Latest / Bloomberg Law / Tom Girardi Fraud Trial & Trump's Crypto Promise

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Tom Girardi Fraud Trial & Trump's Crypto Promise · Bloomberg Law

0:00
Speaker 1: Here's the lyft, and only if you find all the
0:02
Speaker 1: evidence to back this up, I'll do it. I'll take
0:04
Speaker 1: it on all right, than mister master, Yeah, remind me
0:10
Speaker 1: of that, But I'm filing for bankruptcy.
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Speaker 2: First, there was the Oscar winning legal drama Aaron Brockovich
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Speaker 2: that catapulted the already successful lawyer Thomas Girardi into the
0:21
Speaker 2: national limelight. That was back in two thousand. Then in
0:25
Speaker 2: twenty fifteen.
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Speaker 3: This season on the Real Housewives of Beverly Hills.
0:29
Speaker 2: There was his wife, Erica Jane, becoming one of the
0:33
Speaker 2: Real Housewives of Beverly Hills with her ostentatious displays of
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Speaker 2: wealth even for a real housewife. Now, that lavish lifestyle,
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Speaker 2: including the mansion in Pasadena, two private jets, luxury cars,
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Speaker 2: extravagant jewelry, and exclusive golf clubs, is part of the
0:51
Speaker 2: prosecution's case against the eighty five year old Girardi. He's
0:55
Speaker 2: charged with four counts of wire fraud for allegedly stealing
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Speaker 2: fifteen million dollars in settlement funds that were supposed to
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Speaker 2: go to his clients to support that extravagant lifestyle. Girardi's
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Speaker 2: lawyers blamed the law firm CFO, saying he stole millions
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Speaker 2: of dollars in the course of a decade. Joining me
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Speaker 2: is former federal prosecutor Augustina Rosco, a partner at Crowl
1:19
Speaker 2: and Mooring. What was Thomas Girardi's reputation before this all
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Speaker 2: came out.
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Speaker 1: Yeah, you know, Tom Girardi was a big name in
1:29
Speaker 1: the Los Angeles legal market. You know, I went to
1:34
Speaker 1: Liola Law School and there were buildings named after him.
1:37
Speaker 1: You know, you often saw his law firm sponsoring a
1:40
Speaker 1: number of events. He usually saw him at a number
1:43
Speaker 1: of networking events around Los Angeles. You know, everyone knew
1:47
Speaker 1: who he was. Obviously, his reputation precedes him with the
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Speaker 1: Aaron Brockovich movie and so, you know, it was hard
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Speaker 1: to be an attorney in Los Angeles and I know
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Speaker 1: who Thomas Girardi was.
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Speaker 2: When did these allegations of unethical conduct start to come out?
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Speaker 1: I think a lot of it started with the Chicago
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Speaker 1: case that came out a couple of years ago. I
2:09
Speaker 1: think the Chicago and Diamond was the first time people
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Speaker 1: really started hearing about the misdeeds of Girardi and his
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Speaker 1: law firm, and things trickled down from there. You had
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Speaker 1: the state bar allegation and then you had the endicatment
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Speaker 1: out of the Central District, California. But memory serves me correct.
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Speaker 3: It was the.
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Speaker 1: Chicago case that really started the public public knowledge of
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Speaker 1: his legal issues.
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Speaker 4: Yeah.
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Speaker 2: In the Chicago case, he's charged with stealing millions in
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Speaker 2: settlement awards from Boeing to families of a plane crash
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Speaker 2: that killed one hundred and eighty nine people. What is
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Speaker 2: he being tried for?
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Speaker 1: In Los Angeles, Dom Girardi is being prosecuted for wire fraud.
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Speaker 1: And what wirefraud is. It's a statute essentially that criminalized
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Speaker 1: this conduct when you defraud a victim an individual company
3:00
Speaker 1: while using interstate wires. And what it does essentially is
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Speaker 1: it says, did this defendant, did the person being accused
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Speaker 1: of this crime make a misrepresentation or omission to the
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Speaker 1: victim in order to deprive the victim of money or property?
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Speaker 1: And did they use interstate wires in the process. And
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Speaker 1: the wires really is just the jurisdictional hook. Really, the
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Speaker 1: meat of it is, did you make an intentional misrepresentation
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Speaker 1: in order to steal money from this other person?
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Speaker 2: And tell me about the allegations that he was using
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Speaker 2: his client's trust accounts and giving them different stories about
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Speaker 2: why he couldn't get the money to them.
