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Speaker 1: Bloomberg Law with June Grosso from Bloomberg Radio.
Speaker 2: Welcome to a special best of edition of the Bloomberg
Speaker 2: Law Show. Ahead in this hour, we'll take a closer
Speaker 2: look at a case that could help determine which party
Speaker 2: controls the House after next year's election. Plus FTX investors
Speaker 2: are suing celebrities, bankers, accountants, and lawyers.
Speaker 3: We have said that the burden that you're assuming of
Speaker 3: disentangling race and politics in a situation like this is very,
Speaker 3: very difficult.
Speaker 2: The Chief Justice aptly described the problem in the case
Speaker 2: before the Supreme Court. The limits of parties in jerrymandering
Speaker 2: when it intersects with race. It's a case that could
Speaker 2: help determine which party controls the House after next year's election.
Speaker 2: A panel of three federal judges, after an eight day trial,
Speaker 2: concluded that Republican lawmakers had engaged in unconstitutional racial gerrymandering
Speaker 2: in drawing South Carolina's first congressional district, but at oral arguments.
Speaker 2: The conservative justice has expressed skepticism about that panel's decision.
Speaker 2: Here's Chief Justice John Roberts.
Speaker 3: We've never had a case where there's been no direct evidence,
Speaker 3: no map, no strangely configured districts, a very large amount
Speaker 3: of political evidence, whether the district court chose to credit
Speaker 3: it or not.
Speaker 2: While the three liberal justices suggested the lower court had
Speaker 2: adequate evidence to conclude that South Carolina lawmakers improperly relied
Speaker 2: on race to get to its established target of seventeen
Speaker 2: percent black voters in the district by shifting thirty thousand
Speaker 2: black voters out of the district to hit that goal.
Speaker 2: Here's Justice Elena Kagan.
Speaker 4: You have two experts here, Reguso and Lou who answered
Speaker 4: the exact question that is supposed to be answered in
Speaker 4: such a case. In other words, is this gerrymander based
Speaker 4: on politics or is it a way to get to
Speaker 4: an ultimate goal? An ultimate political goal, but the gerrymandarin
Speaker 4: is based on race. And what the two of them
Speaker 4: do is that they show that black Democrats are excluded
Speaker 4: from District one at a far greater percentage than white
Speaker 4: Democrats are joining.
Speaker 2: Me is elections law expert Richard Breffald, a professor at
Speaker 2: Columbia Law School. So Rich tell us about the case
Speaker 2: and the main issue here.
Speaker 5: So this case is about a challenge to the redistricting
Speaker 5: of South Carolina's congressional plan in twenty twenty two following
Speaker 5: the twenty twenty census. The major development affected District one,
Speaker 5: which is basically around Charleston, and it made the district
Speaker 5: more Republican by moving out of a significant number of
Speaker 5: black voters into an adjacent black majority district. District one
Speaker 5: had been a Republican district, but in recent years had
Speaker 5: been more closely contested, and in twenty eighteen the Democrats
Speaker 5: actually won it for one term. Twenty twenty, the Republicans
Speaker 5: want it back with very narrowly. So one of the
Speaker 5: things the legislature did in twenty twenty two was changed
Speaker 5: the composition to make it more republican, and in so
Speaker 5: doing it basically moved about thirty thousand black voters from
Speaker 5: Charleston out of the district into an adjacent district. By
Speaker 5: the way, District one is the district that elects Nancy Mace,
Speaker 5: who had been previously considered a moderate that since her
Speaker 5: district was change, seems to become more conservative. She's one
Speaker 5: of the eight who voted to pose Kevin McCarthy. So
Speaker 5: the question before the court, it's a tough question, is
Speaker 5: whether the legislature was motivated by race or by party.
Speaker 5: You might say that in a state where race and
Speaker 5: party are so intertwined, that's an impossible question answers. It's
Speaker 5: the same thing, but it's crucial because the Supreme Court
Speaker 5: has said that racial gerrymandering, that is to say, the
Speaker 5: intentional movement of voters because of their race from one
Speaker 5: district to another is unconstitutional. But partisan jerrymandering, as we
Speaker 5: all know since the RUCO decision in twenty nineteen, is
Speaker 5: non justiciable. So it's okay for the state to engage
Speaker 5: in partisan gerrymandering. It's not okay for the state to
Speaker 5: engage in racial gerrymandering. South Carolina says it was both
Speaker 5: the following traditional district lines but also had a partisan
Speaker 5: political purpose. What the lower court found was that actually
Speaker 5: the movement of voters did exhibit racial predominance, that given
Speaker 5: away the voters, reve which voters were targeted, and relying
Speaker 5: on the testimony of experts, they basically said that a
Speaker 5: proportionate number of black Democrats relative to white Democrats were
Speaker 5: the ones who were moved, and therefore the District Court
Speaker 5: was able to conclude that this was a racial gerrymander.
