This is Bloomberg Law with June Brusso from Bloomberg Radio.
Donald Trump is asking for a mistrial in New York States two hundred and fifty million dollars civil fraud lawsuit that threatens the former president's real estate empire. Trump alleges the judge has tainted the proceedings with tangible and overwhelming bias. The request is just another clash between Trump's legal team and Judge Arthur and Goron. It has almost no chance of success because the judge himself will be making the decision on the mistrial motion as well as on the
ultimate outcome in the case. Joining me is former federal prosecutor. Jennifer Rogers, an adjunct professor at NYU Law School, tell us what this mistrial motion is about.
Well, it's really the same complaints that they've been making in court about the judge and specifically his law clerk. The defense has been really up in arms about the law clerk and accusing her of making facial expressions she shouldn't make, and passing notes and taking a greater role than they think she should be taking in the trial.
And they've been making those objections in court, and that really is the focus of the mistrial motion, that the clerk is taking an outsized role, and the judge himself is also biased against the defendants, and so putting those things together, they allege that a mistrial should be granted.
I have to say, it does seem like the judge is a little unorthodox with what's happening in the courtroom. But is there anything wrong with having the law clerk pass him notes and asking her questions and things like that. Is there anything wrong with that?
Not the way that you put it, there's certainly nothing wrong with relying on your law clerk to help you try the matter, do research and give you the results, even give her a opinion about what's happening. You know, there are no rules around really how you're supposed to use your law clerks in that way. The only issue
would be if there were demonstrated bias. I mean, I do think that if they could show an actual bias on the part of the judge or the clerk, and then they would try to show that, you know, the law clerk's bias is infecting the judge, then you know, you could see a court saying and it's certainly not going to be this court right, because this judge doesn't believe anything wrong is happening, and he's not going to grant this motion. But then of course it goes up
on appeal. So you could see in theory and appellate court saying, wow, you know, the law clerk told the judge, you know, all these untrue and really prejudical things about one of the parties, and the judge said that he took that into account and that's why he's ruling against them.
I mean, that's the sort of hypothetical that you could see an appellate court saying, well, wait a minute, that seems like bias to us, and you know, maybe we'll consider this, But we don't have anything like that here. You know, we have some allegations that aren't even true, you know, the nonsense about the law clerk dating Chuck Schumer, and then there's a couple of like the law clerk had made a donation to a Democrat, and those sorts of things are never going to rise to the level
of demonstrating bias. If you give to someone of a political party that's the opposite of the political party of one of the litigants, that's just never going to rise to the level of any sort of demonstrated bias.
Let's turn to Trump's defense, and I'm going to sort of go through what I see as the defense. So one is the valuation of properties like the ones listed on Donald Trump's financial statements is not an exact science. It's more like an art than a science. And not only did Trump testify to this, but they've had accounting experts testified. One said the process of determining the estimated value of a property could result in a range of value, no one of which is the right or wrong answer.
It's a judgment call.
Yeah, I mean, listen, this is the defense that they have to make. The judge has effectively already rejected this by finding that there was fraud here, because the judge found, you know, it's not so much like that the statement said ten thousand, and a more reasonable amount would be five thousand. I mean, the judge found that there were magnitudes of difference between what's an accurate assessment and the assessments that were given by the defendants on the financial statement.
So it's not even a close call. So even if you say, listen, we put in proof that it's not an exact science. It's like, okay, fair enough, but is it not an exact science enough to talk about, you know, hundreds of percentages, you know, by the magnitude of one of the properties that was like twenty three hundred times or something between what the judge found was a reasonable
assessment and the assessment on the papers. You know, at some point you can say all that, but it doesn't really get you as far as you need to go. And the heart of this has already been decided.
By the judge.
So I don't think he's going to be swayed by testimony that says, hey, it's not an exact science, you know, let's treat it more as an art and cut on some slack.
For that reason, Another defense seems to be, instead of blaming the lawyers, as Trump may do in other cases, blame the accountants. So Eric Trump testified that he relied on the accounting firms to assure the financial statements were accurate. Donald Trump Junior testified he signed off on the statements but left the work to outside accountants. And Trump himself has said, you know, I paid the accounts all this money, Where does that get them?
