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Trump's Ballroom, US Attorneys & Kalshi Loses · Bloomberg Law

0:02
Speaker 1: This is Bloomberg Law with June Grosso from Bloomberg Radio.
0:11
Speaker 2: One thing I know how to do is build. And
0:13
Speaker 2: so we put a brand new face on the front
0:16
Speaker 2: of the White House on the ground. The cars will
0:18
Speaker 2: pull up. And this is what you'd have as opposed
0:21
Speaker 2: to the asphalt, which was literally they had potholes in it.
0:26
Speaker 3: President Trump has spent much of his second presidential term
0:30
Speaker 3: trying to leave his mark on the White House complex
0:33
Speaker 3: and throughout D.C. And the White House ballroom has been
0:37
Speaker 3: the centerpiece of that campaign.
0:39
Speaker 2: I think it'll be the finest ballroom of its kind
0:42
Speaker 2: anywhere in the world.
0:43
Speaker 3: On Monday, in a 5-4 vote, the Supreme Court cleared
0:47
Speaker 3: the way for construction to continue with a procedural ruling
0:52
Speaker 3: over the dissents of the Chief Justice and the court's
0:55
Speaker 3: three liberals. Will that decision present a new, higher hurdle
1:00
Speaker 3: for the legal challenges to Trump's other projects, like the
1:04
Speaker 3: construction of a 250-foot arch, painting the granite exterior of
1:09
Speaker 3: the 19th century Eisenhower Executive Office building, renovating the Kennedy Center,
1:16
Speaker 3: and building a championship-level golf course near the Jefferson Memorial.
1:21
Speaker 3: My guest is Tracy Feitlove, founder and executive director of
1:25
Speaker 3: Lawyers for Good Government. Tracy, so the majority on the
1:30
Speaker 3: Supreme Court found that the historic preservation group that sued
1:36
Speaker 3: did not have standing. Tell us more about that.
1:39
Speaker 4: So basically, the court did not rule that President Trump
1:44
Speaker 4: has the authority to build the ballroom. What they did
1:48
Speaker 4: rule is that the particular plaintiffs that initiated this lawsuit
1:54
Speaker 4: are not allowed to challenge it. When you say someone
1:56
Speaker 4: doesn't have the standing, it means they don't have the
1:59
Speaker 4: legal right to challenge a particular action. It does not
2:02
Speaker 4: mean the action that they're challenging was legal.
2:06
Speaker 3: Do you think that the Supreme Court often uses standing
2:10
Speaker 3: as sort of an off-ramp that allows it to avoid
2:15
Speaker 3: making a decision on the merits of Until it's too late?
2:19
Speaker 2: Yes.
2:20
Speaker 4: Yes, I do think that. And the reason I think
2:22
Speaker 4: that is because there have been too many instances over
2:25
Speaker 4: the years when the court seems to find that someone
2:29
Speaker 4: does have standing if it relates to an issue that
2:32
Speaker 4: they want to see decided in a particular way and
2:34
Speaker 4: someone else doesn't have standing because they don't want to
2:37
Speaker 4: get to the merits of a particular issue. That distinction really,
2:41
Speaker 4: really matters. I mean, when you look at the decision,
2:44
Speaker 4: the only four justices who addressed the legality of the
2:48
Speaker 4: actual ballroom project all concluded that it was likely unlawful.
2:52
Speaker 4: That includes Chief Justice Roberts, who emphasized that Congress has not.
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Speaker 5: Expressly authorized this construction.
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Speaker 4: So it does seem in this instance that possibly standing
3:03
Speaker 4: was an easy out for them.
3:05
Speaker 3: It's not a typical case where someone is injured and
3:09
Speaker 3: and obviously has standing. Do you think it's a harder
3:13
Speaker 3: case to make out standing here than usual?
3:17
Speaker 4: Yeah, this was not clear cut in terms of the
3:19
Speaker 4: standing question. The real issue is when you look at
3:23
Speaker 4: the overarching pattern of decisions about standing. For example, in
3:28
Speaker 4: this case, when they concluded that the National Trust lacked standing,
3:33
Speaker 4: they said it was because the aesthetic or historical injuries
3:37
Speaker 4: that the plaintiffs were asserting were not sufficiently concrete or particularized.
3:42
Speaker 4: But there is other precedent, Supreme Court precedent, that has,
3:46
Speaker 4: in some instances, recognized aesthetic injuries as being sufficient for standing.
3:50
Speaker 4: For instance, in environmental and conservation cases, when plaintiffs actually
3:55
Speaker 4: use or observe the place or resource that's being affected.
3:58
Speaker 4: So it was a close question. And I think because
4:03
Speaker 4: it could be perceived as close, it gave them the
4:07
Speaker 4: room to maneuver that they wanted in order to not
4:10
Speaker 4: stop the ballroom construction.
4:13
Speaker 3: I mean, we don't often see the Chief Justice in
4:15
Speaker 3: dissent with the three liberals. How surprising is that?
4:20
Speaker 4: Yeah, I mean, I'll admit I'm not often surprised anymore
4:24
Speaker 4: at all about what these Supreme Court justices do. But
4:28
Speaker 4: I think it does speak to the fact that this
4:31
Speaker 4: is not a partisan question. The issue of standing was
4:35
Speaker 4: not decided along the basis of who appointed which justice, right?
