This is Bloomberg Law with June Graasso

from Bloomberg Radio.

>> 13 environmental groups are suing the

Trump administration, asking federal

courts in California and Washington

State to throw out the administration's

deletion of the Endangered Species Act's

definition of harm. The deletion allows

developers and private land owners to

modify or even destroy endangered

species habitat without it being

considered harm to the species. Even

though the destruction of their habitat

is the main reason that species become

endangered, an attorney at the Western

Environmental Law Center representing

the plaintiffs, Pete Frost, said in a

statement, "No longer protecting where

grizzlies, salmon, and owls live will

make them go extinct. We're hopeful the

court will clarify what the Endangered

Species Act has always meant." Joining

me is an expert in environmental law,

Pat Parento, a professor at the Vermont

Law and Graduate School. Pat, start by

explaining what the Trump administration

has done here to the Endangered Species

Act.

>> Well, they have just published a final

rule rescending what's called the harm

rule under the Endangered Species Act,

which has been on the books for over 50

years. was first enacted in 1975

in the Gerald Ford administration and

it's been upheld by the US Supreme Court

in 1995 in the case Sweetome versus

Babbot. So now the Trump administration

is saying forget about all that. We

hereby resend the harm rule and oh by

the way we're not going to propose a

replacement. We're just going to say we

don't need a harm rule at all. We don't

need to define the word harm which is in

the statute, right? We don't even need

to do that. So, we're just going to

repeal it. We're not going to comply

with NEPA. We're not going to do an

environmental impact statement. We're

not going to comply with the Endangered

Species Act itself, which requires

consultation. It's internal consultation

before you take an action like this and

produce what's called a biological

opinion to demonstrate that the action

that you're taking will not jeopardize

endangered species or result in the

adverse modification of their critical

habitat.

So, it's crazy on stilts what we're

talking about. You can boil it down to

this. The Trump administration has

hereby decreed that destroying the

habitat of endangered species is not

harmful.

>> The administration claims that this

change would reduce permitting

requirements and compliance costs for

farmers, land owners, and energy

producers.

>> Right. without producing real data to

show that this rule is responsible for

what I guess you would call it

unreasonable cost. I mean it's certainly

true that every law that Congress enacts

is going to impose certain obligations

on people that will in turn require the

expenditure of some money. That's what

regulation is all about. The money being

spent is for a good purpose, a public

purpose, right? You can argue about how

important saving endangered species is.

If you ask the American people, they

will tell you it's really important.

That has been a consistent polling

result over the life of the Endangered

Species Act. From 1973 to today, the

amount of public support for this law is

in the 90% range. Okay. So, yeah. Do

compliance with laws require money? Sure

they do.

>> And is it true that the loss of habitat

causes more species to go extinct than

any other single factor? Yes, it is the

leading cause of species extinction in

the US and globally. The other thing

about it is the Endangered Species Act

is all about habitat. I mean, the very

stated purpose of the law is to conserve

the ecosystems

upon which these species depend. So,

right from the get-go in 1973,

this is really kind of amazing for

Congress to be this ecologically

literate. In 1973, they were talking

about ecosystems. They were talking

about habitat. That was the whole point

of the law. Congress recognized that

loss of habitat was driving species to

extinction. And unless it was both

stopped or arrested and mitigated, more

and more of the species would go

extinct. Right now, 13 environmental

groups are suing in two different

federal courts, one in California and

Washington State. What is the basis of

of their lawsuit?

>> Multiple grounds for all three. There's

three lawsuits now, and there's more in

the works, by the way. They start by

saying the Sweet Home decision in 1995

is still the law of the land. It has not

been overturned. The Trump

administration is clearly aiming to get

this issue back in front of the Supreme

Court in their hope that the Supreme

Court will reverse its decision in Sweet

Home and basically adopt the disscent in

Sweet Home written by the late Justice

Antinine Scalia. I mean, what we're

seeing is almost a resurrection of

Scalia. You know, there's an echo here,

right? Because this is the same strategy

that Lee Zeldon is pursuing under the

Clean Air Act to repeal the endangerment

finding. Once again, EPA, the Trump

administration is saying the Supreme

Court got it wrong in Massachusetts

versus EPA. We don't have authority to

regulate greenhouse gases, and we're

going to get that issue back in front of

the court so they can overturn Mass

versus EPA. Same thing is happening here

with the harm rule. They want to get

this case back to the court in the hopes

that they can get a decision overturning

the sweet home decision. The reason they

believe they have a shot at this, of

course, is because the Supreme Court has

now overturned the Chevron doctrine with

deference to agency interpretations.

