Topics of Discussion:
- Breakin’ Down the Law – Grab Bag!
- Morgan Stringer on GameStop
- T3BE Answer
Thomas: Hello and welcome to Opening Arguments, this is episode 463. I’m Thomas, that’s Andrew. How’re you doing, sir?
Andrew: I am doin’ fantastic, Thomas. How are you?
Thomas: I am just overwhelmed by how much we have to talk about today.
Thomas: I hope we can get to it all in a reasonable fashion, let’s find out. There’s so many bullet points, we’ve got Morgan coming on to explain GameStop. We’ve been waiting for this for, what, two weeks? I can’t wait.
Andrew: Yeah, yeah.
Thomas: Then a possible wild card segment that we’ll see if we get to?
Andrew: Eh? [Laughs]
Thomas: I think we’d better get right to it, what do you think?
Breakin’ Down the Law – Grab Bag!
[1:52.6] [Segment Intro]
Thomas: Alright, Andrew, this is a number of bullet points, it’s a grab bag, but it’s a very [Laughs] There’s a lot of good stuff here.
Andrew: It’s a big bag. [Laughs]
Thomas: Yeah it’s a valuable grab bag. Let’s talk about the Yale Lawsuit news. First off, what’s going on there?
Yale Law Suit
Andrew: We covered the parallel Harvard lawsuit in OA 219 almost three years ago.
Andrew: This is the effort by white supremacists to coopt Asian Americans and the stated goal of the organization is to end diversity as a characteristic in college admissions. Go back, listen to OA 219. That Harvard lawsuit was convincingly overturned by the First Circuit, the Yale lawsuit was going nowhere and a couple of days ago the Department of Justice notified Yale University that it had no interest in further prosecuting that lawsuit. I think most people know now, as we have explained on the show, that diversity is a factor of a factor in college admissions.
Thomas: Yeah, it’s remarkable how little it’s actually happening.
Thomas: Any sort of affirmative action. You’re not worried about that? I mean, with the Supreme Court being what it is now, don’t you imagine there could be just some fast tracking BS decision that could come out of there? Or what’s the status?
Andrew: The DOJ is dropping the case. The Supreme Court declined to take the Harvard case-
Thomas: Oh, okay.
Andrew: -because the facts were terrible.
Thomas: But what I’m hearing is this will – some other way this will happen possibly.
Andrew: Oh, yeah.
Thomas: I’m being Negatron, but like – okay, so good news for now, but they’ll find some other way with some less terrible facts and then the Supreme Court will fast track it and make a terrible decision, maybe?
Andrew: They could try. Certainly you could bring a suit the way that Bakke brought a suit back in the early 1980s against the Regents of the University of California. You would have standing as an individual plaintiff if you could show “I was denied admission to this college and I believe that the affirmative action policies are what kept me out.” Yes, these groups will not stop until, you know, the history of, you know, your regatta is perfectly legitimate for colleges to use in admissions criteria, but, you know, the diversity and background of its student body are not.
Right wingers continue to fight these issues, we’ve got – we know a disturbing proportion of this country is racist, but at least they will not have the active assistance and collaboration of the Department of Justice over the next four years, at least. Longer if you keep voting for Democrats. This is an unambiguous good.
Thomas: Just in case you didn’t hear our episode back then, I think it bears repeating, because I’m someone who, as a kid, you know, given my indoctrination into a Fox News household and worldview, that kind of thing, I thought affirmative action was just this evil thing that, you know, was just elevating black kids unjustifiably. Harvard’s freshman class is more than 1/3 legacy admissions. Legacy admissions. If you’re worried about Harvard and who’s getting “oh I bet affirmative action, must be so easy to get in,” no. 1/3 of Harvard admission is legacy admissions.
Thomas: That’s such a gargantuan factor, far more than any sort of affirmative action that is even happening there.
Andrew: Yeah, absolutely. And look, all of the factors that – so legacy explicitly favors white kids, and it favors those whose family members went to that college, but other inherited aspects of privilege are entrenched throughout the admissions process.
Andrew: Rich kids – and again, this skews white. The richer you are the more you can pay for test prep, the more flexibility you have to do all of the extracurricular activities. Look, my son is a Junior in high school, we’re applying, his top choice is Brown. I really hope he gets in, I know what we have to do to be competitive on applying to Brown, and the fact that, you know, my son doesn’t have to work a part time job-
Andrew: To help kick in to take care of his family means that he’s been able to compete in debate and-
Thomas: Isn’t it weird that we don’t hear all these arguments.
Thomas: Because all the anti-affirmative action arguments are just like “well, actually it does them a disservice because these kids, these students, don’t belong there and everybody’ll feel like they got in there for the wrong reason. Weird that that never comes up for legacy admissions-
Thomas: -which make up over a third of all of Harvard admissions. Weird that that isn’t talked about, it’s just assumed that that’s fine.
Andrew: The field is so unbelievably unequal the way it stands, and when we said a factor of a factor, that’s not rhetoric, that is mathematically the way in which every college and university calculates diversity now. In other words, if the school uses standardized test scores, they are one factor. They use your high school GPA, that is one factor; they use your extracurricular activities, that is one factor; then there is a catchall, overall fit factor, of which diversity is a factor of that factor.
Andrew: The number of people that I talk to, even people on our side-
Andrew: -who think that colleges will do, like, oh, you got a 1490 SAT but, you know, since you’re African American we add 70 points to that, that is not the way it works.
Thomas: Conservatives legitimately think Black kids just get to go to college for free, admitted to amazing Ivy League schools, like they actually believe that.
Andrew: That level of revisionist history is terrifying, and when you think about the tremendous disparity – I don’t know the numbers off the top of my head. I didn’t expect this to get quite this deep on this bullet, but we both feel very passionately about this.
Thomas: Yeah. [Laughs] It really is a frustrating issue.
