WEBVTT - Taylor Swift Can't 'Shake Off' Lawsuit 0:00:03.200 --> 0:00:07.960 This is Bloombird Law with June Brusso from Bloombird Radio 0:00:11.440 --> 0:00:19.000 Safe s but tell her Swift can't shake off a 0:00:19.079 --> 0:00:22.279 lawsuit that claims she stole some of the phrases in 0:00:22.320 --> 0:00:24.799 her hit song The pop star is going to have 0:00:24.880 --> 0:00:27.960 to face a jury after a federal judge rule that 0:00:28.080 --> 0:00:32.000 facts in the case warren a trial. Songwriter Sean Hall 0:00:32.080 --> 0:00:36.000 and Nathan Butler claim that Swift ripped off certain phrases 0:00:36.040 --> 0:00:39.160 from their two thousand one song play is Gonna Play. 0:00:39.640 --> 0:00:43.120 Listen to a comparison of the contested lyrics from both songs, 0:00:46.560 --> 0:01:03.560 Jay Heyday Chuck joining me as intellectual property litigator Terence 0:01:03.640 --> 0:01:07.520 ross a partner Caton Uten Rosenman. So Terry tell us 0:01:07.520 --> 0:01:10.720 a little about the lawsuit. So, this lawsuit is about 0:01:10.760 --> 0:01:16.440 Taylor swifts monster song shake It Off, which debuted at 0:01:16.520 --> 0:01:19.400 number one on the Billboard Hot one hundred chart and 0:01:19.640 --> 0:01:23.080 remained there for fifty weeks, almost an entire year, and 0:01:23.160 --> 0:01:25.600 has sold more than nine million copies. So it's a 0:01:25.800 --> 0:01:30.240 monster hit recording. And the plaintiff song, which also did 0:01:30.319 --> 0:01:33.240 quite well, quite frankly called Plays, was on the Billboard 0:01:33.240 --> 0:01:36.200 Hot one, never reached number one, but was on it 0:01:36.319 --> 0:01:39.600 for a while and got some playtime quite frankly, and 0:01:39.880 --> 0:01:44.360 writers of the play as song have alleged that their 0:01:44.480 --> 0:01:48.760 chorus is so substantially similar to the chorus and Taylor 0:01:48.800 --> 0:01:51.160 Swifts shake it off that there had to have been 0:01:51.240 --> 0:01:55.760 copyright infringement. It seems like those phrases that they're talking 0:01:55.760 --> 0:01:59.240 about are just common phrases. It doesn't seem like there's 0:01:59.240 --> 0:02:02.840 anything original about them. Well, that was the original argument 0:02:02.880 --> 0:02:06.400 that Taylor Swift made when she was first sued. She 0:02:06.560 --> 0:02:09.320 filed a motion to dismiss the district court, which is 0:02:09.360 --> 0:02:11.920 the trial court in the federal court system, and she 0:02:12.160 --> 0:02:15.800 argued that these were common phrases that were not copyrightable, 0:02:15.880 --> 0:02:19.320 they were not entitled to protection, and the district court 0:02:19.400 --> 0:02:23.040 judge agreed and dismissed the lawsuit, and the plaintiffs took 0:02:23.080 --> 0:02:25.920 them up to the Ninth Circuit, and the Ninth Circuit 0:02:26.000 --> 0:02:31.160 reversed and said essentially that the lower court was focused 0:02:31.200 --> 0:02:34.600 too much on comparing the words as words and failed 0:02:34.639 --> 0:02:39.920 to consider that the arrangement of the words in the 0:02:40.040 --> 0:02:45.440 chorus across the course were sufficient to be copyrightable. No 0:02:45.560 --> 0:02:48.720 judgment on whether or not there was infringement the Ninth 0:02:48.720 --> 0:02:52.799 Circuit simply said, there is copyright protection here, and therefore 0:02:53.120 --> 0:02:55.720 the case was sent back to the district Court in 0:02:55.760 --> 0:02:59.280 California for further proceedings. And that's where we are now. 0:02:59.440 --> 0:03:03.040 With this new decision by the district court, Swiss defense 0:03:03.080 --> 0:03:06.680 gets a little nuanced for the non musical tell us 0:03:06.720 --> 0:03:09.600 what her defense is here. So when the case got 0:03:09.639 --> 0:03:13.680 back to the district court, the defendants and Taylor Swift 0:03:13.680 --> 0:03:16.600 and her musical companies filed list known as a motion 0:03:16.639 --> 0:03:19.520 for some re judgment, which says, you know, based on 0:03:19.560 --> 0:03:22.799 all the facts of record, there is no legal claim here, 0:03:22.880 --> 0:03:25.560 no reasonable jury would ever find for the plaintiff, and 0:03:25.560 --> 0:03:28.960 therefore we shouldn't have a trial. And the court rejected 0:03:29.080 --> 0:03:31.160 that motion denied it, so there will be a trial. 