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Clancy Trial Twist & Kalshi Loses Again · Bloomberg Law

• 0:02
  Speaker 1: This is Bloomberg Law with June Grosso from Bloomberg Radio.
• 0:08
  Speaker 2: A jury can draw an inference or can determine that
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  Speaker 2: there is reasonable doubt based upon the lack of an
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  Speaker 2: adequate investigation. In this case, there was no investigation. They
• 0:23
  Speaker 2: just immediately assumed that this woman was guilty.
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  Speaker 3: A new twist in the Lindsay Clancy case. For the
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  Speaker 3: first time, her defense attorney argued in court today that
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  Speaker 3: there wasn't enough evidence to prove she killed her three children.
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  Speaker 2: So I asked the court to harken back to the
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  Speaker 2: evidence that was presented and ask yourself, where's the evidence
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  Speaker 2: that she did this? Where is the evidence that she
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  Speaker 2: did this?
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  Speaker 3: A striking turn because during the five weeks of trial,
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  Speaker 3: The defense didn't dispute that Clancy killed the children in
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  Speaker 3: the family's home in 2023. The prosecutor called the argument laughable,
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  Speaker 3: pointing to various evidence raised during the trial. The defense
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  Speaker 3: focused during the trial was in trying to persuade a
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  Speaker 3: jury that the 36-year-old former nurse was not criminally responsible
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  Speaker 3: because of mental disease, a rare condition called postpartum psychosis.
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  Speaker 3: But the trial ended in a hung jury, 11 to 1,
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  Speaker 3: for acquittal. Joining me is Dave Ehrenberg, former Palm Beach
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  Speaker 3: County State Attorney. Dave, Clancy's lawyer took this leap from
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  Speaker 3: arguing through five weeks of trial that she wasn't criminally
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  Speaker 3: responsible because of mental disease to arguing now that there
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  Speaker 3: isn't enough evidence to prove she killed her three children.
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  Speaker 3: Quite a stunning reversal.
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  Speaker 4: Well, he's doing his job as a lawyer, which you
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  Speaker 4: can argue in the alternative, which during the trial, they
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  Speaker 4: admitted she did it. But they said that she was
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  Speaker 4: mentally incapacitated. So now in an attempt to avoid a
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  Speaker 4: new trial, he's pulling out all the stops by even
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  Speaker 4: saying that, well, there's not any evidence to justify trying
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  Speaker 4: her again because there's not enough evidence that says that
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  Speaker 4: she did it. But of course, she's already admitted to it.
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  Speaker 4: And the evidence does show that she did it.
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  Speaker 1: I mean this was.
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  Speaker 4: Never even an issue, a question. This just feeds into
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  Speaker 4: the conspiracy theories out there.
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  Speaker 3: I mean do you think that's why he's doing it?
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  Speaker 3: Because obviously the judge is not going to buy that.
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  Speaker 3: I mean then who did it? Her husband? Some mysterious intruder?
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  Speaker 4: Well, he had always played coy with the conspiracy theories
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  Speaker 4: out there about Patrick Clancy. He never– directly debunked them.
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  Speaker 4: He just said, well, I'm not the one saying it.
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  Speaker 4: And then after the mistrial, he did come out strongly
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  Speaker 4: saying that Patrick Clancy is a victim in all this.
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  Speaker 4: He did not do it, and the conspiracy theory should stop.
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  Speaker 4: But now back in court, this will help reignite them,
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  Speaker 4: I guess. I know he's doing this to try to
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  Speaker 4: help his client in any way possible, but it's a
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  Speaker 4: no-win proposition, and it will only further the disgusting conspiracy
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  Speaker 4: theories out there which are propagated by so-called Internet sleuths
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  Speaker 4: who in reality know nothing.
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  Speaker 3: Yeah, so now some of the arguments. He argued for
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  Speaker 3: a required finding of not guilty. She should be found
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  Speaker 3: not guilty because of the total and complete lack of
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  Speaker 3: evidence to indicate to a rational juror that she was guilty.
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  Speaker 3: The judge hasn't decided on this, but this is not
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  Speaker 3: going anywhere, is it?
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  Speaker 4: No, but defense attorneys are obligated to preserve every legal avenue.
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  Speaker 1: So what he's doing.
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  Speaker 4: He's attacking the sufficiency of the prosecution's baseline evidence. He's
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  Speaker 4: attempting to get the charge dismissed entirely or prevent a
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  Speaker 4: retrial on double jeopardy grounds. And so he's doing what
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  Speaker 4: a lawyer does, but in the court of public opinion,
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  Speaker 4: it's a loser.
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  Speaker 1: And in a court of law, it will also be
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  Speaker 1: a loser.
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  Speaker 3: Well, there is this legal wrangling over the holdout juror,
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  Speaker 3: and he filed a motion to investigate the juror. Among
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  Speaker 3: the things he argued that the judge should have ousted
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  Speaker 3: the juror after the jury foreperson complained that he was
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  Speaker 3: refusing to listen to the law in reasonable doubt. So
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  Speaker 3: he wants all this information. He wants his cell phone records.
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  Speaker 3: I mean, what do you think?
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  Speaker 4: Well, they're trying everything, pulling out all stops. It's not
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  Speaker 4: going to work because unless you can show that the
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  Speaker 4: juror definitively and knowingly lied on his questionnaire, then this
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  Speaker 4: isn't going anywhere. And even if he did misrepresent things,
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  Speaker 4: I mean, the mistrial is over. He's already investigated it
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  Speaker 4: during the trial, whether the juror was following the instructions.
