Judge Tosses Cases Against Comey and James & Insider Trading Ring

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1:46David Super:This is Bloomberg Law with June Grosso from Bloomberg Radio. I'm grateful that the court ended the case against me, which was a prosecution based on malevolence and incompetence, and a reflection of what the Department of Justice has become under Donald Trump, which is heartbreaking. But I was also inspired by the example of the career people who refuse to be part of this travesty. I know that Donald Trump will probably come after me again, and my attitude's gonna be the same. I'm innocent, I am not afraid, and I believe in an independent federal judiciary. Former FBI Director James Comey took a victory lap of sorts after a federal judge threw out the criminal charges against him and New York Attorney General Letitia James, ruling that the prosecutor who brought the cases had been illegally appointed.

2:42Lindsay Halligan was abruptly installed as the U.S. Attorney for the Eastern District of Virginia in September after her predecessor resigned under pressure to bring charges against Comey and James. Federal Judge Cameron McGowan-Curry concluded that the attorney general's attempt to install Halligan as interim U.S. attorney was invalid. She dismissed the charges against Comey and James without prejudice, meaning that prosecutors may be able to refile the cases. In a statement, James said, I am heartened by today's victory and grateful for the prayers and support I've received from around the country.

3:22I remain fearless in the face of these baseless charges as I continue fighting for New Yorkers every single day. The White House says it will appeal the decision. Here's Press Secretary Caroline Levitt. I know there was a judge who is clearly trying to shield Letitia James and James Comey from receiving accountability. and that's why they took this unprecedented action to throw away the indictments against these two individuals. But the Department of Justice will be appealing very soon and it is our position that Lindsey Halligan is extremely qualified for this position but more importantly was legally appointed to it.

3:59Joining me is Constitutional Law Professor David Super of Georgetown Law. Explain why this judge and this is the judge from South Carolina who was just considering the Lindsay Halligan appointment. Explain why she dismissed the cases.

4:14David Super:She dismissed the cases against Mr. Comey and Ms. James because she found that the U.S. attorney was not properly appointed. And since there was no one else in the room with the grand jury except Ms. Halligan, if Ms. Halligan had no powers, then no one presented the case to the grand jury and it has to be dismissed in the judge's view. So attorney generals have authority to name an interim U.S. attorney who can serve for 120 days. And the judge said that that 120 days began when Halligan's predecessor, Eric Siebert, was appointed on January 21st. And when the clock expired on May 21st, so did the attorney general's appointment authority.

5:01Is that a controversial interpretation?

5:04David Super:It is controversial. The statute isn't terribly well written, but I think she follows most of the rules of statutory interpretation. And she says if the attorney general can just keep reappointing people for additional 120 day slots, then why would the president ever bother to go to Congress for confirmations? confirmations, and why is the statute even mentioned district courts, since presumably the Attorney General would take that power if it was there and would never let it fall to the district court. That's part of her reasoning. The other part of it that I think is also persuasive is that Congress changed this rule for about a year and then went back.

5:50David Super:So Congress had an arrangement where the attorney general could appoint people for as long as she wanted. And they thought about it for a year and they said, no, thanks. We don't want any more of that. So the judge asked quite reasonably if Congress had allowed the arrangement that the Justice Department applies today and they changed the law to end it, why aren't we honoring Congress's decision. So there have been judges in New Jersey and in Los Angeles who've come to the same conclusion about this 120-day rule. And the Alina Habba appointment to lead the New Jersey U.S. Attorney's Office is before the Third Circuit.

6:35If the Third Circuit comes down with a decision saying, no, this is okay, you can do this, does that have any effect on what happens here in the Fourth Circuit?

6:45David Super:The Third Circuit doesn't have jurisdiction over this court. This court's appeals go to the Fourth Circuit. Obviously, a federal circuit court's views are influential, but the judge here does not seem to think this is a close case, and I tend to agree with her. So I think even if the administration wins the Elena Hobbit case, they're still going to have a real challenge on appeal in this case. The substantive issues about vindictive prosecution and about what was said in the grand jury room by Lindsay Halligan that are before Judge Nakmanoff, does that go away now? Is that over? If the government agreed to drop the case, then that stuff might be over.

