# Judge Tosses Cases Against Comey and James & Insider Trading Ring

An episode of [Bloomberg Law](https://invisiblenetwork.ai/podcast/277975394), 25 Nov 2025, 37 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/7c892d84-801f-4c0b-b0e9-ae2b0012ff5f/9a1bdae6-dad3-487a-a3ee-b3a0000f5e53/audio.mp3?utm_source=Podcast&in_playlist=91224201-26a6-429d-ac3c-ae2b0012ff6d

Constitutional law expert David Super, a professor at Georgetown Law, discusses a judge dismissing the charges against former FBI Director James Comey and New York Attorney General Letitia James. Then former federal prosecutor Stephen Frank, a partner at Quinn Emanuel, discusses a global insider trading ring that sounds like a movie script. And securities law expert James Park, a professor at UCLA Law School, discusses the SEC’s decision to drop the SolarWinds Cyberattack lawsuit. June Grasso hosts. See omnystudio.com/listener for privacy information.

## Transcript

[0:02] Speaker 1: This is Bloomberg Law with June Grossel from Bloomberg Radio.
[0:09] Speaker 2: I'm grateful that the court ended the case against me,
[0:11] Speaker 2: which was a prosecution based on malevolence and incompetence, and
[0:16] Speaker 2: a reflection of what the Department of Justice has become
[0:19] Speaker 2: under Donald Trump, which is heartbreaking. But I was also
[0:22] Speaker 2: inspired by the example of the career people who refuse
[0:26] Speaker 2: to be part of this travesty. I know that Donald
[0:30] Speaker 2: Trump will probably come after me again, and my attitude
[0:33] Speaker 2: is going to be the same. I'm innocent, i am
[0:36] Speaker 2: not afraid, and I believe in an independent federal judiciary.
[0:41] Speaker 3: Former FBI Director James call Me took a victory lap
[0:44] Speaker 3: of sorts after a federal judge throughout the criminal charges
[0:49] Speaker 3: against him and New York Attorney General Letitia James, ruling
[0:53] Speaker 3: that the prosecutor who brought the cases had been illegally appointed.
[0:58] Speaker 3: Lindsay Halligan was abruptly installed as the US Attorney for
[1:02] Speaker 3: the Eastern District of Virginia in September after her predecessor
[1:07] Speaker 3: resigned under pressure to bring charges against Comy and James.
[1:11] Speaker 3: Federal Judge Cameron McGowan Curry concluded that the attorney General's
[1:16] Speaker 3: attempt to install Halligan as interim u S Attorney was invalid.
[1:21] Speaker 3: She dismissed the charges against Comy and James without prejudice,
[1:25] Speaker 3: meaning that prosecutors may be able to refile the cases.
[1:29] Speaker 3: In a statement, James said, I am heartened by today's
[1:33] Speaker 3: victory and grateful for the prayers and support I've received
[1:36] Speaker 3: from around the country. I remain fearless in the face
[1:40] Speaker 3: of these baseless charges as I continue fighting for New
[1:43] Speaker 3: Yorkers every single day. The White House says it will
[1:46] Speaker 3: appeal the decision. Here's Press Secretary Caroline Leavitt.
[1:51] Speaker 4: I know there was a judge who is clearly trying
[1:53] Speaker 4: to shield Letitia James and James Comy from receiving accountability,
[1:59] Speaker 4: and that's why they this unprecedented action to throw away
[2:02] Speaker 4: the indictments against these two individuals. But the Department of
[2:06] Speaker 4: Justice will be appealing very soon. And it is our
[2:09] Speaker 4: position that Lindsay Halligan is extremely qualified for this position,
[2:12] Speaker 4: but more importantly, was legally appointed to it.
[2:15] Speaker 3: Joining me is constitutional law Professor David Souper of Georgetown
[2:18] Speaker 3: Law explain why this judge, and this is the judge
[2:23] Speaker 3: from South Carolina who was just considering the Lindsay Halligan appointment,
[2:27] Speaker 3: explain why she dismissed the cases.
[2:30] Speaker 5: She dismissed the cases against mister Cromee and Mss James
[2:34] Speaker 5: because she found that the US Attorney was not properly appointed.
[2:40] Speaker 5: And since there was no one else in the room
[2:43] Speaker 5: with the grand jury except Miss Halligan, if Miss Halligan
[2:47] Speaker 5: had no powers, then no one presented the case to
[2:49] Speaker 5: the grand jury and it has to be dismissed in
[2:53] Speaker 5: the judges view.
[2:55] Speaker 3: So Attorney generals have authority to name an interim US
[2:58] Speaker 3: attorney who can serve for one hundred and twenty days.
[3:01] Speaker 3: And the judge said that that one hundred and twenty
[3:04] Speaker 3: days began when Halligan's predecessor, Eric Siebert was appointed on
[3:09] Speaker 3: January twenty first, and when the clock expired on May
[3:13] Speaker 3: twenty first, so did the Attorney general's appointment authority. Is
[3:17] Speaker 3: that a controversial interpretation?
[3:20] Speaker 5: It is controversial. The statute isn't terribly well written, but
[3:25] Speaker 5: I think she follows most of the rules of statutory interpretation.
[3:31] Speaker 5: And she says, if the Attorney General can just keep
[3:35] Speaker 5: reappointing people for additional one hundred and twenty day slots,
[3:39] Speaker 5: then why would the president ever bother to go to
[3:42] Speaker 5: Congress for confirmations. And why has the statute even mentioned
[3:47] Speaker 5: district courts, since presumably the Attorney General would take that
[3:51] Speaker 5: power if it was there, we would never let it
[3:53] Speaker 5: fall to the district court. That's part of her reasoning.
