Steel Deal in Jeopardy & SBF's Ex-Girlfriend Sentencing

Published Sep 12, 2024, 1:56 AM

Rick Sofield, a partner at Debevoise & Plimpton and formerly the Justice Department’s CFIUS representative, discusses the White House’s opposition to the Nippon Steel’s proposed deal to take over US Steel. Ava Benny-Morrison, Bloomberg legal reporter, discusses Caroline Ellison, Sam Bankman-Fried’s former girlfriend, asking that a judge not sentence her to any prison time. June Grasso hosts.

You're listening to Bloomberg Law with June Grosso from Bloomberg Radio. I couldn't agree more with President Biden.

US Steel should remain American owned, an American operator. It was no coincidence that, in a campaign blitz on Labor Day, Vice President Kamala Harris, courting union voters in the crucial battleground state of Pennsylvania, where US Steal is headquartered, announced her opposition to Nippon Steele's fourteen point one billion dollar takeover of the iconic American company, a deal that the United Steelworkers' Union also opposes. The proposed deal has been subject to a review by the Secretive Committee on Foreign Investment in the United States, or SYPHIUS, and President Biden plans to kill the deal as soon as Syphius formally recommends it be scrapped, according to Bloomberg's sources. Of course, Biden announced his opposition to the deal way back in March without any scifious recommendation, an unusual move. Several business groups, including the Chamber of Commerce, sent a letter to Treasury Secretary Janet Gellen today warning that the administration's national security review of the deal is being unduly influenced by political pressures. Quote. We feared that the Scifius process is being used to further political agendas that are outside the committee's purview, and both companies have suggested they could challenge Biden's decision in court. Joining me is Rick Sofield, a partner at Debauvois and Plimpton who was formerly the Justice Department. Scythia's representative, so tell us about Scyphius and how it operates.

SIPPIUS is the Committee on Foreign Investment in the United States, which is an interagency body made up of representatives from various US federal government agencies. It includes agencies such as the Department of Treasury, the Department of Defense, the Department of Justice, the Department of State, the Department of Homeland Security, and others. The chair of the committee is the Department of Treasury, so they host the meetings. Their job is to work with the rest of the committee to come to consensus on how to address national security concerns arising from foreign investment into US businesses.

So when they make a decision, it's sort of an interagency decision.

That's right, No single agency at on its own. The various members of the committee discuss potential outcomes and work together to come to the best possible resolution for a given transaction. The idea is, rather than have a single agency or a single individual making these important decisions, the government puts different people in the room from different backgrounds, with different institutional instersts, with different types of expertise, so that the committee is able to get a broad view from throughout the government as to how to address concerns.

Now, in March, President Biden publicly said he opposed the sale of US steel to a foreign company before a final Siphius decision. Is that unusual?

That's very unusual to my knowledge. President Biden's statement was made even before a filing had been made with Syphius, and that's not how the process ordinarily works. Ordinarily, a filing gets made to the committee by the parties. They usually do that together, and Sophius evaluates the transaction using what it calls a risk based analysis. And that risk based analysis looks at the threat posed by the foreignvestm, the vulnerability of the US business, and the consequences if the threat actor were to take advantage of vulnerable US business. And so looking at the threat, vulnerability and consequences altogether, Syphius comes up with its overall risk assessment and bases its recommendation to the president on that risk assessment. So back in March, to my knowledge, Cifius would not have completed a risk analysis, and so the President really wouldn't have had the benefit of that insight from Siphius in making his pronouncement. There there'd been no risk analysis, And to me, frankly, you know that creates potential litigation risk because parties to the Sifius process are entitled to due process, and it's hard to see where there would be adequate due process, which is to notice an opportunity to be heard, meaningfully heard on an issue. How they could have had due process if the President had already made it to decision before the committee had done its work and done its risk based analysis.

So now, as first reported by Reuters, Syphius sent a letter to the companies in late August warning that the transaction raises national security concerns that can't be mitigated by asset sales or other measures. What can the companies do to change Sophius's mind or allay their concerns?