Speaker 5: That's what's being tested in the Supreme Court right now,
Speaker 5: whether this is a racial or a partisan jerrymander. Did
Speaker 5: the district court do it right? To what extent is
Speaker 5: the Supreme Court required to defer to the findings of
Speaker 5: the district court. And the district Court's findings are really
Speaker 5: sort of factual. They basically made a determination, based on
Speaker 5: the testimony of a person who wrote the South Carolina
Speaker 5: Plan and of other experts, that this was racially motivated.
Speaker 5: So one of the big issues before the court is
Speaker 5: what difference the district court finding was supposed to get. Normally,
Speaker 5: the standard applies to something called clearly erroneous, which means
Speaker 5: the district court gets a lot of difference. But you
Speaker 5: saw some of the more conservative justices pushing back on
Speaker 5: that here, saying that given the fact that the district
Speaker 5: Court doesn't appear to have given trusted in the good
Speaker 5: faith of the legislature, and given some of the other
Speaker 5: challenges to the evidence in front of the district court,
Speaker 5: maybe the district court doesn't get the kind of difference
Speaker 5: that the clearly erroneous standard normally would give them.
Speaker 2: Okay, so let's take those that's a lot of issues
Speaker 2: one by one. So the three judge federal panel referred
Speaker 2: to the revised map as effective bleaching of African American
Speaker 2: voters out of the Charleston County portion of the district.
Speaker 2: And they came to that conclusion after an extensive eight
Speaker 2: day trial featuring forty two witnesses and six hundred and
Speaker 2: fifty two exhibits. So doesn't the court usually defer to
Speaker 2: the factual findings of lower court judges?
Speaker 5: Yes, I mean, indeed, that is the standard they're supposed
Speaker 5: to apply, what's called the clearly erroneous standard. Not just
Speaker 5: but the district court right on balance, But as long
Speaker 5: as the District Court did was plausible long as they
Speaker 5: didn't something which was clearly wrong, as opposed to debatably wrong.
Speaker 5: They're supposed to defer. And you definitely heard the liberal
Speaker 5: justices emphasizing the importance of adhering to the clearly erroneous
Speaker 5: standard that it was evidence to support with the District
Speaker 5: Court found. And indeed the United States came in. The
Speaker 5: United States had not been a party to the case originally,
Speaker 5: but this listener General's Office came in. If the United
Speaker 5: States had actually emphasized the importance of following the clearly
Speaker 5: erroneous standard.
Speaker 2: Chief Justice John Roberts said that the challengers of the
Speaker 2: map had no direct evidence that race had predominated in
Speaker 2: the decision making process, just circumstantial evidence. This would be
Speaker 2: breaking new ground in our voting rights jurisprudence. Is that true?
Speaker 2: I mean, isn't circumstantial evidence enough?
Speaker 5: Right? They've often found circumstance relied on circumstantial evidence. But
Speaker 5: his full statement was there was no direct evidence. He
Speaker 5: all said it was not an oddly shaped district, and
Speaker 5: the number of the early other cases in which the
Speaker 5: Court has found racial gerrymandering, the district was oddly shaped
Speaker 5: On this one, there was a big change the district.
Speaker 5: People were moved around a lot, but the district itself
Speaker 5: didn't flunk any kind of test of odd shape, which
Speaker 5: is somethings the Court has sometimes used. And the other
Speaker 5: issue that came up before the court was the fact
Speaker 5: that the plaintiffs had not presented an alternative map. Basically,
Speaker 5: the question was could the state have gotten its partisan
Speaker 5: goals without moving as many black voters around? And the
Speaker 5: question came up, should the plaintiffs have been required to
Speaker 5: present an alternative map showing that the state could have
Speaker 5: made the district just as Republican without moving as many
Speaker 5: black voters. And there was a debate in the court
Speaker 5: as to whether the plaintiffs had to do that, and
Speaker 5: the President is that they don't have to. Indeed, Justice
Speaker 5: Kagan was quite strong on that because she'd actually written
Speaker 5: the case that said that, a case called Cooper about
Speaker 5: five years ago. But nonetheless, the other justices sort of
Speaker 5: came back and said, well, maybe you didn't have to,
Speaker 5: but why didn't you Why wouldn't that have helped your
Speaker 5: case if you could have shown that they could obtain
Speaker 5: their partisan goals without using race quite as much I
Speaker 5: mean it really went into the question, this difficulty of
Speaker 5: separating out race and party. In effect, the conservative justices
Speaker 5: were sort of creating it. Even though the prior case,
Speaker 5: Cooper had said there's no such requirement. You saw some
Speaker 5: of them basically kind of suggested that either that there is,
Speaker 5: or that there should be, or that it's a problem
Speaker 5: when there isn't.
