WEBVTT - CZ Is Going to Prison & Trump Trial Day 5 0:00:03.200 --> 0:00:08.000 This is Bloomberg Law with June Brusso from Bloomberg Radio. 0:00:10.440 --> 0:00:14.640 In a Seattle courtroom today, prosecutors asked Judge Richard Jones 0:00:14.640 --> 0:00:18.439 to sentence by NaN's founder Jang Pen Joo to three 0:00:18.520 --> 0:00:22.200 years in prison for allowing rampant money laundering on the 0:00:22.200 --> 0:00:27.600 world's largest cryptocurrency exchange. Joao's lawyers pleaded with the judge 0:00:27.640 --> 0:00:30.960 to spare him from prison. The judge gave neither side 0:00:31.000 --> 0:00:34.199 what they wanted, sentencing Jiao to four months in prison. 0:00:34.920 --> 0:00:38.200 Cz As He's called, pleaded guilty in November to one 0:00:38.280 --> 0:00:42.160 count of failing to maintain an anti money laundering program 0:00:42.440 --> 0:00:45.920 and stepped down as Binance agreed to pay four point 0:00:45.920 --> 0:00:50.519 three billion dollars to settle related allegations. This closes a 0:00:50.600 --> 0:00:54.080 long running probe for the Justice Department, which had wanted 0:00:54.120 --> 0:00:57.680 to make an example of Jao in an industry rebounding 0:00:57.720 --> 0:01:01.240 from a slew of high profile scandal. You remember Sam 0:01:01.280 --> 0:01:05.040 Bankman Freed Joining me from Seattle is Bloomberg Legal reporter 0:01:05.160 --> 0:01:08.240 Ava Benny Morrison, who was in the courtroom for the sentencing, 0:01:08.720 --> 0:01:10.840 set the scene for us Eva sure So. 0:01:11.080 --> 0:01:13.600 Changpeng Joo, who's better known as Caz panned up to 0:01:13.640 --> 0:01:16.880 the Federal courthouse in Seattle just before nine am. He 0:01:16.959 --> 0:01:20.000 had about half a dozen lawyers with him. He didn't 0:01:20.040 --> 0:01:23.399 say much throughout the proceeding, other than getting up to 0:01:23.640 --> 0:01:25.759 give a statement to the judge where he talked about 0:01:26.000 --> 0:01:28.480 how remorseful he was, how he had made a mistake, 0:01:28.720 --> 0:01:31.759 but he took full responsibility and that's why he had 0:01:31.760 --> 0:01:35.280 traveled from his home in the UAE to America at 0:01:35.319 --> 0:01:38.240 the end of last year to face the prosecution. While 0:01:38.240 --> 0:01:40.479 he was sitting at the table, he was very still. 0:01:40.520 --> 0:01:43.720 He's sitting up straight, He's staring at the judge. Seemed 0:01:43.760 --> 0:01:46.720 to be absorbing everything that the judge and the prosecutors 0:01:46.800 --> 0:01:51.120 were saying. CZ's mother and his sister Jessica were both 0:01:51.160 --> 0:01:53.400 seated in the front row, and there were a few 0:01:53.520 --> 0:01:56.560 other friends and supporters from the crypto industry that were 0:01:56.560 --> 0:01:57.560 in the courthouse as well. 0:01:57.840 --> 0:02:00.880 There was a plea deal here, but prosecute were asking 0:02:00.960 --> 0:02:04.720 for twice the sentencing guidelines. What was their reasoning? 0:02:05.200 --> 0:02:08.120 Fedrol Foski's were trying to make an example out of Cz. 0:02:08.680 --> 0:02:11.960 He was the CEO of the world's biggest crypto company, 0:02:12.000 --> 0:02:15.240 they argued, and he committed these crimes as part of 0:02:15.480 --> 0:02:18.640 a plan to violate US laws that would allow him 0:02:18.680 --> 0:02:22.280 to make more money allow big traders to continue using 0:02:22.360 --> 0:02:25.079 Finance even though it didn't have an adequate anti money 0:02:25.160 --> 0:02:29.280 laundering progres. So they were arguing for thirty six months 0:02:29.320 --> 0:02:31.920 in prison to Cz to really send a message not 0:02:31.919 --> 0:02:35.200 only to the crypto industry but to corporate leaders far 0:02:35.280 --> 0:02:37.360 and wide that this sort of behavior would not be 0:02:37.400 --> 0:02:38.880 tolerated and would be punished. 0:02:39.160 --> 0:02:43.240 As you mentioned, the defense was asking for leniency and probation. 0:02:43.400 --> 0:02:44.400 What was their argument. 