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October 2013 Archives

Dodd-Frank and Diversity
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Last week, six federal financial regulators issued a proposed joint policy statement on standards for assessing the diversity policies of the entities they regulate. The proposal stems from a little-noticed provision of Dodd-Frank, which requires directors of the regulators' newly established Offices of Minority and Women Inclusion to develop standards for "assessing the diversity policies and practices of" regulated entities.These new standards will impose additional costs on regulated entities, but it is not clear that they will further diversity and inclusion efforts.

Banks, broker-dealers, credit unions and other financial institutions are already subject to existing employment and contracting laws. Moreover, financial institutions interested in finding and fostering the best talent have instituted programs to hire, retain, and promote as diverse a workforce as possible. A new regulatory checklist could do more harm than good by forcing changes to diversity programs that are working well and adding to the already overwhelming regulatory burden faced by financial institutions--particularly small ones, which can play an important role in serving minority communities.

The regulators promise not to examine financial institutions for their adherence to the standards, but "encourage" the use of the standards. A regulator's encouragement to do something tends to function as a de facto requirement. In their proposal, the regulators suggest that financial institutions conduct a quantitative and qualitative self-assessment of compliance with the standards, submit that assessment to their regulator, and post on their websites reports of their progress towards complying with those standards. The agencies are to be commended for working together on--and building some flexibility into--the proposed standards. Nevertheless, the proposed standards might not achieve their intended positive results.


On October 23, 2013 the Securities and Exchange Commission (the "SEC") issued proposed regulations (the "Proposed Rules") with respect to crowdfunding as contemplated by Title III of the Jumpstart our Business Startups Act of 2012 (the "JOBS Act"). The Proposed Rules are open for comment for 90 days from the date of publication in the federal register (a period that will likely run to the end of January, 2014).

While the Proposed Rules will not be effective until adopted by the SEC, and the SEC may change the Proposed Rules before adopting them, if adopted in their present state the Proposed Rules will make it possible for privately-owned company to sell securities to investors over the Internet through registered "crowdfund portals." Under the Securities Act of 1933 (the "1933 Act"), companies may not sell securities to investors unless the securities are either registered (generally requiring an initial public offer or "IPO") or exempt from registration. The crowdfunding authorized by Congress through the JOBS Act creates a new exemption from registration (now contained at Section 4(a)(6) of the 1933 Act) and the Proposed Rules, if adopted, would make it possible for sales of securities under this new exemption to commence.

I have posted here a lengthy analysis of the provisions of the Proposed Rules applicable to issuers of securities under the new Section 4(a)(6) exemption. My firm is planning a second publication shortly to cover the provisions of the Proposed Rules applicable to crowdfund portals.


One of the most controversial parts of the Sarbanes-Oxley Act was section 404(b), which required audits of internal controls over financial reporting. The 404 audits were conducted pursuant to the Public Company Accounting Oversight Board's Auditing Standard No. 2. Guided by this standard, auditors began a lucrative practice of auditing companies' internal controls with a bottom-up, check-the-box approach. Companies objected that the approach cost far more than regulators had anticipated--enough to make some public companies rethink their decision to go public. In 2007, a reluctant PCAOB issued Auditing Standard No. 5 to replace the earlier standard. Its approach allowed auditors to use their judgment to focus on critical areas, rather than requiring them to conduct procedures just to say that they had. Yesterday, the PCAOB staff issued a lengthy practice alert directing auditors to be more thorough. The alert's issuance was prompted by the problems that the PCAOB has identified in its inspections of internal control audits. The length and relative inflexibility of the guidance suggest that companies may want to brace themselves for another upsurge in audit costs as auditors seek to prove themselves to the PCAOB.


The SEC has formally announced that it will hold a public meeting on October 23 to determine whether to release proposed crowdfunding rules.

(Update: Coverage on Washington Post).


A bi-partisan group of Senators consisting of Jeff Merkley (D-OR), Jerry Moran (R-KS), Michael Bennet (D-CO), Mark Warner (D-VA), Kelly Ayotte (R-NH), Jon Tester (D-MT), Pat Toomey (R-PA), and Mary Landrieu (D-LA) has written an open letter to SEC Chair Mary Jo White, asking that the SEC adopt regulations to implement crowdfunding as contemplated by the 2012 JOBS Act.