So it sounds like what the company's got is what Ifius colloquially calls a rawls letter or a due process letter. This has become a pretty routine part of the Sipius process over the last decade or so. And really that letter the rationale Forcifius issuing a letter of that type guns from litigation involving company called Rolls that was building a wind farm in Oregon, and Syphius was concerned that the wind farm could be used to house listening devices that would spy on a naval training base near the wind farm, and so Syphius moved to block that transaction. The parties to that transaction suit and said that Sipius's decision was not based on due process and actually invited the court to review the president's determination. What the court did there is it reaffirmed congresses mandate in the Sifius Statute that courts should not stand in the shoes of the president and do their own national security assessment. And so the court didn't say that the president got the national security decision wrong. Instead, what it did is it said, hey, Siphius, you need to go back and check and make sure that you gave the parties adequate due process. You gave them all the information about what your concerns are and gave them an opportunity to be hurt on those concerns and to see if there could be some package of mitigation measures that would alley the security concerns short of a block. So that's what seems to be happening here is CIFUS is now communicated specifically what its national security concerns are. And I would assume what's happening now is the companies are, now that they understand what the concerns are, trying to convince the government that those concerns can be addressed in some way short of the President blocking the transaction, and that can involve providing written responses that can provide include providing the opportunity for face to face meetings with senior executives.

And the like.

And it's an opportunity now for the companies to try to convince Cyphius that there's a way to address the concerns.

Nip On Steele sent a senior executive to Washington today tom with senior US officials to boost its case for the takeover of US Steel. According to Bloomberg sources, would you call that a last ditch effort to save the deal or just part of the process.

I mean, you know, Ciphius is already said they have concerns, they don't think they can mitigate it, and so you know, normally in the process that doesn't necessarily mean the decisions done, but it's kind of hard to get them to change their mind if they've gotten this far. So you know, maybe you could call it a last ditch effort, but it is part of the process, right where Cifius gives a written description of the concerns and then the parties have discussions to try to address it.

Talking about due process, a letter from Syphius apparently arrived on August thirty first. The companies were only given until September fourth to respond, and also the companies wrote to the panel asking to withdraw their submission, and Sophius ignored that are those indications that might go toward a lack of due process.

They could Cities is usually pretty liberal about granting companies an opportunity to withdraw a filing and to refile it, to stretch the clock and continue discussions on whether a patch of mitigation measures can be constructed that would be adequate and appropriate to address the national security concerns. So it is abnormal in my view for Cifius to not allow the parties to withdraw. And that's especially true in that transaction like this, where the deal hasn't been completed. If we're in a situation where Syphius was reviewing a transaction that had already occurred, then the national security harm would be accruing every day, and Cyphius made choose to act quickly in that case to stop the national security harm from occurring. But here the transaction is not gone, and so it's odd to me that Cyphius wouldn't give the parties an opportunity to take the time to put together some meaningful proposals on how to drastic governments or risk concerns.

I'm not sure I really understand what the national security concerns are, because US Steel has warned that if the deal doesn't go through, it could put thousands of jobs at risk and might force the company to relocate from Pittsburgh.

Well, first of all, I don't have the benefit of seeing the record, you know that's been assembled by Sciphius, and frankly, we never will have the benefit of seeing the full record. That's in part because if this is risk analysis, the threats, the vulnerabilities and the consequence that is posed by the transaction includes inputs from the intelligence community, and that goes towards the threat piece of that analysis. That threat variable and the way the intelligence community defines threat is the capability and intent of a foreign acquirer to harm US national security interests through a proposed transaction. And so what the intelligence community does. The National Intelligence Council coordinates the entire community that includes the FBI, the CIA, the NSA, the military intelligence agencies, the Department of Energies, Intelligence Agency, and others. It coordinates all those intelligence agencies, collects information from those various agencies, which includes very sensitive classified information that would just not be in the public regarding the foreign acquirer and potentially the transaction itself to the extent there was collection involving the transaction, and so all that information is put together by the National Intelligence Council and a document called the National Security Threat Assessment if it called it a NISTA for short. So that NIFTA, a highly classified document, is an important part of the record that the government is looking at and that would be referred to the President as part of a risk based analysis. So there may be something, you know, if we want to give Siphius the benefit of the doubt here, there may be something in that NESTA that indicates a threat that we just don't know about it. I'm hard pressed to think of what that could be without the benefit of having seen that type of document and that type of reporting. But to me, that could be the type of thing that the government could be relying on in determining that there is a national security risk here.

