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Likely Religion Win & Crypto Free Ride · Bloomberg Law

0:02
Speaker 1: This is Bloomberg Law with June Grossel from Bloomberg Radio.
0:08
Speaker 2: I thought it was pretty fundamental that we don't treat
0:13
Speaker 2: some religions better than other religions, and we certainly don't
0:17
Speaker 2: do it based on the content of the religious doctrine
0:21
Speaker 2: that those religions preach.
0:24
Speaker 3: Isn't it a fundamental premise of our First Amendment that
0:27
Speaker 3: the state shouldn't be picking and choosing between religions, between
0:32
Speaker 3: certain evangelical sects and Judaism and Catholicism on the other
0:37
Speaker 3: for example.
0:38
Speaker 4: Supreme Court justices on both ends of the ideological spectrum
0:43
Speaker 4: suggested that Wisconsin was discriminating against Catholic Charities by denying
0:49
Speaker 4: it a religious exemption from the state's unemployment tax program.
0:53
Speaker 4: The state says that Catholic Charities doesn't qualify for the
0:57
Speaker 4: tax exemption because the day to day servis as it
1:00
Speaker 4: provides don't involve religious teachings. Many of the justices seemed
1:05
Speaker 4: concerned about Wisconsin's contention that one way organizations can get
1:10
Speaker 4: the exemption is by actively proselytizing. Chief Justice John Roberts
1:16
Speaker 4: and Justices Amy Cony, Barrett and Neil Gorsich question just
1:20
Speaker 4: what that means in practice.
1:23
Speaker 5: What is the simplest thing that the Catholic Charities would
1:28
Speaker 5: have to do to qualify for the religious exemption in Wisconsin?
1:32
Speaker 5: I think, are they sure they have one sign in
1:35
Speaker 5: the dining hall saying this meal provided by Catholic Charities?
1:38
Speaker 5: If you want to find out about the church, here's
1:40
Speaker 5: a brochure.
1:42
Speaker 4: And I mean, are they playing like hymns on the
1:44
Speaker 4: radio or like Christian rock at the evangelical soup kitchen
1:48
Speaker 4: on the radio?
1:49
Speaker 3: You know, is that proselytization or not?
1:51
Speaker 1: Because you're forced to sit there and.
1:53
Speaker 5: Listen to it.
1:55
Speaker 3: And doesn't it entangle the state tremendously when it has
1:59
Speaker 3: to go into a soup kitchen. Send an inspector in
2:03
Speaker 3: to see how much prayer.
2:04
Speaker 1: Is going on.
2:05
Speaker 4: My guest is Richard Garnett, a professor at Notre Dame
2:08
Speaker 4: Law School and founding director of the school's Program on Church,
2:12
Speaker 4: State and Society. He was part of a group of
2:15
Speaker 4: law and religion professors who signed a brief in support
2:18
Speaker 4: of Catholic Charities in the case. Rick explained the issue
2:21
Speaker 4: before the justices.
2:22
Speaker 1: So the justices are being asked to evaluate a ruling
2:26
Speaker 1: by a Wisconsin court, and that ruling had to do
2:29
Speaker 1: with an exemption that was in place in Wisconsin law.
2:33
Speaker 1: It's an exemption from otherwise applicable requirement about providing unemployment insurance.
2:39
Speaker 1: So Wisconsin, like a lot of states, has a religious exemption.
2:44
Speaker 1: So some employers were exempt from this particular requirement if
2:47
Speaker 1: they were religious. And the precise terminology of the exemption
2:52
Speaker 1: was that organizations that are operated primarily for religious purposes
2:57
Speaker 1: are entitled to the Exemption's like charities, which is what
3:02
Speaker 1: it sounds like. A Catholic organization that provides a variety
3:06
Speaker 1: of social services was denied the exemption on the theory that,
3:10
Speaker 1: you know, although it's got the word Catholic in it,
3:13
Speaker 1: and although it's probably motivated by Catholic concerns, that a
3:17
Speaker 1: lot of the things it was doing they weren't really religious,
3:20
Speaker 1: they weren't primarily religious. They were the same kinds of
3:22
Speaker 1: things that secular organizations do. And so that you know,
3:26
Speaker 1: there was consonant court kind of empsize, Look, they hire
3:28
Speaker 1: some people who aren't Catholic, they serve people regardless of
3:31
Speaker 1: their faith. They don't engage in proselytism, they don't require
3:35
Speaker 1: people to attend church, so they're not really religious, and
3:38
Speaker 1: the Supreme Court took up the case to decide. I
3:41
Speaker 1: think whether there was constant. Court's definition of who gets
3:44
Speaker 1: this exemption was in a way discriminatory, that it distinguished
3:49
Speaker 1: between religions that engage in kind of overt evangelism when
3:54
Speaker 1: they provide services and those that live out their religious
3:59
Speaker 1: mission by riding social services to a broad range of people.