Speaker 2: Justice Kagan argued that the map makers wouldn't just have
Speaker 2: relied on the twenty twenty election results. She said this
Speaker 2: to the lawyer arguing for South Carolina. Your defense was,
Speaker 2: we didn't look at the racial data for this purpose.
Speaker 2: And what the lower court said was, I don't believe that.
Speaker 2: And she also said they had not only the opportunity
Speaker 2: it was sitting there on their computers, but the clear
Speaker 2: incentive to be looking at this race data. So explain
Speaker 2: what she was getting at there and did you find
Speaker 2: it persuasive?
Speaker 5: So the couple questions here are one is why would
Speaker 5: they Why would the state bother using race when they
Speaker 5: could just use party? And if their goal was to
Speaker 5: make the district more Republican, why not just use the
Speaker 5: party voting? Why use race as approxy when you actually
Speaker 5: have the party data? One response to that is, actually
Speaker 5: they had much more information on race than on party.
Speaker 5: They only had because of the way in which kind
Speaker 5: of votes were counted in South Carolina. They only had
Speaker 5: one election in which they had good party data, and
Speaker 5: that was the twenty twenty presidential election, and the least
Speaker 5: the argument was that wasn't a good predictor because there
Speaker 5: had been more kind of a white crossover voting for
Speaker 5: Biden over Trump in that election. So the plaintiffs argued,
Speaker 5: Justice Kagan suggest that she agreed that in this case,
Speaker 5: actually the state used the race data because race data
Speaker 5: was more reliable that a predicted value than the more
Speaker 5: limited party data. Her point was that it was on
Speaker 5: their computers, it was in their data, it was in
Speaker 5: their face, and they couldn't have been unaware of it.
Speaker 5: And indeed, at one point in the trial, the lead
Speaker 5: witness for South Carolina and the principal map maker basically said, well,
Speaker 5: we weren't doing this race, but yes, of course we
Speaker 5: were aware of the racial data. And this is where
Speaker 5: the lower court basically concluded they really didn't believe him
Speaker 5: on that.
Speaker 2: Coming up next, we'll take a look at how the
Speaker 2: court might rule. This is Bloomberg.
Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 2: You're listening to a special best of edition of the
Speaker 2: Bloomberg Law Show. I've been talking to Columbia Law School
Speaker 2: professor Richard Rfalt about Supreme Court arguments over whether it
Speaker 2: will reinstate a Republican drawn congressional map in South Carolina
Speaker 2: after a lower court concluded that Republican lawmakers engaged in
Speaker 2: unconstitutional racial gerrymandering in drawing what is now a Republican
Speaker 2: health district. Justice Samuel Alito was the most aggressive questioner
Speaker 2: of the validity of the lower court's decision. He posed
Speaker 2: nearly forty questions to the NAACP's attorney. What was the
Speaker 2: thrust of his questions or problems?
Speaker 5: I think he basically said that this is politics and
Speaker 5: that the burden was heavy on the plaintiffs to show
Speaker 5: that it wasn't politics and that it was race. Much
Speaker 5: of this went into some of the details about what
Speaker 5: some of the experts testified to, or their failure to
Speaker 5: address every point that the state raised. Some of the
Speaker 5: experts testified to whether or not the district complied with
Speaker 5: traditional districting criteria, but not whether or not it was
Speaker 5: part of an Others focused on whether it was partisan
Speaker 5: or racial, but not in the district criteria. So he
Speaker 5: felt that the expert testimony was inadequate to support the
Speaker 5: trial court's finding. He repeatedly raised the question about the
Speaker 5: alternative map, even as he acknowledged that an alternative map
Speaker 5: was not required. He sort of found that the absence
Speaker 5: of an alternative map undermined the plaintiff's case. And again
Speaker 5: he basically said that in some sense suggests that there
Speaker 5: was a heavier burden on the District Court to prove
Speaker 5: that it was race and not party, given the way
Speaker 5: that the two were so tightly intertwined.
Speaker 2: Justice Katanji Brown Jackson kept stressing that the court relies
Speaker 2: on the factual findings of lower courts, and she said
Speaker 2: it would be a dramatic shift to precedent if they
Speaker 2: overturned the trial court's findings. Is that true or if
Speaker 2: they find clear error, which Justice Clarence Thomas brought up
Speaker 2: right at the beginning, would it not be violentive of precedent?
