This is Bloomberg Law with June Grosso from Bloomberg Radio.
Welcome to the Bloomberg Law Show. I'm June Grosso. Donald Trump wants a mistrial in his civil fraud case. The Supreme Court's new ethics code is much ado about nothing. A First Amendment challenge to charges over false election robocalls and crypto investors sue SBF and celebrity promoters.
I have a rogue judge who rules that properties are worth a tiny fraction one one hundred, a tiny fraction of what they actually are.
It was almost like Donald Trump was forecasting his motion for a mistrial even before his civil fraud trial began last month. He's arguing that the judge has tainted the
proceedings with tangible and overwhelming bias. The New York Attorney General took six weeks to present her case that the former president deliberately inflated his net worth to fool banks and insurers into giving him better terms on hundreds of millions of dollars in loans, and as the Trump team kicked off its case on Monday, the first witness, Donald Trump Junior, gave a snapshot of the defense that his father has been harping on basically, no harm, no foul.
You guysn't got to think about the precedent that this case sets if an attorney general ken years later after all parties of transactions are paid back in full with interest, making hundreds of millions of dollars where they have no complaint where they said they wouldn't have done anything Differently.
Joining me is former federal prosecutor Jennifer Rogers and adjunct professor at NYU Law School. So Jennifer tell us about this mistrial motion that everyone knows is going nowhere.
Well, it's really the same complaint 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.
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 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 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 values, 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 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, 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. So 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 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 just going to buy that particular argument that you know, I'm not responsible. Someone said, it's kind of like 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.
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 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, the 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 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 low 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 the worth of the properties were being exaggerated. 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 damages amount here.
So I do think that's an interesting argument that has some 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.
And why do you think the defense team keeps bringing up the disclaimer on the financial statements, saying it absolves him from any LA even though the judge has rejected that argument several times.
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 appellate Court can consider them. Listen, they're taking their shot.
Trump did have a win in the case. On Thursday, a New York Cappella judge temporarily lifted judging Goren's gag order that had barred Trump from commenting about court personnel. Thanks so much, Jennifer. That's former federal prosecutor Jennifer Rogers coming up the Supreme Court's new Ethics Code. I'm June Grasso and you're listening to Bloomberg. You have to take me to shaulf according to the Code of the Order of the person.
Your return to show was not part of our negotiations nor our agreement, so I must do nothing. And secondly, you must be a pirate for the Pirate's Code. You reply and you're not. And thirdly, the code is more what you're called guideline it stelectual rules. Welcome aboard the Black Code.
The Supreme Court's new Ethics Code aims a lot like the Pirate's Code, more like guidelines than actual rules for the first time the Justices have adopted a code of conduct, responding to pressure from a stream of ethics controversies. But the code won't necessarily mean any changes in the way the nine justices conduct themselves. In fact, the Justices basically admit that in the introduction, saying, for the most part,
these rules and principles are not new. Joining me, is constitutional law expert David Souper, a professor at Georgetown Law, is anything different for the justices because they've adopted this code.
This is an astute pr move, That's all it is. They've done a number of disclosures of extremely questionable activities by several justices, most prominently Justices Thomas and Alito, receiving valuable trips other financial favors from rich, ideologically committed donors, many of whom have business in front of the Court. So the Court, i think, felt that it needed to
do something. There were justices calling for an ethics code, and my assumption is that the compromise they reached between no ethics code and an ethics code was something that is in name in ethics code, but that has few with any of the functions of an ethics code.
In the statement of the court that precedes the code. There's a little bit of griping about this misunderstanding that justices regard themselves as unrestricted by any ethics rules. Go figure, and it says the Court has long had the equivalent of common law ethics rules. Does that statement mean that these are the same rules that Justice Clarence Thomas, for example, followed in accepting all those luxury trips the underwriting of the rv et cetera.
The fact that he did that and that there has been no action about that on the Court suggest that this so called common law ethics rules are largely useless. If any judge on a lower court had done this, they would be facing serious problems.
Unlike the rules for a lower court judges. There's no enforcement mechanism at all in this code.
That's correct. The failure of this code is twofold. One, its content is extraordinarily weak, and second, there is no procedure for enforcing it. It is certainly true that the Supreme Court is not and should not be subject to the executive branch or the legislative branch, but it could
set up its own enforcement mechanism. It could, for example, as a process for people to file complaints, have an office that investigates those complaints and makes recommendations to the court, and a procedure for the Court itself to act on these matters. It could also have a procedure where a justice's behavior is particularly problematic of referring that information to Congress, which does have the power to begin impeachment proceedings.
Of course, Congress hasn't impeached a justice since the early eighteen hundreds. But moving on, there have been a lot of complaints about the justices not recusing themselves in cases where it seems like they should. So when it comes to recusals, the justices include a line that's not in the Code of Conduct for United States judges. It says, quote the rule of necessity may override the rule of disqualification. Tell us what they mean by that.
