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SCOTUS Hands Trump Loss on Transgender Rights & Tesla/SpaceX Merger · Bloomberg Law

0:02
Speaker 1: This is Bloomberg Law with June Grosso from Bloomberg Radio.
0:08
Speaker 2: The Supreme Court dealt President Trump a rare setback on
0:12
Speaker 2: transgender rights, refusing to let the administration cut off hormone
0:17
Speaker 2: treatments and social accommodations like wigs and makeup. for about
0:22
Speaker 2: 1,000 federal inmates. In a 7-2 decision, the justices rejected
0:27
Speaker 2: the administration's request without explanation. Conservative Justices Clarence Thomas and
0:34
Speaker 2: Samuel Alito dissented. The Supreme Court has previously allowed other
0:39
Speaker 2: Trump policies for transgender people to move ahead, including a
0:43
Speaker 2: ban on transgender service members, and requiring passports to reflect
0:48
Speaker 2: the sex on the holder's birth certificate. Joining me is
0:52
Speaker 2: an expert on gender and sexuality law, Suzanne Goldberg, a
0:57
Speaker 2: professor at Columbia Law School. This is a rare setback
1:00
Speaker 2: for the Trump administration on transgender rights. Is it the
1:05
Speaker 2: first setback as well?
1:07
Speaker 3: This is the first setback. at the Supreme Court level
1:11
Speaker 3: for the Trump administration on transgender rights. And we have
1:15
Speaker 3: to understand that it is a narrow setback, right? This
1:18
Speaker 3: is a temporary so-called shadow docket ruling in which the
1:23
Speaker 3: court has rejected the Trump administration's effort to stop ongoing
1:30
Speaker 3: medical treatment for health care for transgender prisoners.
1:34
Speaker 2: We don't know why the justices reached this decision. It's
1:37
Speaker 2: a one-sentence order. And previously on the emergency docket, they
1:42
Speaker 2: allowed the Trump administration to ban transgender service members and
1:47
Speaker 2: to enforce passport restrictions. Do you have any ideas as
1:51
Speaker 2: to why they may have rejected the administration here?
1:55
Speaker 3: Of course, it's hard to know the actual answer because
1:58
Speaker 3: none of the justices, even the two dissenters, gave a
2:01
Speaker 3: reason for this particular ruling. But what we do know
2:06
Speaker 3: is that For over 30 years, the Bureau of Prisons
2:10
Speaker 3: policy has been to continue providing hormone treatment or transgender
2:15
Speaker 3: health care for people who entered custody and were already
2:20
Speaker 3: receiving that care. And so during this last 30 years,
2:24
Speaker 3: the Bureau of Prisons also expanded access to care, including
2:28
Speaker 3: by initiating hormone therapy. So there's a group of prisoners
2:31
Speaker 3: who are receiving this form of health care. And what
2:34
Speaker 3: the Trump administration announced it intended to do was to
2:38
Speaker 3: stop people mid-course from receiving this kind of health care.
2:42
Speaker 3: And so it may be the combination of the 30-year
2:45
Speaker 3: history of providing this treatment and more and accommodations as well,
2:50
Speaker 3: plus just a sheer lack of any kind of an
2:54
Speaker 3: evidence-based justification for not providing the care. The Administrative Procedure
2:59
Speaker 3: Act requires that if the government is changing policy, it
3:02
Speaker 3: has to have some reasonable explanation for that change. And
3:06
Speaker 3: there's just nothing in the record. There is clearly a
3:09
Speaker 3: distaste and a dislike or really a refusal to recognize
3:13
Speaker 3: the existence of transgender people that has been expressly made
3:17
Speaker 3: by this administration. But that isn't enough of a reason
3:20
Speaker 3: to change a policy of over 30 years.
3:23
Speaker 2: In a brief to the Supreme Court, the Solicitor General
3:26
Speaker 2: wrote that the administration made this change because the latest
3:30
Speaker 2: medical science did not support the treatments and also that
3:34
Speaker 2: the treatment's risk-making recipients targets of violence by other inmates,
3:39
Speaker 2: among other safety issues.
3:42
Speaker 3: So let's separate those two. On the first, the administration
3:47
Speaker 3: did not create any kind of a record that the
3:51
Speaker 3: federal court, which reviewed the administration's so-called analysis, found reliable.
3:56
Speaker 3: And so this is why the federal district court, from
4:00
Speaker 3: a judge who has been on the court for a
4:02
Speaker 3: very long time and has been not known as a
4:06
Speaker 3: particularly liberal judge or anything like that, this judge said, look,
4:10
Speaker 3: you've given me your reasons and they are insufficient. You
4:14
Speaker 3: don't have a basis for making this change. The government
4:17
Speaker 3: appealed to the D.C. Circuit, which did not overturn the
4:22
Speaker 3: lower court injunction. And now the Supreme Court has not
4:25
Speaker 3: weighed it in. So on the evidence, I think that,
4:28
Speaker 3: you know, the government can say it has evidence, but
4:30
Speaker 3: it didn't actually produce any. On the concern about transgender
4:33
Speaker 3: women facing violence in prison, the answer to that in
4:38
Speaker 3: any rule of law consistent way cannot be Therefore, we
4:43
Speaker 3: will stop providing health care to people who might be
4:47
Speaker 3: subjected to violence by others. The answer to some group
4:52
Speaker 3: of inmates is at risk of violence is to protect
4:56
Speaker 3: that group of inmates, not to stop giving them health care.
5:00
Speaker 2: At the beginning of his administration, Trump directed the transfer
5:05
Speaker 2: of transgender women to men's prisons. through an executive order.
5:10
Speaker 2: Was that ever implemented?
