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Trump vs Law Firms & Short-Seller Andrew Left's Trial · Bloomberg Law

0:02
Speaker 1: This is Bloomberg Law with June Grossel from Bloomberg Radio.
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Speaker 2: If you're counting, the score is law firms four, Trump
0:13
Speaker 2: Administration zero. You might remember President Trump's executive orders punishing
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Speaker 2: four law firms with connections to his perceived political enemies,
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Speaker 2: trying to restrict their lawyer's access to government buildings, to
0:29
Speaker 2: cancel their client's government contracts, and to revoke their lawyer's
0:33
Speaker 2: security clearances. Four lower courts struck down the orders as unconstitutional,
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Speaker 2: and if today's oral arguments at the DC Circuit are
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Speaker 2: any indication, the federal appeals court will hand another win
0:48
Speaker 2: to the law firms. My guest is former federal prosecutor
0:52
Speaker 2: James Pierce, senior counsel at the Washington Litigation Group. What's
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Speaker 2: at stake in this case before the DC Circuit Court,
1:01
Speaker 2: I mean.
1:01
Speaker 1: I think, concisely put, it was whether the current administration
1:06
Speaker 1: could attack law firms, essentially retaliate against law firms based
1:12
Speaker 1: on the president's conclusion that those law firms had almost
1:16
Speaker 1: provided safe harbor to individuals the president considered to be
1:19
Speaker 1: his adversaries. And so beyond that, beyond just the four
1:23
Speaker 1: law firms involved, I think there were a much broader
1:26
Speaker 1: concern about the chilling effect on the legal profession, and
1:29
Speaker 1: then even beyond the idea of the legal profession, as
1:32
Speaker 1: one of the briefs in the case I think squarely
1:34
Speaker 1: tied up the ability of courts to get the best,
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Speaker 1: most zealous advocacy that they could in court cases, which
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Speaker 1: of course affects all of us who may at some
1:43
Speaker 1: point in our lives need legal representation.
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Speaker 2: Was the law firms argument essentially based on the First Amendment.
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Speaker 1: Yes, I mean there's a little bit of a coveyat
1:53
Speaker 1: I should provide here. The law firms argument was that
1:57
Speaker 1: these executive orders targeted them in violation of the First
2:01
Speaker 1: Amendment as well the six Amendment, which provides a right
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Speaker 1: to council and separation of powers concerns. The focus of
2:08
Speaker 1: the argument today was actually not as much on a
2:12
Speaker 1: lot of the parts of the executive orders that restricted
2:15
Speaker 1: access to federal contracting or access to federal buildings. A
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Speaker 1: lot of it was on the stripping of security clearances,
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Speaker 1: which again is that I think a consequence of First
2:26
Speaker 1: Amendment retaliatory targeting. But there was a lot of question
2:29
Speaker 1: about what role, if any, do courts have in reviewing
2:33
Speaker 1: sort of a justiciability question reviewing a president's determination of
2:37
Speaker 1: whether individuals should get access to or should hold security clearances.
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Speaker 2: The law firms were represented by Paul Clement, former Solicitor General.
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Speaker 2: I mean, what was his basic argument and how was
2:48
Speaker 2: it received.
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Speaker 1: He began his argument by making what I thought was
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Speaker 1: the rhetorically powerful point that the executive orders violate quote,
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Speaker 1: the better part of the Bill of Rights, alluding to
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Speaker 1: what I have already mentioned, the First Amendment, the sixth Amendment,
3:03
Speaker 1: right to counsel, separation of powers. And there weren't a
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Speaker 1: lot of questions until towards the end of his argument
3:08
Speaker 1: because a lot of the focus was on the operation
3:11
Speaker 1: of security clearances, again, which I actually took to be
3:14
Speaker 1: a good sign for Paul Clement and for the law
3:17
Speaker 1: firms that he's representing, because it suggests to me that
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Speaker 1: the appellate judges had many of the same reservations that
3:24
Speaker 1: led the district court judges to rule for the law firms.
3:27
Speaker 1: But we're focusing on a much more narrow question, which
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Speaker 1: is this security clearance question doesn't mean for sure that
3:32
Speaker 1: the panel will rule for the law firms. But if
3:34
Speaker 1: I were the law firms, and if I were Paul Clement,
3:37
Speaker 1: I would feel pretty good coming out of the argument today.