It's true that the Sweet Home decision

was based on Chevron because at that

time 1995

that was the framework that the Supreme

Court was using to evaluate statutory

terms that were ambiguous. Right? And

the principle of of Chevron was if the

words of a statute are ambiguous, and I

suppose some might say the word harm is

ambiguous, although the dictionary makes

it crystal clear that it it includes

anything that hurts something. You know,

the interpretation that harm does

involve destruction of habitat, which

causes, by the way, actual injury. The

rule, I didn't really explain it. rule

says habitat modification or destruction

that actually injures or kills a

species. So the test is approximate

cause test. That's what the Supreme

Court said in in Sweet Home. So you know

that it's not an easy test to meet. You

really have to be able to say the

cutting of these trees which will take

down nests of the spotted owl will lead

to actual injury of an identifiable owl.

So the test is stringent, okay? It's not

loose at all, but it is a vital test

because if you don't save nesting

habitat, breeding habitat of species,

guess what? They go extinct.

You spoke about the late Justice Scalia

and the Interior Department said in a

statement that it was reversing a

regulatory overreach not authorized by

Congress and will defend its authority

to honor the law's plain text. Are they

basically saying, "Yeah, we're going to

follow what Justice Scalia said."

>> Oh, yeah. They've adopted the Scalia

descent in Sweet Home Locktock and

Barrel. But here's two problems with

that. number one in Justice Stevens

majority opinion in Sweet Home, which by

the way was six to3 with the late

Justice Okconor filing a very strong

concurring opinion and taking on the

Scalia descent wholeheartedly, shall we

say. So in Justice Stevens majority

opinion in Sweet Home, a majority of the

court agreed that the Scalia

interpretation was not supported by the

text of the law or the context of the

law or the history of the law or the

purpose of the law. In other words, it

was roundly rejected. And they weren't

relying on Chevron for that. They were

taking on Scalia's interpretation and

saying it is not the best reading. They

didn't use those words in those days.

That's what the court will use today is

the best reading test for interpreting a

statute. Right? But the point is again

the majority in Sweden

now wants to adopt. The second problem

here with what Scalia was saying is that

in 1982,

Congress amended the Endangered Species

Act to create what's called the

incidental take permit program. Okay? I

testified in support of that amendment,

by the way. But the point is that

amendment was addressing the harm rule.

It was addressing the fact that the

Ninth Circuit in a very famous case, the

Palea case out of Hawaii involving this

endangered bird on Mono Kia in Hawaii,

the Ninth Circuit had said, "Yeah, the

the harm rule is the law." And yes,

destroying the habitat of the pila is

unlawful under the Endangered Species

Act. And the court, the Ninth Circuit,

ordered the state of Hawaii to remove

the exotic sheep that were being

imported for hunters to shoot because it

was destroying the habitat. So, Congress

was reacting to a specific court

decision, applying the harm rule, and

instead of overturning the harm rule,

which is what the Trump administration

is saying Congress would have done if it

had the chance to do it, instead of

that, Congress basically codified the

harm rule by saying you need a permit

and you need a permit for habitat

destruction or modification. And oh by

the way, to get the permit, you have to

prepare a habitat conservation plan to

offset the impact on the habitat from

your activity. So there you go. You have

two really strong arguments against what

the Trump administration is trying to do

in resurrecting the late Justice

Scalia's descent in Sweet Home and

making it the law of the land. Well,

many of the conservatives on this

supermajority

revere Justice Scalia. That's one point.

And another is that this last term, they

reversed two long-standing decisions.

One, Humphrey's executive, more than 90

years old, and a 25year-old campaign

finance rule, plus effectively reversing

the Voting Rights Act. So, do you have

any confidence that they will follow

precedent?

