This is Bloomberg Law with June Grossel from Bloomberg Radio.
I thought it was pretty fundamental that we don't treat some religions better than other religions, and we certainly don't do it based on the content of the religious doctrine that those religions preach.
Isn't it a fundamental premise of our First Amendment that the state shouldn't be picking and choosing between religions, between certain evangelical sects and Judaism and Catholicism on the other for example.
Supreme Court justices on both ends of the ideological spectrum suggested that Wisconsin was discriminating against Catholic Charities by denying it a religious exemption from the state's unemployment tax program. The state says that Catholic Charities doesn't qualify for the tax exemption because the day to day servis as it provides don't involve religious teachings. Many of the justices seemed concerned about Wisconsin's contention that one way organizations can get
the exemption is by actively proselytizing. Chief Justice John Roberts and Justices Amy Cony, Barrett and Neil Gorsich question just what that means in practice.
What is the simplest thing that the Catholic Charities would have to do to qualify for the religious exemption in Wisconsin? I think, are they sure they have one sign in the dining hall saying this meal provided by Catholic Charities? If you want to find out about the church, here's a brochure.
And I mean, are they playing like hymns on the radio or like Christian rock at the evangelical soup kitchen on the radio?
You know, is that proselytization or not?
Because you're forced to sit there and.
Listen to it.
And doesn't it entangle the state tremendously when it has to go into a soup kitchen. Send an inspector in to see how much prayer.
Is going on.
My guest is Richard Garnett, a professor at Notre Dame Law School and founding director of the school's Program on Church, State and Society. He was part of a group of law and religion professors who signed a brief in support of Catholic Charities in the case. Rick explained the issue before the justices.
So the justices are being asked to evaluate a ruling by a Wisconsin court, and that ruling had to do with an exemption that was in place in Wisconsin law. It's an exemption from otherwise applicable requirement about providing unemployment insurance. So Wisconsin, like a lot of states, has a religious exemption. So some employers were exempt from this particular requirement if
they were religious. And the precise terminology of the exemption was that organizations that are operated primarily for religious purposes are entitled to the Exemption's like charities, which is what
it sounds like. A Catholic organization that provides a variety of social services was denied the exemption on the theory that, you know, although it's got the word Catholic in it, and although it's probably motivated by Catholic concerns, that a lot of the things it was doing they weren't really religious, they weren't primarily religious. They were the same kinds of
things that secular organizations do. And so that you know, there was consonant court kind of empsize, Look, they hire some people who aren't Catholic, they serve people regardless of their faith. They don't engage in proselytism, they don't require people to attend church, so they're not really religious, and the Supreme Court took up the case to decide. I
think whether there was constant. Court's definition of who gets this exemption was in a way discriminatory, that it distinguished between religions that engage in kind of overt evangelism when they provide services and those that live out their religious mission by riding social services to a broad range of people.
So the Supreme Court took it up on that question, and from what I can gather, I've read some reports and I read the transcript of the oral argument, it seems like most, perhaps even all of the justices were pretty skeptical of what the Wisconsin Court had done. So it does seem pretty likely that the Catholic Charities position is going to win out here.
I think just about everyone who listened to the oral arguments had the same reaction that the justices would side with Catholic Charities here. Both liberal Justice Elina Kagan and conservative Justice Neil Gorsuch seemed to be on the same page, saying that we don't treat some religions better than others.
Yeah, so we have a well established principle in American law that legislatures are permitted to have exemptions for religious believers or religious institutions from their laws. These happen all the time, right, but one of the important qualifications is that legislators aren't allowed to discriminate among religions when they
are granting these exemptions. So you know, you couldn't have an exemption for Baptist organizations but deny it to Presbyterian ones, or an exemption for Buddhist ones but deny it to Hindu ones. You're allowed to have religious exemptions, but the exemptions themselves can't discriminate among religions. And I think Justice Kagan's concern was that there Wisconson Court in effect had said to count as religious, you have to be religious
in a certain way. You have to be religious in a way that's kind of evangelical, right where you're serving your own you're engaging in evangelization and proselytism. Maybe you know you're given out food at the end of a church service, but you're requiring people to attend church beforehand.