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Speaker 2: What was the government's response, And when it comes to
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Speaker 2: national security, isn't that usually an executive branch function?
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Speaker 1: Yes, So the government had consistently said, the determination of
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Speaker 1: whether any individuals, let alone whether they're lawyers at a
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Speaker 1: law firm, of whether that individual can hold a security
4:00
Speaker 1: clearance is a decision that is entrusted entirely to the
4:03
Speaker 1: executive branch, and more specifically to the president. And the
4:06
Speaker 1: president can do that for whatever reason, or frankly, for
4:09
Speaker 1: no reason at all. And they were hypotheticals that the
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Speaker 1: government got that were things like, look if the president said,
4:15
Speaker 1: I don't trust Chinese Americans, Asian Americans, African Americans, and
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Speaker 1: even though I don't think that these individuals would jeopardize
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Speaker 1: classified information, I just don't like them, and therefore I
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Speaker 1: determined they cannot have security clearances. Could courts really have
4:30
Speaker 1: no way to get involved? And the government's answer was yes,
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Speaker 1: courts have nothing to say there because questions of national
4:38
Speaker 1: security are entirely entrusted to the president. Now that's I
4:43
Speaker 1: think a quite troubling answer for a lot of reasons,
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Speaker 1: and one that Paul Clement pushed back on. But at
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Speaker 1: the end of the day, the government had very little
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Speaker 1: to say on a lot of the other parts of
4:53
Speaker 1: the executive order, like again the restrictions on federal contracting,
4:57
Speaker 1: the restrictions on access to federal buildings. There was a
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Speaker 1: brief argument to say, look, law firms are just involved
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Speaker 1: in business and business type of relationships don't implicate the
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Speaker 1: First Amendment, but that occupied a very small part of
5:09
Speaker 1: the government's argument today in its brief and candidly, I
5:13
Speaker 1: don't think the government quite had its heart in it,
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Speaker 1: and I would not expect it's to prevail on those grounds.
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Speaker 2: Was there a question of whether the executive orders were
5:21
Speaker 2: retaliatory in nature.
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Speaker 1: The government didn't outright concede that the orders were retaliatory.
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Speaker 1: And the way this sort of took shape in terms
5:30
Speaker 1: of how the case was argued is that the executive
5:32
Speaker 1: orders consisted of five sections, and the first section of
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Speaker 1: each of the orders, that there were four orders against
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Speaker 1: the four different law firms, was basically kind of the
5:41
Speaker 1: setting out of the purpose of why that particular law
5:44
Speaker 1: firm had come into focus for the executive branch and
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Speaker 1: for the president. You know, whether it was associations with
5:51
Speaker 1: Robert Muller or Andrew Weissman or other individuals deemed political adversaries,
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Speaker 1: and there was some jousting about whether the hearts of
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Speaker 1: the executive order that did things like strip security clearances
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Speaker 1: and limit access should or could be read without reference
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Speaker 1: to that first section, the section that kind of laid
6:09
Speaker 1: out what was It's hard to see anything other than
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Speaker 1: a retaliatory focus, and so the government was arguing that
6:16
Speaker 1: the courts should sever it out, should consider it, which
6:20
Speaker 1: again is not an explicit concession that it was retaliatory,
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Speaker 1: but I think there were certainly the acknowledgment or the
6:25
Speaker 1: recognition underneath it, and the district courts had all consistently
6:29
Speaker 1: found that these were retaliatory orders and that the first
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Speaker 1: section of the executive orders in each of them.
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Speaker 2: The law firms won all four cases in the lower courts.
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Speaker 1: Yes, that's right, Wilmer, Hale, Perkins, Cooey, Susman, Godfried, and
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Speaker 1: gener and Block. Four different judges all in the District
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Speaker 1: of Columbia. Slight differences in the nature of the injunctions
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Speaker 1: blocking the executive orders, but the law firms prevailed in
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Speaker 1: all four of those cases.
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Speaker 2: Having lost four times. Did the Justice Department change its
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Speaker 2: argument in any way from the lower court arguments?
