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Endangered Species Put at Risk & Prediction Markets · Bloomberg Law

• 0:02
  Speaker 1: This is Bloomberg Law with June Grossel from Bloomberg Radio.
• 0:10
  Speaker 2: Thirteen environmental groups are suing the Trump administration, asking federal
• 0:16
  Speaker 2: courts in California and Washington State to throw out the
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  Speaker 2: administration's deletion of the Endangered Species Acts definition of harm.
• 0:25
  Speaker 2: The deletion allows developers and private landowners to modify or
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  Speaker 2: even destroy endangered species habitat without it being considered harm
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  Speaker 2: to the species, even though the destruction of their habitat
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  Speaker 2: is the main reason that species become endangered. An attorney
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  Speaker 2: at the Western Environmental Law Center representing the plaintiffs, Pete Front,
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  Speaker 2: said in a statement, no longer protecting where grizzlies, salmon,
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  Speaker 2: and owls live will make them go extinct. We're hopeful
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  Speaker 2: the court will clarify what the Endangered Species Act has
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  Speaker 2: always meant. Joining me is an expert environmental law, Pat Parento,
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  Speaker 2: a professor at the Vermont Law and Graduate School. Pat
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  Speaker 2: start by explaining what the Trump administration has done here
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  Speaker 2: to the Endangered Species Act.
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  Speaker 1: Well, they have just published a final rule rescinding what's
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  Speaker 1: called the harm rule under the Endangered Species Act, which
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  Speaker 1: has been on the books for over fifty years. Was
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  Speaker 1: first enacted in nineteen seventy five in the gerald Ford administration,
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  Speaker 1: and it's been upheld by the US Supreme Court in
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  Speaker 1: nineteen ninety five in the case Sweet Home versus BABBITTT.
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  Speaker 1: So now the Trump administration is saying, forget about all that.
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  Speaker 1: We hereby rescind the harm rule, and oh, by the way,
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  Speaker 1: we're not going to propose a replacement. We're just going
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  Speaker 1: to say we don't need a harm rule at all.
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  Speaker 1: We don't need to define the word harm, which is
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  Speaker 1: in the statute, right, we don't even need to do that.
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  Speaker 1: So we're just going to repeal it. We're not going
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  Speaker 1: to comply with NIPA. We're not going to do an
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  Speaker 1: environmental impact statement. We're not going to comply with the
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  Speaker 1: Endangered Species Act itself, which requires consultation, its internal consultation
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  Speaker 1: before you take an action like this and produce what's
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  Speaker 1: called a biological opinion to demonstrate that the action that
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  Speaker 1: you're taking will not jeopardize endangered species or result in
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  Speaker 1: the adverse modification of their critical habitat. So it's crazy
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  Speaker 1: on stilts what we're talking about. If you can boil
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  Speaker 1: it down to this, the Trump administration has hereby decreed
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  Speaker 1: that destroying the habitat of endangered species is not harmful.
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  Speaker 2: The Administration claims that this change would reduce permitting requirements
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  Speaker 2: and compliance costs for farmers, landowners, and energy producers.
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  Speaker 1: Right without producing real data to show that this rule
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  Speaker 1: is responsible for what I guess you would call it
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  Speaker 1: unreasonable costs. I mean, it's certainly true that every law
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  Speaker 1: that Congress enacts is going to impose certain obligations on
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  Speaker 1: people that will in turn require the expenditure of some money.
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  Speaker 1: That's what regulation is all about. The money being spent
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  Speaker 1: is for a good purpose, a public purpose. Right. You
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  Speaker 1: can argue about how important saving endangered species is. If
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  Speaker 1: you ask the American people, they will tell you it's
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  Speaker 1: really important. That has been a consistent polling result over
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  Speaker 1: the life of the Endangered Species Act from nineteen seventy
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  Speaker 1: three to today. The amount of public support for this
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  Speaker 1: law is in the ninety percent range. Okay, so yeah,
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  Speaker 1: do compliance with laws require money? Sure they do.
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  Speaker 2: And is it true that the loss of habitat causes
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  Speaker 2: more species to go extinct than any other single factor.
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  Speaker 1: Yes, it is the leading cause of species extinction in
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  Speaker 1: the US, and globally. The other thing about it is
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  Speaker 1: the Endangered Species Act is all about habitat. I mean,
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  Speaker 1: the very stated purpose of the law is to conserve
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  Speaker 1: the ecosystems upon which these species depend. So right from
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  Speaker 1: the get go in nineteen seventy three, this is really
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  Speaker 1: kind of amazing for Congress to be this ecologically literate.
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  Speaker 1: In nineteen seventy three, they were talking about ecosystems, they
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  Speaker 1: were talking about habitat. That was the whole point of
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  Speaker 1: the law. Congress recognized that law loss of habitat was
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  Speaker 1: driving species to extinction, and unless it was both stopped
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  Speaker 1: or arrested and mitigated, more and more of the species
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  Speaker 1: would go extinct.
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  Speaker 2: Right now, thirteen environmental groups are suing in two different
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  Speaker 2: federal courts, one in California and Washington State. What is
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  Speaker 2: the basis of their lawsuit?