[3:57] Speaker 5: The other part of it that I think is also
[4:01] Speaker 5: is that Congress changed this rule for about a year
[4:04] Speaker 5: and then went back. So Congress had an arrangement where
[4:09] Speaker 5: the Attorney General could appoint people for as long as
[4:12] Speaker 5: she wanted, and they thought about it for a year
[4:15] Speaker 5: and they said, no, thanks, we don't want any more
[4:18] Speaker 5: of that. So the judge asked, quite reasonably, if Congress
[4:23] Speaker 5: had allowed the arrangement that the Justice Department applies today
[4:27] Speaker 5: and they changed the law to end it, why aren't
[4:30] Speaker 5: we honoring Congress's decision.
[4:32] Speaker 3: So there have been judges in New Jersey and in
[4:37] Speaker 3: Los Angeles who've come to the same conclusion about this
[4:42] Speaker 3: one hundred and twenty day rule. And the Alina Haba
[4:45] Speaker 3: appointment to lead the New Jersey US Attorney's Office is
[4:50] Speaker 3: before the Third Circuit. If the Third Circuit comes down
[4:53] Speaker 3: with a decision saying no, this is okay, you can
[4:56] Speaker 3: do this does that have any effect on what happens
[4:59] Speaker 3: here in the.
[4:59] Speaker 5: Fourth The Third Circuit doesn't have jurisdiction over this court.
[5:04] Speaker 5: This court's appeals go to the Fourth Circuit. Obviously a
[5:09] Speaker 5: federal circuit court's views are influential. But the judge here
[5:15] Speaker 5: does not seem to think this is a close case,
[5:17] Speaker 5: and I tend to agree with her. So I think
[5:22] Speaker 5: even if the administration wins Alina Hobbit case, they're still
[5:26] Speaker 5: going to have a real challenge on appeal.
[5:28] Speaker 3: In this case, the substantive issues about vindictive prosecution and
[5:34] Speaker 3: about what was said in the grand jury room by
[5:36] Speaker 3: Lindsay Halligan that are before Judge Neckmanoff. Does that go away?
[5:41] Speaker 6: Now?
[5:41] Speaker 3: Is that over?
[5:42] Speaker 5: If the government agreed to drop the case, then that
[5:47] Speaker 5: stuff might be over. And on the principle that discretion
[5:51] Speaker 5: is the better part of valor, that would be the
[5:53] Speaker 5: smart thing for the administration to do. But given that
[5:57] Speaker 5: the President has been tweeting instructions to get these people
[6:01] Speaker 5: now now, now, I have trouble believing that will happen.
[6:05] Speaker 5: So I think that the vindictive prosecution matter is likely
[6:10] Speaker 5: to go to decision because the government will appeal this thing.
[6:15] Speaker 5: And if this decision is overturned, then whether it's a
[6:19] Speaker 5: vindictive prosecution would come to the fore again.
[6:22] Speaker 3: So now they are going to appeal, no surprise, The
[6:26] Speaker 3: White House spokesperson said, the facts of the indictments against
[6:29] Speaker 3: Comium James have not changed, and this will not be
[6:33] Speaker 3: the final word on this matter. So let's say they
[6:36] Speaker 3: take it to the Fourth Circuit and the Fourth Circuit
[6:38] Speaker 3: could affirms what the judge ruled here, So then they
[6:42] Speaker 3: would go to the Supreme Court.
[6:44] Speaker 5: They would, And I'm sure this judge understands that and
[6:49] Speaker 5: has peppered her opinion with citations to Justice Scalia, Justice Thomas,
[6:55] Speaker 5: Justice cour such, all the lions of conservative status, to
[7:00] Speaker 5: our interpretation. So the Supreme Court can reverse her only
[7:05] Speaker 5: by reversing itself.
[7:07] Speaker 3: And I believe she also cited what was a controversial
[7:10] Speaker 3: decision by Florida Judge Eileen Cannon dismissing the classified documents
[7:16] Speaker 3: case against President Trump.
[7:18] Speaker 5: She did, she did. I think that's a little gratuitous
[7:22] Speaker 5: and less central to us. But she's got some basic
[7:24] Speaker 5: statue totory interpretation problems here, and she is hewing very
[7:29] Speaker 5: closely to the procedures the Supreme Court has said, and
[7:34] Speaker 5: hardly takes a move without citing a Supreme Court statutetory
[7:37] Speaker 5: interpretation case. I teach statutory interpretation, and I will be
[7:43] Speaker 5: likely assigning this case because it's such a nice summary
[7:47] Speaker 5: of all the moves you're supposed to make.
[7:50] Speaker 3: Next stop, fourth Circuit. I'm sure, Thanks so much, David.
[7:54] Speaker 3: That's Professor David Super of Georgetown Law coming up nixt
[7:58] Speaker 3: on the Bloomberg Law Show. A global insider trading case
[8:02] Speaker 3: that sounds like a movie script. I'm June Grosso and
[8:06] Speaker 3: you're listening to Bloomberg. The global insider trading ring allegedly
[8:12] Speaker 3: started at a meal at a Paris restaurant owned by
[8:15] Speaker 3: an ex Merrill Lynch investment banker, with members using burner phones,
[8:20] Speaker 3: coded language, and encrypted messaging apps to conceal its activity
[8:25] Speaker 3: and payments for insider tips being made using cash transfers,
[8:29] Speaker 3: shell companies, fake invoices, and even a plastic bag stumped
[8:34] Speaker 3: with one hundred thousand euros in a Vienna cafe. And
[8:38] Speaker 3: prosecutors say the ring raked in more than seventeen million
[8:42] Speaker 3: dollars from a staggering number of insider tips on more
[8:46] Speaker 3: than fifteen deal targets. My guest is former federal prosecutor
[8:51] Speaker 3: Stephen Frank, a partner at Quinn Emmanuel. This global insider
[8:56] Speaker 3: trading ring sounds a little like a movie script. At
[8:59] Speaker 3: some point, it does.