As the letter points out, the law required the SEC to adopt regulations within 270 days after enactment. It has been more than 530 days and the SEC has not completed the task.


Walter Olson, senior fellow at the Cato Institute's Center for Constitutional Studies (and founding editor of PointofLaw), has penned a critical piece on the SEC's new proposed rule to implement a mandate under the Dodd-Frank law that U.S. corporations disclose the ratio between the pay of their chief executive officer and that of their workers.

Read Walter Olson's Column


Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

Floyd Norris, author of the High & Low Finance column for the New York Times, writes about two cases the Supreme Court has decided to hear dealing with fee-shifting in patent infringement cases. The outcomes could potentially deter future, frivolous infringement suits.

SEC Chairman Speaks Again
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In my last post, I wrote about three major speeches by Securities and Exchange Commission Chair Mary Jo White. She has given two more major speeches: one on enforcement and the second on disclosure. Once again, the speeches offer a mixed message about the direction in which the SEC is heading.

To start with the positive, Ms. White's disclosure speech signals her intention to streamline corporate disclosure requirements. She appreciates that materiality is the appropriate criterion for determining whether something must be disclosed. Moreover, she recognizes that too much disclosure can harm the investors for whom it is purportedly designed. She does not want SEC disclosure to be a catch-all for every special cause of the day. She also acknowledges the role that fears of litigation play in determining what companies disclose.

Ms. White's enforcement strategy "of creat[ing] an environment where you think we are everywhere" may not be in line with her disclosure strategy. The fear that the SEC's enforcement hammer is poised to drop at the slightest hint of a problem is enough to scare most firms into over-disclosing. Ms. White wants the SEC to pursue violations no matter how small and regardless of intent. She has deputized the SEC's compliance personnel in her effort to ensure that the SEC is "felt and feared in more areas than market participants would normally expect that our resources would allow." The SEC's compliance office is distinct from enforcement precisely to avoid scaring well-intentioned firms away from working with the commission towards shared goals of protecting investors and keeping markets working smoothly.

The SEC's loss this week in its case against Mark Cuban is a good reminder that even the commission's new tough-cop image might not be enough to win over a jury.



Business writer Dave Michaels, writing in Bloomberg's Businessweek has penned a piece under the headline, "SEC to Issue Crowdfunding Proposal Easing Investor Verification."

The article explains that "Small businesses raising money by selling shares over the Internet wouldn't have to verify that their backers comply with individual investment limits under a U.S. regulatory proposal set for a vote as soon as next week."

The article is potentially confusing to those trying to follow the numerous changes now being rolled out that affect capital formation for emerging growth companies. My hope in writing this is to eliminate that potential confusion.

The 2012 JOBS Act, among its other efforts, was intended to make possible securities-based crowdfunding on a nationwide basis. Title III of the JOBS Act created a comprehensive system by which private companies could sell securities (equity or debt) to investors in the U.S. on licensed "crowd-fund portals". Investors would be limited in the amount of money they could invest in a crowdfunded offering based upon their income levels.

Congress directed the SEC to adopt regulations implementing Title III within 270 days after the law's enactment. More than 1.5 years have elapsed and the SEC still has not adopted those necessary regulations, although SEC Chair Mary Jo White has been quoted to say that she expects those regulations out by the end of 2013.

The Bloomberg article describes a "regulatory proposal" that would expressly relieve issuers of securities in crowdfunded offerings from having to verify the income levels of participating investors.

Importantly, no regulatory proposal has yet been released to the public, and Dave Michaels notes that he is relying on unnamed sources within the SEC "with direct knowledge of the matter who asked not to be named because the proposal hasn't been made public." Assuming that the rumor is true, however, it is also important to understand what this proposal would, and would not, cover.

Although crowdfunding under Title III of the JOBS Act prohibits investors from making investments greater than their income-related levels, that prohibition is only one of several requirements. Even if the rumored proposal were adopted, that would not allow companies to start issuing securities in crowdfunded offerings any time soon. The SEC would still need to adopt all of the other regulations required to implement crowdfunding, including a comprehensive description of the licensing requirements for the yet-to-be-defined "crowd-fund portals". Because the licensing of the crowdfund portals is likely to fall within FINRA's purview, even the completion of the SEC's rules will not be enough to implement crowdfunding because FINRA would also be required to adopt procedures for portal licensing. Once adopted, potential portals would need to complete the FINRA licensing process before launching, a process that would likely take months.