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  Speaker 1: Multiple grounds for all three. There's three lawsuits now and
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  Speaker 1: there's more in the works. By the way, they start
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  Speaker 1: by saying, the sweet Home decision in nineteen ninety five
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  Speaker 1: is still the law of the land. It has not
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  Speaker 1: been overturned. The Trump administration is clearly aiming to get
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  Speaker 1: this issue back in front of the Supreme Court. In
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  Speaker 1: their Pope that the Supreme Court will reverse its decision
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  Speaker 1: in Sweet Home and basically adopt the dissent in Sweet
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  Speaker 1: Home written by the late Justice antonin Scalia. Mean, what
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  Speaker 1: we're seeing is almost a resurrection of Scalia. You know
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  Speaker 1: there's an echo here, right, because this is the same
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  Speaker 1: strategy that Lee Zelden is pursuing under the Clean Air
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  Speaker 1: Act to repeal the endangerment finding once again EPA. The
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  Speaker 1: Trump administration is saying, the Supreme Court got it wrong
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  Speaker 1: in Massachusetts versus CPA. We don't have authority to regulate
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  Speaker 1: greenhouse gases, and we're going to get that issue back
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  Speaker 1: in front of the court so they can overturn mass
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  Speaker 1: versus CPA. Same thing is happening here with the harm rule.
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  Speaker 1: They want to get this case back to the court
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  Speaker 1: and the hopes that they can get a decision overturning
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  Speaker 1: the Sweet Home decision. The reason they believe they have
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  Speaker 1: a shot at this, of course, is because the Supreme
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  Speaker 1: Court has now overturned the Chevron doctrine with deference to
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  Speaker 1: agency interpretations. It's true that the Sweet Home decision was
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  Speaker 1: based on Chevron because at that time, nineteen ninety five,
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  Speaker 1: that was the framework that the Supreme Court was using
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  Speaker 1: to evaluate statutory terms that were ambiguous, right, And the
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  Speaker 1: principle of Chevron was if the words of a statute
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  Speaker 1: are ambiguous, And I suppose some might say the word
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  Speaker 1: harm is ambiguous, although the dictionary makes it crystal clear
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  Speaker 1: that it includes anything that hurts something. You know, the
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  Speaker 1: interpretation that harm does involve destruction of habitat which causes,
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  Speaker 1: by the way, actual injury. The rule I didn't really
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  Speaker 1: explain it. The rule says habitat modification or destruction that
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  Speaker 1: actually injures or kills a species. So the test is
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  Speaker 1: a proximate cause test. That's what the Supreme Court said
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  Speaker 1: in Sweet Home. So you know, it's not an easy
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  Speaker 1: test to me. You really have to be able to
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  Speaker 1: say the cutting of these trees, which will take down
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  Speaker 1: nests of the spot at owl, will lead to actual
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  Speaker 1: injury of an identifiable owl. So the test is stringent. Okay,
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  Speaker 1: it's not loose at all, but it is a vital
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  Speaker 1: test because if you don't save nesting habitat, breeding habitat
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  Speaker 1: of species, guess what they go extinct.
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  Speaker 2: You spoke about the late Justice Scalia and the Interior
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  Speaker 2: Department said in a statement that it was reversing a
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  Speaker 2: regulatory overreach not authorized by Congress and will defend its
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  Speaker 2: authority to honor the laws playing text. Are they basically saying, yeah,
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  Speaker 2: we're going to follow what Justice Scalia said.
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  Speaker 1: Oh yeah, they've adopted the Scalia dissent in sweet Home, Lockstock,
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  Speaker 1: and Beryl. But here's two problems with that. Number One,
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  Speaker 1: in Justice Stephens's majority opinion in sweet Home, which by
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  Speaker 1: the way, was six to three, with the late Justice
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  Speaker 1: O'Connor filing a very strong concur opinion and taking on
• 9:02
  Speaker 1: the Scalia dissent wholeheartedly, shall we say so? In Justice
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  Speaker 1: Stevens's majority opinion in sweet Home, a majority of the
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  Speaker 1: Court agreed that the Scalia interpretation was not supported by
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  Speaker 1: the text of the law, or the context of the law,
• 9:19
  Speaker 1: or the history of the law, or the purpose of
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  Speaker 1: the law. In other words, it was roundly rejected. And
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  Speaker 1: they weren't relying on Chevron for that. They were taking
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  Speaker 1: on Scalia's interpretation and saying it is not the best reading.
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  Speaker 1: They didn't use those words in those days. That's what
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  Speaker 1: the Court will use today is the best reading test
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  Speaker 1: for interpreting a statute. Right, But the point is again
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  Speaker 1: the majority in sweet Home rejected the test that the
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  Speaker 1: Trump administration now wants to adopt. The second problem here
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  Speaker 1: with what Scalia was saying is that in nineteen eighty two,
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  Speaker 1: Congress amended the Endangered Species Act to create what's called
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  Speaker 1: the Incidental Take Permit program. Okay, I testified in support
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  Speaker 1: of that amendment, by the way, But the point is
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  Speaker 1: that amendment was addressing the harm rule. It was addressing
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  Speaker 1: the fact that the Ninth Circuit, in a very famous case,
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  Speaker 1: the Paalila case out of Hawaii, involving this endangered bird
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  Speaker 1: on Monakia in Hawaii, the Ninth Circuit had said, yeah,
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  Speaker 1: the harm rule is the law, and yes, destroying the
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  Speaker 1: habitat of the Palila is unlawful under the Endangered Species Act,
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  Speaker 1: and the court the Ninth Circuit ordered the State of
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  Speaker 1: Hawaii to remove the exotic sheep that were being imported
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  Speaker 1: for hunters to shoot because it was destroying the habitat.