Andrew: Inner city schools, very often those kids are not allowed to take textbooks home. It is just – the conditions – what it takes to succeed at a high school in East St. Louis versus what it takes to succeed at a privileged white high school is just – you throw the exact same kids into that environment and the one in which you’ve gotta turn in your book and they’re kept under lock and key because the schools budget goes disproportionately towards metal detectors. [Sighs]
Andrew: I’m gonna get angry. Anyway, so look, we no longer have a DOJ that is complicit in that. We had explicit Trump executive orders saying we want you to focus on reverse racism at the DOJ – that’s not a thing either – and that’s gone, this is a really, really good result.
Thomas: That’s bullet point one.
Cancelling Student Debt
Thomas: Bullet point two, cancelling student debt.
Andrew: Another great one! One of the very first pieces of legislation introduced into this Senate was introduced by our girlfriend, Elizabeth Warren.
Andrew: And Chuck Schumer as a co-sponsor. If you’re thinking Chuck Schumer, you know, scary centrist. One of the very first things he did was introduce this Resolution. The difference between a Resolution and a Bill, this does not change the law, this expresses the intent of Congress in delegating authority that the Secretary of Education has the, and should, cancel $50,000 dollars in federal student loan debt per borrower, pursuant to the authority delegated to the Secretary under 20 U.S.C. § 1082(a).
That particular statute says “In the performance of, and with respect to, the functions, powers, and duties, vested in him by this [law], the Secretary may” and then subsection (6) says “enforce, pay, compromise, waive, or release any right, title, claim, lien, or demand, however acquired, including any equity or any right of redemption.” In English, what that means is that the Secretary of Education is empowered to release or waive any claim against any U.S. Citizen for unpaid student loan debt. Again, that must be a direct, federally issued-
Andrew: -student loan to you. The fact that, you know, you might have a federal backed loan issued by a private lender?
Andrew: Secretary does not have the authority to waive that.
Thomas: Just off the top of my head, no one’s gonna have $50,000 dollars of that, is it? I mean, I remember the federal loans being pretty stingy. Could be different? Could just be based on, you know, me and my background or something, but I don’t think I was able to get anywhere near that much federal student loan, even to be able to have that, so what – how, practically speaking, what are we looking at here?
Andrew: I do not know the breakdown.
Andrew: I suspect that you are correct, that picking $50,000 probably means that for all intents and purposes-
Thomas: That might wipe out a huge chunk of-
Thomas: If not all federal student loan debt.
Andrew: And notice, you know, again, that that’s the first round of loans. You know, again, even within the class of individuals that we’re talking about that have student loan debt. That burdens different people in different ways. I carried student loan debt up until five years ago, but most of that was private loan debt-
Andrew: -that sat on top of the federal student loan debt. Those who are lower income will tend to have a larger percentage-
Andrew: -of those loans be federal student loans. Fantastic idea, the reason for making it a Resolution is to judgment proof this in the Courts, to say “oh no, look, this is not an area where you can use the undoing of Chevron Deference to say well are we sure that Congress really delegated authority to the Secretary of Education to just do nothing?” Well, A, plain language says yes we did; and B, then having a Resolution would then clarify the intent of Congress of yes, you have the ability to do that.
Thomas: And I just tried to pull up some facts here, to get – this looks like it could be a massive thing. I mean, I didn’t have much federal student loan debt, we were … not very well off, but anyway it must depend on income. It says while 30% of undergraduates borrow money from the federal government, the total amount they borrow accounts for 92% of student loan debt.
Thomas: That seems … interesting. And it says 42.3 million Americans owe a total of $1.54 trillion, they each owe an average of $36,000 in federal loans, so that’s pretty cool. That’s gonna wipe out a ton of debt. Importantly, I wanted to ask you this. This is a Bill, what was the whole argument that Warren and others have made about an executive order doing this? Or do we not need to really worry about that anymore?
Andrew: That’s the thing is what Senator Warren has been arguing is that this is within the inherent delegated power to the executive branch and that, therefore, Joe Biden can via executive order say “I hereby direct the Secretary of Education to waive all private debts of $50,000 dollars or less for every borrower.” You could reiterate the language that is in this Resolution as an executive order, that’s what this calls upon the President to do. You know, this is what you and I have talked about. Joe Biden is in office, and we see the efforts by the progressive wing to hold him accountable to the reasons we wanted a Democrat in office.
This is a very, very public way to bring this into the public discussion. Jen Psaki, the White House spokesperson said, “well, you know, this is dealing with student debt, it is important to Biden and one of his first executive orders was to impose a moratorium on interest and collections for federal student loan debt.” That’s true, but I think what Liz Warren, what Bernie Sanders, what that liberal firebrand Chuck Schumer would all say is great, good start on day one, but it’s February now, and that’s not enough. I totally agree.
Thomas: Alright, I’m just shocked about – I think you and I both thought the private student loan debt would be a bigger thing, just because the interest rates-
Andrew: I definitely did.
Thomas: Yeah, I would’ve thought like the interest rates would get out of hand, something like that, but apparently private student loan debt is only a fraction, and it’s mostly federal. Wow! That sounds like that could do a ton of good.
Thomas: The total student loan debt, $1.5-ish trillion, I mean that’s less than the amount of the stimulus bill. I know it’s still a lot of money, but that would be a direct benefit to the people who need it the most, it’s not gonna go to, you know, I don’t think any major tech corporations have student loan debt that they went to tech corporation college.
Thomas: I mean, it’s gonna go to people who really need it.
Andrew: No churches have this? [Laughs]
Thomas: [Laughs] Yeah, exactly! Churches went to church school, none of that, okay, so that’s super cool. I hope that passes.
Virginia to Abolish Death Penalty
Thomas: Next item I’m seeing is Virginia to Abolish Death Penalty.
Andrew: Yup! Again, this is – when we talk about on this show and we have candidates for statewide office or your local office, the Democrats reorganizing and taking back both Houses of the State legislature in Virginia directly led to this. A 21 to 17 party line vote in the Virginia Senate to abolish the death penalty in the State of Virginia. Zero Republican votes, 2 Republican abstentions from Republicans who were upset that there was no effort made to compromise with them and bring them into the process-
Thomas: Mm-hmm. Yeah.