There was Conson Court had a premise that I think all the justices were uneasy with, namely that it was appropriate for a secular court to say you know, if you're not engaging in proselytism, then you're just doing secular stuff. From the perspective of Catholic charities, you know, when it's feeding the hungry, or clothing the naked, or housing the unsheltered, it's still engaging in religious activity. And to be clear, the Catholic Charity's position is not that any time an
institution claims it's religious, it should get an exemption. Everybody acknowledges that courts are allowed to ask whether the religious claims are sincere, and everyone agrees that it is permissible to distinguish between religious organizations on the one hand and
secular ones on the other. But where the justices got nervous was the way the wisconstant courts seemed to almost engage in a little bit of armchair theology when it decided that in order to be i think the word to use was typically religious, you had to exercise your religion in a certain way. And so Justice Kagan, for example, says, well, you know, look, in Judaism, a lot of what we do when we're active in the world is not engage
in proselytism. That's not one of the things that we do, but we still do exercise our religion when we're providing various social service. So that was clearly a theme that she was focusing on. And there was also a theme in the argument not quite as prominent as this discrimination theme, I think, but it was still there that Wisconsin's rule had kind of a coercive effect of basically pressuring religious
institutions to organize themselves in a certain way. Because the Wisconsin rule was one that said, you know, if a charity is separately incorporated from the church itself, that it's going to be treated differently than if it's kind of integrated into the religious institution. And so the concern was that that regime would kind of pressure religious organizations to
change their structures. But I think the most straightforward part of the case, and I think this is what the lawyer for Catholic Charity was really leaning on, is that it's a straight up black letter rule that governments can't discriminate among religions when they are crafting their accommodations. And the Wisconsin Supreme Court adopted an interpretation that appears to treat some religions as being more authentically religious than others.
So I suspect the Supreme Court's going to reverse that.
What was the best argument you think the state put forward to defend its claim?
Maybe two things are worth emphasizing.
That.
One claim the state made, but I don't think the justices were moved by it, was that, look, the language in the Wisconsin statute is a lot like the language that appears in a whole bunch of other religious exemptions, and so the concern that the state was raising was like, if you interpret this language really broadly, that's going to have all kinds of sweeping effects. And the Justices didn't
seem as moved by that. Another argument the state made, which is completely reasonable, is that you know, in order for the state to accommodate religion, it has to have some limits on that accommodation. Otherwise that reduces the incentive of the state to accommodate religion at all, which would be a perverse effect. But I think the justices were able to respond to that by saying, we agree with you.
There can be limits on the exemptions. Again, you can make sure that the claimants are sincere, and you can make sure that they are religious as opposed to secular or philosophical or what have you. But what you can't do is adopt the definition of religion, which in effect picks and chooses among different religions, and I suspect will get a pretty consensus ruling from the justices on that point.
Justice Barrett raised the question of how far the exemptions would go, saying, one of the problems here is figuring out what the line is. Some say there could be broad ramifications if the Justices side with Catholic Charities here.
I mean, I think she was raising that issue and was right to, because anytime you have an exemption from a law, there's going to be questions about how far the exemption goes. And it is true that in American law, you know, we don't really have a clear definition of
what is or is not religion. But I think that the lawyer for Catholic Charities was able to respond just by assuring Justice Barrett that in this particular case, in order to correct the error that there wisconstant court made, you don't actually have to issue a very broad ruling. You don't have to say again that this religious exemption, you know, covers any entity that conceivably claims to be religious. It's a more narrow and I think focused and precise
argument than that. It's that when the state is engaging in crafting an exemption, it can't do so in a way that discriminates among religions. So that non discrimination rule, which is the key to this case, that would prevent this case from going off into some of the concerns that the state raised about how you know the exemption would swallow the rule itself. It is possible to accommodate religion and to draw boundaries around religion without doing so
in a way that discriminates among different religions. I think that Justice Kagan and others kind of signal ways to do that.
This is the first case involving religion that the Court has heard in about two years and this term there are three religion cases. Do you see a trend or any explanation for why those three in particular?
It's hard to say. I mean, so much of the court stock, as you know, is a function of kind of accident, you know what happened in the courts below. But you're right that there's this case which involves a particular question that arises in the religious accommodation's context, is one coming out of Maryland, which involves some parents who wanted to be able to opt their kids out of some curricular matters that had to do with sexual orientation and gender identity and so on. So they're seeking an
accommodation that was denied to them. And then of course there's the Oklahoma case about the virtual Catholic School and whether it can participate in that state's charter program. That one's not really an accommodation case. It's more of what I call a cooperation case. So certainly, you know, an interesting year for law and religion at the court. But whether the fact that there are three tells us anything deeper, I'm not sure.