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Speaker 1: The short answers know, there was certainly a change in
7:04
Speaker 1: how they emphasized or really what they emphasized. As I mentioned,
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Speaker 1: I think already they really placed a lot more emphasis
7:10
Speaker 1: on security clearances when the case was up on an appeal.
7:14
Speaker 1: And then, as you may know, the government noticed an appeal,
7:17
Speaker 1: and then shortly before its appellate brief was due it
7:21
Speaker 1: had to file the first brief. As the party lodging
7:24
Speaker 1: the appeal, it actually moved filed a motion to dismiss
7:26
Speaker 1: the appeal, to say it was abandoning its arguments. And
7:29
Speaker 1: then maybe a day or two later, and with some
7:31
Speaker 1: public statements potentially brought the President and others in the
7:35
Speaker 1: White House I think may be Stephen Miller, the government
7:37
Speaker 1: reverse course and said, no, no, just kidding, we actually
7:39
Speaker 1: do on an appeal, which is extremely unusual. I spent
7:42
Speaker 1: over a decade in the Justice Department, and I've never
7:45
Speaker 1: never heard of anything like that or had colleagues that
7:48
Speaker 1: I had spoken with. So to me, that suggested a
7:51
Speaker 1: real lukewarm approach to this appeal. And as I said,
7:56
Speaker 1: no real change in the substance, but some change in
7:58
Speaker 1: the emphasis of the.
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Speaker 2: Arguments practice speak. If an administration cuts off security clearance
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Speaker 2: of someone, I mean, are there procedures they have to follow.
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Speaker 1: Another case argued today of a specific lawyer, an individual
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Speaker 1: named Mark Zaid whose security clearance was revoked and he
8:17
Speaker 1: was arguing that that too was unlawful, and he prevailed
8:20
Speaker 1: in front of a district court. I only got a
8:22
Speaker 1: chance to hear some of that argument, but channeling some
8:24
Speaker 1: of what came out during the law firms argument, the
8:27
Speaker 1: judges were more skeptical of kind of a blanket suspension
8:33
Speaker 1: of security clearances on the basis of association, and that also,
8:37
Speaker 1: I think led to the hypotheticals about for all Asian
8:40
Speaker 1: Americans right, but for individualized treatment or individualized assessment. The government,
8:47
Speaker 1: in its argument today and in the briefs have talked
8:49
Speaker 1: about how there's a thirteen factor test that is tip
8:52
Speaker 1: in the ordinary process is considered you know, sort of trustworthiness,
8:55
Speaker 1: other aspects. So there is a process. It's a bit
8:58
Speaker 1: of an open question in the Mark Ai case, will
9:01
Speaker 1: I think, certainly go some ways towards resolving the extent
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Speaker 1: to which courts ken second guess an executive branch determination
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Speaker 1: that is done on a at least putatively individualized basis.
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Speaker 2: The panel consisted of two Obama appointees and one Trump appointee.
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Speaker 2: Did it seem like the Trump appointee was more receptive
9:21
Speaker 2: to the government's arguments, not on.
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Speaker 1: The overall outcome, I mean my sense coming out of
9:27
Speaker 1: the argument. So there were the three judges, Chief Judge Schwinavasen,
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Speaker 1: Judge Pillard, and then Judge Raw. Judge Row being an
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Speaker 1: appointee of President Trump from his first administration, and Judge
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Speaker 1: Row did raise some questions about the scope of Paul
9:45
Speaker 1: Clement's arguments because he was arguing that anytime there's a
9:50
Speaker 1: non individualized determination of security clearances, it should be justiciable,
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Speaker 1: and I think Judge Row was pushing back on that
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Speaker 1: in some respects. And in another point, Judge Row asked
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Speaker 1: the government, if we disagree with you on your top
10:04
Speaker 1: line position that the security clearances or the other provisions
10:08
Speaker 1: can be decided by court, you didn't raise any challenge
10:10
Speaker 1: about the scope of the injunction, which to me suggested
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Speaker 1: Judge Row may have thought the district courts went a
10:15
Speaker 1: bit too far in what they disallowed. The Executive branch
10:20
Speaker 1: to do. But then Judge Row quickly followed up and said,
10:22
Speaker 1: but Government, I don't see anywhere in your brief that
10:25
Speaker 1: you have addressed that. And Judge Row, in other cases
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Speaker 1: I think has been more favorable towards the current administration.