What they are basically saying is that even if they have a conflict of interest or some other compelling reason why they shouldn't sit on a case, that the desirability of having nine justices sit on a case may justify disregarding that conflict of interest. Nationale is that while we have many lower courts and many lower court judges, and
most lower courts don't sit as a complete body. Ever, the Supreme Court is unique, and if you have a decision rendered by less than all of the justices, it may not get five votes for any result, and that leaves the state of the law uncertain. That's a problem the Supreme Court has dealt with many times over the years when justices have properly refused themselves for any number of reasons, and occasionally it does create pickups in the
law or uncertainties. But the same thing can happen when all nine justices sit and they can't agree on any one resolution to a case. So this is not a huge problem, but it does signal a lack of seriousness of bet ethic.
Better to have a hiccup in a case than to have a justice sitting who should be recused. Also, while lower court judges are told they quote shall disqualify when their impartiality might be questioned, the justice has changed the word shall to should disqualify. So are their rules for accusal less stringent than the rules that they set out for lower court judges.
Yes, they are. Indeed, the word shall does not appear anywhere in their code. It appears several places in the code for lower court judges, but nowhere in this new code for the Supreme Court. So they've chosen not to live by the standards they impose on lower court judges. The standards they impose on lower court judges are appropriate. I wouldn't want to see them loosened, but it's telling that they're unwilling to live by the same standards themselves.
Let's take the major tax code case that's coming up, where Justice Alito was interviewed a friendly interview for the Wall Street Journal by one of the lawyers. Under this code, should Justice Alito recuse himself from that case?
The code is rather vague. I think as a matter of common sense, Justice Leto absolutely should. He was under public criticism and this attorney gave him help in defending himself against that public criticism, which is a very valuable thing. If I was being criticized the way Justice Ledo did, I would prefer that friendly interview to one hundred thousand dollars. So it is giving a justice something of great value.
As a case that's involving you is going in front of the court, it seems obvious he should refuse himself. But the code is so vague that it certainly does not compel him to do so and provides no means for the public to complain if he doesn't do so.
Would this code have prevented the Conservative justices from attending the Federalist Society gala last week that was headlined by Justice Amy Cony Barrett.
No, it doesn't prevent much of anything, and it certainly wouldn't prevent that, like that is raising money for an organization that is pursuing a litigation agenda before the Court that is directed at the court. So you are helping fund one side of many cases that you will be hearing. That would seem to be entirely inappropriate. We wouldn't want a judge to be making contributions to the lawyers on either side, and being a headliner at a gala and boost ticket sales has the same effect.
The Court has always been shrouded in secrecy. The public doesn't know how it goes about its work, really, and there's no transparency in this either. There's no way to tell even whether a justice has violated the code, at least until a pro public a story or something comes out about it.
So no, this is not at all transparent, and this is going to lead to further erosion of public confidence in the court. Things of this kind that came out in earlier generations ended justice's careers. Justice Abe Fortis was forced off the court or involvements with potential litigants that were far thinner than the ones we're seeing right now, and members of both parties and justices across the ideological spectrum insisted that he stepped down, and he ultimately did.
We've completely changed our practices and our ethics standards are not keeping.
Up, and it doesn't appear this code is going to help much. Thanks so much, David. That's Professor David Super of Georgetown Law coming up. FTX, investors, sue SBF and celebrities. I'm June Gross. When you're listening to Bloomberg, I.
Call it the wheel.
I don't think so.
What does it do the rules? Yeah?
So does a bagel?
Okay, a Bengel here can he one of the worst ideas I've ever heard.
Like I was saying, it's FTX, it's a safe and easy way to get into the crypto.
I don't think so, and I'm never wrong about this stuff.
Never remember that Larry David commercial for FTX that had them laughing at the Super Bowl in twenty twenty two. Tom Brady, Giselle Bunchen, Steph Curry, and Shaquille O'Neill were among the celebrities who also chatted the cryptocurrency exchange in commercials.
Well.
Investors who claimed they lost billions in the collapse of FTX are trying to pin the blame not just on Sam Bankman Freed in his inner circle, but also on the celebrities who were paid to endorse it, as well as its accountants, lawyers, and bankers. Joining me is Braden Perry, a former federal regulatory enforcement attorney and a partner at Kenny Hurtz Perry. So, Braiden tell us about this sweeping class action lawsuit that was filed in Miami federal court.
Yeah, so this is a loss that is brought by a number of individuals who, whether investors or had some sort of financial interest in FTX, and they brought it against a number of entities, including celebrity endorsers, accountants, the
actual members of FTX itself, as well as others. So it's a wide ranging case that essentially boils down to FTX was falsely providing information to the public and the public somehow either invested or had some sort of financial interest in FTX and therefore were harmed.