Yeah, I don't think this was going to work either for largely the same reason. So judge has already considered that as part of his finding that the defendants did commit fraud. Here, I mean that the statements themselves talk about what it was that the accountants were doing, and described it as more of a compilation, right, that they're relying on the documents and the actuity of the documents provided by the organization, and they're not attesting to that themselves,
the accountants. So I don't think that the judge is going to buy that particular argument that you know, I'm not responsible. Someone said, it's kind of like, you know, I can't be convicted of tax fraud. You have to go after my accountant, even though you know I lied to him about what I was paying in taxes or what this particular property was worth or so on. You can't get away with it by just kind of saying, hey, you know, I have an accountant, so therefore I'm free and clear of all liability.
So now Trump has said this inside and outside the courtroom. He points to the disclaimers on the financial statements and says that that insulates him from liability for discrepancies or misstatements. He said that the banks have to do their own due diligence. The judge, I know, has ruled against that, but they keep bringing it up.
Well, listen, in large part, they're kind of laying their appeal record, right. They have to make these arguments and they want them to be fleshed out with their witnesses and so on so that the Appella court can consider them. You know, the judge rejected this, But this is an
interesting one to me. It's just on the one hand, he's of course fighting this trying to avoid a big judgment against him and trying to win because he's a winner and all these other reasons, but he's also kind of fighting for the reputation that he's cultivated so carefully, right over all these decades of him as a successful businessman and a really rich billionaire and so on, and so it's just kind of funny to me that part of his defense is, you know, well, even if I
was lying and puffing and all of that stuff, like I basically told the banks that they had to be responsible themselves because I can't be trusted, you know, the notion that he would kind of come out and say this is worthless. You know, my numbers that I put on this can't be trusted. You're on your own. I
don't know. It's just kind of a funny contra to then going out there and saying, oh, my properties are worth so much more in kind of doing the puffing and then turning around and saying, you know, but if they're not, it's not my fault. You have to check it out yourself. So you know, yes, this is a legal claim that they're making. They're trying to set it out for appeal. But I think it's kind of an
interesting one when you think about it that way. But listen, they're taking their shot, and I don't think this judge is going to be swayed by that one either. But you know, I guess they got.
To do it.
Another thing is Trump testified and Ivanka testified about the relationship with Deutsche Bank, and Trump said that Deutsche Bank was extremely happy and thrilled with him. Does it matter if the person or entity being defrauded doesn't realize it or doesn't care.
So this is actually the most interesting thing to me because in a way, it doesn't right. This suit is not being brought by the bank saying we've been harmed. We want, you know, our money back or whatever being brought by the Attorney General, who's really standing in the place of New Yorkers and saying New Yorkers, we as a state and as a people in the state, have an interest in these financial institutions not being duped, right,
not being lied to by companies. We don't want companies to behave that way, and if you do, we're going to sue you. So it's not that the banks have to be harmed. But all of that said, it is really interesting, not so much that the banks weren't harmed and he paid back the loans, and that's an excuse because that goes absolutely nowhere because then the comeback was well.
But if the banks knew that these loans were as risky as they were because the valuations were so off, perhaps you wouldn't have gotten such a flow interest rate, right. We would have taken that risk and charged you more for it, so that we made more money and we
lost out on that additional money. What's puzzling to me is that the Attorney General really didn't get any witness to say that they had relied on them and that they would have, for example, charged a higher interest rate if they knew that the properties were being exaggerated the worth of the properties. So I don't know, you know, and I can only think that they didn't ask those direct questions and get that evidence because they wouldn't have,
right the witnesses weren't going to say that. So that is kind of interesting because I do think it goes to the amount ultimately that the judge will find should be paid, right the fine, the disgorgement amount. Really it is impacted by how much the banks would have made compared to what they did make. And if they're saying, we don't care, we really didn't set the interest rate with the values of the property in mind, the accurate values of the property, then I think that probably does
impact the damage's amount here. So that is an important piece. I don't know what the judge is ultimately going to find with all of that and what he's going to impose as far as monetary finds and damages go, but I do think that's an interesting argument that has legs here.