10:32
Speaker 1: I didn't read her, or or understand her to be
10:34
Speaker 1: pressing those arguments than the way she has in the past.
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Speaker 1: So I'd be surprised if she might write separately on
10:40
Speaker 1: sort of some particular points. But coming out of argument,
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Speaker 1: I would be surprised if she broke from the other
10:45
Speaker 1: two who did seem quite skeptical of the government's position.
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Speaker 2: So you came away with a definite feeling that the
10:52
Speaker 2: government is going to lose again here.
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Speaker 1: I did come out with that feeling. I could see,
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Speaker 1: as I said, Judge Row writing separately on some particular points.
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Speaker 1: Actually think that there's a good chance that all three
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Speaker 1: of them end up voting to uphold the District Court's
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Speaker 1: rulings for the law firms.
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Speaker 2: Thanks so much for joining me today. That's James Pierce
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Speaker 2: of the Washington Litigation Group coming up next on the
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Speaker 2: Bloomberg Law Show. A prominent player in the world of
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Speaker 2: short selling, activists is on trial in Los Angeles for
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Speaker 2: market manipulation. I'm June Grasso and this is Bloomberg. Andrew
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Speaker 2: Left is one of the most prominent players in the
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Speaker 2: world of short selling activists, sometimes called the bounty hunter
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Speaker 2: of Wall Street, with his viral posts and reports, often
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Speaker 2: claiming firms are overvalued or engaged in fraud, and hyping
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Speaker 2: his positions with frequent appearances on financial TV shows. But
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Speaker 2: now Left is appearing in a courtroom in Los Angeles
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Speaker 2: where he's being tried for using explosive social media posts
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Speaker 2: about dozens of companies to illegally move their stock and
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Speaker 2: make a quick profit. The fifty five year old denies
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Speaker 2: misleading investors. My guest is securities law expert James Park,
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Speaker 2: a professor at UCLA Law School. Jim, give us a
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Speaker 2: picture of who Andrew Left is.
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Speaker 3: He started out by publishing research reports on companies through
12:21
Speaker 3: his platform Citrin Research, often making negative recommendations. I think
12:27
Speaker 3: he's mainly known for correctly identifying problems at a company
12:31
Speaker 3: called Valiant Pharmaceuticals that you may remember from a while ago,
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Speaker 3: a company that engaged in questionable practices with respect to
12:40
Speaker 3: recognizing sales and so you know, he published a report
12:44
Speaker 3: identifying some of the questionable practices. He also came up,
12:48
Speaker 3: interestingly in the game Stop Saga from a few years ago,
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Speaker 3: where he had taken a short position I believe in
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Speaker 3: the company and retail investors basically rallied on Red to
13:00
Speaker 3: squeeze the shorts. And so those are a couple places
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Speaker 3: where he's come up, and you know, with those successes,
13:06
Speaker 3: he's gained a high profile. You know, he makes recommendations
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Speaker 3: with respect to companies, emails them out, has an online
13:15
Speaker 3: platform as using social media a lot, is frequently invited
13:19
Speaker 3: on various shows, and has a lot of medium appearances.
13:23
Speaker 3: And so he's somebody with a higher profile than most
13:26
Speaker 3: folks who are doing research and you know, taking short
13:30
Speaker 3: positions potentially in companies.
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Speaker 2: The government is accusing him of manipulating the stock market.
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Speaker 2: Tell us about the charges here.
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Speaker 3: He was indicted for various counts of securities fraud, manipulation
13:43
Speaker 3: and fraud. More generally, the manipulation argument is that he
13:48
Speaker 3: would basically establish positions in a stock whether it was
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Speaker 3: long or short, issue a recommendation with respect to that position,
13:58
Speaker 3: which he would disseminate to the public, presumably according to
14:04
Speaker 3: the prosecutors with the intent to either inflate or deflate
14:08
Speaker 3: the stock given his high profile, and then he would
14:11
Speaker 3: quickly reverse his position. And I think the argument there
14:15
Speaker 3: is that that shows he did not believe his recommendation,
14:19
Speaker 3: that he was issuing these recommendations to artificially manipulate the
14:25
Speaker 3: price of these stocks, and that his actions, which often
14:30
Speaker 3: came very soon after the recommendation, indicated that he did
14:34
Speaker 3: not sincerely believe, you know, his recommendation that you should
14:38
Speaker 3: buy the stock or sell the stock, because he was
14:40
Speaker 3: doing the reverse. And you know, there might have been
14:43
Speaker 3: a dozen or so of these transactions, maybe more that
14:47
Speaker 3: the prosecutors alleged he profited by around twenty million dollars
14:51
Speaker 3: through this market manipulation.