Coming up next on the Bloomberg Law Show, I'll continue this conversation with Rick Sofield. If the companies decide to sue Sciphius, does that open the committee up to problems? I'm June Grosso. When you're listening to Bloomberg. Nippon Steele sent a senior executive to Washington today to boost its case for the fourteen point one billion dollar takeover of US Steel. According to Bloomberg sources, the Japanese steelmaker's bid to acquire its American counterpart is at risk of collapsing, with President Joe Biden set to block the merger deal as soon as recommendations from the Committee on Foreign Investment in the United States land on his desk. Despite that, Japan's top government spokesman and ruling party leadership contender Yoshi Masahayashi, expressed hope that the deal could go through in an interview with Bloomberg last week.

It's still going on and that we don't know that lis out yet, So we really hope that even in this port Carrea, the both sides with a que who is the mutual benefit and the more free flow of the investment to each other.

US deal has vowed to pursue all possible options under the law to ensure that the sale is completed. I've been talking to Rick Sofield apart nor a deb of was in Plimpton, who was formerly the Justice Department sifious representative and participated in the review of more than a thousand transactions. If the companies decide to challenge this in court, what are the risks to scifious in a proceeding like that With the elimination of the Chevron doctrine play a part.

So this is a really interesting question. You know, Firstly, the Rawls case it kind of gave a guideline of how the court might think about due process, and so I think certainly here there could be some due process arguments, particularly in light of the fact that you know, the President put his thumb on the scale back in March before any record had been put together, and so I think that can really call into question whether or not there has been due process here. The decision might have been made before the transaction was even filed with the Scifius Committee, and so I think that can put the government in a very difficult position if due process arguments are raised in the courts now on the issue of what effect the overturning of Chevron deference might have. I do think this is a tougher argument, but maybe not an impossible one in today's environment. And that is, you know, Congress has said that the courts should not put themselves in the president's shoes and assess national security risk on their row, that the courts should defer to the president's authority in this space, and deference to the executive branch to the president on national security matters. It's a long standing president it's a long standing deference, and it's for good reason. Right the president has the benefit of inputs from the intelligence community that the courts just don't have, and so to kind of attack that long standing deference. I think that's an uphill battle. That said, though, you know, we have this trend that we're seeing in the courts away from giving deference, and so that could at the court's thinking here, particularly if we're in a circumstance where there's a really weak administrative record, where there are significant due process concerns, that could invite the court to go further than just pointing to due process fouls and to potentially somehow put guardrails around or curb the president's supreme authority to make national security determinations through the scifist process.

That would be a first then right, absolutely be a first.

But you know, there's a saying in legal circles that you've probably heard, which is bad facts make bad laws. If you've got bad facts, you've got a bad written record. You've got a record of sort of the decision maker making a decision months before the matter has even been put before him. And then you know, the supporting documentation is not convincing that the parties are not given an adequate time to prepare responses to the government's written concerns. And you have all these factors pointing to perhaps a precipitous decision by the government. You could be inviting the courts to take aggressive action, and so, yes, I think it would be novel for sure, and I think it would be a hard argument to make and win to challenge the president's national security determination. But I give the court a bad enough record, they just might do it.

There's something else I'm curious about. So nip On Steel and US Steel have engaged in a nearly year long attempt to win the support of the United steel Workers, and today on a website Best Deal for American Steel dot Com, the two companies made their correspondence with the steel workers public in an effort to show how union leaders snubbed their efforts to negotiate an agreement. And the documents show, for example, that there were promises of no layoffs or plant idling or permanent closures, et cetera, et cetera, but the union remained firmly against it. And I'm wondering if it's unusual for companies to be dealing directly with the union like this before the deal is even finalized, or is that par for the course.

