This is Bloomberg Law with June Brusso from Bloomberg Radio. In a Seattle courtroom today, prosecutors asked Judge Richard Jones to sentence by NaN's founder Jang Pen Joo to three years in prison for allowing rampant money laundering on the world's largest cryptocurrency exchange. Joao's lawyers pleaded with the judge to spare him from prison. The judge gave neither side what they wanted, sentencing Jiao to four months in prison.
Cz As He's called, pleaded guilty in November to one count of failing to maintain an anti money laundering program and stepped down as Binance agreed to pay four point three billion dollars to settle related allegations. This closes a long running probe for the Justice Department, which had wanted to make an example of Jao in an industry rebounding
from a slew of high profile scandal. You remember Sam Bankman Freed Joining me from Seattle is Bloomberg Legal reporter Ava Benny Morrison, who was in the courtroom for the sentencing, set the scene for us Eva sure So.
Changpeng Joo, who's better known as Caz panned up to the Federal courthouse in Seattle just before nine am. He had about half a dozen lawyers with him. He didn't say much throughout the proceeding, other than getting up to give a statement to the judge where he talked about how remorseful he was, how he had made a mistake, but he took full responsibility and that's why he had traveled from his home in the UAE to America at
the end of last year to face the prosecution. While he was sitting at the table, he was very still. He's sitting up straight, He's staring at the judge. Seemed to be absorbing everything that the judge and the prosecutors were saying. CZ's mother and his sister Jessica were both seated in the front row, and there were a few other friends and supporters from the crypto industry that were in the courthouse as well.
There was a plea deal here, but prosecute were asking for twice the sentencing guidelines. What was their reasoning?
Fedrol Foski's were trying to make an example out of Cz. He was the CEO of the world's biggest crypto company, they argued, and he committed these crimes as part of a plan to violate US laws that would allow him to make more money allow big traders to continue using Finance even though it didn't have an adequate anti money
laundering progres. So they were arguing for thirty six months in prison to Cz to really send a message not only to the crypto industry but to corporate leaders far and wide that this sort of behavior would not be tolerated and would be punished.
As you mentioned, the defense was asking for leniency and probation. What was their argument.
The defense was pleading with the judge to spare Cz from prison. They pointed to the fact that he voluntarily came back to America to face these charges at the end of last year. They said that he had cooperated extensively with the government in this investigation and that he
directed Finance to cooperate with the DOJ as well. They pointed out that Finance had settled several investigations with know the DOJ, but the CFTC, the Treasury Department, which resulted in the company paying four point three billion dollars worth of fines. I think the biggest sticking point in the arguments today was over whether a prison sentence was warranted
for this type of offense. CZ was essentially charged with violating the Bank Secrecy Act, which sounds pretty minor on the face of it, but attached to that crime were arguably pretty serious circumstances. Because he didn't have an adequate AML program at finance, terrorist organizations like al Qaeda and Hamas were able to trade on the platform, and US customers were trading with customers in sanctioned countries like Arah.
So the defense was really trying to narrow in on the fact that this was just a banking violation, for the prosecution was urging the judge to look at those serious circumstances that were.
Attached to it.
Did the prosecution say or prove in any way that CZ knew about what was happening on the platform, you know, like the terrorist organization's trading.
No, the prosecution didn't say that CD personally knew that there were the proceeds of crime moving across finance, and the defense really highlighted that as well, saying, look, there is no evidence here that CZ personally, as the sea of the company, knew that illicit funds were moving across finance, and so that needed to be taken into account.
How long did his statement to the judge last and what part of it stood out to you.
CZ's statement to the judge only lasted a few minutes. He started by saying that he was remorse and he was sorry and he had made mistakes. He spoke about how difficult it was for him to step down as CEO of Finance, a company that he founded in China several years go. He spoke about how he struggled to accept that that was essentially the only course of action here.
But he spoke about how he still wants to make a difference in the world and he's really focused on philanthropy now that he's not leading Binance.
And it wasn't just what the prosecution asked for and the defense asked for. Tell us about the other recommendations.
There was such a.