4:40
Speaker 4: That means that this issue may have even been closer
4:43
Speaker 4: than the court wants to admit. So I think it's
4:46
Speaker 4: interesting that Justice Roberts... actually agreed that the substantive question,
4:52
Speaker 4: the actual question of whether that ballroom was legally being constructed,
4:58
Speaker 4: was probably going to be answered in the negative.
5:01
Speaker 3: It was a pretty strong dissent. And he said that
5:05
Speaker 3: the majority's order is no victory for the separation of powers.
5:10
Speaker 3: The court's conservatives have given in to Trump on so
5:13
Speaker 3: many issues, especially on the emergency docket. Do you think
5:17
Speaker 3: he's suddenly realizing that there's a separation of powers problem
5:22
Speaker 3: arising from these decisions?
5:25
Speaker 5: I hope he's realizing it.
5:27
Speaker 4: I don't know if it's sudden or if this is
5:29
Speaker 4: something that he's been willing to accept up until a
5:31
Speaker 4: certain point. But this is fundamentally a story about separation
5:36
Speaker 4: of powers and the rule of law. We can't allow
5:39
Speaker 4: the rule of law to be act first, ask permission later.
5:43
Speaker 4: Standing matters, obviously. But if these procedural barriers are repeatedly
5:48
Speaker 4: preventing anyone from challenging potentially unlawful executive action, then the
5:54
Speaker 4: question is, who can actually hold the president accountable? And
5:57
Speaker 4: are the checks and balances that the Constitution meant to
6:01
Speaker 4: set out really in existence now in a meaningful way?
6:05
Speaker 3: The administration has been doing this over and over again
6:09
Speaker 3: in different areas, you know, deporting people before things can
6:14
Speaker 3: get into court, cutting off funding before things can get
6:17
Speaker 3: into court. And, you know, the Supreme Court, except in
6:20
Speaker 3: a couple of instances, tariffs and birthright citizenship has allowed
6:26
Speaker 3: the president to do this.
6:29
Speaker 1: That's correct.
6:30
Speaker 4: This court has shown a remarkable unwillingness to hold the
6:36
Speaker 4: executive branch accountable to the constitutional limits that it is
6:41
Speaker 4: meant to operate within. I'm running out of words to
6:44
Speaker 4: describe how dangerous it is to be in a situation
6:48
Speaker 4: where the actions of the executive branch are not being
6:52
Speaker 4: effectively checked or challenged by either of the other two branches.
6:57
Speaker 4: But that is the situation we have found ourselves in.
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Speaker 3: Obviously, the administration is making an argument that the president
7:03
Speaker 3: has the authority to build this But I mean, is
7:05
Speaker 3: there any real substantive legal authority that contradicts what the
7:11
Speaker 3: courts below have said, which is that a project like
7:16
Speaker 3: the ballroom needs congressional approval? Basically, do the plaintiffs have
7:22
Speaker 3: a really strong argument about Congress's role here?
7:27
Speaker 2: Yes.
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Speaker 4: I mean, the circuit court that ruled on this issue
7:31
Speaker 4: expressly said that Congress has constitutional authority over federal property
7:36
Speaker 4: and that it was a problem that Congress had not
7:38
Speaker 4: authorized this project. And the Supreme Court did not find otherwise.
7:42
Speaker 4: All the Supreme Court really said was that this particular
7:46
Speaker 4: plaintiff couldn't challenge it.
7:49
Speaker 5: You know, I'm a little.
7:51
Speaker 3: Usually you have an injunction that will preserve the status
7:54
Speaker 3: quo as the lawsuit goes on. But this is an
7:58
Speaker 3: injunction that is allowing the ballroom to go forward. It's
8:02
Speaker 3: already 65 percent built. And by the time this gets back,
8:06
Speaker 3: if it ever does to the Supreme Court, it'll likely
8:09
Speaker 3: be done. So it's not preserving the status quo.
8:13
Speaker 5: No, it is not.
8:15
Speaker 4: And I personally, although I cannot read the justices' minds,
8:19
Speaker 4: I can't obviously speak for them, but it doesn't seem
8:22
Speaker 4: to me that the court as a whole is really
8:25
Speaker 4: trying to manage or maintain the status quo here. It's
8:30
Speaker 4: pretty clear to me that they're very willing to allow
8:34
Speaker 4: the construction to proceed, understanding that that means it will
8:38
Speaker 4: be nearly impossible to undo and that effectively the president
8:41
Speaker 4: has just been granted the authority to do what he
8:45
Speaker 4: should not have the authority to do.
8:47
Speaker 3: This administration mentions national security. It seems to me like
8:51
Speaker 3: in almost every argument there's a national security reason. I mean,
8:54
Speaker 3: did they actually buy that this is required for national security?
9:00
Speaker 3: National security wasn't the initial focus. Trump has been wanting
9:03
Speaker 3: to build this ballroom since Barack Obama was in office.
9:07
Speaker 3: I mean, he's always wanted to have a ballroom. Then
9:10
Speaker 3: all of a sudden they came up with national security reasons.