So, while a proposed rule that relieved issuers from a duty to verify an investor's income would be a step forward, it would not come anywhere close to completing the regulatory work needed to implement crowdfunding under the JOBS Act.

It's also important for those following these issues to understand how investor income verification is a separate topic from accredited investor status as it relates to Regulation D.

Before the advent of crowdfunding, private offerings under Regulation D were the primary means of capital formation for emerging growth companies. Under the mandates of the JOBS Act the SEC has recently adopted regulations making it possible for private companies to issues securities under Regulation D through public solicitations under Rule 506(c). One of the requirements of these new "public/private" offerings is that all of the participating investors be accredited investors (a category that is defined by either the investor's income or net worth). A key element of the new Regulation D rules is that securities issuers must take additional steps to verify the status of each investor as an accredited investor through a process that might require the issuer to verify the issuer's income.

The proximity of Dave Michael's rumored income verification rule for crowdfunding with the accredited investor status verification rule under Regulation D could become confusing for some. Even if the rumored proposal eliminated a duty on the part of an issuer to verify income for compliance with Title III of the JOBS Act, that proposal would have no bearing on the issuer's duty to verify accredited investor status (via income or net worth) for purposes of an exempt private offering under Regulation D.


The Wisconsin crowdfunding bill has passed the state Senate and now moves to the desk of Wisconsin Governor Scott Walker.

Quoting the Milwaukee Business Journal:


"Where the federal government has delayed, Wisconsin has acted," said Rep. David Craig, (R-Vernon), one of the bill's lead co-authors, in a prepared statement. "Where other states have failed to allow small business to harness the power of the Internet, Wisconsin has embraced it. Sen. (Leah) Vukmir, Rep. (Chad) Weininger and I have put our joint time and efforts into crafting this important legislation, and with the overwhelming support of the Legislature we look forward to Gov. Walker signing this important jobs bill in the near future."

The Wisconsin bill, if passed into law, would make Wisconsin the third state to permit intrastate crowdfund offerings (along with Kansas and Georgia).

Businessweek on class actions
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Businessweek mentions the pending CCAF Marek v. Lane Facebook cy pres certiorari petition (on the calendar for tomorrow) in a larger article about how the Supreme Court is supposedly squelching the class action by issuing rulings against abusive class-action certifications. Public Citizen got to Businessweek apparently, with the author warning that a cert grant could be bad for consumers. It's hard to see how consumers could be made worse off than a $0 settlement; such settlements hurt consumers by raising their costs without any corresponding benefit. Defense attorney John Beisner tells me of being on an American Constitution Society panel and asking the audience to identify a consumer class action where the consumers got more than the attorneys, and no one being able to name one.

One quote stands out as especially poor analysis, though:

Reliable data on class actions are in regrettably short supply because courts don't track them. The only helpful gauge over time measures just a slice of the relevant cases: federal securities fraud claims. The economic consulting firm Cornerstone Research says in the first six months of 2013, 74 securities class actions were filed in U.S. district courts. That's down 22 percent from the 16-year average from 1997 to 2012 and off 42 percent from the peak in the second half of 1998.

The problem here is that the Supreme Court has consistently ruled in favor of plaintiffs in securities cases in the last few years. If securities filings have gone down, it's because the stock market has gone up in the last four years, and securities filings go up and down in inverse correlation to the market direction—which does a lot to demonstrate that securities lawsuits tend to be less about fraud than about rent-seeking. In any event, the direction of securities class actions tells us nothing about the direction of consumer class actions.

SEC Chairman Speaks
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In a series of recent speeches, Mary Jo White provided a window into how she is approaching her relatively new job as head of the Securities and Exchange Commission. These speeches--one on market structure, one on SEC independence, and one on enforcement--signal some good and some not-so-good developments at the SEC.


Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

This week, the Supreme Court is considering a potentially-transformative case that could alter the range of free speech protection granted under the First Amendment. In McCutcheon v. FEC, the Court must decide whether aggregate limits on the amount a person ($48,600 for direct contributions to candidates; $74,600 for donations to non candidate-affiliated political committees) can donate during an election cycle is constitutionally permissible.

Specifically, the Court's constitutionally-relevant precursor here is Buckley v. Valeo, which held that contributions could be limited due to the fear of perpetuating corruption by allowing a donor to make unlimited donations to a single candidate in exchange for political favors. Ostensibly, this appears to be a legitimate concern, possibly even to the extent of allowing for a qualified restriction on political free speech.

But in a larger sense, the specific principle laid out in Buckley cannot been extended out to encompass an area in which the Court's reasoning does not logically extend. The end as stated in Buckley is to subvert potential political corruption, through the means of restricting the amount an individual can donate to candidates for federal office. If we extend this logic to McCutcheon, the stated proposition would stand as: If we restrict the amount of money an individual can give as an aggregate to various candidates, then we are furthering the end of subverting potential political corruption.

Now, the Federal Election Campaign Act already restricts individual donations to a single candidate to $5,200 ($2,600 for primary; $2,600 for general election). Using the Buckley logic, these means can seem to be tailored towards preventing political corruption by preventing a candidate from being beholden to a donor rather than an idea. However, this logic falls apart when we try to say that a limit on the aggregate amount a donor can make furthers this same end. By this extension, a donor could be restricted from donating even nominal amounts to a candidate if the donor has already hit the aggregate ceiling. In oral arguments, Chief Justice Roberts addressed this exact point:

"The concern," Chief Justice John Roberts noted, "is you have somebody who is very interested, say, in environmental regulation, and very interested in gun control. The current system, the way the anti-aggregation system works, is he's got to choose. Is he going to express his belief in environmental regulation by donating to more than nine people there? Or is he going to choose the gun control issue?"

An aggregate cap stands as a forced rationing of political thought as expressed, ironically, through the Buckley proposition that money in service of political speech is protected by the First Amendment. Because the latter statement is a long-standing legal fact, the logical disconnect becomes more apparent.

Moreover, because we are dealing with First Amendment protections, the means must be given "strict scrutiny" examination. The Buckley court seemingly found donor limits to individual candidates to be narrowly-tailored means to the end of rooting out potential quid pro quos.

In order to extend that to McCutcheon, the Court would have to say that the additional burden on political speech created by aggregation caps is either 1) still narrowly-tailored to the anti-corruption end or 2) come up with a new justification for the aggregation caps that can pass strict scrutiny.

Finally, because Super PACs are largely funded by wealthier donors, the aggregate caps would destroy the influence and impact of smaller donors in a variety of political arenas, while allowing larger donors to increase their influence in the political process; this would abrogate the intention of campaign finance laws in the first place. Considering these legal and policy implications, the Court should take this opportunity to clear the way for free expression of political thought.


by Paul J. Larkin, Jr.

Bill Otis, a highly respected former prosecutor and now a law professor, argues that a mistake of law defense would hamper the government's ability to enforce the criminal law. I respect Bill and always value his opinions, but this time he is mistaken.

Bill notes that regulatory crimes are problematic because administrative officials are not directly accountable to the electorate. That is true, but there is an additional and bigger problem: Regulatory offenses oftentimes involve a network of one or more intricately worded statutes and a boatload of hyper-complex regulations. It is easy to understand a law prohibiting a street crime, but far harder to comply with a regulatory offense because the line between lawful and unlawful regulated conduct can be indistinct. No amount of murder is permissible, and no one can obtain a license to steal, but a party can obtain a license to dispose of used oil and other types of waste that are the unavoidable byproduct of legitimate business activities. In fact, administrative laws assume that some regulated conduct is permissible; those laws just limit when, where, how often, and by whom certain it can be done. The problem lies in knowing what can and cannot be done. Is this used oil a "waste"? If so, is it a "hazardous waste"? Or is it a "recyclable material"? Agencies need complex rules, oftentimes requiring considerable scientific or technical knowledge, to regulate industrialization. But those same complex rules can be impossible for the average lawyer--let alone the average person--to understand. A mistake of law defense forces the government clearly to define crimes before someone can be held liable for committing one.