Big gap years between what each of the parties were recommending. The prosecution wanted thirty six months probation and pre trial services had recommended only five months. And then of course the Z's defense team was asking for only probation and the federal offenders and guidelines were between twelve and eighteen months. So there was a lot of discrepancy there that the judge had to navigate.
And so tell us about you know what the judge said before he sentenced him.
The judge agreed with the defense that the prosecution's suggestion that Caz should be sentenced to thirty six months in prison was far too high. He said that he had taken a lot of time to read through more than one hundred and sixty letters admitted from CZ's friends and family and co workers that painted this man in a very favorable light, describing him as a family man, a
humble person, and just a hard working entrepreneur. He said that yes, while this is a big Secrecy Act violation and other cases involving that charge had resulted in probation, there were some egregious actors here, like the fact that Hamas and cyber criminals and dark web transactions were able to take place on the platform because of it. I think he just couldn't get pasted the Hamas al Kader
dark web element of this. I will say that it's unusual for BSA cases to result in prison time, So the judge was really sort of putting his neck out here by handing down a sentence that did involve prison time. It'll be interesting to see if this sets a precedent for other BSA cases in white collar prosecutions in the future.
What always seems striking to me about this case is that the UAE has no extradition treaty with the US. Yet he flew here and turned himself in and then prosecutors stopped him from returning home pending sentence. Did anyone mention that this whole scenario might stop other people from turning themselves in in the future.
Yes, the defense actually did make a point out of that, saying cz has done all the right things here. He's come back from Dubai, turned himself in, pleaded guilty to the charge, agreed to pay personally a fifty million dollars fign to the government. He has ticked all the boxes.
But the fact that.
The prosecution was then arguing for a prison sentence that was well above the federal sentencing guidelines might actually deter people from doing that in the future, and from deciding to travel from a non extradition country to the US to the charges.
But was there a feeling going in as to what he might get? I mean, did anyone think you know that he would walk out of there without any prison time.
I think he was certainly hoping that, but there really was a feeling in the courtroom that this could go either way. There could either be a very small amount of prison time or no prison time at all. You could tell that his lawyers had really prepared their arguments and were putting in a pretty tough fight to try and keep him out of prison. But the judge in the end was persuaded by the prosecution's argument that this just wasn't a run of the mill Bank Secrecy Act case.
This behavior, this crime allowed illicted actors to launder money and use finance when they shouldn't have been able to do that.
What happens now, Do I understand that he's not eligible to go to a minimum security prison?
Yes, CZ, because he's not a US citizen, is then eligible for a minimum security prison, and that's usually where white collar defends didn't end up. So he has made a request for the judge to be designated to a facility called FDC stach here in Seattle. We don't know when he needs to turn up and start that prison. Sentence that dates still to be decided, but he will
spend four months there. His lawyer did say that he's eager to just get it over and done with and finally be able to return to Dubai to reunite with his family. CZ and his lawyers are waiting to hear from probation to decide on an appropriate date for him to turn up to the prison and start his four month sentence.
This is the second high profile sentencing in the crypto industry recently. Was Sam Bankman Freed mentioned at all?
Sam Bateman Freed did get a mention. Actually, when the prosecutor was referring to the arguments that Z's lawyers had submitted to the court, he said, look, we're not alleging that Cz is a Sam Bateman Freed. We're not saying that he's a monster, and we're not trying to kill the crypto industry. We are saying that this is a serious crime because he didn't have an IMO program and that allowed some of the ILICID actives and terrorists to gain access.
To buy it.
Thanks so much, Ava, that's Bloomberg Legal reporter Ava. Benny Morrison Jow will enter the history books as the richest person ever to do time in US federal lockup. His ownership of Binance and an estimated forty three billion dollar personal fortune tied to it, remain intact, and his wealth is likely to grow even more as Binance's business accelerates
amid crypto's latest bull run. In fact, his wealth balloon by twenty five billion dollars as the crypto industry recovered last year, and he's currently ranked as the thirty eight richest person in the world according to the Bloomberg Billionaire's Index. And despite having to relinquish the chief executive title as part of his deal with the government, his influence on
the company is hard to miss. Its new board of directors is dominated by his devoted friends, and the mother of three of his children plays a major role in running its operations. Coming up next on The Bloomberg Lawn Show, the FTC has banned non compete clauses which prevent workers from transferring to other companies in the same industry. However, companies may not have to rush to comply with that FTC non compete ban. Will tell you why I'm June Grossewin.