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  Speaker 1: So Congress was reacting to a specific court decision applying
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  Speaker 1: the harm rule, and instead of overturning the harm rule,
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  Speaker 1: which is what the Trump administration is saying, Congress would
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  Speaker 1: have done if it had the chance to do it,
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  Speaker 1: instead of that, Congress basically codified the harm rule by
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  Speaker 1: saying you need a permit, and you need a permit
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  Speaker 1: for habitat destruction or modification, and oh, by the way,
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  Speaker 1: to get the permit, you have to prepare a habitat
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  Speaker 1: conservation plan to offset the impact on the habitat from
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  Speaker 1: your activity. So there you go. You have two really
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  Speaker 1: strong arguments against what the Trump administration is trying to
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  Speaker 1: do in resurrecting the late Justice Scalia's dissent in Sweet
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  Speaker 1: Home and making it the law of the land.
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  Speaker 2: Well, many of the Conservatives on this super majority revere
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  Speaker 2: Justice Scalia. That's one point. Another is that this last
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  Speaker 2: term they reversed two long standing decisions, one Humphrey's Executor
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  Speaker 2: more than ninety years old and a twenty five year
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  Speaker 2: old campaign finance rule, plus effectively reversing the Voting Rights Act.
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  Speaker 2: So do you have any confidence that they will follow precedent?
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  Speaker 1: Well, we know, of course that the Court will do
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  Speaker 1: what the Court will do with five votes. I think
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  Speaker 1: this one will be a closer call. I don't rule, out,
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  Speaker 1: of course, the prospect or the danger that the Supreme
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  Speaker 1: Court might do what Trump is asking it to do.
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  Speaker 1: You can't rule that out. But here's the thing. Justice Roberts,
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  Speaker 1: in the lower Bright case which overturned the Chevron doctrine,
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  Speaker 1: said very clearly, our overturning Chevron does not mean that
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  Speaker 1: prior decisions of this Court that relied on s. Evron
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  Speaker 1: are not still the law. They are still the law
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  Speaker 1: unless and until, of course, the Supreme Court changes the law.
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  Speaker 1: So the argument that Loper Bright automatically means Trump wins
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  Speaker 1: is wrong. It's just flat wrong. On the face of
• 13:20
  Speaker 1: the Loper Bright decision, it's certainly true that if this
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  Speaker 1: case gets to the Supreme Court, there's a risk that
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  Speaker 1: it'll do the wrong thing from the standpoint of protecting
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  Speaker 1: endangered species. I would be naive to the extreme to
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  Speaker 1: think that, you know, the Supreme Court is bleeding over
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  Speaker 1: the fate of endangered species. But on the other hand,
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  Speaker 1: this principle, which is called statutory starry decisives when the
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  Speaker 1: Supreme Court has said that a statute means something specifically
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  Speaker 1: that is a strong precedent, so it doesn't get overruled
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  Speaker 1: with the snap of a finger or the fact that
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  Speaker 1: there's a new administration in town who doesn't like the
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  Speaker 1: prior ruling. So that's not enough to get that victory
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  Speaker 1: that Trump is hoping for.
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  Speaker 2: In this case, I'll ask you the question I usually
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  Speaker 2: ask you, which is, So, let's say that there's a
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  Speaker 2: democratic administration that comes in next and overturns the overturning
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  Speaker 2: of the Harm Rule. How much damage can be done
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  Speaker 2: in the remaining two years of the Trump administration if
• 14:28
  Speaker 2: there's not an injunction put in place.
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  Speaker 1: Yeah, well, there is going to be a request for
• 14:34
  Speaker 1: a preliminary injunction and maybe even a temporary restraining order
• 14:37
  Speaker 1: right out of the box. The Earth Justice is handling
• 14:40
  Speaker 1: that one of the major cases in Boy, that's the
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  Speaker 1: most formidable environmental litigating group in the country. They will
• 14:46
  Speaker 1: leave no stone unturned. So the problem is by saying
• 14:52
  Speaker 1: that the harm Rule is no longer in effect, that
• 14:56
  Speaker 1: influences all kinds of activities that are ongoing. It means
• 15:01
  Speaker 1: that the Forest Service, now the Trump administration wants to
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  Speaker 1: ramp up timber harvest is in the habitat of many
• 15:09
  Speaker 1: endangered species, spotted owl's, marble murau ats, you go down
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  Speaker 1: the list a whole bunch, right, So what happens now
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  Speaker 1: in that context of when agencies still have the obligation
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  Speaker 1: to ensure that their actions do not result in jeopardy
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  Speaker 1: or adverse modification of critical habitat. If the Fish and
• 15:29
  Speaker 1: Wildlife Service and NOAH with regard to marine species, if
• 15:33
  Speaker 1: they are no longer engaged in analyzing whether the destruction
• 15:38
  Speaker 1: of the habitat is going to result in harm to
• 15:42
  Speaker 1: the species, that's going to affect a lot of the
• 15:45
  Speaker 1: decision making that multiple agencies are doing. The Fish and
• 15:49
  Speaker 1: Wildlife Service won't be providing them with the kind of
• 15:53
  Speaker 1: biological information they need to meet the demand of the
• 15:57
  Speaker 1: Endangered Species Act, so they'll be subject to more litigation
• 16:01
  Speaker 1: over that. Now, the Trump administration doesn't really care about that.