9:14
Speaker 4: National security is one of those phrases that the administration
9:18
Speaker 4: likes to throw out there because they believe that it
9:20
Speaker 4: grants them almost unlimited powers. It's an easy way for
9:24
Speaker 4: them to make the argument that they should be allowed
9:26
Speaker 4: to do whatever they want to do. And because they're
9:30
Speaker 4: unilaterally making these declarations of when there is or isn't
9:33
Speaker 4: a national emergency, it's very hard to put any checks
9:36
Speaker 4: on that. And that's exactly why they use that phrase
9:38
Speaker 4: so often. There is nothing inherently national security related to
9:43
Speaker 4: a ballroom. I understand that there is meant to be
9:45
Speaker 4: something constructed underneath the new ballroom that may be relevant
9:49
Speaker 4: to national security. But that's a separate question.
9:52
Speaker 3: Trump is trying to remake D.C. in different ways. He
9:55
Speaker 3: keeps trying to put his name up on the Kennedy Center.
9:58
Speaker 3: I mean, we have the reflecting pool. He wants to
10:00
Speaker 3: build this arch. Will this decision by the Supreme Court
10:05
Speaker 3: lead him to start building the arch? Is the arch next?
10:10
Speaker 5: It could be.
10:11
Speaker 4: Like I said about the justices, I can't understand or
10:15
Speaker 4: predict what happens inside the mind of this president or
10:18
Speaker 4: his colleagues. But it does seem that the precedent here
10:23
Speaker 4: has been set in a way that establishes, for practical purposes,
10:27
Speaker 4: if the president is willing to move quickly enough, he
10:31
Speaker 4: will be allowed to get away with it. And that
10:33
Speaker 4: means we need Congress to step up and be willing
10:37
Speaker 4: to do its job. If the Supreme Court is unwilling
10:40
Speaker 4: to put any meaningful checks on the authority of this president,
10:44
Speaker 4: the only branch of government left that is capable of
10:46
Speaker 4: doing that is Congress.
10:49
Speaker 3: Do you think that other groups can try to sue
10:52
Speaker 3: over the ballroom or it's too late for that?
10:55
Speaker 4: I mean, it's theoretically possible that another group could try.
11:00
Speaker 4: My hunch is that the litigators, the lawyers who brought
11:05
Speaker 4: this suit, did their best to find the plaintiff that
11:07
Speaker 4: they thought would be most likely to have standing. But
11:10
Speaker 4: is it possible that there's another group out there that
11:13
Speaker 4: might be deemed to have standing? It's possible. I think
11:17
Speaker 4: it's unlikely that that will happen.
11:19
Speaker 3: We'll see if this decision has any impact on the
11:24
Speaker 3: many other cases. challenging Trump's projects. Thanks so much, Tracy.
11:30
Speaker 3: That's Tracy Feitlove, executive director and founder of Lawyers for
11:34
Speaker 3: Good Government. The Department of Justice has repeatedly been trying
11:41
Speaker 3: to install loyalists to run U.S. attorney's offices around the
11:45
Speaker 3: country without Senate approval. The first well-known case was that
11:50
Speaker 3: of Trump's personal attorney, Alina Haba, to head the New
11:53
Speaker 3: Jersey U.S. attorney's office. And of course, there was Trump's
11:57
Speaker 3: personal attorney, Lindsey Halligan, to head the Eastern District of
12:01
Speaker 3: Virginia office. Halligan's disqualification prompted the dismissal of criminal cases
12:08
Speaker 3: against New York Attorney General Letitia James and former FBI
12:12
Speaker 3: Director James Comey, both on Trump's enemies list. Two circuit
12:17
Speaker 3: courts of appeals, the Second Circuit and the Ninth Circuit,
12:21
Speaker 3: ruled against the Justice Department's legal maneuvers to try to
12:26
Speaker 3: get around federal vacancy laws, finding that the acting heads
12:30
Speaker 3: of the U.S. attorney's offices in Nevada and the Northern
12:34
Speaker 3: District of New York were properly disqualified. Joining me is
12:38
Speaker 3: Ann Joseph O'Connell, a professor at Stanford Law School. Let's
12:42
Speaker 3: go back for a second and explain... what the Trump
12:46
Speaker 3: administration has been trying to do repeatedly to get the
12:50
Speaker 3: people they want running U.S. attorney's offices across the country
12:55
Speaker 3: without going through the Senate confirmation process?
13:00
Speaker 5: They seem to have a specific pattern, though they have
13:03
Speaker 5: deviated from it in particular districts. And that specific pattern
13:08
Speaker 5: went as follows. Administration comes in, They turn to a
13:13
Speaker 5: provision called 28 U.S.C. 546, which allows the attorney general
13:18
Speaker 5: to pick anyone to serve as an acting U.S. attorney
13:22
Speaker 5: for 120 days. Usually what would happen at the end
13:26
Speaker 5: of the 120 days, the district court in that relevant
13:30
Speaker 5: district would extend that person until someone could be nominated
13:34
Speaker 5: and confirmed for the spot. that's where it went a
13:37
Speaker 5: bit astray in this administration, where some of these district
13:42
Speaker 5: courts refused to extend the service of the person who
13:46
Speaker 5: had been put in for 120 days. So what the
13:48
Speaker 5: administration did next is typically a few days before the
13:52
Speaker 5: 120 days ran out, they would name that person under
13:56
Speaker 5: a different statute, the Federal Vacancies Reform Act of 1998.