5:12
Speaker 3: So there have been a range of different kinds of
5:16
Speaker 3: efforts to really, I think, what amounts to putting transgender
5:20
Speaker 3: inmates at risk, right? Some is stopping health care, which
5:23
Speaker 3: is what's at issue in this case. Others are transferring
5:27
Speaker 3: transgender women to male prisons, which as obvious risks because
5:33
Speaker 3: these are inmates who look and present like women being
5:37
Speaker 3: put into a men's prison. There's a reason that prisons
5:40
Speaker 3: separate based on sex. And although there is a lot
5:43
Speaker 3: of sexual violence, particularly in male prisons among people who
5:47
Speaker 3: are being incarcerated, there's still, I don't think, any reputable
5:51
Speaker 3: prison policy that houses men and women jointly when there's
5:55
Speaker 3: risk of violence. There are also claims in the mix
5:58
Speaker 3: about separating non-transgender women and transgender women. So there's a
6:03
Speaker 3: lot of different pieces, moving parts. There are several lawsuits
6:07
Speaker 3: challenging the government's determination to put transgender women in with
6:12
Speaker 3: the male population. There's a lot of litigation in the mix. Basically,
6:17
Speaker 3: just to summarize, but to skip over some of the details,
6:21
Speaker 3: in one of the significant cases, a circuit court reversed
6:26
Speaker 3: an injunction and said, look, the district court is within
6:30
Speaker 3: its authority to enjoin the government from putting transgender women
6:33
Speaker 3: into male prisons, but has to make the determination on
6:37
Speaker 3: an individual sort of per prisoner basis and not just
6:41
Speaker 3: flatly reject this transfer policy. And so in one of
6:45
Speaker 3: the cases that a lower court considered the specific circumstances
6:48
Speaker 3: of a group of women, I think it was 14,
6:50
Speaker 3: and enjoined the government from moving them. This has also
6:53
Speaker 3: happened elsewhere, but we don't, I think, even have a
6:56
Speaker 3: full sense of the whole picture.
6:58
Speaker 2: So did the plaintiffs in this case argue about, I mean,
7:01
Speaker 2: what would have been the result if the care had
7:04
Speaker 2: been cut off?
7:06
Speaker 3: We would have had a situation where people who have
7:08
Speaker 3: been receiving health care from the Federal Bureau of Prisons,
7:12
Speaker 3: some for at least 30 years, perhaps, would have been
7:16
Speaker 3: cut off from receiving transgender health care. And sort of
7:20
Speaker 3: two different sets of physical harms would have followed. One,
7:25
Speaker 3: to suddenly stop providing a form of health care that
7:28
Speaker 3: somebody has been receiving can cause all sorts of physical
7:32
Speaker 3: injuries in terms of the body adapting, you know, having
7:35
Speaker 3: taken away some drugs, which it is used to sort
7:39
Speaker 3: of processing and receiving. The second is, of course, to
7:42
Speaker 3: stop transgender health care in particular, which can result in
7:46
Speaker 3: many important respects in that physical change in a person's
7:49
Speaker 3: physical sex characteristics can also dramatically exacerbate the very condition
7:54
Speaker 3: for which they were receiving treatment, which is gender dysphoria.
7:57
Speaker 3: So it's like saying, yes, you can have this treatment
8:00
Speaker 3: that you need, that we have been giving to you.
8:03
Speaker 3: Now we are going to take it away from you
8:05
Speaker 3: because this administration believes you don't exist as a transgender person.
8:10
Speaker 3: And again, leaving incarcerated individuals who are at risk to
8:14
Speaker 3: suffer many harmful medical consequences as well as obvious psychological consequences.
8:19
Speaker 2: So the Justice Department said, we look forward to pursuing
8:22
Speaker 2: our appeal in the D.C. Circuit to reinstate the Bureau
8:26
Speaker 2: of Prisons policy that affirms biological reality.
8:29
Speaker 3: Let me just say on that affirms biological reality claim.
8:33
Speaker 3: The biological reality for these transgender women is that they
8:38
Speaker 3: are receiving estrogen and other transgender health care supportive regimens.
8:43
Speaker 3: So I think that government is mischaracterizing the biology of
8:47
Speaker 3: the situation as it were. But now I think the
8:50
Speaker 3: Supreme Court has said we're not getting involved. And so
8:53
Speaker 3: the federal district court will continue to have jurisdiction in
8:57
Speaker 3: the case.
8:58
Speaker 2: As you said, this is narrow, you know, specific circumstances here.
9:02
Speaker 2: Does it give you any hope that the Supreme Court
9:05
Speaker 2: might be a little more open to transgender rights than
9:09
Speaker 2: it has been?
9:09
Speaker 3: I think it is hard to draw any conclusions from,
9:14
Speaker 3: you know, an unsigned opinion and two dissents noted without opinions.
9:20
Speaker 3: You know, I hope that that's right. What I most
9:22
Speaker 3: hope actually is that the courts takes as seriously the
9:28
Speaker 3: legal claims of transgender individuals as it does the claims
9:33
Speaker 3: of other individuals. I don't think that we have seen
9:36
Speaker 3: that in a number of the cases that have been
9:38
Speaker 3: decided this in the last couple of years. And not
9:42
Speaker 3: to suggest that the court is not serious about its work,
9:44
Speaker 3: but I don't think that it has been applying the law,
9:48
Speaker 3: either well-established law or the changes that it has made
9:51
Speaker 3: to the law have been justified. So perhaps this will
9:54
Speaker 3: signal a turn. I also think the government's position here,
9:57
Speaker 3: as in some of the other cases, has just been indefensible.
10:02
Speaker 3: There's 30 plus years of history of providing this treatment.
10:05
Speaker 3: And to kind of snap fingers on the first day
10:08
Speaker 3: of the administration and say, well, we've decided to stop
10:11
Speaker 3: the treatment, does not suggest that there's been, while this
10:14
Speaker 3: administration has been in office, any serious level of analysis.
10:18
Speaker 2: Are there any transgender cases coming up at the court
10:21
Speaker 2: this term?
10:21
Speaker 3: So what's at the court this term are a couple
10:26
Speaker 3: of important cases that have implications for transgender people, potentially.