0:02:44.720 --> 0:02:48.040 The defense was pleading with the judge to spare Cz 0:02:48.200 --> 0:02:52.040 from prison. They pointed to the fact that he voluntarily 0:02:52.120 --> 0:02:55.120 came back to America to face these charges at the 0:02:55.160 --> 0:02:58.240 end of last year. They said that he had cooperated 0:02:58.360 --> 0:03:01.600 extensively with the government in this investigation and that he 0:03:01.680 --> 0:03:05.079 directed Finance to cooperate with the DOJ as well. They 0:03:05.120 --> 0:03:09.600 pointed out that Finance had settled several investigations with know 0:03:09.840 --> 0:03:14.160 the DOJ, but the CFTC, the Treasury Department, which resulted 0:03:14.240 --> 0:03:17.480 in the company paying four point three billion dollars worth 0:03:17.520 --> 0:03:20.120 of fines. I think the biggest sticking point in the 0:03:20.240 --> 0:03:24.959 arguments today was over whether a prison sentence was warranted 0:03:25.000 --> 0:03:27.800 for this type of offense. CZ was essentially charged with 0:03:27.880 --> 0:03:31.200 violating the Bank Secrecy Act, which sounds pretty minor on 0:03:31.240 --> 0:03:34.639 the face of it, but attached to that crime were 0:03:35.640 --> 0:03:40.040 arguably pretty serious circumstances. Because he didn't have an adequate 0:03:40.080 --> 0:03:44.280 AML program at finance, terrorist organizations like al Qaeda and 0:03:44.440 --> 0:03:47.200 Hamas were able to trade on the platform, and US 0:03:47.280 --> 0:03:51.440 customers were trading with customers in sanctioned countries like Arah. 0:03:51.800 --> 0:03:54.040 So the defense was really trying to narrow in on 0:03:54.040 --> 0:03:57.160 the fact that this was just a banking violation, for 0:03:57.280 --> 0:04:00.360 the prosecution was urging the judge to look at those 0:04:00.400 --> 0:04:02.080 serious circumstances that were. 0:04:01.960 --> 0:04:02.600 Attached to it. 0:04:02.960 --> 0:04:07.040 Did the prosecution say or prove in any way that 0:04:07.280 --> 0:04:11.120 CZ knew about what was happening on the platform, you know, 0:04:11.240 --> 0:04:13.440 like the terrorist organization's trading. 0:04:14.400 --> 0:04:18.880 No, the prosecution didn't say that CD personally knew that 0:04:19.279 --> 0:04:23.440 there were the proceeds of crime moving across finance, and 0:04:23.520 --> 0:04:27.280 the defense really highlighted that as well, saying, look, there 0:04:27.320 --> 0:04:29.960 is no evidence here that CZ personally, as the sea 0:04:30.040 --> 0:04:34.440 of the company, knew that illicit funds were moving across finance, 0:04:34.560 --> 0:04:36.560 and so that needed to be taken into account. 0:04:36.920 --> 0:04:40.400 How long did his statement to the judge last and 0:04:40.680 --> 0:04:42.120 what part of it stood out to you. 0:04:43.440 --> 0:04:46.400 CZ's statement to the judge only lasted a few minutes. 0:04:46.680 --> 0:04:50.240 He started by saying that he was remorse and he 0:04:50.400 --> 0:04:53.360 was sorry and he had made mistakes. He spoke about 0:04:53.360 --> 0:04:55.760 how difficult it was for him to step down as 0:04:55.960 --> 0:04:59.240 CEO of Finance, a company that he founded in China 0:04:59.360 --> 0:05:02.880 several years go. He spoke about how he struggled to 0:05:02.920 --> 0:05:05.839 accept that that was essentially the only course of action here. 0:05:06.120 --> 0:05:08.480 But he spoke about how he still wants to make 0:05:08.520 --> 0:05:10.880 a difference in the world and he's really focused on 0:05:11.240 --> 0:05:14.120 philanthropy now that he's not leading Binance. 0:05:14.480 --> 0:05:16.960 And it wasn't just what the prosecution asked for and 0:05:17.000 --> 0:05:20.360 the defense asked for. Tell us about the other recommendations. 0:05:20.800 --> 0:05:21.359 There was such a. 0:05:21.400 --> 0:05:25.320 Big gap years between what each of the parties were recommending. 0:05:25.760 --> 0:05:28.840 The prosecution wanted thirty six months probation and pre trial 0:05:28.880 --> 0:05:31.880 services had recommended only five months. And then of course 0:05:31.920 --> 0:05:35.279 the Z's defense team was asking for only probation and 0:05:35.320 --> 0:05:39.360 the federal offenders and guidelines were between twelve and eighteen months. 