So, I mean, what is par for the course is for the parties to a transaction to work with other interested parties to identify potential national security concerns and to craft mitigation measures designed to address them. The idea here would be that the parties want to get out in front of these concerns and when they file with the government and when they are engaged in this back and forth with the government. Where we are now, where the government has identified national security concerns, company doesn't necessarily want to be reactive. They want to have gotten their ducks in a row to be able to make the arguments to the government that their national security concerns can be addressed. So, you know, I can't say that I've seen it where there's been sort of discussions with a union and acquiescence from a union in order to get government approval. But to have other stakeholders who are involved and on board with a package of mitigation measures. That's consistent, right, That's with normal practice. Companies do this all the time, and it's part of just good management of vacifious process to have your ducts in a row and to be prepared to address any concerns that the government might raise.

Let's say that companies do challenge it in court, how long would it take do you think to play out months longer than months.

It can take months or years. There's no certainty, you know, when you get to this litigation state, and so it's really hard to say how long a litigation process would take the play out.

And it's looking like litigation is the only possible answer for Nippon and US steal, especially since former President Donald Trump has also expressed opposition to the deal. So no matter who wins the election, the next president will oppose the deal. Thanks so much for joining me, Rick, that's Rick Sofield, a partner Debevoise and Plimpton. Coming up next on the Bloomberg Law Show. Sam bankman Fried's former girlfriend and the government's star witness against him, is asking a judge not to give her any jail time when she's sentenced this month. I'm June Grosso and you're listening to Bloomberg. Caroline Ellison was the star witness in the government's fraud case against her former boyfriend, the one time crypto wonder boy, Sam bankman Fried, and now she wants a get out of jail free card. The former Alameda Research Chief executive officer is pointing to her quote extraordinarily impactful cooperation in one of the country's biggest financial crime investigations to convince a judge to spare her from spending even a single day in prison. In a sentencing memo late Tuesday, Ellison's lawyers portrayed her as a talented woman caught under SBF spell as his on again, off again girlfriend who wound up helping him commit crimes. Quote. She regrets her role deeply and will carry shame and remorse to her grave. Joining me is Ava Benny Morrison, who covered the trial and has looked at this one hundred and fifty page sentencing memo. Ellison is trying to get away with no jail time at all. Tell us what argument she's using.

Caroline Ellison filed a sentencing memo in court, essentially putting her case board for the judge to spare her from serving any prison time. She says that she was in a pretty unique and complicated situation with sex founder Sam Bankment Freed. They were in an on again, off again relationship and he was manipulative, very hot and cold with her, and she felt like she was forced into a position to help him with his crimes and she couldn't leave. She's asked the judge to take that into consideration, but most importantly taken to consideration the fact that she was the star witness of the government in its case against the Sambaateman breeds. As soon as STX collapsed in late twenty twenty two, she went back to the US. She met with several prosecutors and regulators problem everything that they wanted to know, even pointing them times that were committed by Sam Bakman Breed that they didn't know about. She's put all of these arguments forward just in a bit to try and convince the judge to just sentence her to supervis release memo.

A lot of time was spent on her on again, off again relationship with Sam Bankman. Freed did that somehow give her a pass?

It didn't form quite a central part of the senacinema, which was more than one hundred and fifty pages, and her lawyers went into pretty intimate details about what that relationship was like mols, what she felt about Sam and how he was treating her. She felt very isolated, she felt manipulated by him. She was trying to balance a romantic relationship and a professional relationship with the man who was her boss. Her boys said in this document that when she tried to leave Alameda, he would shower her with professional compliments, tell her that he loved her and that she was a key part of that operation and it couldn't possibly go on without her. So she sort of painted this picture of being stuck but at the same time really losing her moral compass being Sam Bankman Free to carry out his multi billion dollar Florida.

That's year talking about details in the memo. Did they actually talk about her wanting to be invited to the met Gala in twenty twenty two?

They did.