Andrew: -and say “oh well we’ll vote for this if you’ll extend mandatory minimums here,” and the Democrats were like “we could do that-
Thomas: Or not.
Andrew: On the other hand, we could not.” Yeah. [Laughs] Kuddos to the Democrats for standing up to it. Democrats have a wider majority in the Virginia State House and a Democratic Governor in Ralph Northam, so by the time you listen to this that could be the law. The death penalty does not stand up to any kind of practical, let alone moral, scrutiny, and this is really great to see. Again, it’s a direct result of Democrats not just, you know, wanting to crash the system, but it’s working hard, reorganizing and rebuilding Virginia as a blue state; the hard work that we’re doing in Georgia right now to rebuild Georgia as a blue state; North Carolina might be next; Texas might be next. But it’s not just about who’s at the top of the ticket, it’s about, you know, what you do down ballot and this is a really vivid illustration of that.
Thomas: Alright, that was only three bullet points and yet here we are, Andrew.
Thomas: We haven’t left ourselves as much time, but we’ll see, we’ll squeeze it all in, we always find a way, so let’s get over to Morgan Stringer explaining GameStop to us!
Morgan Stringer on GameStop
[18:30.1] [Segment Intro]
Thomas: And we are now joined by ace associate Morgan Stringer, here to explain every single thing about GameStop in approximately 15 minutes, should be easy.
Thomas: How’re you doing?
Morgan: I’m doing great! I didn’t know I would have such a short timeline to explain literally everything about the GameStop fiasco, but-
Morgan: But I’ll do my best.
Thomas: File a complaint against your boss! No, I can’t blame him.
Thomas: Well I can and can’t blame Andrew, you know? On one hand it’s also partially my fault, on the other hand, isn’t it more fun to just blame Andrew?
Morgan: It is!
Thomas: Can we both agree? Yeah. [Laughs] Where do we want to start with this whole thing, Morgan?
Morgan: Okay, so first I do want to disclose that I am not a financial guru, do not take financial advice from a podcast, you know. Let me throw in that disclaimer, but first let’s just talk about what a hedge fund is, because I think a lot of people do have some misconceptions about that. Again, if people want to get a more in depth understanding, you did an excellent Serious Inquiries Only episode with Phil Ferguson that goes more in depth on the financial angle.
It’s an investment pool. Think of it as kind of like a mutual fund but it’s also very different from a mutual fund. You have to already be wealthy to even look at a hedge fund. They do not let regular people just throw in money and be like-
Morgan: “Yes, I would like to be in the hedge fund.” Hedge funds also you have a bit of flexibility there, you can invest in anything from real estate, stocks, bonds, even currency. One of, for unfortunate reasons, very famous instance of a hedge fund manager is Martin Shkreli, the pharma bro.
Morgan: He was a hedge fund manager, got into a lot of trouble for that.
Thomas: Gee, I can’t determine why people hate hedge funds. So hard to put my finger on it. [Laughs]
Morgan: Yeah, there’s a lot of scumbags that, uh [Laughs] hedge fund managers, so yeah, that’s also then part of this glee at seeing the hedge fund manager lose in this sort of way, but they don’t always do things – I think a lot of people also have this misconception of, you know, what’s been going on with hedge funds buying up retail businesses like Kmart and Sears, you know, where they pull everything that’s worth anything and basically sell it off or do something to their financial advantage, and then they leave the business behind to declare bankruptcy and everybody loses their jobs and pensions.
That’s not what happened, though, with the GameStop situation, but I think that people have kind of conflated the two.
Morgan: So, what this hedge fund, and many hedge funds did, and many people who aren’t necessarily hedge funds have done, is they have shorted the stock of GameStop, and you can make a lot of money doing this relatively quickly. A famous example, again for very unfortunate reasons, which check out Knowledge Fight on all the myth busting of that, but George Soros, he shorted actually the Pound, like the currency.
Morgan: In the early 90s and it’s actually estimated by some people that he made one and a half billion dollars in a month from that.
Morgan: Yeah, it’s crazy amounts of money that you can make in this.
Morgan: So it is very lucrative.
Thomas: But of course the other side is infinite potential for loss if you don’t cover your position.
Andrew: [Laughs] Right.
Morgan: Yes, that is, again, the unfortunate thing and that’s where, yeah, this all kind of comes in to the WallStreetBets situation.
Andrew: Let me frame the question to you this way, Morgan. Under ordinary principles of market manipulation, it’s potentially a crime to artificially – and the language from the Commodities Exchange Act is to create a price or trend that does not reflect legitimate supply and demand.
Andrew: You could imagine how, let’s leave the Redditors out of this just for a second. You can imagine how otherwise, and this is where a majority of the cases that I’ve seen come out. Otherwise you could really manipulate this process. In other words, you and I get together and decide that we are gonna short XYZ Corp. stock, and then we both go out and defame the hell out of XYZ Corporation everywhere, and cause people to go “oh yeah, wow, that certainly does look overvalued and terrible,” and then the stock goes down, we’re able to buy it at a reduced price and cover our short positions and we make money. That then becomes market manipulation because, although it’s perfectly legitimate for us to otherwise independently say “I think XYZ stock is overvalued.”
Andrew: I can say right now on the show, I think GameStop is overvalued. When you say that with the intent of creating this artificial price or trend, that’s what typically triggers that.
Thomas: What’s the line there? Because I still think – I mean if I bought, even right now, I have no positions on any of this, but if I had a short position on GameStop even now and I said “I really think it’s still gonna go down,” is that illegal? I mean, I feel like the line should be somewhere, but I don’t know that just stating an opinion, like my opinion doesn’t have any control on the market. Someone else could be out there saying naw, you’re crazy, it’s gonna go way up. But it feels like that would cancel out. Where’s the line to where it becomes, like, improper and illegal?
Morgan: I’ll give you a typical lawyer answer. It depends.
Morgan: Yeah, it really does depend, and typically what you see there is the SEC really only goes after people who, again, in even Andrew’s example we are defaming that company, we are telling lies-
Thomas: Yeah, I was gonna say-
Morgan: -to short that stock. And our intent-
Thomas: That’s different than just my opinion. Like “wow this seems overvalued,” that’s not a defamatory lie.