Thanks so much, Rick. That's Professor Richard Garnett of Notre Dame Law School. Coming up next. The Trump administration is dropping enforcement actions around cryptocurrency. This is bloomberg.
The federal government is already among the largest holders a bitcoin, as.
You know, and Trump used to call bitcoin a scam, but now he wants to make the United States the bitcoin capital of the world. And last month, at the first Crypto Summit at the White House, Trump was pushing the creation of a bitcoin reserve. With most of the assets seized by forfeitures in law enforcement actions.
The Treasury and Commerce departments will also explore new pathways to accumulate additional bitcoin holdings for the reserve, provided it's done at no cost to the taxpayers.
Of course, the President launched his own Trump Mean coin just a couple of days before the inauguration, so it should come as no surprise that the Securities and Exchange Commission has been dropping Biden administration enforcement actions around cryptocurrency. Joining me is securities law expert James Park, a professor at UCLA Law School, Jim to put this into perspective, tell us sort of what the state of play was with crypto in enforcement before Trump came into office.
Yeah, before the administration changed, the SEC was involved in vigorous litigation against various parties such as crypto exchanges, developers of crypto projects, and the issue in many of those cases was whether or not the crypto asset that had been sold without registration with the SEC, whether those crypto assets were securities or not. And there'd been a good number of decisions, maybe five, maybe ten by federal district court judges that have uniformly held that in certain circumstances,
crypto assets can be security. There were a few exceptions with respect to secondary market trading, but even those judges said that when they're being sold by a developer, the crypto asset is a security. And so pretty much every judge that has looked at the issue has said that
some crypto assets are security. Now, these cases have not really gone up on appeal yet to my knowledge, they've only been on the district court level, and so appellate courts have not really weighed in at the time of the administration changed, but there are a lot of district court opinions that say that crypto assets can be securities. And that's that's sort of where we left off.
So do we know how the Trump administration views crypto assets.
I think they view crypto assets much more favorably, at least when we're talking about the folks who may not be security law expert. But I suspect though that the security law officials who are going to be manning the sec even though you know they're Trump appointees and they're Republicans, I think they have some gpticism about crypto and are a little bit wary about some of the dangers of permitted crypto assets to be sold without any disclosure or registration.
But certainly the administration has a very favorable view, a very lave a fair view, a buyer beware view of crypto assets.
So Paul Atkins, who has been tapped to run the SEC, at his public Senate committee hearing, said that providing a firm regulatory foundation for crypto assets would be a top priority. He apparently has like six million dollars in crypto himself.
It's a lot.
It's a lot. So what does that mean, firm regulatory foundation.
It's a good question. I think one way of interpreting this is that, you know, we're going to provide some clarity. We're going to pass a statute. We're going to pass comprehensive regulations that define what is regulated and what is not, and what type of regulation is appropriate. And you know, I think Democrats and Republicans, I think, are you know, open into developing reasonable, comprehensive cryptoregulation that protects investors and
helps prevent frauds. And I don't think there's any any problem with that sort of comprehensive crypto regulation. I think what the industry wants, though, is more of a safe harbor, just a set of rules or statutes that permit them to operate without you know, fear of litigation, without fear of enforcement, and quite frankly in some cases, without fear
of accountability to investors. And you know, one of the things the crypto industry has maintained in its litigation is that it owes no obligations to crypto investors, which I think is, you know, an extraordinary position to take. And you know, that is something that they may want to try to get enshrined in some regulation, but I just don't think that's a good idea.
The Trump sec is ending suits against coinbased global binance holdings and Ripple Labs. I mean, what does that say or what does that do?
Well? It means on one level, it's a very powerful symbolic move to say that, you know, we're not going to enforce the security laws, even though these exchanges are probably listing securities, even though some of these developers have created securities. And by not enforcing the law, we are sending the message that we don't think that crypto acids
should be regulated as securities. I think that's you know, that's a powerful symbolic statement that is being made by withdrawing from these suits, and you know, withdrawing from such high profile suits that were vigorously litigated by the SEC, so many of them, is I think unprecedented. I don't really, you know, recall any other time period when the SEC has completely dropped so many many major enforcement lawsuits and
just withdrawn. Now. You know, on the other hand, the district court opinions that were issued in these cases, they still stand and there's still law, and so those precedents are not affected by the fact that the SEC has decided not to pursue these various cases. And so there still is a foundation of precedent which indicates that crypto assets can be securities in certain circumstances.