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Speaker 1: If you look at what the Wires Fraud Statute criminalizes again,
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Speaker 1: it criminalizes, did you make a misrepresentation or an omission
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Speaker 1: in order to deprive somebody of money or property. If
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Speaker 1: you look at the ethical rules that all lawyers must
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Speaker 1: follow and can California, they require you whenever you have
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Speaker 1: client funds, just put them in a client trust account
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Speaker 1: and the money stays in that client trust account until
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Speaker 1: it's appropriately been divided to your client and to any
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Speaker 1: other experts or agents that you've retained throughout the case.
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Speaker 1: And if you look at this Girardy case, what they're
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Speaker 1: saying is that Girardi took the money from settlements that
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Speaker 1: belong to his clients, and instead of following these ethical
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Speaker 1: rules about storing the money and the client trust account
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Speaker 1: and appropriately dividing the money up amongst those who needed
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Speaker 1: the money, notably his clients, before taking his percentage of
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Speaker 1: those settlements. Instead, what he was doing is almost essentially
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Speaker 1: running a Ponzi scheme where he was taking the client
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Speaker 1: settlement funds using the funds for his own personal expenses.
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Speaker 1: And then when clients were finding out he was intentionally
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Speaker 1: lying to them about why they weren't receiving their settlement funds,
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Speaker 1: and then using the settlement's funds from other clients in
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Speaker 1: order to pay off those clients that were already catching
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Speaker 1: on to the fact that he might have been misrepresenting
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Speaker 1: what was going on in their cases and intentionally withholding
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Speaker 1: their money.
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Speaker 2: So now let's talk about his wife, because during the
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Speaker 2: opening statements, the prosecutor alleged that he used some of
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Speaker 2: the money to support the entertainment career of his wife,
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Speaker 2: used more than twenty five million dollars to pay the
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Speaker 2: expenses of her entertainment company. Of course, her lawyer denies
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Speaker 2: all that. Why isn't she being called as a witness?
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Speaker 1: Do you think they haven't said why she's not being
5:37
Speaker 1: called as a witness. You know, there could be a
5:39
Speaker 1: number of factors involved. First, is the marital privilege applies,
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Speaker 1: and so she's allowed to say that statement made by
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Speaker 1: Girardi to her over the course of their marriages privileged
5:53
Speaker 1: and protected under the marital privileged doctrine. In addition, you know,
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Speaker 1: she potentially has some exposure here as well, and so
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Speaker 1: she has the right under the Fifth Amendment to remain
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Speaker 1: silent and not make statements that could potentially incriminate her.
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Speaker 1: So my instincts are that she's refraining from giving statements
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Speaker 1: and claiming both Fifth Amendment and marital privilege as protections
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Speaker 1: for those statements.
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Speaker 2: The defense he's been in cognitive decline and he's actually
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Speaker 2: been diagnosed with dementia and lives in a memory care facility.
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Speaker 2: Why is he even on trial if that's the case.
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Speaker 1: The defense made emotion months ago asking, you know, the
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Speaker 1: court to find Girrity not competent to stand trial, And
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Speaker 1: the question for competency is, you know, can you assist
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Speaker 1: your lawyers in your defense at the time of the trial,
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Speaker 1: and medical experts weigh in on both sides, and the
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Speaker 1: judge ultimately held that Girardi is competent to stand trial. Now,
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Speaker 1: the issues of this competentency or slightly different during trial.
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Speaker 1: The question during trial now is whether at the time
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Speaker 1: Girardi made these misrepresentations or omissions to his clients in
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Speaker 1: order to keep the settlement amounts that were due to them,
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Speaker 1: whether Girarity was in such a cognitive decline that he
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Speaker 1: couldn't properly form the right mental state or intent to
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Speaker 1: defraud his clients, and so that's now one of the
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Speaker 1: defenses of the defense is raising during trial. But the
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Speaker 1: issue of competency, whether he's competent to stand trial, is
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Speaker 1: an issue that can be raised again even after the
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Speaker 1: court already finds that he's competent to stand trial, and
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Speaker 1: to the extent new evidence arises, that wouldn't be surprised
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Speaker 1: if his lawyers raised that motion again during trial.
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Speaker 2: How does the defense show that he wasn't competent at
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Speaker 2: the time that these incidents happened. He wasn't diagnosed at
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Speaker 2: that point, So how do they go back to show that.