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  Speaker 4: And the judge found that the juror was not violating
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  Speaker 4: any of the rules. So could you potentially get the
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  Speaker 4: juror in trouble, maybe on perjury?
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  Speaker 1: Yeah, possibly if it gets that far.
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  Speaker 4: But there's no evidence to me that he knowingly lied
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  Speaker 4: I think the problem was with the questionnaire itself. The
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  Speaker 4: questions were vague, and you've got to have more than
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  Speaker 4: just inconsistencies for a perjury count. But you notice how
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  Speaker 4: I said that the penalty would be perjury and not
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  Speaker 4: a retrial because the mistrial happened.
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  Speaker 1: It's over.
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  Speaker 4: And so going after this juror is a desperate attempt
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  Speaker 4: to try to force an end to all this, but
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  Speaker 4: it's not going to happen. And also it does discourage
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  Speaker 4: future jurors from holding out because if you're the one
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  Speaker 4: to hold out, this is the lesson.
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  Speaker 1: You're going to be scrutinized.
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  Speaker 4: I mean he's not the only one who has been
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  Speaker 4: accused of unauthorized cell phone use, but he's the only
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  Speaker 4: one whose phone records are being demanded. And so I
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  Speaker 4: think this whole thing is heading in the wrong direction,
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  Speaker 4: and it's not going to go anywhere.
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  Speaker 3: Today they said they want to make the notes from
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  Speaker 3: the jury and the sidebars public. They want to use
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  Speaker 3: it in their motion to dismiss on double jeopardy grounds.
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  Speaker 5: Well, yeah.
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  Speaker 4: Well, you know, there's a strict line in the law
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  Speaker 4: between a juror who digs in their heels and votes
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  Speaker 4: their conscience and a juror who breaks the rules. And
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  Speaker 4: Kevin Reddington isn't allowed to challenge that. how the holdout
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  Speaker 4: juror voted. So he has to prove that the juror
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  Speaker 4: looked outside the courtroom or lied to get seated. But
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  Speaker 4: like I said, this looks like a fishing expedition. And
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  Speaker 4: I know they're trying to argue that double jeopardy attaches here.
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  Speaker 1: But the law is against them.
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  Speaker 4: The law says that there's manifest necessity here because when
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  Speaker 4: you have These extended deliberations where the judge has already
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  Speaker 4: given that Allen charge to keep deliberating, where he questioned
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  Speaker 4: all the jurors.
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  Speaker 1: He gave renewed instructions. The judge did what he had
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  Speaker 1: to do.
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  Speaker 4: So to say, well, the judge acted too quickly to
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  Speaker 4: declare a mistrial and they shouldn't be allowed to try
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  Speaker 4: her again. No, none of this stuff is going to work.
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  Speaker 4: I think the best chance to avoid another trial is
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  Speaker 4: for the defense lawyer and the prosecution to come to
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  Speaker 4: an agreement.
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  Speaker 1: And settle this thing.
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  Speaker 4: And it's in the prosecution's interest, I think, to do so,
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  Speaker 4: because that 11 to 1 is a signal to him
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  Speaker 4: not to do it again.
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  Speaker 3: However, the defense attorney has said that he wouldn't accept
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  Speaker 3: any plea deal that would include her going to prison.
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  Speaker 3: What kind of room does that leave for the prosecutor?
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  Speaker 1: That's the big question.
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  Speaker 4: That's why they haven't been able to reach a settlement yet,
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  Speaker 4: because if the defense is not willing to compromise on
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  Speaker 4: a short period of incarceration, then it's up to the
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  Speaker 4: parties that come up with something more creative, like perhaps
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  Speaker 4: the defendant can not challenge the rulings on appeal and
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  Speaker 4: will go into a mental institution. But remember, you can't
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  Speaker 4: negotiate a defined term in a mental institution because that
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  Speaker 4: is not incarceration. You can only settle with a certain
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  Speaker 4: number of years in a prison, a penalty, incarceration, but
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  Speaker 4: not in a mental institution, which is about getting you well.
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  Speaker 4: And that's going to be up to a doctor and
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  Speaker 4: a judge to determine her number of years there. So
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  Speaker 4: that's the conundrum here. They're going to have to come
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  Speaker 4: up with something a little more creative to ensure that
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  Speaker 4: she accepts responsibility for what she did and she gets help,
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  Speaker 4: but she's not going to be released immediately. within a
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  Speaker 4: matter of months or even a couple years, because that
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  Speaker 4: would seem like an injustice if she was found not
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  Speaker 4: guilty by reason of insanity and then sent to a
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  Speaker 4: mental institution only to be released a short time later
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  Speaker 4: and then able to have kids again.
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  Speaker 3: The prosecutor said after the hearing that they hadn't decided
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  Speaker 3: whether to retry her or not. They were going to
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  Speaker 3: see how the motions played out. Do they have any
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  Speaker 3: choice if they can't reach a plea deal? What choice
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  Speaker 3: do they have but to retry her?
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  Speaker 1: I don't think it's in their best interest to retry her.
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  Speaker 4: You can see by the way this first trial went
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  Speaker 4: that they were pretty fortunate not to get an acquittal.
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  Speaker 4: The prosecution lived to fight another day and they should
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  Speaker 4: take this as a message from the jury not to
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  Speaker 4: do it all again and put the community and the
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  Speaker 4: family through it again. In fact, Patrick Clancy didn't want it.