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  Speaker 1: They're happy to see chaos in litigation that seems to
• 16:08
  Speaker 1: make their day, But the regulated community is not going
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  Speaker 1: to be happy about that. Timber companies that are relying
• 16:15
  Speaker 1: on Forest Service decisions or BLM decisions for grazing or mining,
• 16:20
  Speaker 1: or any number of things. You know, if you start
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  Speaker 1: tearing out the foundation of how the Endangered Species Act
• 16:28
  Speaker 1: is supposed to work, including looking at the effects of
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  Speaker 1: habitat loss, you're going to destabilize the whole regulatory framework.
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  Speaker 1: So some of this is being laid out already. I've
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  Speaker 1: seen it in the complaint that Earth Justice has filed.
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  Speaker 1: They've called out specific projects that will be affected by
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  Speaker 1: this decision. Right now today, I predict we will see
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  Speaker 1: a motion for at least a preliminary injunction very soon.
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  Speaker 2: I think the administration is just ignoring that endangered species
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  Speaker 2: are something that people care about. No one wants to
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  Speaker 2: see a species go extinct.
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  Speaker 1: They will. I think in time you're going to see
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  Speaker 1: more and more, maybe backlashes the word, I don't know,
• 17:14
  Speaker 1: more reaction from the public over this, and communities that
• 17:18
  Speaker 1: have seen the value of the restoration of endangered species.
• 17:21
  Speaker 1: If you think about the wolf reintroduction or the fact
• 17:26
  Speaker 1: that the grizzly bear population has improved. Whether it's been
• 17:30
  Speaker 1: fully recovered is another question, but they certainly have improved.
• 17:34
  Speaker 1: And what has that created. It's created a really robust
• 17:38
  Speaker 1: ecotourism industry, if you will, recreation based. Those gateway communities
• 17:43
  Speaker 1: around Yellowstone are there to see the wolves, and that's
• 17:47
  Speaker 1: money in the pocket of local businesses, local communities and
• 17:52
  Speaker 1: schools and all the rest. So it's not true that
• 17:55
  Speaker 1: restoring endangered species, you know, is a cost without taking
• 18:00
  Speaker 1: account of the benefits that it creates. So I don't
• 18:03
  Speaker 1: think you can make a case, frankly, that the investment
• 18:07
  Speaker 1: in recovering these species isn't worth it. Quite the contrary,
• 18:11
  Speaker 1: beyond the sort of ethical or moral dimensions of the question,
• 18:16
  Speaker 1: on the ground, benefits of restoring ecosystems, which is what
• 18:21
  Speaker 1: the law is all about, benefits local communities economically and
• 18:25
  Speaker 1: in many other ways.
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  Speaker 2: And Pat, you've written an article for The Conversation that
• 18:29
  Speaker 2: breaks all the legalities down in a way that's easy
• 18:33
  Speaker 2: to understand. It's entitled why Trump's move to gut the
• 18:37
  Speaker 2: Endangered Species Act likely won't hold up in court. A
• 18:42
  Speaker 2: pleasure as always, Pat, thanks so much. That's Professor Pat
• 18:45
  Speaker 2: Parento of the Vermont Law and Graduate School. Turning out
• 18:49
  Speaker 2: of the prediction markets, which have gone from obscurity to
• 18:53
  Speaker 2: being everywhere. There's fierce litigation between the states and the
• 18:58
  Speaker 2: Commodity Futures Trading Commission over whether those platforms like Calshian
• 19:03
  Speaker 2: Polymarket constitute illegal gambling or federally regulated financial derivatives. More
• 19:10
  Speaker 2: than twenty lawsuits and cease and desist actions have been
• 19:14
  Speaker 2: filed by states against the platforms, and the CFTC has
• 19:19
  Speaker 2: now initiated legal actions against nine states over their push
• 19:24
  Speaker 2: to rein in prediction markets. In a case involving a
• 19:28
  Speaker 2: White House teleprompter operator that's drawn attention, it's the CFTC
• 19:34
  Speaker 2: doing the enforcing. My guest is Columbia Law School professor
• 19:37
  Speaker 2: Joshua Mitts. He's a leading authority on prediction markets and
• 19:41
  Speaker 2: insider trading. His new paper is entitled from Iran to
• 19:45
  Speaker 2: Taylor Swift Informed Trading in Prediction Markets. So President Trump's
• 19:51
  Speaker 2: teleprompter operator is on unpaid leave from the White House
• 19:56
  Speaker 2: after reports that he used inside knowledge to make bets
• 20:00
  Speaker 2: about President Trump's speeches. What do we know about this?
