Trump's Ballroom, US Attorneys & Kalshi Loses

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15:04Anne Joseph O'Connell:The Department of Justice has repeatedly been trying to install loyalists to run U.S. attorney's offices around the country without Senate approval. The first well-known case was that of Trump's personal attorney, Alina Habba, to head the New Jersey U.S. Attorney's Office. And of course, there was Trump's personal attorney, Lindsey Halligan, to head the Eastern District of Virginia office. Halligan's disqualification prompted the dismissal of criminal cases against New York Attorney General Letitia James and former FBI Director James Comey, both on Trump's enemies list. Two circuit courts of appeals, the Second Circuit and the Ninth Circuit, ruled against the Justice Department's legal maneuvers to try to get around federal vacancy laws, finding that the acting heads of the U.S.

15:58Anne Joseph O'Connell:attorney's offices in Nevada and the Northern District of New York were properly disqualified. Joining me is Ann Joseph O 'Connell, a professor at Stanford Law School. Let's go back for a second and explain what the Trump administration has been trying to do repeatedly to get the people they want running U.S. attorney's offices across the country without going through the Senate confirmation process.

16:26Elliott Stein:They seem to have a specific pattern, though they have deviated from it in particular districts. And that specific pattern went as follows. Administration comes in, they turn to a provision called 28 U.S.C. 546, which allows the attorney general to pick anyone to serve as an acting U.S. attorney for 120 days. Usually what would happen at the end of the 120 days, the district court in that relevant district would extend that person until someone could be nominated and confirmed for the spot. But that's where it went a bit astray in this administration, where some of these district courts refused to extend the service of the person who had been put in for 120 days.

17:14Elliott Stein:So what the administration did next is typically a few days before the 120 days ran out, they would name that person under a different statute, the Federal Vacancies Reform Act of 1998. And they would give that person the title, the first assistant to the U.S. attorney of the relevant district. And they argued that under the Vacancies Act, that first assistant automatically became the acting U.S. attorney. or if that was not permitted, this idea of post-vacancy first assistance, if that was not permitted in the alternative, the first assistant could carry out all of the duties of the job through what's known as delegation.

17:59Elliott Stein:And that all generated a lot of litigation. Yeah.

18:04Anne Joseph O'Connell:So let's talk about the latest, which was the Second Circuit ruling about the top federal prosecutor in Albany. Explain their decision.

18:15Elliott Stein:Sure. So John Sercone followed this pattern. He was the interim U.S. attorney of the Northern District of New York, refused to extend him. He slotted in as the first assistant, uses the title the acting U.S. attorney, and litigation follows. And what this case decided, which was titled the in-ray of the grand jury subpoenas to the office of the New York State Attorney General, decided two issues. The first issue is whether the Federal Vacancies Reform Act of 1998 allows a post-vacancy first assistant to use the acting title. And then second, assuming that the answer to the first is no, whether the alternative of then delegating all of the functions of the job to him as a special assistant or first assistant, though not using the acting title, could work as an alternative.

19:09Elliott Stein:And the Second Circuit, in a split decision, there was a dissent, held that the answer to each of the questions was no, that the Vacancies Act did not allow a post-vacancy first assistant to use the acting title, and two in the alternative, he alone could not be delegated all of the functions of the job, leaving open the question whether the administration could delegate the functions of the U.S. attorney for the Northern District of New York to two or more people.

19:41Anne Joseph O'Connell:You're an expert in this area. Do you agree with the finding of the Second Circuit?

19:46Elliott Stein:I do not, which puts me in a bit of a strange position as someone who is not a fan of the administration, but is a fan of the Vacancies Act and the need for government to function. I do think the first ruling is a harder one for me. I do think this idea of a post-vacancy first assistant is difficult. And indeed, the Vacancies Act was enacted in 1998. And initially, the Office of counsel, which sits in the Justice Department and gives legal opinions and is seen to be pretty pro-executive, right, because it's giving legal opinions to the executive branch. Its initial take was that you could not have post-vacancy first assistance, which is the decision that the Second Circuit reached, the Ninth Circuit a few days before, and then months before that, the Third Circuit.