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Speaker 1: There's a number of ways they can show it. One
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Speaker 1: is through precipium witnesses. If they have witnesses that can
8:03
Speaker 1: testify that at the time these alleged misrepresentations were being
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Speaker 1: made to clients that in other facet of his life
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Speaker 1: or even in other cases, or are at the law
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Speaker 1: firm or at home, the gerarity was already showing the
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Speaker 1: inability to remember certain things and was making misstatements or
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Speaker 1: was confused and disoriented throughout that period. They also are
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Speaker 1: going to have a medical expert testify as to his
8:29
Speaker 1: medical condition. And if that medical expert is able to
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Speaker 1: do so, and I assume she will, which is why
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Speaker 1: she's going to testify at trial, she would say that,
8:40
Speaker 1: you know that his medical condition is one that it
8:43
Speaker 1: would have started years ago and would have been already
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Speaker 1: affecting him at the time that he was making these
8:50
Speaker 1: allegedments representations.
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Speaker 2: So, even if the defense isn't able to prove cognitive
8:56
Speaker 2: decline at the time, do you think that just having
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Speaker 2: that evidence before the jury will make them feel sympathy
9:04
Speaker 2: for him? You know, why is the prosecution going after
9:07
Speaker 2: this guy, this eighty five year old who has dementia
9:12
Speaker 2: and is being cared for in a facility.
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Speaker 1: So the prosecutors are looking at the facts and applaying
9:18
Speaker 1: those facts to the law. Obviously, what we have here,
9:22
Speaker 1: if you take the indictment at face value and believe
9:25
Speaker 1: all the allegations in the indictment, you have some pretty
9:28
Speaker 1: serious allegations with respect to a notable attorney who was
9:33
Speaker 1: making misrepresentations and flat out lies to his clients in
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Speaker 1: order to deprive them of money that was due to them.
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Speaker 1: And when you have a situation like this, when you
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Speaker 1: have an attorney a person that's in the position of
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Speaker 1: trust of his victims, taking advantage of his victims. That's
9:50
Speaker 1: going to be a case that the United States Attorney's
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Speaker 1: Office is going to take very seriously and take a
9:55
Speaker 1: hard look at him. And presumably they've looked at the evidence,
10:00
Speaker 1: and you know, they've made those statements now in court,
10:02
Speaker 1: both in court filing and in outside of the presence
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Speaker 1: of the jury, and now in the presence of the jury,
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Speaker 1: that you know, they have evidence to show that at
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Speaker 1: the time these misrepresentations were made that he wasn't in
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Speaker 1: a competative decline. Assuming all that's true, you know, that
10:19
Speaker 1: would be a big reason why they found it important
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Speaker 1: to pursue this claim, uh sorry, pursue these targets against
10:26
Speaker 1: against Girardi and now and you have the bigger issue
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Speaker 1: of protecting the public and deterrence. You want to ensure
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Speaker 1: that this conduct you know, doesn't take place and it's
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Speaker 1: not pervasive amongst the legal community in the US Attorney's office,
10:41
Speaker 1: because the movie wants to show that regardless of the situation,
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Speaker 1: that they're going to take these cases seriously.
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Speaker 2: But do you think jurors might feel sympathy for him
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Speaker 2: because of that despite the facts.
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Speaker 1: Yeah, it's one of the reasons why that's a big
10:56
Speaker 1: part of the defense. Of course, you know jurors or
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Speaker 1: human beings, they're going to be ad supply back to law.
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Speaker 1: But it's hard to separate the emotion from the cold
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Speaker 1: heart facts into the extent Girarti looks sympathetic, and there's
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Speaker 1: going to be evidence shown to the jury during trial
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Speaker 1: that shows him as sympathetic in this case because of
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Speaker 1: his connective issues that could work in his favors.
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Speaker 2: Coming up next in the Bloomberg Law Show more on
11:22
Speaker 2: the Girardi trial. He's blaming the CFO of the law firm.
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Speaker 2: What effect does it have that the CFO is not
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Speaker 2: being tried with him. I'm June Grosso and you're listening
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Speaker 2: to Bloomberg. Federal prosecutor has introduced Thomas Girardi to a
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Speaker 2: Los Angeles jury as a celebrity attorney turned villain who
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Speaker 2: stole from the clients he promised to champion and said
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Speaker 2: he treated client trust accounts like a personal piggybank. Girardi's
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Speaker 2: lawyers argued that the real story is not a Hollywood movie,
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Speaker 2: but is more nuanced and complicated by the folding of
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Speaker 2: his law firm, the theft of billions of dollars by
12:01
Speaker 2: his former CFO, and his mental decline. While the jurors
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Speaker 2: saw a diminished Girardi, now eighty five years old, bankrupt
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Speaker 2: and disbarred, the prosecution tried to remind them of the
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Speaker 2: celebrity attorney he once was, one they say used his
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Speaker 2: notoriety to steal from clients. I've been talking to former
12:22
Speaker 2: federal prosecutor Augustine Rotzko, a partner at Crowland Mooring. We've
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Speaker 2: been talking about some possible defenses that Girardi might raise.