• 20:05
  Speaker 3: I don't think there's been a lot of detail released,
• 20:08
  Speaker 3: but my understanding is that he essentially traded on Calshi
• 20:13
  Speaker 3: and it was basically a market which paid off. My
• 20:17
  Speaker 3: understanding is that it's a mention market, meaning a market
• 20:20
  Speaker 3: that essentially paid off when certain words or phrases or
• 20:24
  Speaker 3: texts are read aloud, and of course, or a statement
• 20:27
  Speaker 3: is made at a press conference, and of course a
• 20:29
  Speaker 3: teleprompter operator would have access to information regarding what was
• 20:34
  Speaker 3: going to be said. Presumably would have the transcript of
• 20:37
  Speaker 3: the planned statements. So would be uniquely in a position
• 20:41
  Speaker 3: to profit from trading based on that information.
• 20:44
  Speaker 2: Cal she is the one that alerted the CFTC to
• 20:48
  Speaker 2: what was going on. I'm not sure how they knew
• 20:51
  Speaker 2: that there was suspicious activity.
• 20:54
  Speaker 3: Yeah, So calsh runs quite a bit of surveillance on
• 20:58
  Speaker 3: their platform, and this is something we talk about in
• 21:02
  Speaker 3: our paper, the role of platforms to surveil and police
• 21:06
  Speaker 3: this kind of activity. What they look for is abnormal trading,
• 21:11
  Speaker 3: trading that seems to reflect some sort of either you
• 21:15
  Speaker 3: were very lucky or you had potentially an informational advantage.
• 21:19
  Speaker 3: Part of calshi's process is a Know your Customer so
• 21:23
  Speaker 3: called KYC process, by which in order to trade on
• 21:27
  Speaker 3: their platform, you have to provide certain information about yourself,
• 21:31
  Speaker 3: where you work, what the source of your funds are,
• 21:34
  Speaker 3: and so forth. So presumably, and this is really just speculation,
• 21:39
  Speaker 3: but I think it's consistent with what we've seen. CALSHI
• 21:42
  Speaker 3: would have undergone some sort of surveillance review for abnormally
• 21:47
  Speaker 3: profitable trades and then look to see if there was
• 21:50
  Speaker 3: any possible connection between the individual and the source of
• 21:54
  Speaker 3: the information that might be in fact a material to
• 21:57
  Speaker 3: a given market.
• 21:58
  Speaker 2: During the investigation, report. The CFTC alerted the federal prosecutors
• 22:03
  Speaker 2: in Manhattan. They didn't open a criminal investigation, and I'm
• 22:07
  Speaker 2: wondering why not when they have opened two criminal investigations,
• 22:12
  Speaker 2: one involving a Special Forces soldier who allegedly bet on
• 22:16
  Speaker 2: the capture of Venezuelan President Nicolas Maduro and a Google
• 22:20
  Speaker 2: employee who allegedly bet on user searches using internal company data.
• 22:25
  Speaker 2: I mean, isn't this similar to those?
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  Speaker 3: So for a criminal case, we're going to need to
• 22:32
  Speaker 3: see more, typically than simply taking advantage of the information.
• 22:37
  Speaker 3: But what prosecutors are often looking for is a kind
• 22:40
  Speaker 3: of conscious awareness of wrongdoing or sort of obvious departure
• 22:46
  Speaker 3: from ordinary norms of behavior to where it's just straightforward
• 22:51
  Speaker 3: to conclude that you were operating with criminal intent. The
• 22:55
  Speaker 3: issue here, and I don't have any just to be clear,
• 22:58
  Speaker 3: any information myself self about this case other than what's
• 23:02
  Speaker 3: been publicly reported. But the issue here may be that
• 23:05
  Speaker 3: I believe it was reported that the words were relatively
• 23:10
  Speaker 3: common words or words that may have occurred in a
• 23:14
  Speaker 3: given speech by random chance alone. Is sort of like
• 23:18
  Speaker 3: words that may have been used in the speech regardless,
• 23:20
  Speaker 3: and that might make it a little bit more difficult
• 23:23
  Speaker 3: for a criminal prosecutor, because if there's even some reasonable
• 23:27
  Speaker 3: doubt that the individual may have been in possession of
• 23:30
  Speaker 3: the information but may have nonetheless believed at the time
• 23:34
  Speaker 3: of the bet that they were not actually using the
• 23:37
  Speaker 3: non public information, but that they were essentially wagering on
• 23:41
  Speaker 3: the same sort of probabilities that anyone else could have
• 23:44
  Speaker 3: wagered on, and that the likelihood of using a particular
• 23:48
  Speaker 3: word was sufficiently sort of well known or it would
• 23:52
  Speaker 3: have happened anyway, then you know, there's at least possibly
• 23:56
  Speaker 3: a defense that could have given prosecutors some concern, and
• 24:00
  Speaker 3: that the information was not actually used. The other possibility
• 24:04
  Speaker 3: here is that the individual may have not necessarily sort
• 24:09
  Speaker 3: of set out in an intentional way, and it could
• 24:12
  Speaker 3: have been that there was some other data that we're
• 24:15
  Speaker 3: not aware of, which showed perhaps, for example, let's say
• 24:18
  Speaker 3: they were betting on lots and lots of words, and
• 24:20
  Speaker 3: when you look at the totality of what they were doing,
• 24:23
  Speaker 3: the intent points in a slightly different direction, or at
• 24:26
  Speaker 3: least there's an interpretation that this particular trade was part
• 24:30
  Speaker 3: of some broader set of trades where the intent may
• 24:33
  Speaker 3: not have been to use this information. So if there
• 24:36
  Speaker 3: was evidence of this kind, and again I have no
• 24:38
  Speaker 3: information one way or the other. If there was evidence
• 24:41
  Speaker 3: of this kind, it might have given criminal prosecutors some
• 24:44
  Speaker 3: pause about bringing criminal charges.