20:41Elliott Stein:But a few years later, OLC changed its mind and said, no, actually, post-vacancy first assistance are okay under the statute. The language is a bit of a mess, and the legislative history is a bit of a mess. And definitely in terms of the purpose of the statute, the idea was not to have this strategic maneuvering of putting people in to the first assistance slot after the vacancy to kind of then elevate them. The kind of purpose was that the default would be the person who was already there. So I think that first question really could go either way. It's the second question, which has larger ramifications and where I feel a bit more strongly about my disagreement.

21:23Elliott Stein:But we're going to have some answers soon, presumably, because the Ninth Circuit reached the same two answers. And the government has asked the Ninth Circuit to stay its decision while it files the cert petition, which it promises to do by early October.

21:40Anne Joseph O'Connell:So since you have agreement among the circuits so far, I mean, do you think the Supreme Court would take this case?

21:49Elliott Stein:So you have agreement on the first question, but not the second question. So until this administration, we didn't actually have an appellate ruling about post-vacancy first assistance. It was commonly done by administrations on the left and administrations on the right. But we actually didn't have an appellate decision either way. Now we do have three appellate decisions, second, third, and ninth, that say no post-vacancy first assistance. If that was the only question, no circuit split. Why would the court take it? Looks like the administration has lost. Though I would say sometimes the court does take cases where the government is the one who's lost in a variety of circuits.

22:29Elliott Stein:It's the second question where there is a circuit split, where the federal circuit years ago, after the Supreme Court decided a case called ARTHREX, which was about various constitutional law principles with regard to kind of who selects and who removes the patent trademark and appeals board judges. That case then kind of still had other issues to resolve once the court kind of said that the head of the PTO had to have control over these PTAB judges. And when it went back down to the lower courts, there was an acting head of the PTO exercising through delegation all of these duties of the vacant position.

23:11Elliott Stein:And this second issue was raised then about delegation under the Vacancies Act, whether you could delegate all the non-exclusive functions to one person. And the Federal Circuit said yes, relying on a different but related provision of the Vacancies Act. So now you have the Federal Circuit on one side saying you can't delegate exclusive duties, but anything that's non-exclusive and everyone thinks that almost everything is non-exclusive is OK. So you have the Federal Circuit and me and a few others on one side. And then you have the second, third, and ninth circuit in the U.S. attorney context, a different context on the other side.

23:50Elliott Stein:So I think that does tee up a nice circuit split for the court to resolve. And I think it also has really large implications. So I think it's important for the court to resolve. So if the court thinks the Vacancies Act does not allow this, as the second, third, and ninth circuits have found, I think Congress would want to legislate at least some sort of solution to help new administrations function.

24:11Anne Joseph O'Connell:I mean, doesn't that then enable an administration to bypass the advice and consent of the Senate? Yes.

24:19Elliott Stein:So nothing is ideal. And we've had actings since the start of the country in the late 18th century. The idea is we have to find the right balance. We have to find a balance that, of course, incentivizes the White House to nominate, incentivizes the Senate to confirm, but also allows the government to function while those procedures churn. So maybe a middle path might be, okay, we're going to allow delegation so long as the nomination is pending. Or we're going to allow delegation for a certain number of days at the start of an administration because we know it takes time to get those nominations in.

25:02Elliott Stein:And then you're going to have, you know, less ability to do these things. Because right now we're coming up on the two-year mark and we still have these U.S. attorney offices, you know, working kind of in non-traditional ways. Now, part of that problem, I also have to say, the administration would say, and again, I'm not a defender of the administration, but the administration might say, well, let's look at some of these districts where we don't have confirmed U.S. attorneys. Part of the reason we don't have confirmed U.S. attorneys is we still have a blue slip process that's in place. And so if you have a district in a state where the senators are not at the same party as the White House, you're not going to get confirmed people in.