4:02
Speaker 1: So the Supreme Court took it up on that question,
4:05
Speaker 1: and from what I can gather, I've read some reports
4:08
Speaker 1: and I read the transcript of the oral argument, it
4:10
Speaker 1: seems like most, perhaps even all of the justices were
4:15
Speaker 1: pretty skeptical of what the Wisconsin Court had done. So
4:19
Speaker 1: it does seem pretty likely that the Catholic Charities position
4:23
Speaker 1: is going to win out here.
4:24
Speaker 4: I think just about everyone who listened to the oral
4:26
Speaker 4: arguments had the same reaction that the justices would side
4:30
Speaker 4: with Catholic Charities here. Both liberal Justice Elina Kagan and
4:34
Speaker 4: conservative Justice Neil Gorsuch seemed to be on the same page,
4:39
Speaker 4: saying that we don't treat some religions better than others.
4:43
Speaker 1: Yeah, so we have a well established principle in American
4:46
Speaker 1: law that legislatures are permitted to have exemptions for religious
4:53
Speaker 1: believers or religious institutions from their laws. These happen all
4:56
Speaker 1: the time, right, but one of the important qualifications is
5:00
Speaker 1: that legislators aren't allowed to discriminate among religions when they
5:04
Speaker 1: are granting these exemptions. So you know, you couldn't have
5:07
Speaker 1: an exemption for Baptist organizations but deny it to Presbyterian ones,
5:12
Speaker 1: or an exemption for Buddhist ones but deny it to
5:15
Speaker 1: Hindu ones. You're allowed to have religious exemptions, but the
5:18
Speaker 1: exemptions themselves can't discriminate among religions. And I think Justice
5:22
Speaker 1: Kagan's concern was that there Wisconson Court in effect had
5:26
Speaker 1: said to count as religious, you have to be religious
5:30
Speaker 1: in a certain way. You have to be religious in
5:33
Speaker 1: a way that's kind of evangelical, right where you're serving
5:36
Speaker 1: your own you're engaging in evangelization and proselytism. Maybe you
5:41
Speaker 1: know you're given out food at the end of a
5:43
Speaker 1: church service, but you're requiring people to attend church beforehand.
5:46
Speaker 1: There was Conson Court had a premise that I think
5:48
Speaker 1: all the justices were uneasy with, namely that it was
5:51
Speaker 1: appropriate for a secular court to say you know, if
5:55
Speaker 1: you're not engaging in proselytism, then you're just doing secular stuff.
6:00
Speaker 1: From the perspective of Catholic charities, you know, when it's
6:02
Speaker 1: feeding the hungry, or clothing the naked, or housing the unsheltered,
6:06
Speaker 1: it's still engaging in religious activity. And to be clear,
6:09
Speaker 1: the Catholic Charity's position is not that any time an
6:13
Speaker 1: institution claims it's religious, it should get an exemption. Everybody
6:17
Speaker 1: acknowledges that courts are allowed to ask whether the religious
6:21
Speaker 1: claims are sincere, and everyone agrees that it is permissible
6:25
Speaker 1: to distinguish between religious organizations on the one hand and
6:29
Speaker 1: secular ones on the other. But where the justices got
6:32
Speaker 1: nervous was the way the wisconstant courts seemed to almost
6:35
Speaker 1: engage in a little bit of armchair theology when it
6:38
Speaker 1: decided that in order to be i think the word
6:42
Speaker 1: to use was typically religious, you had to exercise your
6:45
Speaker 1: religion in a certain way. And so Justice Kagan, for example, says, well,
6:48
Speaker 1: you know, look, in Judaism, a lot of what we
6:51
Speaker 1: do when we're active in the world is not engage
6:54
Speaker 1: in proselytism. That's not one of the things that we do,
6:56
Speaker 1: but we still do exercise our religion when we're providing
6:59
Speaker 1: various social service. So that was clearly a theme that
7:01
Speaker 1: she was focusing on. And there was also a theme
7:03
Speaker 1: in the argument not quite as prominent as this discrimination theme,
7:07
Speaker 1: I think, but it was still there that Wisconsin's rule
7:10
Speaker 1: had kind of a coercive effect of basically pressuring religious
7:14
Speaker 1: institutions to organize themselves in a certain way. Because the
7:18
Speaker 1: Wisconsin rule was one that said, you know, if a
7:21
Speaker 1: charity is separately incorporated from the church itself, that it's
7:25
Speaker 1: going to be treated differently than if it's kind of
7:27
Speaker 1: integrated into the religious institution. And so the concern was
7:30
Speaker 1: that that regime would kind of pressure religious organizations to
7:34
Speaker 1: change their structures. But I think the most straightforward part
7:37
Speaker 1: of the case, and I think this is what the
7:38
Speaker 1: lawyer for Catholic Charity was really leaning on, is that
7:41
Speaker 1: it's a straight up black letter rule that governments can't
7:44
Speaker 1: discriminate among religions when they are crafting their accommodations. And
7:49
Speaker 1: the Wisconsin Supreme Court adopted an interpretation that appears to
7:53
Speaker 1: treat some religions as being more authentically religious than others.
