused is that
Speaker 1: they get to say that we settle this case neither
Speaker 1: admitting nor denying. We don't admit anything, we don't deny
Speaker 1: anything with respect to our liability. However, says the SEC.
Speaker 1: Here's one more condition, and that is once this is done,
Speaker 1: you cannot comment on this publicly. You cannot issue press releases,
Speaker 1: you can't say anything. And the counterpointing might say, well, gee,
Speaker 1: for how long, and the sec says until the end
Speaker 1: of time okay, in other words, forever and ever and
Speaker 1: really June. What this comes down to with this present
Speaker 1: case here that we're talking about today with novndury is
Speaker 1: the fact that from my perspective, that it's a matter
Speaker 1: of expediency on the government side and the Constitution with
Speaker 1: respect to the first memory and speech on the other,
Speaker 1: and in the vast majority of cases, the Constitution wins
Speaker 1: as well it should, which is what makes this case
Speaker 1: so interesting and sure to make for a rollicking opinion
Speaker 1: from the Fifth Circuit which is hearing it, and in
Speaker 1: all likelihood, because of the dissonance and the circuits, I
Speaker 1: think the Supreme Court not only will hear this case,
Speaker 1: I think they should and finally resolve it.
Speaker 2: Well, it seems like the parties being sued are giving
Speaker 2: up something, but they're getting something as well. They don't
Speaker 2: have to fight the case in court, and they don't
Speaker 2: have to say they were wrong, but they can't say
Speaker 2: they were right.
Speaker 1: That is correct, okay, And essentially to the SEC's point
Speaker 1: of view, which is saying, look, of all sides are
Speaker 1: giving up the right to go to trial where the
Speaker 1: SEC could win big, or to the converse, you could
Speaker 1: win big accused party and therefore walk away without paying
Speaker 1: any money. All right, we've reached the settlements, which is
Speaker 1: fairly common in SEC cases and frankly very common in
Speaker 1: court rooms across the land on all sorts of cases.
Speaker 1: So the quick pro quot the something for something is, look,
Speaker 1: you don't have to admit anything, you don't have to
Speaker 1: deny anything. You basically are silent.
Speaker 4: You just pay money. But as a condition of that,
Speaker 4: so not to undercut.
Speaker 1: Our enforcement efforts, we don't want you at any time,
Speaker 1: okay until the end of the world, to make any
Speaker 1: sort of comment whatsoever. And the Commission's point of view,
Speaker 1: and there's some grains of truth in this, I must admit,
Speaker 1: is the fact that the Commission doesn't want any let's
Speaker 1: call it contrary opinions, contrary information coming out after the fact,
Speaker 1: whereby the party says, well, yeah, we settled and we
Speaker 1: didn't admit or deny anything, We just paid money. But
Speaker 1: isn't it true to some extent that if afterwards you
Speaker 1: issue a press released saying, yes, we settled, but we
Speaker 1: think the SEC was all wet and the accusations were meritless,
Speaker 1: then aren't you in a way reciting a denial. So
Speaker 1: one can see again the reasoning behind the SEC's position.
Speaker 1: But on the other hand is the fact that when
Speaker 1: the SEC issues its press release, and they always do
Speaker 1: j okay, they always issue a long press release that
Speaker 1: says okay, SEC had put investigation and file charges in
Speaker 1: enforcement action against XYZ Corp. For failure to disclose material information,
Speaker 1: whatever it may be under the filal securities laws. And
Speaker 1: then the SEC goes on and it describes in detail,
Speaker 1: and many times exquisite detail, the nature of the charges,
Speaker 1: the who's, the what's, the whares, they name names, and
Speaker 1: so forth, and then at the end is one little
Speaker 1: paragraph whereby it states XYZ Corporation as it's agreed to
Speaker 1: settle this case, admit nor deny guilt and its pain
Speaker 1: and the amount of XYZ. So when you look at
Speaker 1: that press release, both quantitatively and qualitatively, the vast bulk
Speaker 1: of it is the SEC espousing its position, whereas the
Speaker 1: accused the settling party is saying we neither admit nor
Speaker 1: denied liability, but then they're foreclosed.