Morgan: Exactly. Now there is, though, again, and you see this language over and over about how manipulating the market is illegal. You know, it’s in the Securities and Exchange Act of 1933, it’s in the Securities and Exchange Act of 1934, it’s in 17 C.F.R. § 18.01(a), which prohibits any manipulative device, game, or artifice to defraud. That’s the language that’s used over and over, but again, it’s, you know, what does that mean? So typically, yeah, the only people who are prosecuted for this – one of the terms that you probably heard get thrown around is “was this a pump and dump scheme?” What that is is, say, Thomas, you and I are saying, you know, we famously love Elon Musk. We want to help this company so let’s tell all of the listeners of, you know, Puzzle in A Thunderstorm, let’s go and get all the Opening Arguments, Philosophers in Space, Serious Inquiries Only. Let’s all tell them that Tesla is coming out with the best car ever, and it’s coming out in July and it’s going to be able to fly.
Morgan: So you need to invest in this company and invest in it now, then what we’re gonna do, we know that this is a lie, right?
Morgan: So we’re going to sell our shares when it gets to a certain point and then everybody else is gonna kinda be left holding the bag when everybody realizes, oh.
Morgan: Elon Musk is not coming out with a flying car.
Thomas: That’s what I feel like the WallStreetBets Reddit is turning into. I don’t know if legally speaking you necessarily have a case against any individual there, I’m not saying that, but that was my whole fear with this thing which is when 3 million people join a subreddit in a week I have trouble believing that all of those people are just out there to spend a few bucks to take on a hedge fund. You still see posts in that Reddit, just today, like I still keep an eye on it and it’s actually been on the front page of Reddit a lot so I see them when I’m just browsing Reddit. They’re still talking about buying and holding GameStop, buying and holding GameStop. I feel like there’s every incentive for bad actors to be trying to turn this into a pump and dump, manipulating the good intentions of the people in the subreddit.
Morgan: Yes, and I have also seen – again, I don’t know if these screenshots, if they’re, you know, just good photoshop or if these are actual people.
Morgan: Because also it’s not like some random person discovered, oh GameStop is the most heavily shorted stock on the market. This would be, you know, maybe a good opportunity for us to do a short squeeze. People were following this, so I do wonder, you know, how many actual wall street insiders are the ones that have led the charge on this. It’s certainly not working class heroes, necessarily, when you’re throwing around numbers like $50,000 dollars. I was telling Andrew this, I don’t have $50,000 dollars to throw at anyone? Yeah, these aren’t – this isn’t necessarily working class heroes, but even that whole thing of like oh, well this guy is throwing $50,000 dollars into it so maybe this is a good bet. It is misleading to say the very least, if not illegal. You even have people buying up billboards-
Morgan: Doing the meme about diamond hands, those are the ones you hold.
Morgan: If you sell out, you know, you’re a sellout, basically, and you just want the man to win, which again, you’re not gonna bring down a hedge fund like this. I’m sorry, they do have things like insurance and, again, when a stock reaches a certain price usually they just go ahead and they say alright, we’re gonna buy it all back, in my example give it back to Bob and we’ll cut our losses there. We’re not going to just sit around and wait for it to balloon completely up, wait for the stock to go to the moon, as these Redditors would say. Which, again, not to say all of them are bad actors, but I do definitely suspect that there are people who are, you know, acting with nefarious means and perhaps using this as a way to manipulate the market. This comes back to, kind of, that specter of section 230, so people have wondered could Reddit be held legally liable? Which, they cannot. They’re a section 230, there.
Morgan: Specifically the case that calls Congress to implement section 230 was a case dealing with a financial forum.
Morgan: Where people were saying things about the company that The Wolf of Wall Street, the movie that it’s based on. Jordan, I forget his last name, which again, like everybody – not everybody, but a lot of people on this subreddit, you know, they very much em- you know, they see Wolf of Wall Street as like an ideal to live up to and not a movie about a bad man?
Andrew: [Laughs] About a precautionary tale? Yeah.
Morgan: Yeah, so that tells you again kind of the mentality that, you know, a lot of these people do have. Again, there are six million people on there, so there are people on there for different reasons. You know, some people are just there to lurk, some people are there to, you know, genuinely because they think that this is a good investment opportunity. Some people do want to get average people more interested in the stock market, in investing as a whole, but yeah, I do think there are probably a few bad actors. But again, as for how the SEC combats that, you know, this would be a case, sort of, of first impression because good luck going through this subreddit of six million people and finding the specific cases-
Morgan: Tracking down, you know, EdgeLord69 and figuring out what his deal is, you know?
Andrew: [Laughs] I mean, I think we know what his deal is, but… Let me see if I can summarize the Reddit/WallStreetBets portion. Anything associated with the online forum is going to be immune from liability under Section 230 and anything related to the individual behavior of the redditors is going to be very, very difficult to prove the intent to fraudulently affect the price the way these cases are typically prosecuted. Is that a fair summary of what you’ve said?
Morgan: I think so.
Morgan: Unless you get some kind of smoking gun where you found, say, you stumble across a Slack chat of a bunch of wall street bros who are like “yeah, let’s get on this Reddit forum and pump this stock up.”
Thomas: I could see that happening, though, potentially.
Thomas: If you did get a case – I mean, it depends on, you know, obviously who’s investigating and how hard they’re looking, I dunno, it’s a lot of people. Like you say, you are right, we both undershot it. I had seen that there were three million new members, I’m seeing now that it’s 8.5 million currently.
Thomas: At r/ Reddit WallStreetBets. It was – I’m pretty sure it was like 300,000 three weeks ago.
Andrew: Yeah, it was under a million from what I’ve read.
Thomas: And they’re self-described – lest anyone think we are being unfair in our descriptions of EdgeLord69 and all that, self described “like 4 Chan found a Bloomberg terminal.” That’s in their own description of what the reddit is, so sidenote. Hypothetically, if you did do an investigation and found some particular wall street bro, 4 Chan a-hole who is like let’s – or maybe working in coordination, I don’t know. Let’s post fake screenshots, let’s do such and such. That seems like you could potentially make a case there, right? Against an individual?