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Speaker 2: So the opening statements, the prosecutor said he said whatever
14:57
Speaker 2: he had to, whether it was accurate or not, to
14:59
Speaker 2: get a mo market reaction, because that's what he was
15:02
Speaker 2: looking for, to generate a market reaction, to generate panic,
15:06
Speaker 2: Whereas Left's attorney said that he genuinely believed in his
15:10
Speaker 2: stock calls quote, he tells the public what he believes
15:13
Speaker 2: the truth, and then he trades on the truth to
15:16
Speaker 2: make a profit. It's not fraud, that's trading. I mean,
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Speaker 2: does the prosecution have to prove that he didn't believe
15:23
Speaker 2: what he was saying or more than.
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Speaker 3: That, I think that's fair that he didn't believe his opinions,
15:29
Speaker 3: the opinions that he issued. Opinions can be false. That
15:33
Speaker 3: if you do not believe in the opinion, then it's
15:35
Speaker 3: it's false, and that can be the basis for securities
15:40
Speaker 3: fraud claim. And you know, I think that's essentially what
15:44
Speaker 3: the prosecution has to show with a high level of certainty,
15:48
Speaker 3: because it is a criminal case beyond a reasonable doubt,
15:52
Speaker 3: that you know, he intentionally issued information that he knew
15:57
Speaker 3: was not true and he was doing that with the
15:59
Speaker 3: motivation into profit. That's basically what the prosecution is going
16:03
Speaker 3: to have to show at trial.
16:05
Speaker 2: Is this an aggressive legal theory for the prosecution? Is
16:09
Speaker 2: it an uphill battle for prosecutors to.
16:11
Speaker 3: Prove this it's not a commonly prosecuted fact pattern. I
16:17
Speaker 3: think that's fair to say. You know, do the prosecutors
16:20
Speaker 3: have a very well developed case? I think they have
16:23
Speaker 3: a lot of evidence, right, They have a lot of
16:26
Speaker 3: evidence about not only his recommendations, of course, which are public,
16:30
Speaker 3: but what he did and there is you know, some
16:34
Speaker 3: email evidence that could be interpreted in a way that
16:38
Speaker 3: the jury might be able to conclude that you know,
16:41
Speaker 3: he knew that the information was false. Now that that's
16:43
Speaker 3: up to the jury, and emails have a lot of
16:46
Speaker 3: ways that they can be interpreted.
16:48
Speaker 1: You know.
16:49
Speaker 3: Market manipulation cases are are tough, right, It's tough to
16:53
Speaker 3: prove the intent because a lot of the actions that
16:58
Speaker 3: could potentially be manipulate relative you know, maybe motivated by
17:03
Speaker 3: legitimate reason. You know, he may legitimately believe part of
17:07
Speaker 3: his recommendations, some of his recommendations, you know, maybe he
17:10
Speaker 3: changed his mind right very soon after. And so, you know,
17:14
Speaker 3: market manipulation is challenging. We've talked, you know a few
17:17
Speaker 3: years ago about the Bill Huang case. That's one where
17:20
Speaker 3: I noted that it's hard to establish manipulation, and the
17:23
Speaker 3: prosecution did in that case. And so I think that
17:27
Speaker 3: the cases is novel and interesting because you know, manipulation
17:32
Speaker 3: is not prosecuted as much as say insider trading, for example.
17:36
Speaker 3: It's it's a little bit more straightforward. When I've taken
17:38
Speaker 3: non public information, I'm an insider, I trade on it.