This is Bloomberg. The Federal Trade Commission's rule banning most non compete clauses that prohibit workers from switching jobs within an industry is scheduled to take effect one hundred twenty days from its publication on April twenty third. However, standing in the way are lawsuits by the Chamber of Commerce and others seeking to block the rule, arguing the FTC doesn't have the authority to issue it, and a judge could issue a preliminary injunction stopping the rule from going
into effect while the litigation proceeds. Me Is Kimberly Carson, a partner Quinn Emmanuel, and an expert on non competes tell us about this near total ban on non competes.
Sure so, last week, the Federal Trade Commission issued a rule banning non compete nationwide. The rule essentially prohibits employers from doing three things after the effective date, one enforcing existing non competes with workers, two entering into new non competes with workers, and three representing that workers are subjects
to non compete clauses. The rule also has a notice requirement that essentially requires employers to give notice, by the rule of effective dates to every effective worker who's found by an existing non compete that the non compete won't be enforced in the future.
Is this ban expected to have a widespread effect on the workforce.
Yes, certainly if you read the FDC's rule and company guidance. The FDC's intention is for it to apply to all workers, including employees, independent contractors, externs, interns, volunteers, really anyone who works for someone, whether paid or unpaid, with certain limited exceptions. And the rule is also intended to apply to all employers, regardless of size, regardless of whether they're private or public, really all people, partnership and companies that are within the
SEC's jurisdiction. While there's an exception for senior executives with existing non competes, the FTC estimates, but that will apply to less than one percent of workers.
President Biden and the Biden administration has been pushing for non competes, and we've heard a lot about the positive effects. I mean, what are the downsides of this ban?
I think there's a lot of concern at the business level about how companies can continue to protect trade secrets, client goodwill, employee goodwill, their investment in human capital in the absence of noncompete. So that's certainly a concern. And you see that reference in the handful of legal challenges that have been filed for the rule so far, including
by the US Chamber of Commerce. There are, of course other contractual and legal mechanisms to protect those sorts of interest, and the sec itself pointed out some of them, and so that's what a lot of the discussion and focus has down at the business level that I've been seeing.
You mentioned the lawsuit the Chamber of Commerce and other business groups are suing explain the grounds for their lawsuit.
So the US Chamber of Commerce has filed the lawsuit in federal court in Texas challenging the rule. They're asking the court to issue in order staying the rules effective, dates, in joining the FTC's enforcement of the rule, or both, and they've raised various arguments in support, including that the non compete exceeds the spc's statutory authority. They've argued that the STC doesn't have the authority to prohibit unfair methods
of competition through rulemaking. They've also argued that the rule is unlawfully retroactive, and they've also taken issue with the evidence that the SPC has cited in support of the rule. The retroactivity point is interesting. I've seen as an employment litigator and advisor to companies that are looking at what this rule means for their business. A lot of discussions
and focused on the retroactivity point. I will say that the rule, once effective, will apply not only to future non compete but also non competes already in existence as of the effective date. The rule says that pretty expressly. There is, however, an express carve out for claims that
accrued before the effective date of the rule. So what that means is if a lawyer is alleging that a worker accepted employment in breach of a nine compete and the breach occurred before the effective date of the rule, that will be outside the scope of the rule. And because of that carve out, the FDC has said in the rulemaking guidance that they think that the rule is not impermissively retroactive, but you know, business groups in the Chamber of Commerce disagree.
Is this a strong challenge to the ban?
From what I've seen, a lot of practitioners in the space anticipate that there could be a stay or injunction of the rule tending these lawsuits, including the Chamber of Commerce's challenge, which could delay the rule out and timeline of compliance for the rule.
I want to talk more about the rule. You know, we've had a story on Bloomberg that Wall Street traders and money managers could be in for disappointment if they're hoping that this rule will clear the way for them to go to higher paying competitors. Tell us about garden leaves.