[9:01] Speaker 1: Sound like a movie script, and that's because it is
[9:03] Speaker 1: a lot like a movie script.
[9:04] Speaker 2: What this case is.
[9:05] Speaker 1: About really is an incredibly sophisticated, long running worldwide insider
[9:13] Speaker 1: trading scheme involving insiders at a number of different companies,
[9:19] Speaker 1: and they haven't actually been charged yet, along with a
[9:23] Speaker 1: web of traders all around the world who are exchanging
[9:28] Speaker 1: messages and exchanging inside information in incredibly difficult to detect ways,
[9:33] Speaker 1: sometimes in person, sometimes over encrypted apps, often using burner
[9:40] Speaker 1: phones with simcards that they are swapping regularly, and laundering
[9:46] Speaker 1: the funds through complicated transactions, sometimes in cash, sometimes using
[9:53] Speaker 1: a variety of bank accounts, sometimes sending cash through the
[9:59] Speaker 1: mail off disguised as gifts or other types of things.
[10:05] Speaker 1: And so it's been able to survive all these years
[10:10] Speaker 1: in part because there are so many different traders involved.
[10:14] Speaker 1: The information is being dispersed so far and wide that
[10:18] Speaker 1: it's incredibly difficult to trace.
[10:22] Speaker 3: Did it go for almost ten years?
[10:24] Speaker 1: Nothing like that? I mean, it's been going for a
[10:26] Speaker 1: number of years. I think it's hard to discern exactly
[10:29] Speaker 1: how long it's been going on. We can sort of
[10:31] Speaker 1: trace when the initial contact between certain of the players happened,
[10:36] Speaker 1: but I don't think we know the initial origins of
[10:39] Speaker 1: the entire scheme.
[10:40] Speaker 3: Were there specific types of trades that they shared inside
[10:45] Speaker 3: information on or was it a variety.
[10:49] Speaker 1: It was a variety. It was in different industries, It
[10:52] Speaker 1: was in all different types of companies, some that trade
[10:55] Speaker 1: in the US, some that don't. And that's what also
[10:58] Speaker 1: made it so difficult to TechEd, but also kind of
[11:01] Speaker 1: what gives it away, right, It's clear that there is
[11:04] Speaker 1: no one insider at any one company who's sharing this information.
[11:09] Speaker 1: It's clear that there are insiders at a variety of
[11:12] Speaker 1: different companies who are sharing information. That's almost unprecedented in
[11:17] Speaker 1: these types of schemes. You know, insider trading traditionally was
[11:21] Speaker 1: you know, a tip passed, you know, over a glass
[11:24] Speaker 1: of wine or a beer at a country club or
[11:27] Speaker 1: on a golf course in a single company at a
[11:30] Speaker 1: single time. It's unusual to have cases that where there's
[11:35] Speaker 1: different iterations of information being passed over time. It's still
[11:38] Speaker 1: far more unusual to have so many different companies where
[11:42] Speaker 1: information is being passed, and over such an extended period
[11:46] Speaker 1: of time, with so many different traders involved. That's what's
[11:49] Speaker 1: really quite fascinating about this scheme.
[11:52] Speaker 3: Is there any indication how the authorities first got wind.
[11:56] Speaker 1: Of this, Well, I should say I was involved in
[11:58] Speaker 1: the original invest mitigation and then handed it off when
[12:02] Speaker 1: I left the government to go into private practice. So
[12:05] Speaker 1: the way that the authorities first got involved in this
[12:09] Speaker 1: sort of first figured out that something was amiss is
[12:12] Speaker 1: simply by seeing the repeated trading in certain companies. There
[12:18] Speaker 1: was one company in particular where various subsidiaries of the
[12:22] Speaker 1: company were involved in transactions over time, and there was
[12:26] Speaker 1: trading ahead of those transactions that was suspicious. But really
[12:30] Speaker 1: what happened was you had certain individuals who kept popping
[12:34] Speaker 1: up on the radar of law enforcement and of international
[12:39] Speaker 1: securities regulators, and law enforcement and regulators looked closely at
[12:44] Speaker 1: those individuals, looked closely at their transactions, their financial transactions,
[12:49] Speaker 1: and put this together over many years of investigation, through
[12:53] Speaker 1: just painstaking investigative work. I mean, the amount of investigation
[12:58] Speaker 1: that goes into an indictment like this is pretty incredible,
[13:01] Speaker 1: and it involves sophisticated techniques like you know, search warrants
[13:07] Speaker 1: for electronic accounts or email accounts, for Facebook accounts, for
[13:13] Speaker 1: iCloud accounts, and then sifting through all of that information
[13:18] Speaker 1: in a painstaking way, much of it not in English,
[13:22] Speaker 1: and putting little little pieces together over time. But it
[13:26] Speaker 1: was really the result of incredible collaboration between US law
[13:30] Speaker 1: enforcement and regulators in the United States, as well as
[13:34] Speaker 1: regulators in law enforcement in England, in France, and in
[13:38] Speaker 1: other countries.
[13:39] Speaker 3: So I was going to ask, you know, how much
[13:41] Speaker 3: that complicates the investigation when you're dealing, you know, with
[13:45] Speaker 3: other countries and with things happening abroad.