14:01
Speaker 5: And they would give that person the title the first
14:04
Speaker 5: assistant to the U.S. attorney of the relevant district. And
14:08
Speaker 5: they argued that under the Vacancies Act, that first assistant
14:12
Speaker 5: automatically became the acting U.S. attorney. Or if that was
14:18
Speaker 5: not permitted, this idea of post-vacancy first assistants, if that
14:23
Speaker 5: was not permitted in the alternative, the first assistant could
14:27
Speaker 5: carry out all of the duties of the job through
14:30
Speaker 5: what's known as delegation. And that all generated a lot
14:36
Speaker 5: of litigation.
14:37
Speaker 2: Yeah.
14:37
Speaker 3: So let's talk about the latest, which was the Second
14:41
Speaker 3: Circuit ruling about the top federal prosecutor in Albany. Explain
14:46
Speaker 3: their decision.
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Speaker 5: Sure. So John Sorconi followed this pattern.
14:51
Speaker 4: He was the interim U.S.
14:52
Speaker 5: Attorney of the Northern District of New York, refused to
14:55
Speaker 5: extend him. He slotted in as the first assistant, uses
14:59
Speaker 5: the title the acting U.S. attorney, and litigation follows. And
15:04
Speaker 5: what this case decided, which was titled the in re
15:08
Speaker 5: of the grand jury subpoenas to the office of the
15:10
Speaker 5: New York State Attorney General, decided two issues. The first
15:15
Speaker 5: issue is whether the Federal Vacancies Reform Act of 1998
15:19
Speaker 5: allows a post-vacancy first assistant to use the acting title.
15:25
Speaker 5: And then second, assuming that the answer to the first
15:28
Speaker 5: is no, whether the alternative of then delegating all of
15:32
Speaker 5: the functions of the job to him is as a
15:35
Speaker 5: special assistant or first assistant, though not using the acting
15:40
Speaker 5: title could work as an alternative. And the Second Circuit,
15:45
Speaker 5: in a split decision, there was a dissent, held that
15:48
Speaker 5: the answer to each of the questions was no, that
15:51
Speaker 5: the Vacancies Act did not allow a post-vacancy first assistant
15:54
Speaker 5: to use the acting title, and two, in the alternative,
15:58
Speaker 5: He alone could not be delegated all of the functions
16:02
Speaker 5: of the job, leaving open the question whether the administration
16:07
Speaker 5: could delegate the functions of the U.S. attorney for the
16:10
Speaker 5: Northern District of New York to two or more people.
16:15
Speaker 3: You're an expert in this area. Do you agree with
16:17
Speaker 3: the finding of the Second Circuit?
16:20
Speaker 5: I do not, which puts me in a bit of
16:22
Speaker 5: a strange position as someone who is not a fan
16:26
Speaker 5: of the administration, but is a fan of the Vacancies
16:30
Speaker 5: Act and the need for government to function. I do
16:33
Speaker 5: think the first ruling is a harder one for me.
16:39
Speaker 5: I do think this idea of a post-vacancy first assistant
16:44
Speaker 5: is difficult. And indeed, the Vacancies Act was enacted in 1998.
16:49
Speaker 5: And initially, the Office of Legal Counsel, which sits in
16:52
Speaker 5: the Justice Department and gives legal opinions and is seen
16:56
Speaker 5: to be pretty pro-executive, right, because it's giving legal opinions
17:00
Speaker 5: to the executive branch, its initial take was that you
17:04
Speaker 5: could not have post-vacancy first assistants, which is the decision
17:08
Speaker 5: that the Second Circuit reached the Ninth Circuit a few
17:10
Speaker 5: days before, and then months before that, the Third Circuit.
17:14
Speaker 5: But a few years later, OLC changed its mind and said, no, actually,
17:18
Speaker 5: post-vacancy first assistants are okay under the statute. The language
17:23
Speaker 5: is a bit of a mess, and the legislative history
17:26
Speaker 5: is a bit of a mess. And definitely in terms
17:28
Speaker 5: of the purpose of the statute, the idea was not
17:31
Speaker 5: to have this strategic maneuvering of putting people in to
17:35
Speaker 5: the first assistant slot after the vacancy to kind of
17:39
Speaker 5: then elevate them. The kind of purpose was that the
17:42
Speaker 5: default would be the person who was already there. So
17:44
Speaker 5: I think that first question really could go either way.
17:48
Speaker 5: It's the second question which has larger ramifications and where
17:53
Speaker 5: I feel a bit more strongly about my disagreement. But
17:57
Speaker 5: we're going to have some answers soon, presumably, because the
18:00
Speaker 5: Ninth Circuit reached the same two answers And the government
18:05
Speaker 5: has asked the Ninth Circuit to stay its decision while
18:09
Speaker 5: it files the cert petition, which it promises to do
18:12
Speaker 5: by early October.
18:13
Speaker 3: So since you have agreement among the circuits so far,
18:18
Speaker 3: I mean, do you think the Supreme Court would take
18:21
Speaker 3: this case?