Speaker 5: Well, if they found clear error, it wouldn't be because
Speaker 5: the standard is clearly ironing. Is the District Court's findings
Speaker 5: are not immune from review, but it has to be
Speaker 5: clear error as opposed to whether or not it was
Speaker 5: debatable in some sense. The US government, as I said,
Speaker 5: they came in on the side of the plaintiffs, on
Speaker 5: the side of the NAACP, and said, in a fact,
Speaker 5: we think that the three judge court could have gone
Speaker 5: either way. There was evidence to support either position, but
Speaker 5: the position that the district first found was reasonable given
Speaker 5: the evidence they had, and so that's why it's you
Speaker 5: should defer to them. I mean, one question that Justice
Speaker 5: Barrett raised to just maybe whether the standard should be
Speaker 5: higher in a case involving a state legislature. Maybe there
Speaker 5: should be more burden on the district court to show
Speaker 5: that the legislature wasn't acting in good faith. There's a
Speaker 5: kind of presumption that legislators state legislatures act in good faith,
Speaker 5: so maybe there should be a higher legal burden on
Speaker 5: the district court. And you're right. Justice Jackson was very
Speaker 5: heavy on it, sort of sticking to the traditional role
Speaker 5: of the district court in finding the facts and the
Speaker 5: duty of appellate courts that the first you had been
Speaker 5: at district court, judge, it was kind of a civil
Speaker 5: procedure argument as much as anything else, that the traditional
Speaker 5: role of the court is to see whether the lower
Speaker 5: court applied the law properly, but to defer to the
Speaker 5: factual finding. The liberals were the strongest on this about
Speaker 5: the importance of following this traditional judicial role of deferring
Speaker 5: to lower courts on the factual findings.
Speaker 2: Most legal commentators concluded after hearing the arguments, that the
Speaker 2: conservative majority is going to uphold the Republican drawn mapp
Speaker 2: Do you agree with that?
Speaker 5: There were certainly a lot of negative questioning, even from
Speaker 5: some of the so called more moderate conservative justices. Remember
Speaker 5: the most recent case involving race and voting, Allen versus
Speaker 5: Milligan went off five to four, with two of the conservatives,
Speaker 5: Roberts and Kavanaugh joining the liberals. Roberts was clearly pretty
Speaker 5: skeptical about the lower courts finding in this case. He
Speaker 5: seemed less likely. Kavanaugh's questions were a little bit harder
Speaker 5: to read. I mean, some of it was again about
Speaker 5: the evidence, but some of it also seemed to be
Speaker 5: indicated he was thinking about what's the burden on the
Speaker 5: defendants in this case? Who are the appellants to show
Speaker 5: that the district court was clearly wrong. I think it
Speaker 5: was certainly a tough argument for the NAACP defending the
Speaker 5: lower court's finding. I think if they have any chance,
Speaker 5: it's going to be to the extent that the Court
Speaker 5: decides to rally around the idea that unless it's clearly erroneous,
Speaker 5: there should be difference in lower court's finding. On the
Speaker 5: other hand, this is the court's first sort of race
Speaker 5: party intertwined case since Rucho four years ago, when the
Speaker 5: Court said that partisan gerrymandering is not on constitutional, it's
Speaker 5: notn justiciable. So it's the first time that they will
Speaker 5: speak to the how do you separate out race and party?
Speaker 5: And one could imagine they may want to shut down
Speaker 5: the idea that you could get around Rucho by reframing
Speaker 5: things around race. Now, the Court in the past has said,
Speaker 5: even if there's a partisan factor, that the state can't
Speaker 5: use the race as approxy for party when it draws
Speaker 5: lines to favor a party. But one could imagine this
Speaker 5: is a case where the Court might want to address
Speaker 5: the how do you disentangle race and party in a
Speaker 5: world in which racial gerrymandering is unconstitutional but partisan jerrymandering
Speaker 5: is not.
Speaker 2: Explain why this case is different from the case you
Speaker 2: referred to, you know, the Alabama case where it was
Speaker 2: surprising that the Chief and Justice Kavanaugh sided with the
Speaker 2: liberals there.
Speaker 5: That case was really about whether or not the Alabama
Speaker 5: violated the Voting Rights Act. This one is whether or
Speaker 5: not South Carolina violated the Constitution. Although the result in
Speaker 5: Alabama will have a partisan consequence, there wasn't an argument
Speaker 5: that the state was doing it to help the Republicans.
Speaker 5: It wasn't really an argument about the intent of the
Speaker 5: state at all that case. Under the Voting Rights Act,
Speaker 5: the plaintiffs can win if they show disparate impact, if
Speaker 5: they show that the state drew lines in a way
Speaker 5: that had the effect of minimizing minority voting power. I mean,
Speaker 5: the thing is, in South Carolina, the district that was changed,
Speaker 5: District one, was not going to be a majority minority district.