0:03:31.440 --> 0:03:34.440 But what was fundamentally at issue and came on this 0:03:34.520 --> 0:03:38.240 case is not about the music. This is exclusively about 0:03:38.280 --> 0:03:41.520 the lyrics of the two songs, and that makes it 0:03:41.560 --> 0:03:43.720 different from a lot of the cases we've talked about before, 0:03:43.760 --> 0:03:47.160 like Blurredlines and Ed Sharon's songs. It's only about the 0:03:47.240 --> 0:03:51.480 lyrics here. And what Taylor Swift said was that there 0:03:51.520 --> 0:03:56.080 simply is not a substantial similarity between the two songs 0:03:56.400 --> 0:03:59.840 with respect to the copyrighted elements. The mere fact that 0:04:00.040 --> 0:04:04.200 they both mentioned players going to play and hater is 0:04:04.240 --> 0:04:07.800 going to hate doesn't mean that she copied in an 0:04:07.800 --> 0:04:11.440 inappropriate manner that constituted infringement. So the same judge who 0:04:11.480 --> 0:04:16.200 dismissed the lawsuit in is now allowing the lawsuit to 0:04:16.240 --> 0:04:19.240 go forward. Well, he was ordered to allow the lawsuit 0:04:19.320 --> 0:04:22.760 to go forward by the Ninth Circuit. The way copyright 0:04:22.880 --> 0:04:26.800 law works is that there's a two part test that 0:04:26.920 --> 0:04:30.039 is applied to determine whether or not there is infringement. 0:04:30.160 --> 0:04:33.000 The first part is called the extrinsic test that's performed 0:04:33.000 --> 0:04:34.920 by the judge, and then the second part is called 0:04:34.920 --> 0:04:37.919 the intrinsic test, which is performed by the jury. And 0:04:38.000 --> 0:04:41.400 under the part that's performed by the judge, the extrinsic test, 0:04:41.600 --> 0:04:46.839 you look at external factors that are considered objective factors 0:04:47.000 --> 0:04:50.840 to determine at an analytical level whether or not there's 0:04:51.040 --> 0:04:55.880 a case of substantial similarity. And expert opinions from musicologists 0:04:55.880 --> 0:04:58.719 come in at this point very heavily, and that's a 0:04:58.720 --> 0:05:01.919 decision that's left to the judge, and the determination he 0:05:01.960 --> 0:05:04.599 has to make is whether or not in looking at 0:05:04.640 --> 0:05:10.440 these external factors there is sufficient belief that no reasonable 0:05:10.520 --> 0:05:13.720 jury could find infringement. And if he agrees with that, 0:05:13.880 --> 0:05:15.840 then he can cut off the case, not let it 0:05:15.880 --> 0:05:17.760 go to the the jury. But if he has any doubts, 0:05:17.839 --> 0:05:20.360 he has to allow the case to go on to 0:05:20.480 --> 0:05:23.440 part two, which is the subjective or intrinsic test, which 0:05:23.440 --> 0:05:25.560 has to be performed by a jury stand trial, in 0:05:25.600 --> 0:05:28.159 which they look at the totality of the two works 0:05:28.279 --> 0:05:32.760 and make a subjective judgment as to substantial similarity. The 0:05:32.839 --> 0:05:36.520 judge was really sort of stuck here because there is 0:05:36.640 --> 0:05:40.039 some similarity between the words and the way the words 0:05:40.040 --> 0:05:43.599 are arranged. He really felt, I think he was correct 0:05:43.680 --> 0:05:45.600 that he had to let this pass on to the 0:05:45.800 --> 0:05:48.640 jury and see what they thought about the total feeling 0:05:48.720 --> 0:05:51.640 of whether or not there was a substantial similarity. Although 0:05:51.720 --> 0:05:55.760 he mentioned that he thought taylor Swiss defense was a 0:05:55.760 --> 0:05:59.279 pretty good defense and might farewell with the jury. So 0:05:59.360 --> 0:06:02.200 now let's go to his opinion where he talks about 0:06:02.320 --> 0:06:04.920 the factors to be considered. He said, the Ninth Circuit 0:06:04.960 --> 0:06:08.240 has acknowledged that it has never announced a uniform set 0:06:08.240 --> 0:06:12.200 of factors for analyzing a musical composition under the extrinsic test, 0:06:12.320 --> 0:06:14.799 and that it did not intend to change that precedent, 0:06:15.120 --> 0:06:18.599 although it recognizes the difficulties faced by the district court. 