17:42
Speaker 3: That is usually more straightforward than a situation where somebody
17:46
Speaker 3: is is engaging in various training activity and around recommendations
17:51
Speaker 3: that they've issued, And so I think it's just less
17:54
Speaker 3: common to bring cases like this.
17:56
Speaker 2: So one of the witnesses for the prosecution was this
18:00
Speaker 2: CEO of the cannabis company Kronos Group, Mike Gorenstein, and
18:04
Speaker 2: he testified how Kronos was thrown into chaos after Left's
18:09
Speaker 2: citron Research published and tweeted a negative report, the tweet
18:15
Speaker 2: which said Kronos was quote all hype with possible securities fraud.
18:20
Speaker 2: And then the prosecutor said, shortly after the tweet, around
18:24
Speaker 2: twenty four minutes, according to the indictment, Left started closing
18:28
Speaker 2: out his short position. Obviously, Left does not have to
18:31
Speaker 2: take the stand in his own defense, no defendant does.
18:35
Speaker 2: But without taking the stand, how will he be able
18:38
Speaker 2: to explain what was going on there in those twenty
18:41
Speaker 2: four minutes?
18:42
Speaker 3: Yeah, I don't know how his operation works, whether he
18:44
Speaker 3: does all the research himself or whether there's somebody else
18:47
Speaker 3: who does that. I think that, you know, ideally he
18:50
Speaker 3: would explain, you know, what was my basis for making
18:53
Speaker 3: this this statement about this company? What did I look
18:57
Speaker 3: at and why did I quickly close out the position.
19:00
Speaker 3: I think that's also a question that could be asked,
19:04
Speaker 3: and it might be difficult to establish that without the
19:09
Speaker 3: person who's making the recommendation taking the stand.
19:13
Speaker 2: Stay with me, Jim. Coming up next on the Bloomberg
19:15
Speaker 2: Laws Show, I'll continue this conversation with UCLA law professor
19:19
Speaker 2: James Park. Is this trial a reckoning for short sellers?
19:24
Speaker 2: I'm June Grosso and you're listening to Bloomberg. A trial
19:29
Speaker 2: in Los Angeles is putting a spotlight on the short
19:33
Speaker 2: selling industry. Andrew Left is one of the most prominent
19:36
Speaker 2: players and is accused of using explosive social media posts
19:41
Speaker 2: about dozens of companies to illegally move their stock and
19:45
Speaker 2: make a quick profit. He denies any wrongdoing. I've been
19:49
Speaker 2: talking to Professor James Park of UCLA Law School. Jim,
19:53
Speaker 2: I've been reading some headlines that say is short selling
19:57
Speaker 2: facing a reckoning referring to this trial. Do you think
20:01
Speaker 2: it is?
20:01
Speaker 3: I don't think so. You know, some of the transactions
20:04
Speaker 3: were long positions. Now you know, he is maybe known
20:09
Speaker 3: as a short seller, but he does make long recommendations
20:12
Speaker 3: as well. There's a Facebook transaction where he says it's
20:15
Speaker 3: going to one hundreds of sixty dollars a share, and
20:17
Speaker 3: he sells out it much much less than that after
20:20
Speaker 3: the price goes up, and so, you know, you might
20:23
Speaker 3: think of it as more perhaps a case involving the
20:27
Speaker 3: use of social media, the use of kind of online recommendations.
20:32
Speaker 3: Is that the place where you could have a bit
20:35
Speaker 3: of a chilling effect, And so I think you might
20:38
Speaker 3: even think of the case a bit broader than it
20:41
Speaker 3: being about, you know, somebody who is specifically selling companies
20:45
Speaker 3: short and making allegations that the price should go down.
20:48
Speaker 3: I think it's a bit broader than that. It is
20:50
Speaker 3: the combination of you know, do short sellers sometimes use
20:53
Speaker 3: social media? Sure, I don't know that they do that
20:56
Speaker 3: to the extent that mister Left did, And that might
20:59
Speaker 3: be kind of what the case ultimately is about, is
21:02
Speaker 3: that technology has you know, made it difficult to regulate
21:06
Speaker 3: conduct that might manipulate markets, because before social media you
21:10
Speaker 3: couldn't move a stock price like this, But now you know,
21:13
Speaker 3: there's some individuals who can.