Because of the way the trial played out, and because of the fact that they didn't get this testimony that I frankly expected they would get that someone would say, sure, it matters to me, because I've got to set an interest amount and it's going to be impacted by the value of the assets that's behind it.
The state did have an expert witness that calculated that the lenders lost one hundred and sixty eight million dollars in potential interest between twenty fourteen and twenty twenty three. That's still a far away from the two point fifty that she's looking for.
Yeah, and I don't think I may be wrong on this. I wouldn't be surprised if you followed it more closely, you know, witnessed by witness. But I don't think the witnesses from the bank Deetche bank that gave the loans actually said that.
No, No, it was an expert witness by the state.
Yeah, more theoretical saying like in theory, banks should charge more if the risk is higher, and therefore they would have made you know, But that's different from the actual bank saying, listen, we wouldn't have changed the numbers for there's no in other words, there's no discouragement of ill gotten games. Right, So that's really the argument, and I think it is an interesting one, and I'm interested to see what the what the judge does about that.
Now, I just want to touch on the first witness for the defense was Donald Trump Junior, and you know, the judge a lot of melat of leeway. He spent more than an hour narrating a slide show titled the Trump Story, and you know, talked about his father's vision, he was an artist with real estate, et cetera, et cetera, et cetera. I mean, what is the point of his testimony in this case?
Interesting question. If the cameras were in the courtroom, I would say the point is almost certainly just public facing. You know. The only point I can see that might be semi legitimate other than just kind of tooting our own horn, is that anytime you're a defendant and you're facing either a sentence or you know, in this case, that damage is a word, you want to be humanized, right. You want the person making that decision or the jury
making that decision knowing you a little bit. You know, it's harder to hammer someone that you don't know, So maybe it was you could look at it as an attempt to humanize them or say, you know, there's a different side, We've done something good here. You know, don't think we're such bad guys. You know, we're impressive too in our own way. So I guess, in that limited sense, you could say that the judge should have given them
leeway to do that. He also is smart to give them leeway, because then it's not an appellet issue, right. They say, Oh, he shut us down. He wouldn't let us talk about our amazing, glossy slideshow of all of our properties. So we'll just kind of sit there for
the hour and let him do his thing. But you know, I can see some very small benefits to kind of let us tell you about who we are and our family and our story and as a way to kind of humanize us and make you maybe like us a little bit more than you do.
Well, there's a lot to come with this trial. The defense is expected to last until mid December. Thanks so much, Jennifer. That's former federal prosecutor Jennifer Rogers. Donald Trump did have a win in the case. Today, a New York Capella judge lifted Judge in Gorn's gag order that barred Trump from commenting about court personnel. The suspension will allow the former president to speak freely about court staff while a longer appeals process plays out. Wall Street's cops are partnering
with unlikely tipsters against misbehaving firms. Short Sellers, including big name short sellers like Nate Anderson, Kyle Bass, and Carson Blanc, are tipping off the SEC's whistleblower office. Short Sellers are quietly sharing their research about sketchy accounting and other misdeeds in the hopes of making some extra money up to thirty percent of the proceeds if the SEC ends up exacting a fine, and that's on top of an profit
they might make by betting on the stocks decline. For example, Block got fourteen million dollars for one of his leads. Joining me is Sean mckesse, a partner at Phillips and Cohen. He was the first chief of the SEC's Whistleblower Office. We think of whistleblowers as being these anonymous people, and now we have these big name short sellers among the tipsters. I mean, is it because it's such a lucrative business.
Well, you know, I think there's probably a number of things that go into it. But I would say that the success of the program, which I am honestly and very proud of, has attracted people to it. You know, there have been efforts by the government agencies to encourage people to come forward to see something, say something, and if they didn't succeed, then nobody ever knew about it.