0:05:39.480 --> 0:05:42.200 So there was a lot of discrepancy there that the 0:05:42.320 --> 0:05:43.799 judge had to navigate. 0:05:43.960 --> 0:05:46.120 And so tell us about you know what the judge 0:05:46.120 --> 0:05:47.719 said before he sentenced him. 0:05:48.320 --> 0:05:53.560 The judge agreed with the defense that the prosecution's suggestion 0:05:53.760 --> 0:05:56.279 that Caz should be sentenced to thirty six months in 0:05:56.320 --> 0:05:59.800 prison was far too high. He said that he had 0:06:00.000 --> 0:06:02.640 taken a lot of time to read through more than 0:06:02.680 --> 0:06:05.599 one hundred and sixty letters admitted from CZ's friends and 0:06:05.720 --> 0:06:09.440 family and co workers that painted this man in a 0:06:09.520 --> 0:06:12.880 very favorable light, describing him as a family man, a 0:06:12.960 --> 0:06:16.760 humble person, and just a hard working entrepreneur. He said 0:06:16.800 --> 0:06:20.160 that yes, while this is a big Secrecy Act violation 0:06:20.720 --> 0:06:24.200 and other cases involving that charge had resulted in probation, 0:06:24.520 --> 0:06:27.480 there were some egregious actors here, like the fact that 0:06:27.720 --> 0:06:32.159 Hamas and cyber criminals and dark web transactions were able 0:06:32.160 --> 0:06:34.919 to take place on the platform because of it. I 0:06:34.960 --> 0:06:39.799 think he just couldn't get pasted the Hamas al Kader 0:06:40.279 --> 0:06:43.320 dark web element of this. I will say that it's 0:06:43.400 --> 0:06:47.159 unusual for BSA cases to result in prison time, So 0:06:47.440 --> 0:06:50.680 the judge was really sort of putting his neck out 0:06:50.720 --> 0:06:54.920 here by handing down a sentence that did involve prison time. 0:06:55.440 --> 0:06:59.080 It'll be interesting to see if this sets a precedent 0:06:59.320 --> 0:07:03.960 for other BSA cases in white collar prosecutions in the future. 0:07:04.360 --> 0:07:07.200 What always seems striking to me about this case is 0:07:07.240 --> 0:07:11.120 that the UAE has no extradition treaty with the US. 0:07:11.560 --> 0:07:14.920 Yet he flew here and turned himself in and then 0:07:15.200 --> 0:07:20.320 prosecutors stopped him from returning home pending sentence. Did anyone 0:07:20.400 --> 0:07:25.000 mention that this whole scenario might stop other people from 0:07:25.080 --> 0:07:26.680 turning themselves in in the future. 0:07:27.200 --> 0:07:30.280 Yes, the defense actually did make a point out of that, 0:07:30.480 --> 0:07:33.320 saying cz has done all the right things here. He's 0:07:33.320 --> 0:07:37.520 come back from Dubai, turned himself in, pleaded guilty to 0:07:37.560 --> 0:07:41.200 the charge, agreed to pay personally a fifty million dollars 0:07:41.240 --> 0:07:44.160 fign to the government. He has ticked all the boxes. 0:07:44.400 --> 0:07:45.440 But the fact that. 0:07:45.400 --> 0:07:49.120 The prosecution was then arguing for a prison sentence that 0:07:49.240 --> 0:07:52.960 was well above the federal sentencing guidelines might actually deter 0:07:53.160 --> 0:07:56.480 people from doing that in the future, and from deciding 0:07:56.520 --> 0:07:59.720 to travel from a non extradition country to the US 0:07:59.760 --> 0:08:00.760 to the charges. 0:08:01.640 --> 0:08:05.280 But was there a feeling going in as to what 0:08:05.360 --> 0:08:07.320 he might get? I mean, did anyone think you know 0:08:07.360 --> 0:08:10.160 that he would walk out of there without any prison time. 0:08:10.520 --> 0:08:12.960 I think he was certainly hoping that, but there really 0:08:13.040 --> 0:08:15.320 was a feeling in the courtroom that this could go 0:08:15.400 --> 0:08:18.400 either way. There could either be a very small amount 0:08:18.440 --> 0:08:20.880 of prison time or no prison time at all. You 0:08:20.920 --> 0:08:24.080 could tell that his lawyers had really prepared their arguments 0:08:24.120 --> 0:08:26.720 and were putting in a pretty tough fight to try 0:08:26.720 --> 0:08:29.280 and keep him out of prison. But the judge in 0:08:29.320 --> 0:08:32.679 the end was persuaded by the prosecution's argument that this 0:08:32.880 --> 0:08:35.800 just wasn't a run of the mill Bank Secrecy Act case. 0:08:35.920 --> 0:08:40.480 This behavior, this crime allowed illicted actors to launder money 0:08:40.600 --> 0:08:43.400 and use finance when they shouldn't have been able to 0:08:43.400 --> 0:08:43.760 do that. 0:08:44.600 --> 0:08:47.560 What happens now, Do I understand that he's not eligible 0:08:47.840 --> 0:08:50.880 to go to a minimum security prison? 