WEBVTT - SEC Sued & Class Actions Over Decongestants 0:00:00.240 --> 0:00:04.240 A coalition representing the biggest private equity and hedge funds 0:00:04.559 --> 0:00:08.479 is suing the Securities and Exchange Commission oversweeping new rules. 0:00:09.080 --> 0:00:12.959 The rules will require private funds to detail quarterly fees 0:00:13.000 --> 0:00:17.160 and expenses to investors and to perform annual audits. Firms 0:00:17.239 --> 0:00:20.720 also will be prohibited from allowing some favorite investors to 0:00:20.800 --> 0:00:24.120 cash out more easily than others, unless those deals are 0:00:24.160 --> 0:00:28.080 offered to all fund investors. The coalition is asking the 0:00:28.080 --> 0:00:31.840 Fifth Circuit Court of Appeals to vacate the rules, saying 0:00:31.880 --> 0:00:36.280 they're arbitrary and capricious and an abuse of discretion. Joining 0:00:36.280 --> 0:00:39.120 me is securities law expert Robert him a partner at 0:00:39.120 --> 0:00:43.400 Tartarkrinsky and Drogan. It's a six hundred and sixty page rule. 0:00:43.560 --> 0:00:45.280 Tell us what it provides. 0:00:45.760 --> 0:00:49.519 The new rules that the SEC adopted were designed to 0:00:50.000 --> 0:00:54.160 really fundamentally change the way that the private fund industry 0:00:54.600 --> 0:00:58.680 is regulated in the United States. In its adopting release, 0:00:58.840 --> 0:01:02.120 the SEC site they did three basic concerns that it 0:01:02.200 --> 0:01:05.520 was trying to address, one of which was lack of 0:01:05.560 --> 0:01:10.640 transparency in fees and charges that private funds charged to investors. 0:01:10.800 --> 0:01:14.679 Another is conflicts of interest that the SEC was concerned 0:01:14.680 --> 0:01:18.720 about between the advisory companies and the asset managers that 0:01:18.840 --> 0:01:22.800 manage these funds and the investors themselves. And the third 0:01:22.959 --> 0:01:25.520 was a lack of governance at the private fund So 0:01:25.680 --> 0:01:29.720 in the SEC's adopting release, which is over six hundred pages, 0:01:29.840 --> 0:01:34.000 they set out some very substantive and extensive new rules 0:01:34.000 --> 0:01:38.360 that were designed to address these perceived shortcomings and problems 0:01:38.360 --> 0:01:39.759 in the private fund market. 0:01:40.680 --> 0:01:43.800 Bob, So is it because the size of the private 0:01:43.840 --> 0:01:47.000 funds market has grown so much They now hold more 0:01:47.040 --> 0:01:51.480 assets than commercial banks, and it's grown. According to SEC data, 0:01:51.600 --> 0:01:54.840 gross assets under management grew one hundred and seventy one 0:01:54.960 --> 0:01:58.000 percent from twenty twelve to twenty twenty two. 0:01:58.640 --> 0:02:02.480 Yes, the rapid growth in the private funds market has 0:02:02.640 --> 0:02:05.840 been one of the facts that the SEC has cited 0:02:06.040 --> 0:02:09.920 for justification of its new rules. Right now, according to 0:02:09.960 --> 0:02:13.720 the SEC, there's over twenty six trillion dollars in assets 0:02:13.800 --> 0:02:17.679 under management in private funds, and the SEC used that 0:02:17.880 --> 0:02:21.560 as one of its basis for the concerns that it's 0:02:21.560 --> 0:02:25.800 expressed and the reason for these new extensive regulations. 0:02:26.320 --> 0:02:29.600 This was adopted in a three to two vote along 0:02:29.720 --> 0:02:30.560 party lines. 0:02:31.280 --> 0:02:35.120 Yes, it's right. These new rules are very controversial, both 0:02:35.280 --> 0:02:38.160 in the private fund industry as well as at the 0:02:38.200 --> 0:02:42.440 Commission itself. At the time when the rules were proposed 0:02:42.480 --> 0:02:44.880 and set for a vote at the Commission, it was 0:02:45.040 --> 0:02:48.160 passed on a three to two vote, with two commissioners 0:02:48.720 --> 0:02:52.920 dissenting and one of the commissioner's Commissioner Pierce, wrote a 0:02:53.080 --> 0:02:57.040 very singing descent from the rules, saying that they were 0:02:57.080 --> 0:02:59.799 ill conceived and that they were going to impose a 0:02:59.840 --> 0:03:04.000 lot of costly burdens on the industry, and also criticizing 0:03:04.360 --> 0:03:07.680 the majority