So let's start with the celebrities, because that's where everyone starts.
Correct.
So what does the law require of celebrity endorsers?
So generally the law requires not much. And what it requires is that the celebrity endorser knows what the product is and how it works. And to that, generally there's some sort of disclaimer, ordinarily at the bottom of the advertisement or elsewhere it indicates celebrity endorser is a paid endorser for that product, as well as the truthfulness and so the endorser cannot provide information that's false or misleading to the public.
Does that mean that Jennifer Garner actually has to use the drugstore creams she claims she uses.
Generally that's the case, and so you'll see these advertisements with certain restaurants where celebrities are at, or certain products that they're using, and it's not an exclusive use, and so it can be a very high level. So if Jenner Garner has used a product that's been provided to her, she can certainly endorse that product, and so it's not a lifelong or a over the top type of use requirement.
But generally, yeah, if the celebrity endorser is going to endorse a product, that celebrity endorsers should be using that product.
So does that mean that Tom Brady and Larry David and all the others should have been invested in FTX.
Yeah, I don't know if they should have been invested in the FTX. Obviously they should have known what FTX is and what it does, and that would likely be their exchange of choice if they were going to be part of the crypto movement. Not necessarysarily a needed part of that movement.
That's why I'm wondering, when sophisticated investors didn't know about FTX and the government found out much later, how are celebrities supposed to know?
And that's a big question that's going to be the legal question is what did the celebrities know? What influence did they have on these investments? And that's really the crux of the legal argument in this case. The class action is so wide with all the different entities associated with FTX. You know, the accountant standbackmen Freed is one
of the defendants. All these celebrity endorsers. Everyone is involved, and so there's going to be from the defense side lots of finger pointing as to who knew what and when and where and how, and so that's really going to be what the plans need to prove, is whether or not these celebrity endorsers were intricate in this false and misleading product.
Besides the finger pointing tell us what some lines of defense.
Might be, the defense teams have several different lines of defense. You know, they weren't specific to the actual accounts. They didn't provide terms or conditions of the accounts. They weren't detailing what the accounts could or could not do, and so that's general of defense to the claims. However, they knew or should have known, that there was misleading information by not providing some of that information about these accounts,
and that can be counterproductive to their case. Also, if I'm sitting on the defense table and I see that the main group, the head of FTX, has been convicted of crimes, I'm certainly pointing to that saying, hey, these people were committing crimes, were victims just as much as you were.
Yeah, So the Sam Bankman freed conviction and the guilty, please of his inner circle should be helpful to the defendants here. Now, some of the other targets of the lawsuit are professional advisors, ranging from an accounting firm, investment firm, and a bank. Those seem like more reasonable defendants to me.
Yeah, and they should be. And ordinarily, when you look at the history of massive frauds in finance, made off as the best picture of that, there is still ongoing litigation involving countants, professional individuals who had some part of his scheme. That's the case here. You know, obviously, the accountants, the investment firms, all of these pieces were part of the ongoing massive dollars that FTX was bringing in and
maintaining during its lifetime. And those are the traditional defendants you'd see celebrity endorsers Frankly, you don't see that often. And a group settled just because likely they didn't want to be bothered with the litigation or part of the litigation, And there's a valid reason to settle and get out.
But I think the ones that are still in there have relatively valid defenses that one they were victims two and two that their endorsements had no input on what the actual under line fraud of FDx was about.
You mentioned the Bernie Madoff investor suits played out for well over a decade. Do you think the FDx case will be even more complicated to one wine than madeoff was?
Yeah, I do.
You know, we've been talking strictly about this one plane of case involves a number of celebrity endorsers. You have to remember that the criminal case is essentially over. There will be appeals, There will be other issues in this, although I don't think in the appeals will be successful. Then you got the regulatory action, so you got the CFTC, you got the sec Ordinarily, within these parallel criminal cases, those cases likely will be settled because there's not much
else to go after. The big issue is going to be bankruptcy receiverships in the different jurisdictions and trying to claw back as much of this lost money as possible to provide to investors. So that's going to be the main focus for the next decade is the severship action to claw back all this individual funds from all these
various entities. And then you'll have these civil cases that are trying to find those that may not have exposure otherwise so these celebrity endorsers, those types of things, and so it's going to be complicated. And the fact that crypto wasn't regulated like Madoff's Ponzi scheme was. There's no central regulator and you get the SEC, you got the CFTC that are part of this. But unlike Madeoff where you could point directly at the SEC, there's really no
nexus of jurisdiction between anyone. So it's going to take a long time. You know FTX at offices all over the place, there's multiple jurisdictions. It will take a while to unwind what this is becoming. It could be could be longer than what Madoff's looked at.