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Speaker 2: Another one involves the former CFO of his law firm,
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Speaker 2: Christopher Kaman, who was indicted, but a judge ruled that
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Speaker 2: they'll be tried separately. Is that severance basically a gift
12:43
Speaker 2: to Girardi.
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Speaker 1: It definitely plays in Girardi's favor, because it's harder to
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Speaker 1: point the finger at somebody else when they're sitting at
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Speaker 1: the fence table next to you and making the same
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Speaker 1: arguments throughout trial in terms of being not guilty of
13:00
Speaker 1: the charges in front of them. And so the fact
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Speaker 1: that the CFO was not there, the fact that Girardi
13:05
Speaker 1: seemed to make that a focal point of their defense
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Speaker 1: that this person was a real culpable person here, that
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Speaker 1: he was in charge of running the books and Girardi
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Speaker 1: had deferred to him, you know, all aspects of the
13:19
Speaker 1: financial portion of the law firm, and that Girardi was
13:23
Speaker 1: busy being a lawyer. And on top of the fact
13:25
Speaker 1: that he had this cognitive decline and made Girarity in
13:28
Speaker 1: addition to his clients, a victim of the CFO. You know,
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Speaker 1: it lined up perfectly for Girardi to put together.
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Speaker 2: At the sense and how much is the prosecution's case this,
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Speaker 2: you know, celebrity lawyer and the housewives of Beverly Hills
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Speaker 2: and all that star power and the jets and the
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Speaker 2: luxury lifestyle. How much will the judge let the prosecution
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Speaker 2: introduce evidence of that?
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Speaker 1: You know, the judge evidence in as long as it's
14:00
Speaker 1: relevant and the prejudicial nature of the evidence does not
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Speaker 1: outweigh the probat value of that evidence, and so some
14:09
Speaker 1: of that is going to be allowed. In of course,
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Speaker 1: some of it is extremely relevant, you know, if he
14:14
Speaker 1: was engaging in the lavish lifestyle, and engaging in the
14:18
Speaker 1: lavish lifestyle helps rebut the defense that the CFO was
14:22
Speaker 1: the one that wasn't bazzling all the money and not Girardi.
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Speaker 1: You know that's going to be allowed in, but it's
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Speaker 1: extended to the point where you know, it's not extremely
14:32
Speaker 1: relevant and it's going to be more prejudicial to the defense,
14:35
Speaker 1: and it would be relevant to the trial, and the
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Speaker 1: court going to cut that off.
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Speaker 2: The defense seems to be indicating that it's going to
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Speaker 2: try to make things boring and technical for the jury.
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Speaker 2: The defense lawyer spent something like ten minutes in his
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Speaker 2: opening statement talking about financial documents and warning the jury
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Speaker 2: about boring details. Can that really work?
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Speaker 1: You know, when you're defense attorney in one of these files,
15:03
Speaker 1: you're already kind of behind the eight ball. You have
15:06
Speaker 1: the United States government putting forth charges, you have United
15:10
Speaker 1: States Government stating that the allegations in those indictments are true.
15:14
Speaker 1: And your job is then to raise a defense and
15:17
Speaker 1: poke holes in the government's investigation. And one of the
15:21
Speaker 1: ways to do that is to dig deep into the
15:23
Speaker 1: documents and to show that there's flaws and the analysis
15:27
Speaker 1: that was done, and so yes, will that work? It
15:30
Speaker 1: can work. It can work if you can show to
15:32
Speaker 1: the jury that once you dig deep into these these
15:36
Speaker 1: documents and you step away from these high level narratives
15:40
Speaker 1: that there are serious issues in the investigation that was conducted.
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Speaker 2: The trials going to center on five former clients involved
15:47
Speaker 2: in personal injury cases. So these will be sympathetic witnesses,
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Speaker 2: no doubt. Will it be difficult for the defense to
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Speaker 2: cross them?