25:44Elliott Stein:And so you could, as this administration has pushed, try to remove the blue slip process. I think the senators, even Republican senators, have held fast even now to that tradition. And to just look back one administration, President Biden, at the end of his first year, only had a third of the U.S. attorney spots filled by his confirmed picks. That was actually a Bloomberg law analysis that did that at the end of his first year. So it's trying to find a balance. I think you also have to think about the level of position. I mean, U.S. attorneys are reviewed by the attorney general. And so maybe we should have more concern about who is the attorney general and less openness to having an acting attorney general than maybe people who serve below that higher position.

26:30Anne Joseph O'Connell:It seems like some courts are allowing these prosecutors to remain in their positions in the U.S. Attorney's Office as the litigation plays out. But then doesn't that open up the office to challenges of judgments or verdicts that are reached if it's finally determined that that prosecutor shouldn't have been in charge?

26:55Elliott Stein:We are seeing, so I said, oh, the Second, the Third, the Ninth Circuit, they've all agreed on post-vacancy first assistance. They've all agreed delegation is not allowed to one person. They've actually differed in what to do in the immediate cases that raised those challenges. So in the Second Circuit case, that involves subpoenas, and the Second Circuit held that those subpoenas should be quashed. But in other cases, they said, well, these issues have come up on collateral review, and only certain issues can be raised on collateral review. And so we're not going to change, say, whether the indictment can go forward.

27:35Elliott Stein:And then that then leaves the question, if in fact those rulings are upheld by the Supremes, whether those indictments could then be thrown out or was the person just one of many who signed the indictment? So the indictment, if it kind of goes all the way through conviction, that conviction could still stand. But no matter what, there's going to be litigation on what the remedies should be in all of these individual cases. And you've got to know the Second Circuit case was a bit unusual because it involves subpoenas to the attorney general of the state. But in these other cases involving kind of individual criminal defendants, each of them is like raising these claims.

28:14Elliott Stein:And so you're going to get all of this mess to untangle.

28:18Anne Joseph O'Connell:A lot more litigation ahead, Ben. Thanks so much, Anne. That's Professor Anne Joseph O 'Connell of Stanford Law School. Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done.

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29:30Traci Feit Love:It was an assassination style killing and everybody saw it.

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29:59Anne Joseph O'Connell:Are sports prediction markets closer to casinos or to Wall Street? That question is being teed up for Supreme Court review. Calsi and the prediction markets took a hit as the Ninth Circuit Court of Appeals is allowing Nevada gaming officials to continue cracking down on the sports prediction markets as if they're unlicensed sportsbooks. A three-judge panel composed of all Trump appointees said that Congress didn't mean to make the CFTC the gambling police through an amendment to federal commodity law. The opinion differed starkly from an April one from the Third Circuit, which opens up a circuit split that's likely to be decided by the Supreme Court.

30:47Anne Joseph O'Connell:My guest is Bloomberg Intelligence Senior Litigation Analyst Elliot Stein. Elliot, explain the issue in these cases.

30:54Traci Feit Love:The issue is whether event contracts based on sporting events are derivatives that should be regulated by the CFTC, which is what Cal, Xi and Polymarket and the CFTC itself want, as opposed to the states and gambling organizations, which say that these event contracts really are gambling and should be regulated by the states. And if states want to ban them, the states should be allowed to do that.

31:20Anne Joseph O'Connell:Okay, so now we had the Ninth Circuit, and this was a panel of Trump appointees. And tell us what they ruled last week.

31:28Traci Feit Love:Right. So three Trump appointees basically ruled for the state of Nevada. They affirmed the lower court's decision that would allow Nevada to preliminarily enjoy and calcary from offering sports event contracts and potentially other event contracts like election contracts in the state of Nevada. The Ninth Circuit affirmed the trial court and said that these event contracts don't meet the definition of swaps under the Commodity Exchange Act. The Commodity Exchange Act gives the CFTC exclusive jurisdiction over swaps that are traded on DCM's designated contract markets. And since they're not swaps, they don't fall under the CFTC's exclusive jurisdiction, and therefore they fall to the states to regulate as gambling.