10:33
Speaker 3: One is St. Mary's Catholic Parish versus Roy, which is
10:37
Speaker 3: going to be argued on November 3rd. And that concerns
10:41
Speaker 3: Colorado provides funding to preschools, so long as they comply
10:45
Speaker 3: with the state's non-discrimination provisions, and a preschool in Colorado
10:49
Speaker 3: has said, look, we would like to be able to
10:51
Speaker 3: exclude lesbian and gay parents and still take government funding.
10:56
Speaker 3: And so that issue is before the courts or the
10:59
Speaker 3: scope of a school's claimed free exercise of religion, right,
11:04
Speaker 3: as against the state's commitment to providing all schools, including
11:08
Speaker 3: religious schools, with funding so long as they abide by
11:12
Speaker 3: non-discrimination requirements. There's a second case that involves sort of parents'
11:17
Speaker 3: information about a child's gender transition, but that's really a
11:21
Speaker 3: case that's more about standing. I don't think that will directly,
11:24
Speaker 3: squarely address the rights of transgender people. Of course, there
11:28
Speaker 3: are questions that are bubbling up about military service for
11:32
Speaker 3: transgender people. That's what's there as of the moment.
11:35
Speaker 2: We'll see what happens when transgender rights collide with religious
11:40
Speaker 2: rights at the court. Thanks so much, Suzanne. That's Professor
11:44
Speaker 2: Suzanne Goldberg of Columbia Law School. Coming up next, the
11:48
Speaker 2: SEC's one person is king approach. This is Bloomberg.
11:56
Speaker 1: This is Bloomberg Law with June Grosso from Bloomberg Radio.
12:02
Speaker 2: The Trump administration is poised to exert even more control
12:06
Speaker 2: over the SEC after the historically independent Wall Street cop
12:12
Speaker 2: has made it easier for the president's chairman to rule
12:16
Speaker 2: the agency alone. The SEC is supposed to have a
12:19
Speaker 2: bipartisan makeup, but it's currently operating with a Republican-only commission.
12:25
Speaker 2: And now it's approved a quorum change that allows a
12:29
Speaker 2: single commissioner vote. If only two are serving and one
12:32
Speaker 2: is disqualified. Joining me is business law professor Eric Talley
12:37
Speaker 2: of Columbia Law School. First of all, the SEC is
12:41
Speaker 2: supposed to have a bipartisan makeup with no more than
12:45
Speaker 2: three commissioners belonging to the same party. What is the
12:48
Speaker 2: makeup of the SEC right now?
12:50
Speaker 1: Well, the makeup right now is three going on two.
12:54
Speaker 1: They're basically about to end up with only two commissioners
12:57
Speaker 1: on a five-member body that And you're exactly right. It's
13:01
Speaker 1: supposed to be no more than a 3-2 breakdown favoring
13:06
Speaker 1: the president's party. So fully staffed, the SEC should be
13:10
Speaker 1: three Republicans and two Democrats. They're now basically two Republicans.
13:16
Speaker 1: And that creates all kinds of interesting issues when it
13:20
Speaker 1: comes not only to like Democratic legitimacy and so forth,
13:23
Speaker 1: but also just the plumbing of how the SEC goes
13:26
Speaker 1: about doing its business. Yeah.
13:29
Speaker 2: So now tell us they approved a quorum change without
13:32
Speaker 2: advance notice and comment.
13:35
Speaker 1: Yes. So they recently basically with the two remaining members
13:39
Speaker 1: of the commission, both Republicans, they passed at the beginning
13:43
Speaker 1: of October a rule change that basically says the following,
13:48
Speaker 1: that if either of the two commissions or if even
13:51
Speaker 1: in broader sense, if we're more fully staffed, commissioners have
13:55
Speaker 1: to drop out of a decision because of a conflict
13:57
Speaker 1: of interest. Maybe they worked for a company that's implicated
14:01
Speaker 1: in a particular decision and they therefore have to recuse themselves.
14:04
Speaker 1: It is possible for as little as a single commissioner
14:08
Speaker 1: to constitute a quorum and then vote on a particular
14:12
Speaker 1: rule change or issue related to a litigation or enforcement matter.
14:17
Speaker 1: In many respects, some people sort of viewed that that
14:21
Speaker 1: was kind of really, really sort of liberalizing and possibly
14:26
Speaker 1: causing the SEC to become very unrepresentative. And to some extent,
14:32
Speaker 1: that argument is true. But it's important to realize that
14:35
Speaker 1: the starting point for this rule change was actually set
14:39
Speaker 1: into motion in the mid-1990s. The last time that we
14:43
Speaker 1: had a two-person commission, Arthur Levitt and Stephen Wallman, both
14:48
Speaker 1: Democrats who were left over on the commission, there was
14:53
Speaker 1: a 1995 rule change that kind of went most of
14:57
Speaker 1: the way to where this current rule change was. It
14:59
Speaker 1: wasn't dealing with, you know, recusals and conflicts, but it
15:03
Speaker 1: basically said, you know, if the SEC is understaffed and
15:07
Speaker 1: it only has two commissioners, that's enough to constitute a
15:10
Speaker 1: quorum or one commissioner and that's enough to constitute a quorum.
15:13
Speaker 1: So that rule was already in place. It was challenged
15:17
Speaker 1: in the mid-1990s as being beyond the scope of what
15:21
Speaker 1: the SEC could do, and they needed to open up
15:23
Speaker 1: to notice and comment. And in a couple of cases
15:26
Speaker 1: in 1996, courts both in New York and the District
15:30
Speaker 1: of Columbia sort of rejected those challenges and said, no,
15:33
Speaker 1: the SEC actually has been empowered to set its own
15:37
Speaker 1: protocols for establishing what its quorum is, and it is
15:41
Speaker 1: legitimate for the SEC then, a Democrat sort of controlled
15:44
Speaker 1: SEC of two people, to basically change the rules. And
15:48
Speaker 1: so that was the backdrop. And the key change made
15:51
Speaker 1: in this most recent move is to deal with what
15:54
Speaker 1: happens when you have possibly two, but one of them
15:57
Speaker 1: has to recuse themselves. That wasn't covered in the earlier
16:00
Speaker 1: rule change. And that's essentially what the SEC has done here.