0:06:18.920 --> 0:06:23.000 So the Ninth Circuit basically says, yes, this test is confusing, 0:06:23.320 --> 0:06:25.480 but we're not going to help you out. Yes, And 0:06:25.600 --> 0:06:30.400 this is the problem that district judges have with copyright cases. 0:06:30.800 --> 0:06:33.280 The Courts of Appeal have said, you have a role 0:06:33.320 --> 0:06:36.000 to play as a gatekeeper as to whether or not 0:06:36.040 --> 0:06:38.680 these cases go to trial and get decided by a jury, 0:06:39.000 --> 0:06:41.159 but we're not going to give you a list of 0:06:41.240 --> 0:06:45.680 factors to consider. And he references a very famous Ninth 0:06:45.720 --> 0:06:49.240 Circuit case that involved Mariah Carey's song Thank God I 0:06:49.320 --> 0:06:54.840 Found You, which also involved alleged similarities in the chorus 0:06:54.880 --> 0:06:57.839 of two songs. And in that case, as the judges 0:06:57.920 --> 0:07:01.520 accurately quoted the Ninth Sir came right out and said, book, 0:07:01.560 --> 0:07:03.680 we can't come up with a list of standards for 0:07:03.720 --> 0:07:06.880 the district courts to consider. There's no checklist. You just 0:07:06.920 --> 0:07:09.360 have to consider anything that seems relevant to you. And 0:07:09.440 --> 0:07:14.160 that's a very ambiguous thing to tell the judge who 0:07:14.200 --> 0:07:16.720 actually has to on a day to day basis, and 0:07:16.800 --> 0:07:19.920 Minister Justice in the copyright round, and to certain extent 0:07:20.000 --> 0:07:22.120 it's unfair, Although I get what the nice story is 0:07:22.120 --> 0:07:24.600 saying is it's hard to come up with a comprehensive 0:07:24.640 --> 0:07:27.640 list in other areas of copyright law. That hasn't stopped 0:07:27.720 --> 0:07:30.280 us from coming on police with partial list. Fair Youth 0:07:30.480 --> 0:07:33.400 have four factors that mandatorially must be considered Court of 0:07:33.400 --> 0:07:36.360 the Supreme Court, but you can bring in other factors 0:07:36.400 --> 0:07:39.120 that may be relevant. I struggle to understand why we 0:07:39.200 --> 0:07:42.960 can't do that with respect to this substantial similarity test, 0:07:43.000 --> 0:07:46.080 at least with respect to the extrinsic prong of the test. 0:07:46.240 --> 0:07:48.600 So is to help out district court judges. What's the 0:07:48.640 --> 0:07:52.640 biggest obstacle for the plaintiffs at trial? The problem I 0:07:52.680 --> 0:07:56.520 think the plaintives actually face here is Taylor Swift being 0:07:56.520 --> 0:08:00.840 the defendant. Taylor Swift is not just any work boarding artists. 0:08:01.200 --> 0:08:04.920 Taylor Swift is iconic. Take one of my daughter's Caroline, 0:08:04.920 --> 0:08:07.800 for example. She just loves Taylor's wife and could never 0:08:07.920 --> 0:08:12.160 believe that Taylor Swift copied anybody else's work because she 0:08:12.480 --> 0:08:15.720 is so awesome. Now you're going to get a jury 0:08:15.800 --> 0:08:19.360 pool that has many people that feel that exact same way, 0:08:19.480 --> 0:08:22.240 and the plaintiff will have no chance to convince them. 0:08:22.320 --> 0:08:25.040 And yes, they will get the opportunity of law dear 0:08:25.120 --> 0:08:27.200 them and ask them questions to try to sort out 0:08:27.240 --> 0:08:29.960 people who may be prejudiced. But the reality is a 0:08:30.000 --> 0:08:33.320 lot of juris, particularly Taylor's Swift Sands, would die to 0:08:33.480 --> 0:08:35.880 serve on this jury. And actually you get to see 0:08:35.960 --> 0:08:39.080 Taylor Swift up close and personal testifying, and so they're 0:08:39.080 --> 0:08:41.560 gonna be working real hard to get onto the jury 0:08:41.679 --> 0:08:45.200 even if they're not being completely forthright during law dear, 0:08:45.600 --> 0:08:49.040 and those jurors are gonna be in the defendant's pocket 0:08:49.320 --> 0:08:51.680 from day one, and there'll be nothing that can convince them. 0:08:52.000 --> 0:08:54.920 And that is the real problem that the plaintiffs have 0:08:55.040 --> 0:08:58.160 here at trial, is that they're up against Taylor Swift 0:08:58.200 --> 0:09:01.160 and her legion of fans. Is there a chance of 0:09:01.200 --> 0:09:06.080 settlement here? It's been going on since twenty