Speaker 4: Till the end of time from saying anything.
Speaker 1: And isn't that a little bit unfair? And that is
Speaker 1: certainly the argument that's being made by mister Norbyn during
Speaker 1: this case and by other folks who've been in similar
Speaker 1: situations with various results, which is one of the reasons
Speaker 1: why they should go to the Supreme Court eventually. And
Speaker 1: also I think any America would say, well, isn't that
Speaker 1: a little bit unfair? Because the government here has the
Speaker 1: heavy hand. The government has the hammer, I few will.
Speaker 1: They're saying we're going to drag you through court like
Speaker 1: they did with more Cuban on those inside of trading
Speaker 1: charges many years ago, just the way they're doing now
Speaker 1: with Elon Musk and so on and so forth. So
Speaker 1: we at the edge and now we're going to use
Speaker 1: that to our advantage by saying all the things we
Speaker 1: want to say. But what do you get to say nothing?
Speaker 2: And this is a First Amendment challenge, right.
Speaker 1: I am not a First Amendment scholar, but I don't
Speaker 1: have to be, because this clearly falls within the purview
Speaker 1: of what we call prior restraint of speech, which in
Speaker 1: the legion of cases and with extremely rare exceptions, the
Speaker 1: Supreme Courters said, no, okay, no one can issue a
Speaker 1: prior restraint of someone's speech, especially the government. So again
Speaker 1: we can see the SEC's point, and I admit to
Speaker 1: some rationality to it, but once again we're talking about
Speaker 1: someone's constitution right to say, Look, yeah, I settled. Yeah,
Speaker 1: I have the benefit of neither admitting nor to nine guild.
Speaker 1: But you're taking away one of my more precious liberties,
Speaker 1: which is the ability.
Speaker 4: To comment after the fact and June.
Speaker 1: Without naming names, because I don't want to get anywhere
Speaker 1: near that. But as we well know, in America today,
Speaker 1: there are many celebrated cases where the parties involved are
Speaker 1: highly critical and very vocal about criticizing the government, the prosecutor,
Speaker 1: and even the judge. So if they can do that,
Speaker 1: basically the parties in these kinds of situations with the
Speaker 1: SEC are saying, Gee, we want to be exercised all rights,
Speaker 1: just like any other American And why does the government
Speaker 1: have the ability to be so heavy handed and able
Speaker 1: to silence us for the rest of time.
Speaker 2: This no deny policy has been criticized by legal scholars
Speaker 2: and federal judges as potential First Amendment violations. Well known
Speaker 2: judge Jed Rakeoff in the Southern District of New York
Speaker 2: Manhattan said it created a stew of confusion and hypocrisy
Speaker 2: unworthy of such a proud agency as the SEC and
Speaker 2: Fifth Circuit Judge Edith Jones said a more effective prior
Speaker 2: restraint is hard to imagine is the weight of legal
Speaker 2: scholarship against this no deny policy.
Speaker 1: To some extent it is, although some cases also favored
Speaker 1: the SEC as well, and basically just dealing with the
Speaker 1: two individuals who you've mentioned, who I hold in high
Speaker 1: esteem and Jed Raykoff is one of the stars, the
Speaker 1: true stars of the securities law area. And also he
Speaker 1: is in the Southern District of New York where he
Speaker 1: has sat on many, many cases to citing securities law issues.
Speaker 1: He's acknowledges probably even the top three, if not number one,
Speaker 1: of securities law scholars in the terms of judges and
Speaker 1: also lets him. The Southern District of New York sits
Speaker 1: within the Second Circuit, renowned by no less than the
Speaker 1: Supreme Court as the mother court of federal securities law.