>> Well, we know of course that uh the

court will do what the court will do

with five votes. I think this one will

be a closer call. I don't rule out, of

course, the prospect or the danger that

the Supreme Court might do what Trump is

asking it to do. You can't rule that

out. But here's the thing. Justice

Roberts in the Loper Bright case which

overturned the Chevron doctrine said

very clearly, "Our overturning Chevron

does not mean that prior decisions of

this court that relied on Chevron are

not still the law. They are still the

law unless and until of course the

Supreme Court changes the law." So the

argument that loper bright automatically

means Trump wins is wrong. It's just

flat wrong on the face of of the

Loperbrite decision. It's certainly true

that if this case gets to the Supreme

Court, there's a risk that it'll do the

wrong thing from the standpoint of

protecting endangered species. I would

be naive to the extreme to think that

you know the Supreme Court is bleeding

over the fate of endangered species. But

on the other hand, this principle which

is called statutory starry decisis when

the Supreme Court has said that a

statute means something specifically

that is a strong precedent. So it

doesn't get overruled with the snap of a

finger or the fact that there's a new

administration in town who doesn't like

the prior ruling. So that's not enough

to get that victory that Trump is hoping

for in this case.

>> I'll ask you the question I usually ask

you, which is, so let's say that there's

a Democratic administration that comes

in next and overturns the overturning of

the harm rule. How much damage can be

done in the remaining two years of the

Trump administration if there's not an

injunction put in place?

>> Yeah. Well, there is going to be a

request for a preliminary injunction and

maybe even a temporary restraining order

right out of the box. The Earth Justice

is handling that one of the major cases

and boy, that's the most formidable

environmental litigating group in the

country. They will leave no stone

unturned. So, the problem is by saying

that the harm rule is no longer in

effect that influences all kinds of

activities that are ongoing. It means

that the Forest Service now, you know,

it's the Trump administration wants to

ramp up timber harvest in in the habitat

of many endangered species, spotted

owls, marble, muralets, you go down the

list a whole bunch, right? So what

happens now in that context of when

agencies still have the obligation to

ensure that their actions do not result

in jeopardy or adverse modification of

critical habitat if the Fish and

Wildlife Service and and Noah with

regard to marine species if they are no

longer engaged in analyzing whether the

destruction of the habitat is going to

result in harm to the species that's

going to affect a lot of the decision-m

that multiple agencies are doing, the

Fish and Wildlife Service won't be

providing them with the kind of

biological information they need to meet

the demand of the Endangered Species

Act. So, they'll be subject to more

litigation over that. Now, the Trump

administration doesn't really care about

that. They're happy to see chaos in

litigation. That seems to make their

day, but the regulated community is not

going to be happy about that. timber

companies that are relying on Forest

Service decisions or BLM decisions for

grazing or mining or any number of

things. You know, if you start tearing

out the foundation of how the Endangered

Species Act is supposed to work,

including looking at the effects of

habitat loss, you're going to

destabilize the the whole regulatory

framework. So, some of this is being

laid out already. I've seen it in the

complaint that Earth Justice has filed.

They've called out specific projects

that will be affected by this decision

right now. Today, I predict we will see

a motion for at least a preliminary

injunction very soon.

>> I think the administration is just

ignoring that endangered species are

something that people care about. No one

wants to see a species go extinct.

>> They will. I think in time you're going

to see more and more maybe backlash is

the word, I don't know, more reaction

from the public over this and and

communities that have seen the value of

the restoration of endangered species.

If you think about the wolf

reintroduction or the fact that the

grizzly bear population has improved,

whether it's been fully recovered is

another question, but they certainly

have improved. And what has that

created? It's created a really robust

ecoourism industry, if you will,

recreationbased. Those gateway

communities around Yellowstone are there

to see the wolves. And that's money in

the pocket of local businesses, local

communities and schools and all the

rest. So, it's not true that restoring

endangered species, you know, is a cost

without taking account of the benefits

that it creates. So I don't think you

can make a case frankly that the

investment in recovering these species

isn't worth it. Quite the contrary.

Beyond the sort of ethical or moral

dimensions of the question, the on the

ground benefits of restoring ecosystems,

which is what the law is all about,

benefits local communities economically

and in many other ways. And Pat, you've

written an article for the conversation

that breaks all the legalities down in a

way that's easy to understand. It's

entitled Why Trump's move to gut the

Endangered Species Act likely won't hold

up in court. A pleasure as always, Pat.