16:05
Speaker 1: You know, I think when they basically made this rule change,
16:08
Speaker 1: they certainly were looking at these mid-1990s cases that basically
16:12
Speaker 1: said it's within your authority to do it. You don't
16:15
Speaker 1: have to work around the notice and comment period when
16:18
Speaker 1: you do it as well. So, you know, those kind
16:21
Speaker 1: of Clinton administration era legal precedents were already sort of
16:25
Speaker 1: setting the stage for what the SEC did this time.
16:28
Speaker 2: Senator Elizabeth Warren said, I get that right now the
16:31
Speaker 2: Republicans are entitled to be in the majority, but to
16:35
Speaker 2: cut Democrats out entirely and turn this into one person
16:38
Speaker 2: is king is This just has the SEC mimicking how
16:42
Speaker 2: Donald Trump thinks the world is supposed to work.
16:45
Speaker 1: Senator Warren's not incorrect. In fact, there's one angle that
16:49
Speaker 1: you could look at this rule change and say, look,
16:52
Speaker 1: what the SEC is trying to do is to adapt
16:55
Speaker 1: to situations that, for whatever reason, it turns out to
16:59
Speaker 1: be short-staffed. And there are a lot of rationales for
17:03
Speaker 1: arguing why the SEC should still be able to continue
17:06
Speaker 1: to do business, even when it's short-staffed. and waiting to
17:10
Speaker 1: get more fully staffed. If the commission basically ground to
17:13
Speaker 1: a halt because there just weren't enough commissioners to constitute
17:18
Speaker 1: a quorum, that would in some ways be disastrous for
17:21
Speaker 1: the well-functioning sort of operation of securities markets. So viewed
17:26
Speaker 1: from that perspective, this rule change seems like minor, and
17:30
Speaker 1: it also is not something that one would necessarily on
17:34
Speaker 1: pragmatic grounds want to push back on. But Senator Warren
17:37
Speaker 1: also has an interesting point when she notes that, look,
17:40
Speaker 1: there's a kind of a question of when does a
17:43
Speaker 1: sort of a temporary urgency or emergency become a permanent strategy, right?
17:49
Speaker 1: If this turns out to be something that the SEC
17:53
Speaker 1: is able to do and able to do kind of
17:55
Speaker 1: on an ongoing basis without any compulsion to go up
18:00
Speaker 1: to $ 5 permanent members of the FCC, then if the
18:03
Speaker 1: chair is kind of well aligned with the president, then
18:07
Speaker 1: the president might be perfectly happy just letting things continue
18:11
Speaker 1: to go forward with only one or two commissioners that
18:14
Speaker 1: are very much aligned with him. And it almost becomes
18:17
Speaker 1: like a policy option from the standpoint of the president.
18:21
Speaker 1: And there clearly comes some point where, you know, the
18:23
Speaker 1: congressional intent in setting up this split commission was exactly
18:28
Speaker 1: to avoid that process These were sort of Band-Aid fixes
18:32
Speaker 1: that were put into place to take account of those
18:35
Speaker 1: situations where, for whatever reason, the commission is short-staffed. But
18:38
Speaker 1: there is definitely a danger, and this was cited back
18:41
Speaker 1: in the mid-90s as well under the Clinton administration, that,
18:44
Speaker 1: you know, that temporary Band-Aid may actually turn out to
18:47
Speaker 1: be like the gauze that wrapped up the entire mummy, right?
18:51
Speaker 1: And there's really no alternative other than to wait for
18:54
Speaker 1: the president to nominate and the Senate to confirm more
18:58
Speaker 1: people onto the commission. And so that is sort of
19:01
Speaker 1: the battle that I think we are locked in. It
19:03
Speaker 1: is a legitimate complaint to say that this sort of
19:06
Speaker 1: sows the seeds of almost like a permanent strategy of
19:10
Speaker 1: keeping the SEC short-staffed. But by the same token, the
19:14
Speaker 1: SEC also needs some flexibility if, for independent reasons, it
19:18
Speaker 1: finds itself, you know, sort of understaffed relative to its
19:22
Speaker 1: official regulatory roster.
19:24
Speaker 2: The Trump administration is, I don't want to say polling this,
19:27
Speaker 2: but doing similar things on other commissions, right? The CFTC
19:32
Speaker 2: has one commissioner, the chairman, instead of five, and the
19:36
Speaker 2: Election Assistance Commission has no commissioners instead of four. It
19:41
Speaker 2: seems to be sort of a strategy.
19:44
Speaker 1: A tactic. It sort of is. And in many ways,
19:47
Speaker 1: I think that this represents a long-standing collision of where
19:51
Speaker 1: sort of the schoolhouse rock kind of design of how
19:55
Speaker 1: you want to set these administrative agencies up collides with
19:59
Speaker 1: both the political reality and also the functional reality that
20:03
Speaker 1: they may be understaffed. I will note that This isn't
20:06
Speaker 1: the first rodeo, both at the SEC, I already talked
20:09
Speaker 1: about the mid-1990s change, and also the Federal Trade Commission,
20:14
Speaker 1: the FTC, in September of 2005. It also changed its
20:18
Speaker 1: quorum rule to basically count a majority of commissioners in
20:22
Speaker 1: office and not recused as basically being a quorum. And
20:25
Speaker 1: they relied on one of the cases that basically upheld
20:29
Speaker 1: the SEC's rule. So there is a little bit of
20:32
Speaker 1: a sense that over time, probably over the span of
20:34
Speaker 1: about 30 years, the agencies have sort of pushed, sometimes
20:39
Speaker 1: under Democrat administrations, sometimes under Republican administrations, for some wiggle
20:44
Speaker 1: room to compensate for situations where they're short-staffed. I think
20:47
Speaker 1: a lot of people in all of these areas have
20:50
Speaker 1: pointed out, usually on the other side of the issue,
20:52
Speaker 1: have pointed out that this is kind of an invitation,
20:55
Speaker 1: sort of catnip for Tom Fuller and shenanigans to basically
20:59
Speaker 1: sort of keep the commission permanently understaffed and therefore answerable
21:04
Speaker 1: in a much more homogenous way to the president. And,
21:08
Speaker 1: you know, in some ways the Trump administration didn't create
21:11
Speaker 1: this problem, but they have absolutely noticed it and have
21:15
Speaker 1: sort of exploited it on multiple fronts. And the CFTC is,
21:19
Speaker 1: you know, in some ways the most recent of these, but,
21:21
Speaker 1: you know, going back to kind of the longstanding quorum rules,
21:25
Speaker 1: even at the SEC, this most recent rule change, it
21:28
Speaker 1: moves the needle a little bit, but much of that
21:31
Speaker 1: needle got moved 30 years ago.