Speaker 5: It was going to be a white majority district either way,
Speaker 5: although for the larger black share of the voting population
Speaker 5: it might have been a democratic district, probably a white
Speaker 5: democratic district. And that's sort of one of the differences
Speaker 5: here is that the core it is somewhat sensitive to
Speaker 5: state actions that dilute minority voting power, but they don't
Speaker 5: care about state actions that chap from one party over another.
Speaker 5: And so the Alabama case was argued entirely around minority
Speaker 5: voting rights, although it turns out if you increase minority
Speaker 5: voting power in that state, you were likely to get
Speaker 5: at likely to have a partisan consequence. Here wasn't really
Speaker 5: a claim that minority votes were being diluted, just that
Speaker 5: voters are being moved around from one district to another.
Speaker 2: This case is the third time in two years that
Speaker 2: the Court has heard arguments about state's congressional lines, and
Speaker 2: two other cases are advancing in the lower courts in
Speaker 2: Georgia and Louisiana that challenge maps under the Voting Rights Act.
Speaker 2: Is it that the Court's precedent is not clear or
Speaker 2: are these kinds of cases always challenged?
Speaker 5: Well, I think anything evolving redistricting is going to be challenged.
Speaker 5: This case is different from the other ones. The other
Speaker 5: two cases, the one you mentioned, our Voting Rights Act
Speaker 5: challenges where the plaintiffs are arguing that the the way
Speaker 5: the lines are drawn reduces the ability of black voters
Speaker 5: to elect the candidates of their choice in districts, which
Speaker 5: might generate more minority representation Louisiana clearly, so in this one,
Speaker 5: again there wasn't a claim that you would have created
Speaker 5: another black majority district. Interestingly, the court has tend to
Speaker 5: look at these things as to whether you know they're
Speaker 5: going to be a sort of a majority minority, or
Speaker 5: district where minority voters are likely to prevail at least
Speaker 5: have the opportunity prevail. They've been less sympathetic to arguments about, well,
Speaker 5: maybe minority voters must be more influential if they're a
Speaker 5: bigger share, but not nearly a majority, and so they
Speaker 5: haven't bought that argument. And so the voting rights arguments
Speaker 5: are always difficult because the plaintiffs have to show that
Speaker 5: there could have been another minority district, that there is
Speaker 5: racially polarized voting, and that under the totality of the circumstances,
Speaker 5: the setup is unfaired minority voters. And that's a tough
Speaker 5: standard to meet. And many people thought that the court
Speaker 5: just didn't seem that interested. The Allen case kind of
Speaker 5: let me not revive that standard, but confirm that that
Speaker 5: is still the standard. And so I think it's what's
Speaker 5: given to wind at the backs of the people bringing
Speaker 5: the challenges. Nonetheless, there's a slow slog through the court.
Speaker 2: Thanks so much, rich that's Professor Richard Raffault of Columbia
Speaker 2: Law School. Coming up next, we'll discuss lawsuits from FGX investors.
Speaker 2: I'm June Grosso and this is Bloomberg.
Speaker 1: This is Bloomberg Law with June Grosso from Bloomberg Radio.
Speaker 2: You're listening to a special best of edition of the
Speaker 2: Bloomberg Law Show.
Speaker 1: I call it the Wheel. I don't think so.
Speaker 5: What does it do?
Speaker 1: Yeah? So does a bagel? Okay? A bangle? Here, Kenny.
Speaker 1: One of the worst ideas I've ever.
Speaker 6: Heard, Like I was saying, it's FTX, it's a safe
Speaker 6: and easy way to get into crypto.
Speaker 1: I don't think so.
Speaker 5: And I'm never wrong about this stuff.
Speaker 2: Never remember that Larry David commercial for FTX that had
Speaker 2: them laughing at the Super Bowl in twenty twenty two.
Speaker 2: And there was also Tom Brady touting FTX and commercials
Speaker 2: Giselle Bunchen, Steph Curry, and Shaquille O'Neil, among others. Well,
Speaker 2: investors who claim they lost billions in the collapse of
Speaker 2: FTX are trying to pin the blame not just on
Speaker 2: Sam bankman freed in his inner circle, but also on
Speaker 2: the celebrities who were paid to endorse it, as well
Speaker 2: as bankers, accountants, and lawyers who propped up the crypto
Speaker 2: Exchange's legitimacy. Joining me is Braden Perry, a former federal
Speaker 2: regulatory enforcement attorney and a partner at Kenny Hurtz Perry.