And at the sentencing of Sam Bankman, Freed and the three people who flipped, will the judge order restitution.
The way it generally works when it comes to parallel criminal slash regulatory slash liquidation proceedings is anything the government gets, and so as part of the thing for Sam beckun Free, for Carolyn Ellison, for Wang, for all of these individuals, there'll be a restitution element as their sins and that
will go into the bucket of the receiver. So you'll likely see any ill gotten gains these individuals received will be part of that restitution order under the sentencing that will flow into the receivership action that will be part of that bucket to provide to investors. So yeah, they will likely have large restitution positions as part of their sensing.
Are there rather competing class action lawsuits? Or has the Miami lawsuit been certified as a class.
When it comes to all of these different actions, the priority number one was the criminal case, and while criminal case is ongoing, generally all the civil cases are stayed. That's the case in the Florida action. At this point in time, there's been ongoing discovery about that class action. There's not been a decision to certify the class action as of yet. Now that the criminal case is over, I think all of these courts are going to get back in full gear addressing all of these issues now.
I mean there's going to be a number of evidentiary issues from the trial. The vast government investigation could be a treasure trove of information for the plaintiffs when it comes to these types of things, and so the courts are now going to have to face that issue and begin moving again procedurally.
On these cases, and there's always the possibility that some of these celebrities might want to settle just to put some distance between themselves and SBF. Thanks so much, Braiden. That's Braden Perry of Kenny Hurts Perry. Coming up next, The Michigan Supreme Court considers false election robocalls. I'm June Grasso and you're listening to Bloomberg.
Mail in voting sounds great, but did you know that if you vote by mail, your personal information will be part of a public database that will be used by police departments to track down old warren and be used by credit card companies to collect outstanding debts.
In the run up to the twenty twenty elections, thousands of Detroit residents got that robocall, falsely claiming that police, creditors and the CDC could use mail in voting data to issue warrants, collect on debts, and push mandatory vaccines. The Michigan Attorney General filed felony charges against Conservative operatives Jack Berkman and Jacob Wall, accusing them of orchestrating the robocalls aimed at suppressing the vote of predominantly black voters
in Detroit. Berkman and Wall have already been sanctioned in other states on similar voter intimidation charges, but they're arguing to the Michigan Supreme Court that that state's law is too broad to enforce, joining me his First Amendment. Expert Eugene Vollick, a professor at UCLA Law School, is this conflict the role of the state to protect voters from intimidation and the Constitution's protections for speech political speech? Is this at the heart of a lot of US election laws.
Depends what you mean by intimidation. So there's no doubt that trying to intimidate voters by threatening violence against them is a crime, and there's no First Amendment defense for threats of violence. On the other hand, courts have generally been quite skeptical, especially in recent years, of attempts to
police false statements in election campaigns. So there have been laws that ban knowingly full statements in election campaigns, outright lies, and the courts still have struck down those laws, chiefly because they basically put too much power in the government's hands to decide what is true and what is false in an election campaign, with too much risk of kind
of political enforcement. And part of the problem with the law in this case is that, at least in the government's understanding of it, it applies to basically trying to get people not to voter to vote differently through either possibly misleading statements about possible risks to them, or perhaps any statements that essentially use fear in order to change
people's votes. That's a very broad category, especially given that the statute here talks about attempt by means of menace or other corrupt means or device to influence an elector's vote. So it looks like, under the government's theory, if there was a message sent out saying, if you vote for Trump, he's going to send your children off to some war, let's say that's an attempt to use fear. It's possibly an attempt to use misleading statements he's going to do that.
How do we know he's going to do that? So generally speaking, most courts would say that's not something that the government can police for in elections, And yet under the state's theory in this case, it's possible that the law is as broad as that.
During the oral argument, some of the Michigan justices questioned the application of the statute. Justice Elizabeth Welch asked, what about the scenario of the millions of mailers we get. What if someone says, don't vote, they're all crooks? And Justice David Viviano asked whether the law could be used to charge someone like Trump over his frequent statements that the absentee voting process is rigged. So does it seem like the justices were keying in to what you just said, right?
I think the justices are worried that the statute in its face is very broad, and indeed claims don't vote by absentee. The absentee process is rigged. Under the government's theory. They may not be menacing in the sense that they don't have the element of possible threat that the government
will do something to you. But under the government's theory, that would be a corrupt means or device, because it would be misleading or outright fall So I think the justices are recognizing that the statute has written quite broadly. It may well be that a narrower stack would be constitutional. It may well be that there's a narrow of statue that would be both constitutionals and broad enough to cover the speech of these particular defendants. But I'm not sure that this statute is one side check.
Well, I noticed the defendant incited you in their brief, Eugene, so we'll see if the Michigan Supreme Court agrees. Thanks so much for being on the show. That's Professor Eugene Vulloch 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