Bill argues that a mistake of law defense would enable crooked defendants, aided by unscrupulous lawyers, to escape responsibility for conduct that any reasonable person would have known was unlawful. The concern with manufactured defenses is legitimate, but overstated. If a government civil inspector notifies someone that his conduct is unlawful, the government can use that notice as proof of guilt if the defendant repeats that conduct. Also, if you place the burden of proof on the defendant, you effectively compel him to testify at trial to establish a mistake-of-law defense. Once he testifies, the prosecution can cross-examine him, and the jury can decide if he is a con artist who connived with a shyster. If the judge finds that a mistake of law defense is incredible--that is, no reasonable person could buy it--the judge need not instruct the jury on it. Finally, if corporate wrongdoing is a concern, a mistake of law defense can be limited to individuals and exclude corporations. In sum, Bill's concern can be met without turning every reasonable mistake of law into a crime.

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Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

James R. Copland, director of the Center for Legal Policy at the Manhattan Institute, discusses the detrimental economic effects of the recent expansion of licensing laws in Illinois in a podcast with Erika Harford, the Assistant Director of the Institute for Justice Clinic of Entrepreneurship.

The podcast can be found here.


by William G. Otis

Defenses that on paper look perfectly reasonable can morph into something entirely different in the hands of a creative counselor.

Lack of bad intent is -- as it should be -- a long-accepted defense to criminal charges. We would think grossly unfair a system that provided no such defense. Little did we suspect, however -- until it actually happened -- that garden-variety criminal intent could be flummoxed out the jury's mind by defense counsel's claim that his client ate too many Twinkies. But exactly that happened because of the inventive approach authored by the attorney for Dan White, the San Francisco city supervisor who killed Harvey Milk. White beat the murder wrap, and got punished only for manslaughter, because his lawyer convinced the jury that excess Twinkie consumption had deepened his "depression."

This is not an isolated example. The invention currently in vogue is "urban survival syndrome." This "syndrome" is now used to convince juries that the defendant is a victim, not a bad guy. In the hands of a smooth-talking defense lawyer, more than one jury has been persuaded that the client more nearly resembles a counseling patient than, as it used to be known, a thug.

There is a lesson here as we contemplate expanding the mistake of law defense. In the era of the gargantuan regulatory state, quite properly we want to help defendants who never had a bad heart -- or, worse, may never have known or had reason to know that their conduct was criminal at all. Expanding the mistake of law defense thus has understandable appeal. But like so many modern inventions of the law, there is the danger of unintended consequences. The danger here is that the mistake of law defense will sooner rather than later shed the limitations we build into it, incrementally nibble away at what is left of responsible commercial life, and become the corporate reincarnation of too many Twinkies.

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by Paul J. Larkin, Jr.

A millennium ago, the criminal law was simple. If you knew the Decalogue, you knew what not to do: don't murder, steal, or lie. As a result, the law did not exonerate someone who claimed to believe that what he did was not a crime, since no one could reasonably believe that those immoral actions were not also illegal. Today, however, the criminal law has expanded to Brobdingnagian proportions. There are approximately 4,500 federal crimes alone. Atop that, use of administrative agencies to define criminal statutes (or their terms) exacerbates the problem. Congress may use a broadly defined term (e.g., "solid waste") in a statute (e.g., the Resource Conservation and Recovery Act) that delegates to an agency (e.g., the EPA) the power to define its terms (e.g., "hazardous waste") by creating a list of specific examples (e.g., "listed hazardous wastes") or by specifying exemptions (e.g., "recyclable materials"). The result is that there are perhaps 300,000 potentially relevant regulations. No one--no law enforcement officer, no lawyer, no law professor, no judge--could honestly claim to know them all.

A reasonable mistake defense avoids the risk that a morally blameless person could be convicted of conduct that no reasonable person would have known was a crime. Even a child knows the inherent unfairness of being punished for conduct that no one, not even an adult, would reasonably have known was out of bounds. The simplest and most direct remedy, therefore, is to allow a person to prove that he made a mistake and that his mistake was reasonable.