seventeen, So 0:09:06.240 --> 0:09:10.400 I have no inside information on settlement negotiations. I'll simply 0:09:10.480 --> 0:09:15.200 note that Taylor Swift has placed her respect and honor 0:09:15.360 --> 0:09:20.040 as one of America's great singer songwriters above considerations as 0:09:20.080 --> 0:09:23.840 to defense costs. Typically you get settlements one the defendant 0:09:23.920 --> 0:09:26.800 as this just isn't worth the money I'm paying my attorneys, 0:09:26.960 --> 0:09:29.440 I'll settle for a low dollar amount, even though I 0:09:29.480 --> 0:09:31.959 don't believe I did anything wrong. I don't think that's 0:09:32.000 --> 0:09:34.440 going to happen with Taylor Swift. This is one of 0:09:34.440 --> 0:09:38.000 her iconic songs, and I don't think she's going to 0:09:38.040 --> 0:09:40.440 be wanting to be in a position where people would say, ah, 0:09:40.440 --> 0:09:43.480 she she took the lyrics from somebody else. Just to 0:09:43.520 --> 0:09:46.120 talk about the line of cases here, there were several 0:09:46.200 --> 0:09:50.960 high profile copyright infringement lawsuits. The Blurredline case in particular, 0:09:51.240 --> 0:09:54.400 there was a concern that artist songwriters would face a 0:09:54.400 --> 0:09:57.720 ton of lawsuits. Did the tide change with the led 0:09:57.800 --> 0:10:02.440 Zeppelin suit? I certainly at the pendulum was swinging back 0:10:02.720 --> 0:10:08.719 in favor of more reasoned review of these music cases. 0:10:09.160 --> 0:10:12.800 Keep in mind that this is a lyrics case. Blurredlines, 0:10:13.280 --> 0:10:18.319 led Zeppelin at Sharon cases involved the actual tunes, the notes, 0:10:18.440 --> 0:10:22.640 the music, which are very difficult to analyze for a 0:10:22.720 --> 0:10:26.840 districred judge or lay jurors. Lyrics are something that you 0:10:26.960 --> 0:10:33.200 really don't expect to have as much difficulty with, and 0:10:33.440 --> 0:10:35.760 I will say I was surprised that the ninth circuit 0:10:35.840 --> 0:10:39.079 reversed and found that there was something about the arrangement 0:10:39.280 --> 0:10:44.200 sequencing in the course that was copyrightable. The general black 0:10:44.320 --> 0:10:48.760 letter rule of law is that short phrases are not copyrightable. 0:10:49.000 --> 0:10:52.560 But here the court emphasized the arrangement sequencing of these 0:10:52.559 --> 0:10:57.000 short phrases, and that is very reminiscent of other music 0:10:57.040 --> 0:11:00.720 cases involving the tunes, the notes, and so that's introduced 0:11:00.720 --> 0:11:03.000 tailment of complexity here, and we'll just have to see 0:11:03.040 --> 0:11:05.760 what a jury things. I think there is some possibility 0:11:05.960 --> 0:11:08.560 here that a jury will just go off on their 0:11:08.600 --> 0:11:11.560 instincts and say that doesn't that that doesn't sound right 0:11:11.600 --> 0:11:14.480 to me, that that's taking of things that are in 0:11:14.520 --> 0:11:18.800 common parlance. But we'll see that's taking of things that 0:11:18.840 --> 0:11:22.520 are in common parlance. But we'll see. So in light 0:11:22.600 --> 0:11:26.520 of Bruce Springsteen selling his music catalog for half a 0:11:26.559 --> 0:11:30.599 billion dollars, tell us about the process Taylor Swift is 0:11:30.640 --> 0:11:35.040 in process of re re releasing the recordings now releasing 0:11:35.080 --> 0:11:38.480 the re recordings of her first six albums. Just tell 0:11:38.559 --> 0:11:42.160 us why. So it would take us an entire another 0:11:42.200 --> 0:11:46.000 episode to discuss how this came to be. But essentially, 0:11:46.080 --> 0:11:49.599 as a very young artist and this is common in 0:11:49.640 --> 0:11:52.640 the music business. Taylor Swift lost the what are called 0:11:52.640 --> 0:11:56.480 the mechanical rights to her songs. She does not have 0:11:56.559 --> 0:12:00.480 control over the actual recordings the tapes, as they used 0:12:00.520 --> 0:12:05.880 to say, and tried very hard to get control over them, 0:12:05.920 --> 0:12:10.600 not purely for financial reasons, but also because she did 0:12:10.600 --> 0:12:14.080 not want her music and her name being free to 0:12:14.160 --> 0:12:19.000 be bought and sold as it appeared to be happening. 