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Speaker 1: The answer is yes. I think it's you have to
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Speaker 1: be very careful when you have sympathetic witness up on
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Speaker 1: the stet, especially a sympathetic victim. And here, as you noted,
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Speaker 1: all five of the victims that were chosen to testify
16:09
Speaker 1: have extremely sympathetic stories with serious issues that led them
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Speaker 1: to go to Girardi for help and then misrepresentations to
16:20
Speaker 1: them in order to deprive them of money. And so
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Speaker 1: the defense is going to have to be very careful
16:24
Speaker 1: and cross examine them because the defense doesn't want to
16:26
Speaker 1: come off as being the bad guys here. Their story
16:30
Speaker 1: is that Girardi is also a victim. You know, they're
16:33
Speaker 1: going to cross examine the victims to get information out
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Speaker 1: of them as to see whether they actually knew that
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Speaker 1: Girardi was lying to them at the time, and other
16:43
Speaker 1: questions maybe to help them and their defense to prove
16:46
Speaker 1: up their argument about Girardi's commented decline, but they're going
16:49
Speaker 1: to be very careful not to come off as bullies
16:52
Speaker 1: or attacking these sympathetic victims.
16:55
Speaker 2: So does it seem as if the prosecution has a
16:58
Speaker 2: strong case. I only got the witnesses. They played a
17:02
Speaker 2: voicemail of Girardi explaining to one of his clients why
17:07
Speaker 2: she wasn't getting the money or he wasn't getting the
17:10
Speaker 2: money right away, and they had said they have emails
17:13
Speaker 2: and letters, they have the clients, the five clients, and
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Speaker 2: then they are non lawyers who work with the firm
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Speaker 2: as well. I mean, does it sound like it's a
17:21
Speaker 2: pretty strong.
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Speaker 1: Case so far. We've only heard testimony from the government's witnesses,
17:29
Speaker 1: but you know, from everything we've seen so far, it
17:31
Speaker 1: seems like a pretty strong case. You have victims who
17:36
Speaker 1: are claiming, you know, Girardi himself made misrepresentations to them
17:42
Speaker 1: directly about the state of their case, and that these
17:45
Speaker 1: these statements by Girardi, you know, when looked at the
17:47
Speaker 1: cold heart facts, were objectively false.
17:51
Speaker 3: Right.
17:51
Speaker 1: The question is whether Girardi actually intended to make, you know,
17:55
Speaker 1: a misstatement and lie to his clients at the time,
17:58
Speaker 1: or whether he was confused because of is declined in
18:00
Speaker 1: cognitive state. But when you add on top of that
18:03
Speaker 1: the fact that they have attorneys and non lawyers at
18:06
Speaker 1: the firm were testifying to Girardi's competency at the time
18:10
Speaker 1: to also testifying about them being confused and being led
18:14
Speaker 1: to as to why these victims were not getting the
18:18
Speaker 1: money that they deserved. And that you know, these these
18:21
Speaker 1: former lawyers from from the law firm or even quitting
18:24
Speaker 1: their jobs because they were so frustrated with the way
18:28
Speaker 1: things are being mismanaged. All that really adds up to
18:31
Speaker 1: a really strong care an uphill battle for the defense.
18:35
Speaker 2: I'm wondering what kind of penalty you think if he's convicted,
18:41
Speaker 2: what kind of penalty he's facing considering that he is
18:45
Speaker 2: in this care facility.
18:48
Speaker 1: You know, the judge is going to, you know, levy
18:52
Speaker 1: a sentence pursuing to United the United States sentencing guidelines,
18:57
Speaker 1: and those are really going to be driven by the
18:59
Speaker 1: lost amount that is established that trial. And here the
19:03
Speaker 1: lost mountain is pretty significant. So he's looking at potentially
19:08
Speaker 1: a pretty severe prison sentence in federal prison. But his
19:13
Speaker 1: defense attorneys will will raise the cognitive issue at sentencing
19:18
Speaker 1: and will raise the fact that he'll need appropriate accommodations,
19:22
Speaker 1: and the court is going to listen to those and
19:24
Speaker 1: take the steps necessary. Now, the Bureau of Prisons does
19:28
Speaker 1: have medical facilities that can help facilitate that, and there's
19:32
Speaker 1: been other instances where the court has found that, you know,
19:37
Speaker 1: putting the defendant in the care of the Bureau of Prisons,
19:40
Speaker 1: given the advent stage, given health issues, isn't appropriate. And
19:44
Speaker 1: so it's going to be interesting to see how how
19:46
Speaker 1: the court weighs those considerations and ultimately rules on on
19:50
Speaker 1: the appropriate pass forward for Girardi. If he is sound
19:53
Speaker 1: convicted that trial, and this is not.