[13:50] Speaker 1: It makes it incredibly complicated. And that's why these schemes
[13:53] Speaker 1: are able to persist because they know that and they
[13:56] Speaker 1: take advantage of that. No one country can put a
[13:59] Speaker 1: case like this together all by itself. It really requires
[14:02] Speaker 1: collaboration among different law enforcement and regulatory authorities with different mandates,
[14:08] Speaker 1: different evidentiary rules, different procedural rules, and then figuring out
[14:15] Speaker 1: how to share that information in ways that it can
[14:17] Speaker 1: be used by different countries. I mean, even just the
[14:21] Speaker 1: fact that there are different time zones involved makes things
[14:24] Speaker 1: complicated and really requires people to work off hours, to
[14:28] Speaker 1: work around the clock, to travel internationally just to gather
[14:32] Speaker 1: the bits and pieces of evidence that's required to put
[14:35] Speaker 1: a case like this together. It's extremely complicated.
[14:38] Speaker 3: Is there competition I read that French investigators have been
[14:42] Speaker 3: conducting a parallel investigation for years. Is there competition among
[14:47] Speaker 3: the regulators of the different countries to bring the indictments first.
[14:53] Speaker 1: That's a great question. There is some of that, and
[14:56] Speaker 1: there's certainly a desire by regular in law enforcement in
[15:00] Speaker 1: each country to be the first to put the biggest
[15:03] Speaker 1: case together. But ultimately there's also a recognition that this
[15:07] Speaker 1: is a big enough scheme, it's sprawling enough that there's
[15:11] Speaker 1: something in it for everybody, and there's more than any
[15:14] Speaker 1: one country can do on its own. So it's ultimately
[15:18] Speaker 1: figuring out what makes the most sense in dividing up
[15:21] Speaker 1: the pie. One of the things that US law enforcement
[15:26] Speaker 1: has as an advantage is that sentencing here for these
[15:31] Speaker 1: types of crimes is substantially greater than it is in
[15:35] Speaker 1: most other countries, and in Europe in particular, and so
[15:39] Speaker 1: ultimately what all regulators, whatever country they're in, want to
[15:43] Speaker 1: do is take down these types of schemes that are
[15:47] Speaker 1: really taking advantage of innocent investors and making markets an
[15:53] Speaker 1: unlevel playing field, right, I mean, ultimately, if investors don't
[15:56] Speaker 1: have confidence in the securities markets, they're not going to invest.
[15:59] Speaker 1: And that's true in the United States, but it's also
[16:02] Speaker 1: true in France, and it's also true in England. So ultimately,
[16:05] Speaker 1: their regulators realize that if they're able to cooperate and
[16:08] Speaker 1: come down with a heavy hand on schemes like this
[16:11] Speaker 1: and make it clear that however much profit insider trading
[16:15] Speaker 1: might generate in the short term, in the long run,
[16:17] Speaker 1: it's going to put you behind bars for an extended
[16:19] Speaker 1: period of time. That's in everybody's best interest because that
[16:22] Speaker 1: protects markets here, but it also protects markets over there.
[16:25] Speaker 3: When administrations change and priorities of administrations change in enforcement actions,
[16:33] Speaker 3: do some investigations fall by the wayside? And why did
[16:37] Speaker 3: this one not fall by the wayside?
[16:40] Speaker 1: Well, a couple of things. I'll say this one was
[16:42] Speaker 1: in a pretty advanced state by the time the administrations
[16:47] Speaker 1: changed over. But also it's pretty clear that in this administration,
[16:52] Speaker 1: as in past administrations, securities fraud and insider trading remains
[16:57] Speaker 1: a point of focus. So if you look at the
[17:00] Speaker 1: statistics over the past year of this administration. What you'll
[17:05] Speaker 1: see is that while white collar crime enforcement in general
[17:10] Speaker 1: is down, there are fewer cases being brought, and on
[17:15] Speaker 1: the sec side as well, there are fewer enforcement actions
[17:19] Speaker 1: being brought, particularly against corporate actors, securities fraud, and in particular,
[17:25] Speaker 1: insider trading cases have held steady and perhaps even trended
[17:28] Speaker 1: up a little bit. And that's because I think Chairman
[17:31] Speaker 1: Atkins and others in the administration see crimes against the
[17:36] Speaker 1: markets and crimes against individual investors as crimes they really
[17:40] Speaker 1: need to pursue because of the reasons I just said,
[17:43] Speaker 1: because it undermines confidence in the markets. And one thing
[17:46] Speaker 1: that this administration has in common with prior administrations is
[17:49] Speaker 1: they want the markets to remain strong in investors to
[17:52] Speaker 1: have confidence in them. And that's why we've seen pretty
[17:56] Speaker 1: rigorous enforcement and a number of cases being brought against
[18:00] Speaker 1: insider trading schemes over the past year. And not every scheme, obviously,
[18:04] Speaker 1: is as complicated as this one. This one is really
[18:06] Speaker 1: unprecedented in its sweep and sophistication, but we've seen cases
[18:12] Speaker 1: across the United States really against just ordinary insider trading schemes,
[18:16] Speaker 1: the types of one off schemes. I was talking about
[18:18] Speaker 1: a moment ago where information is being passed on a
[18:22] Speaker 1: cocktail mapkin across the bar, or even insiders trading in
[18:26] Speaker 1: their own companies, which is the least sophisticated kind of scheme.