7:57
Speaker 1: So I suspect the Supreme Court's going to reverse that.
8:00
Speaker 4: What was the best argument you think the state put
8:02
Speaker 4: forward to defend its claim?
8:05
Speaker 1: Maybe two things are worth emphasizing.
8:06
Speaker 6: That.
8:07
Speaker 1: One claim the state made, but I don't think the
8:09
Speaker 1: justices were moved by it, was that, look, the language
8:12
Speaker 1: in the Wisconsin statute is a lot like the language
8:15
Speaker 1: that appears in a whole bunch of other religious exemptions,
8:17
Speaker 1: and so the concern that the state was raising was like,
8:21
Speaker 1: if you interpret this language really broadly, that's going to
8:23
Speaker 1: have all kinds of sweeping effects. And the Justices didn't
8:26
Speaker 1: seem as moved by that. Another argument the state made,
8:29
Speaker 1: which is completely reasonable, is that you know, in order
8:32
Speaker 1: for the state to accommodate religion, it has to have
8:34
Speaker 1: some limits on that accommodation. Otherwise that reduces the incentive
8:38
Speaker 1: of the state to accommodate religion at all, which would
8:40
Speaker 1: be a perverse effect. But I think the justices were
8:42
Speaker 1: able to respond to that by saying, we agree with you.
8:45
Speaker 1: There can be limits on the exemptions. Again, you can
8:48
Speaker 1: make sure that the claimants are sincere, and you can
8:50
Speaker 1: make sure that they are religious as opposed to secular
8:54
Speaker 1: or philosophical or what have you. But what you can't
8:57
Speaker 1: do is adopt the definition of religion, which in effect
9:01
Speaker 1: picks and chooses among different religions, and I suspect will
9:05
Speaker 1: get a pretty consensus ruling from the justices on that point.
9:10
Speaker 4: Justice Barrett raised the question of how far the exemptions
9:14
Speaker 4: would go, saying, one of the problems here is figuring
9:16
Speaker 4: out what the line is. Some say there could be
9:19
Speaker 4: broad ramifications if the Justices side with Catholic Charities here.
9:26
Speaker 1: I mean, I think she was raising that issue and
9:28
Speaker 1: was right to, because anytime you have an exemption from
9:30
Speaker 1: a law, there's going to be questions about how far
9:32
Speaker 1: the exemption goes. And it is true that in American law,
9:36
Speaker 1: you know, we don't really have a clear definition of
9:40
Speaker 1: what is or is not religion. But I think that
9:43
Speaker 1: the lawyer for Catholic Charities was able to respond just
9:47
Speaker 1: by assuring Justice Barrett that in this particular case, in
9:51
Speaker 1: order to correct the error that there wisconstant court made,
9:55
Speaker 1: you don't actually have to issue a very broad ruling.
9:57
Speaker 1: You don't have to say again that this religious exemption,
10:01
Speaker 1: you know, covers any entity that conceivably claims to be religious.
10:06
Speaker 1: It's a more narrow and I think focused and precise
10:09
Speaker 1: argument than that. It's that when the state is engaging
10:13
Speaker 1: in crafting an exemption, it can't do so in a
10:16
Speaker 1: way that discriminates among religions. So that non discrimination rule,
10:20
Speaker 1: which is the key to this case, that would prevent
10:22
Speaker 1: this case from going off into some of the concerns
10:25
Speaker 1: that the state raised about how you know the exemption
10:28
Speaker 1: would swallow the rule itself. It is possible to accommodate
10:31
Speaker 1: religion and to draw boundaries around religion without doing so
10:34
Speaker 1: in a way that discriminates among different religions. I think
10:38
Speaker 1: that Justice Kagan and others kind of signal ways to
10:41
Speaker 1: do that.