18:21
Speaker 5: So you have agreement on the first question, but not
18:24
Speaker 5: the second question. So until this administration, we didn't actually
18:28
Speaker 5: have an appellate ruling. about post-vacancy first assistance. It was
18:33
Speaker 5: commonly done by administrations on the left and administrations on
18:37
Speaker 5: the right, but we actually didn't have an appellate decision
18:41
Speaker 5: either way. Now we do have three appellate decisions, second, third,
18:46
Speaker 5: and ninth. that say no post-vacancy first assistance. If that
18:49
Speaker 5: was the only question, no circuit split. Why would the
18:53
Speaker 5: court take it? Looks like the administration has lost. Though
18:56
Speaker 5: I would say sometimes the court does take cases where
18:59
Speaker 5: the government is the one who's lost in a variety
19:02
Speaker 5: of circuits. It's the second question where there is a
19:05
Speaker 5: circuit split. where the federal circuit years ago, after the
19:11
Speaker 5: Supreme Court decided a case called Arthrex, which was about
19:15
Speaker 5: various constitutional law principles with regard to kind of who
19:19
Speaker 5: selects and who removes the Patent, Trademark and Appeals Board judges.
19:23
Speaker 5: That case then kind of still had other issues to resolve.
19:27
Speaker 5: once the court kind of said that the head of
19:30
Speaker 5: the PTO had to have control over these PTAB judges.
19:34
Speaker 5: And when it went back down to the lower courts,
19:36
Speaker 5: there was an acting head of the PTO exercising through
19:40
Speaker 5: delegation all of these duties of the vacant position. And
19:45
Speaker 5: this second issue was raised then about delegation under the
19:50
Speaker 5: Vacancies Act, whether you could delegate all the non-exclusive functions
19:53
Speaker 5: to one person. And the Federal Circuit said yes, relying
19:57
Speaker 5: on a different but related provision of the Vacancies Act.
20:01
Speaker 5: So now you have the Federal Circuit on one side
20:03
Speaker 5: saying you can't delegate exclusive duties to But anything that's non-exclusive,
20:09
Speaker 5: and everyone thinks that almost everything is non-exclusive, is okay.
20:13
Speaker 5: So you have the Federal Circuit and me and a
20:15
Speaker 5: few others on one side. And then you have the second, third,
20:18
Speaker 5: and ninth circuit in the U.S. attorney context, a different
20:21
Speaker 5: context on the other side. So I think that does
20:24
Speaker 5: tee up a nice circuit split for the court to resolve.
20:27
Speaker 5: And I think it also has really large implications here.
20:30
Speaker 5: So I think it's important for the court to resolve.
20:32
Speaker 5: So if the court thinks the Vacancies Act does not
20:34
Speaker 5: allow this, as the second 39th circuits have found, I
20:38
Speaker 5: think Congress would want to legislate at least some sort
20:41
Speaker 5: of solution to help new administrations function.
20:44
Speaker 3: I mean, doesn't that then enable an administration to bypass
20:49
Speaker 3: the advice and consent of the Senate?
20:52
Speaker 2: Yes.
20:52
Speaker 5: So nothing is ideal. And we've had acting since the
20:57
Speaker 5: start of the country in the late 18th century. The
21:01
Speaker 5: idea is we have to find the right balance. We
21:03
Speaker 5: have to find a balance that, of course, incentivizes the
21:07
Speaker 5: White House to nominate, incentivizes the Senate to confirm, but
21:12
Speaker 5: also allows the government to function while those procedures churn.
21:17
Speaker 5: So maybe a middle path might be, OK, we're going
21:21
Speaker 5: to allow delegation so long as the nomination is pending.
21:26
Speaker 5: Or we're going to allow delegation for a certain number
21:29
Speaker 5: of days at the start of an administration because we
21:32
Speaker 5: know it takes time to get those nominations in. And
21:36
Speaker 5: then you're going to have, you know, less ability to
21:39
Speaker 5: do these things. Because right now we're coming up on
21:41
Speaker 5: the two-year mark and we still have these U.S. attorney offices,
21:46
Speaker 5: you know, working kind of in non-traditional ways. Now, part
21:49
Speaker 5: of that problem I also have to say, the administration
21:52
Speaker 5: would say, And again, I'm not a defender of the administration,
21:55
Speaker 5: but the administration might say, well, let's look at some
21:58
Speaker 5: of these districts where we don't have confirmed U.S. attorneys.
22:01
Speaker 5: Part of the reason we don't have confirmed U.S. attorneys
22:03
Speaker 5: is we still have a blue slip process that's in place.
22:07
Speaker 5: And so if you have a district in a state
22:10
Speaker 5: where the senators are not at the same party as
22:13
Speaker 5: the White House, you're not going to get confirmed people in.
22:17
Speaker 5: And so you could, as this administration has pushed, try
22:20
Speaker 5: to remove the blue slip process. I think the senators,
22:23
Speaker 5: even Republican senators, have held fast even now to that tradition.
22:28
Speaker 5: And to just look back, one administration, President Biden, at
22:31
Speaker 5: the end of his first year, only had a third
22:34
Speaker 5: of the U.S. attorney spots filled by his confirmed picks.
22:37
Speaker 5: That was actually a Bloomberg Law analysis that did that
22:41
Speaker 5: at the end of his first year. So it's trying
22:43
Speaker 5: to find a balance. I think you also have to
22:44
Speaker 5: think about the level of position. I mean, U.S. attorneys
22:48
Speaker 5: are reviewed by the attorney general. And so maybe we
22:51
Speaker 5: should have more concern about who is the attorney general
22:55
Speaker 5: and less openness to having an acting attorney general than
23:00
Speaker 5: maybe people who serve below that higher position.