of commissioners because in her view, the rules 0:03:07.720 --> 0:03:12.200 really were not justified. Commissioner Pierce also cited the statistic 0:03:12.280 --> 0:03:15.480 of over twenty six trillion in AUM in the industry 0:03:16.000 --> 0:03:18.560 and said that in fact, that shows that the market 0:03:18.639 --> 0:03:22.720 is very successful. The investors that invest in private funds 0:03:22.720 --> 0:03:27.440 are very sophisticated institutional investors. They're advised by the world's 0:03:27.480 --> 0:03:30.720 top law firms, and if there really was a problem 0:03:30.760 --> 0:03:33.600 in this market, it's really hard to explain why the 0:03:33.600 --> 0:03:37.200 private fund market would be growing so rapidly, and investors 0:03:37.200 --> 0:03:40.840 have been enjoying significant returns and profits on their investment, 0:03:40.920 --> 0:03:44.320 which these rules will cut into as a result of 0:03:44.080 --> 0:03:46.080 the high cost of implementation. 0:03:47.040 --> 0:03:49.800 These rules are watered down right from what the SEC 0:03:50.240 --> 0:03:51.240 originally wanted. 0:03:51.600 --> 0:03:55.080 Yes, in the proposing release that came out several months ago, 0:03:55.160 --> 0:03:59.120 the SEC had originally proposed even more stringent rules and 0:03:59.200 --> 0:04:02.960 stringent pro ambitions. And due to the backlash and the 0:04:02.960 --> 0:04:07.480 comments that were submitted by investors and industry participants, the 0:04:07.520 --> 0:04:10.440 SEC changed and when watered down some of these rules. 0:04:10.440 --> 0:04:13.200 But the final rules were still you know, quite strong. 0:04:13.480 --> 0:04:17.120 And I think you know what's concerned Commissioner Pierce and 0:04:17.480 --> 0:04:20.760 others in the industry, is that really the argument here 0:04:20.839 --> 0:04:24.960 is that the SEC overstepped its statutory authority. You know, 0:04:25.000 --> 0:04:29.960 it's justification for adopting these new rules was based on 0:04:30.360 --> 0:04:33.359 a provision that's the general anti fraud provision in the 0:04:33.400 --> 0:04:36.839 Advisor's Act Statute, as well as a provision, a short 0:04:36.839 --> 0:04:39.760 provision in dot frank that was really geared towards the 0:04:39.839 --> 0:04:46.279 retail investors and regulating retail oriented investment funds. And the 0:04:46.320 --> 0:04:49.240 biggest complaint of the industry they've gone to court to 0:04:49.360 --> 0:04:53.919 challenge these rules is that the rules prohibit outright prohibit 0:04:53.960 --> 0:04:58.680 a lot of activities and contractual terms that are very commonplace. 0:04:58.760 --> 0:05:01.839 You know, an example of that is certain large investors 0:05:01.920 --> 0:05:06.560 get preferred information rights, they can negotiate certain provisions with 0:05:06.640 --> 0:05:10.680 advisors that would allow them to withdraw their funds in 0:05:10.720 --> 0:05:14.440 a shorter lock up period than other investors. And that's 0:05:14.480 --> 0:05:18.080 just a fundamental characteristic of the private funds market that 0:05:18.120 --> 0:05:21.880 you can have these customized terms. But the SEC said 0:05:21.960 --> 0:05:24.479 essentially that that can no longer happen. You can't have 0:05:24.600 --> 0:05:26.039 negotiated terms like that. 0:05:26.640 --> 0:05:30.360 Lead plaintiffs attorney Eugene Scalia wrote in the lawsuit quote, 0:05:30.400 --> 0:05:34.520 the rules exceed the Commission's statutory authority, were adopted without 0:05:34.640 --> 0:05:40.000 compliance with notice and comment requirements, and are otherwise arbitrary, capricious, 0:05:40.040 --> 0:05:43.160 and abusive discretion and contrary to law. You got everything 0:05:43.160 --> 0:05:46.000 in there. Did they not have notice and comment on these? 0:05:46.640 --> 0:05:49.120 Well, they actually did have notice in comment and it 0:05:49.200 --> 0:05:53.520 was quite quite a long and detailed notice in common procedure. 