So there is express language in the rule that says that the rule does not apply to garden lease agreements. A garden leave agreement is essentially an agreement whereby the worker is still employed and still being paid for some period after they've given notice of resignation. So during that period, there's still an employee, they're still getting paid, they still have contractual and produciary duties. And the SEC has advised that that type of garden leave agreement is not an
impermissible non compete under the rule. And that's because non competes really govern the period after your employment ends, whereas a garden leave agreement is not a post employment restriction. That is a period where you're still an employee. So for the bankers out there, to the extent their employer is covered and under FTC jurisdiction, and they're looking at garden leave arrangements those are expressly outside the scope of the non compete.
Band have been litigated because it does seem like it's preventing a worker from going somewhere else.
You know, it's an interesting question. It doesn't come up a lot. I do a lot of research of covenant litigation all over the country and contractual notice of termination periods where you have to say, you know, give sixty or ninety day notice that you're leaving, or garden leave agreements where you know your termination, your your resignation is not effective for some period. Those are not often litigated.
I think there's a notion of fairness because employees are being paid to sit on the beach for that period and essentially cooperate with transition requirements, So those aren't litigated as frequently as post employment restrictions. That said, I think that you know, if an employee is inclined to say, I want my resignation to be effective immediately, I'm not going to accept compensations for my notice period or my garden leaf period. I want to get immediately to work.
That could be an interesting question for adjudication court, but that doesn't come up very often in my practice.
So yeah, they're paid to sit on the beach, not paid to sit in the garden. This name seems a little bit odd to me. Do you know where that name came from?
My understanding has always been that it's a British concept.
Okay, all right, they're sitting in the garden and we're sitting on the beach. Yeah, so this is a national band by the FTC. Some states also have bands, I mean do A lot of states have bands on non competes.
A lot of states have restrict of covenant statutes, and that trend has been increasing over the years. Obviously, when you think about the state bans, the first state that comes to mind is California. They have probably the strongest language and their various statutes restricting post employment restrictions. But there are several other states that are relatively hostile to enforcing restrict of covenants. And then there are many other
states that have some limits on research of covenance. For example, you know, states might ban them for low wage workers. In terms of how this rule interacts with state statutes and regulations, the rule doesn't limit or affect enforcement of state laws that restrict none competes, where those state laws don't conflict with the rule. However, if state laws do conflict, so for example, state laws permit none competes, then the FTC's rule would would preheunce them.
Some have predicted that the FTC's nationwide ban will spur more states to pass laws limiting restrictive covenants. I mean, do you think that's likely. If there's a federal ban, why would the states need their own bans?
I think that's right. I think states would only need to have legislation to the extent they're interested in, even broader restrictions than the FDC ban. The FDC ban, on its faces is pretty broad. I think that over the last few years you have seen growing interest at the state level in restrict of covenant limits, and this national rule that was supposed over a year ago has certainly,
I think changed the tone of that discourse. That said, given the various legal challenges to the spc's rule and uncertainty about when it will go into effects and whether it will be stayed or enjoined by a court, could still you know, inspire states to take their own actions with respects to retrich of covenant limits or bans.
So employers in states that don't have these bands in place. Do they have some time now, sort of like an interim time to still leave the non competes in and see what happens.
Yeah, so the rule is not effective yet. The rule says that it will become effective one hundred and twenty days after it's published in the Federal Register, but as of now, it's not likely to take effects before September twenty twenty four. That means compliance isn't required until at the earliest September twenty twenty four. And has discussed that devine could get pushed as the results of court challenges.
So in the meantime, companies do have time right now to assess the rule, talk to lawyers about what it does and doesn't require, consider how the rule might impact their business, do an assessment of workers with non compete workers that may or may not fall in the senior executive exception, and really start to plan for how they want to handle this going forward, how they might notify workers when and if it becomes effective, Whether they might
want to incorporate alternative contractual mechanisms in their contracts with employees to protect trade secrets. Those are all things that I think employers should be thinking about right now as we approach the effective date over the summer.