19:55
Speaker 2: His only trial, he faces another trial in Illinois.
20:00
Speaker 1: That's right, he's facing another trial in Illinois based on
20:03
Speaker 1: similar charges with respect to a plane crank's case he
20:07
Speaker 1: had from a number of years ago. Whatere. The victims
20:09
Speaker 1: are alleging essentially the same thing that he was held
20:14
Speaker 1: money that was due to them because of the settlement
20:16
Speaker 1: and led to them with respect to what was going
20:18
Speaker 1: on in the case. And so the Central District case,
20:21
Speaker 1: he's really you know, the first domino to fall, and
20:25
Speaker 1: so to the extent he's found convicted in his case,
20:27
Speaker 1: and be interesting to see what strategy he employees going forward.
20:31
Speaker 1: With respect to his second criminal case in Chicago.
20:35
Speaker 2: That trial was tentatively scheduled for next year, but it's
20:39
Speaker 2: on hold until the conclusion of this trial in California.
20:43
Speaker 2: That's Augustina Rotsko, former federal prosecutor and partner at Crowl
20:47
Speaker 2: and Mooring, coming up next on the Bloomberg Lawn Show.
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Speaker 2: Advisory Council, to create a stable coin framework, and call
21:45
Speaker 2: for a scaleback in enforcement. But one of his promises
21:48
Speaker 2: in particular has alarmed former federal prosecutors. Trump said he'll
21:53
Speaker 2: create a national bitcoin stockpile with the crypto currency currently
21:58
Speaker 2: held by the US government because he says, the government
22:02
Speaker 2: is violating the cardinal rule of bitcoin.
22:06
Speaker 4: Never sell your bitcoin.
22:07
Speaker 5: And so, as the final part of my plan today,
22:11
Speaker 5: I am announcing that if I am elected, it will
22:14
Speaker 5: be the policy of my administration United States of America
22:19
Speaker 5: to keep one hundred percent of all the bitcoin the
22:23
Speaker 5: US government currently holds or acquires into the future.
22:27
Speaker 4: We'll keep one hundred percent. I hope you do well. Please.
22:31
Speaker 2: That cryptocurrency that the government is holding has been seized
22:35
Speaker 2: in criminal and civil forfeiture cases brought by federal prosecutors
22:39
Speaker 2: and overseen by US judges. Here to explain why former
22:43
Speaker 2: federal prosecutors are finding Trump's suggestion alarming, is Bloomberg Legal
22:49
Speaker 2: reporter David Voriakis. David start by telling us about Trump's
22:54
Speaker 2: crypto promises.
22:56
Speaker 3: Trump made an appearance at the Bitcoin to twenty four
23:00
Speaker 3: conference at the end of July, and he promised that
23:05
Speaker 3: he would take all of the bitcoin that's been seized
23:09
Speaker 3: by the federal government and create a stockpile, and that
23:13
Speaker 3: he will hold it and presumably this is a way
23:16
Speaker 3: for the federal government to make money. This is a
23:21
Speaker 3: longtime dream of some crypto advocates that it would put,
23:26
Speaker 3: you know, the full faith and credit of the US
23:28
Speaker 3: government behind bitcoin, which the government has not been willing
23:32
Speaker 3: to do. Trump did this as he's looking for campaign contributions,
23:38
Speaker 3: and there's a number of people in the crypto world
23:40
Speaker 3: who said that they now support Donald Trump.
23:44
Speaker 2: How much bitcoin does the government have?
23:47
Speaker 3: The government has about twelve billion dollars worth of cryptocurrency,
23:53
Speaker 3: including more than two hundred thousand bitcoin.
23:57
Speaker 2: And so where did all that come from? Is it
23:59
Speaker 2: just from criminal and civil seizures?
24:03
Speaker 3: It is almost exclusively that. So that in criminal cases,
24:07
Speaker 3: big criminal cases, or cases brought by the SEC or
24:12
Speaker 3: other civil regulators, as part of the case, part of
24:17
Speaker 3: the resolution of cases, the government takes custody of cryptocurrencies.
24:24
Speaker 2: So this is just like you know, the government is
24:26
Speaker 2: seizing the Lamborghini, seizing the house, seizing all the cash.
24:31
Speaker 2: Let's say it's the same thing when it's seizing the cryptocurrency.