0:05:54.240 --> 0:05:57.320 What the industry is complaining about in that particular section 0:05:57.640 --> 0:06:00.960 is that the final rules that were adopted by the 0:06:01.000 --> 0:06:05.720 SEC are so different than what was originally proposed. Is that, 0:06:06.040 --> 0:06:09.640 in effect that the notice in common period was not sufficient, 0:06:10.000 --> 0:06:13.240 and they're arguing in the industry that once the Commission 0:06:13.320 --> 0:06:15.640 changed the rules to such a great extent they should 0:06:15.640 --> 0:06:19.400 have undergone another notice in common period so that the 0:06:19.440 --> 0:06:22.920 industry and others could comment on these new proposed rules 0:06:23.360 --> 0:06:27.120 and hopefully convince the SEC to roll them back even further. 0:06:28.680 --> 0:06:33.520 Drew Maloney, chief executive the American Investment Council, to all 0:06:33.600 --> 0:06:37.040 the Wall Street Journal that the rules will discourage competition, 0:06:37.240 --> 0:06:42.680 harm investors, reduce returns, stifle innovation, and impose costly burdens 0:06:42.680 --> 0:06:45.640 on funds of all sizes. Do you agree with any 0:06:45.720 --> 0:06:45.919 of that? 0:06:46.760 --> 0:06:49.440 Well, I do. I think that there's no question that 0:06:49.480 --> 0:06:52.600 the rules themselves are going to be quite costly. Even 0:06:52.640 --> 0:06:55.800 in the adopting release, it's acknowledged by the SEC that 0:06:55.880 --> 0:06:59.000 it's going to cost billions of dollars industry wide to 0:06:59.040 --> 0:07:01.840 comply with the rule. In the argument is that this 0:07:02.000 --> 0:07:06.520 really falls most heavily on the small advisors or new 0:07:06.560 --> 0:07:09.680 advisors that want to come into the space, and essentially 0:07:09.720 --> 0:07:14.280 the costs associated with compliance is going to be prohibitive. 0:07:14.840 --> 0:07:17.080 But I think, you know, one of the main points 0:07:17.120 --> 0:07:19.720 of the industry too, is that it really questions the 0:07:19.840 --> 0:07:22.920 role of the SEC in the sense that for years, 0:07:23.200 --> 0:07:26.680 the industry, which is made up of these institutional investors 0:07:26.680 --> 0:07:30.240 that are very sophisticated and private fund managers have been 0:07:30.280 --> 0:07:34.400 going along fine in terms of negotiating contract provisions that 0:07:34.480 --> 0:07:38.720 were customized to their own individual and situations that were 0:07:38.760 --> 0:07:42.000 structured in that in that way, and the SEC has 0:07:42.120 --> 0:07:45.160 now stepped into the picture and said, you know, no, no, 0:07:45.480 --> 0:07:48.920 you know, we know better as the SEC what contractual 0:07:49.000 --> 0:07:52.160 terms should be in place, and the contractual terms that 0:07:52.720 --> 0:07:55.720 you've been negotiating all along though, those are no longer 0:07:55.960 --> 0:07:58.720 going to be permitted because you know, we have decided 0:07:58.760 --> 0:08:02.480 to fundamentally change the way this market is regulated. And 0:08:02.520 --> 0:08:05.880 the industry is saying that the SEC has no statutory 0:08:05.880 --> 0:08:09.880 authority from Congress to step in and make that unilateral determination. 0:08:10.960 --> 0:08:16.000 SEC chair Gary Gansler said he feels very confident in 0:08:16.120 --> 0:08:18.960 the agency's conclusion that it does have the power to 0:08:19.000 --> 0:08:22.440 implement the rules. What's your take on it. Does it 0:08:22.480 --> 0:08:23.160 have the power? 0:08:23.840 --> 0:08:25.760 I think that's going to be a tough argument for 0:08:25.840 --> 0:08:29.720 the SEC. The industry challenged the rules in the Fifth Circuit, 0:08:29.880 --> 0:08:34.720 which historically has been somewhat hostile to the SEC's expansive 0:08:34.920 --> 0:08:39.080 claims of regulatory authority. So the industry, you know, made 0:08:39.120 --> 0:08:41.480 a smart decision in terms of the forum that they've 0:08:41.520 --> 0:08:45.880 decided to challenge these rules, and in the adopting release, 0:08:45.960 --> 0:08:49.880 the SEC really just pointed to some very general provisions, 0:08:49.920 --> 0:08:53.400 you know, the anti fraud provision is one basis, and 0:08:53.480 --> 0:08:57.920 another provisions that related to requiring the SEC to provide 0:08:58.000 --> 0:09:01.880 enhanced rulemaking so that advisors would have to be clear 0:09:02.120 --> 0:09:05.960 about the terms and conditions of their relationship with investors, 0:09:06.040 --> 0:09:10.160 which was contained in the retail regulation section of DoD 0:09:10.240 --> 0:09:13.640 Frank And traditionally, federal courts in the last several years 0:09:13.679 --> 0:09:16.400 have been hostile not only to the SEC, but to 0:09:16.440 --> 0:09:21.440 other agencies who claim these broad ranging powers to regulate 0:09:21.480 --> 0:09:24.480 industries that in a lot of respects are hard hard 0:09:24.520 --> 0:09:27.880 to tie into the congressional grants of authority that have 0:09:27.920 --> 0:09:29.200 been made to the agencies. 