10:41
Speaker 4: This is the first case involving religion that the Court
10:44
Speaker 4: has heard in about two years and this term there
10:46
Speaker 4: are three religion cases. Do you see a trend or
10:50
Speaker 4: any explanation for why those three in particular?
10:54
Speaker 1: It's hard to say. I mean, so much of the
10:56
Speaker 1: court stock, as you know, is a function of kind
10:59
Speaker 1: of accident, you know what happened in the courts below.
11:02
Speaker 1: But you're right that there's this case which involves a
11:05
Speaker 1: particular question that arises in the religious accommodation's context, is
11:08
Speaker 1: one coming out of Maryland, which involves some parents who
11:11
Speaker 1: wanted to be able to opt their kids out of
11:13
Speaker 1: some curricular matters that had to do with sexual orientation
11:16
Speaker 1: and gender identity and so on. So they're seeking an
11:18
Speaker 1: accommodation that was denied to them. And then of course
11:21
Speaker 1: there's the Oklahoma case about the virtual Catholic School and
11:25
Speaker 1: whether it can participate in that state's charter program. That
11:28
Speaker 1: one's not really an accommodation case. It's more of what
11:31
Speaker 1: I call a cooperation case. So certainly, you know, an
11:35
Speaker 1: interesting year for law and religion at the court. But
11:37
Speaker 1: whether the fact that there are three tells us anything deeper,
11:40
Speaker 1: I'm not sure.
11:42
Speaker 4: Thanks so much, Rick. That's Professor Richard Garnett of Notre
11:45
Speaker 4: Dame Law School. Coming up next. The Trump administration is
11:49
Speaker 4: dropping enforcement actions around cryptocurrency. This is bloomberg.
11:55
Speaker 7: The federal government is already among the largest holders a bitcoin, as.
11:59
Speaker 4: You know, and Trump used to call bitcoin a scam,
12:02
Speaker 4: but now he wants to make the United States the
12:05
Speaker 4: bitcoin capital of the world. And last month, at the
12:08
Speaker 4: first Crypto Summit at the White House, Trump was pushing
12:12
Speaker 4: the creation of a bitcoin reserve. With most of the
12:15
Speaker 4: assets seized by forfeitures in law enforcement actions.
12:19
Speaker 7: The Treasury and Commerce departments will also explore new pathways
12:23
Speaker 7: to accumulate additional bitcoin holdings for the reserve, provided it's
12:28
Speaker 7: done at no cost to the taxpayers.
12:30
Speaker 4: Of course, the President launched his own Trump Mean coin
12:34
Speaker 4: just a couple of days before the inauguration, so it
12:37
Speaker 4: should come as no surprise that the Securities and Exchange
12:41
Speaker 4: Commission has been dropping Biden administration enforcement actions around cryptocurrency.
12:47
Speaker 4: Joining me is securities law expert James Park, a professor
12:50
Speaker 4: at UCLA Law School, Jim to put this into perspective,
12:55
Speaker 4: tell us sort of what the state of play was
12:58
Speaker 4: with crypto in enforcement before Trump came into office.
13:03
Speaker 6: Yeah, before the administration changed, the SEC was involved in
13:09
Speaker 6: vigorous litigation against various parties such as crypto exchanges, developers
13:17
Speaker 6: of crypto projects, and the issue in many of those
13:21
Speaker 6: cases was whether or not the crypto asset that had
13:25
Speaker 6: been sold without registration with the SEC, whether those crypto
13:30
Speaker 6: assets were securities or not. And there'd been a good
13:34
Speaker 6: number of decisions, maybe five, maybe ten by federal district
13:39
Speaker 6: court judges that have uniformly held that in certain circumstances,
13:45
Speaker 6: crypto assets can be security. There were a few exceptions
13:50
Speaker 6: with respect to secondary market trading, but even those judges
13:54
Speaker 6: said that when they're being sold by a developer, the
13:57
Speaker 6: crypto asset is a security. And so pretty much every
14:00
Speaker 6: judge that has looked at the issue has said that
14:03
Speaker 6: some crypto assets are security. Now, these cases have not
14:08
Speaker 6: really gone up on appeal yet to my knowledge, they've
14:11
Speaker 6: only been on the district court level, and so appellate
14:15
Speaker 6: courts have not really weighed in at the time of
14:17
Speaker 6: the administration changed, but there are a lot of district
14:21
Speaker 6: court opinions that say that crypto assets can be securities.
14:25
Speaker 6: And that's that's sort of where we left off.
14:27
Speaker 4: So do we know how the Trump administration views crypto assets.