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  Speaker 4: He doesn't want to do it again either. So that's important. Plus,
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  Speaker 4: prosecutors have an ethical obligation only to pursue charges when
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  Speaker 4: they have a good faith belief they can get a
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  Speaker 4: conviction beyond a reasonable doubt. So whether they have that
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  Speaker 4: good faith belief, I don't know. I'd leave that up
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  Speaker 4: to the prosecutors.
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  Speaker 1: I know the DA.
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  Speaker 4: He's a good person, and he's a smart guy and
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  Speaker 4: an honorable person, Tim Cruz. So I think he'll do
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  Speaker 4: the right thing in the end, but this is going
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  Speaker 4: to take some real negotiation, and it did not help
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  Speaker 4: the cause for the defense lawyer, Kevin Reddington, to bash
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  Speaker 4: Tim Cruz personally during his gloating press conference after he
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  Speaker 4: got the mistrial. So I saw that he backed down
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  Speaker 4: from that and he started to compliment the DA, but
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  Speaker 4: it's never a good idea to start personally attacking the
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  Speaker 4: person who you depend on for a settlement. I mean,
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  Speaker 4: it is in the prosecution's hands as to whether this
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  Speaker 4: thing gets tried again, and it's in their discretion.
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  Speaker 3: Do you see a case where the prosecutor just says,
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  Speaker 3: there's no plea deal, we're just dropping the charges against
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  Speaker 3: this woman?
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  Speaker 4: Not a chance, because if that happens, then she goes free.
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  Speaker 1: She doesn't even go to a mental institution.
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  Speaker 4: So they're not dropping charges. But what could happen is
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  Speaker 4: they will posture that they're moving forward with another trial,
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  Speaker 4: and then that could increase the leverage that the state
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  Speaker 4: has over the defense, and that could lead perhaps to
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  Speaker 4: some sort of settlement. Just that no one's interested to
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  Speaker 4: go through all this again with a full trial. But remember,
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  Speaker 4: even if she had won at trial, she wasn't going free.
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  Speaker 4: She was going to a mental institution. So why would
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  Speaker 4: he drop the charges now to give her something even
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  Speaker 4: better than she would have received if she had been
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  Speaker 4: found not guilty by reason of insanity in the first trial?
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  Speaker 3: Okay, stay with me, Dave. Coming up next, New York's
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  Speaker 3: governor is calling for an investigation into Cornell University's handling
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  Speaker 3: of gang rape allegations in 2024. I'm June Grosso, and
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  Speaker 3: you're listening to Bloomberg. Today, New York Governor Kathy Hochul
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  Speaker 3: called for an investigation into Cornell University's response to a
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  Speaker 3: 2024 gang rape allegation in which a woman says she
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  Speaker 3: was sexually assaulted by seven students after being plied with
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  Speaker 3: alcohol and drugs. The woman filed a lawsuit this month.
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  Speaker 3: She had reported the incident to Cornell's campus police department.
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  Speaker 3: But the local district attorney's office opted not to prosecute
• 12:02
  Speaker 3: anyone at the time. It reopened the criminal investigation Monday
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  Speaker 3: as public outrage built over the woman's allegations. I've been
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  Speaker 3: talking to former Palm Beach County State Attorney Dave Ehrenberg. Dave,
• 12:15
  Speaker 3: explain why prosecutors have reopened the investigation after this civil
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  Speaker 3: lawsuit was filed by the student.
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  Speaker 5: Right.
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  Speaker 1: So what happened was, originally, this case.
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  Speaker 4: went to the Cornell Police Department who did an interview
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  Speaker 4: with the victim and then it was sent over to
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  Speaker 4: the district attorney's office who decided that there was not
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  Speaker 4: enough evidence to file charges. The district attorney's office said
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  Speaker 4: that the victim claimed that the sexual conduct was consensual
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  Speaker 4: and the drugs were taken voluntarily. Now, There's something we
• 12:54
  Speaker 4: don't know because then what is the complaint about? What
• 12:58
  Speaker 4: was she reporting to police if the report is, well,
• 13:02
  Speaker 4: she said everything was voluntary and consensual. So there must
• 13:05
  Speaker 4: be some non-consensual conduct that was alleged or else why
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  Speaker 4: would she go to police? And so that's where there's
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  Speaker 4: still some confusion out there. The district attorney is now
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  Speaker 4: saying that they have new evidence like the Snapchat messages.
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  Speaker 4: And they now have a victim who is saying that.
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  Speaker 1: Pretty much all of it was non-consensual.
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  Speaker 4: And the drugging was, yes, she took the drugs on
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  Speaker 4: her own volition, but she was pressured into doing it.
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  Speaker 1: So it brings a.
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  Speaker 4: Whole new perspective to this case that it looks like
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  Speaker 4: there could be some serious charges here for sexual assault
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  Speaker 4: and for involuntary drugging and so this is an open
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  Speaker 4: case but i think political pressure had something to do
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  Speaker 4: with it because it's not just that there's new evidence
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  Speaker 4: it's not just that there is a new 100 plus
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  Speaker 4: page civil complaint that makes very powerful allegations but also
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  Speaker 4: the fact that you have prominent political leaders saying what's
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  Speaker 4: going on here and district attorneys are elected officials too
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  Speaker 4: and they don't want to be accused of a a
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  Speaker 4: rape survivor, so he's going to look at it and
• 14:24
  Speaker 4: it's going to a grand jury, which perhaps should have
• 14:26
  Speaker 4: been done at the beginning.