0:09:29.640 --> 0:09:32.720 Coming up next, I'll continue this conversation with Robert him 0:09:33.000 --> 0:09:36.080 and we'll talk more about why this suit was filed 0:09:36.120 --> 0:09:40.880 at the Fifth Circuit. Lawsuits challenging the SEC rules are 0:09:40.960 --> 0:09:44.319 filed directly to appeals court, so they skipped the lower 0:09:44.360 --> 0:09:48.160 district court and they went to the Fifth Circuit, as 0:09:48.160 --> 0:09:51.479 you mentioned, which is the go to venue for conservatives 0:09:51.480 --> 0:09:56.880 and business groups challenging regulatory authority and ranging from the 0:09:56.920 --> 0:10:01.080 abortion pill, which is still in litigation the SEC's in 0:10:01.200 --> 0:10:01.920 house courts. 0:10:02.720 --> 0:10:06.199 Yes, that's correct. You know, the Fifth Circuit in particular 0:10:06.760 --> 0:10:11.800 has been very open to constitutional based arguments from business 0:10:11.800 --> 0:10:15.560 groups and private parties to really look at what agencies 0:10:15.640 --> 0:10:18.800 are doing to make sure that it's it's constrained within 0:10:18.840 --> 0:10:22.840 their statutory authority. And this is really a fundamental principle 0:10:22.840 --> 0:10:25.120 in the Constitution in terms of you know, in the 0:10:25.320 --> 0:10:30.079 democracy are elected representatives in Congress are supposed to make 0:10:30.360 --> 0:10:33.040 laws that people can vote on, and then there's a 0:10:33.160 --> 0:10:37.720 narrow delegation to agencies to implement those laws. But here, 0:10:38.160 --> 0:10:41.720 for example, with the SEC's regulation of the industry, and 0:10:41.760 --> 0:10:45.640 these new rules really didn't go through a democratic process. 0:10:45.720 --> 0:10:48.360 It was just something that the agency decided, you know, 0:10:48.440 --> 0:10:52.040 in their view, needed to be done and impose these rules. 0:10:52.080 --> 0:10:54.120 And then that's the argument from the industry. We're We're 0:10:54.120 --> 0:10:56.040 going to have to see if the judges in the 0:10:56.040 --> 0:10:59.160 Fifth Circuit accept that, and that's going to be their 0:10:59.480 --> 0:11:02.120 decision as to whether or not these SEC rules come 0:11:02.160 --> 0:11:06.040 within the statutory authority. And the Investment Advisors Act to 0:11:06.080 --> 0:11:09.559 allow the SEC to implement these sort of changes and rules. 0:11:10.280 --> 0:11:14.640 It's been sort of a regulatory blitz by SEC Chair 0:11:14.800 --> 0:11:18.880 Gary Gensler that we've talked about before. Is this just 0:11:19.040 --> 0:11:20.720 one step too far? 0:11:21.720 --> 0:11:24.360 Yeah, I think that that's part of the analysis. One 0:11:24.400 --> 0:11:27.840 of the concerns that Commissioner Peerce had that the industry 0:11:27.920 --> 0:11:32.199 has as well, is that when the SEC conducts its 0:11:32.280 --> 0:11:36.640 statutorily require cost benefit analysis of the new rules, they 0:11:36.679 --> 0:11:39.520 look at each rule one by one and they say, 0:11:39.600 --> 0:11:42.160 what's the cost and the benefits of this particular rule 0:11:42.240 --> 0:11:45.200 on the industry. But the point that the industry is 0:11:45.320 --> 0:11:47.720 making is that that's not always the best way to 0:11:47.880 --> 0:11:51.400 look at this, because the SEC has been engaged in 0:11:51.880 --> 0:11:54.280 a lot of new rule making. It seems like every 0:11:54.320 --> 0:11:56.680 week there's a new rule that comes out, and the 0:11:56.720 --> 0:11:59.240 industry is saying that it's not sufficient just to look 0:11:59.280 --> 0:11:59.800 one by one. 0:12:00.080 --> 0:12:01.160 Really have to look at the. 0:12:01.120 --> 0:12:04.160 Whole basket of rules that the SEC is coming out 0:12:04.200 --> 0:12:06.600 with in lots of different areas, when you look at 0:12:06.600 --> 0:12:09.520 this sort of costs that are being imposed on the 0:12:09.520 --> 0:12:12.679 private sector and whether the rules are really going to 0:12:12.760 --> 0:12:16.120 provide the investor protection benefits that the SEC claims that 0:12:16.160 --> 0:12:17.640 they are working towards. 