0:08:51.640 --> 0:08:54.720 Yes, CZ, because he's not a US citizen, is then 0:08:55.000 --> 0:08:58.960 eligible for a minimum security prison, and that's usually where 0:08:59.040 --> 0:09:02.280 white collar defends didn't end up. So he has made 0:09:02.280 --> 0:09:05.240 a request for the judge to be designated to a 0:09:05.280 --> 0:09:09.440 facility called FDC stach here in Seattle. We don't know 0:09:09.520 --> 0:09:12.680 when he needs to turn up and start that prison. 0:09:12.720 --> 0:09:15.920 Sentence that dates still to be decided, but he will 0:09:15.960 --> 0:09:19.280 spend four months there. His lawyer did say that he's 0:09:19.320 --> 0:09:21.280 eager to just get it over and done with and 0:09:21.440 --> 0:09:24.199 finally be able to return to Dubai to reunite with 0:09:24.280 --> 0:09:27.040 his family. CZ and his lawyers are waiting to hear 0:09:27.080 --> 0:09:29.959 from probation to decide on an appropriate date for him 0:09:29.960 --> 0:09:32.680 to turn up to the prison and start his four 0:09:32.679 --> 0:09:33.280 month sentence. 0:09:33.360 --> 0:09:36.760 This is the second high profile sentencing in the crypto 0:09:37.559 --> 0:09:41.760 industry recently. Was Sam Bankman Freed mentioned at all? 0:09:42.360 --> 0:09:45.560 Sam Bateman Freed did get a mention. Actually, when the 0:09:45.559 --> 0:09:49.480 prosecutor was referring to the arguments that Z's lawyers had 0:09:49.880 --> 0:09:53.200 submitted to the court, he said, look, we're not alleging 0:09:53.320 --> 0:09:56.400 that Cz is a Sam Bateman Freed. We're not saying 0:09:56.400 --> 0:09:58.400 that he's a monster, and we're not trying to kill 0:09:58.400 --> 0:10:01.640 the crypto industry. We are saying that this is a 0:10:01.720 --> 0:10:05.520 serious crime because he didn't have an IMO program and 0:10:05.559 --> 0:10:08.280 that allowed some of the ILICID actives and terrorists to 0:10:08.320 --> 0:10:09.320 gain access. 0:10:08.960 --> 0:10:09.360 To buy it. 0:10:09.800 --> 0:10:13.160 Thanks so much, Ava, that's Bloomberg Legal reporter Ava. Benny 0:10:13.240 --> 0:10:16.480 Morrison Jow will enter the history books as the richest 0:10:16.520 --> 0:10:20.280 person ever to do time in US federal lockup. His 0:10:20.440 --> 0:10:24.320 ownership of Binance and an estimated forty three billion dollar 0:10:24.440 --> 0:10:28.559 personal fortune tied to it, remain intact, and his wealth 0:10:28.679 --> 0:10:32.880 is likely to grow even more as Binance's business accelerates 0:10:33.240 --> 0:10:37.320 amid crypto's latest bull run. In fact, his wealth balloon 0:10:37.440 --> 0:10:41.600 by twenty five billion dollars as the crypto industry recovered 0:10:41.679 --> 0:10:44.640 last year, and he's currently ranked as the thirty eight 0:10:44.760 --> 0:10:48.360 richest person in the world according to the Bloomberg Billionaire's Index. 0:10:48.800 --> 0:10:52.439 And despite having to relinquish the chief executive title as 0:10:52.559 --> 0:10:55.480 part of his deal with the government, his influence on 0:10:55.520 --> 0:10:58.120 the company is hard to miss. Its new board of 0:10:58.160 --> 0:11:01.800 directors is dominated by his devoted friends, and the mother 0:11:01.840 --> 0:11:04.360 of three of his children plays a major role in 0:11:04.480 --> 0:11:08.320 running its operations. Coming up next on The Bloomberg Lawn Show, 0:11:09.440 --> 0:11:13.280 the FTC has banned non compete clauses which prevent workers 0:11:13.320 --> 0:11:17.640 from transferring to other companies in the same industry. However, 0:11:17.720 --> 0:11:20.480 companies may not have to rush to comply with that 0:11:20.679 --> 0:11:25.160 FTC non compete ban. Will tell you why I'm June Grossewin. 