21:15
Speaker 2: Just the indictment of Left sort of spooked the short
21:20
Speaker 2: selling industry. His indictment is the culmination of an investigation
21:26
Speaker 2: of short sellers by criminal prosecutors in DCN Los Angeles.
21:32
Speaker 2: That started in twenty nineteen, so short sellers were aware
21:36
Speaker 2: of the prosecutorial scrutiny. Some of Leff's biggest competitors have
21:40
Speaker 2: already exited the market, some came out with more detailed,
21:45
Speaker 2: longer disclaimers. Has the industry cleaned itself up a bit?
21:50
Speaker 3: No, I think it's it's tough being a short seller.
21:53
Speaker 3: It's always been tough. Nobody likes you. And you know,
21:55
Speaker 3: there's long been scrutiny of short sellers and their statements.
21:59
Speaker 3: You know one that in mind. You know, Bill Ackman
22:01
Speaker 3: years ago, like in the early two thousands, was investigated
22:05
Speaker 3: by the New York Attorney General's Office and maybe the
22:08
Speaker 3: SEC about about a report he published about a company
22:11
Speaker 3: called Mbia. And you know, I think that short sellers
22:16
Speaker 3: that are sophisticated should know that their statements are going
22:19
Speaker 3: to be scrutinized and that they cannot release information or
22:23
Speaker 3: facts that they know are false. That's part of the
22:26
Speaker 3: business right is that you're violating Rule ten B five
22:29
Speaker 3: if you issue false information relating to the purchaser sale
22:33
Speaker 3: of a security. Probably some other state law theories as well,
22:38
Speaker 3: And so there's always been scrutiny. Taking it to a
22:42
Speaker 3: criminal level, I think though, does raise some additional reason
22:47
Speaker 3: to be cautious with these types of statements. So I
22:50
Speaker 3: think that in that regard, you know, when you have
22:53
Speaker 3: a criminal case that really gets people's attention. And he
22:56
Speaker 3: is known primarily as somebody who recommends short positions, has
22:59
Speaker 3: taken positions. He's an activist investor, and so I think
23:04
Speaker 3: that's right that it is something that activist short investors
23:08
Speaker 3: will be aware of.
23:09
Speaker 2: Prosecutors have focused on the stocks of a few companies
23:14
Speaker 2: that they say Left tweeted about and then trade it
23:16
Speaker 2: on the social media site formerly known as Twitter, and
23:20
Speaker 2: Chronos Group, a cannabis company, and prosecutors have called stock
23:25
Speaker 2: analysts who disagreed with the negative reports that left issued,
23:31
Speaker 2: and on cross examination, the defenses point seems to be
23:34
Speaker 2: that disagreement over stock doesn't necessarily constitute fraud, which is true.
23:40
Speaker 2: But it's more than disagreement, isn't it. It's whether you misrepresent.
23:45
Speaker 3: Yeah, I think the analyst recommendation or the analysts testimony
23:48
Speaker 3: is probably serving as a baseline. You know, this is
23:51
Speaker 3: kind of the these are the facts that were out there,
23:55
Speaker 3: and you know, without specific facts kind of contradition that
24:00
Speaker 3: if you're just kind of saying this stuff without any
24:04
Speaker 3: basis and you're only doing it to manipulate the stock price,
24:07
Speaker 3: that that's going to be problematic. So you're right, disagreement
24:10
Speaker 3: is not broad. People have the ability to disagree. But
24:14
Speaker 3: I think it shows the context of how the stock
24:17
Speaker 3: was understood and if you are deliberately issuing false information
24:22
Speaker 3: that that is essentially what the case is is about.
24:25
Speaker 3: But the testimony by the stock analyst by itself is
24:28
Speaker 3: not going to be able to establish that these statements
24:30
Speaker 3: were false, that he knew that they were false.
24:33
Speaker 2: This was a prosecution that was brought during the Biden
24:36
Speaker 2: administration and the Trump administration has dropped a lot of
24:39
Speaker 2: those and you know, dropped really the concentration on white
24:43
Speaker 2: collar crime. Is there any reason you think why they
24:46
Speaker 2: kept this case you and not know the answer, I'm
24:48
Speaker 2: just like querying.