[18:30] Speaker 1: Finding out information that's not public that can move a
[18:34] Speaker 1: stock in your own company and trading on it, either
[18:37] Speaker 1: in your own account or in the account of a
[18:38] Speaker 1: friend or a relative. Those are relatively easy to discover,
[18:41] Speaker 1: and they're surprisingly commonplace.
[18:43] Speaker 3: It sounds like this might be a tough case to
[18:46] Speaker 3: try to put this all together for a jury. What
[18:49] Speaker 3: do you think is the strongest evidence that the prosecution has.
[18:54] Speaker 1: Well, if you read the superseding indictment in this case,
[18:57] Speaker 1: the prosecution has really put together a pretty compelling case,
[19:01] Speaker 1: replete with very devastating text messages, really text messages that
[19:07] Speaker 1: are going to be difficult for the defendants to explain,
[19:10] Speaker 1: in which they're speaking in code, but it's a barely
[19:13] Speaker 1: disguised code. They're talking about swapping phones and sin cards
[19:19] Speaker 1: as socks and shoes. They're talking about money as greens.
[19:24] Speaker 1: They talk about financial transactions sometimes as meat put in
[19:28] Speaker 1: a refrigerator. It's almost comical the way that they use
[19:33] Speaker 1: this code. But ultimately, when you put all of these
[19:36] Speaker 1: conversations together, it really becomes pretty compelling. And then when
[19:40] Speaker 1: you combine those with the cash, the financial transactions, and
[19:44] Speaker 1: the stock trading, it really becomes overwhelming. What's interesting about
[19:47] Speaker 1: this indictment is it was unsealed even though many of
[19:50] Speaker 1: these players have not yet been arrested. So one individual
[19:54] Speaker 1: was arrested and extradited to the United States, and other
[19:57] Speaker 1: individuals in Singapore and is fighting extra edition. Other individuals
[20:01] Speaker 1: have been charged and named but not yet arrested or
[20:06] Speaker 1: extradited into the United States. Now those individuals are going
[20:08] Speaker 1: to find their ability to travel freely severely constrained, and
[20:13] Speaker 1: many of them probably will be picked up over time.
[20:16] Speaker 1: But that doesn't mean that the evidence about them doesn't
[20:18] Speaker 1: come in. Because this is charged as a conspiracy, and
[20:21] Speaker 1: in the US legal system, evidence of communications among conspirators
[20:26] Speaker 1: in furtherance of a conspiratorial aim can all come in.
[20:30] Speaker 1: So all of this evidence about all of the different
[20:33] Speaker 1: players in this conspiracy is going to be admissible for
[20:36] Speaker 1: prosecutors if and when this proceeds to trial.
[20:38] Speaker 3: The prosecution has a cooperator. How important is his testimony.
[20:43] Speaker 1: It's always important, particularly when you have these types of
[20:46] Speaker 1: coded communications or a cooperating witness, to be able to
[20:49] Speaker 1: get up on the stand and say, this is what
[20:51] Speaker 1: we were talking about, this is the terminology that we used.
[20:55] Speaker 1: These are the types of techniques that we used to
[20:59] Speaker 1: hide our communmunications make them more difficult to discover. The
[21:02] Speaker 1: most compelling thing, though, about any cooperating witness is the
[21:05] Speaker 1: fact that he's going to get up there in all
[21:07] Speaker 1: likelihood and say I committed this crime. I was a
[21:10] Speaker 1: part of this scheme, this was a conspiracy, and the
[21:14] Speaker 1: defendant was in it with me. That's really devastating evidence
[21:17] Speaker 1: that's very difficult to undermine, particularly when that individual has
[21:21] Speaker 1: accepted responsibility for their own collaps.
[21:24] Speaker 3: Do you envision the prosecution sort of presenting this like
[21:28] Speaker 3: a movie, like here we are at the French restaurant
[21:31] Speaker 3: and blah blah, blah blah blah.
[21:33] Speaker 1: It is pretty cinematic. So if they're smart about it,
[21:36] Speaker 1: and they are, and I'm sure they'll do this, they
[21:38] Speaker 1: will present it in that way. They will have First
[21:41] Speaker 1: of all, these communications are so devastating, they're going to
[21:43] Speaker 1: be put up on a screen and even though there's
[21:45] Speaker 1: no audio in these communications, there wasn't a wiretap involved
[21:48] Speaker 1: in this case, you'll nevertheless be able to see these
[21:51] Speaker 1: communications and play out these transactions almost in real time,
[21:56] Speaker 1: and then you'll have it narrated by somebody like this
[21:59] Speaker 1: coper O breading witness who's going to be able to
[22:01] Speaker 1: say I was there and I was passing this cash,
[22:04] Speaker 1: you know, in a paper bag or whatever the case
[22:06] Speaker 1: may be, and it's really captivating for jurors. I've been
[22:10] Speaker 1: on cases similar to this before where jurors have said
[22:15] Speaker 1: afterwards that they were really just so enthralled by the
[22:18] Speaker 1: presentation of the evidence, because it really is even though
[22:22] Speaker 1: these are just financial transactions, the level of greed involved
[22:26] Speaker 1: and the lengths that people will go to to disguise
[22:29] Speaker 1: these transactions is pretty incredible.
[22:32] Speaker 3: You're a prosecutor for a long time. Now you're on
[22:34] Speaker 3: the other side. I mean, do you see a possible
[22:37] Speaker 3: defense here.
[22:39] Speaker 1: It's going to be interesting. I mean, I think any
[22:41] Speaker 1: defense attorney is going to, you know, do some basic things.
