April 10, 2010
Just how much cynicism can the Supreme Court stand?
I gave a paper presentation a while back wherein I made the off-hand comment that I thought most Americans believe Supreme Court justices often advance their personal beliefs rather than apply the law impartially. This statement was met by vigorous dissent by at least one of the participants. So, with Justice Stevens announcing his retirement, I did a quick search and came up with the following recent Rasmussen Reports survey:
Half of voters nationwide (50%) believe Supreme Court justices have their own political agendas, though that is down nine points from March 2009. Twenty-seven percent (27%) believe the justices remain impartial.
Of course, as the saying goes: there are lies, there are damn lies, and then there are surveys (or something like that). But these results are consistent with the opinions I hear expressed by Americans on a regular basis, so I am inclined to give them some credence. Which leads me to wonder: Just how cynical can we get about our Supreme Court before the necessary respect for its decisions becomes threatened? Or is it the case that regardless of how cynical we get about the justices, we will retain enough faith in the structural limitations on how they reach their conclusions?
April 9, 2010
North Dakota Law Review Energy Symposium
I’m looking forward to participating in today’s North Dakota Law Review’s energy law symposium. As the Law Review describes it:
The goal of this event is to address the most relevant energy issues facing North Dakota and the region. We will achieve this goal by bringing together energy experts from across the country and government and private sectors to discuss and initiate further conversation on not only the current state of energy law, but also how we would best implement these ideas and turn them into reality. Issues in the symposium event and in the symposium issue will include but are not limited to the following: the proper energy regulatory system in North Dakota; the correct balance between land owners and wind energy developers; how to minimize the environmental impact of oil and gas development; current lease issues in oil and gas; the impact of cap and trade on the state and the region; the proper role of the government and the private sector in maximizing the potential of renewable energy.
I will be speaking about the impediments to bringing clean and renewable fuel sources into the mix, including difficulties in determining what should be included as “renewable” or “sustainable” in state and possibly federal energy polices. I will focus on the possibilities of generating electricity using geothermal energy made accessible as a by-product of oil production, which could be deemed renewable, sustainable, both or neither (depending upon who you ask).
I’m especially interested in the presentation by a mentor and former colleague, Chris Schindler, who will be discussing energy derivatives, including possible financial reform and the fate of over-the-counter energy derivatives regulation.
More to follow, and keep an eye out for the symposium issue, if this sort of thing interests you.
April 8, 2010
Is Poker a Game of Skill?
A recent state court opinion held that poker is predominantly a game of chance. This is important because many states define illegal gambling as some version of "games of chance". There are courts that have come out the other way. As a poker player, the first thing I want to do when I hear a judge say that poker is predominantly a game of chance is invite him or her to my next game. But what I'd really like to see (and it may in fact already have been done) is the University of Alberta Poker Research Group compare the rate of return of bots with varying degrees of poker skill. I would expect the results to clearly show that at some point skill predominates.
Are Bubbles Safe Harbors?
The Wall Street Journal points out that plaintiffs are generally having a hard time avoiding dismissal in the early rounds of sub-prime crisis related lawsuits. At least anecdotally, what the Journal piece refers to as the "global financial catastrophe defense" sounds like the "no one knew or everyone knew" defense. I just got done listening to John Cassidy's "How Markets Fail" and I came away from that reading relatively convinced that the "no one knew" defense is simply, well--indefensible. On the other hand, if "everyone knew"--at what point does it become actionably reckless to just keep "dancing"? I'm wondering if we'll come out of this with a new safe harbor for corporate fraud--the "Bubble" Safe Harbor.
April 7, 2010
Cho on World Trade Law
Sungjoon Cho has posted From Control to Communication: Science, Philosophy and World Trade Law on SSRN with the following abstract:Science has recently become increasingly salient in various fields of international law. In particular, the WTO Sanitary and Phytosanitary (SPS) Agreement stipulates that a regulating state must provide scientific justification for its food safety measures. Paradoxically, however, this ostensibly neutral reference to science tends to complicate treaty interpretation. It tends to take treaty interpretation beyond a conventional methodology under the Vienna Convention on the Law of Treaties, which is primarily concerned with clarifying and articulating the treaty text. The two decades old transatlantic trade dispute over hormone-treated beef is a case in point. This article demonstrates that beneath the controversy between the United States and the European Union on the safety of hormone-treated beef lurks a critical hermeneutical divergence on the scope and meaning of relevant risk science, which a conventional model of international adjudication cannot fully fathom. The article is a philosophical retelling of what has been regarded largely as a legal-regulatory controversy. Informed by the philosophical hermeneutics, the article concludes that only a continuing dialogue or communication between disputing parties concerned can narrow down the hermeneutical discrepancy on risk science.
Providing Liquidity -- When It's Convenient
Goldman Sachs insists in their 2009 annual letter that they did not have a conflict of interest with regard to their actions during the peak of the subprime mortgage mess. This kind of proactive (aggressive?) defense of their tactics is not their general practice, as the New York Times DealBook notes.
Goldman execs defended their role in the mess, claiming that they were not betting against their own clients and were instead simply fulfilling their role as a bank providing the market liquidity. Perhaps this is true, but if memory serves, they sure didn't seem to find that role so compelling during the auction rate securities debacle in 2008.
April 6, 2010
A new role for the States?
Word is that an asset threshold implemented in 1996 will be raised by the imminent regulatory reform, bringing many more investment advisers under the jurisdiction of State regulators. See "State securities cops may soon see plates a lot fuller," Investment News (April 4, 2010). The article quotes an ambivalent SEC Chair Mary Schapiro, who does not oppose new rules on shared jurisdiction but questions the strain on State resources.