And we'll be watching to see if that judge in Texas issues of preliminary injunction stopping the rule from going to effect until the litigation is complete. Thanks so much, Kim. That's Kimberly Carson, a partner at Quinn Emmanuel. I'm June Grosso. When you're listening to Bloomberg. The jury in Donald Trump's hush money trial heard the most vivid testimony yet about payments to silence a former playboy playmate and an adult film star before the twenty sixteen election. Both claim to
have had affairs with the billionaire developer. Los Angeles attorney Keith Davidson took the witness stand to recount how he represented the former playmate Karen McDougall, who was paid one hundred and fifty thousand dollars, and Stormy Daniels, who got
one hundred thirty thousand dollars to keep quiet. Before Davidson took the stand, Judge Van Mrschan find the former president one thousand dollars for each of nine violations of the gag order he said defended is hereby warned that the Court will not tolerate continued wilful violations of its lawful orders, and that, if necessary and appropriate under the so circumstances,
it will impose an incarceratory punishment. Trump's use of social media, news interviews, and campaign speeches has created a challenge for judges overseeing his many legal cases as they weigh the impact of his public comments on the proceedings against his
free speech rights things against his free speech rights. Joining me is Bloomberg legal reporter Patricia Hurtado, who's covering the trial for US pat tell us about the judges finding Trump nine thousand dollars and warning him about prison time.
Judge Murshawn has had a pending request from the district attorney to basically find Trump in contempt for repeatedly violating his gag order, and today Judge Murshan found that nine violations of the gag by making comments about Stormy Daniels and Michael cowen Her.
Both.
Proposed key prosecution witnesses a against him, commenting about them, commenting on their veracity, making comments about David Pecker, the former basically publisher of a national inquirer, saying he was a good candidate, who is basically finding he's repeatedly violated it. But in the meantime, the DA's asked for four additional penalties that Trump is additionally violated. So there's another contempt
hearing on Thursday about this. So Trump's been fining nine thousand dollars and the judge's warning him he better behave or he could say possible Jaily.
And as far as signs, that's the maximum the judge can impose.
It's a maximum one thousand dollars per fine. So that's under the statute the max the judge can impose. But on the other side, what the judge has warrened Trump he wants to balance his rights to speak freely in his First Amendment rights that he can pains to return to the White House, but he also wants to make sure that trunk doesn't impair and you know, impact the trial.
So now the first witness on the stand today was on the stand Friday, Michael Cohen's ex banker, tell us what his testimony was about.
His testimony is basically setting up how these transfers happened and how does Stormy Daniels get paid off. The story of the DA alleges that Michael Cohen paid her. He took out a home equity line of credit, funded this LLC he created, and then paid her off. Stormy off the one hundred and thirty thousand dollars on his own. Prior payments were made, if you remember, by AMI and National Inquirer had paid off Karen McDougal and a doorman, a Trunk Power doorman had been paid off as well
by AMI, but this time David Pecker had refused. So now we get to the stage of the paper trail time he's a hush funny payment to Stormy Daniel. And we see how the banker said that the accounts were created, you know, he was already Michael Cohen's banker, and that Michael Cohen calls him an a frantic that he needs to set up this new LLC, comes up with the alternative names, funds it, and then pays makes the money payments.
On cross examination. Was the defense trying to show that Trump had nothing to do with this.
Well, so that's not the story. The story is that Michael Cohen paste it, and so the BA is never alleged that Michael Cohen is doing this out of the goodness of his own heart, and he either did the US attorneys in the Southern District of New York. When Michael Cohen pled guilty to finance campaign finance violation, he wasn't doing that out was goodness of his own heart. He was making these payments on Donald Trump's behalf. That's what the DA says, and that's what Michael Cohen says.
You see him paying. I mean, it's not Stormy Daniels does not his the silence. It's Donald Trump's trouble.
So what did the defense try to do on Cross.