0:12:19.480 --> 0:12:23.880 And she was unsuccessful in getting control over those early 0:12:23.920 --> 0:12:26.800 works back and so UM she has set up out 0:12:26.840 --> 0:12:31.920 upon a process of re recording all of her early works. 0:12:31.960 --> 0:12:36.120 Each one has the same title, except in parses afterwards, 0:12:36.160 --> 0:12:40.640 it's Taylor's version, UM, and this will give her control 0:12:40.679 --> 0:12:45.520 over the mechanical rights to those particular covers, if you will, 0:12:45.559 --> 0:12:49.760 of her own original work. If the Bruce Springsteen situation 0:12:49.920 --> 0:12:54.240 is very different from Taylor's Swiss situation, UM, Bruce Springsteen 0:12:54.360 --> 0:12:57.360 is sort of at the end of his recording career um, 0:12:57.520 --> 0:13:00.520 and we wish him many many years of good life ahead, 0:13:00.600 --> 0:13:03.559 but also a sort of the end of his life journey. 0:13:03.760 --> 0:13:06.160 Taylor Swift is very much at the beginning of it, 0:13:06.360 --> 0:13:08.760 and it is still at the forefront of her mind. 0:13:08.840 --> 0:13:12.959 That she has decades and decades of recording ahead and 0:13:12.960 --> 0:13:15.720 and just living experience, and and and wants to have 0:13:15.800 --> 0:13:20.520 control over her name and her songs. You can't blame 0:13:20.520 --> 0:13:24.200 her one bit um for for that goal. And so 0:13:24.280 --> 0:13:28.400 she is taking completely different approach than what Bruce Springsteen 0:13:28.480 --> 0:13:33.400 recently UM did. She's also had UM at a much 0:13:33.400 --> 0:13:38.000 earlier point in her life success financially with her recordings. 0:13:38.640 --> 0:13:43.199 I've just been reading Steven van Zant's Um autobiography, Bruce 0:13:43.240 --> 0:13:46.560 Springsteen's Best Friend, talking about their early days, and you know, 0:13:46.679 --> 0:13:50.800 despite so much great music that Bruce Springsteen and the 0:13:50.800 --> 0:13:55.120 Easter Band produced in those those early days, financially, they 0:13:55.120 --> 0:13:57.800 weren't seeing a lot of the rewards and did not 0:13:58.000 --> 0:14:02.560 have the same sort of lifestyle that Taylor Swifted modern 0:14:02.600 --> 0:14:06.160 recording artists seemed to have with their success and and 0:14:06.200 --> 0:14:11.240 so respect. You know, Bruce brings Rosie a number of 0:14:11.280 --> 0:14:15.040 children trying to monetize and now the later part of 0:14:15.040 --> 0:14:19.120 his life um all of those works, whereas Taylish was 0:14:19.160 --> 0:14:22.200 still at the start of her life and career. Thanks 0:14:22.200 --> 0:14:25.320 for being on the show, Terry. That's Terence Fross a partner. 0:14:25.440 --> 0:14:32.160 Catn Uten Rosenman hedge funds, beware. The United States Department 0:14:32.160 --> 0:14:36.840 of Justice is digging into your symbionic relationship with research firms, 0:14:37.160 --> 0:14:40.840 hunting for signs you tried to engineer stunning stock drops 0:14:40.960 --> 0:14:44.920 or engaged in insider trading. It's an investigation that's thrilled 0:14:45.040 --> 0:14:48.600 legions of small investors, as trading in at least several 0:14:48.680 --> 0:14:52.840 dozen stocks is being examined, according to Bloomberg sources. Joining 0:14:52.880 --> 0:14:55.480 me is an expert in the area, Professor John Coffey 0:14:55.560 --> 0:14:59.280 of Columbia Law School. Jack tell us about this investigation 0:14:59.400 --> 0:15:01.920 and when it's started, well, this is something they've been 0:15:01.960 --> 0:15:05.560 planning for at least six months or more. They've consulted 0:15:05.560 --> 0:15:08.280 with some of the leading financial economists in the country. 