0:11:25.240 --> 0:11:29.840 This is Bloomberg. The Federal Trade Commission's rule banning most 0:11:29.920 --> 0:11:34.320 non compete clauses that prohibit workers from switching jobs within 0:11:34.360 --> 0:11:37.839 an industry is scheduled to take effect one hundred twenty 0:11:37.920 --> 0:11:42.440 days from its publication on April twenty third. However, standing 0:11:42.440 --> 0:11:45.319 in the way are lawsuits by the Chamber of Commerce 0:11:45.440 --> 0:11:49.120 and others seeking to block the rule, arguing the FTC 0:11:49.280 --> 0:11:52.520 doesn't have the authority to issue it, and a judge 0:11:52.559 --> 0:11:56.200 could issue a preliminary injunction stopping the rule from going 0:11:56.240 --> 0:12:01.120 into effect while the litigation proceeds. Me Is Kimberly Carson, 0:12:01.200 --> 0:12:04.439 a partner Quinn Emmanuel, and an expert on non competes 0:12:04.960 --> 0:12:08.240 tell us about this near total ban on non competes. 0:12:08.960 --> 0:12:13.240 Sure so, last week, the Federal Trade Commission issued a 0:12:13.320 --> 0:12:19.560 rule banning non compete nationwide. The rule essentially prohibits employers 0:12:19.720 --> 0:12:24.520 from doing three things after the effective date, one enforcing 0:12:24.640 --> 0:12:28.719 existing non competes with workers, two entering into new non 0:12:28.800 --> 0:12:34.000 competes with workers, and three representing that workers are subjects 0:12:34.040 --> 0:12:38.160 to non compete clauses. The rule also has a notice 0:12:38.200 --> 0:12:41.959 requirement that essentially requires employers to give notice, by the 0:12:42.000 --> 0:12:45.800 rule of effective dates to every effective worker who's found 0:12:45.840 --> 0:12:48.640 by an existing non compete that the non compete won't 0:12:48.640 --> 0:12:49.960 be enforced in the future. 0:12:50.880 --> 0:12:54.560 Is this ban expected to have a widespread effect on 0:12:54.600 --> 0:12:56.120 the workforce. 0:12:56.240 --> 0:13:01.280 Yes, certainly if you read the FDC's rule and company guidance. 0:13:01.760 --> 0:13:06.840 The FDC's intention is for it to apply to all workers, 0:13:07.040 --> 0:13:13.000 including employees, independent contractors, externs, interns, volunteers, really anyone who 0:13:13.080 --> 0:13:18.400 works for someone, whether paid or unpaid, with certain limited exceptions. 0:13:18.480 --> 0:13:22.439 And the rule is also intended to apply to all employers, 0:13:22.679 --> 0:13:26.040 regardless of size, regardless of whether they're private or public, 0:13:26.440 --> 0:13:29.840 really all people, partnership and companies that are within the 0:13:30.040 --> 0:13:35.320 SEC's jurisdiction. While there's an exception for senior executives with 0:13:35.400 --> 0:13:39.319 existing non competes, the FTC estimates, but that will apply 0:13:39.440 --> 0:13:41.520 to less than one percent of workers. 0:13:42.040 --> 0:13:45.440 President Biden and the Biden administration has been pushing for 0:13:45.600 --> 0:13:49.760 non competes, and we've heard a lot about the positive effects. 0:13:49.880 --> 0:13:52.200 I mean, what are the downsides of this ban? 0:13:52.720 --> 0:13:54.880 I think there's a lot of concern at the business 0:13:54.960 --> 0:13:59.960 level about how companies can continue to protect trade secrets, 0:14:00.280 --> 0:14:05.720 client goodwill, employee goodwill, their investment in human capital in 0:14:05.760 --> 0:14:11.000 the absence of noncompete. So that's certainly a concern. And 0:14:11.080 --> 0:14:14.800 you see that reference in the handful of legal challenges 0:14:15.400 --> 0:14:17.640 that have been filed for the rule so far, including 0:14:17.679 --> 0:14:20.560 by the US Chamber of Commerce. There are, of course 0:14:20.760 --> 0:14:25.280 other contractual and legal mechanisms to protect those sorts of interest, 0:14:25.480 --> 0:14:29.360 and the sec itself pointed out some of them, and 0:14:29.400 --> 0:14:31.400 so that's what a lot of the discussion and focus 0:14:31.400 --> 0:14:33.360 has down at the business level that I've been seeing. 0:14:33.800 --> 0:14:36.720 You mentioned the lawsuit the Chamber of Commerce and other 0:14:36.760 --> 0:14:40.640 business groups are suing explain the grounds for their lawsuit. 