0:12:18.000 --> 0:12:22.200 Are these cases different in that this is a really 0:12:22.440 --> 0:12:27.120 wealthy and powerful industry that the SEC is going up against. 0:12:27.800 --> 0:12:30.200 Well, it does make a difference in a sense that 0:12:30.360 --> 0:12:35.360 the challenge to these rules is certainly a well funded effort. 0:12:35.720 --> 0:12:40.040 The lead lawyer Jean Scalia, who's the son of Justice Scalia, 0:12:40.120 --> 0:12:44.200 the lead Justice Scalia, is probably the top lawyer that 0:12:44.280 --> 0:12:48.320 the industry is used to challenge various regulations, not just 0:12:48.360 --> 0:12:51.000 at the SEC, but at the EPA as well on 0:12:51.080 --> 0:12:55.840 the argument that the rules exceed statutory grants of authority. 0:12:56.480 --> 0:12:59.320 But I think it's also a more fundamental point. The 0:12:59.360 --> 0:13:02.840 industry is arguing that Congress deliberately set up a two 0:13:02.920 --> 0:13:08.000 part regulatory system. One is mutual funds, which are regulated 0:13:08.120 --> 0:13:12.360 under the Investment Company Act, which has extensive disclosures and 0:13:12.440 --> 0:13:16.880 substantive rules that are appropriately in place to protect private 0:13:16.960 --> 0:13:22.480 retail investors. And Congress made a conscious decision to not 0:13:22.679 --> 0:13:26.719 impose that extensive regulatory regime on private funds which are 0:13:26.720 --> 0:13:30.360 opened only to a very high net worth investors and 0:13:30.440 --> 0:13:34.560 institutional investors. And Congress basically left it up to the 0:13:34.600 --> 0:13:41.120 parties in that scenario to negotiate contractual arrangements regarding fees 0:13:41.360 --> 0:13:45.400 regarding investment objectives and what duties the advisor owes and 0:13:45.520 --> 0:13:49.040 what the SEC has done with these rules is blur 0:13:49.240 --> 0:13:53.080 the distinction between those two regulatory regimes and is really 0:13:53.160 --> 0:13:57.440 importing these extensive regulations from the mutual fund space onto 0:13:57.440 --> 0:14:01.600 the private fund space. And a lot of respect, if there's. 0:14:01.440 --> 0:14:05.679 An adverse ruling to the SEC, does that have implications 0:14:05.720 --> 0:14:08.520 for other areas the SEC is regulating. 0:14:09.520 --> 0:14:12.719 It won't have a direct implication for other rules that 0:14:12.800 --> 0:14:16.640 the SEC is making, but in a certain sense, it 0:14:16.760 --> 0:14:20.800 really from a practical perspective, makes the agency sit up 0:14:20.800 --> 0:14:24.560 and take notice, to really understand that courts are going 0:14:24.600 --> 0:14:28.640 to be scrutinizing their claims of statutory authority and perhaps 0:14:28.920 --> 0:14:32.600 gives the SEC more reason to pause it's rulemaking and 0:14:32.640 --> 0:14:36.280 not be so aggressive in the future with regards to 0:14:36.320 --> 0:14:39.720 the type of rules and changes that it imposes on 0:14:39.800 --> 0:14:40.480 the industry. 0:14:41.000 --> 0:14:44.359 Bob was the SEC sort of prepared for this lawsuit? 