[22:44] Speaker 1: One is you're going to try and keep out as
[22:46] Speaker 1: much evidence as you possibly can, right go after the
[22:49] Speaker 1: search warrants and try to figure out some way legal
[22:52] Speaker 1: or otherwise that they are invalid. Another thing is, obviously,
[22:57] Speaker 1: you know, a top the cooperating witness, try to undermine
[22:59] Speaker 1: the cutibility of the cooperator and suggest that they're doing
[23:03] Speaker 1: it really to obtain leniency in their own sentencing, but
[23:06] Speaker 1: that they are really just telling a story that the
[23:08] Speaker 1: prosecution wants them to tell. Another piece of it is
[23:12] Speaker 1: to point to the empty chair right to say that
[23:14] Speaker 1: there are all these other players involved, but where are
[23:17] Speaker 1: they and try and undermine the case that way. But
[23:20] Speaker 1: when you have a case that's been put together over
[23:23] Speaker 1: years with as much evidence as it appears the prosecutors
[23:27] Speaker 1: have in this case, it's tough. And sometimes defendants take
[23:32] Speaker 1: their shot because they figure they have nothing to lose,
[23:34] Speaker 1: But other times they try to work out a deal.
[23:37] Speaker 1: And no doubt, given the number of people who still
[23:40] Speaker 1: haven't been apprehended, and the number of others who are
[23:42] Speaker 1: undoubtedly involved in the scheme and haven't even been charged,
[23:45] Speaker 1: including the insiders at some of these companies, there's going
[23:48] Speaker 1: to be a real incentive as the trial data approaches
[23:51] Speaker 1: for some of these people to flip themselves and try
[23:54] Speaker 1: and work out a deal for themselves.
[23:56] Speaker 3: It seems like this would be a great trial to watch.
[23:59] Speaker 1: It's a really cool case. It's a pretty unprecedented case.
[24:02] Speaker 1: It's unusual for a case like this to be brought
[24:04] Speaker 1: in a place like Boston, which isn't you know, as
[24:07] Speaker 1: big a financial center as New York or even San Francisco.
[24:11] Speaker 1: But it's really a testament to the work of you know,
[24:14] Speaker 1: individual prosecutors and FBI agents and folks at the SEC
[24:17] Speaker 1: to put a case like this together. I mean that
[24:19] Speaker 1: the amount of work is really it's not apparent at
[24:22] Speaker 1: the first glance, but it really it's literally years of work.
[24:25] Speaker 3: It's been a fascinating conversation. Thanks so much. That's former
[24:29] Speaker 3: federal prosecutor Stephen Frank, a partner at Quinn Emmanuel. The
[24:34] Speaker 3: Securities and Exchange Commission is dropping its landmark lawsuit against
[24:39] Speaker 3: Solar Winds that accuse the company of covering up internal
[24:43] Speaker 3: problems ahead of a massive cyber attack. The agency said
[24:48] Speaker 3: the decision to seek dismissal is quote in the exercise
[24:52] Speaker 3: of its discretion and does not necessarily reflect the Commission's
[24:56] Speaker 3: position on any other case. The move 's a controversial
[25:01] Speaker 3: case for the SEC, which faced criticism from Wall Street
[25:05] Speaker 3: and beyond that it's allegations against Solar Winds went far
[25:09] Speaker 3: afield of the agency's typical enforcement remit. My guest is
[25:14] Speaker 3: securities law expert James Park, a professor at UCLA Law School.
[25:19] Speaker 3: Jim tell us about the SEC suit.
[25:21] Speaker 7: This is a major cybersecurity disclosure case involving a company
[25:28] Speaker 7: in Austin that developed network monitoring software, basically software that
[25:34] Speaker 7: you use to monitor the performance of your network. And obviously,
[25:41] Speaker 7: for software like this, you know, cybersecurity is very important
[25:44] Speaker 7: because somebody could come in and see everything that's going
[25:47] Speaker 7: on in your network. And they have a major cyber
[25:52] Speaker 7: attack on something called the Orian software platform that generated
[25:57] Speaker 7: almost half of their revenue. Their stock price goes down,
[26:02] Speaker 7: and then the SEC brings a case saying that various
[26:06] Speaker 7: disclosures they made with respect to their cybersecurity practices were
[26:12] Speaker 7: materially misleading. That was litigated by the company, which does
[26:18] Speaker 7: not always happen. A lot of defendants settle SEC cases
[26:21] Speaker 7: rather than pursue dismissal, but they litigated in the Southern
[26:26] Speaker 7: District of New York. Judge Engelmeyer dismissed part of the
[26:30] Speaker 7: SEC's claims, not all of them, but some of them.
[26:33] Speaker 7: I mean, this was about a year or so ago,
[26:35] Speaker 7: and then we just got news last week that the
[26:37] Speaker 7: SEC has chosen not to go forward with the case.
[26:42] Speaker 3: I mean, did this case diverge in any way from
[26:45] Speaker 3: a normal or the usual SEC enforcement actions.
[26:50] Speaker 7: One way it diverged, I think is the defendant litigated
[26:54] Speaker 7: the case. And you know, another is that you know,
[26:57] Speaker 7: when you bring a major case like this, you usually
[27:01] Speaker 7: pursue it to the end, and I think that's usually
[27:03] Speaker 7: the practice with the SEC. Even when the administration changes,
[27:09] Speaker 7: you have enforcement cases that often are left over from
[27:13] Speaker 7: prior years because they take a long time to resolve,
[27:16] Speaker 7: and then you know, the enforcement staff is they continue
[27:19] Speaker 7: to litigate those cases, even if there might be some
[27:23] Speaker 7: disagreement with the new commission.
[27:25] Speaker 6: And so it is a bit unusual.
[27:28] Speaker 7: They're not unprecedented for the SEC to stop pursuing a case.