The sec was the Blow program, as by all accounts, been successful, and you know, success freed attention, and attention breed additional information. You know, when it comes to short sellers specifically, you know they've been playing the game, if that's the way to put it, long before the Wistful program came around, right, I mean, people have been setting up rightly or wrongly, you know, positions counting on equidies
to fall and profit when they do. And the business model behind that is you don't just randomly pick something. You know, you do some research and you come to feel and invest your money accordingly that things seem to be too good to be true. And so I'm going to bet this smoke and mirrors is going to clear and things are going to fail. And if they do and I'm right, then I can profit it. If I'm wrong,
then I don't. So if you think about what does the whistle Bull program set up to do, It's set up to attract people to come forward if they has information that for the protection investors it is important for the SEC to know about, and it turns out to be true and it turns out to help the SEC bring a successful action, then you can profit of it. You can get awarded for helping the SEC bring in action that either stops a fraud, prevents a fraud, or
or minimizes the damage of a fraud. Well, isn't that what we all ultimately want? And you know, I think the paradigm between a short seller who prior to the Wistlow program wanted a parrot out wrongdoing and you know if a profit came after it, so be it. It's the same general philosophy of the wistle World program. Come forward with information that might be helpful, and if it is,
you know, you're not going to be paid upfront. You get paid only if it turns out your information is right and it helps the SEC bring a successful action.
So then you don't think there's anything particularly new about this.
I think the only thing that's of note now is that some of the bigger name short sellers are now being ad public that they have actually been doing this because of litigation. But I think that short folks have been doing the kinds of things that the whistlel program is intended to encourage for a long time, which is, you know, if you're really smart and you're a good analyst of what's going on in the market, and you uncover something that seems like it's too good to be
true and you act on it, you can be successful. So, you know, So I don't know if there's anything new. I just think it's really something that's more out of the shadows, and I understand that it's a matching a piece over. You know, a big name short seller you know, quote unquote wins on his bet, you know, takes the short position that ends up being successful, and then on top of it, gets paid, you know, assuming the SEC
brings his good action. I think it's much adew about nothing at the end of the day, because the only way a whistle blower gets paid under the program is if they bring good information that the SEC is able to use to bring successful action that again prevents the fraud or stops from getting worse. And nobody is for the worst when that happens, regardless of whether it was the short seller who reported it or a regular person.
At the end of the day. The program is intended to incentivize people to help the SEC stop fraud, and you only get paid if you actually have done that. And I don't know how anybody, understanding what the outcome is would look back and say, well, I wish it wasn't a short seller who reported this and stops the straw. I think you know, anybody who participates in the market, and we all do in a sun level, wants fraud to be stopped and wants to prevent massive investor losses.
When if fraud goes undertected for too long and until it's too late.
It can be a very long process the process of being a whistleblower. So tell us a little about the process.
Sure, you know, that's another thing that I think takes away from this theory that you know short sellers are trying to be opportunistic and grab another quick buck in the space, because it requires quite a bit of work to be a whistle blower, and it takes a lot of time. So you know, the life cycle a whistleblower is whistleblower uncovers information that's using the short seller contact
and not a true insider. But you know they've done their analysis and they believe that there's something wrong with you know, a particular entity or an industry, and they put together what's called a TCR TIS Complaint and Referral form, which is basically, you know, the way to present to the SEC information and avail yourself with a whistlebow program, and you include generally a narrative. You know, here's what my analysis shows, and here's why I think this is
where the SEC's attention. And you know, then that goes into the the SEC's PCR system, which is where they gather all the intelligence that comes in. Whistle blower and other intelligence all goes in the same computer system. And then there's a tree odd process where a couple of lawyers in the Office of Market Intelligence will review every tip that comes in and decide he is just one already, you know, relative to something the SEC is already working on,
and if so, send it to that group. If it's a new matter, is it worth the precious resources that the SEC has, And if so, you know which group or lawyer's enforcement attorney should be assigned to it. And then once that process works its way out, then the enforcement attorney gets the tip and then it's to the enforcement staff on how the investigation is conducted. Sometimes that
means going back to the whistleblower and conducting interviews. Sometimes it doesn't, But ultimately, from the whistle blower's perspective, once that tip goes in the system, the control of the whistleblower is relatively null in terms of you know whether the investigation happens, how it happens, and the whist lawer's role is there to be supportive of the enforcement's attorney's efforts and respond if needed, but ultimately it's up the enforcement
staff to decide. Assuming things go well, from the whistler's perspective, the enforcement staff ends up bringing a successful action on average, and investigation take three years from the time of kit comes in the door. And then, assuming that that goes well, either there's a court order that holds the bad guys accountable or there's a settlement worth over a million dollars.