• 24:46
  Speaker 2: Coming up next, the CFTC fights the States. This is Bloomberg.
• 24:52
  Speaker 2: I've been talking to Columbia Law School professor Joshua Mits.
• 24:56
  Speaker 2: His new paper is entitled from Iran to Taylor Swift
• 25:00
  Speaker 2: Informed Trading in Prediction Markets. These prediction markets seem to
• 25:05
  Speaker 2: have really taken hold. They've struck deals with major sports
• 25:10
  Speaker 2: leagues to provide data during games. During the Golden Globes
• 25:15
  Speaker 2: in January, a polymarket chiron flashed before each award was
• 25:20
  Speaker 2: handed out, correctly predicting nearly all twenty eight winners. And
• 25:25
  Speaker 2: I'm just wondering how much the prediction markets are now
• 25:30
  Speaker 2: a part of the fabric of our life.
• 25:33
  Speaker 3: If they've become a part of the fabric of our lives,
• 25:35
  Speaker 3: that's happened pretty quickly, given that these platforms I've seen
• 25:40
  Speaker 3: explosive growth recently, So I would want to see a
• 25:43
  Speaker 3: little bit more evidence over time. But I do think
• 25:45
  Speaker 3: your question is getting at something that I've observed now
• 25:50
  Speaker 3: for several years, which is the increasing acceptance of gamification
• 25:55
  Speaker 3: or speculation financial wagering in the form of apps or
• 26:00
  Speaker 3: sort of digital technologies, which has really displaced traditional gambling
• 26:05
  Speaker 3: venues in lots of ways. People are flocking and gravitating
• 26:09
  Speaker 3: towards apps which allow them essentially to bet, gamble, wager money.
• 26:14
  Speaker 3: Now you can really go back years ago, about five
• 26:17
  Speaker 3: years ago, to the rise of game stop and meme stocks,
• 26:22
  Speaker 3: which was a kind of more teame and early version
• 26:26
  Speaker 3: of I think what we're seeing now in the years since,
• 26:29
  Speaker 3: we've seen crypto being used, for example, by politicians and
• 26:33
  Speaker 3: those who are closer to positions of power or in
• 26:35
  Speaker 3: positions of power themselves. So I think when you look
• 26:38
  Speaker 3: at it as a trend, prediction markets may be the
• 26:41
  Speaker 3: latest and greatest iteration, if you will, of this sort
• 26:45
  Speaker 3: of financial gambling, but it's really just that I think
• 26:50
  Speaker 3: the underlying trend is that we've gotten much more comfortable
• 26:53
  Speaker 3: with speculation and wagering, and some would say in a
• 26:56
  Speaker 3: way that's similar to the nineteen twenties. That's not my argument.
• 27:00
  Speaker 3: Others have made that argument, But there's a real question
• 27:03
  Speaker 3: as to what it is in our society that has
• 27:05
  Speaker 3: made these sorts of speculative bets much more socially acceptable
• 27:09
  Speaker 3: maybe than they were in the past.
• 27:11
  Speaker 2: So we have many states and the CFTC locked in
• 27:16
  Speaker 2: a battle for who's going to control this. There are
• 27:20
  Speaker 2: over twenty lawsuits and cease and desist actions have been
• 27:23
  Speaker 2: filed by the states against these platforms, but the CFTC
• 27:28
  Speaker 2: has initiated legal actions against nine states. I mean, what
• 27:33
  Speaker 2: you just describe sounds like it's gambling, and why shouldn't
• 27:36
  Speaker 2: the states be regulating it?
• 27:39
  Speaker 3: Well, gambling as a economic activity is much broader than
• 27:45
  Speaker 3: the form of gambling that's been traditionally regulated by state
• 27:49
  Speaker 3: gambling laws. So you could look at the stock market
• 27:52
  Speaker 3: as a whole as a form of gambling trading frequently.
• 27:55
  Speaker 3: You could look at commodities futures trading in other areas.