Speaker 1: Judge the Duplan Jones of the Fifth Circuit, again an
Speaker 1: extremely erudite and astute judge and very highly regarded in
Speaker 1: years past. She is on the very short list to
Speaker 1: be a nominee for the US Supreme Court, and their
Speaker 1: voices lend a great deal of waiting credibility to these
Speaker 1: criticisms against the agency. But one of the interesting things
Speaker 1: is is that, as I said, there are cases that
Speaker 1: also cut in the favor of the agency, and one
Speaker 1: of those is sec versus Romero. That's where the Second Circuit,
Speaker 1: which presides over Judge Raycot, and therefore he really can't
Speaker 1: take issue with them. He has to follow their precedence.
Speaker 1: They said, no, no, no, this policy's perfectly fine. And
Speaker 1: once again the Second Circuit states, similar to the comments
Speaker 1: you made earlier June, is that it's part of the
Speaker 1: quid pro quote. Okay, here's X y Z Corporation. They
Speaker 1: are accused of wrongdoing by the Securities and Exchange Commission.
Speaker 1: They agree to settle, they pay a monetary fine, they
Speaker 1: avoid the course and expense and even possibly the embarrassment
Speaker 1: of trial, and now they have the benefit of neither
Speaker 1: admitting nor denying linability. But on the other hand, there's silence.
Speaker 1: But again they voluntarily gave up their right. And that's
Speaker 1: essentially what the second Circuit has offended, its hopes upon
Speaker 1: the essence of its rationale is when you settle with
Speaker 1: the SEC it's just like any other settlement, whereby you
Speaker 1: are agreeing to give up when you're right and in
Speaker 1: this instance, the right to talk about these settlements after
Speaker 1: the fact.
Speaker 4: And I think this was a very.
Speaker 1: Interesting contrast June, as follows certainly in civil litigation all
Speaker 1: across the land. Okay, even as you and I are
Speaker 1: speaking right now. The bottom line is that people all
Speaker 1: across America settle cases all the time, and it is
Speaker 1: fairly common and becoming even more pervasive for people to
Speaker 1: put in non disparagement clauses, and basically are the provisions
Speaker 1: that call for the parties to not disclose publicly the
Speaker 1: terms of the settlements, to not disparage each other after
Speaker 1: the settlement, to basically settle the case, pay the money,
Speaker 1: reach the resolution, and then close the book. And both
Speaker 1: sides are absolutely completely silent. So that same logic applies here.
Speaker 1: But on the other hand, let's remember the situation I
Speaker 1: just described is private parties in private litigation, saying okay,
Speaker 1: we mutually agree we're both going to be silent about this.
Speaker 1: In the instance we're talking about with mister Nabringer, in
Speaker 1: cases yet to come, we're talking about a private citizen
Speaker 1: dealing with the government, and this is where the government
Speaker 1: is basically making you be silenced. And that very much
Speaker 1: falls within what Judge Ronnie Abrams has characterized as in
Speaker 1: prior restraint of speech, which has always been looked at
Speaker 1: with great abhorrence in our judicial system.
Speaker 2: What bothers a lot of people is that while the
Speaker 2: defendant is silenced, the SEC is not. As you mentioned before,
Speaker 2: we have the point of oh, well.
Speaker 1: Wait a minute, all right, I have to be silenced.
Speaker 1: But when this settlement is reached and it's finalized, the SEC,
Speaker 1: as I mentioned before, puts out a press release in
Speaker 1: great detail talking about their side. So really that's the
Speaker 1: inherent imbalance, if you will, Okay, is it unfair? That's
Speaker 1: yet to be decided or though I think it is.
Speaker 4: But at the very least there's the imbalance.
Speaker 1: The SEC gets tell you all about the charges they brought,
Speaker 1: and they go on for a few pages. Then you
Speaker 1: get to basically say, in one little paragraph yeah, we
Speaker 1: neither admit nor denyal liability, and yeah, we're gonna pay
Speaker 1: x amount of money, and no, we can't say anything else.