0:15:08.680 --> 0:15:11.440 They are doing a very careful review of a large 0:15:11.520 --> 0:15:14.600 number of cases. But I think what has most bothered 0:15:14.640 --> 0:15:18.920 them is the exploitation of a short interval between when 0:15:18.920 --> 0:15:22.840 a group of short sellers published negative research, often on 0:15:22.880 --> 0:15:26.720 an anonymous basis or a pseudo anonymous basis, and then 0:15:26.960 --> 0:15:30.000 prayed heavily in the period between when they release it 0:15:30.040 --> 0:15:32.520 on one day and the next day when the company 0:15:32.600 --> 0:15:35.960 is able to respond. When the company responds, it may 0:15:36.000 --> 0:15:39.520 be able to come back with a convincing explanation or rebuttal, 0:15:39.720 --> 0:15:42.520 and the market equilibrates and there's not much of a decline, 0:15:42.600 --> 0:15:45.480 but for that first day there may be a drop 0:15:45.600 --> 0:15:48.040 or something in the stock, and the short sellers make 0:15:48.080 --> 0:15:51.440 out like bandits. That doesn't look like it's fair to 0:15:51.560 --> 0:15:54.600 the small shareholders who tend to panic when they first 0:15:54.600 --> 0:15:58.080 hear the news and then get reassured when the company responds, 0:15:58.280 --> 0:16:01.040 but then it's too late that they've already sold hedge 0:16:01.040 --> 0:16:04.560 bonds and researchers do have a relationship. That's legal. It 0:16:04.720 --> 0:16:07.760 is certainly legal, but here is the question. You can 0:16:07.800 --> 0:16:11.880 certainly hire researchers, but it is arguably deceptive to publish 0:16:11.880 --> 0:16:16.280 a report as independent research, which gives a greater credibility 0:16:16.280 --> 0:16:19.200 in the public's mind, when in fact you have already 0:16:19.320 --> 0:16:22.040 commissioned it and paid for an advance, and you asked 0:16:22.080 --> 0:16:25.120 them to research a particular target that you're interested in. 0:16:25.480 --> 0:16:30.080 So our prosecutors looking for internal documents then of a relationship, 0:16:30.080 --> 0:16:32.120 I think they will be I think that they're going 0:16:32.200 --> 0:16:36.080 to want cases that have what lawyers typically called badges 0:16:36.080 --> 0:16:39.040 of fraud, something where there's been a bribe but there's 0:16:39.080 --> 0:16:42.640 been clear insighter trading when you've done something else so 0:16:42.680 --> 0:16:45.760 that doesn't just look like ordinary short selling. You have 0:16:45.840 --> 0:16:48.880 to remember that short sellers are both the heroes and 0:16:49.000 --> 0:16:51.760 the rogues of the market. They have uncovered the biggest 0:16:51.760 --> 0:16:56.160 frauds which often escaped the government, often escaped the accountants, 0:16:56.280 --> 0:17:00.440 and often escape everybody except the profit motivated short seller. 0:17:00.840 --> 0:17:04.160 In the last two years, cases like the Lucky Coffee 0:17:04.160 --> 0:17:07.359 case in China or the wire card case in Germany, 0:17:07.520 --> 0:17:11.480 billions were lost and none of the regular gatekeepers responded 0:17:11.520 --> 0:17:14.879 in any way until the short sellers came in. Remember 0:17:14.880 --> 0:17:17.119 it with short sellers who caught en Ron when the 0:17:17.160 --> 0:17:19.840 accountants MR and the sec MR and no one else 0:17:19.880 --> 0:17:22.399 saw it. So we need them. They can be heroes 0:17:22.400 --> 0:17:24.640 of the market, but they can also try to make quick, 0:17:24.760 --> 0:17:29.600 cheap profits, exploiting this time differential or providing research that 0:17:29.720 --> 0:17:32.760 they have paid for and focused in a way that's 0:17:32.840 --> 0:17:36.960 quite harsh without disclosing that this was commission research rather 0:17:37.000 --> 0:17:41.639 than independent research. They were celebrating about this investigation on 0:17:41.800 --> 0:17:46.160 platforms such as Reddit, Stock, Twits, and Twitter. Those are 0:17:46.160 --> 0:17:49.680 exactly the retail customers who feel they are exploited by 0:17:49.680 --> 0:17:52.720 short sellers because they see the bad news and they 0:17:52.760 --> 0:17:55.280 rest to protect themselves, and the next day or the 0:17:55.359 --> 0:17:58.880 day after that, the company responds. It looks like only 0:17:58.920 --> 0:18:02.200 a small difference in their positions. Is this just another 0:18:02.320 --> 0:18:06.880 front in the Department of Justices inquiry or is this 0:18:07.000 --> 0:18:11.320 a new inquiry? Well, I think it's nothing is totally new, 0:18:11.520 --> 0:18:13.560 But I think there's much in this that is new. 0:18:13.680 --> 0:18:16.960 This is the Department of Justice bringing a criminal investigation, 0:18:17.400 --> 0:18:21.000 not the sec bringing some charges and settling quietly. People 0:18:21.040 --> 0:18:23.159 are going to be staced with prison if they are 0:18:23.280 --> 0:18:28.600 found to have deliberately misled or hidden key facts, particularly 0:18:28.640 --> 0:18:32.080 the use of the pseudonymous article. That is, rather than 0:18:32.119 --> 0:18:33.520 putting it out in your own name, you put it 0:18:33.560 --> 0:18:36.119 out in some new name that you just create, the 0:18:36.160 --> 0:18:40.840 Avenging Angel, spider Man, whatever, and that it looks credible. 