This week, the inspector general of the Commodity Futures Trading Commission released his report on the CFTC's regulatory oversight of MF Global, the financial firm that collapsed in October 2011 and had a shortfall of approximately $1.6 billion of customer funds in the process. The report, which came in response to a request by Senator Richard Shelby looked at (i) the CFTC's oversight leading up to MF Global's collapse, and (ii) CFTC Chairman Gensler's initial involvement in MF Global matters and subsequent recusal because of his prior working relationship with MF Global head Jon Corzine. The report provides a number of lessons for the CFTC as it begins to wield its massive new Dodd-Frank powers.

In pre-market trading, Procter & Gamble market cap is up $7 billion on the return of A.G. Lafley to the CEO's chair—more if you consider that the market as a whole is down. Either the collective wisdom of the market is en masse making a huge mistake in valuing the difference an executive makes to shareholder value, or Mr. Lafley's $2 million base salary is a bargain. If a company I held stock in could make an investment with a 350,000% return, I'd sure want them to do it.

Support.com offered a free "checkup" of computer safety; according to plaintiffs who sued, this was a scam that overstated the dangers and computer errors in a system to induce people to buy $29 software or a $4.99/month subscription service. LaGarde v. Support.com quickly settled for $10 a class member. Whatever the claims process was, it didn't impress the class: less than 0.2% of class members made claims. For the same reason that no one brings an individual claim for $29, no one objected to the settlement. After the parties boosted the claim value to $25 (without any notice to class members who might have taken the trouble to ask for $25 when it wasn't worth their time to ask for $10) and throwing in $200,000 to cy pres, the district court rubber-stamped the settlement and fee petition when no one objected. That $700,000 was 1.4 times what was likely an inflated lodestar of $500,000, so the attorneys suffered no consequences for freezing out 99.8% of the class, who got nothing. And Support.com got rid of consumer-fraud claims for the low low price of about $1.25 a class member, the vast majority of which went to attorneys. Consumer Watchdog, an organization that purports to be consumer advocates, seems not to complain that it received $100,000, more than three times as much as the consumers it purports to advocate for.

Coming up on the Supreme Court class action docket next week: the certiorari petition in Sears v. Butler. In yet another class action over alleged defects causing biofilm in washing machines, a Judge Posner opinion took the position that the class-action mechanism was appropriate to resolve a single issue, following the Whirlpool v. Glazer decision we criticized earlier, and which the Supreme Court GVR'd in the wake of Comcast v. Behrend.

As the opposition to certiorari notes, the case is in a strange procedural posture: there is no class certification order as of yet (though the Seventh Circuit's ruling would seem to all but dictate one on remand). The Supreme Court has yet to grant certiorari on a Rule 23(f) decision, but nothing precludes them from doing so, and this may well be a good case to re-assert Rule 23(b)(3) predominance standards. Related: Washington Times.

One of the targets of the Class Action Fairness Act was coupon settlements, the problematic class-action settlement device where the attorneys would receive millions, and the class members would receive coupons of little or no value that were often indistinguishable from what the defendant would use to market itself to non-class members anyway. Under 28 U.S.C § 1712(a), if a court is to value coupons in a coupon settlement, it has to use the value of the "redeemed" coupons, not some hypothetical valuation.

The coupons issued by HP in the HP Inkjet Litigation case were especially appalling: a few dollars only good at HP.com, and not stackable with other coupons. HP looked to make money on the coupons, because they would receive full retail price (minus a few dollars) for things like paper and ink cartridges instead of wholesale price if consumers purchased the goods (often at lower prices) at Staples or Amazon. The Center for Class Action Fairness objected to a settlement that looked to pay the attorneys $2.9 million, but the class only worthless coupons. The district court approved the settlement, while reducing the Rule 23(h) award to $2.1 million, even though class members only claimed about 30% of the coupons available: the $800,000 and remainder of the coupon "fund" reverted to HP. We appealed the district court's failure to follow § 1712(a). As Larry Schonbrun recently complained in the American Thinker, many courts had been evading CAFA's requirement by looking at a provision that permitted the use of lodestar for non-coupon relief.

In a split 2-1 decision that was the first published appellate decision to interpret § 1712, the Ninth Circuit agreed. We were especially pleased by the following language endorsing a principle that has motivated many Center objections:

Of course, one might argue that the fees award in this hypothetical case is "attributable to" the work of class counsel on the action, rather than the coupons. But one would be mistaken. Attorney's fees are never "attributable to" an attorney's work on the action. They are "attributable to" the relief obtained for the class. See Class Plaintiffs v. Jaffe & Schlesinger, P.A., 19 F.3d 1306, 1308 (9th Cir. 1994). An attorney who works incredibly hard, but obtains nothing for the class, is not entitled to fees calculated by any method.
For although class counsel's hard work on an action is presumably a necessary condition to obtaining attorney's
fees, it is never a sufficient condition. Plaintiffs attorneys don't get paid simply for working; they get paid for obtaining results. Because it is the class relief that is both a necessary and a sufficient condition to an award of attorney's fees, it follows that an attorney's fees award can only be "attributable to," or the consequence of, the class relief, not the attorney's hard work.

The dissent, however, which was willing to read the "redeemed" requirement right out of the statute, and affirm a settlement approval where the attorneys recovered more than even the face value of the coupons, shows how difficult it is to legislate reform.

More: Trask; law.com (upgrading me from "gadfly" to "class action titan"); Reuters; Zieve; Jacobson/Monaghan; Bashman; Law360 ($).

A big victory for the Center, its third appellate victory this year. (The Center is not affiliated with the Manhattan Institute.)