Actually, they gave some examples of some sick dynamics between her and Sam Bankman Free. One example she gave was when Sam was invited to the Met Gala in twenty twenty two and Carolin was really excited about this, and she asked if she could go with him, and he said no and completely rebuffed her and said that he didn't want to be seen out in public with her. That's the version of events by her lawyers. They also said that she he never invited her to any of the kind of flashy crypto industry conferences that he would go to, and really went to great lengths to keep their relationship a secret.

It sounds more like a novel to me than a sentencing memo. They also tried to distance her from this slavish life style, you know, portrayed her as someone who shopped at the gap and gave to charity and all this stuff. I mean, how did they try to portray her. She did make a lot of money, didn't.

She Well, she was paid a pretty decent salary, and she said that she received bonuses, generous bonuses, in line with a lot of the other executives at FTX and Alimentar Research. But you're right, her lawyers really tried to portray her as someone who was humble, who wasn't interested in the finer things in life, just because she was a wealthy human being. They gave little besprinkles, little anecdotes throughout the sendencing memo from friends and family and former colleagues saying, you know, Caroline muft to shop at the gap. Her mum even mentioned that she had to buy her shoes because she was so disinterested in buying anything for herself when people couldn't even afford to eat around the world. So they really tried to distance her from some of the more extravagant and lavish elements that are associated with the crypto industry.

They said that she's continued to suffer even after the trial house.

So Caroline's boys have said that she was subject to intense, intense public scrutiny, that trolls online speculater about her whereabouts. When she went outside, she had to disguise herself, that she was pursued really heavily by the media. And they say that she has suffered more than other people that were employed at Sex and Alimeter, and this should be taken into account.

She's been rendered effectively unemployable in the near term, according to the memo, And they also mentioned that she has a new boyfriend now she does, she has a.

New partner, and her boys had asked to judge the permission to redact some of the more personal details in this centering memo relating to where she's living now and her partner to kind of protect her from that ongoing public attention. But yeah, she is working but as a volunteer, and her lawyers said that she's also chipping away on a couple of writing projects, fiction and even a mass textbook.

I was surprised. The Probation Department recommended she served three years of supervised release, but no prison time.

Yes, the Probation Department said that she should be spared any prison time. And look, it's not that unusual for cooperating witnesses to be spared from prison or serve a very very short sentence in a case like this. Caroline Ellison, along with two other former FDF executives, were really key to the government's case. They all turned up and testified against them. They've been freed at his trial in late twenty twenty three, which eventually led to his conviction and his prison term of twenty five years. So it'll be interesting to see what Judge Caplan does here and how he weighs up the value of Caroline's corporation and whether he finds that she should in fact spend at least a short period of time behind bars.

And federal prosecutors haven't said yet what they'll ask for.

No, we expect to hear from them in the next week or so, and they will put up their own recommendation for what they think would be an adequate punishment for Caroline. They could side with the Probation Department and say, yes, we don't think that she should do any time because she was so so valuable for us, or they could go outside of that and recommend some prison time. But ultimately it comes down to the judge and he will make the termination as to what he thinks to Caroline.

To cop and the former FTX Digital Market's co chief who pled guilty but didn't cooperate, he was sentenced to seven and a half years in prison. I don't know if we can use that as an indication because he didn't cooperate, but seven and a half years is pretty substantial.

Yes, absolutely, and was actually above the recommendation that the prosecutors had put forward and that the Probation Department had outlined as well. But Ryan Salin was a little bit of an outlier because he hadn't signed on to be a corporating witness and testify gets them statement free a trial, so he couldn't fall back on that and make that same argument that Caroline is making in that he helped the government put their case together and he was a key part of it. So I think that's part of the reason why he got such a big centers.

And that was Judge Kaplan, who sentenced him as well, the same judge that's going to sentence Ellison.

That's right.

We will find out what he decides at her sentencing on September twenty fourth. I know you'll be there, Ava, Thanks so much. That's Bloomberg Legal Reporter Eva, Benny Morrison, 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 ww dot Bloomberg dot com, slash podcast slash Law, and remember to tune into The Bloomberg Law Show every weeknight at ten pm Wall Street Time. I'm June Grosso and you're listening to Bloomberg

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