Morgan: Oh, absolutely. Yeah, for that, and then I’m wondering if, again, it would be hard to find somebody being that blatant because also with these, you know, bad actors that we do suspect are on this forum-
Thomas: Well I mean like in a Slack Chat you said, like private.
Morgan: Yeah, if it was something – yeah. Because I don’t think they’re gonna say on the subreddit-
Thomas: No, no.
Morgan: “Hey let’s manipulate the market,” but-
Thomas: No, that’s not what I was saying, yeah.
Morgan: If you were to come across that, but again, it’s like how would you discover this? There would have to be basically somebody in the group getting mad at somebody else and just deciding alright, I’m gonna snitch on the SEC to you, you know. It would be very hard to find that evidence, but yeah, if somebody did somehow find that evidence then the SEC definitely, I think, would get involved. But I think until there’s an obvious smoking gun here, there’s not that much they can do.
Which, again, people are kind of saying “oh, I know that they’re gonna come up with a bunch of new regulations and it’s gonna be against, of course, just the regular old people who are trying to day trade.” Yes, that is a possibility and I don’t want to see that happen, because again, it does seem like whenever regular people get involved in a process rich people take advantage of it seems that it gets shut down even more to where, alright, let’s make sure only billionaires get to do this.
I think with this if they do find these bad actors, especially if they are these kind of insider types who do have this inside financial knowledge and are more sophisticated than your average person who is buying $5 of GameStop stock, then I think that yeah, maybe we should have at least a discussion about how would we prevent that from happening?
Andrew: I think that’s a good way to kind of draw that part, I think, to a close. I really, really want to ask you about Robinhood.
Thomas: Oh, yeah, no kidding!
Andrew: We can talk about conversation on legislation, everybody is saying Robinhood conspired with the big hedge funds because that’s what keeps them afloat to shut off trading of individual investors. Surely there’s gotta be something we can do about that, right?
Morgan: So, from my perspective it seems that I have actually seen some people say oh for sure that this is going to get shut down. I’ve seen some people on the fence, but I for sure don’t see these lawsuits going anywhere, and I’m actually surprised that there were, as of my last check, I mean there may have been a lawsuit filed in the last five minute, because again, this kind of frenzy is happening still in the aftermath of it and people are, you know, they’re angry at Robinhood. As we know, everyone and their mama was trying to buy GameStop stock, AMC, Nokia, Blackberry. Robinhood was the number one app in the app store on both Google Play and the app store on your iPhone. That, to me, was bonkers. Again, some people may have been using it to-
Andrew: Was that before?
Morgan: This was at the height of it.
Morgan: So when everybody was buying into GameStop, basically when the story kind of hit the New York Times.
Thomas: Got it, got it.
Morgan: The chatter on Reddit kind of moved over to Twitter a lot and everybody was making memes about it, everybody was going nuts. Robinhood then, I believe it was last Thursday, went during this whole frenzy, they shut down the GameStop trades. You could not buy in, you could not open new positions on GameStop, AMC, Nokia, Blackberry, Bed Bath & Beyond was another one, which I thought was kind of amusing. There were a few others as well, but I have a Robinhood app and full disclosure I have – again, I do this mostly for fun – I have $20 that I use-
Morgan: -to just throw around and see if I’m any good at it, and none of it was in GameStop. If anybody finds out I have a Robinhood account and they’re like “ooh, she’s a shill for Robinhood,” I’m not making any money from this. Basically they shut it down and then people got mad. You know, they did the thing where – and I thought it was this thing where you hear all the time, where somebody gets mad and they say “oh well wait until you hear from my lawyer,” and it’s like girl, you don’t have a lawyer, calm down.
Morgan: I thought a lot of these were empty threats, but as of now there are 33 federal lawsuits pending against Robinhood.
Andrew: That surprises me because I pulled up the terms of service for Robinhood, and you know exactly what I’m looking for, Morgan. Paragraph 38 on page 29 of their 33 page terms of service is an incredibly wide ranging pre-dispute arbitration clause that says “by signing this agreement,” and by clicking the check box, by saying yeah, yeah, yeah I agree with the terms of service, let me get on so I can trade my stocks right away, you agree that all claims that you are giving up the right to sue Robinhood in court, including the right to a trial by jury, and you are replacing that for an arbitration under the rules of the FINRA dispute resolution services in the State of California. I will tell you that California has some interesting provisions on whether arbitration can be avoided as being oppressive or not voluntary, certainly compared to other States in which it’s presumptively valid. My guess is that you’re about to see Robinhood file motions to stay or dismiss all 33 of those lawsuits in favor of the arbitration clause.
Morgan: I have a better guess.
Morgan: I think that Robinhood wins on motion to dismiss outright. You definitely bring up the arbitration clause, and I would not waive that, but the user agreement on Robinhood’s website – if you don’t believe me you may look it up – but it says about, exaggeration, but it’s like 85 million times. If I was an attorney for Robinhood I would even be like “this is a bit repetitive.”
Morgan: But they say that Robinhood may, and I’m quoting, “may at any time in its sole discretion and without prior notice to me, prohibit or restrict my ability to trade securities.” It even says in another section that market volatility is a reason to prohibit trades. It also says – it’s a typical user agreement. They even say “we can terminate your account at our sole discretion.”
Thomas: Have you been able to verify that was in place before this whole fiasco? [Laughs] Or did they, you know, oh real quick add something in!
Morgan: Yeah, it’s in there, it’s very clearly in there. I mean I signed the user agreement beforehand and again, it’s like one of those big long user agreements, as Andrew stated, but I mean it is in there repeatedly that they can prohibit or restrict your ability to trade, and it specifically says market volatility is a reason they can do that. Even if there was some kind of thing going on where they did it because they felt like the stock was getting out of control – I mean, of course if somebody did find “oh they colluded with Citadel,” that’s a whole different conversation, but if they were just like “oh, the market’s volatile and we’re concerned that a lot of people are seeing this as a get rich quick scheme and we want to shut it down,” that is completely valid.
