Blanche AG Nomination Moves Forward & Betting on Maduro Raid

20:39David Super:I think there's a lot of difference in prestige. It makes it also much easier to bring someone of similar temperament in as deputy attorney general, his current soon-to-be former job. And he does then get the blessing of the United States Senate for everything he's done. And he will very reasonably be able to say when he's criticized for new things he does, you saw me do similar things and confirmed to me, so don't go pointing fingers. When he revives the weaponization fund or raids the judgment fund for other Trump personal expenditures, he will say, I never promised I wouldn't do it in the future.

21:25David Super:I just said that that particular thing had not gone forward, which it happened. The senators are leaving themselves wide open to his doing exactly what he wants to do and blaming their lack of thoroughness for it. And apparently they don't care.

21:42Eric Talley:Can you think of another attorney general in history who was as willing to do the president's bidding as Blanche appears to be? And, you know, Bondi was before him.

21:52David Super:Well, the only name that comes to mind, of course, is John Mitchell, Nixon's attorney general. And Nixon's attorney general was a frequent visitor to the White House, but he ended up in the big house.

22:05Eric Talley:Yep, Mitchell was convicted of conspiracy, perjury and obstruction of justice for his role in the Watergate scandal and the cover up. And by the way, David, to your earlier point, now you have another woman whose job may be in jeopardy. And that's the D.C. U.S. attorney Janine Pirro. Trump is very unhappy that she dismissed the charges against former Olympic rower David Hearn, charges of vandalizing the reflecting pool. Indeed.

22:39David Super:I mean, the news reports today are that her job seems to be safe, but we read that about Kristi Noem and Pam Bondi and others, so it's a little hard to tell. But the problem with her position is that if what she's saying is true, then their corrupt no-bid contract to get the reflecting pool done by a contractor with no experience doing this kind of work looks like a payoff to a political donor, which is surely what it is.

23:11Eric Talley:It's always great to talk to you, David. Thanks so much. That's Professor David Super of Georgetown Law. Coming up next, a U.S. Army soldier charged with making Winni-Poli market predictions based on classified information about the raid to capture then-Venezuelan President Nicolas Maduro says the alleged bets aren't a crime, and he's asking a judge to throw out the case. I'm June Grosso, and you're listening to Bloomberg. The Bloomberg This Weekend Podcast. News. Analysis. And the lighter side of Bloomberg. Including our weekly news quiz. Mattel reported higher than expected first quarter revenue thanks to the demand for which toy car brand?

23:54Hot Wheels.

23:54Eric Talley:Hot Wheels. Hot Wheels, yes! Are those still things? I've stepped on many of those with my children when they were young. Yes, lay those in those or not. They hurt very much on bare feet.

24:02David Super:Yeah.

24:02Eric Talley:The Bloomberg This Weekend Podcast. Subscribe today on Apple, Spotify, or wherever you listen. A U.S. Army soldier charged with making winning polymarket predictions based on classified information about the raid to capture then-Venezuelan President Nicolás Maduro is asking a judge to throw out the case. Lawyers for Gannon Ken Van Dyke, a special forces soldier who prosecutors said was involved in the planning and execution of the raid, called the prosecution overzealous and said the alleged bets aren't a crime. Van Dyke faces a maximum of 20 years behind bars on the most serious charge, wire fraud.

24:49Eric Talley:Joining me is Columbia Law School professor Eric Talley, an expert in business law. Eric, will you explain what he did, what he's charged with doing? Yeah, Mr. Van Dyke was charged with illegally making a prediction market bet on polymarket having to do with whether Nicolas Maduro was going to continue being the president of Venezuela or continue to be in power. Mr. Van Dyke knew about the plans for the operation to go into Venezuela and capture Maduro. and based on that information, he ended up opening up a Polymarket account and making several bets in favor of Maduro no longer being in power and made a fair amount of money off of that process.

25:38And that's what gave rise to the charges that are being brought now against him.

25:43Eric Talley:So they're saying he used classified information. Exactly what is he charged with? Yeah, this kind of looks almost like a securities fraud insider trading type of case, but he was not buying and selling stocks or bonds or the things that we usually think of as being securities. He was purchasing this event-driven contract, which is effectively a bet. And so as a result, standard insider trading approaches don't work as well. But what does is just another section of federal law called the Commodities Exchange Act. And there, there is kind of an interesting debate that's going to be going on in court as to whether event-driven contracts, prediction market contracts fall under the Commodities Exchange Act, and particularly a specific definition of a contract that the Exchange Act has involving something known as a swap.

26:39Now, that sounds kind of like very Wall Street speak, but what it really is is just a contract agreeing that you and I are going to swap piles of money under some circumstances. And so this This can be any contract in which the decision of whether I pay you or you pay me is dependent on the occurrence or the non-occurrence of some event that has economic, financial or commercial consequences. That's effectively the definition. And to the extent that that definition fits event driven contracts, and there's been at least one case that holds that they do, then these types of contracts would fall under federal law.