32:11Anne Joseph O'Connell:So Judge Ryan Nelson said that sports event contracts are in reality sports bets is not just an I know it when I see it. Rather, everyone, including Calci, knows it when they see it.

32:25Traci Feit Love:Part of the problem is that in the past, Calci has sort of advertised this as a way to bet or gamble across all 50 states legally. You know, Calci's argument, though, however, is that the regulation should follow the instrument, not necessarily the underlying risk. And so the underlying risk may be the same, but when you have an event contract, you have an exchange that essentially offers it, and then you have two sides that are trading that are counterparties to each other. The exchange makes money regardless of the trade, just like in a normal financial contract. Whereas when you have a traditional sports book, you have a bookie, and they're selling directly to the consumer.

33:09Traci Feit Love:The consumer can't get in and out of that bet like you could with an event contract.

33:16Anne Joseph O'Connell:So now this contradicts the Third Circuit. Tell us what the Third Circuit had decided.

33:22Traci Feit Love:Right. So the Third Circuit decided back in April in a 2-1 decision. Again, all judges were appointed by Republicans. This is one of those issues that I don't think really fits neatly along ideological lines. The Third Circuit ruled for Calci and said, yes, these event contracts do meet the definition of swaps. And the exclusive jurisdiction language of the Commodity Exchange Act preempts any states from regulating these products.

33:49Anne Joseph O'Connell:So split in the circuits. And is the CFTC going to ask for a Supreme Court review?

33:55Traci Feit Love:So actually, more likely what's going to happen immediately is that in the Third Circuit case you just mentioned, the state of New Jersey was the losing party there. They have until September 3rd, which is in two days, to ask the Supreme Court to petition the Supreme Court for cert. That deadline's already been extended a couple of times. It was initially July, then it was pushed to August, then it was pushed to September. I haven't seen them ask for another extension, so I'm expecting a cert petition from the state of New Jersey by September 3rd.

34:23Anne Joseph O'Connell:Yeah, because they said they're going to. Now, so we also have the Fourth and the Sixth Circuit also heard arguments. Might the Supreme Court wait until those decisions come in?

34:35Traci Feit Love:I don't think they need to. You already have a split. By the way, we also have we're waiting for a decision from the Massachusetts Supreme Court on the same issue. We have numerous trial court rulings, the majority of which have gone in the favor of the states. I think, you know, this is an issue that begs for clarity at this point. So I don't know why the Supreme Court would wait any longer if the state of New Jersey petitions for cert.

35:02Anne Joseph O'Connell:So what is the position of the Trump CFTC? I mean, what's the framework? How would they regulate these prediction markets?

35:11Traci Feit Love:Right. They've come out in favor of Cal-she and the prediction markets, and they say that the statute is clear. These event contracts should be treated as swaps. There should be one national regulator because this is a national market, and the CFTC should regulate it. They have proposed a rule as well to clarify some issues that were a little unclear in the current rule, which goes back, you know, more than a dozen years right after Dodd-Frank. And so the CFTC has come out in favor of the prediction markets, and it's likely to finalize its rulemaking potentially by the end of the year as well.

35:47Anne Joseph O'Connell:Trump has family ties to this industry, doesn't he? Yes.

35:51Traci Feit Love:The short answer is yes. I believe his sons are either advisors and or investors in, I believe, Calci and or Polymarket. And I think there was news this morning that one of Don Jr.'s investment groups is taking an additional stake in, I forget exactly which company, it may have been Polymarket. What has the CFTC been doing to supervise or regulate the prediction markets? Yeah, I mean, we have seen insider trading cases brought, some by Calci, I believe some by the CFTC. And they have promulgated this rulemaking to clarify what they think are some ambiguities in the CFTC's previous rule.

36:31Anne Joseph O'Connell:I mean, do you think there would be tighter regulation under the states? And that's why Calci and the prediction markets don't want to be regulated by the states?