Speaker 1: And I think that's the thing that rankles various judges,
Speaker 1: Judges Raykoff, Jones, and probably the Fifth Circuit, which, again,
Speaker 1: as you know, is right now in the epicenter of
Speaker 1: litigation challenging the power of the SEC. For example, the
Speaker 1: Charcasy case where I have to fire to make us brief. Again,
Speaker 1: different issues coming up next on.
Speaker 2: The Bloomberg Law Show. I'll continue this conversation with Professor
Speaker 2: Anthony Sabino. Is the SEC sort of in the hot
Speaker 2: seat with the Supreme Court. I'm June Grosso and you're
Speaker 2: listening to Bloomberg. A controversial SEC policy is being challenged
Speaker 2: before a federal appeals court that's shown a willingness to
Speaker 2: strike down long standing practices of the agency for constitutional reasons.
Speaker 2: The challenge is to the SEC policy of requiring defendants
Speaker 2: who settle with the agency to promise not to publicly
Speaker 2: deny the SEC's allegations. I've been talking to Anthony Sabino,
Speaker 2: a professor in the Department of Law at the Peter J.
Speaker 2: Tobin College of Business at Saint John's University, tell us
Speaker 2: how the SEC is in the hot seat with the
Speaker 2: Supreme Court and how it could get even worse.
Speaker 1: For example, the DARCAESA case where I have to fire
Speaker 1: to make us brief. Again, different issues, but the bottom
Speaker 1: line is late November, the Supreme Court did hear the
Speaker 1: appeal of the DRCASA case where they sharply questioned the
Speaker 1: power of the SEC to bring enforcement actions against individuals
Speaker 1: and companies but doing so administratively and denying them the
Speaker 1: right to a jury trial. And the SEC is in
Speaker 1: many respects on the hot seat right now with the
Speaker 1: Supreme Court. Which is why, as I said, I firmly
Speaker 1: believe the Supreme Court should hear this case.
Speaker 4: Assuming the Fifth Circuit.
Speaker 1: Rules against the Commission, I feel very strong the Supreme
Speaker 1: Court will take the case because they've not shied away
Speaker 1: from challenges to administrative agent see authority recently getting it mildly.
Speaker 2: Yes, some people say it's a war on the administrative state.
Speaker 1: It definitely is. Oh yeah, and the battle has been joined. Okay,
Speaker 1: there's a warrant administrative state, and as you well know,
Speaker 1: there's the Local Bright case challenging the Chevron doctrine of
Speaker 1: deference to administrative agency rulings. Right now, Basically, you've already
Speaker 1: got teed up lower Bright challenging Chevron deference. You've got
Speaker 1: the Trakzy case challenging the SEC's power to hold administrative
Speaker 1: hearings and deny people the right to a jury trial
Speaker 1: with the SEC accuses.
Speaker 4: You're wrong doing.
Speaker 1: Okay, why not go for the trick? Why not fill
Speaker 1: this out at some future pointing and could be probably
Speaker 1: would be a year away for the twenty twenty fourth term.
Speaker 1: And remember the Fifth Circuit decided Tarchesy and basically said
Speaker 1: to the SEC, you're wrong. It's unconstitutional for you deny
Speaker 1: accused parties are right to a jury trial when you
Speaker 1: accuse them of securities fraud and such. So I'm not
Speaker 1: a betting man, but if this is the kind of
Speaker 1: thing you saw on draftings, yeah, I would put some
Speaker 1: money down in favor that the Fifth Circuit is going
Speaker 1: to rule against the Commission. And again that primes it
Speaker 1: because of the Rameral case.
Speaker 4: As we mentioned, the.
Speaker 1: Second Circuit decided in favor of the Commission on this
Speaker 1: and said, oh yeah, these gig orders are just fine. Again,
Speaker 1: it's it's been sharpened up enough for a Supreme Court review.
Speaker 1: So I think that's going to happen, and frankly I
Speaker 1: welcome it, no matter what the outcome may be.
Speaker 2: I think that's a very safe bet you're making on
Speaker 2: the Fifth Circuit, the most conservative appellate court in the country.
Speaker 2: As I always say, I have any other circuit courts
Speaker 2: besides the Second Circuit.