0:18:41.080 --> 0:18:43.320 But if you knew this was the guys that gave 0:18:43.359 --> 0:18:46.840 you some overstated advice six times in the last year, 0:18:47.000 --> 0:18:49.640 you give it less weight. So you use this new 0:18:49.760 --> 0:18:52.680 name and help that will give it greater credibility, or 0:18:52.720 --> 0:18:56.520 at least won't carry the negative associations that the short 0:18:56.520 --> 0:18:59.919 sellers have already created. So how challenging would it be 0:19:00.160 --> 0:19:03.920 for prosecutors to bring charges against short sellers and win. 0:19:04.520 --> 0:19:06.960 It depends on the evidence they get, which is why 0:19:07.000 --> 0:19:09.720 I hope they hold back until they have a case 0:19:09.760 --> 0:19:12.679 with strong evidence. If their government can show that you 0:19:12.760 --> 0:19:17.000 were paying people to give them confidential information about their employer, 0:19:17.400 --> 0:19:19.560 that would be a case it looks like they're paying 0:19:19.600 --> 0:19:22.560 people to breach their produciary duties. Or if you get 0:19:22.560 --> 0:19:26.800 other cases of insider trading or bribery or deliberate deception. 0:19:27.080 --> 0:19:30.560 If you call this independent research when you half wrote it, 0:19:30.840 --> 0:19:32.760 you are a short center. You are known to be 0:19:32.840 --> 0:19:35.320 on this side of the aisle, and no one totally 0:19:35.400 --> 0:19:38.840 trusts you when you put out what you call independent research. 0:19:39.080 --> 0:19:41.080 But it may be that you wrote half that independent 0:19:41.080 --> 0:19:43.680 research and you edited so they said exactly what you wanted. 0:19:43.800 --> 0:19:46.560 That can be deceptive. I was sort of surprised the 0:19:46.600 --> 0:19:51.200 investigation is being handled by federal prosecutors in Los Angeles. 0:19:51.600 --> 0:19:54.879 I thought that prosecutors in Manhattan usually handle these types 0:19:54.920 --> 0:19:58.680 of financial crimes. Well, often these kind of cases are 0:19:58.720 --> 0:20:01.000 in the Southern District in New York. But remember, the 0:20:01.119 --> 0:20:04.199 government has only so much resources. And these are the 0:20:04.240 --> 0:20:07.760 same people, by the way, leading this investigation who recently 0:20:07.800 --> 0:20:12.439 won some major and unprecedented cases in which criminal violations 0:20:12.480 --> 0:20:15.480 were found for spoofing, so they have one original case. 0:20:15.600 --> 0:20:19.640 In the past, you and about a dozen other prominent 0:20:19.720 --> 0:20:24.240 securities law professors have urged the sec to do certain things. 0:20:24.240 --> 0:20:28.080 Tell us what you want you think again, I'm told 0:20:28.119 --> 0:20:31.600 you that there is this exploitation of this narrow window 0:20:32.000 --> 0:20:35.679 between when you put out negative research and immediately trade 0:20:35.720 --> 0:20:38.840 on it and when the company responds. I think there 0:20:38.880 --> 0:20:42.280 should be some way to close that window further so 0:20:42.320 --> 0:20:45.359 that you can't make a bundle of money on the 0:20:45.480 --> 0:20:47.920 hour or two in which no one else is commenting, 0:20:48.240 --> 0:20:51.840 and that has been happening. We also have a problem 0:20:51.920 --> 0:20:55.080 with what I'll call the pseudonymous research, where you use 0:20:55.240 --> 0:20:58.440 some new entity that no one's ever heard of, Spider Man, 0:20:58.480 --> 0:21:01.440 Avenging Angel, or something like some kind of fancy new name, 0:21:01.880 --> 0:21:03.840 and you may have to just may have to disclose 0:21:04.200 --> 0:21:07.359 who is behind that. There's First Amendment