36:39Traci Feit Love:I don't think that's the issue. Their position is, you know, we should be regulated, but the proper regulator should be the CFTC because these products really are national products, just like other exchanges are. And the CFTC is the natural regulator for that. And it has all the mechanisms and surveillance apparatus in order to regulate these markets.

37:01Anne Joseph O'Connell:In your BI note, you think that if this goes to the Supreme Court, the Supreme Court would rule in favor of Calci. Why?

37:09Traci Feit Love:It's definitely a close call, which is evident from all the different rulings we've seen so far and from the circuit split that we now have. I just think Cal Xi and the CFTC have the better statutory argument here. I think the Commodity Exchange Act has a very broad definition of swap. I think the distinction that the Ninth Circuit made, for example, between events and outcomes is a strained reading and doesn't really make sense. and it conflicts with the D.C. Circuit's ruling from a couple years ago that allowed election contracts to go forward. And I think the statute is clear on the exclusive jurisdiction language as well.

37:45Traci Feit Love:And even the Ninth Circuit said that the CFTC would have exclusive jurisdiction and preempt the states from regulating this if these were considered swaps. It just disagreed on the swaps issue.

37:58Anne Joseph O'Connell:Calci has been in all these. I don't know how much it's spent on legal fees already. I'm sure quite a bit. So why is it so important to the prediction markets that they be regulated by the CFTC rather than the states? I mean, bottom line, forget the legal stuff.

38:13Traci Feit Love:Right. They don't want to have 50 different regulators, essentially, which is what's happening now because they're getting sued piecemeal by different states. And so these contracts that they're offering are really designed to be national products. Right. It shouldn't be that you can offer a contract in one state, like in New Jersey, where the courts have allowed it so far. But in Nevada, you can't. And so it becomes – imagine if you could buy certain stocks in one state but not in another, for example, right? It's a cleaner regulatory regime for them to have one federal regulator as opposed to 50 state regulators.

38:52Anne Joseph O'Connell:I mean gambling is different in states, isn't it?

38:55Traci Feit Love:Right. But that's – again, it's more like a consumer transaction where you have a bookkeeper who's selling a bet to a consumer who's buying it. And you can't trade in and out of it, which you could do with event contracts.

39:06Anne Joseph O'Connell:These prediction markets are growing and growing. I mean, what kind of money are we talking about?

39:12Traci Feit Love:Well, BI did a deep dive just a couple of months ago and thought that the overall market for prediction markets could grow to about a trillion dollars by 2030.

39:21Anne Joseph O'Connell:And before I let you go, we have to mention that Kalshi has barred former Congressman George Santos for life.

39:30Traci Feit Love:They've come down on a few politicians who essentially are betting on their own races. And this goes, again, to the proposed rulemaking, right? They don't want to have contracts that are easily susceptible to manipulation. And if you are a politician or you're someone like George Santos, who is betting on a contract as to whether he'll attend the State of the Union, those are too easy to manipulate. And so I think that is an issue that we'll see a lot of going forward. What types of contracts are too easy to manipulate? In the sports context, the proposed rulemaking addresses that, saying that whether a player will be injured, can't be the subject of a contract because it's too easy to manipulate.

40:11Traci Feit Love:Whether a referee makes a certain call is the same problem.

40:15Anne Joseph O'Connell:Okay, thanks, Elliot. And we'll watch to see how those two other circuit courts decide. That's Bloomberg Intelligence Senior Litigation Analyst Elliot Stein. 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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42:04Elliott Stein:Early morning on a Manhattan sidewalk, a shooting caught on surveillance video. It was an assassination-style killing, and everybody saw it. Now, as Luigi Mangione prepares to stand trial for the murder of UnitedHealthcare CEO Brian Thompson, which he denies, a new podcast series from ABC Audio and 2020 goes inside this captivating case. I'm ABC News legal analyst Brian Buckmeyer. Listen to Burden of Proof, Luigi Mangione, wherever you get your podcasts.