7:33David Super:And on the principle that discretion is the better part of valor, that would be the smart thing for the administration to do. But given that the president has been tweeting instructions to get these people now, now, now, I have trouble believing that will happen. So I think that the vindictive prosecution matter is likely to go to decision because the government will appeal this thing. And if this decision is overturned, then whether it's a vindictive prosecution would come to the fore again. So now they are going to appeal, no surprise. The White House spokesperson said the facts of the indictments against Comey and James have not changed, and this will not be the final word on this matter.

8:19So let's say they take it to the Fourth Circuit, and the Fourth Circuit affirms what the judge ruled here. So then they would go to the Supreme Court.

8:27David Super:They would, and I'm sure this judge understands that and has peppered her opinion with citations to Justice Scalia, Justice Thomas, Justice Gorsuch, all the lions of conservative statutory interpretation. So the Supreme Court can reverse her only by reversing itself. And I believe she also cited what was a controversial decision by Florida Judge Eileen Cannon dismissing the classified documents case against President Trump. She did. She did. I think that's a little gratuitous and less central to us. But she's got some basic statutory interpretation problems here. And she is hewing very closely to the procedures the Supreme Court has said and hardly takes a move without citing a Supreme Court statutory interpretation case.

9:23David Super:I teach statutory interpretation and I will be likely assigning this case because it's such a nice summary of all the moves you're supposed to make. Next stop, Fourth Circuit, I'm sure. Thanks so much, David. That's Professor David Super of Georgetown Law. Coming up next on the Bloomberg Law Show, a global insider trading case that sounds like a movie script. I'm June Grosso, and you're listening to Bloomberg. The thing about AI for business, it may not automatically fit the way your business works. At IBM, we've seen this firsthand. But by embedding AI across HR, IT, and procurement processes, we've reduced costs by millions slash repetitive tasks and freed thousands of hours for strategic work.

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12:09Apple Card is issued by Goldman Sachs Bank USA, Salt Lake City Branch. Terms and more at applecard.com. The global insider trading ring allegedly started at a meal at a Paris restaurant owned by an ex-Merrill Lynch investment banker. With members using burner phones, coded language, and encrypted messaging apps to conceal its activity. And payments for insider tips being made using cash transfers, shell companies, fake invoices, and even a plastic bag stuffed with 100 ,000 euros in a Vienna cafe. And prosecutors say the ring raked in more than 17 million dollars from a staggering number of insider tips on more than 15 deal targets.

12:55My guest is former federal prosecutor Stephen Frank, a partner at Quinn Emanuel. This global insider trading ring sounds a little like a movie script at some points. It does sound like a movie script, and that's because it is a lot like a movie script. What this case is about really is an incredibly sophisticated, long-running, worldwide insider trading scheme involving insiders at a number of different companies. And they haven't actually been charged yet, along with a web of traders all around the world who are exchanging messages and exchanging inside information in incredibly difficult to detect ways, sometimes in person, sometimes over encrypted apps, often using burner phones with SIM cards that they are swapping regularly.

13:51and laundering the funds through complicated transactions, sometimes in cash, sometimes using a variety of bank accounts, sometimes sending cash through the mail, often disguised as gifts or other types of things. And so it's been able to survive all these years, in part because there are so many different traders involved. and the information is being dispersed so far and wide that it's incredibly difficult to trace. Did it go for almost 10 years? Nothing like that. I mean, it's been going for a number of years. I think it's hard to discern exactly how long it's been going on. We can sort of trace when the initial contact between certain of the players happened, but I don't think we know the initial origins of the entire scheme.