Speaker 1: Ruled on this or something like this, Yes, I believe, so.
Speaker 1: I don't recall all the decisions per se. But again
Speaker 1: I think a few of the other circuits have come
Speaker 1: out against it. It might be the third and one other,
Speaker 1: so there is again, there is a dissonance there with
Speaker 1: respect to the various circuits here. Certainly, it's interesting because
Speaker 1: you have, as you say, and rightly so I completely agree,
Speaker 1: the Fifth Circuit is one of the most probably, yes,
Speaker 1: I would say, the most conservative court among the numbered
Speaker 1: circuit courts of appeals in the federal system, but especially
Speaker 1: on issues of limiting the power of governments, Okay, limiting
Speaker 1: the power of the ministry. Invasion sees against your casey
Speaker 1: being a prime example of that, a paramount's example. The
Speaker 1: Second Circuit, of course, has the weight of history behind it,
Speaker 1: and being again as the Supreme Court is characterized that
Speaker 1: the mother court of federal securities laws, because let's face it,
Speaker 1: bad stuff allegedly happens on Wall Street, it goes to
Speaker 1: the Southern District to judges like Jed Raykoff and Ronnie Abrams,
Speaker 1: and then it gets appealed literally in the same building,
Speaker 1: to the Second Circuit. So they have tremendous expertise. So
Speaker 1: while I'm leaning towards disagreeing with the Second Circuit in
Speaker 1: the Ramoluh case, the bottom line is that again their
Speaker 1: wisdom in this area carries a lot of weight. So
Speaker 1: once again that simply makes it all the more imperative
Speaker 1: that the Supreme courts they find. Okay, we have the
Speaker 1: circuit conflict, which is in many ways the raison detch
Speaker 1: why we have a Supreme Court to resolve these inter
Speaker 1: circuit conflicts. So let's get to this.
Speaker 2: So the sec besides saying that you know, the parties
Speaker 2: who enter these agreements voluntarily weigh their First Amendment rights,
Speaker 2: it defends this as necessary. It says the no deny
Speaker 2: provision ensures that if defendants were to publicly deny the
Speaker 2: allegations after settling without admissions, the Commission can seek to
Speaker 2: have its day in court and obtain findings of fact
Speaker 2: and conclusions of law.
Speaker 1: That is basically a conditional statement. There Robert saying, okay, look,
Speaker 1: we truncate the proceedings, the proceedings come to an end.
Speaker 1: You pay us money. You don't have to admit liability,
Speaker 1: you don't have to deny liability, and you I'm making
Speaker 1: any kind of confession. And this is very important for companies,
Speaker 1: especially in the financial sector and on Wall Street Journal,
Speaker 1: for Corporate America as a whole. Okay, financial as well
Speaker 1: as industrial to say that, look, if we admitted liability,
Speaker 1: Oh okay, here we go. Now here come the plaintiffs,
Speaker 1: lawyers representing shareholders, and now we have just engendered dozens
Speaker 1: of lawsuits and class actions and what have you. So
Speaker 1: the companies and the individuals definitely benefit by having the
Speaker 1: ability to neither admit nor deny it basically forestalls further litigation.
Speaker 1: But the SEC also says, well, okay, the other condition,
Speaker 1: as we've been discussing, is you cannot comment on this.
Speaker 1: Here the fact all right, and again one can see
Speaker 1: the grains of truth, the grains of realism in the
Speaker 1: SEC's position is that they're saying, look, we don't want
Speaker 1: other folks to come around and say opposing things. You've
Speaker 1: settled and we've asked you to keep your mouth shut
Speaker 1: and day, and that's why the SEC reserves the right.
Speaker 1: They say, Look, the conditions were you pay the money
Speaker 1: and you keep your mouth shut. Well, if you open
Speaker 1: your mouth, now you blow up the settlements, and now
Speaker 1: we get to sue you. And now you're back to
Speaker 1: exactly where you started. And by the way, I've never
Speaker 1: heard of the situation where the commissioners said, okay, oh,
Speaker 1: we'll also refund you the settlement money and then we'll
Speaker 1: sue for it.