0:14:40.960 --> 0:14:45.280 So the US Chamber of Commerce has filed the lawsuit 0:14:45.400 --> 0:14:50.520 in federal court in Texas challenging the rule. They're asking 0:14:50.560 --> 0:14:54.080 the court to issue in order staying the rules effective, dates, 0:14:54.160 --> 0:14:58.320 in joining the FTC's enforcement of the rule, or both, 0:14:59.080 --> 0:15:03.520 and they've raised various arguments in support, including that the 0:15:03.600 --> 0:15:08.520 non compete exceeds the spc's statutory authority. They've argued that 0:15:08.560 --> 0:15:11.840 the STC doesn't have the authority to prohibit unfair methods 0:15:11.840 --> 0:15:15.840 of competition through rulemaking. They've also argued that the rule 0:15:15.960 --> 0:15:22.440 is unlawfully retroactive, and they've also taken issue with the 0:15:22.480 --> 0:15:26.840 evidence that the SPC has cited in support of the rule. 0:15:27.200 --> 0:15:31.120 The retroactivity point is interesting. I've seen as an employment 0:15:31.160 --> 0:15:34.320 litigator and advisor to companies that are looking at what 0:15:34.400 --> 0:15:37.480 this rule means for their business. A lot of discussions 0:15:37.480 --> 0:15:40.240 and focused on the retroactivity point. I will say that 0:15:40.320 --> 0:15:43.800 the rule, once effective, will apply not only to future 0:15:43.880 --> 0:15:47.440 non compete but also non competes already in existence as 0:15:47.440 --> 0:15:50.920 of the effective date. The rule says that pretty expressly. 0:15:51.320 --> 0:15:55.760 There is, however, an express carve out for claims that 0:15:55.880 --> 0:15:58.360 accrued before the effective date of the rule. So what 0:15:58.400 --> 0:16:01.200 that means is if a lawyer is alleging that a 0:16:01.280 --> 0:16:04.480 worker accepted employment in breach of a nine compete and 0:16:04.520 --> 0:16:06.760 the breach occurred before the effective date of the rule, 0:16:07.160 --> 0:16:10.000 that will be outside the scope of the rule. And 0:16:10.240 --> 0:16:12.200 because of that carve out, the FDC has said in 0:16:12.240 --> 0:16:15.720 the rulemaking guidance that they think that the rule is 0:16:15.760 --> 0:16:19.960 not impermissively retroactive, but you know, business groups in the 0:16:20.040 --> 0:16:21.760 Chamber of Commerce disagree. 0:16:22.120 --> 0:16:24.800 Is this a strong challenge to the ban? 0:16:25.520 --> 0:16:28.640 From what I've seen, a lot of practitioners in the 0:16:28.680 --> 0:16:33.560 space anticipate that there could be a stay or injunction 0:16:34.040 --> 0:16:37.760 of the rule tending these lawsuits, including the Chamber of 0:16:37.760 --> 0:16:43.440 Commerce's challenge, which could delay the rule out and timeline 0:16:43.720 --> 0:16:45.000 of compliance for the rule. 0:16:45.480 --> 0:16:48.000 I want to talk more about the rule. You know, 0:16:48.120 --> 0:16:51.080 we've had a story on Bloomberg that Wall Street traders 0:16:51.120 --> 0:16:54.280 and money managers could be in for disappointment if they're 0:16:54.320 --> 0:16:56.880 hoping that this rule will clear the way for them 0:16:56.960 --> 0:17:01.960 to go to higher paying competitors. Tell us about garden leaves. 0:17:02.480 --> 0:17:07.520 So there is express language in the rule that says 0:17:07.560 --> 0:17:10.600 that the rule does not apply to garden lease agreements. 0:17:10.720 --> 0:17:14.879 A garden leave agreement is essentially an agreement whereby the 0:17:14.920 --> 0:17:18.679 worker is still employed and still being paid for some 0:17:18.920 --> 0:17:23.000 period after they've given notice of resignation. So during that period, 0:17:23.000 --> 0:17:25.080 there's still an employee, they're still getting paid, they still 0:17:25.119 --> 0:17:28.960 have contractual and produciary duties. And the SEC has advised 0:17:28.960 --> 0:17:32.280 that that type of garden leave agreement is not an 0:17:32.320 --> 0:17:35.879 impermissible non compete under the rule. And that's because non 0:17:36.000 --> 0:17:39.679 competes really govern the period after your employment ends, whereas 0:17:39.800 --> 0:17:42.920 a garden leave agreement is not a post employment restriction. 