14:46Were there specific, you know, types of trades that they shared inside information on or was it a variety? It was a variety. It was in different industries. It was in all different types of companies, some that trade in the U.S., some that don't. And that's what also made it so difficult to detect, but also kind of what gives it away. Right. It's clear that there is no one insider at any one company who's sharing this information. It's clear that there are insiders at a variety of different companies who are sharing information. That's almost unprecedented in these types of schemes. Insider trading traditionally was a tip passed over a glass of wine or a beer at a country club or on a golf course in a single company at a single time.

15:38It's unusual to have cases where there's different iterations of information being passed over time. It's still far more unusual to have so many different companies where information is being passed and over such an extended period of time with so many different traders involved. That's what's really quite fascinating about this scheme. Is there any indication how the authorities first got wind of this? Well, I was involved in the original investigation and then handed it off when I left the government to go into private practice. So the way that the authorities first got involved in this, sort of first figured out that something was amiss, is simply by seeing the repeated trading in certain companies.

16:25There was one company in particular where various subsidiaries of the company were involved in transactions over time, and there was trading ahead of those transactions that was suspicious. But really what happened was you had certain individuals who kept popping up on the radar of law enforcement and of international securities regulators. And law enforcement and regulators looked closely at those individuals, looked closely at their transactions, their financial transactions, and put this together over many years of investigation through just painstaking investigative work. I mean, the amount of investigation that goes into an indictment like this is pretty incredible.

17:07And it involves sophisticated techniques like, you know, search warrants for electronic accounts or email accounts, for Facebook accounts or iCloud accounts. and then sifting through all of that information in a painstaking way, much of it not in English, and putting little, little pieces together over time. But it was really the result of incredible collaboration between U.S. law enforcement and regulators in the United States, as well as regulators and law enforcement in England, in France, and in other countries. So I was going to ask, you know, how much that complicates the investigation when you're dealing, you know, with other countries and with things happening abroad.

17:56It makes it incredibly complicated. And that's why these schemes are able to persist, because they know that and they take advantage of that. No one country can put a case like this together all by itself. It really requires collaboration among different law enforcement and regulatory authorities with different mandates, different evidentiary rules, different procedural rules, and then figuring out how to share that information in ways that it can be used by different countries. I mean, even just the fact that there are different time zones involved makes things complicated and really requires people to work off hours, to work around the clock, to travel internationally, just to gather the bits and pieces of evidence that's required to put a case like this together.

18:42It's extremely complicated. Is there competition? I read that French investigators have been conducting a parallel investigation for years. Is there competition among the regulators of the different countries to bring the indictments first? That's a great question. There is some of that. And there's certainly a desire by regulators and law enforcement in each country to be the first to put the biggest case together. But ultimately, there's also a recognition that this is a big enough scheme. It's sprawling enough that there's something in it for everybody. And there's more than any one country can do on its own.

19:22So it's ultimately figuring out what makes the most sense in dividing up the pie. One of the things that U.S. law enforcement has as an advantage is that sentencing here for these types of crimes is substantially greater than it is in most other countries and in Europe in particular. And so ultimately, what all regulators, whatever country they're in, want to do is take down these types of schemes that are really taking advantage of innocent investors and making markets an unlevel playing field. Right. I mean, ultimately, if investors don't have confidence in the securities markets, they're not going to invest.

20:06And that's true in the United States, but it's also true in France and it's also true in England. So ultimately, their regulators realize that if they're able to cooperate and come down with a heavy hand on schemes like this and make it clear that however much profit insider trading might generate in the short term, in the long run, it's going to put you behind bars for an extended period of time. That's in everybody's best interest because that protects markets here, but it also protects markets over there. When administrations change and priorities of administrations change in enforcement actions, do some investigations fall by the wayside?

20:42And why did this one not fall by the wayside? Well, a couple of things. I'll say this one was in a pretty advanced state by the time the administrations changed over. But also, it's pretty clear that in this administration, as in past administrations, security fraud and insider trading remains a point of focus. So if you look at the statistics over the past year of this administration, what you'll see is that while white collar crime enforcement in general is down, there are fewer cases being brought. And on the SEC side as well, there are fewer enforcement actions being brought, particularly against corporate actors.