Speaker 4: Now I don't think so.
Speaker 1: I think they owe the Hunts of money. And then
Speaker 1: they still so anyway to get more money because obviously
Speaker 1: you're going to settle for less than the amount the
Speaker 1: SEC was originally seen to denolize you for. And then
Speaker 1: once again the question I have, June, is is it
Speaker 1: right again? Remember the SEC gets to say you can't
Speaker 1: talk about this, but we can. You see, that's why
Speaker 1: it's a gig order that only gags one side, and
Speaker 1: there's an inherent injustice in that in my opinion. And
Speaker 1: also let's remember the fact that look the street. They're
Speaker 1: sophisticated investors, they're sophisticated business people.
Speaker 4: All right.
Speaker 1: So when they see SEC versus X y Z, and
Speaker 1: they see the settlements and they see the SEC gives, well,
Speaker 1: we brought these charges, blah blah blah. Came the company
Speaker 1: neither settles without neither admitting nor to nine liability. Okay,
Speaker 1: if the company comes out and issues oppressibly saying yes
Speaker 1: we settled, we neither admit nor denial liability, but we
Speaker 1: thought this suit had no merit. Yeah, that's what you
Speaker 1: expect people to say. And really, what's the harm in that?
Speaker 1: The market, the investment community, the business community, they're intelligent
Speaker 1: enough to say, look, the SEC says this, the other
Speaker 1: side says that.
Speaker 4: And you know, June, it's just a.
Speaker 1: Play on the age, old adage, these two sides to
Speaker 1: every story. And once again in America, don't we want
Speaker 1: to hear both sides? Don't we want to hear the
Speaker 1: accused say, yeah, I settled, I paid money. But you
Speaker 1: know what, this was really a meritless case. This was
Speaker 1: a stupid case. And that's essentially what more Cuban and
Speaker 1: Elon Musk have said in their cases, and also they
Speaker 1: are amiga spreaks.
Speaker 4: Mister Cuban basically.
Speaker 1: Now ever since he defeated the SEC on the inserted
Speaker 1: traded charges, oh my gosh, I see him. I saw
Speaker 1: him in jor casey, I see him in every case.
Speaker 1: He and his very competent lawyers file a brief against
Speaker 1: the SEC at the drop of the act.
Speaker 4: And you know what, lover hate Mark Cuban. It doesn't matter.
Speaker 4: He's an American.
Speaker 1: He's got a right to file an amigas brief just
Speaker 1: the way I do or you do, and so all
Speaker 1: to the better. Okay, That's how justice gets done in
Speaker 1: this country, Okay, by debate, discussion, and then intelligent deliberation.
Speaker 2: Let's say the Supreme Court takes this. Let's say the
Speaker 2: Supreme Court decides that the no denied condition is unconstitutional.
Speaker 2: How would that affect the SEC's policing of financial markets?
Speaker 2: I mean, would there be less settlements? What do you
Speaker 2: think the ramifications would be.
Speaker 1: It's difficult to quantify that, because there's really an absence,
Speaker 1: a vacuum of empirical data that would lead to affward
Speaker 1: looking conclusion like that. But in all honesty, my prediction
Speaker 1: would be it's not going to affect it a lot,
Speaker 1: because the key point about these settlements Trewn is this.
Speaker 1: The SEC brings charges llegius Securities for violations by Xyz Corporation.
Speaker 1: They discuss, they start to do discovery whatever, and then
Speaker 1: both sides say, all right, let's settle this. The SEC
Speaker 1: extracts money. And we all know that the best way
Speaker 1: to tail wrongful activity is to hit somebody where it
Speaker 1: hurts most in business, which is the wild So the
Speaker 1: SEC extracts the fine. The company is injured by that,
Speaker 1: and still the shareholders, while they don't have any further information,
Speaker 1: we're going to be angry. It's the mere fact that
Speaker 1: there were charges and the settlement because that sharehold of
Speaker 1: money flying out the window in the government's hands. The
Speaker 1: accused benefits by being able to state we neither admit
Speaker 1: nor deny liability. The fact that the accused now gets
Speaker 1: to talk about say, well, you know, we thought this
Speaker 1: case was always maryerless. We just settled it because it
Speaker 1: was expedient. It was in the best interests of shareholders
Speaker 1: to bring us to a conclusion, have a resolution.