0:17:43.680 --> 0:17:46.000 That is a period where you're still an employee. So 0:17:46.320 --> 0:17:49.720 for the bankers out there, to the extent their employer 0:17:49.800 --> 0:17:53.160 is covered and under FTC jurisdiction, and they're looking at 0:17:53.359 --> 0:17:56.399 garden leave arrangements those are expressly outside the scope of 0:17:56.400 --> 0:17:57.400 the non compete. 0:17:57.080 --> 0:18:00.720 Band have been litigated because it does seem like it's 0:18:00.840 --> 0:18:04.760 preventing a worker from going somewhere else. 0:18:05.440 --> 0:18:07.960 You know, it's an interesting question. It doesn't come up 0:18:07.960 --> 0:18:10.119 a lot. I do a lot of research of covenant 0:18:10.119 --> 0:18:14.240 litigation all over the country and contractual notice of termination 0:18:14.359 --> 0:18:16.959 periods where you have to say, you know, give sixty 0:18:17.040 --> 0:18:19.880 or ninety day notice that you're leaving, or garden leave 0:18:19.880 --> 0:18:23.320 agreements where you know your termination, your your resignation is 0:18:23.320 --> 0:18:26.679 not effective for some period. Those are not often litigated. 0:18:26.880 --> 0:18:31.040 I think there's a notion of fairness because employees are 0:18:31.080 --> 0:18:33.960 being paid to sit on the beach for that period 0:18:34.240 --> 0:18:39.119 and essentially cooperate with transition requirements, So those aren't litigated 0:18:39.280 --> 0:18:44.000 as frequently as post employment restrictions. That said, I think 0:18:44.040 --> 0:18:47.560 that you know, if an employee is inclined to say, 0:18:48.080 --> 0:18:50.719 I want my resignation to be effective immediately, I'm not 0:18:50.760 --> 0:18:54.439 going to accept compensations for my notice period or my 0:18:54.480 --> 0:18:56.880 garden leaf period. I want to get immediately to work. 0:18:57.320 --> 0:19:00.959 That could be an interesting question for adjudication court, but 0:19:01.000 --> 0:19:03.959 that doesn't come up very often in my practice. 0:19:04.880 --> 0:19:07.600 So yeah, they're paid to sit on the beach, not 0:19:07.640 --> 0:19:10.760 paid to sit in the garden. This name seems a 0:19:10.800 --> 0:19:13.399 little bit odd to me. Do you know where that 0:19:13.520 --> 0:19:14.240 name came from? 0:19:14.720 --> 0:19:17.240 My understanding has always been that it's a British concept. 0:19:17.400 --> 0:19:19.760 Okay, all right, they're sitting in the garden and we're 0:19:19.800 --> 0:19:24.000 sitting on the beach. Yeah, so this is a national 0:19:24.040 --> 0:19:27.840 band by the FTC. Some states also have bands, I 0:19:27.840 --> 0:19:30.320 mean do A lot of states have bands on non competes. 0:19:31.640 --> 0:19:34.879 A lot of states have restrict of covenant statutes, and 0:19:34.960 --> 0:19:38.840 that trend has been increasing over the years. Obviously, when 0:19:39.119 --> 0:19:41.919 you think about the state bans, the first state that 0:19:42.000 --> 0:19:46.040 comes to mind is California. They have probably the strongest 0:19:46.119 --> 0:19:50.600 language and their various statutes restricting post employment restrictions. But 0:19:50.680 --> 0:19:54.760 there are several other states that are relatively hostile to 0:19:55.320 --> 0:19:58.760 enforcing restrict of covenants. And then there are many other 0:19:58.880 --> 0:20:03.960 states that have some limits on research of covenance. For example, 0:20:04.080 --> 0:20:06.720 you know, states might ban them for low wage workers. 