23:04
Speaker 3: It seems like some courts are allowing these prosecutors to
23:07
Speaker 3: remain in their positions in the U.S. attorney's office. as
23:12
Speaker 3: the litigation plays out. But then doesn't that open up
23:17
Speaker 3: the office to challenges of judgments or verdicts that are
23:22
Speaker 3: reached if it's finally determined that that prosecutor shouldn't have
23:27
Speaker 3: been in charge?
23:29
Speaker 5: We are seeing, so I said, oh, the second, the third,
23:31
Speaker 5: the ninth circuit, they've all agreed on post-vacancy first assistance.
23:34
Speaker 5: They've all agreed delegation is not allowed to one person.
23:38
Speaker 5: They've actually differed. in what to do in the immediate
23:42
Speaker 5: cases that raised those challenges. So in the Second Circuit case,
23:48
Speaker 5: that involves subpoenas, and the Second Circuit held that those
23:52
Speaker 5: subpoenas should be quashed. But in other cases, they said, well,
23:58
Speaker 5: these issues have come up on collateral review, and only
24:01
Speaker 5: certain issues can be raised on collateral review. And so
24:05
Speaker 5: we're not going to change, say, whether the indictment can
24:08
Speaker 5: go forward. And then that then leaves the question, if
24:11
Speaker 5: in fact those rulings are upheld by the Supremes, whether,
24:15
Speaker 5: you know, those indictments could then be thrown out, or
24:18
Speaker 5: was the person just one of many, you know, who
24:21
Speaker 5: signed the indictment, so the indictment You know, if it
24:23
Speaker 5: kind of goes all the way through conviction, that conviction
24:26
Speaker 5: could still stand. But no matter what, there's going to
24:29
Speaker 5: be litigation on what the remedy should be in all
24:33
Speaker 5: of these individual cases. And you've got to know the
24:36
Speaker 5: Second Circuit case was a bit unusual because it involves
24:38
Speaker 5: subpoenas to the attorney general of the state. But in
24:42
Speaker 5: these other cases involving kind of individual criminal defendants, each
24:46
Speaker 5: of them is like raising these claims. And so you're
24:48
Speaker 5: going to get all of this mess to untangle.
24:51
Speaker 2: Yeah.
24:52
Speaker 3: A lot more litigation ahead then. Thanks so much, Anne.
24:55
Speaker 3: That's Professor Anne Joseph O'Connell of Stanford Law School. Are
25:01
Speaker 3: sports prediction markets closer to casinos or to Wall Street?
25:05
Speaker 3: That question is being teed up for Supreme Court review.
25:10
Speaker 3: Calshi and the prediction markets took a hit as the
25:13
Speaker 3: Ninth Circuit Court of Appeals is allowing Nevada gaming officials
25:17
Speaker 3: to continue cracking down on the sports prediction markets as
25:22
Speaker 3: if they're unlicensed sportsbooks. A three-judge panel composed of all
25:27
Speaker 3: Trump appointees said that Congress didn't mean to make the
25:31
Speaker 3: CFTC the gambling police through an amendment to federal commodity law.
25:37
Speaker 3: The opinion differed starkly from an April one from the
25:40
Speaker 3: Third Circuit, which opens up a circuit split that's likely
25:45
Speaker 3: to be decided by the Supreme Court. My guest is
25:48
Speaker 3: Bloomberg Intelligence Senior Litigation Analyst, Elliot Stein. Elliot, explain the
25:53
Speaker 3: issue in these cases.
25:55
Speaker 1: The issue is whether event contracts based on sporting events
25:59
Speaker 1: are derivatives that should be regulated by the CFTC, which
26:02
Speaker 1: is what CalShe and PolyMarket and the CFTC itself want,
26:07
Speaker 1: as opposed to the states and gambling organizations, which say
26:12
Speaker 1: that these event contracts really are gambling and should be
26:16
Speaker 1: regulated based by the states. And if states want to
26:19
Speaker 1: ban them, the states should be allowed to do that.
26:21
Speaker 3: Okay, so now we had the Ninth Circuit, and this
26:23
Speaker 3: was a panel of Trump appointees. And tell us what
26:27
Speaker 3: they ruled last week.
26:29
Speaker 4: Right.
26:29
Speaker 1: So three Trump appointees basically ruled for the state of Nevada.
26:32
Speaker 1: They affirmed the lower court's decision that would allow Nevada
26:36
Speaker 1: to preliminarily enjoin Kelsey from offering sports event contracts and
26:40
Speaker 1: potentially other event contracts like election contracts in the state
26:44
Speaker 1: of Nevada. The Ninth Circuit affirmed the trial court and
26:49
Speaker 1: said that these event contracts don't meet the definition of
26:53
Speaker 1: swaps under the Commodity Exchange Act. The Commodity Exchange Act
26:57
Speaker 1: gives the CFTC exclusive jurisdiction over swaps that are traded
27:01
Speaker 1: on DCM, designated contract markets. And since they're not swaps,
27:05
Speaker 1: they don't fall under the CFTC's exclusive jurisdiction, and therefore
27:09
Speaker 1: they fall to the states to regulate as gambling.
27:12
Speaker 3: So Judge Ryan Nelson said, that sports event contracts are
27:16
Speaker 3: in reality sports bets is not just an, I know
27:20
Speaker 3: it when I see it. Rather, everyone, including Kalshi, knows
27:24
Speaker 3: it when they see it.