Either way, there has to be sanctions imposed exceeding a million dollars to trip the eligibility requirement score a case to be eligible for a whistleblower award. And now you've got the second phase of this process, which is now you get to apply for an award and the award
of application. Process and processing an award payouts can take anywhere from three to four to five years, depending on the complexity of things, but general the way the process works is the SEC will put out an announcement we brought a case worth over a million dollars. If you think you can try to it, now's your ninety day window to submit an application. You know what it was. The blower believes that he contributed or she contributed to
the matter, and you know why. The whistleblower believes he or she should get close to thirty percent as opposed to the minimal ten percent award the whistle blower office.
Then well, let's says all claims in connection with a specific case and make a recommendation to senior members of enforcement staff as to a whether that particular whistleblower is eligible, and b, if so, where an attended thirty percent range the award should call, At which point the wistle blow will be will receive a preliminary determination which says, we have found you to be eligible and we are recommending
let's say twenty percent. At that point, the whist blower will say, you know, twenty percent of little light and they'll have one opportunity to go back and ask for reconsideration, or they can say, look, that's great, we'll take twenty percent and no payoff can go out till the commission approves it. And so I've tried to streamline that moves across. See, there's a lot of steps involved in what I call
now the second phase of the process. So now from the life cycle of a whistleblower, you know, a year to prepare, three years to investigate, now three to four or five years to get your award payout to a real commitment of time. I think if people are thinking this is an easy way, a quick way to get extra bucks out of a system, they don't really understand how much of a committment requires and how much perseverance
is required, you know. And there's no guarantees of a payout under these programs, right, So it's a lot of risk to take on, and yes there's a possibility reward, but not everyone is year enough to have that kind of perseverance and take on that kind of risk.
Coming up next on the Bloomberg Lawn Show, I'll continue this conversation with Sean mckessey and we'll talk about those huge whistleblower awards you've probably heard about. The SEC is finding itself partnering with an unlikely star witness against misbehaving firms, short sellers. Big name short sellers like Nate Anderson, Kyle Bass, and Carson Block are among those tipping off the SEC in the hopes of making up to thirty percent of the proceeds if the agency ends up levying a fine.
I've been talking to Sean mckessey, who served as the first head of the SEC's whistleblower office. Sean, do you think that short sellers sort of have an edge over insiders who were CHIPsters because you know they've done all this methodical research.
I'll answer that in two tears. First, whether a well prepared tip short seller or not comes to the SEC with somebody who has specific, timely, incredible information and has the ability to provide ongoing assistance to the SEC staff and an investigation, it is one hundred percent of the time helpful for the SEC and improve the efficiency of the case. And that doesn't matter whether you're a short
seller or an insider. And again, the program is designed to attract that kind of person and that kind of information When we go back to that ten to thirty percent assessment of how big of an award a person
should get. One of the factors that the SEC's required considers how cooperative was the whistleblower, how much resources is the whistleblower health the SEC preserve by providing information that they otherwise might be difficult to find, assisting investigation by saying, hey, you should ask these people, you know, this department about these documents. All that is built into the incentive process
of the program. We want people to come forward, and we want them to help the SEC bring good cases. And if you help bring good cases and they have the more efficiently, everybody wins. And as a result, when you're ten to thirty percent is being it said, if you know, really move them all forward to the SEC. Came with a fully day cake. For example, your tip basically laid out the whole team, and then you know,
allow the SEC to leverage a very quick settlement. Then you should get rewarded for that because to thirty percent. So the answer to the question is short sellers, non short sellers. Whistle blowers with good information can and have and will continue to increase the efficiency of the SEC staff. And that's why you sell me the interns wanting to
get good whistleblower matters. It helps them to bring very high profile, important cases more efficiently than they would if they didn't have somebody who had access to the information, either through the research let's say a short seller, or by being an insider and having direct information based on what they saw or are seeing.