Speaker 2: So this is a class action lawsuit. Tell us about it.
Speaker 6: Yeah, So this is a loss. It is brought by
Speaker 6: a number of individuals who where the investors or had
Speaker 6: some sort of financial interest in FTX, and they brought
Speaker 6: it against a number of various entities, including celebrity endorsers, accountants,
Speaker 6: the actual members of FTX itself, as well as others.
Speaker 6: So it's a wide ranging case that essentially boils down
Speaker 6: to FTX was falsely providing information to the public, and
Speaker 6: the public somehow either invested or had some sort of
Speaker 6: financial interest in FTX and therefore were harmed.
Speaker 2: So let's start with the celebrities, because that's where everyone starts, correct,
Speaker 2: And those advertisements by Larry David and Tom Brady, the
Speaker 2: commercials were played at the beginning of SBF's trial. So
Speaker 2: what does the law require of celebrity endorsers.
Speaker 6: So generally the law requires not much, and what it
Speaker 6: requires is that the celebrity endorser knows what the product
Speaker 6: is and how it works. You that generally there's some
Speaker 6: sort of disclaimer, ordinarily at the bottom of the advertisement
Speaker 6: or elsewhere, it indicates celebrity endorser is a paid endorser
Speaker 6: for that product as well as the truthfulness and so
Speaker 6: the endorser cannot provide information that's false or misleading to
Speaker 6: the public.
Speaker 2: So then does that mean that Jennifer Garner actually has
Speaker 2: to use the drugstore creams she claims she uses.
Speaker 6: Generally that's the case, and so you'll see these advertisements
Speaker 6: with certain restaurants where celebrities are at or certain products
Speaker 6: that they're using, and it's not an exclusive use, and
Speaker 6: so it can be a very high level. So if
Speaker 6: Jenner Garner has used a product that's been provided to her,
Speaker 6: she can certainly endorse that product. And so it's not
Speaker 6: a lifelong or a over the top type of use requirement.
Speaker 6: But generally, yeah, if a celebrity endorser is going to
Speaker 6: endorse a product, that celebrity endorser should be using that product.
Speaker 2: So does that mean that Tom Brady and Larry David
Speaker 2: and all the others should have been invested in FTX.
Speaker 6: Yeah, I don't know if they should have been invested
Speaker 6: in the FTX. Obviously they should have known what FTX
Speaker 6: is and what it does, and that would likely be
Speaker 6: their exchange of choice if they were going to be
Speaker 6: part of the crypto movement, not necessarily a needed part
Speaker 6: of that movement.
Speaker 2: That's why I'm wondering, when sophisticated investors didn't know about
Speaker 2: FTX and the government found out much later, how are
Speaker 2: celebrities supposed to know?
Speaker 6: And that's the big question that's going to be the
Speaker 6: legal question is what did the celebrities know? What influence
Speaker 6: did they have on these investments? And that's really the
Speaker 6: crux of the legal argument in this case. The class
Speaker 6: action is so wide with all the different entities associated
Speaker 6: with FTX. You know, the accountant stand Backman Freed is
Speaker 6: one of the defendants, all these celebrity endorsers, everyone is involved,
Speaker 6: and so there's going to be from the defense side
Speaker 6: lots of finger pointing as to who knew what and
Speaker 6: when and where and how, and so that's really going
Speaker 6: to be what the plans to prove is whether or
Speaker 6: not these celebrity endorsers were intricate in this false and
Speaker 6: misleading product.
Speaker 2: Some of the lawyers for the celebrities are saying that
Speaker 2: the investors have no valid claim against them because the
Speaker 2: advertisements and sponsorships they were involved and didn't specifically encourage
Speaker 2: anyone to deposit money in FTX accounts. That seems weird
Speaker 2: because that's what the ad is for, right. Also that
Speaker 2: they never pitched the accounts at issue in the SBF case.
Speaker 2: Do those sound like typical defenses?
Speaker 6: They sound like typical defenses. Whether or not they will
Speaker 6: be successful is another story. The defense teams have several
Speaker 6: different lines of defense. As you mentioned, you know, they
Speaker 6: weren't specific to the actual accounts. They didn't provide terms
Speaker 6: or conditions of the accounts. They weren't detailing what the
Speaker 6: accounts could or could not do, and so that's general
Speaker 6: of defense to the claims. However, they knew or should
Speaker 6: have known, that there was misleading information by not providing
Speaker 6: some of that information about these accounts, and that can
Speaker 6: be counterproductive to their case. Also, if I'm sitting on
Speaker 6: the defense table and I see that the main group,
Speaker 6: the head of FTX, has been convicted of crimes. I'm
Speaker 6: certainly pointing to that, saying, hey, these people were committing crimes,
Speaker 6: were victims just as much as you were.