Andrew: Thomas, to answer that specific question, the market volatility paragraph is paragraph 13 on page 10 of the agreement, and the agreement that I have is dated December 2020.
Andrew: Before any of this.
Andrew: Yeah, this was not just-
Andrew: -hastily added to the new TOS, this appeared to be the one that was in place at the time that they shut things down.
Thomas: I think to clarify this for everybody, what’s – is this a get out of jail free card? Where are the lines here? I mean, if you have that in your user agreement, what does that enable you to do, and does that basically mean it’s gonna be impossible to prove, you know, short of another smoking gun slack channel we’re talking about where it’s like “Jeez, we need to shut this off purely because we are losing money” or something, or is it so broad that it even allows that and the lesson here is – and it might have been a valuable lesson to call attention to what Robinhood really is. Maybe don’t be a Robinhood customer. Is that the lesson?
Morgan: They can’t do anything where they’re saying things like “we’re going to treat this class of people differently than anybody else.” If I find out that Robinhood shut down my account, but they were letting my neighbor, who has like $5 million dollars and was throwing around money and say “he’s invested in a hedge fund, they were letting him trade,” that would be a different situation because they weren’t following the contract with everybody involved equally. If they found something like that then yeah, you would have an arguable claim here, but nobody is alleging that and also I just wanna say that some of these lawsuits are pro se, but a lot of these lawyers are trying to get a class action going, and I’m not sure what their fee arrangement is, because I don’t think they’re going to win, ultimately, but I don’t know if they’re getting these people in and these are a bunch of charlatans who are just charging people hourly or what.
Morgan: But I will say that there is a law firm who already has sued Robinhood related to a different matter, but won’t go into that. They’re based out of Tampa Bay, Florida. [Laughing] Not to hate on any listeners out of Tampa Bay, Florida!
Andrew: Go Rays! [Laughs]
Morgan: Yeah, I know you’re a big Rays guy, but these people are – I was reading an article with this main attorney and he even threw shade at firms like Andrew’s, who I work for, he was saying “the larger firms who have the capacity to do big litigation like this and experienced litigators who do this daily will end up over those who just file the complaint in a one off small firm type situation.” He’s actively recruiting people so they can do this class action against Robinhood, but again-
Morgan: -they are blocked by the arbitration clause, so I’m like girl, I don’t know if you’re better than a firm like Andrew and my’s firm, because you clearly can’t read!
Andrew: Yeah, and let’s underscore that. That arbitration paragraph, 38, the last subsection, subsection (d) says, (quote) “no person shall bring a putative or certified class action to arbitration, nor seek to enforce any pre-dispute arbitration agreement against any person who has initiated in court a putative class action or who is a member of a putative class who has not opted out until the class is certified.” It is a textbook example of a comprehensive class action waiver, it is very, very clear if you signed this you gave up your right to be part of a class action. I have to add on top of it, as somebody who has litigated class action cases not infrequently over my career, you’d have a real Rule 23 problem anyway.
Andrew: And that is the provision to certify a class, because the injuries suffered by each individual are not aggregable. You got in at different times, you got out at different times, you had different amount of shares. The idea on a class action is, if you have an antitrust suit that says “because of collusion the price for toothpaste was inflated by a dollar,” well that’s everybody who bought the toothpaste paid a dollar too much. Where would you begin to show on Robinhood what your damages were and how those were capable of being attributed across an entire class of plaintiffs? Yeah.
Morgan: That’s another thing I wanted to underscore, because not only are they not aggregable in that way, and they are far too speculative, you can’t file a lawsuit and say “I was damaged, maybe, I dunno.” You have to show, especially in a contract breach, this is the amount of money that this cost me. You do have that kind of speculation of, like, when would you have sold? Maybe you would have actually lost money. You don’t know, because again, it was such a – with any asset that rises exponentially like this in such a short amount of time based on memes, especially! [Laughs] That’s a bubble, and it’s going to pop, and it’s going to plummet and people are gonna lose money. But then, also, these claims can’t be aggregated because a lot of them are contradictory to one another, so some people tried saying “oh no, I definitely was gonna sell my GameStop shares after I bought in and I was for sure going to be a millionaire and Robinhood took that from me.” Again which, to me, sounds kind of like the guy at the bar who’s saying “oh yeah, I could’ve gone pro.” It’s like sure, man.
Morgan: But the other people are claiming that no, I knew this was a bubble because I’m super smart and I wanted to short sell the GameStop stock as it was falling. How can those people be in the same lawsuit as joint plaintiffs?
Morgan: Their claims are contradictory. One is saying “I knew this was gonna fall,” while your buddy over there says “oh no, I knew it was gonna rise.” It makes no sense.
Thomas: I feel like this is a compelling case that a class action suit doesn’t make sense. We also have the terms and agreements that seem to excuse this pretty much no matter what, and we also have the arbitration factor that we’re not even talking – do you see, I guess, either of you, do you see any case, forget class action and forget, I guess, these federal case – I guess it would have to go through arbitration – but do you see any opportunity for any sort of person who – and I believe they only restricted buying, I think you were allowed to sell it.
Thomas: It would have to be somebody who was going to buy at a certain time or something? Do you see any room, either of you, for any case in any form against Robinhood?
Morgan: Unless they find that maybe Robinhood had – again, this would come more so from an SEC investigation-
Morgan: -on if Robinhood was up to something, which, I’ve heard the theory about Citadel, which, you know, they’re saying Citadel Securities is the clearinghouse that they use to process the stock orders, and their sister company, Citadel, was one of the investors into this hedge fund that injected $2.75 billion dollars when these people were losing money from the short squeeze. People have kind of done the red string theory of being like “oh, Citadel probably ordered Robinhood to do this,” and, you know, Robinhood, I will say this, they didn’t handle the situation well.