You know, people see these huge whistleblower awards, they're like, you know, when you hear about jury, vert etc. Like winning the lottery. I mean you had the largest was two hundred and seventy nine million in May of twenty twenty three, but there have been hundreds of millions several times. Thirty percent is a lot of percent. Are these whistleblowers getting too much money? Especially when you think of short sellers, they're doing it as part of their job. They find these things out right.
I think there's a facial attractiveness to that narrative, but I think it's shortsighted, and I think if people just take a step back, and you know, this just echoes the criticism that the SEC got when just to even have the program, you know, a lot of mashing a keyth you know, should people get paid for doing the right thing, and a lot of you know, anxiety around it, which causes people sometimes to get two far into the week and don't take a step back and say, well,
wait a minute, why why were we doing this? Why isn't it needed? And you know, I can give you two words. Enron, world Com. These are entities where people were aware of wrongdoing and for whatever reason, we're not motivated reported in time to get it stopped so that those two companies could still be in existence today if somebody had come forward and provided the kind of information that would have helped the SEC stopped ongoing cross before
they became company best. So, now how does that relate to this question of you know, how much is too much? Well? Ask someone who you know lost their life savings in Enron or someone who worked for those companies who's and I happen to know somebody personally who worked for the company in world Com required all their employees to take all of their floural one k and put it in world Com stocks, and then when the company went down,
they ended up with nothing. Ask for those people if a whistleblower had come forward and stopped the massive fraud and kept your job kept the company in business. The company had the right, let's say a billion dollar check, but the fraud was stopped short of hundreds of billions of dollars, And so the company is now still a viable company. You still have your Form one, kay, you still have a job, This industry still exists. Does it matter to you if the reason that that happened is
because somebody came forward? And now do you care that that person ended up getting paidage million dollars? Let's take a step back. The awards is ten to thirty percent of the amounts collected. So when you're talking about a two hundred million dollars award, that means that the amounts that the SEC collected in connection with whatever fraud that was was massive. And when do massive clients get imposed
when the fraud is massive? And so rather than say well, wait a second, why should a person get so much money in connection with something, I think you should equip it and say why shouldn't somebody who uncovered and helped the sea, he exposed a massive, massive, massive frad Why shouldn't they be massively rewarded for doing so? Isn't that exactly what we want to have happen. They have those kinds of de The company maybe bet in industry ruined
people's lives, that fraud gots stopped. Why are we questioning how much a whistleblower should get in connection with stopping massive frauds.
Whistleblower awards are confidential. So I just want you to react to what a University of Kansas law professor Alexander Platt said, The center of gravity in this program is shifting to short sellers. I think the taxpayer should know when fourteen million dollars of our money goes to Carson Block, why is their secrecy? Why is this confidential?
I think that's a fallacy, to be honest. I'm familiar with the professor's work and we've had conversations, and I think we've misguided in some of his thought process. First of all, and this is a minor point, it's not taxpayer money. The money that whistleblowers are paid is paid out of fund that is funded by SEC collection. The idea that somehow the SEC should out whistle blowers because you know, taxpayer should know where their money's going, that doesn't connect. That's said.
The bigger issue is confidentiality, and I can tell you having built the SEC wist the Work program, and now having represented whistle bowers for the last seven years. On the other side, the biggest question almost universally that potential
whistleblowers ask is will I be kept confidential? And the reason for that is, unfortunately, there's a stigma against whistle blowers, and bad things have historically happened to people who blew the whistle, and oftentimes they're not celebrated until after they've gone through a lot of pain and then they get documentaries may for their heroic efforts. And that's the unfortunate history that we have, and I think the SEC whistlebork
program and others is helping change that. But at the end of the day, this is not about secrecy, you know, government, you know, trying to hide in the shadows. The fact of the matter is Congress in the Dot Frank Statute said nobody at the SEC can directly or joy they
identify a whistle book. And that is to recognize that whistlebowers wants to mean confidential and if you can't provide them some monicum, a guarantee of confidentiality, you're going to lose a whole pool of people and I can tell you for sure if that's true, people will not come forward if there's not at least a structure in place to provide for confidentiality.
Well, there's a lot to learn about the process of being a whistleblower. Thanks so much, Sean. That's John mckessey, a partner at Phillips and Cohen. 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