27:25
Speaker 1: Part of the problem is that in the past, Kalshi
27:27
Speaker 1: has sort of advertised this as a way to bet
27:30
Speaker 1: or gamble across all 50 states legally. You know, Kalshi's argument, though, however,
27:35
Speaker 1: is that the regulation should follow the instrument, not necessarily
27:40
Speaker 1: the underlying risk. And so the underlying risk risk may
27:43
Speaker 1: be the same, but when you have an event contract,
27:48
Speaker 1: you have an exchange that essentially offers it, and then
27:51
Speaker 1: you have two sides that are trading, that are counterparties
27:54
Speaker 1: to each other. The exchange makes money regardless of the trade,
27:59
Speaker 1: just like in a normal financial contract. Whereas when you
28:04
Speaker 1: have a traditional sports book, you have a bookie, and
28:08
Speaker 1: they're selling directly to the consumer. The consumer can't get
28:11
Speaker 1: in and out of that bet like you could with
28:16
Speaker 1: an event contract.
28:17
Speaker 3: So now this contradicts the Third Circuit. Tell us what
28:21
Speaker 3: the Third Circuit had decided.
28:23
Speaker 4: Right.
28:23
Speaker 1: So the Third Circuit decided back in April in a
28:26
Speaker 1: 2-1 decision. Again, all judges were appointed by Republicans. This
28:30
Speaker 1: is one of those issues that I don't think really
28:32
Speaker 1: fits neatly along ideological lines. The Third Circuit ruled for
28:36
Speaker 1: calci and said, yes, these event contracts do meet the
28:40
Speaker 1: definition of swaps. And the exclusive jurisdiction language of the
28:45
Speaker 1: Commodity Exchange Act preempts any states from regulating these products.
28:50
Speaker 3: So split in the circuits.
28:52
Speaker 2: Yep.
28:52
Speaker 3: And is the TFTC going to ask for a Supreme
28:55
Speaker 3: Court review?
28:55
Speaker 1: So actually, more likely what's going to happen immediately is
28:59
Speaker 1: that in the Third Circuit case you just mentioned, the
29:02
Speaker 1: state of New Jersey was the losing party there. They
29:05
Speaker 1: have until September 3rd, which is in two days, to
29:09
Speaker 1: ask the Supreme Court to petition the Supreme Court for cert.
29:11
Speaker 1: That deadline's already been extended a couple times. It was
29:14
Speaker 1: initially July, then it was pushed to August, then it
29:16
Speaker 1: was pushed to September. I haven't seen them ask for
29:19
Speaker 1: another extension. So I'm expecting a cert petition from the
29:21
Speaker 1: state of New Jersey by September 3rd.
29:24
Speaker 3: Yeah, because they said they're going to. Now, so we
29:27
Speaker 3: also have the Fourth and the Sixth Circuit also heard arguments.
29:32
Speaker 3: Might the Supreme Court wait until those decisions come in?
29:36
Speaker 1: I don't think they need to. You already have a split.
29:38
Speaker 1: By the way, we also have, we're way for a
29:40
Speaker 1: decision from the Massachusetts Supreme Court on the same issue.
29:45
Speaker 1: We have numerous trial court rulings, the majority of which
29:50
Speaker 1: have gone in the favor of the states. I think,
29:53
Speaker 1: you know, this is an issue that begs for clarity
29:56
Speaker 1: at this point. So I don't know why the Supreme
29:58
Speaker 1: Court would wait any longer if the state of New
30:01
Speaker 1: Jersey petitions for cert.
30:02
Speaker 3: So what is the position of the Trump CFTC? I mean,
30:08
Speaker 3: what's the framework? How would they regulate these prediction markets?
30:12
Speaker 2: Right.
30:12
Speaker 1: They've come out in favor of Cal-Chi and the prediction markets,
30:17
Speaker 1: and they say that the statute is clear. These event
30:20
Speaker 1: contracts should be treated as swaps. There should be one
30:23
Speaker 1: national regulator because this is a national market. and the
30:27
Speaker 1: CFTC should regulate it. They have proposed a rule as
30:30
Speaker 1: well to clarify some issues that were a little unclear
30:34
Speaker 1: in the current rule, which goes back, you know, more
30:36
Speaker 1: than a dozen years right after Dodd-Frank. And so the
30:39
Speaker 1: CFTC has come out in favor of the prediction markets,
30:42
Speaker 1: and it's likely to finalize its rulemaking potentially by the
30:46
Speaker 1: end of the year as well.
30:47
Speaker 3: Trump has family ties to this industry, doesn't he?
30:51
Speaker 1: Yes, the short answer is yes. I believe his sons
30:54
Speaker 1: are either advisors and or investors. in, I believe, Cal
30:58
Speaker 1: State and or Polymarket. And I think there was news
31:00
Speaker 1: this morning that one of Don Jr. 's investment groups
31:05
Speaker 1: is taking an additional stake in, I forget exactly which company,
31:09
Speaker 1: may have been Polymarket.
31:10
Speaker 3: What has the CFTC been doing to supervise or regulate
31:15
Speaker 3: the prediction markets?
31:17
Speaker 1: Yeah, I mean, we have seen insider trading cases brought,
31:21
Speaker 1: some by Calci, I believe some by the CFTC. And
31:24
Speaker 1: they have promulgated this rulemaking to clarify what they think
31:28
Speaker 1: are some ambiguities in the CFTC's previous rule.