24:34
Speaker 3: These are considered the proceeds or instruments of crime. They're
24:39
Speaker 3: either the way that people enrich themselves, as with cash, cars, houses, yachts, planes,
24:46
Speaker 3: or that it's used in executing crimes, primarily money laundering operations.
24:54
Speaker 3: So the government holds that crypto and they're supposed to
24:59
Speaker 3: at the appropriate time sell it, and the proceeds of
25:04
Speaker 3: that sale goes either to victims of crimes to help
25:10
Speaker 3: make them whole or to support law enforcement operations. Now,
25:15
Speaker 3: the triggering point is typically an order by a judge
25:19
Speaker 3: who says essentially that the title is free and clear
25:25
Speaker 3: and no one else has claim to these digital assets.
25:29
Speaker 2: You talked to several former prosecutors who said, this just
25:33
Speaker 2: can't be done. You can't take that money that's set
25:36
Speaker 2: aside by the courts and just take it and put
25:39
Speaker 2: it someplace else.
25:40
Speaker 3: It's set up under federal statute and regulations that dictate
25:46
Speaker 3: how the assets are supposed to be handled, and it's
25:50
Speaker 3: not really different than other federal assets that are seized.
25:55
Speaker 3: And so it would take an Act of Congress to
26:00
Speaker 3: do what Donald Trump has proposed doing.
26:03
Speaker 2: And it would also be against the whole philosophy of
26:06
Speaker 2: seizing these assets to help get the victim some restitution.
26:11
Speaker 3: Right, the whole philosophy of these funds, which are held
26:16
Speaker 3: either by the Justice Department or the Treasury Department is
26:20
Speaker 3: to again make victims whole or support law enforcement. It's
26:25
Speaker 3: not considered an investment vehicle. It's not if you will
26:30
Speaker 3: buy and hold opportunity. And the government is not supposed
26:35
Speaker 3: to time the market either say oh well, if we
26:38
Speaker 3: wait another month or two, bitcoin's going to go up.
26:41
Speaker 3: They're supposed to try to sell it as quickly as
26:44
Speaker 3: they can, as quickly as they're legally allowed to do. Now,
26:48
Speaker 3: I would say there have been problems in the last
26:51
Speaker 3: few years in how the US Marshals have handled the assets,
26:56
Speaker 3: and so they have contracted out with coinbased do a
27:01
Speaker 3: large portion of that. They recently awarded that contract, and
27:05
Speaker 3: so there's been some changes in how the government actually
27:10
Speaker 3: holds and sells these assets, but the principle remains the same.
27:14
Speaker 2: I was wondering if there is a problem because of
27:17
Speaker 2: the nature of bitcoin. Normally, you'll see there's an auction,
27:21
Speaker 2: you know, the federal government auctions off these cars, etc.
27:25
Speaker 2: They've seized. But do they do that with bitcoin.
27:28
Speaker 3: They did do that with bitcoin, but they've moved away
27:30
Speaker 3: from that process and it's not the same auction format
27:35
Speaker 3: as it used to be. So they have professionals who
27:39
Speaker 3: work out sales with interested parties.
27:43
Speaker 2: Is this contrary to what his position was when he
27:48
Speaker 2: was president.
27:49
Speaker 3: When he was president, he took a very dim view
27:52
Speaker 3: of crypto and did not see it as a prized
27:57
Speaker 3: asset the way you know digital advocates do. And so
28:02
Speaker 3: this is happening at the same time, obviously, as he's
28:05
Speaker 3: in a very tight presidential race and needs to raise
28:08
Speaker 3: a lot of money, and cynics would say that he's
28:11
Speaker 3: making a pitch to receive campaign contributions from the crypto industry,
28:16
Speaker 3: which has been a very generous industry and has given
28:21
Speaker 3: a lot of money to politicians in Washington to try
28:23
Speaker 3: to influence a very unsettled regulatory environment.
28:28
Speaker 2: Crypto industry donors have poured more money into the twenty
28:31
Speaker 2: twenty four election than in all prior cycles combined, according
28:36
Speaker 2: to Open Secrets, and Trump has discussed cryptocurrency policy with
28:42
Speaker 2: Tesla's CEO Elon Musk, according to a person familiar with
28:46
Speaker 2: the talks. He's hosted crypto money executives at his Mara
28:50
Speaker 2: Lago resort and vowed to commute the sentence of Ross Albright,
28:56
Speaker 2: who's serving a life sentence after he was convicted of
28:59
Speaker 2: running the Silk Road marketplace where customers used virtual currencies
29:05
Speaker 2: to buy illegal drugs and hacker tools. And significantly, Trump's
29:10
Speaker 2: campaign said in May that it would begin accepting donations
29:13
Speaker 2: in digital assets. Since then, it's raised four million dollars
29:17
Speaker 2: from a mix of digital tokens. That's according to Bloomberg sources.