Well, the defense was trying to ask these questions that made it seem like Donald Trump had nothing to do with this. And yes, that's true, but that's only half the story. The doesn't allege that the DA doesn't allege that the bank that provided these loans was Donald Trump's account. No, this is Donald Trump's banker. It's not a bank account. The money didn't come from these accounts Michael Cohen, and the DA says the money came from Michael Cohen because
Trump wanted him to pay it. And we can expect Michael Cohen to take the stand and describe it this way. So what we heard later today was very interesting witness. He's probably the most compelling. This guy's Keith Davidson. He's an LA lawyer who represented not only Stormy Daniels but also Karen McDougall. So we hear from his perspective of
he's the lawyer who's got a hot story. He called it a blockbuster story that was worth selling, and they were going to try to sell Stormy Daniel's story, and then it come up that they try to get its soul. So first you have Karen mcgougall's story and he's negotiating with Trump, but he's also talking to ABC News. Karen mcgougaal,
the former Playboy model, wanted to keep it quiet. She had said she had an intimate sexual relationship, she claimed, with Trump, and so they were talking about possibly selling it to ABC News, but she said she didn't want to be the scarlet letter woman and she didn't want to be like, you know, Monica Lewinsky branded as a harlet, so she would rather keep it quiet. So she agreed to keep it quiet for the hushmany payment which she got, and.
Tell us about this sort of side story.
This is in June twenty sixteen. And then suddenly comes
this alert that there's another woman. And Keith Davidson said he had talked to Michael Cohen way back in twenty eleven because Michael Cohen had called him up and demanded there was some kind of website and they had published this anonymous story saying that Donald Trump had had an affair with this porn star named Stormy Daniels, and Cohen called Davidson up and says, you better I'm threatening you right now, and you better say he was accusing Stormy
of being the source of this story. Keith Davidson says he wrote a piece and assist letter to the website saying take that story down, and they did, and then here we are five years later. It's now July, August, September, and the Stormy Daniels story was burbling along and then boom, the Access Hollywood tape comes out. And that's when suddenly Davidson says, there's a whole new focus on this story getting caught all over again, and Stormy story could get out.
So suddenly the Trump campaign and Cohen started calling him. There were negotiations that went on between Keith Davidson, the lawyer representing Army am I and the editor's name is Dylan Howard and then Michael Cohen, and you could see Dylan Howard and Keith Davidson had worked together on other stories in the past. He represented a lot of celebrity clients. So he gets reached out to and they start negotiating
a deal. But then it becomes unclear who's going to pay for Stormy's story, and that's when Michael Cohen comes in and there's some discussions about how she's going to get paid. And there was a deal worked out where it was basically an agreement between Cohen and Davidson that Cohen and Trump would buy the story, that Trump was going to buy this story from Stormy Daniels keep her quiet. But then it turns out.
And the lawyer testified about how he started get frustrated with the whole thing.
Keith Davidson started getting very frustrated because he said he started getting the run around from Michael Cohen that there was no money, There was no money, there was no money, and he kept saying, if Joh I'm Kapoor, I can't pay you and send me your wire information so I can transfer you the funds and September goes into October and it's still getting the run around. Eventually, Keith Davidson begins to think that maybe Trump was tight with his
money and Cohen didn't have the authority. He said the entire matter was very frustrating to me, and that it was on again and off again, and there were cancelations and disengaging from clients and re engaging with clients. Dylan meaning Dylan Howard of the National Inquirer, said he reached out to Pecker, who's the publisher of the National Inquirer, and that everything was keed up. He's basically telling me to call Cohen, and Cohen says, I'm not paying anything,
a AMI is paying. It was just one more natoo. So eventually Davidson confronts Cohen and there's more discussion. He called Cohen highly excitable, sort of a chance on fire kind of guy, and he said he had a lot of things going on. He had two phone and talking out of each of his two ears, sort of like that movie up where the dog says whirl whirl. So then Michael Cohen with this excitable character, and that Michael Cohen had promised that don't worry Trump's going to come clean.
And there's basically a discussion between Dylan Howard, the National Inquirer editor, and Davidson, the lawyer for Stormy, basically like they can't understand. I can't use the words but their blue language. He fed it up and why was this And that was a discussion that Trump was tight with money that they had to feel on a silver platter and it was there for the taking and the only reason it didn't close was because they didn't want to
fund it. And the only reason they didn't fund it is they didn't want to spend the money.
I'm sure this testimony kept the jar attention and tomorrow he'll be back on the stand. Thanks so much, Pat. That's Bloomberg Legal reporter Patricia Hurtado, and that's it for this edition of the Bloomberg Law Podcast. Remember you can always get the latest legal news by subscribing and listening to the show on Apple Podcasts, Spotify, and at Bloomberg dot com, Slash podcast, Slash Law. I'm June Grosso and this is Bloomberg