21:33
Speaker 2: Eric, despite the precedents you were talking about, Could someone
21:37
Speaker 2: sue over this or will someone sue over this? Or
21:40
Speaker 2: could defendants challenge the quorum change?
21:44
Speaker 1: The rule change itself is probably going to be very
21:47
Speaker 1: difficult to challenge. We've just got, you know, 30 years
21:50
Speaker 1: of precedent, other commissions that have essentially relied on these
21:56
Speaker 1: important cases. But one of the things that's happening at
22:00
Speaker 1: the same time is a movement, particularly within the Supreme Court,
22:05
Speaker 1: to pull back on how much deference they give to
22:09
Speaker 1: administrative agencies when those agencies change their own rules. You know,
22:15
Speaker 1: starting about a year ago, the Supreme Court said, we're
22:18
Speaker 1: not going to basically, you know, believe everything you say, agency.
22:21
Speaker 1: You're going to have to justify why you're doing what
22:25
Speaker 1: you're doing and why it fits within your regulatory and
22:28
Speaker 1: statutory mandate. And so there is a real sense in
22:31
Speaker 1: which even though the Trump administration has seized upon almost
22:36
Speaker 1: a pre-existing hall pass for these agencies to reduce their
22:40
Speaker 1: quorum requirements while they're short staffed. At the same time,
22:44
Speaker 1: the Supreme Court has ratcheted up its scrutiny on these
22:47
Speaker 1: administrative agencies, largely kind of responding to legacy problems from
22:52
Speaker 1: 10 or 20 years ago. But I would not be
22:54
Speaker 1: surprised if there were challenges made along those lines. And
22:58
Speaker 1: in fact, There's one sort of shareholder advocate, James McRitchie,
23:02
Speaker 1: who's filed a petition asking the SEC to rescind this
23:06
Speaker 1: amendment or put it into the notice and comment process. Now,
23:11
Speaker 1: this is an administrative petition. It's not really a lawsuit yet,
23:15
Speaker 1: but it certainly could mature into one.
23:17
Speaker 2: And this comes at a time when there is a
23:20
Speaker 2: dramatic reduction in enforcement activity at the SEC. They filed
23:25
Speaker 2: an estimated 308 enforcement actions in fiscal 2026, the fewest
23:30
Speaker 2: since 2018. I mean, is that because there have less
23:34
Speaker 2: commissioners working or is that just because the Trump administration
23:38
Speaker 2: is deregulatory?
23:41
Speaker 1: Listen, I'm not I don't have a seat at that table,
23:44
Speaker 1: but I would be very surprised if it weren't more
23:46
Speaker 1: along the lines of we just want to implement a
23:50
Speaker 1: policy that is more deregulatory. The commission actually hasn't had
23:54
Speaker 1: that much of a say historically on enforcement proceedings, though
23:59
Speaker 1: under Chair Atkins, they've essentially elbowed their way to that
24:02
Speaker 1: table and say, you know, we want to actually have
24:05
Speaker 1: a say in whether enforcement proceedings are brought. So then
24:08
Speaker 1: in some ways, I guess, indirectly and recently has created
24:11
Speaker 1: a little bit more of a capacity constraint. But, you know,
24:14
Speaker 1: the whole commission would have to do that anyway. This is,
24:17
Speaker 1: you know, in many ways, probably much more of a...
24:21
Speaker 1: of an artifact of the Trump administration, correctly or incorrectly,
24:25
Speaker 1: and reasonable people can disagree, have said, well, there's just
24:30
Speaker 1: too much litigation around securities cases, and therefore we just
24:34
Speaker 1: want to tamp that down, at least when promulgated by
24:37
Speaker 1: the SEC. And that has sort of feedback effects on
24:40
Speaker 1: private plaintiffs as well, because a lot of times the
24:42
Speaker 1: SEC ends up developing a factual record that private plaintiffs
24:47
Speaker 1: can then subsequently free ride on when they bring their
24:49
Speaker 1: own cases. And so the SEC sort of, pulling back
24:52
Speaker 1: both pragmatically, because there aren't that many commissioners anymore, and
24:55
Speaker 1: also as a policy matter, then there would seem to
24:59
Speaker 1: be at least currently in place fewer sort of swords
25:03
Speaker 1: of Damocles swaying over companies and CEOs and boards of
25:07
Speaker 1: directors in these circumstances. But one thing to remain mindful
25:11
Speaker 1: of as well, June, is we're halfway through the second
25:15
Speaker 1: Trump administration in a lot of securities fraud situations. that
25:20
Speaker 1: statute of limitations is far longer. It can be up
25:23
Speaker 1: to five years. And so if you're a company right
25:25
Speaker 1: now sort of saying, hey, look, the SEC is sort
25:28
Speaker 1: of asleep at the wheel. Maybe we're not going to
25:31
Speaker 1: have to worry too much about compliance with their mandates
25:34
Speaker 1: because they're really not going to turn around and start
25:37
Speaker 1: enforcement actions against us. I'd be a little bit, you know,
25:40
Speaker 1: I'd be a little bit reserved about that. First of all,
25:42
Speaker 1: private plaintiffs can still be suing you. And second, who
25:44
Speaker 1: knows what's going to happen in the next presidential election?