In a blog entry published on the Heritage Foundation's The Foundry, Daniel Dew cleverly uses the example of the recent scandals plaguing the Obama administration to point out the vast scope and inherent unfairness of the Responsible Corporate Officer Doctrine.

The Responsible Corporate Officer Doctrine allows federal prosecutors to criminally prosecute business owners and officers for the criminal activity of their businesses, regardless of whether they had knowledge of the illegal activity. The only requirement for criminal liability is "some relationship between the executive's supervisory responsibilities and the underlying misconduct." Put another way, in order to obtain a conviction, the government need only prove (1) illegal conduct occurred, and (2) the corporate officer had authority to exercise control over the activity.

The DOJ has used the Responsible Corporate Officer Doctrine to make criminals out of many well-meaning business people. In United States v. Park, the Food and Drug Administration (FDA) prosecuted the president of a corporation under the theory that his subordinates committed violations of the Food, Drug, and Cosmetic Act that the president had the ability to prevent or correct. Park, the company president, had delegated responsibility to correct the violations to one of his employees, who, regrettably for Park, did not follow through on his responsibilities. Park was convicted for FDA violations that he did not commit, order committed, or conspire to commit.

Just to be clear, there is no evidence in the recent Obama Administration scandals that criminal behavior took place, but the executive branch should stick to one definition of "responsible." The DOJ definition of "responsible" is especially troubling in the context of a criminal prosecution where a person's individual liberty is at stake--not just news stories that make the President look bad.

Heritage senior fellow, Paul Larkin, invokes a similar analogy in his latest paper and expands further.

The question is a serious one, why the double standard?

A US Chamber Institute for Legal Reform study by NERA finds (no surprise) that the US legal system is the most costly in the world, even when one accounts for the difference in social-insurance programs between American and Europe. Of interesting note: UK legal expenses are up 47% in the last three years, though still substantially cheaper than the US. More: Fisher @ Forbes; Sunday Times ($); related: Zywicki @ Volokh on auto safety.

I'd like to see the full report, because even the figure of an extra 1% of GDP going to excess legal expenses relative to Europe is likely an understatement. A 2011 edition of a similar report by NERA didn't include the expense of securities litigation, where much of the money goes to attorneys (and a disproportionate share of the proceeds goes to institutional investors at the expense of small shareholders). (Update: here it is, and, indeed, the 0.82 to 1.03% estimate is very definitely an underestimate.)

While the trial bar argues the expense of the liability system as a deterrent to make medicine and consumer products safer, I'm not aware of any evidence that Europe is less safe than the US. For example, though Germany has both an Autobahn without speed limits and a much higher percentage of mini cars like the "Smart," in 2005, their auto fatality rate was 7.8 deaths per billion km travelled versus 9.1 in the United States the same year. New Zealand has no medical-malpractice cause of action at all, and there is no evidence that patients there are being butchered as a result. And fear of liability and overcautious pharmaceutical regulation is likely costing lives at the margin.

This morning, the Manhattan Institute released my latest finding in the Proxy Monitor series: 2013 Proxy Season Underway: JPMorgan Chase Chairman vote looms large in busy May proxy season. As of May 3, 175 of America's 250 largest publicly traded companies, tracked in the ProxyMonitor database, had filed proxy documents and 72 of these had held annual meetings. In addition to summarizing proxy submission and voting results to date, I look at JPMorgan Chase's looming --and widely publicized--May 21 annual meeting, in which shareholders will consider a proposal sponsored by the pension fund of the American Federation of State, County, and Municipal Employees (AFSCME) to separate the bank's chairman and CEO positions, which the market may read as a referendum on the leadership of incumbent chairman and CEO Jamie Dimon--and which may, if the board reacts to the vote by stripping him of his chairmanship, prompt Dimon to leave the bank he steered ably through the financial storm.

Key statistics on filings to date include:

Bitcoin, the burgeoning virtual currency, lately has been the subject of much speculation--in every sense of the word. Lots of people have been speculating about what it is and whether it has a future. Some people have been speculating on its future by purchasing the currency in hopes that its price will rise and they can cash in. The regulators have been speculating too--speculating about whether and how they can regulate the currency.

A recent study, Swept Away by the Crowd? Crowdfunding, Venture Capital, and the Selection of Entrepreneurs, claims that investors on popular crowdfunding websites focus on many of the same qualities and indicia of potential success as venture capitalists.

According to an analysis published by the CrowdFund Intermediary Regulatory Advocates (cfira.org) this study "casts doubt [on the claims of critics] that crowdfund donors are an unsophisticated lot".

The study, led by Wharton School of Business Professor Ethan R. Mollick, reviewed 2,101 crowdfunded projects on Kickstarter. The study reviewed the history of success of a project, the influence of endorsements on a crowdfund project, the level of preparation demonstrated by an entrepreneur, quality, social networks, geographic outcomes and gender. The study concluded that crowdfunders act much like venture capitalists in making predictions on the success of a project, focusing on factors like the quality of the product, the resume of the team members and the likelihood of success.

According to Professor Mollick, "the signals of quality that are used by VCs to assess the viability of new ventures are also used by crowdfunders. This bolsters the validity of these signals as indicators of start-up potential, but also suggests that crowdfunding has the ability to distinguish quality potential projects from less promising ones."

This is an important conclusion Critics of the crowdfunding provisions of the 2012 JOBS Act claim that it is likely to increase levels of fraud, by permitting business promoters to pitch investment opportunities directly to non-accredited investors. If, as Professor Mollick's study suggests, crowdfund investors consider the same signals of quality as professional venture capitalists, the potential for fraud seems overblown.