Morgan: What they should have realized is hey, we have a lot of new investors and a lot of people who are just jumping in on the hype. If I give out a statement about “well, our clearinghouses require a certain amount of money in our accounts by law” and things like that, people are gonna know what that means, and they’re gonna think that we’re up to something, so you need to explain – there’s a balance there, you know, obviously you don’t want to be condescending to people and be like “hey dummies, here’s what happened,” but kind of jiggly explain to people, hey this is why we decided to shut this down. I also think Robinhood would have gotten a lot of pushback had they done nothing, because then the story would be a bunch of people lost money and Robinhood took advantage of them, so I can kind of see where both sides of that-
Thomas: I think Phil said that they should have just restricted options trading. Maybe they should’ve just said okay, allow people to buy and sell stocks with their own money, but don’t allow people to take out options or short selling or whatever positions that are based on shares that you don’t necessarily have at the time, just because there was the gamma squeeze, which is a thing we explained over on the other show, which was just a squeeze on the very shares themselves, they’re needed for so many different positions that are being covered every which way, that squeeze is just making there be so much pressure on the transactions themselves that it drives the price up, so I get the need to do something, but Phil’s idea, I believe, if I’m remembering correctly was maybe just limit people to actually buying physical, real shares that they have to buy and sell and that would have been a better way to deal with it.
Morgan: I would say a problem with that, from a legal perspective, because then I feel like you are treating different investors differently.
Thomas: How’s that different than banning buying but allowing selling?
Andrew: Yeah, I was about to ask that same question.
Morgan: Well, you know, they maybe should have done that, but I can also see where probably what happened was somebody probably did say “hey, it might be better for us from a legal perspective if we just treat everybody the same.
Thomas: That doesn’t treat everybody the same. I’m still pretty cynical about Robinhood. I get that we’re saying there’s no case against them, but it seems – correct me if I’m wrong, Morgan, you’ve looked into the legal side more than I have, but it still seems like it’s entirely possible Robinhood restricted the buying to try to alleviate the short squeeze concerns. Is there not evidence to that? I mean, I get that we might not be able to prove that in a court of law, but I’m still sitting here thinking, like, that’s maybe what they did.
Morgan: Yeah, maybe? But again – and that’s why it comes into the whole, you know, I very much welcome and want an SEC investigation to look into what happened there, but also I do know Robinhood would have probably known, unless they are ran by morons, which wouldn’t be a novelty on Wall Street, a company ran by morons, but I think surely they would’ve known that the SEC would look into this decision that they were making. That’s what – yeah, it does boggle my mind, I think maybe they should have done something like that if that was their reasoning, because straight cash, again, like you said on that episode, that’s you risking your own money? Great, but don’t – we’re not gonna do any of these options or any of this “we pay for it later,” or the risk is on us, we don’t wanna be the ones holding the bag, that’s on you. That would have been probably a reasonable way to handle this, but again I think that at the end of the day they should have explained to their users what was going on and I also do welcome an SEC investigation. I’ll cash out my $20 and close out my account.
Andrew: [Laughs] Well, I’m very concerned about the conflict of interest. Morgan, on a couple of occasions you’ve said that Robinhood has an underlying obligation to treat the same kinds of investors equally. Is that a contractual obligation? Does that come from their terms of service? Is that generally what we expect a company buying and selling stocks on your behalf to behave? Where does that obligation come from?
Morgan: I wouldn’t say it’s necessarily in the terms of service, but I do think you would give somebody a little more ammunition to bring a claim where you’re saying “okay, well, you let my neighbor trade and you wouldn’t let me,” or buying, rather. Again, I think you would have an argument where it’s like okay, well, we allowed straight cash purchases, this is a different situation.
Morgan: Obviously we can treat you differently, but I think it does say okay, well you weren’t upholding your end of the deal, necessarily.
Andrew: Oh, okay. Yeah-
Morgan: I think it does, yeah.
Andrew: That makes sense. In other words, as part of the determination, because you couldn’t sell Robinhood and say it would be void for want of consideration if there were no binding principles at any time and they could shut you off for any reason, even their market volatility. There has to be a kind of threshold, and so I guess what I hear you to be saying is that that fact would undercut a finding of market volatility.
Andrew: Like oh, yeah, the market was super volatile, you shut me down but not a hedge fund.
Morgan: Yes, that’s exactly right.
Andrew: Got it. That makes total sense.
Morgan: I think that would have weakened their position. I think somebody advised them of that.
Thomas: Hedge funds aren’t using Robinhood.
Andrew: Well, no.
Thomas: The whole problem was people thought oh, Robinhood shut their users out but hedge funds were still able to trade because they don’t use Robinhood.
Andrew: Right, and I was just asking the – I’m glad we got to do – I was asking it as a hypothetical, if Robinhood allowed, let’s say not hedge funds because I agree with you, they don’t need to use Robinhood, but suppose Robinhood – and Morgan, you pointed this out. There’s no evidence of this. But suppose Robinhood was allowing larger institutional scale investors to buy and sell, but shut down for the Morgan’s of the world who have $20 bucks, would that give rise to a case in arbitration? And I hear Morgan to be saying, well in that case, yes, actually, you would have some recourse. You’d have to go through the arbitration process, but you would be able to argue that their determination of market volatility was pretextual, because they let some people do it but not everybody. Right?
Andrew: Okay, cool.
Morgan: Yes. And again, that’s not a guarantee that, again, you win, because I know Thomas you asked-
Morgan: -if there’s a, you know, kind of a surefire way? But again, not a guarantee you win, but I think you do get a little bit further with that argument than you would if you just said it wasn’t fair what happened to me.
Thomas: [Laughs] Alright, well, we’re way over time. There’s so much there, we’ll see if we need to do follow-ups, but I guess if there’s no other takeaway from all this, it sounds like as of now none of the cases against Robinhood have any chance in your opinion and if there is anything to be done about Robinhood perhaps it would be on the regulatory side? Is that a safe takeaway from all this?
Morgan: Yes. We’ll just have to see what the SEC finds, if anything on that.
Morgan: Then we’ll have to wait and see, but yeah, don’t run out and go find some charlatan who says “oh yeah, for $300 bucks an hour-
Morgan: -I’ll bring a suit against Robinhood.” Don’t take legal advice from a podcast, but also be careful, is my thing. When doing stocks and when going out and suing Robinhood, just be mindful.
