The Securities and Exchange Commission practice of trying many complaints before administrative law judges (ALJs) who are its own employees, rather than before federal courts, has grown increasingly controversial lately and now one defendant’s challenge to the practice has prevailed — at least for the moment. A federal judge in Atlanta has ruled that because ALJs are “inferior officers” under the constitution, they cannot be simply employed like other federal workers by an agency like the SEC. Writes Thaya Knight at Cato, “there is a fairly easy fix available to the SEC: the five commissioners can simply appoint the existing ALJs to their current positions…. [but] other agencies could face greater difficulties.” But Daniel Fisher quotes Prof. Philip Hamburger as saying the ruling could still prove “profoundly important,” leading to the unraveling of other aspects of administrative law arrangements within agencies. More: W$J (commission fighting off at least seven legal challenges; in one instance it “asked one of its own judges to submit a formal statement about whether he has ever felt pressure to favor the agency”), Adam Zimmerman/PrawfsBlawg.
- “FATCA: An American Tax Nightmare” [Stu Haugen, New York Times via TaxProf]
- Following Iceland’s model? “Neither [Krugman nor Yglesias] mentions that a major part of the Icelandic recipe was letting *foreign* deposit holders twist in the wind.” [Tyler Cowen]
- Wasting a Crisis: Why Securities Regulation Fails, new book by Virginia law dean Paul Mahoney [Thaya Knight, Cato, with video of Cato event]
- Seventh Circuit reverses $2.46 billion judgment against HSBC Holdings in Household International case [Reuters/Business Insider]
- “I’ve been with them 40 years and then they have this? It’s a pain.” Banks close longtime local accounts as anti-money-laundering rules squeeze economy in border town Nogales, Ariz. [W$J]
- Six regulatory agencies issue diversity guidelines for financial institutions, implementing Dodd-Frank mandate [FDIC]
- Judge to Labaton Sucharow, Bernstein Litowitz: you might at least want to talk to those “confidential informants” your case relies on [Daniel Fisher, Forbes]
- Home-court advantage: SEC wins against defendants 90 percent of the time when it litigates before its own judges [Jean Eaglesham/W$J, Thaya Knight/Cato, earlier]
- Oops! “Corporate Inversions Increase U.S. Tax Revenues” [Rita Nevada Gunn and Thomas Lys/SSRN via Paul Caron/TaxProf, related, earlier]
- “How U.S. rules on conflict minerals are making life worse for desperately poor people in war-torn Congo” [Politico, earlier]
- “Lock up the banksters.” “Lock up the drug dealers.” Dara Lind spots some populist parallels [Vox]
- Should bank boards owe fiduciary duty to regulatory as well as investor interests? [Marc Hodak]
- “Nobody’s Worried About ‘Too Big to Jail’ Any More” [Matt Levine/Bloomberg View] “Hunting Whales: The Problem With Prosecuting SIFIS” [Thaya Knight/Cato]
- Luigi Zingales: market economists need to address question of when and how finance sector goes wrong, or others will do it for them [“Does Finance Benefit Society?“, presidential address to American Finance Association, Buttonwood/Economist, Arnold Kling]
- Cato Book Forum tomorrow (Wednesday, May 13): Paul Mahoney, “Wasting a Crisis: Why Securities Regulation Fails” [register or watch online]
- “When The SEC Pays Your Lawyer For Informing On You, Is That A Good Thing?” [Daniel Fisher]
- “Unfortunately for the CFPB’s ideological imperative, Ballard Spahr concludes otherwise: ‘In fact, the study confirms that arbitration does benefit consumers.'” [Kevin Funnell]
- Which “established members of the business establishment” brought the AIG prosecution to Eliot Spitzer’s desk, and from what motives? [Ira Stoll]
- Dodd-Frank “say on pay” failed to slow rise in CEO compensation, and it would help to understand why [Marc Hodak vs. James Surowiecki]
- “One-Third of Americans Living Abroad Have Thought Actively About Renouncing Citizenship Due to Tax-Filing Requirements” [Matt Welch, followup, earlier on FATCA] Rand Paul bill would repeal the law, and there’s also a constitutional challenge in the works [TaxProf]
- “What’s the point of the implied covenant of good faith? Other than generating fees for lawyers?” [Prof. Bainbridge]
“Guess what? You know those SEC disclosures about pending litigation that publicly held companies are required by law to make? Well, if an employer says too much, it may be ‘retaliating’ against the litigants.” [Robin Shea on Seventh Circuit opinion in Greengrass v. International Monetary Systems Ltd.]
- House Oversight Committee report finds evidence FDIC used Operation Choke Point to strangle access to banking for lawful but disliked businesses [St. Louis Post-Dispatch, Bloomberg, report, Kevin Funnell, HalfWheel (cigar shops), Pete Kasperowicz, The Blaze (guns), Joe Adler/American Banker (critical views)]
- “Fallout for the S.E.C. and the Justice Dept. From the Insider Trading Ruling” [Peter Henning, NYT DealBook, on challenges to previous cases; earlier]
- Congress finally trims Dodd-Frank, with a nose hair clipper. Imagine what Sen. Warren will say if it takes up a scalpel or axe [Michael Greve; but see A. Barton Hinkle defending Warren’s position; Matt Levine (“not worth caring about”)]
- Did tax policy set out to make life tough for American expatriates, or does it just seem that way? [Neil Gandal, WSJ on FATCA, FBAR, etc.]