Has the test for whether crypto is a security changed in any way? Is it still the Howie test?
It's still the Howie test. It is still the Howie system.
That's what the courts have consistently applied that in some circumstances crypto assets satisfy the Howie tests because the crypto asset purchasers are relying upon the efforts of the developers, the promoters, who are promising to create some great crypto ecosystem that will cause the value of the crypto assets to rise, and that's you know, that's what the Howie test says is as a security, and courts have consistently said that they can be securities under the Howie test.
Are private plaintiffs able to bring the same kind of lawsuits that the sec has been bringing?
They can.
Yes.
Private plaintiffs who are typically going to be purchasers of crypto assets who have suffered losses. There are various positive action that they can assert under federal securities laws that would permit them to recover some of their lawses. So one major category of cases is triggered when somebody sells the security without registering it with the sec than any private investor who purchased that security has the right to recision, which basically means they have the right to get their
money back, and that's a valuable remedy. If you've lost a lot of money, you then have the right to riskind that transaction and get the money you invested back, and that would cover your losses. Another major private cause of action is available when some parties, such as the developer of the crypto project, the promoter issues material misrepresentation
with fraudulent intent. Then crypto asset purchasers have a cause of action for security fraud if they argue that we relied upon these misrepresentations and that caused us to buy a security that was inflated in price, then they can recover their losses. So there are very strong, well established, several private causes of action that investors can can use if they feel like they have been cheated or defrauded by the developers of a crypto project.
What are the disadvantages of litigating these issues through private lawsuits rather than having the SEC do it?
You know, having the SEC bring a lawsuit sends a powerful message. It's a government enforcer that is passed with acting in the public interest, and when the SEC acts, that just sends a strong message that you know, this conduct violates Fedtle securities law and we're enforcing those laws with private actions. There's often the criticism that these investors they, you know, they should have known better, they invested in a risky crypto asset, and they're just suing because they
lost money. And there's a criticism that, well, the plaintiff's attorneys are you know, they go and look for people who lost money so that they can bring lawsuits against various promoters and developers, and the attorneys get a significant fee. So private litigation sometimes is not looked at as favorably as sec enforcement actions. But you know, you still have
the same types of remedies that are available. You have the opportunity to argue that crypto assets are securities, and so there are you know, very similar benefits that crypto investors have when they assert these private causes of action.
Have any state ags litigated in this area of crypto.
They are, They are litigating in a good number of cases, particularly for you know, cryptoprojects that are really complete frauds, where you know, somebody is you know, saying, you know, we're selling this crypto asset that's going to do something. They just take the money and run. State attorney generals have been very active in those clear fraud types of cases. They have been active, and I suspect that they will
become more active as the federal government pulls back. And there are state securities frauds statutes that can be invoked and sometimes even criminal state prosecutors are getting involved in some of the more egregious cases of fast and so I suspect that the California Attorney General and the New York Attorney General and attorney generals from across the nation are going to see this as an opportunity and even a necessity to protect the citizens of their state from
a fraudulent crypto project.
Coming up next on the Bloomberg Law Show, I'll continue this conversation with UCLA law professor James Park. We'll talk about Trump's pardon of Ross Olbrick, founder of the drug trafficking site known as Silk Road, where virtual currency was the coin of the realm. He'd been serving a life sentence following his twenty fifteen conviction for trafficking and other crimes. Is a Sam Bankman freed pardon in the future. I'm
June Grosso. When you're listening to Bloomberg, the Securities and Exchange Commission has been dropping Biden administration enforcement action around cryptocurrency. Trump's sec ended suits against coinbase, Global, Binance Holdings, Ripple Labs,
but privately filed lawsuits have continued. Private plaintiffs and state attorneys general can and likely will still pursue claims, perhaps even more so if the sec backs off enforcement entirely and bad actors emerge and suits against promoters of other digital assets such as the Hawk, Tua and Peanut the Squirrel. Meme coins are ongoing despite a signal that the SEC won't consider most securities. I've been talking to securities law
expert James Park, a professor at UCLA Law School. Jim, what about these suits over meme coins.