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  Speaker 3: The prosecutor has said that in her sworn statement, she
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  Speaker 3: didn't allege that she was drugged against her will or
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  Speaker 3: gang raped. She described her participation in drug uses and
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  Speaker 3: sexual conduct as voluntary, conscious, and consensual. The allegations are
• 14:47
  Speaker 3: so horrific, what happened to her, that it's gotten a
• 14:51
  Speaker 3: lot of public attention and outrage. How does a prosecutor
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  Speaker 3: handle it if a victim's allegations are different two years later?
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  Speaker 4: There's still so much we don't know. Apparently, according to
• 15:05
  Speaker 4: her lawyer, she did make allegations the first time around
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  Speaker 4: of non-consensual conduct. And maybe there's just, there's something here
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  Speaker 4: that we're not getting because the DA is saying she
• 15:21
  Speaker 4: said it was consensual. Maybe then she said some of
• 15:24
  Speaker 4: it was consensual but the gang rape was not. And
• 15:27
  Speaker 4: if that's the case, well, that would be a huge
• 15:31
  Speaker 4: crime and that's something that they would take seriously and
• 15:33
  Speaker 4: that's something that would justify an investigation using professionals who
• 15:38
  Speaker 4: are trained in interviewing sex assault.
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  Speaker 1: Survivors, right?
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  Speaker 4: In this case, you had the Cornell Police Department, not
• 15:45
  Speaker 4: the Ithaca Police, not the city police, and not the
• 15:48
  Speaker 4: state attorney's office there, but the local college police department
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  Speaker 4: who did one interview. And we don't know if that
• 15:54
  Speaker 4: person is experienced with sexual assault survivors. And we don't
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  Speaker 4: know how thorough the investigation was. And we don't know
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  Speaker 4: if there are discrepancies between what her lawyer is saying
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  Speaker 4: and what the DA is saying. But there are still
• 16:07
  Speaker 4: so many open questions here that it looks like the
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  Speaker 4: DA is– is digging in his heels because I saw
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  Speaker 4: some interviews saying that, no, we didn't have enough evidence
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  Speaker 4: to pursue it from the beginning. And it's the police
• 16:20
  Speaker 4: that give us the information. And when the information doesn't
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  Speaker 4: check the right boxes, we don't prosecute.
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  Speaker 1: I get that.
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  Speaker 4: I was a former state attorney. Then the question is,
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  Speaker 4: was it a thorough investigation? And why do we have
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  Speaker 4: this discrepancy between what her lawyer is saying she said
• 16:34
  Speaker 4: and what the DA is saying she said?
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  Speaker 3: There were multi-day hearings in May of twenty twenty five.
• 16:41
  Speaker 3: you know, at Cornell. So are they going to be
• 16:43
  Speaker 3: looking at those as well, or have they looked at those?
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  Speaker 4: Well, the hearings would be different. See, different standards of
• 16:50
  Speaker 4: proof as well. The hearings were based on a Title
• 16:53
  Speaker 4: IX investigation. That's to see if the university's internal procedures
• 16:58
  Speaker 4: when it comes to sexual activities and reporting and consent
• 17:02
  Speaker 4: were all followed. And the standard there is preponderance of
• 17:06
  Speaker 4: the evidence. When you're dealing with a criminal investigation, you're
• 17:09
  Speaker 4: dealing with potential jail time and you have to prove
• 17:11
  Speaker 4: cases beyond a reasonable doubt and the investigation is more serious. Here,
• 17:15
  Speaker 4: the investigation resulted in two students being expelled and others
• 17:19
  Speaker 4: having to write an essay. So a Title IX investigation
• 17:24
  Speaker 4: done by university police within the university is different than
• 17:28
  Speaker 4: a criminal investigation done in conjunction with the district attorney's office.
• 17:33
  Speaker 4: When it comes to a criminal investigation, it looks like
• 17:35
  Speaker 4: something was done because the information got from the campus
• 17:40
  Speaker 4: police to the district attorney's office, but then it died there.
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  Speaker 4: And so there are a lot of questions as to why,
• 17:47
  Speaker 4: what kind of investigation was it, who was interviewed, how
• 17:50
  Speaker 4: thorough was it, was it done by a transsexual assault investigator,
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  Speaker 4: and why the discrepancy between what the prosecutors are saying
• 17:58
  Speaker 4: that the victim said and what the victim's lawyers said
• 18:02
  Speaker 4: that she said.
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  Speaker 3: Her civil lawsuit accuses Cornell of not preventing the alleged
• 18:07
  Speaker 3: assaults and of failing to properly address sexual violence on campus.
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  Speaker 3: Thanks so much for sharing your insights, Dave. That's Dave Ehrenberg,
• 18:16
  Speaker 3: former Palm Beach County State Attorney, from the campus. Regulators
• 18:23
  Speaker 3: in Ohio and Tennessee can go after Kalshi for allegedly
• 18:27
  Speaker 3: skirting each state's sports gambling laws. That's after the Sixth
• 18:32
  Speaker 3: Circuit ruled unanimously against Kalshi, finding that states can enforce
• 18:37
  Speaker 3: their gambling laws against the prediction market. Kalshi's argument is
• 18:41
  Speaker 3: that it can only be regulated by the U.S. government.
• 18:45
  Speaker 3: The Sixth Circuit is the third federal appeals court to
• 18:48
  Speaker 3: rule on whether states can regulate gambling on Kalshi, and
• 18:52
  Speaker 3: there's already a circuit split. Joining me is securities law
• 18:56
  Speaker 3: expert James Park, a professor at UCLA Law School. James,
• 19:01
  Speaker 3: start by telling us about the basic argument. You know,
• 19:05
  Speaker 3: are these swaps?