Speaker 2: Yeah, So the Sam bankman freed conviction and the guilty
Speaker 2: please of his inner circle should be helpful to the
Speaker 2: defendants here. Now, some of the other targets of the
Speaker 2: lawsuit are professional advisors, ranging from an accounting firm, investment firm,
Speaker 2: and a bank. Those seem like more reasonable defendants to me.
Speaker 6: Yeah, and they should be. And ordinarily, when you find
Speaker 6: and you look at the past history of massive frauds
Speaker 6: and finance made off as the best picture of that,
Speaker 6: there is still ongoing litigation involving countants, professional individuals who
Speaker 6: had some part of his scheme. That's the case here.
Speaker 6: You know, obviously, the accountants, the investment firms, all of
Speaker 6: these pieces were part of the ongoing massive dollars that
Speaker 6: FTX was bringing in and maintaining during its lifetime. And
Speaker 6: those are the traditional defendants you'd see celebrity endorsers. Frankly,
Speaker 6: you don't see that often, and I think that you know,
Speaker 6: obviously there have been a group that have settled just
Speaker 6: because likely they didn't want to be bothered with the
Speaker 6: litigation or part of the litigation, and there's a valid
Speaker 6: reason to settle and get out. But I think the
Speaker 6: ones that are still in there have relatively valid defenses
Speaker 6: that one they were victims two and two that their
Speaker 6: endorsements had no input on what the actual underlying fraud
Speaker 6: of FTCH was about.
Speaker 2: Last year, a federal judge dismissed a lawsuit from investors
Speaker 2: that accused Kim Kardashian, boxer Floyd Mayweather, and others of
Speaker 2: endorsing a cryptocurrency known as Ethereum Max. So I mean
Speaker 2: that could happen here, But is there a lot of
Speaker 2: pressure on the celebrities to settle.
Speaker 6: So it's the big gamble on litigation in the end,
Speaker 6: as a gamble, you can spend a lot of money
Speaker 6: trying to defend yourself and either get dismissed through summary judgment,
Speaker 6: through motion to dismiss, through other type of non trial activity,
Speaker 6: and it's still at the end of the day going
Speaker 6: to cost you money. And so there's a lot of
Speaker 6: times and you know, when I'm I'm dealing with litigation
Speaker 6: and my clients, I talk to them about the financial
Speaker 6: aspects of taking something to trial. You know what what
Speaker 6: will that cost number one, and what is the actual
Speaker 6: potential cost from it an adverse decision at trial? And
Speaker 6: a lot of times, you know, you find a middle
Speaker 6: ground with the other side from a litigation standpoint, where
Speaker 6: it makes more sense to settle and move on as
Speaker 6: opposed to trying to defend yourself months and months down
Speaker 6: the road. It takes an emotional toll, it takes a
Speaker 6: financial toll. Litigation is not fun and many times.
Speaker 1: Speak lawyers not well.
Speaker 6: Some of these lawyers, I think are probably having a
Speaker 6: good time with this, but it's certainly from a defendant
Speaker 6: or plaintiff standpoint, there's a lot that goes into it,
Speaker 6: and it's certainly you know, when when I have large
Speaker 6: cases that involved a long time of litigation, it's not
Speaker 6: easy on on either defendants or plaintiffs. It takes a
Speaker 6: lot of emotional toll from individuals when you're dealing with
Speaker 6: litigation day in and day out.
Speaker 2: It certainly does not to mention the cost of litigation.
Speaker 2: Coming up next on the Bloomberg Lawn Show, I'll continue
Speaker 2: my conversation with former federal Regulatory Enforcement attorney Braden Perry.
Speaker 2: Will the case involving FTX more complicated to unwind than
Speaker 2: the made Off case was, and attorneys looking for legal research.
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Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 2: You're listening to a special best of edition of the
Speaker 2: Bloomberg Law Show. I've been talking to Braden Perry, a
Speaker 2: former regulatory enforcement attorney, about the FTX investors lawsuits. As
Speaker 2: you mentioned, Bernie Madeoff, the investor suits played out for
Speaker 2: well over a decade, still some playing out. Do you
Speaker 2: think the SBF case is even more complicated to unwind
Speaker 2: than the maid Off?
Speaker 1: Yeah?
Speaker 6: I do. You know. We've been talking strictly about this.
Speaker 6: This one plane of case involves a number of celebrity endorsers.
Speaker 6: You have to remember that the criminal case is essentially over.