14:32
Speaker 6: I think they view crypto assets much more favorably, at
14:37
Speaker 6: least when we're talking about the folks who may not
14:40
Speaker 6: be security law expert. But I suspect though that the
14:44
Speaker 6: security law officials who are going to be manning the
14:48
Speaker 6: sec even though you know they're Trump appointees and they're Republicans,
14:53
Speaker 6: I think they have some gpticism about crypto and are
14:56
Speaker 6: a little bit wary about some of the dangers of
14:59
Speaker 6: permitted crypto assets to be sold without any disclosure or registration.
15:04
Speaker 6: But certainly the administration has a very favorable view, a
15:08
Speaker 6: very lave a fair view, a buyer beware view of
15:12
Speaker 6: crypto assets.
15:13
Speaker 4: So Paul Atkins, who has been tapped to run the SEC,
15:18
Speaker 4: at his public Senate committee hearing, said that providing a
15:22
Speaker 4: firm regulatory foundation for crypto assets would be a top priority.
15:26
Speaker 4: He apparently has like six million dollars in crypto himself.
15:30
Speaker 6: It's a lot.
15:31
Speaker 4: It's a lot. So what does that mean, firm regulatory foundation.
15:35
Speaker 6: It's a good question. I think one way of interpreting
15:40
Speaker 6: this is that, you know, we're going to provide some clarity.
15:43
Speaker 6: We're going to pass a statute. We're going to pass
15:46
Speaker 6: comprehensive regulations that define what is regulated and what is not,
15:51
Speaker 6: and what type of regulation is appropriate. And you know,
15:56
Speaker 6: I think Democrats and Republicans, I think, are you know,
15:59
Speaker 6: open into developing reasonable, comprehensive cryptoregulation that protects investors and
16:09
Speaker 6: helps prevent frauds. And I don't think there's any any
16:13
Speaker 6: problem with that sort of comprehensive crypto regulation. I think
16:17
Speaker 6: what the industry wants, though, is more of a safe harbor,
16:21
Speaker 6: just a set of rules or statutes that permit them
16:25
Speaker 6: to operate without you know, fear of litigation, without fear
16:29
Speaker 6: of enforcement, and quite frankly in some cases, without fear
16:34
Speaker 6: of accountability to investors. And you know, one of the
16:37
Speaker 6: things the crypto industry has maintained in its litigation is
16:41
Speaker 6: that it owes no obligations to crypto investors, which I
16:46
Speaker 6: think is, you know, an extraordinary position to take. And
16:50
Speaker 6: you know, that is something that they may want to
16:53
Speaker 6: try to get enshrined in some regulation, but I just
16:58
Speaker 6: don't think that's a good idea.
17:00
Speaker 4: The Trump sec is ending suits against coinbased global binance
17:05
Speaker 4: holdings and Ripple Labs. I mean, what does that say
17:09
Speaker 4: or what does that do?
17:10
Speaker 6: Well? It means on one level, it's a very powerful
17:14
Speaker 6: symbolic move to say that, you know, we're not going
17:18
Speaker 6: to enforce the security laws, even though these exchanges are
17:24
Speaker 6: probably listing securities, even though some of these developers have
17:28
Speaker 6: created securities. And by not enforcing the law, we are
17:33
Speaker 6: sending the message that we don't think that crypto acids
17:37
Speaker 6: should be regulated as securities. I think that's you know,
17:40
Speaker 6: that's a powerful symbolic statement that is being made by
17:44
Speaker 6: withdrawing from these suits, and you know, withdrawing from such
17:47
Speaker 6: high profile suits that were vigorously litigated by the SEC,
17:52
Speaker 6: so many of them, is I think unprecedented. I don't really,
17:55
Speaker 6: you know, recall any other time period when the SEC
17:58
Speaker 6: has completely dropped so many many major enforcement lawsuits and
18:02
Speaker 6: just withdrawn. Now. You know, on the other hand, the
18:05
Speaker 6: district court opinions that were issued in these cases, they
18:10
Speaker 6: still stand and there's still law, and so those precedents
18:14
Speaker 6: are not affected by the fact that the SEC has
18:17
Speaker 6: decided not to pursue these various cases. And so there
18:22
Speaker 6: still is a foundation of precedent which indicates that crypto
18:26
Speaker 6: assets can be securities in certain circumstances.
18:29
Speaker 4: Has the test for whether crypto is a security changed
18:34
Speaker 4: in any way? Is it still the Howie test?
18:37
Speaker 6: It's still the Howie test. It is still the Howie system.