[27:33] Speaker 7: Of course, this did happen as well with the various
[27:36] Speaker 7: crypto enforcement cases. So for this SEC, it's not unprecedented.
[27:39] Speaker 7: For prior secs, I think it's unusual. I think that
[27:42] Speaker 7: would be fair to say.
[27:44] Speaker 3: And also, is it the first time they suit a
[27:46] Speaker 3: computer security executive for a cybersecurity related issue? That companies
[27:53] Speaker 3: said that they were trying to expand their turf.
[27:56] Speaker 7: That is unusual, right the chief Information Security office, sir,
[28:00] Speaker 7: who you know, it's not the CEO, it's not the
[28:02] Speaker 7: chief financial officer. And I don't know if they've ever
[28:07] Speaker 7: sued a chief information security officer before, but this is
[28:10] Speaker 7: certainly something that was relatively new. And so that was
[28:14] Speaker 7: another interesting aspect.
[28:16] Speaker 6: Of the case.
[28:18] Speaker 3: Why did the judge dismiss a lot of the case.
[28:21] Speaker 7: You know, I think one reason was that the statements,
[28:26] Speaker 7: some of the statements the SEC alleged were misleading. Were
[28:31] Speaker 7: these broad statements about there's a risk of cybersecurity breach,
[28:38] Speaker 7: and these are the types of disclosures.
[28:40] Speaker 6: That are made by a lot of companies. And what
[28:44] Speaker 6: the SEC was saying is that the reason.
[28:46] Speaker 7: Those generic disclosures were misleading is that they were never
[28:51] Speaker 7: really updated even when it became clear to the company
[28:55] Speaker 7: that its cybersecurity was insufficient.
[28:59] Speaker 6: And so the SEC was saying that you.
[29:02] Speaker 7: Basically were putting out this generic disclosure to keep investors satisfied,
[29:09] Speaker 7: but you are not updating it when new developments came
[29:12] Speaker 7: along and investors would want you to update those risk disclosures.
[29:17] Speaker 7: And really, what the judge said as well, the risk disclosures.
[29:22] Speaker 7: They were enough to tell the investors that this was
[29:25] Speaker 7: a type of risk, and investors they understand that companies
[29:31] Speaker 7: talk in generalities like this. There's a doctrine called the
[29:35] Speaker 7: Puffrey doctrine where everyone understands companies are always going to
[29:40] Speaker 7: try to put a rosy tone on things, and they
[29:44] Speaker 7: speak in a very optimistic way. So they do this,
[29:47] Speaker 7: and investors know this, and they know that they shouldn't
[29:49] Speaker 7: trust these broad statements on face value, and so that
[29:54] Speaker 7: was the main reason a good chunk of the case
[29:56] Speaker 7: was dismissed. Now, there were statements that were more pacific
[30:00] Speaker 7: that were published on the company's website, which the judge
[30:04] Speaker 7: said could proceed. The claims could proceed because they made
[30:07] Speaker 7: much more specific statements that the company was using strong cybersecurity,
[30:14] Speaker 7: that they had gone through a rigorous development process, that
[30:17] Speaker 7: they were very sort of diligent in evaluating their internal
[30:21] Speaker 7: cybersecurity controls, and those statements might have been misleading.
[30:25] Speaker 6: According to Judge.
[30:27] Speaker 3: Ingle Meyer, what do you think the SEC caved here?
[30:30] Speaker 7: I think that cybersecurity has been controversial in terms of
[30:36] Speaker 7: whether this is an area where the SEC should be
[30:40] Speaker 7: significantly involved, and it's only been fairly recently that we
[30:45] Speaker 7: think of cybersecurity as something that the high level managers
[30:50] Speaker 7: of the company must be really vigilant about. You know,
[30:55] Speaker 7: I think there was a time when we thought of
[30:56] Speaker 7: cybersecurity issues as being you know, this is what the
[30:59] Speaker 7: IT department is responsible for. It's not something that the
[31:02] Speaker 7: board really should be knowledgeable about, because the board quite
[31:06] Speaker 7: frankly doesn't have the expertise in evaluating a company cybersecurity.
[31:10] Speaker 6: And so there's been a big shift.
[31:12] Speaker 7: Though to require disclosure about cybersecurity and to require the
[31:17] Speaker 7: board to evaluate the adequacy of cybersecurity. I think that's
[31:22] Speaker 7: been controversial, although I think it still is an expectation.
[31:27] Speaker 7: And you know, in addition to cybersecurity efforts being generally controversial,
[31:32] Speaker 7: I think enforcement relating to cybersecurity disclosures might have been
[31:37] Speaker 7: even more controversial because the critics would say, you know, basically,
[31:42] Speaker 7: this is a company that was a victim of a
[31:44] Speaker 7: cyber attack, and so they were victims, and now you're
[31:48] Speaker 7: saying that they should also pay for misleading investors, and
[31:52] Speaker 7: so there might be something off putting or problematic about
[31:58] Speaker 7: saying that, well, you are the victim of the cyber attack,
[32:01] Speaker 7: plus you also have to pay money to your investors
[32:05] Speaker 7: because you didn't stop it. I think that's kind of
[32:07] Speaker 7: the argument here, is that you know, it's almost punishing
[32:10] Speaker 7: you twice for being the victim of a cyber attech. Now,
[32:13] Speaker 7: on the other hand, you could say, well, this is
[32:14] Speaker 7: a company with cyber security matters a lot, and so
[32:17] Speaker 7: they should have made more timely disclosures. That's the argument
[32:20] Speaker 7: on the other side. But I think that maybe what
[32:23] Speaker 7: the SEC was thinking here is that we want to
[32:26] Speaker 7: pull back a bit on cybersecurity enforcement.