Thanks so much. That's Professor Pat

Pento of the Vermont Law and Graduate

School. Turning now to the prediction

markets, which have gone from obscurity

to being everywhere. There's fierce

litigation between the states and the

commodity futures trading commission

over whether those platforms like Cali

and Poly Market constitute illegal

gambling or federally regulated

financial derivatives. More than 20

lawsuits and cease and desist actions

have been filed by states against the

platforms and the CFTC has now initiated

legal actions against nine states over

their push to rein in prediction

markets. In a case involving a White

House teleprompter operator that's drawn

attention, it's the CFTC doing the

enforcing. My guest is Columbia Law

School professor Joshua Mitz. He's a

leading authority on prediction markets

and insider trading. His new paper is

entitled from Iran to Taylor Swift:

Informed Trading in Prediction Markets.

So, President Trump's teleprompter

operator is on unpaid leave from the

White House after reports that he used

inside knowledge to make bets about

President Trump's speeches. What do we

know about this? I don't think there's

been a lot of detail released, but my

understanding is that he essentially

traded on Kshi and it was basically a

market which paid off. My understanding

was that it's a a mention market,

meaning a market that essentially paid

off when certain certain words or

phrases or text are read aloud and of

course or a statement is made at a press

conference. And of course, a

teleprompter operator would have access

to information regarding what was going

to be said, presumably would have the

transcript of the plan statements, so

would be uniquely in a position to

profit from trading based on that

information.

>> Khi is the one that alerted the CFTC

to what was going on. I'm not sure how

they knew that there was suspicious

activity.

>> Yeah. So Kelshi runs quite a bit of

surveillance on their platform and this

is something we talk about in our paper

the role of platforms to surveil and

police this kind of activity. What they

look for is abnormal trading trading

that seems to reflect some sort of

either you were very lucky or you had

potentially anformational advantage.

Part of Koshi's process is a know your

customer so-called KYC process by which

in order to trade on their platform, you

have to provide certain information

about yourself, where you work, what the

source of your funds are, and so forth.

So presumably, and this is, you know,

really just speculation, but I think

it's consistent with what we've seen,

Koshi would have undergone some sort of

surveillance review for abnormally

profitable trades and then look to see

if there was any possible connection

between the individual and the source of

the information that might be in fact

material to a given market.

>> During the investigation, reportedly the

CFTC alerted the federal prosecutors in

Manhattan. They didn't open a criminal

investigation. And I'm wondering why not

when they have opened two criminal

investigations. One involving a special

forces soldier who allegedly bet on the

capture of Venezuelan President Nicolas

Maduro and a Google employee who

allegedly bet on user searches using

internal company data. I mean, isn't

this similar to those? So for a criminal

case, we're going to need to see more

typically than simply taking advantage

of the information. But what prosecutors

are often looking for is a kind of

conscious awareness of wrongdoing or

sort of obvious departure from ordinary

norms of behavior to where it's just

straightforward to conclude that you

were operating with criminal intent. The

issue here, and I don't have any, just

to be clear, any information myself

about this case other than what's been

publicly reported, but the issue here

may be that I believe it was reported

that the words were relatively common

words or words that may have occurred in

a given speech by random chance alone,

just sort of like words that may have

been used in in the speech regardless.

And that might make it a little bit more

difficult for a criminal prosecutor

because if there's even some reasonable

doubt that the individual may have been

in possession of the information but may

have nonetheless believed at the time of

the bet that they were not actually

using the non-public information, but

that they were essentially wagering on

the same sort of probabilities that

anyone else could have wagered on and

that the likelihood of using a

particular word was sufficiently sort of

well known or it would have happened

anyway, then you know there's at least

possibly a defense that could have given

prosecutors some concern that the

information was not actually used. The

other possibility here is that the

individual may have not necessarily sort

of set out in an intentional way and it

could have been that there was some

other data that we're not aware of which

showed perhaps for example let's say

they were betting on lots and lots of

words and when you look at the totality

of what they were doing the intent

points in a slightly different direction

or at least there's an interpretation

that this particular trade was part of

some broader set of trades.

where the intent may not have been to

use this information. So, if there was

evidence of this kind, and again, I have

no information one way or the other. If

there was evidence of this kind, it

might have given criminal prosecutors

some pause about bringing criminal

charges.