25:47
Speaker 1: Who knows where the SEC is going to be become
25:49
Speaker 1: newly energized to start going after situations that haven't yet
25:54
Speaker 1: hit their statute of limitations. So this really does seem
25:58
Speaker 1: to be kind of consistent with Chair Atkins' move to
26:01
Speaker 1: cause the SEC to sort of scale back the invasiveness
26:05
Speaker 1: of its own activity on enforcement and rulemaking as well.
26:09
Speaker 1: But political cycles are short these days. They're not as
26:13
Speaker 1: short as the news cycle, June, but they are pretty short.
26:15
Speaker 2: You got me there. Stay with me, Eric. Coming up
26:17
Speaker 2: next on the Bloomberg Law Show, will SpaceX merge with Tesla?
26:23
Speaker 2: I'm June Grosso, and you're listening to Bloomberg. Elon Musk
26:28
Speaker 2: made headlines on SpaceX's earnings call yesterday when he confirmed
26:33
Speaker 2: that it and Tesla had formed special committees to explore
26:37
Speaker 2: a potential merger. A tie-up could make the world's richest
26:42
Speaker 2: man even richer. It could add more than $ 110 billion
26:47
Speaker 2: to his fortune by accelerating the vesting of Tesla shares
26:51
Speaker 2: that otherwise wouldn't vest until 2028. And depending on Tesla's
26:56
Speaker 2: valuation in a deal, it could unlock billions more from
27:00
Speaker 2: Musk's 2025 compensation package without Tesla having to meet the
27:05
Speaker 2: operating milestones that would otherwise be required to trigger the payout.
27:11
Speaker 2: I've been talking to Professor Eric Talley of Columbia Law School.
27:15
Speaker 2: I mean, he says that there is an exploration of
27:18
Speaker 2: a merger of SpaceX and Tesla. Tell us what he
27:22
Speaker 2: says is going on.
27:24
Speaker 1: Yeah, so this is an announcement that surprised approximately 0.00 people.
27:31
Speaker 1: When SpaceX went public, I think almost everyone sort of said,
27:36
Speaker 1: it's not a question of if SpaceX and Tesla are
27:39
Speaker 1: going to get combined. but it is when. And so
27:42
Speaker 1: the announcement that came out basically said, look, a standard
27:45
Speaker 1: approach when you're thinking about a large merger, and this
27:47
Speaker 1: would be huge, this would be about $ 3. 5 trillion worth
27:50
Speaker 1: of merging going on here, biggest in history, is to
27:54
Speaker 1: say where we're going to put together some special committees
27:57
Speaker 1: at the board level to engage in this process on
28:00
Speaker 1: trying to figure out exactly what the terms would be. Now,
28:03
Speaker 1: there are different ways, you know, like Tesla could acquire
28:06
Speaker 1: SpaceX or SpaceX could acquire Tesla. I think the smart money,
28:09
Speaker 1: and certainly my money, is on SpaceX acquiring Tesla and
28:13
Speaker 1: not doing so with cash, but just paying SpaceX stock
28:17
Speaker 1: in exchange for Tesla stock. There's a bunch of reasons
28:21
Speaker 1: for that. SpaceX just went public, and it has a
28:23
Speaker 1: pretty large market capitalization. And after its initial fall, it's
28:28
Speaker 1: actually gotten more valuable, not quite at that IPO level,
28:31
Speaker 1: but it's still a pretty good currency to use. The
28:34
Speaker 1: other reason is that if you do a stock-for-stock merger,
28:38
Speaker 1: That's not going to impose a huge tax liability on
28:40
Speaker 1: Elon Musk. The other reason why SpaceX is likely to
28:44
Speaker 1: be the acquirer of Tesla is that Elon Musk's situation
28:48
Speaker 1: at SpaceX, it's what's known as a dual class capital structure.
28:52
Speaker 1: So he's got these special high vote shares at SpaceX
28:56
Speaker 1: that allows him to maintain control of the company. He
28:58
Speaker 1: does not have that at Tesla. He's just an ordinary
29:02
Speaker 1: common shareholder with around 20% of the stock. And so
29:06
Speaker 1: folding in Tesla to SpaceX doesn't require him to surrender
29:10
Speaker 1: any of his high voting shares. So my guess is
29:13
Speaker 1: that that's the direction that it's going to go. And
29:15
Speaker 1: I don't think there's much debate that this is likely
29:17
Speaker 1: going to be a SpaceX takes over Tesla and pays
29:20
Speaker 1: in shares. And there's going to be a question about
29:23
Speaker 1: exactly what the terms of that exchange are going to
29:25
Speaker 1: look like.
29:26
Speaker 2: So the boards of the Rocket Maker electric car manufacturer
29:31
Speaker 2: have formed special committees of independent directors to consider the merger.
29:35
Speaker 2: I mean, they're his allies, aren't they? Is there any
29:38
Speaker 2: doubt that they're going to... go forward with a merger
29:42
Speaker 2: if he wants that?