Meme coins have often been, you know, just brok and really you can argue that well, investors to know they're buying something that's not worth anything. But again, I think that you know, given the amount of money, that the stake enforcement is really necessary in situations where you know, millions of dollars of it better funds have been taken without anything in return.
So Trump also pardoned ross Aulbrick, the founder of the drug trafficking site Silk Road, who's been serving a life sentence since twenty fifteen, so hasn't been in there that long for a life sentence. What message does that send?
I think that sends a message. I think about the use of bitcoin as a way of facilitating illictit activity, and in some ways that may legitimize just sort of the idea that we have this cryptocurrency and one of the main uses of that currency is to facilitate illegal transactions. And that's where a lot of the value of cryptocurrencies like bitcoin lies is that, you know, this is the way of transferring funds that evade the banking system, and
so it facilitates illegal activity. And I think by by pardoning somebody who you know, used bitcoin and use various technologies to blatantly violate federal law, that it in some ways indirectly legitimizes such such activity. But I'm you know, I'm not completely familiar with all the details of the case. Maybe the argument is that maybe his feeling was that the time he served was sufficient for the wrongdoing that
he committed. But you know, given that it was a life sentence, it does seem like a drastic reduction in that that sentence.
I wonder if Sam Bankman freed is next I hear that he's angling for a pardon, that would be a huge statement.
It would It would be a huge statement. And I think the question is, you know, to what extent is he in his administration really looking careful at the facts of various cases and you know, trying to say, well, here are the cases we think are clearly overreaching, and these are the cases where you get pardons versus we're
just giving everyone a pardon. And you know, in Sam Bankman freed case, you know, it was not just simply an issue of you know, making optimistic statements about crypto that didn't really you know, come to fruition, but misappropriation of customer funds, which I think everyone would agree is that a bad thing. And so you know, if you can trast his case to that of Trevor Milton, who
was pardoned I believe last week. You know, Trevor Milton was the founder of the Nicola company that was developing technology for clean energy trucks, and the theory against him is that on social media and other platforms he made very very optimistic, some would say misleading statements about that technology and pump them the stock price by those tactics. And you know, he was steadily convicted, sadly of a
security fraud. And so you know, in that case, you know, perhaps the ideas that well, you know, maybe he violated some law, but maybe it's not, you know, it's not a criminal violation. Maybe it should just have been a civil violation. There's some argument that the parting could have been motivated by the the feeling that, you know, entrepreneurs should be able to, you know, issue optimistic statements about
their products and not fear going to prison. So so I think you could distinguish that case from Fan Bateman seed, where you know, you're misappropriating customer funds, which is something that's you know, arguably different and probably different than making very optimistic statements about your your technology that could be misleading and could mislead investors.
Trump pledged on the campaign trail to make the US the crypto capital of the world. Then the executive order part of it would be to create a strategic Bitcoin reserve. What is that?
I think there are a lot of interpretations of what that means. And you know, one interpretation is that, you know, we have bitcoin that is owned by the federal government that maybe it sees from criminals or if it comes to the federal government, and so, you know, rather than selling that bitcoin, we just keep it. It's just something that is owned by the federal government, and that could be seen as the reserve.
You know.
Another more radical way of creating a reserve is that the federal government would actively buy bitcoin and hold it as an investment or hold it as some something of value. You know, I think that would be a much more radical step, and you know, a sort of intermediate version of this, where you have a sovereign wealth fund would invest in bitcoin and support its price, which is something that the solving wealth fund, I know, has been floated. So it's unclear, and I think, you know, some of
this I think is politics. Of course, there were there significant campaign contributions by the crypto industry and support of the Trump campaign, and you know, he's paying them back in a sense. This is something that you know. The other kind of problem here, I think is that you know the problem of the influence of money on politics, and at least initially, crypto has generated significant amounts of wealth, and that wealth has been deployed to influence the political system.
We'll see if litigation by investors and attorneys general can fill in some of the gaps from the lack of SEC enforcement. Thanks so much, Jim Best, Professor James Park of UCLA Law School, And that's it for this edition of the Bloomberg Law Show. Remember you can always get the latest legal news on our Bloomberg Law Podcast. You can find them on Apple Podcasts, Spotify, and at www Dot Bloomberg dot com, slash podcast Slash Law, and remember to tune into The Bloomberg Law Show every weeknight at
ten pm Wall Street Time. I'm June Grosso and you're listening to Bloomberg