27:16And if that's what happens, then Mr. Van Dyke's chances look pretty grim. There are direct statutes in U.S. federal law that prohibit informed trading related to government information done by federal employees, officers, members of the armed forces, and so forth. They generally predict that anyone or they generally prohibit anyone who has financial information or relevant information about some upcoming international event from entering into a swap contract to favor their situation or to skew the odds of the contract paying off.

27:57Eric Talley:His lawyers say the alleged bets aren't a crime. How so? What's their argument? The first argument that they're going to make is that these contracts just aren't swaps, that they are ordinary gambling contracts under state law that shouldn't even be regulated by federal law. Now, if they can convince the court that that is the case, then a bunch of these statutes that prohibit insider trading specifically with respect to swaps, they're going to fall away. The defense isn't completely out of the woods, but it would eliminate what seems like the most direct form of liability through these informed trading prohibitions related to swaps.

28:37The problem is that just this past April, there was another federal court in the Third Circuit that basically held in a case that involved Kalshi, Polymarket's big competitor, that sports event contracts, they look a lot like betting, but they also qualify as swaps because their payoffs are associated with economic, financial, commercial consequences, and so forth. And so the court in that case basically said we're going to have a pretty open ended and pretty forgiving definition of what constitutes a swap. And so Mr. Van Dyke's going to have to somehow convince the court to distinguish that case or to disagree with it.

29:19It is only a sister jurisdiction. So there's a chance that he could do it. And if he does end up doing it, then his road is going to be much cleaner, not completely out of the woods, but much cleaner. And, you know, even if these contracts do constitute swaps and therefore these prohibitions absolutely apply, Mr. Van Dyke may be able to make a couple of other arguments, many of them having to do with the newness of prediction markets and event driven contracts. As a general matter, there is a kind of an interpretive approach to criminal prohibitions that says, let's not be overly expansive in determining or defining what constitutes a crime, particularly if an ordinary person wouldn't have reasonably thought that, you know, some offshore prediction market wager was actually a federally regulated swap.

30:09And so there are cases where courts have said, look, formally, this looks like it's a violation, but there just wasn't enough notice to people in Mr. Van Dyke's position to know that this was we're going to give him leniency, even though someone that comes next in a year or two isn't going to get the same type of leniency. Now, there is another kind of route that the government has if they lose on this question of whether these event-driven contracts are quote-unquote swaps. And that's that there's a very well-known kind of secret tool that a lot of prosecutors use called the mail and wire fraud statutes that basically say, if you do something naughty, even if it's not, you know, like a serious, serious felony, but if you do something that, you know, clearly is a violation of law and you use a cell phone or the telephone or, you know, email to do it, you can be convicted of wire fraud, which has fairly significant criminal consequences associated with it.

31:14Now, in that situation, the U.S. might be able to say, look, even if these weren't swaps, what Mr. Van Dyke was doing was engaging in some form of common law fraud. He was misusing the information that the government entrusted with him and trusted him to keep confidential. And he blew that confidentiality away, used email or a cell phone to do it, and therefore committed wire fraud. And that is an alternative approach that the government has tried out in its indictment. That one is going to be a steeper hill for the government to climb, in large part because of the United States Supreme Court, which just a couple of years ago really narrowed what it meant to misuse government information.

31:57There was a case that involved regulatory information at the FDA and the Department of Health and whether various types of benefits were going to be liberalized or changed. And that would have a big effect on companies. And the Supreme Court basically held that regulatory information about what the government was going to do. That's not really property that the government can entrust you with. And that case, Mr. Van Dyke may be able to use as well to say, hey, information about a potential raid into Venezuela kind of fits that same definition. This particular type of information, this is a much more important and sensitive type of information involving a military action.

32:41So the government probably has a little bit better of a chance to say, yeah, that regulatory case at the Supreme Court, that's different than this particular situation because here we're really dealing with things that are of the utmost importance for the safety and welfare of our armed forces.

33:01Eric Talley:Eric, this, you know, it's a swap. Is it sort of a legal fiction? Because most people who are betting on Calci or Polymarket think they're gambling, don't they? One of the things that I like to ask my students when I teach this topic, June, is what is the difference between securities and derivatives trading, insurance and gambling? And when you start thinking about the very structure of this type of a contract, every single one of these contracts involve one person having to basically, you know, pay money or transfer value to another if certain facts happen, if certain events come about. And so the distinction between those three things is in many ways only a regulatory distinction.

33:47Where do the various markers or guardrails hold out. And it isn't even necessarily the case that these three or more categories can't overlap with one another. It's perfectly possible for something to be considered gambling and a swap at the same time. And clearly, Mr. Van Dyke in this case is going to say, well, I knew this was gambling, but I had no idea it was a swap. And that is actually a legal determination that we're only now discovering in real time. You shouldn't hold me accountable to a criminal prohibition that has remained unclear and is only going to get clarified by this case. And so this idea that this was only gambling and it looks a lot more like a, you know, a football bet on the San Francisco 49ers than it does a conventional Wall Street type of swap is an argument I'm certain.