• 27:59
  Speaker 3: If you want to trade made silver futures or gold
• 28:02
  Speaker 3: futures or oil futures, those are all commodities or derivatives
• 28:07
  Speaker 3: of commodities, and one can argue if you're basically wagering
• 28:11
  Speaker 3: that the price is going to go up or go down,
• 28:14
  Speaker 3: you're placing a bet just like a high frequency trader
• 28:17
  Speaker 3: would be, and none of that activity would be regulated
• 28:21
  Speaker 3: by state gambling laws. So it's a bit tautological to
• 28:25
  Speaker 3: say that gambling should be regulated by states, because states
• 28:28
  Speaker 3: are regulated gambling. The question really is what forms of
• 28:32
  Speaker 3: gambling have and should be under state jurisdiction, and which
• 28:37
  Speaker 3: forms belong within the federal regulatory scheme. I think one
• 28:42
  Speaker 3: very important difference is that Calshi and poly Market, these
• 28:46
  Speaker 3: prediction platforms operate much more like two sided financial markets,
• 28:51
  Speaker 3: with market participants essentially trading with each other or with
• 28:56
  Speaker 3: liquidity providers, rather than players who are inter acting with
• 29:01
  Speaker 3: an establishment. And I'm not suggesting that's necessarily an operative
• 29:05
  Speaker 3: legal differentiator, but I think if you look at the
• 29:08
  Speaker 3: economic nature of the activity on these markets, there is,
• 29:12
  Speaker 3: I would suggest, perhaps a much closer similarity between an
• 29:16
  Speaker 3: oil futures market and a prediction market, and they both
• 29:19
  Speaker 3: involve essentially matching bids and offers, and the platform is
• 29:24
  Speaker 3: serving as an intermediary for this contract. It's to be sure,
• 29:29
  Speaker 3: I think to your point, there's a lot of friction
• 29:31
  Speaker 3: right now because this activity, unlike commodities trading or futures trading,
• 29:37
  Speaker 3: really does feel much more like the sort of consumer
• 29:40
  Speaker 3: gambling that has been traditionally regulated by the States.
• 29:44
  Speaker 2: Is there a split among the courts about how these
• 29:47
  Speaker 2: should be viewed?
• 29:49
  Speaker 3: Well, I think a couple things. I mean, I've been
• 29:51
  Speaker 3: speaking in economic terms. I mean, the legal question in
• 29:55
  Speaker 3: these cases really concerns preemption and the language of the
• 29:59
  Speaker 3: comm Bodies Exchange Act and the whether or not state
• 30:03
  Speaker 3: power to regulate gambling falls and covers, particularly sports related contracts.
• 30:09
  Speaker 3: Not every contract on a prediction market necessarily has the
• 30:13
  Speaker 3: same legal standing under state gambling law. So contracts involving
• 30:19
  Speaker 3: sports games in particular seem to fit squarely within the
• 30:23
  Speaker 3: traditional domain of state gambling laws and activity gambling activity
• 30:29
  Speaker 3: at the state level. Sports contracts are kind of your
• 30:33
  Speaker 3: quintessential example. Some of the other contracts, like you know,
• 30:37
  Speaker 3: crypto derivatives for example, I think it's a much harder argument.
• 30:40
  Speaker 3: So what we're seeing right now in the circuits is
• 30:44
  Speaker 3: some grappling with the exact language of the Commodities Exchange Act,
• 30:50
  Speaker 3: which defines the CFTC's jurisdiction. And what the CFTC is
• 30:53
  Speaker 3: really trying to do is to preserve maximum jurisdiction and
• 30:57
  Speaker 3: essentially to say, look, I mean, there's no question that
• 31:00
  Speaker 3: certain kinds of prediction contracts, which are themselves derivatives of
• 31:04
  Speaker 3: let's say crypto or other financial instruments. There's no question
• 31:07
  Speaker 3: at least most of those are within our authority. So
• 31:10
  Speaker 3: why would that not also be true for gaming or
• 31:14
  Speaker 3: other kinds of contracts just because they happen to involve
• 31:18
  Speaker 3: areas that were traditionally under state regulation. And it's really
• 31:21
  Speaker 3: more of a statutory interpretation question before the circuit courts
• 31:25
  Speaker 3: right now. But I think fundamentally as an economic matter,
• 31:28
  Speaker 3: there are some differences, but it probably will ultimately have
• 31:31
  Speaker 3: to be resolved by the Supreme Court, and I would
• 31:33
  Speaker 3: expect that if I had to put a prediction on it,
• 31:36
  Speaker 3: that the CFTC will win in the.
• 31:39
  Speaker 2: End, in light of the fact that the Trump administration
• 31:42
  Speaker 2: is all in on the prediction markets. Is enforcement by
• 31:47
  Speaker 2: the CFTC enough.