29:43
Speaker 1: Well, this is a great, I mean, if you're a
29:44
Speaker 1: corporate law nerd, June, and my guess is one of
29:47
Speaker 1: the reasons that you're interviewing me right now is I am,
29:50
Speaker 1: is that there is a wild card that no one
29:54
Speaker 1: really knows the answer to right now. Both SpaceX and
29:57
Speaker 1: Tesla are not Delaware companies. They are Texas corporations. And
30:02
Speaker 1: the Texas corporate bar has created this brand new business
30:05
Speaker 1: law court that's going to be, you know, if there
30:08
Speaker 1: is a challenge about whether the SpaceX special committee or
30:11
Speaker 1: the Tesla special committee is disinterested and independent, that's going
30:16
Speaker 1: to go in front of the Texas courts. They have
30:18
Speaker 1: not really been terribly transparent about how they're going to
30:21
Speaker 1: deal with this sort of a situation. And realize that
30:25
Speaker 1: when you've got a stock for stock sort of situation
30:28
Speaker 1: like this, It could come from either side. It could
30:31
Speaker 1: be that the Tesla stockholders think that they're getting underpaid
30:35
Speaker 1: in terms of the SpaceX stock and they want to
30:37
Speaker 1: file a lawsuit. And then it could also be that
30:40
Speaker 1: the SpaceX shareholders feel like they're overpaying the Tesla shareholders
30:45
Speaker 1: and they're trying to file a lawsuit. And so when
30:47
Speaker 1: you sort of put those two things together, you could
30:49
Speaker 1: see lawsuits on both sides, both funneled into these Texas
30:53
Speaker 1: business courts. that have never heard a case that has
30:57
Speaker 1: this type of magnitude associated with it do not have
31:00
Speaker 1: a substantial line of precedent. And it's kind of a
31:03
Speaker 1: question about exactly how they're going to deal with it.
31:06
Speaker 1: I think under sort of the traditional Delaware law approach,
31:09
Speaker 1: both of those special committees would have their tires kicked
31:12
Speaker 1: to make sure that they're truly independent, that they had
31:14
Speaker 1: real bargaining power to stand up for the interest of
31:19
Speaker 1: their independent shareholders since Elon Musk is on both sides
31:22
Speaker 1: of this transaction. My guess is the Texas courts are
31:25
Speaker 1: going to make a motion in that direction as well.
31:28
Speaker 1: But we just don't have a lot of precedent that
31:30
Speaker 1: Texas courts have basically passed down to their successors. Most
31:34
Speaker 1: Texas corporate law decisions end up siding over to Delaware anyway.
31:38
Speaker 1: So that'll be kind of an interesting thing to see
31:40
Speaker 1: play out. I think you're right that one of the
31:43
Speaker 1: big issues with Mr. Musk is that he's got a
31:47
Speaker 1: lot of fans and some of those fans find their
31:49
Speaker 1: way onto his boards of directors. And so There is
31:53
Speaker 1: a legitimate question about whether approving a transaction is going
31:56
Speaker 1: to be too disappointing to him and whether the independence
32:00
Speaker 1: of those directors is a legitimate form of independence. He's
32:05
Speaker 1: survived these challenges before, however, so it's not impossible to demonstrate,
32:10
Speaker 1: even to a court in Delaware that places presumably pretty
32:13
Speaker 1: rigorous scrutiny on this, that for the purposes of this transaction,
32:17
Speaker 1: the special committee was sufficiently independent that they could make
32:21
Speaker 1: judgments without being overly influenced by Elon Musk. So we'll see.
32:26
Speaker 1: I would expect, however, that if for no reason but
32:30
Speaker 1: to kind of figure out exactly what Texas business courts
32:33
Speaker 1: care about and don't care about, that you're going to
32:36
Speaker 1: see some litigation on one side, if not both sides.
32:40
Speaker 2: What's the percentage of stockholders that would have to approve this?
32:44
Speaker 1: I think in both cases, it's a 50%, which is
32:47
Speaker 1: the standard number of stockholders that has to approve. But
32:50
Speaker 1: I may be wrong about this. I'll check it out.
32:52
Speaker 1: So the idea is that probably the way that this
32:56
Speaker 1: would be structured is SpaceX shareholders would not actually formally
33:00
Speaker 1: vote on it. They could submit it to a vote.
33:02
Speaker 1: But if you're the acquiring company, there's ways that you
33:05
Speaker 1: can kind of get around your own shareholders from voting
33:08
Speaker 1: on the transaction. The target company, which I assume would
33:12
Speaker 1: be Tesla, would have to subject this to a stockholder vote. Now,
33:16
Speaker 1: a lot of those stockholders, you know, have migrated to Tesla,
33:20
Speaker 1: at least in part, because they're big fans of Elon Musk.
33:23
Speaker 1: And my guess is he will make one or several
33:27
Speaker 1: public statements and tweets about why this is going to
33:31
Speaker 1: be a great thing for the company. And honestly, if
33:34
Speaker 1: you're a shareholder of Tesla or SpaceX, one of the
33:36
Speaker 1: biggest headaches I think you've had to deal with the
33:38
Speaker 1: last few years is trying to figure out like, well,
33:41
Speaker 1: you know, Mr. Musk is like, like basically dividing his
33:44
Speaker 1: attention between these two huge companies, is my company going
33:47
Speaker 1: to be the neglected one? So there is kind of,
33:50
Speaker 1: in some ways, a degree of comfort if the two
33:53
Speaker 1: companies merge, and therefore he doesn't have to split his
33:55
Speaker 1: attention between the two companies. And so I would expect
33:58
Speaker 1: that Tesla shareholders, at least on that basis, are going
34:02
Speaker 1: to be happy to see this happen. But the terms
34:05
Speaker 1: of that transaction are also going to be relevant. We
34:07
Speaker 1: haven't even heard what those are going to be. Presumably
34:10
Speaker 1: they're in the middle of negotiating them. Another thing that's
34:13
Speaker 1: worth noting, June, is that, you know, these are really
34:15
Speaker 1: two tech companies. They're in slightly different fields, but they
34:18
Speaker 1: absolutely overlap in terms of, you know, AI and robotics
34:23
Speaker 1: and so forth. And so one has to wonder a
34:25
Speaker 1: little bit about, you know, regulatory oversight and regulatory approval.