Speaker 6: There will be appeals. There will be other issues in this,
Speaker 6: although I don't think many of those peel issues. He
Speaker 6: was convicted. I think he'll be sentenced and I don't
Speaker 6: think any appeals will be successful. Then you got the
Speaker 6: regulatory action, so you got the CFTC, you got the SEC. Ordinarily,
Speaker 6: within these parallel criminal cases, those cases likely will be
Speaker 6: settled because there's not much else to go after. The
Speaker 6: big issue is going to be bankruptcy receiverships in the
Speaker 6: different jurisdictions and trying to claw back as much of
Speaker 6: this lost money as possible to provide to investors. So
Speaker 6: that's going to be the main focus for the next
Speaker 6: decade is the sivership action to claw back all this
Speaker 6: individual funds from all these various entities. And then you'll
Speaker 6: have these civil cases that are trying to find those
Speaker 6: that may not have exposure otherwise, so these celebrity endorsers,
Speaker 6: those types of things, and so it's going to be complicated.
Speaker 6: And the fact that that crypto wasn't regulated like Madoff's
Speaker 6: Ponzi scheme was, there's no central regulator, and you get
Speaker 6: the SEC, you got the CFTC that are part of this,
Speaker 6: But unlike Madeoff, where you could point directly at the SEC.
Speaker 6: There's really no nexus of jurisdiction between anyone. So it's
Speaker 6: going to take a long time. You know FTX at
Speaker 6: offices all over the place, there's multiple jurisdictions. It will
Speaker 6: take a while to unwind what this is becoming. It
Speaker 6: could be could be longer than what Madoff's looked at.
Speaker 2: And at the sentencing of Sam Bankman Freed, and the
Speaker 2: three people who flipped, will the judge order restitution The
Speaker 2: way it.
Speaker 6: Generally works when it comes to parallel criminal slash regulatory
Speaker 6: slash liquidation proceedings is anything the government gets, and so
Speaker 6: as part of sentencing for Sam Bekund Free, for Carolyn Ellison,
Speaker 6: for Wang, for all of these individuals, there'll be a
Speaker 6: restitution element as their sins and that will go into
Speaker 6: the bucket of the receiver. So you'll likely see any
Speaker 6: ill gotten gains these individuals received will be part of
Speaker 6: that restitution order under the sentencing, that will flow into
Speaker 6: the receivership action that will be part of that bucket
Speaker 6: to provide to investors. So yeah, they will likely have
Speaker 6: large restitution positions as part of their sensing.
Speaker 2: Are there more of these class action lawsuits? Or has
Speaker 2: this one been certified as a class Do you know?
Speaker 6: When it comes to all of these different actions, there's
Speaker 6: lots of priority, and the priority number one was the
Speaker 6: criminal case. And while criminal case is ongoing, generally all
Speaker 6: the civil cases are stayed due to a number of
Speaker 6: different evidentiary issues, issues with certain constitutional rights, those types
Speaker 6: of things. That's the case in the Florida action. At
Speaker 6: this point in time, there's been ongoing discovery about that
Speaker 6: class action. There's not been a decision to certify the
Speaker 6: class action as of yet, but I do know that
Speaker 6: there's a number of different motions, a number of different
Speaker 6: procedural elements that have been put on hold while the
Speaker 6: criminal case was ongoing. Now the criminal case is over,
Speaker 6: I think all of these courts are going to get
Speaker 6: back in full gear to be addressing all of these
Speaker 6: issues now. I mean there's going to be a number
Speaker 6: of evidentiary issues from the trial. The vast government investigation
Speaker 6: could be a treasure trove of information for the plaintiffs
Speaker 6: when it comes to these types of things, and so
Speaker 6: the courts are now going to have to face that
Speaker 6: issue and begin moving again procedurally on these cases. Obviously,
Speaker 6: these are interesting times. That we live in when it
Speaker 6: comes to crypto and I think this is another indication
Speaker 6: that at some point there needs to be some sort
Speaker 6: of regulation too, sure that this doesn't happen again, but
Speaker 6: it's been interesting in the process. And think, you know,
Speaker 6: several years ago, looking at this, you wouldn't think that
Speaker 6: Sam bad mcfreed, who had provided money to politicians to businesses.
Speaker 6: I mean, FTX had its name on every umpire's church
Speaker 6: in Major League Baseball, so you would have thought of this.
Speaker 6: And now we're here. So it's been an interesting time
Speaker 6: and I think it will be certainly interesting for the
Speaker 6: next few years and more in seeing how this.
Speaker 2: All plays out along Road Ahead. Thanks so much, Braiden.
Speaker 2: That's Braiden Perry of Kenny Hurts Perry. And that's it
Speaker 2: for this edition of The Bloomberg Law Show. Stay with us.
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