A reasonable mistake defense does not pose the risk that rogues could manipulate it and escape justice. Some conduct is so well known as immoral and illegal that no one reasonably could claim ignorance of the law as an excuse. Murder, manslaughter, rape, mayhem, robbery, burglary, arson, and larceny were crimes at common law and have been outlawed by state and federal criminal codes ever since. Kidnapping, possession of heroin, and the like are modern crimes everyone knows or should know. No one could reasonably claim ignorance that such conduct, or even analogous behavior, is prohibited. A reasonableness requirement would impose a sensible limitation on a Mistake of Law Defense and would go a long way toward eliminating the concern that scallywags will wriggle out of responsibility for conduct that any reasonable person would have known is a crime.


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Two podcasts
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Anyone wanting to hear my voice? I recently did two podcasts.

Law & Liberty talks to me about class actions and recent Supreme Court jurisprudence on class-action waivers.

And on Legal Talk Network, I debate trial lawyer Marc Saperstein about the recent appalling New Jersey appellate decision creating liability for third-party texters when drivers have accidents after texting. The crazy thing I learned about in this podcast: the driver who had the accident had the accident seventeen seconds after he sent a text. Unless he was in the middle of another text (and no one claims that he was to my knowledge), it's hard to see how texting (much less texting by an outside party) "caused" the accident.


Ammon Simon in NRO generously cites my MI white paper in rebutting Public Citizen's perennial attack on arbitration clauses.

I don't have a lot of patience for complaints that arbitration clauses take business away from trial lawyers. Where's Public Citizen complaining that trial lawyers impose mandatory arbitration clauses on their clients if the freedom to contract for arbitration of disputes is so awful?


So I tell ProPublica, though my empirically correct observation is somewhat buried amidst a number of Chicken Little quotes. Walter Olson goes into more detail.


Vinny Sidhu
Legal Intern, Manhattan Institute's Center for Legal Policy

It looks like the federal government is getting ready to launch itself firmly into the debate over patent trolls. The Manhattan Institute recently released a report that focused on the nature and practice of these so-called "patent trolls," or companies that frequently exist for the express purpose of acquiring large patent portfolios and suing companies that infringe for licensing fees. The Federal Trade Commission recently announced that it would begin a process of further inquiry by using its subpoena power to call 25 Patent Assertion Entities and 15 device/software manufacturing companies. The stated aim of the inquiry is to better understand the logistical framework of patent trolls and the manner in which accrued capital is distributed. It will be interesting to see if this investigation simply serves to satisfy procedural formalities or actually leads to substantive policy action down the road.



by William G. Otis

The reach of criminal law to enforce the regulatory state poses serious questions. Regulatory crimes tend to be "strict liability" offenses. That is, they do not require that that the defendant be found to have had bad intent in order to convict and punish him.

This is a relatively new and potentially ominous development. The Founders contemplated criminal punishment for, roughly, "bad actors" -- those who do something a person with common sense and ordinary intelligence would intuitively think of as criminal. Generally, criminal behavior up to now has been defined by people who either don't control their temper; want to make a quick buck; or range from extremely non-empathetic to malevolent.

Regulatory crimes are a different kettle of fish. As some recent episodes have shown, regulations "criminalize" behavior based on what the regulator, acting to implement his view of vaguely described legislative intent, sees as forbidden. For the law to accommodate this raises a host of problems. One of them is lack of accountability: The regulator does not face the voters, and is often hidden behind layers of bureaucracy. Another is lack of democratic legitimacy: Regulators simply do not have the mandate conferred by getting elected.

To partly counteract these problems, some have suggested an updated version of the mistake of law defense. Under this version, it would be an affirmative defense if the defendant did not know, and a reasonable person in the defendant's position would not have known, that the defendant's conduct was a crime.

Such a proposal has obvious appeal for the reasons outlined. Yet caution is in order, because the on-the-ground reality will look different. What will happen is that the defendant will preemptively go to his brother-in-law (the one with a law degree) and present some sanitized version of his plan, in order to inveigle the newly-employed "counsel" to say, "Well it might be close to the line, but I guess it's OK."

When the defendant goes to trial -- having swindled his way to millions through some novel, improvised, now-you-see-it-and-now-you-don't "financial product" -- he'll use the mistake of law defense to insist, "I sought legal advice and was told it wasn't any worse than close to the line. I might have made a mistake, but I asked and my lawyer said it was OK."