Speaker 4: All right. I don't think that's going to deter the.
Speaker 1: SEC in the least from bringing these cases, and in fact,
Speaker 1: to some extent, I think it might help promote settlements
Speaker 1: of cases, because no doubt there are some parties out
Speaker 1: there who have been reluctant to settle because of the
Speaker 1: gag rule. But now if they say, okay, look all right,
Speaker 1: we pay the SEC money, fine, we neither admit nor
Speaker 1: deny liability. And afterwards, if we want to criticize the SEC, nothing's.
Speaker 4: Going to stop us.
Speaker 1: And once again, both the SEC and the private parties
Speaker 1: involved should recognize the fact your investors, your shareholders, your creditors,
Speaker 1: your counterparties and contracts, the market in general, they're going
Speaker 1: to make their own decisions. They're going to read the
Speaker 1: SEC press release if they care to. They're going to
Speaker 1: read your press release if they care to, and they're
Speaker 1: going to give each the weight that they feel it deserves,
Speaker 1: and they're going to make their own decisions. And while
Speaker 1: some folks would say, oh, okay, I don't want to
Speaker 1: own stock in this company anymore, I don't want to
Speaker 1: do this with it. That's fine, But other people say,
Speaker 1: it's for the course.
Speaker 4: This happens in business, this happens with the SEC.
Speaker 1: So what's the big deal. The SEC's major concern as
Speaker 1: they've particulated the cases, as you've been discussing gim is
Speaker 1: the fact that they are concerned that if it were
Speaker 1: not for the gag order, this would mean that they
Speaker 1: could be potential misinformation confusion about the nature of the
Speaker 1: charges on and so forth. Well, forgive me, but I
Speaker 1: have to be very critical of the Commission in that regard.
Speaker 1: I think that statement does not hold water at all.
Speaker 1: I think basically what the SEC is not saying is, well, again,
Speaker 1: they're not realizing the realities of the marketplace, and that again,
Speaker 1: the market is an intelligent, impersonal beast, if you will.
Speaker 1: It analyzes all the data points and reaches its own conclusions. Certainly,
Speaker 1: that argument is very convenient for the SEC because it
Speaker 1: basically supports their position to say, wellkay, we get to
Speaker 1: talk about why we brought the case and the charges
Speaker 1: that we're going to make that were eventually settled, but
Speaker 1: you don't get to talk about it, okay. And I
Speaker 1: think that's the issue. Is this the SEC, and my
Speaker 1: estimation with all the respect is dead wrong. What it
Speaker 1: says that oh, we need to gag go over to
Speaker 1: prevent misinformation confusion out there, I say, no, it's the
Speaker 1: exact opposite. The gag order should be non existent because
Speaker 1: you need the other side to have its day to
Speaker 1: say in its press release. Okay, we settled both. We
Speaker 1: thought these charges were meritless and full of nonsense to
Speaker 1: start with, so let both sides speak again. The gay
Speaker 1: order prevents one side from speaking, whereas the other side
Speaker 1: is at liberty to speak all at once. To me,
Speaker 1: that's very unfair and basically on American, and also in
Speaker 1: a way it denies the market the material information that
Speaker 1: it needs to make its own analysis.
Speaker 2: I'll be listening to those Fifth Circuit arguments come February eighth,
Speaker 2: as I'm sure you will too. Anthony, thanks so much.
Speaker 2: That's Anthony Sabino, a professor in the Department of Law
Speaker 2: at the Peter J. Tobin College of Business at Saint
Speaker 2: John's University,