>> Coming up next, the CFTC fights the

states. This is Bloomberg. I've been

talking to Colombia Law School professor

Joshua Mitz. His new paper is entitled

from Iran to Taylor Swift: Informed

Trading in Prediction Markets. These

prediction markets seem to have really

taken hold. They've struck deals with

major sports leagues to provide data

during games. During the Golden Globes

in January, a poly market Chiron flashed

before each award was handed out,

correctly predicting nearly all 28

winners. And I'm just wondering how much

the prediction markets are now a part of

the fabric of our life.

>> If they've become a part of the fabric

of our lives, that's happened pretty

quickly given that these platforms have

seen explosive growth recently. So I

would want to see a little bit more

evidence over time. But I do think your

question is getting at something that

I've observed now for several years,

which is the increasing acceptance of

gamification or speculation, financial

wagering in the form of apps or sort of

digital technologies, which has really

displaced traditional gambling venues in

in lots of ways. People are flocking and

gravitating towards apps which allow

them essentially to bet, gamble, wager

money. Now, you can really go back years

ago, about 5 years ago, to the rise of

GameStop and meme stocks, which was a

kind of more tame and early version of,

I think, what we're seeing now. In the

years since, we've seen crypto being

used, for example, by politicians and

those who are closer to positions of

power or in positions of power

themselves. So I think when you look at

it as a trend, prediction markets may be

the latest and greatest iteration, if

you will, of this sort of financial

gambling, but it's it's really just that

I think the underlying trend is that

we've gotten much more comfortable with

speculation and wagering. And some would

say in a way that's similar to the

1920s. That's that's not my argument.

Others have made that argument. But

there's a real question as to what it is

in our society that has made these sorts

of speculative bets much more socially

acceptable maybe than they were in the

past.

>> So we have many states and the CFTC

locked in a a battle for who's going to

control this. There are over 20 lawsuits

and cease and desist actions have been

filed by the states against these

platforms. But the CFTC has initiated

legal actions against nine states. I

mean, what you just described sounds

like it's gambling. And why shouldn't

the states be regulating it?

>> Well, gambling as a kind of economic

activity is much broader than the form

of gambling that's been traditionally

regulated by state gambling laws. So,

you could look at the stock market as a

whole as a form of gambling, trading

frequently. You could look at uh

commodities futures trading in other

areas. If you want to trade silver

futures or gold futures or oil futures,

those are all commodities or derivatives

of commodities. And one can argue if

you're basically wagering that the price

is going to go up or go down, you're

placing a bet just like a highfrequency

trader would be. And none of that

activity would be regulated by state

gambling laws. So it's a bit tological

to say that gambling should be regulated

by states because states have regulated

gambling. The question really is what

forms of gambling have and should be

under state jurisdiction and which forms

belong within the federal regulatory

scheme. I think one very important

difference is that Khi and Poly Market

these prediction platforms operate much

more like two-sided financial markets

with market participants essentially

trading with each other or with

liquidity providers rather than players

who are interacting with an

establishment. And I'm not suggesting

that's necessarily an operative legal

differentiator, but I think if you look

at the economic nature of the activity

on these markets, there is I would

suggest perhaps a much closer similarity

between an oil futures market and a

prediction market. And they both involve

essentially matching bids and offers.

And the platform is serving as an

intermediary for this contract. It's to

be sure I think to your point there's a

lot of friction right now because this

activity unlike commodities trading or

futures trading really does feel much

more like the sort of consumer gambling

that has been traditionally regulated by

the states.

>> Is there a split among the courts about

how these should be viewed?

>> Well, I think a couple things. I mean,

I've been speaking in economic terms. I

mean the the legal question in these

cases really concerns preeemption and

the language of the commodities exchange

act and the whether or not state power

to regulate gambling falls and covers

particularly sports related contracts.

Not every contract on a prediction

market necessarily has the same legal

standing under state gambling law. So

contracts involving sports games in

particular seem to fit squarely within

the traditional domain of state gambling

laws and activity, gambling activity at

the uh state level. Sports contracts are

kind of your quintessential example.