• 19:07
  Speaker 6: Yeah, I mean, I think the main question is whether
• 19:10
  Speaker 6: they are sports gambling, because a number of states, they
• 19:14
  Speaker 6: regulate gambling on sports, and they view some of the
• 19:19
  Speaker 6: event contracts that are being traded on Kalshi relating to
• 19:23
  Speaker 6: sporting events as gambling, and they have gambling regulation that
• 19:27
  Speaker 6: they want to enforce. Kalshi is saying that these are
• 19:31
  Speaker 6: swaps regulated by a federal statute, the Commodities Exchange Act,
• 19:36
  Speaker 6: and the Commodities Futures Trading Commission, CFTC, has exclusive jurisdiction
• 19:42
  Speaker 6: over the swaps, and that preempts all of the state
• 19:45
  Speaker 6: gambling regulation.
• 19:46
  Speaker 3: Are red and blue states trying to regulate cash? It's
• 19:50
  Speaker 3: not a political thing.
• 19:52
  Speaker 5: I don't think it's a political thing.
• 19:54
  Speaker 6: In the case that was most recently decided, you have
• 19:58
  Speaker 6: Ohio and Tennessee trying to enforce state gambling laws. Ohio
• 20:03
  Speaker 6: and Tennessee are both red, I think, or reddish. And
• 20:07
  Speaker 6: so they have laws saying that you have to be
• 20:10
  Speaker 6: 21 in order to gamble. And so this website allows,
• 20:13
  Speaker 6: I don't know if it allows minors to, but people
• 20:15
  Speaker 6: under 21 are allowed to use the site.
• 20:18
  Speaker 5: And so they can evade state gambling laws.
• 20:22
  Speaker 3: Also, Calshi avoids paying state gambling taxes or having to
• 20:28
  Speaker 3: get licensed from the state.
• 20:30
  Speaker 5: Yeah, definitely licenses.
• 20:32
  Speaker 6: And if they're specific gambling taxes, I think they might
• 20:35
  Speaker 6: argue that they're not subject to those taxes.
• 20:38
  Speaker 3: So tell us what the Sixth Circuit found.
• 20:42
  Speaker 6: So they basically reversed a lower court which had essentially
• 20:46
  Speaker 6: granted a request for an injunction. And that injunction basically
• 20:50
  Speaker 6: prevented Ohio and Tennessee from enforcing its state gambling laws
• 20:54
  Speaker 6: against Kalshi.
• 20:56
  Speaker 5: So they basically concluded.
• 20:58
  Speaker 6: That these are not swaps, that they are not really
• 21:02
  Speaker 6: meant to be included in the definition of a swap,
• 21:06
  Speaker 6: and therefore the Federal Commodities Exchange Act doesn't apply. And
• 21:10
  Speaker 6: so the state gambling laws are not preempted according to
• 21:13
  Speaker 6: the Sixth Circuit. And this decision agrees with what the
• 21:17
  Speaker 6: Ninth Circuit decided a few months ago. And there's a conflict, though,
• 21:20
  Speaker 6: with the Third Circuit. The Third Circuit did conclude there's
• 21:23
  Speaker 6: a likelihood of success that Kalshi would be able to
• 21:27
  Speaker 6: establish that these sports contracts are a swap. So there's
• 21:32
  Speaker 6: a circuit split, and that's a possibility that the Supreme
• 21:35
  Speaker 6: Court will eventually hear this issue and resolve the split.
• 21:38
  Speaker 2: So.
• 21:39
  Speaker 3: The court also held that even assuming that the Cal
• 21:43
  Speaker 3: Sheik sports contracts are swaps, they held that the Commodity
• 21:47
  Speaker 3: Exchange Act neither expressly nor impliedly preempts Ohio's or Tennessee's
• 21:53
  Speaker 3: gambling laws. So they're saying that even if it is
• 21:56
  Speaker 3: a swap.
• 21:57
  Speaker 5: That's.
• 21:57
  Speaker 6: A very interesting point, and this is getting into constitutional
• 22:02
  Speaker 6: law and preemption. States have regulated gambling for a really
• 22:06
  Speaker 6: long time. They've regulated it for you know, maybe 100
• 22:09
  Speaker 6: years or more. And so we don't lightly conclude that
• 22:14
  Speaker 6: a statute that was passed primarily to regulate derivatives and
• 22:19
  Speaker 6: then swaps after the financial crisis of 2008, 2009, that
• 22:25
  Speaker 6: that federal law was meant to completely rewrite state gambling law.
• 22:31
  Speaker 6: And so there is a broader principle here of federalism
• 22:35
  Speaker 6: and limits on federal power that We are not going
• 22:40
  Speaker 6: to necessarily assume that Congress meant to preempt all of
• 22:45
  Speaker 6: those laws unless it's very clear that Congress intended to
• 22:49
  Speaker 6: do so. You know, that's an argument that's actually attractive
• 22:52
  Speaker 6: to many conservative jurists, that they are generally against federal
• 22:57
  Speaker 6: preemption of state law. They might be more for state rights.
• 23:01
  Speaker 6: And so, you know, I think that is a principle
• 23:03
  Speaker 6: that conservatives might agree with.
• 23:07
  Speaker 3: Does federal law generally defer to the states on gambling?
• 23:11
  Speaker 6: Yeah, that's my understanding that it's meant to be regulated locally.