31:32
Speaker 3: I mean, do you think there would be tighter regulation
31:34
Speaker 3: under the states? And that's why Calci and the prediction
31:37
Speaker 3: markets don't want to be regulated by the states?
31:39
Speaker 1: I don't think that's the issue. Their position is, you know,
31:43
Speaker 1: we should be regulated, but the proper regulator should be
31:46
Speaker 1: the CFTC because these products really are national products, just
31:50
Speaker 1: like other exchanges are. And the CFTC is the natural
31:54
Speaker 1: regulator for that. And it has all the mechanisms and
31:57
Speaker 1: surveillance apparatus in order to regulate these markets.
32:01
Speaker 3: In your BI note, you think that if this goes
32:04
Speaker 3: to the Supreme Court, the Supreme Court would rule in
32:07
Speaker 3: favor of Kalshi, why?
32:09
Speaker 1: It's definitely a close call, which is evident from all
32:12
Speaker 1: the different rulings we've seen so far and from the
32:15
Speaker 1: circuit split that we now have. I just think Kalshi
32:18
Speaker 1: and the CFTC have the better statutory argument here. I
32:22
Speaker 1: think the Commodity Exchange Act has a very broad definition
32:25
Speaker 1: of swap. I think the distinction that the Ninth Circuit made,
32:29
Speaker 1: for example, between events and outcomes is a strained reading
32:33
Speaker 1: and doesn't really make sense, and it conflicts with the
32:35
Speaker 1: DC Circuit's ruling from a couple years ago that allowed
32:39
Speaker 1: election contracts to go forward. And I think the statute
32:43
Speaker 1: is clear on the exclusive jurisdiction language as well. And
32:46
Speaker 1: even the Ninth Circuit said that the CFTC would have
32:50
Speaker 1: exclusive jurisdiction and preempt the states from regulating this if
32:55
Speaker 1: these were considered swaps. It just disagreed on the swaps issue.
32:59
Speaker 3: Kalshi has been in all these, I don't know how
33:01
Speaker 3: much it's spent on legal fees already.
33:03
Speaker 1: I'm sure quite a bit.
33:04
Speaker 3: So why is it so important to the prediction markets
33:07
Speaker 3: that they be regulated by the CFTC rather than the states?
33:11
Speaker 3: I mean, bottom line, forget the legal stuff.
33:14
Speaker 2: Right.
33:14
Speaker 1: They don't want to have 50 different regulators, essentially, which
33:19
Speaker 1: is what's happening now, because they're getting sued piecemeal by
33:22
Speaker 1: different states. And so these contracts that they're offering are
33:26
Speaker 1: really designed to be national products, right? It shouldn't be
33:32
Speaker 1: that you can offer a contract in one state, like
33:35
Speaker 1: in New Jersey, where the courts have allowed it so far,
33:38
Speaker 1: but in Nevada, you can't. And so it becomes, imagine
33:42
Speaker 1: if you, you know, you could buy certain stocks in
33:43
Speaker 1: one state, but not in another, for example, right? It's
33:46
Speaker 1: a cleaner regulatory regime for them to have one federal regulator,
33:50
Speaker 1: as opposed to 50 state regulators.
33:52
Speaker 3: I mean, gambling is different in states, isn't it?
33:55
Speaker 1: Right. But that's, again, it's more like a consumer transaction
33:58
Speaker 1: where you have a bookkeeper who's selling a bet to
34:02
Speaker 1: a consumer who's buying it. And you can't trade in
34:04
Speaker 1: and out of it, which you could do with event contracts.
34:07
Speaker 3: These prediction markets are growing and growing. I mean, what
34:10
Speaker 3: kind of money are we talking about?
34:12
Speaker 1: Well, BI did a deep dive just a couple of
34:15
Speaker 1: months ago and thought that the overall market for prediction
34:18
Speaker 1: markets could grow to about a trillion dollars by 2030.
34:21
Speaker 3: And before I let you go, we have to mention
34:23
Speaker 3: that Kalshi has barred former Congressman George Santos for life.
34:30
Speaker 1: They've come down on a few politicians who essentially are
34:34
Speaker 1: betting on their own races. And this goes, again, to
34:38
Speaker 1: the proposed rulemaking, right? They don't want to have contracts
34:41
Speaker 1: that are easily susceptible to manipulation. And if you are
34:46
Speaker 1: a politician or you're someone like George Santos, who is
34:50
Speaker 1: betting on a contract as to whether he'll attend the
34:52
Speaker 1: State of the Union, right? Those are too easy to manipulate.
34:55
Speaker 1: And so, you know, I think that is an issue
34:57
Speaker 1: that we'll see a lot of going forward. What types
35:00
Speaker 1: of contracts are too easy to manipulate? In the sports context,
35:03
Speaker 1: the proposed rulemaking addresses that, saying that, you know, whether
35:07
Speaker 1: a player will be injured can't be the subject of
35:09
Speaker 1: a contract because it's too easy to manipulate. Whether a
35:13
Speaker 1: referee makes a certain call is the same problem.
35:15
Speaker 3: Okay, thanks, Elliot. And we'll watch to see how those
35:18
Speaker 3: two other circuit courts decide. That's Bloomberg Intelligence Senior Litigation
35:23
Speaker 3: Analyst Elliot Stein. And that's it for this edition of
35:27
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35:29
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35:46
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