29:22
Speaker 2: Let's turn now to b Riley Financial. It shares lost
29:26
Speaker 2: more than half their value amid a new round of
29:29
Speaker 2: write downs and a widening US investigation. Tell us more
29:34
Speaker 2: about that.
29:35
Speaker 3: On Monday, b Riley announced that it was taking a
29:41
Speaker 3: substantial quarterly loss and that it was also cooperating in
29:48
Speaker 3: an SEC investigation. We also Bloomberg reported earlier that there
29:54
Speaker 3: was a widespread SEC investigation of the the soundness of
30:01
Speaker 3: the financial reporting by b Riley. There's been a lot
30:04
Speaker 3: of questions about how accurate their financial reporting is, whether
30:08
Speaker 3: they're accurately reporting the underlying value of receivables that are
30:14
Speaker 3: backing a number of their assets, and that the SEC
30:17
Speaker 3: is looking at the relationship between b Riley's founder, Bryant Riley,
30:23
Speaker 3: and another businessman, Brian Kahn, who used to be the
30:28
Speaker 3: CEO of Franchise Group, Inc. Which owned a number of
30:32
Speaker 3: retail franchising companies. B Riley helped take FRG public a
30:39
Speaker 3: few years ago and last summer helped take them private.
30:43
Speaker 3: And there's a number of interlocking financial relationships involving loans
30:50
Speaker 3: and receivables between Brian Kahn, his company, Bryant Riley, and
30:57
Speaker 3: b Riley, And.
30:58
Speaker 2: The SEC's civil investigation is proceeding along with a federal
31:04
Speaker 2: criminal investigation in New Jersey. What are prosecutors looking at there?
31:09
Speaker 3: And that is into yet another firm called Prophecy Asset
31:14
Speaker 3: Management and one of its co founders in November pleaded
31:19
Speaker 3: guilty in a two hundred and ninety four million dollar
31:22
Speaker 3: fraud and in that case, the prosecutors said that Brian
31:28
Speaker 3: Khan was an unindicted co conspirator and we reported that
31:33
Speaker 3: last November. When that happened, there were a number of
31:36
Speaker 3: questions raised about the relationship between Brian Khan and Bryant
31:42
Speaker 3: Riley and that relationship goes back many years and spans
31:46
Speaker 3: a number of businesses.
31:49
Speaker 2: And what has their response been to this?
31:52
Speaker 3: I would say that Brian Riley says that he did
31:56
Speaker 3: nothing improper with Brian Khan. He has no knowledge of
31:59
Speaker 3: a criminal activity, and the two internal investigations have essentially
32:06
Speaker 3: cleared him of any wrongdoing, and his firm, Brian Kahn,
32:12
Speaker 3: also said that he did nothing wrong. He hasn't been charged.
32:15
Speaker 3: Brian Riley hasn't been charged, so it's possible nothing will
32:20
Speaker 3: come of any of this. But investors have taken a
32:24
Speaker 3: very dim view of the financial health of b Riley.
32:29
Speaker 2: So how long has the SEC investigation been going on?
32:34
Speaker 3: For many months at least, and it's recently escalated, is
32:38
Speaker 3: what we've reported. They're continuing to look at a number
32:42
Speaker 3: of questions about the financial disclosures, and the deeper they
32:47
Speaker 3: get into it, the more questions they have.
32:50
Speaker 2: Are the SEC investigators and the federal prosecutors working together
32:55
Speaker 2: in any sense?
32:57
Speaker 3: I believe that they are working on a parallel track,
33:00
Speaker 3: that they are working cooperatively with each other. I mean
33:05
Speaker 3: there's a specific legal meaning to having a formal cooperation
33:12
Speaker 3: between the two, the Justice Department and the Securities in
33:15
Speaker 3: Exchange Commission. I don't know the precise nature of that relationship,
33:20
Speaker 3: but I do know that their attorneys and investigators have
33:24
Speaker 3: been working along the same track.
33:28
Speaker 2: Of course, it's a developing story, and I know you'll
33:30
Speaker 2: keep us on top of it. David, thanks so much.
33:33
Speaker 2: That's Bloomberg Legal reporter David Voriakis