[32:29] Speaker 3: So officially, the SEC said that the decision to seek
[32:33] Speaker 3: dismissal is in the exercise of its discretion, does not
[32:37] Speaker 3: necessarily reflect the Commission's position on any other case. I mean,
[32:41] Speaker 3: do you think the SEC intends to continue to focus
[32:45] Speaker 3: on cybersecurity or this case says no.
[32:50] Speaker 7: Well it's a powerful statement, but I think the SEC
[32:54] Speaker 7: maybe leaving some room to change its mind. And you know,
[32:59] Speaker 7: if they're maybe there are a better set of facts
[33:01] Speaker 7: around that they might find. And so I think they
[33:06] Speaker 7: are leaving open the option to bring enforcement cases and
[33:10] Speaker 7: they're not saying that. You know that you can't sort
[33:13] Speaker 7: of violate security sprout provisions through misstatements about cybersecurity. But
[33:18] Speaker 7: I think they're saying, in this case, maybe the case
[33:21] Speaker 7: was not as strong as it as it could have been.
[33:23] Speaker 7: And I think it's a powerful signal with respect to
[33:26] Speaker 7: this particular SEC.
[33:29] Speaker 3: I guess chief information security officers are breathing a sigh
[33:33] Speaker 3: of relief with this because it would have meant personal liability.
[33:38] Speaker 7: Yeah, I think I think that's right. I think they're there.
[33:41] Speaker 7: Definitely is potential for liability. You know, of course, if
[33:45] Speaker 7: they settle the you know, the payment may be covered
[33:48] Speaker 7: by an insurance policy. But it's never easy when you
[33:53] Speaker 7: are specifically named in a complaint, and you know, I
[33:58] Speaker 7: think if you're the CFO, you fully understand that this
[34:02] Speaker 7: is something that could happen. Chief information security officer, maybe not,
[34:06] Speaker 7: but you know. This also speaks though to the difficulty
[34:09] Speaker 7: of bringing cases against individual corporate officers, which the SEC
[34:14] Speaker 7: says it wants to do more of. But you know,
[34:17] Speaker 7: when you single out a particular individual, there is sometimes
[34:22] Speaker 7: a question of is it fair to put so much
[34:25] Speaker 7: blame on a single person when you know it might
[34:28] Speaker 7: have been more of a systematic problem at the corporation
[34:33] Speaker 7: that the high level officer may not have really had
[34:35] Speaker 7: complete control over. So I think that's an interesting point,
[34:39] Speaker 7: is that in some ways this kind of acknowledges that
[34:42] Speaker 7: it's actually really hard to build cases against individuals, and
[34:46] Speaker 7: sometimes it may you may see them unfair.
[34:48] Speaker 3: Any final thoughts, Jim, I.
[34:50] Speaker 7: Think you might think of these cybersecurity cases as just
[34:57] Speaker 7: another form of a type of case at commonly brought,
[35:01] Speaker 7: which is that you know there's some business development that
[35:04] Speaker 7: the company knows about some business failure. You know, we
[35:08] Speaker 7: have a product we thought was going to be great,
[35:10] Speaker 7: but we know it's going to be delayed a long time,
[35:13] Speaker 7: it has a lot of flaws in it, and you
[35:16] Speaker 7: know we we don't tell investors. I think it's fairly
[35:19] Speaker 7: clear now, based on you know, thirty forty years of
[35:23] Speaker 7: case law, that lying about business developments can violate securities
[35:29] Speaker 7: fraud laws. And you know, there's an argument that if
[35:32] Speaker 7: you are lying about the strength of your cybersecurity controls,
[35:37] Speaker 7: that that's not all that different, right, because you know,
[35:41] Speaker 7: it's not a business failure, but it is a failure
[35:44] Speaker 7: in what you're supposed to be doing to protect your customers,
[35:48] Speaker 7: to protect investors, And so these disclosures can be important.
[35:53] Speaker 6: And I don't think.
[35:54] Speaker 7: The SEC's direction in this was completely unfounded because I think,
[35:59] Speaker 7: you know, just closures in business practices relating to treatment
[36:03] Speaker 7: of customers and so forth are pretty relevant to what
[36:06] Speaker 7: investors are looking at for companies like this. I do
[36:10] Speaker 7: agree though, that, you know, it is difficult to sort
[36:14] Speaker 7: of determine, you know, when exactly was it clear that
[36:18] Speaker 7: they were engaging in really really risky behaviors that were
[36:22] Speaker 7: so far below the industry norm that we would want
[36:25] Speaker 7: them to be accountable for not saying more about their
[36:29] Speaker 7: vulnerability to a cyber attech. I think that's a really
[36:31] Speaker 7: difficult question to answer as well.
[36:33] Speaker 3: Thanks so much, Jim. As always, that's Professor James Park
[36:37] Speaker 3: of UCLA Law School. And that's it for this edition
[36:40] Speaker 3: of The Bloomberg Law Show. Remember you can always get
[36:42] Speaker 3: the latest legal news on our Bloomberg Law Podcast. You
[36:45] Speaker 3: can find them on Apple Podcasts, Spotify, and at www
[36:50] Speaker 3: dot Bloomberg dot com, slash podcast Slash Law, And remember
[36:54] Speaker 3: to tune into The Bloomberg Law Show every weeknight at
[36:57] Speaker 3: ten pm Wall Street Time. I'm Jamie Grosso, and you're
[37:01] Speaker 3: listening to Bloomberg MHM.

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