0:20:06.960 --> 0:20:09.680 In terms of how this rule interacts with state statutes 0:20:09.720 --> 0:20:13.560 and regulations, the rule doesn't limit or affect enforcement of 0:20:13.600 --> 0:20:16.800 state laws that restrict none competes, where those state laws 0:20:16.800 --> 0:20:21.080 don't conflict with the rule. However, if state laws do conflict, 0:20:21.760 --> 0:20:25.119 so for example, state laws permit none competes, then the 0:20:25.240 --> 0:20:27.800 FTC's rule would would preheunce them. 0:20:28.359 --> 0:20:33.399 Some have predicted that the FTC's nationwide ban will spur 0:20:33.760 --> 0:20:38.159 more states to pass laws limiting restrictive covenants. I mean, 0:20:38.160 --> 0:20:40.320 do you think that's likely. If there's a federal ban, 0:20:40.760 --> 0:20:42.760 why would the states need their own bans? 0:20:43.119 --> 0:20:46.200 I think that's right. I think states would only need 0:20:46.280 --> 0:20:50.680 to have legislation to the extent they're interested in, even 0:20:50.760 --> 0:20:54.399 broader restrictions than the FDC ban. The FDC ban, on 0:20:54.480 --> 0:20:58.040 its faces is pretty broad. I think that over the 0:20:58.119 --> 0:21:01.359 last few years you have seen growing interest at the 0:21:01.400 --> 0:21:06.520 state level in restrict of covenant limits, and this national 0:21:07.119 --> 0:21:09.560 rule that was supposed over a year ago has certainly, 0:21:10.040 --> 0:21:14.800 I think changed the tone of that discourse. That said, 0:21:14.880 --> 0:21:18.920 given the various legal challenges to the spc's rule and 0:21:19.359 --> 0:21:23.240 uncertainty about when it will go into effects and whether 0:21:23.280 --> 0:21:25.480 it will be stayed or enjoined by a court, could 0:21:25.520 --> 0:21:29.639 still you know, inspire states to take their own actions 0:21:29.680 --> 0:21:33.000 with respects to retrich of covenant limits or bans. 0:21:33.359 --> 0:21:37.760 So employers in states that don't have these bands in place. 0:21:38.680 --> 0:21:40.560 Do they have some time now, sort of like an 0:21:40.640 --> 0:21:44.280 interim time to still leave the non competes in and 0:21:44.359 --> 0:21:45.320 see what happens. 0:21:46.040 --> 0:21:48.680 Yeah, so the rule is not effective yet. The rule 0:21:48.760 --> 0:21:51.040 says that it will become effective one hundred and twenty 0:21:51.119 --> 0:21:54.200 days after it's published in the Federal Register, but as 0:21:54.240 --> 0:21:56.920 of now, it's not likely to take effects before September 0:21:56.920 --> 0:22:01.000 twenty twenty four. That means compliance isn't required until at 0:22:01.000 --> 0:22:04.359 the earliest September twenty twenty four. And has discussed that 0:22:04.440 --> 0:22:07.920 devine could get pushed as the results of court challenges. 0:22:08.160 --> 0:22:12.879 So in the meantime, companies do have time right now 0:22:13.040 --> 0:22:16.280 to assess the rule, talk to lawyers about what it 0:22:16.320 --> 0:22:20.040 does and doesn't require, consider how the rule might impact 0:22:20.160 --> 0:22:24.400 their business, do an assessment of workers with non compete 0:22:24.720 --> 0:22:26.800 workers that may or may not fall in the senior 0:22:26.800 --> 0:22:30.199 executive exception, and really start to plan for how they 0:22:30.240 --> 0:22:33.240 want to handle this going forward, how they might notify 0:22:33.359 --> 0:22:36.800 workers when and if it becomes effective, Whether they might 0:22:36.840 --> 0:22:41.760 want to incorporate alternative contractual mechanisms in their contracts with 0:22:41.880 --> 0:22:45.439 employees to protect trade secrets. Those are all things that 0:22:45.520 --> 0:22:48.719 I think employers should be thinking about right now as 0:22:48.800 --> 0:22:51.120 we approach the effective date over the summer. 0:22:51.200 --> 0:22:54.240 And we'll be watching to see if that judge in 0:22:54.320 --> 0:22:58.880 Texas issues of preliminary injunction stopping the rule from going 0:22:59.000 --> 0:23:03.399 to effect until the litigation is complete. Thanks so much, Kim. 0:23:03.760 --> 0:23:07.840 That's Kimberly Carson, a partner at Quinn Emmanuel. I'm June Grosso. 0:23:07.840 --> 0:23:11.400 When you're listening to Bloomberg. The jury in Donald Trump's 0:23:11.440 --> 0:23:15.119 hush money trial heard the most vivid testimony yet about 0:23:15.119 --> 0:23:18.840 payments to silence a former playboy playmate and an adult 0:23:18.880 --> 0:23:22.960 film star before the twenty sixteen election. Both claim to 0:23:23.000 --> 0:23:26.960 have had affairs with the billionaire developer. Los Angeles attorney 0:23:27.040 --> 0:23:30.280 Keith Davidson took the witness stand to recount how he 0:23:30.359 --> 0:23:34.000