Andrew: Love it.
Thomas: Alright, well thanks so much ace associate Morgan Stringer for comin’ on and explaining that all to us!
Morgan: Thanks for having me!
[59:38.0] [Patron Shout Outs]
[1:10:08.3] [Segment Intro]
Thomas: Now it’s time for T3BE, answer time, where we find out just how porked the test still is.
Thomas: But it’s the last one before we move onto a better test, hopefully. Well, Morgan, let’s find out which of is right and which of is a lawyer! [Laughs]
Thomas: Here we go!
Morgan: Or which of us shouldn’t be a lawyer! [Laughs]
Andrew: Alright, so this was a hearsay question, this was a woman walking across the street. She is struck by a vehicle travelling at a high rate of speed, she is laying on the pavement dying and then her last words are “I know I’m dying, I want to tell you that asshole I live next door to, he definitely stole the painting from the museum,” and then she dies. Then the museum sues the neighbor. Is the woman’s, the now deceased woman’s, statement admissible? I’m gonna cut to the chase, you guys eliminated answer A, yes as an excited utterance and Morgan gave the very helpful piece of advice of “it’s never an excited utterance.”
Andrew: Even when they put an actual exclamation point on it. I think that’s good advice in bar prep. Excited utterance must relate – the statement has to relate to the startling-ness of the-
Thomas: Right, right right.
Andrew: You know, the burglar knocks you down and then you’re like “hey, I just saw that guy knock me down coming out of the Fifth Third Bank,” something like that. I have never had hearsay admitted at trial for either A, an excited utterance, or B, a dying declaration. I find both of these to be edge cases. You said definitely not A, it’s definitely not an excited utterance, that is correct. You also both eliminated C, Morgan correctly pointed out why we eliminate C, which is the 6th Amendment right of confrontation attaches in criminal cases. That is-
Andrew: You have the right to confront the witness against you.
Thomas: Didn’t even think about that!
Thomas: Wow, good lawyering!
Andrew: Yeah, really good lawyering! So, the only question is, B or D? Is it a dying declaration or is it inadmissible hearsay? And I think we know where this is going, Thomas, I’m sorry.
Andrew: Morgan got this one exactly right. In order to be a dying declaration it’s not just any old damn thing you say before you die.
Thomas: Yeah. I should’ve known because the question made it too obvious and this test is porked.
Thomas: So I should’ve known, it was like when the bad guy seems to obviously evil in the beginning of the Law & Order, you know it’s not that guy.
Thomas: Yeah, should have known.
Andrew: Yeah, yeah. It must relate, in the same way that the excited utterance, the thing that excites you must relate to the statement that you make. Similarly, in a dying declaration as part of the hearsay exceptions for the Federal Rules of Evidence, the statement must relate to the cause or circumstances of death and here it’s just utterly unrelated gossip.
Thomas: Basically the cat burglar gets away with it.
Thomas: If you take out your witnesses – the lesson of this is if you kill your witnesses then you get away with it. Okay, cool!
Morgan: Yeah, I think we should be-
Andrew: Do not take-
Thomas: Take cat burglar advice from a podcast, everybody!
Andrew: -theft and murder advice from this podcast, please.
Thomas: There’s nothing that can be done because she died, it’s over, there’s no, it’s hearsay rules.
Andrew: There might be other stuff you could do, but there’s nothing that can be done with this particular statement in this particular-
Thomas: No, but for real, if you kill your witnesses, then it’s inadmissable-
Andrew: [Laughs] Alright, Eli!
Thomas: No, I’m pointing out that this seems stupid. Is there – so, there’s no room, because it’s hearsay. This is a Fish Called Wanda, trying to take out the old lady-
Andrew: [Laughs] Fish Called Wanda rule.
Thomas: It works because of hearsay law.
Andrew: There we go.
Thomas: This is my argument for why hearsay is stupid. [Laughs]
Thomas: But Morgan, of course, is the better lawyer between us, who would have guessed? I’m just absolutely shocked. Good job Morgan, you nailed it.
Morgan: Thank you, I don’t have to turn in my bar card, so that’s comforting.
Morgan: But no, I just love how extra all the questions are in the bar prep.
Morgan: It’s just like “yeah, her last words are about a neighbor who stole a painting.” It’s like, well, that was a lot to process. And yeah, I do think that as you’re prepping for the bar it does twist your mind in a certain way, so you are reading these questions and yes, Thomas, I do think sometimes the lesson you do get is “ah, just kill all the witnesses!”
Thomas: Yup! Good job, bar association!
Thomas: Or whoever, yeah. So, that ends our pork test. I was 2 for 10, 20% worse than chance, there you go!
Thomas: That’s how hard that porked test was. My career rating was somewhere in the 55’s I think, or something, but this test was impossible. Let’s find out which lucky listener or – actually this one was very getable. I could have gotten this one [Laughs] I just messed up. Let’s find out who else didn’t mess up in this week’s T3BE winner.
Andrew: Well Thomas and Morgan, despite having an actual, real, practicing lawyer, most of the comments on Twitter were actually pro-Thomas, hoping that he would pull this one out. I could not find a single public Twitter answer for the correct response, D, Morgan over Thomas, so we had to go to our patrons. A lot of our patrons wound up with D, that’s practicing lawyers, law students.
The best answer that I could find is our buddy Lawn in Order (fantastic name) who writes “The answer is D, the hearsay exception for dying declaration must relate to the circumstances of the death, otherwise any good lawyer could get any hearsay admitted into court by simply killing the person who was providing the evidence.” That is a fantastic reasoning as to why dying declaration must relate to the subject matter of the death, and thank you Lawn in Order for getting that one right, congratulations for being this week’s winner.
Thomas: And that’s our show, thank you so much for listening! Hey, make sure to catch us on Stereo every Wednesday at 5 pm Pacific, 8 Eastern, it’s the fun place you can go interact with us, ask us questions, we actually get to hear your voice, you get to hear your voice on the show. Super fun, make sure to do that. Alright, that’s our show, we’ll see you next time.