0:14:44.920 --> 0:14:47.840 The SEC really understood that they were going to have 0:14:48.200 --> 0:14:51.640 a challenge of these rules in court, and the adopting 0:14:51.920 --> 0:14:56.240 release has quite an extensive discussion by the SEC as 0:14:56.240 --> 0:15:00.680 to what its claims of statutory authority are. In addition 0:15:00.720 --> 0:15:04.240 to going through the two satchatory provisions, and the adopting release, 0:15:04.400 --> 0:15:07.520 the SEC goes to great lengths to really try to 0:15:07.560 --> 0:15:11.960 explain that it's not really just institutional investors that are 0:15:12.040 --> 0:15:16.200 at stake here. The adopting release talks about that it's 0:15:16.200 --> 0:15:21.080 it's pension funds and endowments, and indirectly those pensions are 0:15:21.080 --> 0:15:26.239 made up of civil service workers, environment police officials, teachers, 0:15:26.320 --> 0:15:29.920 community activists, and the SEC goes through a whole description 0:15:30.240 --> 0:15:33.880 in their adopting release as to how these everyday types 0:15:33.920 --> 0:15:37.880 of people are impacted by the private fund industry and 0:15:37.920 --> 0:15:41.520 the types of rules and regulations that are imposed on it. So, 0:15:42.080 --> 0:15:44.560 you know, the SEC knew that this challenge was coming. 0:15:45.080 --> 0:15:47.800 They've done, you know, everything they can to prepare for it. 0:15:48.000 --> 0:15:50.680 So it's going to be a very interesting when the 0:15:50.720 --> 0:15:54.160 court addresses this. The parties have proposed a timeframe that 0:15:54.680 --> 0:15:57.720 would allow the Fifth Circuit to issue ruling by May 0:15:57.880 --> 0:16:01.640 twenty twenty four, which is several months before a lot 0:16:01.680 --> 0:16:03.880 of the final deadline for when these rules have to 0:16:03.920 --> 0:16:04.520 go in effect. 0:16:05.160 --> 0:16:08.400 So a long road ahead, Thanks so much, Bob. That's 0:16:08.520 --> 0:16:12.120 Robert him of Tartarkrinsky and Drogen. Coming up next on 0:16:12.120 --> 0:16:16.920 the Bloomberg law show class action lawsuits against pharmaceutical companies 0:16:17.000 --> 0:16:24.160 and retailers over ineffective decongestants. We're approaching cold and flu season, 0:16:24.200 --> 0:16:27.440 and the Food and Drug Administration has said the leading 0:16:27.560 --> 0:16:31.680 over the counter decongestion used by millions of Americans looking 0:16:31.720 --> 0:16:35.000 for relief from a stuffy nose is no more effective 0:16:35.040 --> 0:16:39.440 than a placebo. Advisors to the FDA voted unanimously last 0:16:39.480 --> 0:16:42.760 week against the effectiveness of the key drug found in 0:16:42.880 --> 0:16:47.520 popular versions of sudafed, day quill and other medications stocked 0:16:47.520 --> 0:16:48.680 on store shelves. 0:16:49.320 --> 0:16:53.960 This ingredient panel affron is in so many different cold medicines. 0:16:54.080 --> 0:16:57.200 That's why it is important to kind of educate yourself 0:16:57.200 --> 0:17:00.000 on what to look for and just avoid that ingredient. 0:17:00.840 --> 0:17:05.560 Doctor Purvy Perik, an allergist at NYU Langone Health, recommends 0:17:05.600 --> 0:17:09.560 reading the labels of these products and choosing something else instead. 0:17:09.960 --> 0:17:13.879 It didn't take long after the FDA's announcement for several 0:17:13.960 --> 0:17:19.240 class action lawsuits to be filed against pharmaceutical companies and retailers. 0:17:19.680 --> 0:17:22.960 My guest is healthcare attorney Harry Nelson of Nelson Hardiman 0:17:23.680 --> 0:17:27.520 Harry first tell us about this board of advisors and 0:17:27.800 --> 0:17:28.720 what they decided. 0:17:29.320 --> 0:17:32.640 Yeah, it was an FDA advisory panel that finally came 0:17:32.920 --> 0:17:35.920 out with a statement that people studying funnelf've been talking 0:17:35.920 --> 0:17:37.800 about for a while, which is that it is not 0:17:38.119 --> 0:17:42.760 better than placebo. That essentially it's ineffective when taken orally. 0:17:43.359 --> 0:17:47.280 It does not actually function as a decongestine, and little 0:17:47.280 --> 0:17:50.440 of the drug actually reaches the nose to be a decongestine. 0:17:50.480 --> 0:17:54.080 It's effective when it's used in a nasal pray directly 0:17:54.200 --> 0:17:56.360 to the nose. But the problem is that we sell 0:17:56.400 --> 0:17:59.320 billions of dollars of these different decongestin drugs where people 0:17:59.320 --> 0:18:01.639 take it orally and it has absolutely no effect, was 0:18:01.800 --> 0:18:03.280 completely broken down in the stomach. 0:18:03.720 --> 0:18:07.159 So you mentioned this, But there have been decades of 0:18:07.240 --> 0:18:12.400 studies and questions and documentation and clinical trial results. Why 0:18:12.440 --> 0:18:14.720 did it take so long for them to come to 0:18:14.800 --> 0:18:16.200 this conclusion. 