• 23:16
  Speaker 6: And so you have a variety of different approaches. Some
• 23:19
  Speaker 6: states permit it. Some states do not permit it. And Nevada,
• 23:24
  Speaker 6: for example, has an interest in ensuring sports gambling happens
• 23:28
  Speaker 6: in a physical place in various casinos. And so they
• 23:32
  Speaker 6: have a rule that says you can gamble on sports,
• 23:34
  Speaker 6: but it has to be in a physical place. There
• 23:37
  Speaker 6: are age restrictions on gambling. So states have different sets
• 23:41
  Speaker 6: of approaches. And that's why Kalshi, in some ways, was
• 23:46
  Speaker 6: unique in allowing for nationwide gambling on the internet. Other
• 23:50
  Speaker 6: sites were not able to do that. And that's something
• 23:53
  Speaker 6: that Kalshi actually advertised, according to the court, and said
• 23:57
  Speaker 6: that that's an advantage to our site is that everyone
• 23:59
  Speaker 6: can gamble on our site. And so that's clearly something
• 24:05
  Speaker 6: that the states are not happy about.
• 24:07
  Speaker 3: Another argument that Kalshi makes a lot is that if
• 24:11
  Speaker 3: you have different states, there'll be a patchwork of laws.
• 24:16
  Speaker 3: But I don't know. That's true for a lot of things,
• 24:19
  Speaker 3: isn't it? I mean, what do you think about their
• 24:20
  Speaker 3: patchwork argument?
• 24:22
  Speaker 6: You know, that's true as a policy matter. But if
• 24:24
  Speaker 6: you want to have uniform gambling laws, Congress has got.
• 24:28
  Speaker 5: To pass that.
• 24:29
  Speaker 6: And, you know, they make decisions case by case as
• 24:32
  Speaker 6: to whether or not the benefits of uniformity outweigh the
• 24:36
  Speaker 6: value of federalism and different types of regulations. And, you know,
• 24:40
  Speaker 6: Cauchy is trying to be like the New York Stock Exchange.
• 24:44
  Speaker 6: You has sort of an exemption in a sense from
• 24:48
  Speaker 6: state regulation. If I'm listed on the New York Stock Exchange,
• 24:51
  Speaker 6: the only law I have to follow is the listing
• 24:55
  Speaker 6: standards of the New York Stock Exchange as well as
• 24:56
  Speaker 6: federal securities law. And there have been statutes passed to
• 25:01
  Speaker 6: preempt state regulation, the blue sky laws that apply to
• 25:06
  Speaker 6: certain types of securities offerings and sales that's been sort
• 25:09
  Speaker 6: of put together over the years. But Congress has very
• 25:12
  Speaker 6: clearly made a decision that that having a national market
• 25:16
  Speaker 6: in stocks for public companies is beneficial. And they haven't
• 25:20
  Speaker 6: made that determination yet for sports gambling. They have made
• 25:24
  Speaker 6: that determination for swaps generally, but they haven't done it
• 25:29
  Speaker 6: specifically for sports gambling. And I think Kaoshi is trying
• 25:34
  Speaker 6: to say, well, You know, if we have a policy
• 25:37
  Speaker 6: of uniformity for swaps generally, then that should also apply
• 25:41
  Speaker 6: to swaps, if you think they are swaps, relating to sports.
• 25:46
  Speaker 5: And so that's their argument.
• 25:48
  Speaker 6: The problem is we have this pre-existing system of state
• 25:52
  Speaker 6: regulation that's very extensive. And so that is a reason
• 25:55
  Speaker 6: why I think some of the courts have been hesitant
• 25:58
  Speaker 6: to agree with Kalshi.
• 25:59
  Speaker 3: And what's your take on whether these are swaps?
• 26:04
  Speaker 6: You know, you can think about, you know, what exactly
• 26:06
  Speaker 6: is a swap? Why do you purchase a swap? I
• 26:08
  Speaker 6: think traditionally it's because there is some risk that you
• 26:12
  Speaker 6: are worried about and you want to swap it with
• 26:15
  Speaker 6: somebody else who's willing to take on the risk. And
• 26:18
  Speaker 6: so that is why swaps serve a valuable purpose in
• 26:22
  Speaker 6: our economic system because it allows the transference of risk
• 26:26
  Speaker 6: to parties that are better able to bear it. There
• 26:29
  Speaker 6: are certain sports events that may... have economic impacts. And
• 26:35
  Speaker 6: so you can imagine, you know, the Sixth Circuit gives
• 26:38
  Speaker 6: a nice example here about, you know, a Spanish soccer
• 26:42
  Speaker 6: team can hedge against the risk that it would be
• 26:45
  Speaker 6: relegated from the top division of Spanish soccer. They could
• 26:48
  Speaker 6: buy a sports event contract that would hedge against that risk.
• 26:52
  Speaker 6: The Sixth Circuit says, well, those contracts, though, are more
• 26:55
  Speaker 6: the exception rather than the rule. The more typical example
• 26:59
  Speaker 6: contract that's trading is, you know, how many three-pointers will
• 27:02
  Speaker 6: the Memphis Grizzlies make over the course of a year?
• 27:05
  Speaker 6: Is that really something that's linked to an economic risk
• 27:10
  Speaker 6: associated with a particular party?
• 27:12
  Speaker 5: Very unlikely.
• 27:13
  Speaker 6: Very unlikely that that has anything to do with somebody's
• 27:16
  Speaker 6: business like the Spanish soccer team.
• 27:19
  Speaker 5: They're just betting.
• 27:19
  Speaker 6: You're just gambling, and that's no different than what you're
• 27:22
  Speaker 6: doing on any other sports gambling site.
• 27:25
  Speaker 5: And so, Kaushi has a point.