34:39Mr. Van Dyke's lawyers are going to try to impress upon the court. And, you know, they at least stand a chance of convincing a court to be lenient in this case, even as they send a message to future traders on Polymarket and Calci that you better watch out that what you're doing could also involve the purchase and sale of swap contracts.

34:58Eric Talley:So, I mean, do you think that the CFTC is going to win this fight about, you know, we're the ones that are going to regulate these markets or, you know, the states that want to regulate? This is the big battle that's happening, you know, barely off stage with this case, right? That proponents of event-driven contracts, Calci, Polymarket, others, Robinhood, they very much want the designation of swaps for these types of contracts because what that means is that they can then be traded on national exchanges and international exchanges. It also means that federal law may at least to some extent preempt what state gambling commissioners and governors and legislatures can do if something is a, you know, essentially a federally recognized contract that can be traded on markets.

35:52That having been said, there still may be some interesting battles to fight about, A, whether these things ultimately are going to be deemed to be swaps. Certainly, if we got a conflicting opinion out of the Second Circuit in this case, then that's setting itself up for us Supreme Court review of the question. But in addition, there is still an open question about whether if the federal authorities say, we think of this as a swap and we're going to allow it, does that preclude state regulators from saying, well, it may be a swap, but we also think it is gambling and therefore our jurisdiction over gambling contracts gets applied as well and we can prohibit certain types of contracts, regardless of whether they're swaps or not.

36:39That's going to be an interesting question as well. The states have taken the position that they have fairly broad abilities to enforce their gambling prohibitions, regardless of what the CFTC or the federal government thinks they can do on securities markets or derivatives markets fronts. So this is a battle that in some ways probably should have happened before this criminal indictment got litigated. But the criminal indictment is in some ways, you know, driving the bus or at least a portion of the route that the bus is taking in determining exactly how event-driven contracts are going to be regulated for years to come.

37:19Eric Talley:I would bet. I would bet that there are a lot of people who have used classified information to make bets on Calci, particularly in this administration. But why this focus on this one guy? Was there a reason why his came up? It's an interesting observation. You know, the Trump administration has recently said it's going to, you know, offer for sale early access to Mr. Trump's truth social posts, presumably so people who have bought that early access can pay up and then can try to make money trading on markets. So there's a there's almost a sense in which that entire enterprise is sort of a winking invitation to trade on the basis of information that has not been broadly disseminated.

38:07Now, there's a question of whether you can even do that, even if you're the president, whether you're allowed to do that. And that's a legal question that's going to have to be answered. But it does sort of create a question about, well, why is it the case that the administration can sort of say, hey, we're going to just buy and sell this information at top levels, but our foot soldiers aren't allowed to trade on the information. You know, I guess part of the rationale is that on some level, I guess it is up to the federal government on how classified they want to treat various pieces of information.

38:38And foot soldiers probably aren't in a position where they're going to be able to make those determinations. You know, another one I think probably is much more about the real politic of it. As much as President Trump would love to monetize access to his own tweets. He is also continually rankled about various types of leaks in his administration, in which someone inside the room called someone and the information got out. The possibility of leaks finding their way into prediction market prices much more quickly than a chain of phone calls, I think maybe another thing that is worrying both the Trump administration and federal prosecutors.

39:19There is generally kind of a sense that around particularly the Venezuela operation, Mr. Van Dyke was not the only person trading in prediction market securities. He seems to be the poster child, but there are other potential prosecutions coming as well. I've generally been supportive of the idea of prediction markets because they do allow people to price out various types of contingencies. that are really helpful for purposes of writing insurance contracts, for understanding whether they should be hedging risks or understanding what their risks are, and so forth. The nature of where a lot of these prediction markets are going, however, can both help that market, but can also undermine that market.

40:03If you know something about an event that's coming up solely because you were lucky enough to overhear it in a room that the conversation was expected to be private, or even more so, So if you're one of the actors that can either cause this event to come about or not cause this event to come about, even at the margins, and you are allowed openly to trade on that information, that not only is not going to help the market to kind of reflect real risks that are going on, it can undermine the very activity of the market. Who wants to play a game that everyone knows is rigged? And if you are playing that game with insiders who are going to beat you at every turn, you are destined to lose money.

40:46So there really is, you know, for the purposes of these markets, I think there is a very strong social and private incentive of these markets to try to make sure that informed trading isn't running rampant around these markets or no one's going to want to play.

41:00Eric Talley:I can see these legal fights playing out for years to come. Thanks so much, Eric. That's Columbia Law School Professor Eric Talley. 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.bloomberg.com slash podcast slash law. And remember to tune into the Bloomberg Law Show every weeknight at 10 p.m. Wall Street time. I'm June Grosso, and you're listening to Bloomberg.

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