Results matching “"central bank"”

Tarullo's arc: from Crit to Fed governor - PointOfLaw Forum

President-elect Obama has named one of his top economic advisers, Georgetown lawprof Daniel Tarullo, to fill a seat on the Federal Reserve Board. A law professor would ordinarily be an unusual pick for the central bank, but some guess that Tarullo's role will be to push for more stringent financial regulation, a topic closer to his academic interests. National Journal's James Barnes has described him as the Obama campaign's "go-to guy on currency, foreign investment, and trade".

Legal-academia-watchers may also remember Prof. Tarullo's name because of his role in the now-decayed Critical Legal Studies movement, which for a few years was the hottest new thing in the nation's law schools, with its penchant for high theory, "trashing" and deconstruction of prescribed norms and concepts, and contempt for liberal legalism. As this series of Harvard Crimson articles recalls, Tarullo was one of three CLS adherents whose denial of tenure at Harvard in the 1980s became a cause celebre badly dividing the institution. (The others were Clare Dalton and David Trubek.) Twenty years is a long time, of course, and we shouldn't assume that Tarullo's views haven't evolved since then. Perhaps the moral is that being denied tenure at Harvard Law is by no means the end of the world.

Push by plaintiff's securities bar in new Congress? - PointOfLaw Forum

Lyle Roberts of 10b-5 Daily (Dec. 12) passes along reports that the plaintiff's securities bar may be helping to draft legislation for the new Congress to overturn two key Supreme Court decisions of recent years, Central Bank and Stoneridge, which respectively limited "aiding and abetting" and "secondary actor" liability.

Greenspan's case - PointOfLaw Forum

There's a big effort to blame the former Fed chairman for the rise and fall of the housing bubble -- though in fact comparable run-ups in housing prices went on simultaneously in many other advanced countries, with their own monetary policies and systems of housing finance regulation. His response?

The problem is not the lack of regulation but unrealistic expectations about what regulators are able to prevent. How can we otherwise explain how the UK's Financial Services Authority, whose effectiveness is held in such high regard, fumbled Northern Rock? ... Even with full authority to intervene, it is not credible that regulators would have been able to prevent the subprime debacle.

Martin Wolf argues in the FT that central banks "can surely lean against the wind" even if they cannot eliminate bubbles. I know of no instance in which such a policy has been successful.

Whole thing here.

SCOTUSblog has downloaded the opinion and has a good post. Steve Shapiro, who argued the case for the winning side, says in a press statement, �The Supreme Court today handed down a major victory for the U.S. economy and investor welfare. The Court understood that the trial lawyers� theory of �scheme liability� was simply a scheme to rake in billions of dollars for themselves at the expense of the investors they purported to represent.� Justice Kennedy:

In effect petitioner contends that in an efficient market investors rely not only upon the public statements relating to a security but also upon the transactions those statements reflect. Were this concept of reliance to be adopted, the implied cause of action would reach the whole marketplace in which the issuing company does business; and there is no authority for this rule.

Earlier on POL: Epstein, Frank, much else.

Ben Stein playing Enron with Central Bank - PointOfLaw Forum

Ben Stein once again sounds off in the NYT on aiding and abetting. As I discuss, he prefers to obfuscate by beating the Enron horse rather than actually dealing with the genuine problems involved in extending aiding and abetting liability. I also show that we might be better off if this were the Enron case because that would give the Court an opportunity to kill scheme liability rather than just cutting off some limbs.

Arbitrary and Unfair - PointOfLaw Columns

By Ted Frank

This piece originally appeared in the Wall Street Journal, 5-31-07.

Subsequent to the publication of this article, the Securities and Exchange Commission voted 3-2 to recommend submitting a plaintiffs' side brief in Stoneridge. The Department of Justice declined to accept the SEC's recommendation and did not submit a brief for the plaintiffs; the DoJ may or may not decide to file a defendant's side brief within the remaining filing deadline.

Treasury Secretary Henry Paulson called securities litigation the "Achilles heel for our economy," endangering the global competitiveness of American financial markets. Last January a report released by Senator Charles Schumer, Democrat of New York, and New York City's Republican Mayor Michael Bloomberg concluded that investors were being driven away from American shores because "the highly complex and fragmented nature of our legal system has led to a perception that penalties are arbitrary and unfair."

The proposed solution to the legal mess offered by the so-called Paulson Committee Report was modest enough: "Greater clarity for private litigation." Yet even this small step could suffer a big setback. The plaintiffs' bar is heavily lobbying the SEC to intervene in a pending Supreme Court case, Stoneridge v. Scientific-Atlanta, on the side of a gigantic expansion of private litigation.

The case's facts are straightforward: Charter Communications purchased set-top cable boxes, but got back some of the money in the form of advertising bought by the vendors. Charter executives recorded the outgoing money as a "capital expenditure" (to be depreciated over several years) but the incoming money as revenue recorded within a single year, thus falsely inflating operating cash flow. Three Charter executives went to prison over the shenanigans. Plaintiffs' attorneys sued Charter and the executives, of course, but named as codefendants two of the vendors, Motorola and Scientific-Atlanta.