• 27:27
  Speaker 6: There may be situations where these sports event contracts are
• 27:31
  Speaker 6: being used as a more traditional swap. You can think
• 27:35
  Speaker 6: of maybe there's a restaurant that expects greater business if
• 27:39
  Speaker 6: the Knicks make the playoffs, and so they buy a
• 27:42
  Speaker 6: swap associated with that. If they don't make the playoffs,
• 27:46
  Speaker 6: then that pays off and it hedges against that risk.
• 27:49
  Speaker 6: But most of the sports contracts seem to be just
• 27:52
  Speaker 6: about who wins this game and what's the spread. I mean,
• 27:56
  Speaker 6: that seems more like gambling.
• 27:58
  Speaker 3: I'm sure the majority of people who are betting on
• 28:01
  Speaker 3: CalSheet are not thinking about, oh, this is a swap.
• 28:05
  Speaker 3: They're thinking about, I'm betting on this. Did CalSheet set
• 28:09
  Speaker 3: the system up so as to avoid state laws?
• 28:13
  Speaker 6: I think they did by registering with the CFTC. That
• 28:17
  Speaker 6: was their attempt to say, we're a swaps platform that
• 28:22
  Speaker 6: is regulated by this regulator. And the argument they might
• 28:27
  Speaker 6: make is that, well, if you buy the Six Circuits argument,
• 28:31
  Speaker 6: then there are going to be non-sports related contracts that
• 28:37
  Speaker 6: are not really swaps, right? So there may be an
• 28:40
  Speaker 6: event contract that bets on whether the president says a
• 28:43
  Speaker 6: certain word during a press conference.
• 28:46
  Speaker 5: Is that really a swap? Probably not.
• 28:49
  Speaker 6: And there are going to be exceptions to the rule
• 28:53
  Speaker 6: and their position may be, well, we've registered and we
• 28:57
  Speaker 6: do clearly have some swaps that are trading on our platform.
• 29:02
  Speaker 6: And to sort of pick and choose whether something is
• 29:05
  Speaker 6: gambling or a swap would basically mean that you may
• 29:10
  Speaker 6: never actually be able to register as a swap dealer
• 29:13
  Speaker 6: because there are a lot of cases where These contracts
• 29:16
  Speaker 6: are used for simply betting. And that's the line between
• 29:21
  Speaker 6: speculation and investing that has been so hard to distinguish.
• 29:26
  Speaker 6: And Kaoshi would just say, we can't ensure that every
• 29:30
  Speaker 6: single one of our swaps is really a swap, but
• 29:34
  Speaker 6: we are generally a swaps trading platform. And so we
• 29:37
  Speaker 6: should be able to opt into this particular type of
• 29:40
  Speaker 6: federal regulation.
• 29:42
  Speaker 3: Yeah, I'm amazed at some of the things that people
• 29:43
  Speaker 3: bet on. So as you said, there's a split in
• 29:46
  Speaker 3: the circuit. So the Supreme Court at some point will
• 29:49
  Speaker 3: likely take this up. And the Sixth Circuit said Supreme
• 29:52
  Speaker 3: Court precedents require Congress to act definitively when it intends
• 29:57
  Speaker 3: to preempt state law. Do you have any feel for
• 30:01
  Speaker 3: which way Supreme Court precedents would lead?
• 30:04
  Speaker 6: Yeah, I think that's a little bit outside of my
• 30:07
  Speaker 6: expertise in terms of the case law and the amount
• 30:10
  Speaker 6: of specificity that is required. And I think it's going
• 30:14
  Speaker 6: to probably turn on a combination of how they read
• 30:19
  Speaker 6: the language in the statute, their interpretation of the words.
• 30:24
  Speaker 6: That's the Sixth Circuit spends a lot of time kind
• 30:26
  Speaker 6: of fleshing out, you know, some of the text of
• 30:29
  Speaker 6: the statute. But in addition, there's sort of a belt
• 30:32
  Speaker 6: and suspenders approach here where they're also kind of looking
• 30:35
  Speaker 6: more generally at sort of the pre-existing state regulatory regime.
• 30:41
  Speaker 6: And I think the court will certainly look at that
• 30:43
  Speaker 6: as well. I don't think it's going to be any
• 30:44
  Speaker 6: one thing that will determine the outcome. And there's sort
• 30:47
  Speaker 6: of this major questions doctrine that's lurking in the background where,
• 30:52
  Speaker 6: you sort of reconfiguring the economy in a substantial manner,
• 30:58
  Speaker 6: that could also come into play as well. So I
• 31:01
  Speaker 6: think it'll depend on the court's reading of the statute.
• 31:04
  Speaker 6: That's where they'll begin. And then they'll look a little
• 31:07
  Speaker 6: bit more broadly into these issues of federal preemption and
• 31:11
  Speaker 6: their doctrine.
• 31:13
  Speaker 3: And back in 2018, the Supreme Court struck down the
• 31:17
  Speaker 3: federal ban on sports gambling. And that cleared the way
• 31:21
  Speaker 3: for states to legalize and regulate it individually, right?
• 31:26
  Speaker 6: My recollection is that they basically said that it should
• 31:29
  Speaker 6: be left to the states, that the federal government is
• 31:31
  Speaker 6: not able to really regulate gambling in the way that
• 31:35
  Speaker 6: they did.
• 31:36
  Speaker 3: So looking at that, is it likely that the Supreme
• 31:39
  Speaker 3: Court would rule that this again is for the states
• 31:44
  Speaker 3: and Kalshi loses?
• 31:46
  Speaker 5: I think so. I think that's right.