21:29Securities fraud, and in particular insider trading cases, have held steady and perhaps even trended up a little bit. And that's because I think Chairman Atkins and others in the administration see crimes against the markets and crimes against individual investors as crimes they really need to pursue because of the reasons I just said, because it undermines confidence in the markets. And one thing that this administration has in common with prior administrations is they want the markets to remain strong and investors to have confidence in them. And that's why we've seen pretty rigorous enforcement and a number of cases being brought against insider trading schemes over the past year.

22:09And not every scheme, obviously, is as complicated as this one. This one is really unprecedented in its sweep and sophistication. But we've seen cases across the United States really against just ordinary insider trading schemes, the types of one-off schemes I was talking about a moment ago where information is being passed on a cocktail napkin across a bar or even insiders trading in their own companies, which is the least sophisticated kind of scheme. finding out information that's not public that can move a stock in your own company and trading on it either in your own account or in the account of a friend or a relative.

22:46Those are relatively easy to discover and they're surprisingly commonplace. It sounds like this might be a tough case to try to put this all together for a jury. What do you think is the strongest evidence that the prosecution has? Well, if you read the superseding indictment in this case, The prosecution has really put together a pretty compelling case replete with very devastating text messages, really text messages that are going to be difficult for the defendants to explain, in which they're speaking in code, but it's a barely disguised code. They're talking about swapping phones and SIM cards as socks and shoes.

23:27They're talking about money as greens. They talk about financial transactions sometimes as meat put in a refrigerator. It's almost comical the way that they use this code. But ultimately, when you put all of these conversations together, it really becomes pretty compelling. And then when you combine those with the cash, the financial transactions and the stock trading, it really becomes overwhelming. What's interesting about this indictment is it was unsealed, even though many of these players have not yet been arrested. So one individual was arrested and extradited to the United States and other individuals in Singapore and is fighting extradition.

24:07Other individuals have been charged and named, but not yet arrested or extradited to the United States. Now, those individuals are going to find their ability to travel freely, severely constrained, and many of them probably will be picked up over time. But that doesn't mean that the evidence about them doesn't come in because this is charged as a conspiracy. And in the U.S. legal system, evidence of communications among conspirators in furtherance of a conspiratorial aim can all come in. So all of this evidence about all of the different players in this conspiracy is going to be admissible for prosecutors if and when this proceeds to trial.

24:45The prosecution has a cooperator. How important is his testimony? It's always important, particularly when you have these types of coded communications, for a cooperating witness to be able to get up on the stand and say, this is what we were talking about. this is the terminology that we used. These are the types of techniques that we used to hide our communications, make them more difficult to discover. The most compelling thing, though, about any cooperating witness is the fact that he's going to get up there in all likelihood and say, I committed this crime. I was a part of this scheme. This was a conspiracy and the defendant was in it with me.

25:22That's really devastating evidence that's very difficult to undermine, particularly when that individual has accepted responsibility for their own crimes. Do you envision the prosecution sort of presenting this like a movie, like here we are at the French restaurant and blah, blah, blah, blah, blah? It is pretty cinematic. So if they're smart about it, and they are, and I'm sure they'll do this, they will present it in that way. They will have, first of all, these communications are so devastating, they're going to be put up on a screen. And even though there's no audio in these communications, there wasn't a wiretap involved in this case.

25:56you'll nevertheless be able to see these communications and play out these transactions almost in real time. And then you'll have it narrated by somebody like this cooperating witness who's going to be able to say, I was there and I was passing this cash, you know, in a paper bag or whatever the case may be. And it's really captivating for jurors. I've been on cases similar to this before where jurors have said afterwards that they were really just so enthralled by the presentation of the evidence, because it really is, even though these are just financial transactions, the level of greed involved and the lengths that people will go to to disguise these transactions is pretty incredible.