Some of the other contracts like you

know crypto derivatives for example, I

think it's a much harder argument. So

what we're seeing right now in the

circuits is some grappling with the

exact language of the commodities

exchange act which defines the CFTC's

jurisdiction and what the CFTC is really

trying to do is to preserve maximum

jurisdiction and essentially to say look

I mean there's no question that certain

kinds of prediction contracts which are

themselves derivatives of let's say

crypto or other financial instruments

there's no question at least most of

those are within our authority

So why would that not also be true for

gaming or other kinds of, you know,

contracts just because they happen to

involve areas that were traditionally

under state regulation? And it's really

more of a statutory interpretation

question before the circuit courts right

now. But I think fundamentally as an

economic matter, there are some

differences, but it probably will

ultimately have to be resolved by the

Supreme Court. And I would expect that

if I had to put a prediction on it that

uh uh the CFTC will win in the end

>> in light of the fact that the the Trump

administration is all in on the

prediction markets. Is enforcement by

the CFTC enough?

>> Well, what we talk about in our paper is

that enforcement here can occur on

multiple levels. So there's actor or

contractbased enforcement where you say

here are some particular trades. we're

going to look at these trades. We're

going to dig into an individual's

trading history and bring an enforcement

action against that individual or in

extreme cases perhaps criminal

indictment. But there's also platform

level surveillance and platform level

regulation. And while it's true that the

Trump administration has been relatively

pro- innovation or pro sort of a

hands-off approach when it comes to

financial innovation in the crypto

space, digital asset space and now to

some extent in the prediction market

space. It's also true that these

platforms have been at least KI and to a

certain extent polyarket US as well.

They're US armed. they've been really

stepping up to show that they are

enforcing uh these sorts of insider

trading fraud and manipulation rules on

the platform. And we've talked about

insider trading, but it's not only

insider trading. I mean, some of these

smaller markets in particular are

amendable to manipulation where

individuals can control the outcome of

the market. So outcomebased manipulation

and we know that in many cases you know

it's something like over 90% maybe as

high as 99% of the participants on these

platforms are losing money. So you know

there needs to be adequate disclosure

regarding the risks of participating and

and so forth. Platforms I think have

taken some actions that are helpful in

that direction in terms of both

combating misconduct and protecting

consumers. But there's more that can be

done there and that seems to be an area

where maybe there's some openness on the

part of the Trump administration to sort

of enlist platforms in kind of inducing

a more informed and and hopefully fairer

and safer market for consumers.

>> Tell us a little more about your paper.

>> Well, the paper looks systematically at

Poly Market and identifies over 200,000

episodes of potentially informed

trading. And we basically identify

across a wide range of we have five

criteria that we employ to identify what

we consider potentially informed trading

that we don't necessarily conclude

reflects the use of material non-public

information. We recognize that some of

this activity might be in fact informed

trading which is lawfully acquired. But

we think that what it shows is that the

prediction markets are in fact

facilitating the systematic exploitation

of information that is non-public and

there's a number of consequences which

follow from that. So we talked about

surveillance at the platform level. We

also think in the paper talk about some

of the proposals. There have been some

legislative proposals to outlaw uh

certain uses of information, certain

kinds of contracts. We think that, you

know, some of these proposals are in

fact moving the ball forward. Others are

essentially summarizing existing law.

I'll just say part of the problem here

is not only having strong legal rules,

but thinking about enforcement because

when actors are trading globally using

anonymous identities on the blockchain

and so forth, the problem is just as

much a practical one of identifying

who's engaging in the trading and who's

sharing the information as it is

figuring out what the rule should be. So

we talk in the paper about just the role

of as I mentioned platforms not only in

surveillance but in cooperating and in

fact we really need a global perspective

because you know it can't be enough for

the United States to take actions on its

own. We really need to see international

cooperation especially when there are

transnational networks which is

something that we've seen in insider

trading more broadly. I mean this is how

insider trading rings are brought down

and so that same sort of approach needs

to be taken for the prediction markets

as well.

>> Thanks so much for sharing your thoughts

with us. That's professor Joshua Mitz of

Columbia Law School. And that's it for

this edition of the Bloomberg Law Show.

Remember you can always get the latest

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Law Show every week night at 10 PM Wall

Street time. I'm June Graasso and you're

listening to Bloomberg.