More generally, once we allow defendants to turn the trial into a contest about the state of their legal knowledge, we have invited a morass. State-of-mind defenses are already out of control; state of legal knowledge defenses will be, if anything, worse. Even to combat the dangers of regulators-run-wild, we should be cautious before we expand them.


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A paragraph not getting enough notice in a lengthy Atlantic essay about why "Teach for America" is ineffective in an Atlanta elementary school:

Valuable minutes of classroom instruction time were lost to filling out accident reports when kids occasionally fell out of their chairs or poked each other with pencils. If two students began arguing and one child angrily vowed to "get" the other, I was always advised by fellow teachers to write up the incident on Atlanta Public Schools letterhead immediately, thereby "covering" the district if the threat materialized and parents were feeling litigious. What our students needed the most in these situations, it seemed, were conflict-management skills and character education, but unfortunately these interventions do not sufficiently "cover" the adult interests of the district. When I was once asked to fill in for an unexpectedly absent colleague, one of her second-graders chose to confide in me about his abysmal home life. He explained, with wide and trusting eyes, that his mother's boyfriend enjoyed getting drunk, abusing the family, and sometimes shooting at the kids with a BB gun for fun. I immediately reported the incident to an administrator, who reacted with what appeared to be annoyance that one more paper had to be filed at 3:00 p.m. on a Friday. This was an administrator who really does care about children and wants to improve their lives--but the all-important duty of covering the legal interests of the district can make crucial social work feel like just another rubber stamp.

Paging Philip Howard...


In The Wall Street Journal, David Rivkin and Lee Casey write about Marek v. Lane, arguing that it's time to end class-action settlements that only reward lawyers, not plaintiffs. Earlier.


The traditional common-law principle of "Ignorantia juris non excusat,"--Latin for "ignorance of the law" does not excuse--prevented a criminal defendant from escaping liability by claiming that he was unaware that his conduct was unlawful. When most crimes were malum in se--meaning inherently wrong according to the generally accepted moral code--the concept of "ignorance is no excuse" went unchallenged. That was all before the phenomenon of overcriminalization, before criminal codes and regulatory provisions were flooded with new criminal offenses, many of which were vague, ambiguous, duplicative and well-beyond the scope of the traditional common-law-based criminal justice system.

Now in the face of a new reality, policy experts and legal scholars have been working on solutions to curb overcriminalization and reign in the unwieldy proliferation of criminal laws. Policy makers have met those efforts with interest; the House of Representatives formed a special task force on the question earlier this year. Among the many proposals being considered to deal with the alarming trend is a reversal of this age-old principle that "ignorance of the law is no excuse." What has been proposed by many advocates is a new "mistake of law" defense which would for the first time allow a criminal defendant to make the case that he did not know that his conduct was against the law and that no reasonable person in his position would know. This drastic departure from the "ignorance of the law" principle has alarmed many experts who, while acknowledging the threat of overcriminalization, worry that a mistake of law defense would create its own host of serious problems.

To advocate in favor of the "mistake of law defense", we're thrilled to welcome Paul Larkin, senior legal research fellow at the Heritage Foundation's Edwin Meese III Center for Legal and Judicial Studies. Before joining Heritage, Larkin held various positions with the federal government in Washington, D.C. At the U.S. Department of Justice from 1984 to 1993, Larkin served as an assistant to the solicitor general and as an attorney in the criminal division's section on organized crime and racketeering. He argued 27 cases before the U.S. Supreme Court. Additionally, Paul authored several legal memoranda which outlined the case for the Mistake of Law Defense generally and also specified the elements of that prospective defense.

Opposite Larkin, we are happy to welcome Georgetown Law adjunct professor William G. Otis, a former chief of the Appellate Division at the US Attorney's Office for the Eastern District of Virginia, counselor to the administrator with the Drug Enforcement Administration and special counsel to President George H. W. Bush.

We hope you will visit back over the ensuing days to see what our distinguished participants have to say, in what promises to be a fascinating discussion.

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Isaac Gorodetski
Project Manager,
Center for Legal Policy at the
Manhattan Institute
igorodetski@manhattan-institute.org

Katherine Lazarski
Press Officer,
Manhattan Institute
klazarski@manhattan-institute.org

 

Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.