34:30
Speaker 1: And if you kind of like think about all the
34:31
Speaker 1: different things they're involved in, there's, you know, SpaceX is
34:34
Speaker 1: deeply involved in telecommunications, deeply involved in defense, and Tesla
34:38
Speaker 1: and SpaceX are both, you know, very much involved in
34:41
Speaker 1: sort of AI and robotics. So you could imagine multiple
34:44
Speaker 1: layers of regulatory approval, not just antitrust approval, and that
34:48
Speaker 1: could be interesting itself, but also the FCC or the
34:51
Speaker 1: communications regulators would probably have to approve it, as well
34:55
Speaker 1: as national security review. And the thing that's interesting about
34:59
Speaker 1: this particular situation is that that's not just true in
35:02
Speaker 1: the United States. That's going to also be true in Europe,
35:04
Speaker 1: it's going to be true in the UK, and it's
35:06
Speaker 1: going to be true in China. And so when you
35:08
Speaker 1: think about all the different ways that Maybe China says, look,
35:11
Speaker 1: these two companies merge. Are we now starting to worry
35:14
Speaker 1: that the Teslas that are driving around China are doing
35:17
Speaker 1: subtle forms of espionage on behalf of the US government,
35:20
Speaker 1: which has all these contracts with SpaceX? Maybe China puts
35:23
Speaker 1: the kibosh on this deal. Similarly, if you look in Europe,
35:26
Speaker 1: in which just recently it was revealed that Mr. Musk
35:30
Speaker 1: was evidently, according to some news reports, was the person
35:34
Speaker 1: that throttled down Ukraine's access to Starlink. And Europe definitely
35:39
Speaker 1: feels the heat of that geopolitical possible confrontation with Russia.
35:43
Speaker 1: Are those regulators going to be willing to say, yeah,
35:46
Speaker 1: this isn't a problem from a national security perspective? You know,
35:49
Speaker 1: in some ways, if you're a shareholder of either or
35:52
Speaker 1: both these two companies, you probably like this news. But
35:56
Speaker 1: I do think it's going to have to, you know,
35:58
Speaker 1: this deal, if it eventuates, is going to have to
36:00
Speaker 1: navigate a lot of regulatory hurdles, not just in the U.S.,
36:04
Speaker 1: but also abroad.
36:05
Speaker 2: Is there really a regulatory hurdle in the U.S.
36:08
Speaker 3: Anymore?
36:08
Speaker 2: I mean, it just seems like.
36:10
Speaker 1: It's hard to imagine. Yeah, it's hard to imagine that
36:12
Speaker 1: there is a big one at the federal level, right?
36:15
Speaker 1: The Federal Trade Commission and Department of Justice have kind
36:18
Speaker 1: of demonstrated that, you know, they are willing to take
36:21
Speaker 1: some degree of instruction from the Trump administration. And the
36:26
Speaker 1: National Security Review in the U.S., it's a committee called
36:29
Speaker 1: the CFIUS Committee. And all they do is make recommendations
36:33
Speaker 1: to the president. So if the president likes a deal...
36:35
Speaker 1: Even when the CFIUS committee said this looks like it's
36:37
Speaker 1: a problem from national security perspectives, President Trump has full
36:41
Speaker 1: authority to shut it down. That having been said, there
36:44
Speaker 1: are still a few levers inside the U.S. to the
36:46
Speaker 1: extent you think that any trust is an issue. And
36:48
Speaker 1: it could be. That's something that could get triggered by
36:51
Speaker 1: state attorneys general. And they dallied with this in the
36:54
Speaker 1: Warner Brothers Discovery Paramount deal and then settled when California
36:59
Speaker 1: was basically offered enough of a good sort of settlement.
37:02
Speaker 1: To cause them to back out of the deal. But,
37:05
Speaker 1: you know, state attorneys general have been pretty, pretty active.
37:07
Speaker 1: You know, they were the ones that challenged the Kroger
37:10
Speaker 1: Albertsons deal a few years ago. It wasn't the federal government,
37:13
Speaker 1: but it was the state attorneys general. So that could
37:15
Speaker 1: be in the U.S. where some friction comes. But once
37:19
Speaker 1: you go abroad, I think it's way more likely that
37:22
Speaker 1: we're going to see some pushback. particularly, I think, in
37:26
Speaker 1: Europe and China for different reasons. But Europe now is
37:30
Speaker 1: not only worried about Russia, but they're kind of worried
37:33
Speaker 1: about the posture of the United States that has kind
37:36
Speaker 1: of put itself in a position of being at least
37:39
Speaker 1: a little bit less friendly and arguably more adversarial towards Europe. If,
37:44
Speaker 1: in fact, this is a direct conduit into US government
37:48
Speaker 1: defense policy, might there be European regulators who say, We're
37:52
Speaker 1: just not interested in having that degree of penetration by
37:56
Speaker 1: the U.S. defense establishment in Europe. I can easily see
37:59
Speaker 1: that sort of taking off. China has a similar set
38:02
Speaker 1: of concerns, possibly in a slightly different direction, but they're
38:07
Speaker 1: sort of parallel to some of the things that you
38:08
Speaker 1: might see in Europe. And so, you know, one of
38:11
Speaker 1: the things that I think this deal is really going
38:14
Speaker 1: to have to confront is the real possibility that it's
38:17
Speaker 1: going to face significant resistance outside the United States and
38:21
Speaker 1: even more so than inside the United States.
38:23
Speaker 2: We shall see, Eric. Thanks so much. That's Professor Eric
38:27
Speaker 2: Talley of Columbia Law School. And that's it for this
38:30
Speaker 2: edition of the Bloomberg Law Show. Remember, you can always
38:32
Speaker 2: get the latest legal news on our Bloomberg Law podcast.
38:36
Speaker 2: You can find them on Apple Podcasts, Spotify, and at
38:39
Speaker 2: www.bloomberg.com slash podcast slash law. And remember to tune into
38:45
Speaker 2: the Bloomberg Law Show every weeknight at 10 p.m. Wall
38:48
Speaker 2: Street time. I'm June Grosso, and you're listening to Bloomberg.