- “Like other federal agencies, the SEC has long been good at publicizing its initial accusations of wrongdoing …not so good at letting the public know when those accusations turn out to be unfounded or an overreach” [Russell Ryan via Bainbridge, more on SEC press releases on enforcement actions]
- A market with next to no entry: “If Primary Bank, Mr. Greiner’s proposed firm, wins approval, it would be only the second new bank the FDIC has cleared in the U.S. since 2010.” [WSJ]
- “The only people who benefit from shareholder litigation over M&A deals are lawyers. Period. End of discussion.” [Stephen Bainbridge; related, Steve Bradford via Bainbridge (“Delaware’ entire fairness standard morphs into a tax on deals for the benefit of plaintiff lawyers”), earlier here, etc.]
[reposted from Cato at Liberty]
Economic sanctions, when they have an effect at all, tend to inflict misery on a targeted region’s civilian populace and often drive it further into dependence on violent overlords. That truism will surprise few libertarians, but apparently it still comes as news to many in Washington, to judge from the reaction to this morning’s front-page Washington Post account of the humanitarian fiasco brought about by the 2010 Dodd-Frank law’s “conflict minerals” provisions. According to reporter Sudarsan Raghavan, these provisions “set off a chain of events that has propelled millions of [African] miners and their families deeper into poverty.” As they have lost access to their regular incomes, some of these miners have even enlisted with the warlord militias that were the law’s targets.
Congress added the provisions to Dodd-Frank in a fit of moral self-congratulation over making sure Americans had the chance to be ethical and thoughtful consumers of such products as jewelry and cellphones (as well as thousands of other products, as it turned out, from auto parts to the foil in food packaging). Publicly held companies would be required to report on their supply connections to “conflict minerals” such as tin, tungsten, and gold mined in war-torn areas of the Democratic Republic of the Congo. Lawmakers assigned enforcement of the law to the Securities and Exchange Commission – a body with scant discernible expertise in either African geopolitics or metallurgy – and barbed it with stringent penalties for disclosure violations, to which are added possible liability in class-action shareholder lawsuits.
Reactions to this morning’s Post account frequently employ words like “unintended” or “tragic” to describe the effect on miners of the law, which people in the Congo soon came to call “Loi Obama” – “Obama’s law”. Unintended and tragic? Maybe. But not unforeseen, because the signs that the law would backfire this way have been in plain sight for years now – as in this 2011 account by Prof. Laura Seay (via) of how “electronics companies now have a strong incentive to source minerals elsewhere, leaving Congolese miners unemployed.” Or this 2011 account by David Aronson in the New York Times of the “unintended and devastating consequences” that he “saw firsthand on a trip to eastern Congo.” Or this more recent paper by law professor Marcia Narine.
But although the evidence has been there for years, the will to believe in the law was too strong – a will fueled by anti-corporate campaigners who take it on faith that when brutalities in the underdeveloped world occur within two or three degrees of separation of the activities of multinational businesses, the right answer must be to blame and shame the businesses.
You might call it an expensive lesson for Americans too, if you assume that anything has been learned. A recent Tulane calculation found that the costs in business compliance have already topped $700 million, with billions more ahead should nothing change. Just this September, the U.S. government conceded that it “does not have the ability to distinguish” which refiners and smelters around the globe are tainted by a connection to militia groups. That is to say, the government has demanded of business a degree of certainty that it cannot achieve itself. Courtesy of UCLA corporate law professor Stephen Bainbridge, here’s a flowchart of what complying might involve for a given business.
If the new Republican Congress wants to be taken seriously about fixing counterproductive regulation, it should make the repeal of this law an early priority. (& Bader)
- “How Operation Choke Point Hurts the Unbanked” [former FDIC chairman William Isaac, American Banker]
- A nation of snitches: “U.S. rules would expand white collar crime informers” [Reuters]
- Courts should stop giving deference to agency interpretations of criminal law: “Justice Scalia’s shot across the SEC’s bow re insider trading” [Bainbridge] Judge Rakoff criticizes SEC for bringing so many enforcement proceedings to in-house adjudicators [Reuters, earlier]
- Monitor envy: “The biggest U.S. banks have 100 or more on-site examiners from an array of regulators” and now New York’s financial regulator wants to get into the act [WSJ]
- Seventh Circuit finds Bank of America entitled to ask loan applicants about expected continuing entitlement to disability benefits, but in the mean time bank agrees in DoJ settlement to cease such inquiries [Easterbrook opinion in Wigginton v. Bank of America, see last page]
- Two SEC commissioners warn that campaigned-for “fair fund” to compensate investors in CR Intrinsic inside trading case “likely to benefit only class-action attorneys and the fund’s administrators” [Daniel Gallagher and Michael Piwowar, WSJ]
- “U.S. veterans sue [major European] banks, claim they should pay for Iraq attacks” [Alison Frankel, Reuters]
The Securities and Exchange Commission is increasingly steering cases to hearings in front of the agency’s appointed administrative judges, who found in its favor in every verdict for the 12 months through September, rather than taking them to federal court.
Previously, the agency had tended to use the ALJs (administrative law judges) for relatively cut-and-dried enforcement actions, while taking more complex or cutting-edge disputes to federal court. Now, following the Dodd-Frank expansion of its powers, it prefers ALJs even for many complex and demanding cases arising from charges such as insider trading. Defendants enjoy a range of protections in federal court that are not provided in administrative litigation, including juries as well as the presence of federal judges who are independent of agency control, held to a more demanding ethical code, and drawn generally from higher and more sophisticated circles within the legal profession. Read the entire Bainbridge commentary, with followups linking Henry Manne (adjudicatory actions are ways to avoid the more demanding process of rulemaking) and Keith Bishop (current system open to constitutional challenge?).