• 31:49
  Speaker 3: Well, what we talk about in our paper is that
• 31:52
  Speaker 3: enforcement here can occur on multiple levels. So there's actor
• 31:57
  Speaker 3: or contract based enforcement, where you say, here there's some
• 32:00
  Speaker 3: particular trades, we're going to look at these trades. We're
• 32:03
  Speaker 3: going to dig into an individual's trading history and bring
• 32:05
  Speaker 3: an enforcement action against that individual or in extreme cases,
• 32:09
  Speaker 3: perhaps criminal indictment. But there's also platform level surveillance and
• 32:14
  Speaker 3: platform level regulation. And while it's true that the Trump
• 32:17
  Speaker 3: administration has been relatively pro innovation or pro sort of
• 32:22
  Speaker 3: a hands off approach when it comes to financial innovation
• 32:25
  Speaker 3: in the crypto space, digital offset space, and now to
• 32:28
  Speaker 3: some extent in the prediction market space, it's also true
• 32:31
  Speaker 3: that these platforms have been at least Kyle she and
• 32:34
  Speaker 3: to a certain extent, Polymarket US as well their US ARM.
• 32:38
  Speaker 3: They've been really stepping up to show that they are
• 32:41
  Speaker 3: enforcing these sorts of insider trading, fraud and manipulation rules
• 32:45
  Speaker 3: on the platform. And we've talked about insider trading, but
• 32:48
  Speaker 3: it's not only insider trading. I mean, some of these
• 32:50
  Speaker 3: smaller markets in particular are amenable to manipulation where individuals
• 32:55
  Speaker 3: can control the outcome of the market, so outcome based manipulation.
• 32:59
  Speaker 3: And we know that in many cases, you know, is
• 33:02
  Speaker 3: something like over ninety percent, maybe as high as ninety
• 33:05
  Speaker 3: nine percent of the participants on these platforms are losing money,
• 33:08
  Speaker 3: So you know, there needs to be adequate disclosure regarding
• 33:11
  Speaker 3: the risks of participating and so forth. Platforms I think
• 33:15
  Speaker 3: have taken some actions that are helpful in that direction
• 33:18
  Speaker 3: in terms of both combating misconducting and protecting consumers. But
• 33:21
  Speaker 3: there's more that can be done there, and that seems
• 33:23
  Speaker 3: to be an area where maybe there's some openness on
• 33:26
  Speaker 3: the part of the Trump administration to sort of enlist
• 33:29
  Speaker 3: platforms in kind of inducing a more informed and hopefully
• 33:33
  Speaker 3: fairer and safer market for consumers.
• 33:36
  Speaker 2: Tell us a little more about your paper.
• 33:37
  Speaker 3: Well, the paper looks systematically at polymarket and identifies over
• 33:42
  Speaker 3: two hundred thousand episodes of potentially informed trading, and we
• 33:48
  Speaker 3: basically identify across a wide range of We have five
• 33:52
  Speaker 3: criteria that we employ to identify what we consider potentially
• 33:57
  Speaker 3: informed trading that we don't necessarily can include reflects the
• 34:01
  Speaker 3: use of material non public information. We recognize that some
• 34:05
  Speaker 3: of this activity might be in fact informed trading which
• 34:09
  Speaker 3: is lawfully acquired, but we think that what it shows
• 34:12
  Speaker 3: is that the prediction markets are in fact facilitating the
• 34:16
  Speaker 3: systematic exploitation of information that is non public and there's
• 34:22
  Speaker 3: a number of consequences which follow from that. So we
• 34:24
  Speaker 3: talked about surveillance at the platform level. We also think
• 34:28
  Speaker 3: in the paper talk about some of the proposals. There've
• 34:30
  Speaker 3: been some legislative proposals to outlaw certain uses of information,
• 34:35
  Speaker 3: certain kinds of contracts. We think that some of these
• 34:39
  Speaker 3: proposals are in fact moving the ball forward, others are
• 34:42
  Speaker 3: essentially summarizing existing law. I'll just say part of the
• 34:45
  Speaker 3: problem here is not only having strong legal rules, but
• 34:50
  Speaker 3: thinking about enforcement, because when actors are trading globally using
• 34:55
  Speaker 3: anonymous identities on the blockchain and so forth, the problem
• 34:58
  Speaker 3: is just as much a prac one of identifying who's
• 35:01
  Speaker 3: engaging in the trading and who's sharing the information as
• 35:05
  Speaker 3: it is figuring out what the rule should be. So
• 35:09
  Speaker 3: we talk in the paper about just the role of
• 35:12
  Speaker 3: as I mentioned, platforms, not only in surveillance but in
• 35:15
  Speaker 3: cooperating and in fact, we really need a global perspective
• 35:19
  Speaker 3: because you know, it can't be enough for the United
• 35:21
  Speaker 3: States to take actions on its own. We really need
• 35:25
  Speaker 3: to see international cooperation, especially when there are transnational networks,
• 35:30
  Speaker 3: which is something that we've seen in insider trading. More broadly,
• 35:33
  Speaker 3: I mean, this is how insider trading rings are brought down,
• 35:36
  Speaker 3: and so that same sort of approach needs to be
• 35:38
  Speaker 3: taken for the prediction markets as well.
• 35:40
  Speaker 2: Thanks so much for sharing your thoughts with us. That's
• 35:43
  Speaker 2: Professor Joshua Amidst of Columbia Law School. And that's it
• 35:47
  Speaker 2: for this edition of The Bloomberg Law Show. Remember you
• 35:49
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• 35:52
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• 36:00
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• 36:03
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• 36:07
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