18:39
Speaker 6: That's what the courts have consistently applied that in some
18:42
Speaker 6: circumstances crypto assets satisfy the Howie tests because the crypto
18:49
Speaker 6: asset purchasers are relying upon the efforts of the developers,
18:53
Speaker 6: the promoters, who are promising to create some great crypto
18:58
Speaker 6: ecosystem that will cause the value of the crypto assets
19:02
Speaker 6: to rise, and that's you know, that's what the Howie
19:05
Speaker 6: test says is as a security, and courts have consistently
19:10
Speaker 6: said that they can be securities under the Howie test.
19:13
Speaker 4: Are private plaintiffs able to bring the same kind of
19:18
Speaker 4: lawsuits that the sec has been bringing?
19:22
Speaker 7: They can.
19:23
Speaker 4: Yes.
19:23
Speaker 6: Private plaintiffs who are typically going to be purchasers of
19:28
Speaker 6: crypto assets who have suffered losses. There are various positive
19:33
Speaker 6: action that they can assert under federal securities laws that
19:38
Speaker 6: would permit them to recover some of their lawses. So
19:42
Speaker 6: one major category of cases is triggered when somebody sells
19:48
Speaker 6: the security without registering it with the sec than any
19:52
Speaker 6: private investor who purchased that security has the right to recision,
19:57
Speaker 6: which basically means they have the right to get their
19:59
Speaker 6: money back, and that's a valuable remedy. If you've lost
20:03
Speaker 6: a lot of money, you then have the right to
20:06
Speaker 6: riskind that transaction and get the money you invested back,
20:09
Speaker 6: and that would cover your losses. Another major private cause
20:13
Speaker 6: of action is available when some parties, such as the
20:17
Speaker 6: developer of the crypto project, the promoter issues material misrepresentation
20:24
Speaker 6: with fraudulent intent. Then crypto asset purchasers have a cause
20:29
Speaker 6: of action for security fraud if they argue that we
20:32
Speaker 6: relied upon these misrepresentations and that caused us to buy
20:38
Speaker 6: a security that was inflated in price, then they can
20:41
Speaker 6: recover their losses. So there are very strong, well established,
20:45
Speaker 6: several private causes of action that investors can can use
20:51
Speaker 6: if they feel like they have been cheated or defrauded
20:54
Speaker 6: by the developers of a crypto project.
20:57
Speaker 4: What are the disadvantages of litigating these issues through private
21:03
Speaker 4: lawsuits rather than having the SEC do it?
21:06
Speaker 6: You know, having the SEC bring a lawsuit sends a
21:10
Speaker 6: powerful message. It's a government enforcer that is passed with
21:15
Speaker 6: acting in the public interest, and when the SEC acts,
21:19
Speaker 6: that just sends a strong message that you know, this
21:23
Speaker 6: conduct violates Fedtle securities law and we're enforcing those laws
21:27
Speaker 6: with private actions. There's often the criticism that these investors they,
21:34
Speaker 6: you know, they should have known better, they invested in
21:36
Speaker 6: a risky crypto asset, and they're just suing because they
21:40
Speaker 6: lost money. And there's a criticism that, well, the plaintiff's
21:45
Speaker 6: attorneys are you know, they go and look for people
21:48
Speaker 6: who lost money so that they can bring lawsuits against
21:52
Speaker 6: various promoters and developers, and the attorneys get a significant fee.
21:56
Speaker 6: So private litigation sometimes is not looked at as favorably
22:01
Speaker 6: as sec enforcement actions. But you know, you still have
22:06
Speaker 6: the same types of remedies that are available. You have
22:08
Speaker 6: the opportunity to argue that crypto assets are securities, and
22:12
Speaker 6: so there are you know, very similar benefits that crypto
22:16
Speaker 6: investors have when they assert these private causes of action.
22:20
Speaker 4: Have any state ags litigated in this area of crypto.
22:25
Speaker 6: They are, They are litigating in a good number of cases,
22:30
Speaker 6: particularly for you know, cryptoprojects that are really complete frauds,
22:34
Speaker 6: where you know, somebody is you know, saying, you know,
22:38
Speaker 6: we're selling this crypto asset that's going to do something.
22:40
Speaker 6: They just take the money and run. State attorney generals
22:43
Speaker 6: have been very active in those clear fraud types of cases.
22:47
Speaker 6: They have been active, and I suspect that they will
22:50
Speaker 6: become more active as the federal government pulls back. And
22:54
Speaker 6: there are state securities frauds statutes that can be invoked
22:58
Speaker 6: and sometimes even criminal state prosecutors are getting involved in
23:04
Speaker 6: some of the more egregious cases of fast and so
23:07
Speaker 6: I suspect that the California Attorney General and the New
23:10
Speaker 6: York Attorney General and attorney generals from across the nation
23:14
Speaker 6: are going to see this as an opportunity and even
23:17
Speaker 6: a necessity to protect the citizens of their state from
23:22
Speaker 6: a fraudulent crypto project.