problems there, to 0:21:07.440 --> 0:21:10.520 be sure, because we don't like to restrict speech. But 0:21:10.640 --> 0:21:14.920 hiding your identity when you have a strong reputation, which 0:21:14.920 --> 0:21:17.880 will lead investors not to trust you as much, that 0:21:18.000 --> 0:21:21.720 strikes me something that could also be misleading. So lawmakers 0:21:21.760 --> 0:21:27.360 have held several hearings following that meme stock trading frenzy 0:21:27.600 --> 0:21:31.200 in January. Do you expect lawmakers or do you think 0:21:31.320 --> 0:21:35.440 lawmakers should do something here? Well, I don't think they 0:21:35.480 --> 0:21:38.840 will because this is complex and lawmakers like to have 0:21:38.880 --> 0:21:42.080 a simple target. I think the SEC could do more 0:21:42.480 --> 0:21:46.320 both with respect to short selling rules and the general problems. 0:21:46.560 --> 0:21:49.040 When you look at the game Stop in the A 0:21:49.160 --> 0:21:53.600 m C Trading you see villains on post sides. You 0:21:53.720 --> 0:21:57.119 see the game of vocation of the market, people turning 0:21:57.160 --> 0:22:00.440 trading into a game at places like Robert Hood, which 0:22:00.440 --> 0:22:03.960 creates an excessive incentive to trade and to trade on options, 0:22:03.960 --> 0:22:06.520 which is very, very dangerous. On the other side, you 0:22:06.560 --> 0:22:10.600 see short sellers. Gave Stop was in part an attempt 0:22:10.640 --> 0:22:13.400 to squeeze the short sellers, and it did squeeze them, 0:22:13.800 --> 0:22:18.280 and perhaps they deserve to be squeezed. But we had 0:22:18.800 --> 0:22:22.679 people on one side who were trading excessively because of 0:22:22.720 --> 0:22:25.320 all these new apps that make it so simple and 0:22:25.359 --> 0:22:28.480 so attractive, and because they're told that it's free. It's 0:22:28.520 --> 0:22:31.480 not really free, but they're told that. On the other side, 0:22:31.480 --> 0:22:34.960 we have people who were engaged in heavy shorting of 0:22:35.000 --> 0:22:38.240 a stock like game Stop, which to most traditional investors, 0:22:38.280 --> 0:22:40.920 looks like a very shaky company. Oh, it looks like 0:22:41.520 --> 0:22:44.399 it's the future of the world to those people in 0:22:44.440 --> 0:22:47.520 the Men and the mem Stock group. On riddit, Thanks Jack. 0:22:47.800 --> 0:22:53.200 That's Professor John Coffee at Columbia Law School. Former Minnesota 0:22:53.240 --> 0:22:56.240 police officer Kim Potter is on trial for the fatal 0:22:56.240 --> 0:22:59.440 shooting of twenty year old Dante Right during a traffic 0:22:59.480 --> 0:23:02.719 stop in April. Potter says she meant to draw her 0:23:02.840 --> 0:23:06.480 taser to stop Right from driving away as officers tried 0:23:06.520 --> 0:23:09.920 to arrest him on an outstanding warrant for weapons possession, 0:23:10.200 --> 0:23:13.359 but she drew her gun by mistake. Potter is white 0:23:13.400 --> 0:23:15.720 and Right was black, and his death in the middle 0:23:15.760 --> 0:23:19.800 of the trial of former Minneapolis police officer Derek Chauvin 0:23:19.960 --> 0:23:23.399 for the death of George Floyd set off several nights 0:23:23.400 --> 0:23:28.040 of angry protests. Joining me as former public defender Krista Groshek, 0:23:28.280 --> 0:23:33.199 managing attorney of Grossek Law, the prosecution played this video 0:23:33.320 --> 0:23:38.520 of Potter right after she shot Right, hysterical rocking back 0:23:38.560 --> 0:23:42.239 and forth while laying face down on the lawn with 0:23:42.280 --> 0:23:45.320 her head in her hands and saying, I don't know 0:23:45.840 --> 0:23:48.600 I don't know what happened. Which way does that cut? 0:23:48.720 --> 0:23:51.840 Does that work for the prosecution or for the defense? 0:23:52.680 --> 0:23:55.600 I think it works great for the defense. I think 0:23:55.640 --> 0:23:57.000 that a jury is going to have a hard time 0:23:57.040 --> 0:24:00.399 convicting somebody that reacted like that, Like this was clearly 0:24:00.440 --> 0:24:04.280 an accident, it was on planned. She was immediately remorseful. 0:24:04.760 --> 0:24:07.879 She's also fearful that she'd be facing charges herself. So 0:24:08.040 --> 0:24:10.960