• 31:47
  Speaker 6: If they take that similar approach, then I think that
• 31:50
  Speaker 6: they would value the state right to regulate gambling and
• 31:53
  Speaker 6: they are satisfied that states can do this and that
• 31:57
  Speaker 6: states should be able to do this.
• 31:59
  Speaker 3: So now, are there more cases finding their way up
• 32:02
  Speaker 3: to the circuit courts?
• 32:03
  Speaker 6: Yeah, I think there's one from the District of Maryland
• 32:06
  Speaker 6: that went the same way as the Sixth Circuit that
• 32:08
  Speaker 6: is also coming up. And so that is another possibility
• 32:13
  Speaker 6: for the Supreme Court to consider at some point in time.
• 32:18
  Speaker 3: In North Carolina, they imposed a 6% tax on prediction
• 32:24
  Speaker 3: market trading fees. And it was made shortly after staffers
• 32:29
  Speaker 3: spoke with Kalshi. It gives the prediction markets a legislative
• 32:34
  Speaker 3: seal of approval, explicitly recognizing Kalshi's argument that the CFTC
• 32:40
  Speaker 3: and not the state's has the power to regulate those markets. Basically,
• 32:45
  Speaker 3: the state made a deal with Kalshi, and now Kalshi
• 32:48
  Speaker 3: is going to pay 6% tax. That could happen in
• 32:52
  Speaker 3: other states, I guess. New York turned them down.
• 32:54
  Speaker 6: Yeah, I think other states may see that and say
• 32:57
  Speaker 6: that's a good deal. You know, we want to generate
• 32:59
  Speaker 6: some tax revenue. We don't want to pursue expensive litigation.
• 33:03
  Speaker 6: And so I think that's Kalshi's hope is that we
• 33:06
  Speaker 6: can basically... give the states an interest in us succeeding.
• 33:11
  Speaker 6: And I think the question at the end of the
• 33:12
  Speaker 6: day is, well, how much are you getting from gambling
• 33:16
  Speaker 6: in your state versus how much you would get from
• 33:20
  Speaker 6: taxing calci transactions in your state? I think every state
• 33:23
  Speaker 6: would make its own calculus there. And, you know, I
• 33:27
  Speaker 6: sympathize with calci because You have 50 different states with
• 33:30
  Speaker 6: their own different interests in politics, and you want to
• 33:33
  Speaker 6: be a nationwide site, right? You do want the same
• 33:36
  Speaker 6: convenience that you have with trading on the New York
• 33:39
  Speaker 6: Stock Exchange. And you can't have that with 50 different
• 33:44
  Speaker 6: states regulating you in different ways. So that is the
• 33:49
  Speaker 6: dilemma that they are in. And unless they can get
• 33:52
  Speaker 6: Congress to pass a specific law that generally allows for
• 33:57
  Speaker 6: these types of you know, sports contracts, then they're going
• 34:01
  Speaker 6: to have a hard time, I think, overcoming the dynamics
• 34:04
  Speaker 6: of the different states.
• 34:05
  Speaker 3: Good luck with Congress. I don't think it's high on
• 34:07
  Speaker 3: their list.
• 34:09
  Speaker 6: The only thing I would say is this is kind
• 34:10
  Speaker 6: of how our regulatory system often works. Congress passes a
• 34:14
  Speaker 6: statute and there are arguments about the statute. And you
• 34:18
  Speaker 6: have these generalist courts, very smart judges. If you read
• 34:21
  Speaker 6: these opinions, they are very smart, thoughtful opinions that are
• 34:25
  Speaker 6: fleshing out the issues. you know, these judges probably don't
• 34:29
  Speaker 6: know much about swaps, but they can interpret the language,
• 34:33
  Speaker 6: they can kind of look through arguments and think through them,
• 34:36
  Speaker 6: and they can come to a conclusion about what the
• 34:39
  Speaker 6: statute means. And that's sort of how our system works,
• 34:43
  Speaker 6: and companies have to navigate this. And you have kind
• 34:47
  Speaker 6: of a process where, you know, different decision makers look
• 34:51
  Speaker 6: at this, they come up with their arguments, and then
• 34:54
  Speaker 6: you have different results. And that Supreme Court is kind
• 34:57
  Speaker 6: of you know, then able to sort of draw upon
• 35:00
  Speaker 6: this and coming to a conclusion at the end as
• 35:02
  Speaker 6: to what the law means.
• 35:03
  Speaker 5: You know, it's an imperfect system.
• 35:04
  Speaker 6: It can be frustrating at times, but I think it
• 35:07
  Speaker 6: does generally work in getting at the right result.
• 35:11
  Speaker 3: Because the CFTC, it depends on what the administration is, right?
• 35:15
  Speaker 6: It's a bit risky for CALSHI because certainly currently the
• 35:18
  Speaker 6: CFTC is friendly, but With a new administration, that could change.
• 35:24
  Speaker 6: And they actually may not want gambling as swaps. And
• 35:27
  Speaker 6: they have the authority to actually ban certain types of
• 35:30
  Speaker 6: gambling on the various markets that they regulate. So the
• 35:35
  Speaker 6: federal system may also hold some problems for Cal-Chi as well.
• 35:39
  Speaker 3: Thanks so much, Jim. That's Professor James Park of UCLA
• 35:42
  Speaker 3: Law School. And that's it for this edition of the
• 35:45
  Speaker 3: Bloomberg Law Show. Remember, you can always get the latest
• 35:48
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• 35:51
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• 35:58
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• 36:01
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• 36:05
  Speaker 3: June Grosso, and you're listening to Bloomberg.