0:18:17.200 --> 0:18:20.080 It's a good question. It's kind of an indictment, honestly, 0:18:20.400 --> 0:18:25.200 of the FDA's ability to do serious review. There were 0:18:25.359 --> 0:18:29.040 studies being put forward and petitions made to re examine it. 0:18:29.080 --> 0:18:31.000 But when you go back and look at what was happening, 0:18:31.400 --> 0:18:33.520 you know, for the last twenty plus years, it's been 0:18:33.600 --> 0:18:37.120 a process of rubber stamping and ignoring what's been said. 0:18:37.160 --> 0:18:39.320 It was a glacial pace, and it took an enormous 0:18:39.320 --> 0:18:42.240 amount of time for peer review studies to actually be 0:18:42.680 --> 0:18:44.879 given the attention they deserve. So it's kind of an 0:18:44.920 --> 0:18:48.200 indictment of the FDA process, you know that it took 0:18:48.280 --> 0:18:51.080 this long to see something that was quite obvious to 0:18:51.200 --> 0:18:52.119 people who were studying it. 0:18:52.680 --> 0:18:56.399 And the decision is confusing to consumers because shouldn't ineffective 0:18:56.520 --> 0:19:00.320 drugs be taken off the market and replaced? But here 0:19:00.320 --> 0:19:03.439 they're saying, no, you don't need to throw away these products. 0:19:03.800 --> 0:19:05.919 No one is saying these products are dangerous or the 0:19:05.960 --> 0:19:09.560 penalleffern causes harm. They're just saying it's ineffective. It's not 0:19:09.680 --> 0:19:14.200 better than placebo. So there's no danger associated with using 0:19:14.200 --> 0:19:17.160 these products. They're probably just not the best choices to use. 0:19:17.680 --> 0:19:19.560 You need an effective decongestion. 0:19:20.240 --> 0:19:24.040 This is just an advisory opinion. The FDA doesn't have 0:19:24.200 --> 0:19:27.280 to go along with it. And now what happens, They're 0:19:27.280 --> 0:19:29.400 going to allow the public to comment. What good does 0:19:29.440 --> 0:19:32.120 public comment do on an issue like this? I don't 0:19:32.119 --> 0:19:32.520 get that. 0:19:33.280 --> 0:19:35.840 Yeah. Also, it's a fair question. It's not at all 0:19:35.880 --> 0:19:37.800 clear what public comment is going to add to the 0:19:37.800 --> 0:19:40.760 conversation here. It just seems like they're still continuing to 0:19:40.800 --> 0:19:43.359 go slower than you would hope. Once we've kind of 0:19:43.400 --> 0:19:46.120 finally come to this public realization that there's a drug 0:19:46.160 --> 0:19:48.240 that's not working on the market and people are spending 0:19:48.240 --> 0:19:49.800 a lot of money on it, what does the. 0:19:49.760 --> 0:19:52.600 FDA have to do now in addition to you know, 0:19:52.640 --> 0:19:55.480 we mentioned the public comments, but what has to happen next. 0:19:55.800 --> 0:19:58.359 The next step is actually formal. This was just an 0:19:58.440 --> 0:20:02.000 advisory chanel, but the FDA has to formally review the 0:20:02.040 --> 0:20:06.320 status of the drug and presumably revoke its approoved status 0:20:06.440 --> 0:20:08.800 or narrow its approved status, because again, the drug is 0:20:08.920 --> 0:20:12.560 useful when applied directly, for example, like through a nasal spray, 0:20:12.680 --> 0:20:15.639 but at least orally to revoke the approval of the drugs. 0:20:16.720 --> 0:20:21.080 How unusual is it that class action lawsuits were filed 0:20:21.760 --> 0:20:26.400 within days of the FDA's announcement. 0:20:26.280 --> 0:20:28.639 So, I mean it's almost reflective, right, There are plaint 0:20:28.640 --> 0:20:31.000 of law firms around the countries that are basically built 0:20:31.200 --> 0:20:35.520 to take on harm related to different drugs, and so 0:20:35.640 --> 0:20:38.120 soon as the FDA said the drug was ineffective, it's 0:20:38.160 --> 0:20:40.520 not a surprise that we saw the first class action 0:20:40.600 --> 0:20:42.960 filed down in Florida. I'm sure we're going to see more. 0:20:43.280 --> 0:20:46.240 The real question is, other than the harm to people's 0:20:46.359 --> 0:20:50.399 wallets from spending one point seventy five billion on the drug, 0:20:50.560 --> 0:20:53.200 what actual harm? You know, whether there were any side 0:20:53.200 --> 0:20:56.159 effects that actually hurt anybody from Fenel effronts. There are 0:20:56.160 --> 0:20:59.000 a lot of reports of like minor problems like swelling 0:20:59.240 --> 0:21:03.320 or interration and itching, but I'm not aware of any 0:21:03.440 --> 0:21:06.280 severe harm, and it's not clear what kind of damages 0:21:06.280 --> 0:21:08.359 they are going to be beyond just the fact that 0:21:08.400 --> 0:21:10.160 these companies were selling an ineffector drug. 0:21:11.080 --> 0:21:15.480 Some of the complaints charged that the defendants violated consumer 0:21:15.520 --> 0:21:20.080 protection statutes and alleged a breach of implied warranty of 0:21:20.160 --> 0:21:24.480 merchant ability and they committed fraud, stating the defendants intentionally 0:21:24.520 --> 0:21:29.000 and knowingly falsely concealed, suppressed, and or admitted material facts, 0:21:29.520 --> 0:21:32.080 including us to the standard, quality or grade of the 0:21:32.119 --> 0:21:36.960 products they marketed and sold. But if the FDA approved this, 0:21:37.600 --> 0:21:40.360 what were the manufacturers supposed to do? Say no, the 0:21:40.440 --> 0:21:41.320 FDA is wrong. 0:21:41.920 --> 0:21:45.040 You know, there's been a lot of industry studies going on, 0:21:45.200 --> 0:21:48.159 so we know that, for example, competitors of some of 0:21:48.240 --> 0:21:50.680 the fenleft and products, like the folks that sharing plout 0:21:50.680 --> 0:21:53.719 who were making Clereson were doing a lot of research 0:21:53.760 --> 0:21:55.879 to show that and arguing that these drugs were ineffective. 0:21:56.080 --> 0:22:00.520 It's an interesting question whether internally whether the manu were 0:22:00.520 --> 0:22:03.800 doing their own research and had reason to know that 0:22:03.880 --> 0:22:06.439 these drugs were not effective, and whether they turned a 0:22:06.440 --> 0:22:08.639 blind eye to it. I think it's an interesting question, 0:22:08.720 --> 0:22:11.480 and hopefully we'll learn about some of the internal process 0:22:11.720 --> 0:22:14.399 within the pharmaceuticals and how much they were aware of 0:22:14.440 --> 0:22:16.919 this and taking it seriously and concerned about it. But 0:22:17.080 --> 0:22:19.479 you know, I think that still remains ahead of us. 0:22:19.920 --> 0:22:22.680 You know, you mentioned harm to consumers and that there's 0:22:22.720 --> 0:22:25.760 probably very little of that, so it would be limited 0:22:25.800 --> 0:22:29.639 to economic damages, right, I mean, how would they determine 0:22:29.720 --> 0:22:32.520 economic damages to consumers from this? 0:22:33.200 --> 0:22:35.400 I think what's likely to happen. I mean, I don't 0:22:35.400 --> 0:22:38.119 mean to sound cynical, but when this case gets prosecuted, 0:22:38.200 --> 0:22:40.240 what's likely to happen is that the lawyers who brought 0:22:40.280 --> 0:22:43.720 these cases will have a multimillion dollar pay day and 0:22:43.760 --> 0:22:47.080 attorneys fees, and they'll be coupons, you know, for people 0:22:47.080 --> 0:22:49.120 who can prove that they bought the drugs, but those 0:22:49.160 --> 0:22:52.840 coupons will be for insignificant amounts. The big winners in 0:22:52.880 --> 0:22:55.200 this class accent are likely to be the lawyers who 0:22:55.200 --> 0:22:57.440 get tens of millions of dollars for filing it. 0:22:57.480 --> 0:23:02.360 As an example, Johnson and Johnson's consumer unit settle claims 0:23:02.359 --> 0:23:07.320 alleging aerosol products contained benzene for one point seventy five 0:23:07.400 --> 0:23:11.840 million dollars plus two point five million in attorneys fees, 0:23:12.400 --> 0:23:16.119 So more an attorney's fees than in the settlement for consumers. 0:23:16.760 --> 0:23:17.000 Yeah. 0:23:17.000 --> 0:23:18.879 So a lot of people, and including me, think it 0:23:19.200 --> 0:23:21.720 is a defect in our class action systems that, you know, 0:23:21.720 --> 0:23:24.960 the plane of class action lawyers are motivated to bring 0:23:25.240 --> 0:23:28.520 cases that really don't do much to advance the public interest, 0:23:28.720 --> 0:23:32.399