Any such re-drawing of turf lines is good news only. First, it is quixotic to continue to believe that the SEC - eager as it may be to win back the public - can continue to add to its significant duties. The same Bills that would move thousands of investment advisory forms around the chessboard would no doubt also bring some portion of hedge funds into the game; simply put, it's questionable whether the Commission (which already oversees public companies, broker-dealers, stock exchanges, clearing agencies, and investment advisers) could simply add without subtracting.
Second, a malevolent myth about securities regulations posits that States are to play a subordinate (if not preempted) role. The securities laws clearly rely on States and even private attorneys general to help handle the mammoth task of keeping markets both liquid and trustworthy. If pushing some exams and cases to the States furthers the overall goal, it's a small price to pay.
Finally, to the extent that disparities among the States pose the possibility of inconsistent results, that inequity already exists (ask any stock broker forced to register with various States in order to lawfully service an increasingly mobile and national clientele). If an adviser's dealings with a regulator in State X pose inordinately more hurdles than such dealings with State Y, the answer is responsive regulations (as the SEC already does to remedy disparities in exchange pricing, and among State treatments of short sales). Such stopgap measures are still preferable to leaving entities unexamined and frauds reviewed in hindsight by Congressional panels.
April 5, 2010
What's in a name?
This year's Super Bowl broadcast was recorded as the most watched television event of all time. The E*Trade ad featured therein continues to score points months later.
Specifically, a commercial for the online broker-dealer humorously depicted an infant trader speaking the coy language of stock jockeys to an off-screen love interest; a baby love triangle ensued, resulting in the perturbed off-screen infant asking whether that "milk-aholic Lindsay" was in the room. Actress Lindsay Lohan subsequently filed suit for $100 million on Long Island, alleging that the reference constituted an unauthorized use of her publicity.
For a critical look at the feasibility of the claim under New York and California law, see the Columbia Business Law Review Blog, which recently hosted a piece by one of my favorite former students, Ari Taub.
Bringing Corruption into the Classroom
On Saturday, my co-blogger Stefan Padfield wrote the thoughtful post, “How Corrupt Are We?” He noted that perhaps “differing conclusions about how corrupt we are wouldn't impact the law much at all.” I’m inclined to think he is right about that, and I am still trying to figure out if that is a problem. However, I do think this entire discussion of corruption (especially in the context of business law) has very real impacts on legal education.
As an example, when I teach insider trading, I usually explain (briefly) Henry Manne’s concept (greatly simplified) that insider trading should not be illegal because the market would reflect the activity, thus leading to more accurate prices for securities. (For a short, but helpful, overview of Manne’s work, see here.) I find the discussion that follows tends to be interesting, and I think it is important to provide opportunities for students to question the policies behind laws relating to activities, such as insider trading, they may assume to be inherently “bad.”
However, in the education process, I also think we need to provide some context for these kinds of policy discussions. That is, I think it is important to ensure that in questioning the value of certain laws that we still reinforce a respect for the rule of law. It is one thing to think insider trading laws are unwise and inefficient; it is quite another to think it is not "really corrupt" not to follow such laws as long as they are in place. And while I think most people understand the difference, there is ample evidence that understanding is not universal.
April 4, 2010
Tuch on Gatekeepers
Andrew Tuch has posted Multiple Gatekeepers on SSRN with the following abstract:
context of business transactions, gatekeepers are lawyers, investment
bankers, accountants and other actors with the capacity to monitor and
control the disclosure decisions of their clients – and thereby to deter
corporate securities fraud. After each wave of corporate upheaval,
including the recent financial crisis, the spotlight of responsibility
invariably falls on gatekeepers for failing to avert the wrongs of their
clients. A rich vein of literature has considered what liability regime
would lead gatekeepers to deter securities fraud optimally, but has
overlooked the phenomenon that multiple interdependent gatekeepers act
on business transactions and thus form an interlocking web of protection
against wrongdoing. To date the literature has adopted a unitary
conception of the gatekeeper, assuming that a single gatekeeper acts on a
transaction or, where multiple gatekeepers are involved, that each is
independently capable of deterring securities fraud.
This article explains the pattern of multiple gatekeeper involvement that characterizes business transactions. It analyzes why gatekeepers exist at all and why corporations turn to a multiplicity of them for most transactions. It then extends gatekeeper liability theory to account explicitly for the possibility that the fraud-deterrence capacity of gatekeepers will be interdependent, and not simply independent. In doing so, the article draws on optimal deterrence theory and analogizes the position of multiple gatekeepers with that of joint tortfeasors. The article also assesses the U.S. federal securities law regime from the perspective of the prescriptions of gatekeeper liability theory, identifying gaps in the regime that arise from the fragmentation of gatekeeping services and suggesting reforms designed to compel cooperation among gatekeepers to fill them. The theory has implications for the post-financial crisis reform proposals that would impose gatekeeper liability on credit rating agencies, which the article specifically considers.
Simmons on In-House Counsel
Omari Scott Simmons has posted The Under-Examination of In-House Counsel on SSRN with the following abstract:
Although the emergence of in-house counsel is one of the most significant shifts in the legal profession over the past half century, there is a relative dearth of scholarship dedicated to this important transformation. This Essay highlights the reasons for the under-examination of in-house counsel in the legal literature, namely: (i) the difficulty addressing corporate complexity; (ii) a preoccupation with director-shareholder dualism; and (iii) the overemphasis on symbolic procedures reflecting democratic values like independence. This Essay, however, contends that further examination of the in-house counsel role may: (i) illustrate how a well-positioned in-house legal presence, complemented by external gatekeepers, is an essential feature of healthy corporate governance for large publicly-traded firms; and (ii) yield more pragmatic resolutions to corporate governance issues.