23:24
Speaker 4: Coming up next on the Bloomberg Law Show, I'll continue
23:26
Speaker 4: this conversation with UCLA law professor James Park. We'll talk
23:31
Speaker 4: about Trump's pardon of Ross Olbrick, founder of the drug
23:34
Speaker 4: trafficking site known as Silk Road, where virtual currency was
23:38
Speaker 4: the coin of the realm. He'd been serving a life
23:42
Speaker 4: sentence following his twenty fifteen conviction for trafficking and other crimes.
23:47
Speaker 4: Is a Sam Bankman freed pardon in the future. I'm
23:50
Speaker 4: June Grosso. When you're listening to Bloomberg, the Securities and
23:54
Speaker 4: Exchange Commission has been dropping Biden administration enforcement action around cryptocurrency.
24:02
Speaker 4: Trump's sec ended suits against coinbase, Global, Binance Holdings, Ripple Labs,
24:09
Speaker 4: but privately filed lawsuits have continued. Private plaintiffs and state
24:14
Speaker 4: attorneys general can and likely will still pursue claims, perhaps
24:18
Speaker 4: even more so if the sec backs off enforcement entirely
24:23
Speaker 4: and bad actors emerge and suits against promoters of other
24:27
Speaker 4: digital assets such as the Hawk, Tua and Peanut the Squirrel.
24:32
Speaker 4: Meme coins are ongoing despite a signal that the SEC
24:37
Speaker 4: won't consider most securities. I've been talking to securities law
24:41
Speaker 4: expert James Park, a professor at UCLA Law School. Jim,
24:45
Speaker 4: what about these suits over meme coins.
24:48
Speaker 6: Meme coins have often been, you know, just brok and
24:54
Speaker 6: really you can argue that well, investors to know they're
24:57
Speaker 6: buying something that's not worth anything. But again, I think
25:00
Speaker 6: that you know, given the amount of money, that the
25:02
Speaker 6: stake enforcement is really necessary in situations where you know,
25:07
Speaker 6: millions of dollars of it better funds have been taken
25:11
Speaker 6: without anything in return.
25:13
Speaker 4: So Trump also pardoned ross Aulbrick, the founder of the
25:17
Speaker 4: drug trafficking site Silk Road, who's been serving a life
25:22
Speaker 4: sentence since twenty fifteen, so hasn't been in there that
25:26
Speaker 4: long for a life sentence. What message does that send?
25:29
Speaker 6: I think that sends a message. I think about the
25:33
Speaker 6: use of bitcoin as a way of facilitating illictit activity,
25:39
Speaker 6: and in some ways that may legitimize just sort of
25:42
Speaker 6: the idea that we have this cryptocurrency and one of
25:47
Speaker 6: the main uses of that currency is to facilitate illegal transactions.
25:53
Speaker 6: And that's where a lot of the value of cryptocurrencies
25:57
Speaker 6: like bitcoin lies is that, you know, this is the
26:00
Speaker 6: way of transferring funds that evade the banking system, and
26:03
Speaker 6: so it facilitates illegal activity. And I think by by
26:07
Speaker 6: pardoning somebody who you know, used bitcoin and use various
26:13
Speaker 6: technologies to blatantly violate federal law, that it in some
26:19
Speaker 6: ways indirectly legitimizes such such activity. But I'm you know,
26:24
Speaker 6: I'm not completely familiar with all the details of the case.
26:26
Speaker 6: Maybe the argument is that maybe his feeling was that
26:29
Speaker 6: the time he served was sufficient for the wrongdoing that
26:34
Speaker 6: he committed. But you know, given that it was a
26:37
Speaker 6: life sentence, it does seem like a drastic reduction in
26:41
Speaker 6: that that sentence.
26:42
Speaker 4: I wonder if Sam Bankman freed is next I hear
26:45
Speaker 4: that he's angling for a pardon, that would be a
26:49
Speaker 4: huge statement.