The suit makes little sense. The vendors had no say in how Charter accounted for or reported its transactions. Worse is the precedent it represents: How can a business function if it is potentially liable for hundreds of millions because those whom they trade with misreport a day-to-day transaction? The Supreme Court stopped such private "secondary liability" suits in Central Bank v. First Interstate Bank, a 1994 decision that Congress ratified the next year, explicitly rejecting private suits for "aiding and abetting" in the Private Securities Litigation Reform Act (repeating the rejection in the 2002 Sarbanes-Oxley Act.)

A federal court in Missouri dismissed the case against the equipment vendors, and the Eighth Circuit Court of Appeals affirmed that decision: Such liability would, the court said, create far-reaching "uncertainties for those engaged in day-to-day business dealings." Nevertheless, the Supreme Court has agreed to hear an appeal.

Why? The Court may—one hopes—be stepping in to reassert itself, since some courts have permitted plaintiffs' lawyers to whittle away at Central Bank. In the Enron litigation, for example, a federal court in Houston erroneously certified a class action after plaintiffs alleged investment banks doing business with Enron were "primary violators" of the securities laws—even though these defendants took huge losses when Enron collapsed. With plaintiffs claiming total liability of $40 billion, many banks caved when offered a chance to settle for less than a nickel on the dollar. Such a settlement is a better bargain than a 90% chance of winning at trial—a basic cost-benefit analysis the plaintiffs' bar counts on when bringing baseless litigation. (Plaintiffs with meritorious cases do not settle for pennies on the dollar with a solvent defendant.)

Innocent investors paid out $7.3 billion in settlements, about $700 million of which was diverted to attorneys, including Democratic fundraiser and trial lawyer William Lerach. Merrill Lynch, among others, fought the court's ruling and was vindicated when the Fifth Circuit Court of Appeals tossed out the case.

Mr. Lerach has appealed to the Supreme Court, asking that his case be joined with Stoneridge. Representative Barney Frank, Democrat of Massachusetts, will helpfully hold hearings in June to highlight trial-lawyer criticisms of the SEC; meanwhile trial lawyers are attacking SEC Chairman Christopher Cox for supposedly being insufficiently supportive of investors—by which they mean, of course, the interests of trial lawyers.

But one can help investors without paying billions to the likes of Mr. Lerach. The SEC has criminal and civil enforcement authority against real "secondary violators," and Sarbanes-Oxley mandated that fines collected by the SEC be returned to defrauded investors instead of to the Treasury. These "Fair Funds," while suffering from bugs of government bureaucracy, are still more efficient and fair than the contingency fees of up to 30% to trial lawyers.

Unfortunately, we cannot be certain why the Supreme Court has taken the case, or if it will do the right thing. While Chief Justice John Roberts and Justice Stephen Breyer have spoken of the need for judicial modesty, both have recused themselves from the case. All the more reason for Treasury and the SEC to stand firm and ask the solicitor general to urge the Supreme Court to keep liability circumscribed. And for Senator Schumer to explain to his Democratic colleagues why that would be a wise choice—before they criticize the Bush administration for making the wrong decision.

Ted Frank is a resident fellow and director of the Liability Project at AEI.

We earlier discussed the significance of Stoneridge (Mar. 27; see also the related discussion over the Enron-related Regents v. CSFB case, where the Supreme Court is considering a petition for certiorari Apr. 5, Mar. 19, and May 17), which could lead to a tremendous unlegislated expansion in secondary liability in securities-fraud cases. Lyle Denniston reports that Justices Roberts and Breyer have recused themselves from the case, leaving a seven-justice panel. Six of those justices previously participated in Central Bank v. First Interstate Bank, a 5-4 decision that spoke of the importance of firmly circumscribed liability rules in the securities context. Justice Kennedy wrote the majority opinion, joined by Rehnquist, O'Connor, Scalia, and Thomas; the dissent was authored by Stevens, with Blackmun, Souter and Ginsburg joining. That leaves the current makeup of the court 3-3, with only Alito's vote unknown—assuming that the senior six justices honor their earlier stated positions, and that none of the dissenters recognize the importance of stare decisis. The petitioners will also presumably seek to ask Justice Kennedy to distinguish Central Bank and claim that the secondary liability they seek to impose here is really primary liability.

If the SEC decides to support Stoneridge, its brief is due June 11; if it decides to support Lerach's certiorari petition, its brief is due June 1. The SEC's position will not be dispositive by any stretch of the imagination; after all, it was on the losing side in Central Bank.

Update: Lyle Roberts reminds us that the Washington Post reported in April on Lerach's lobbying of the SEC over the issue.

Major incentive effects dept. - PointOfLaw Forum

Loser-pays, some have argued, doesn't send a powerful enough signal to big companies that they should behave responsibly in court. After all, with all their money, they can afford to ignore the incentives, right? Or maybe they can't:

Liquidators for the collapsed Bank of Credit and Commerce International, which failed in its $1.8 billion lawsuit against the Bank of England, agreed Wednesday to pay costs of $137.6 million.

BCCI tried unsuccessfully to sue the central bank in one of the longest running -- and most expensive -- cases in British legal history.

Of course, the other way of looking at it is that even with loser-pays, you get some pretty appalling overuse of the litigation process -- a view fully explored in this London Times piece. But imagine -- or rather look at the U.S. to see -- how much worse it would be without the incentive structure of loser-pays.

1