24:50
Speaker 3: Yeah, it's a very interesting question, and it's not been
24:54
Speaker 3: so transparent as to how they're making decisions. That that's
24:57
Speaker 3: true in any administration, right, prosecutors will make decisions based
25:00
Speaker 3: upon their evaluation of the case and the evidence involved.
25:04
Speaker 3: And one possibility is, hey, we think this is a
25:07
Speaker 3: good case. We think the evidence is strong. We think that,
25:11
Speaker 3: you know, this is a good case that you know,
25:13
Speaker 3: and that he should be punished. I think that's one
25:15
Speaker 3: view of the reason the case is going forward. You know,
25:19
Speaker 3: is there another view that kind of feeds into the
25:22
Speaker 3: narrative of well, you know, maybe you know short sellers
25:26
Speaker 3: are bad for corporate interests or big companies, and so
25:31
Speaker 3: we might view them unfavorably for some political reason, you know,
25:36
Speaker 3: Is that somewhere in the background. It could be I
25:39
Speaker 3: don't really know much. And it's also very possible that
25:41
Speaker 3: this has just not drawn the attention of the folks
25:44
Speaker 3: in Washington, that it's it's really a case that the
25:47
Speaker 3: US Attorney's office here brought and is simply proceeding.
25:52
Speaker 2: Well, you're here, I want to ask you about another case.
25:55
Speaker 2: According to Bloomberg sources, US authorities are moving to result
26:00
Speaker 2: of the fraud chargers against Indian billionaire got Tom A
26:04
Speaker 2: Donnie and in this criminal case that's hung over his
26:08
Speaker 2: head for more than a year. A. Donnie is also
26:11
Speaker 2: in talks over a potential fifteen to twenty million dollars
26:15
Speaker 2: settlement of a civil fraud case that the securities and
26:18
Speaker 2: Exchange Commission brought against him and others in November of
26:23
Speaker 2: twenty twenty four. Again, according to sources, is this just
26:26
Speaker 2: another white collar case they're dropping.
26:29
Speaker 3: I think it's fair to say that this administration views
26:33
Speaker 3: the Foreign corupt Practices Act differently than the last administration.
26:36
Speaker 3: The Foreign Corrupt Practices Act prohibits publicly traded companies in
26:40
Speaker 3: the US from paying bribes overseas to get business. And
26:47
Speaker 3: my understanding of the allegation years that the company was
26:50
Speaker 3: building some clean energy projects in India paid a lot
26:54
Speaker 3: of bribes and that was the prosecution for violating the
26:58
Speaker 3: Foreign corupt Practices Act, as well as some disclosure issues
27:01
Speaker 3: that you claim to be a socially responsible company, but
27:05
Speaker 3: you are paying bribes, right, so that's a securities law
27:08
Speaker 3: violation as well. And you know, I think on both
27:12
Speaker 3: theories that this administration is just more skeptical about enforcing
27:17
Speaker 3: the Foreign Corrupt Practices Act. It's you know, it's hard
27:21
Speaker 3: to define what a bribe is. And you know, some
27:24
Speaker 3: may say, more broadly, are we disadvantaging companies that you know,
27:29
Speaker 3: have US ties by not allowing them to compete for
27:33
Speaker 3: business and foreign jurisdictions? And certainly just sort of the
27:37
Speaker 3: claim that there is a misrepresentation with respect an ESG
27:41
Speaker 3: matter is something that this this administration has done a
27:44
Speaker 3: one to eighty from the last. So I think there
27:46
Speaker 3: are a lot of reasons why we might speculate that
27:48
Speaker 3: the case was dropped. And also there may be some
27:50
Speaker 3: jurisdictional issues in terms of getting personal jurisdiction over some
27:54
Speaker 3: of the individuals, so and so there may be a
27:57
Speaker 3: number of reasons.
27:58
Speaker 2: You may be right about that, because none of the defendants,
28:01
Speaker 2: including a Donnie and his nephew, have appeared in court
28:05
Speaker 2: so far over the charges, so the case has been
28:09
Speaker 2: effectively stalled. Thanks so much for your insights, Jim. That's
28:13
Speaker 2: Professor James Park of UCLA Law School, and that's it
28:17
Speaker 2: for this edition of The Bloomberg Law Show. Remember you
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