26:50
Speaker 6: It would It would be a huge statement. And I
26:52
Speaker 6: think the question is, you know, to what extent is
26:57
Speaker 6: he in his administration really looking careful at the facts
27:01
Speaker 6: of various cases and you know, trying to say, well,
27:04
Speaker 6: here are the cases we think are clearly overreaching, and
27:10
Speaker 6: these are the cases where you get pardons versus we're
27:13
Speaker 6: just giving everyone a pardon. And you know, in Sam
27:16
Speaker 6: Bankman freed case, you know, it was not just simply
27:20
Speaker 6: an issue of you know, making optimistic statements about crypto
27:25
Speaker 6: that didn't really you know, come to fruition, but misappropriation
27:30
Speaker 6: of customer funds, which I think everyone would agree is
27:34
Speaker 6: that a bad thing. And so you know, if you
27:38
Speaker 6: can trast his case to that of Trevor Milton, who
27:41
Speaker 6: was pardoned I believe last week. You know, Trevor Milton
27:45
Speaker 6: was the founder of the Nicola company that was developing
27:49
Speaker 6: technology for clean energy trucks, and the theory against him
27:55
Speaker 6: is that on social media and other platforms he made
27:58
Speaker 6: very very optimistic, some would say misleading statements about that
28:04
Speaker 6: technology and pump them the stock price by those tactics.
28:10
Speaker 6: And you know, he was steadily convicted, sadly of a
28:13
Speaker 6: security fraud. And so you know, in that case, you know,
28:17
Speaker 6: perhaps the ideas that well, you know, maybe he violated
28:21
Speaker 6: some law, but maybe it's not, you know, it's not
28:24
Speaker 6: a criminal violation. Maybe it should just have been a
28:26
Speaker 6: civil violation. There's some argument that the parting could have
28:31
Speaker 6: been motivated by the the feeling that, you know, entrepreneurs
28:35
Speaker 6: should be able to, you know, issue optimistic statements about
28:40
Speaker 6: their products and not fear going to prison. So so
28:43
Speaker 6: I think you could distinguish that case from Fan Bateman seed,
28:46
Speaker 6: where you know, you're misappropriating customer funds, which is something
28:50
Speaker 6: that's you know, arguably different and probably different than making
28:55
Speaker 6: very optimistic statements about your your technology that could be
28:59
Speaker 6: misleading and could mislead investors.
29:02
Speaker 4: Trump pledged on the campaign trail to make the US
29:06
Speaker 4: the crypto capital of the world. Then the executive order
29:09
Speaker 4: part of it would be to create a strategic Bitcoin reserve.
29:14
Speaker 4: What is that?
29:15
Speaker 6: I think there are a lot of interpretations of what
29:18
Speaker 6: that means. And you know, one interpretation is that, you know,
29:22
Speaker 6: we have bitcoin that is owned by the federal government
29:25
Speaker 6: that maybe it sees from criminals or if it comes
29:29
Speaker 6: to the federal government, and so, you know, rather than
29:32
Speaker 6: selling that bitcoin, we just keep it. It's just something
29:34
Speaker 6: that is owned by the federal government, and that could
29:37
Speaker 6: be seen as the reserve.
29:39
Speaker 1: You know.
29:39
Speaker 6: Another more radical way of creating a reserve is that
29:42
Speaker 6: the federal government would actively buy bitcoin and hold it
29:47
Speaker 6: as an investment or hold it as some something of value.
29:52
Speaker 6: You know, I think that would be a much more
29:53
Speaker 6: radical step, and you know, a sort of intermediate version
29:57
Speaker 6: of this, where you have a sovereign wealth fund would
30:00
Speaker 6: invest in bitcoin and support its price, which is something
30:04
Speaker 6: that the solving wealth fund, I know, has been floated.
30:07
Speaker 6: So it's unclear, and I think, you know, some of
30:10
Speaker 6: this I think is politics. Of course, there were there
30:12
Speaker 6: significant campaign contributions by the crypto industry and support of
30:16
Speaker 6: the Trump campaign, and you know, he's paying them back
30:19
Speaker 6: in a sense. This is something that you know. The
30:21
Speaker 6: other kind of problem here, I think is that you
30:26
Speaker 6: know the problem of the influence of money on politics,
30:28
Speaker 6: and at least initially, crypto has generated significant amounts of wealth,
30:34
Speaker 6: and that wealth has been deployed to influence the political system.
30:38
Speaker 4: We'll see if litigation by investors and attorneys general can
30:43
Speaker 4: fill in some of the gaps from the lack of
30:46
Speaker 4: SEC enforcement. Thanks so much, Jim Best, Professor James Park
30:50
Speaker 4: of UCLA Law School, And that's it for this edition
30:53
Speaker 4: of the Bloomberg Law Show. Remember you can always get
30:56
Speaker 4: the latest legal news on our Bloomberg Law Podcast. You
30:59
Speaker 4: can find them on Apple Podcasts, Spotify, and at www
31:03
Speaker 4: Dot Bloomberg dot com, slash podcast Slash Law, and remember
31:08
Speaker 4: to tune into The Bloomberg Law Show every weeknight at
31:11
Speaker 4: ten pm Wall Street Time. I'm June Grosso and you're
31:14
Speaker 4: listening to Bloomberg