- Neat trick: banks can get Community Reinvestment Act credit for lending in “low-income census tracts” even when that means extending $800K mortgages to gentrifiers [Diego Zuluaga, Politico, related policy analysis and Cato podcast]
- Sen. Elizabeth Warren has a plan to regulate private equity. It’s not good [Steven Bainbridge] When you’ve lost veteran liberal columnist Steven Pearlstein… [Washington Post]
- Speaking of terms with ugly histories, maybe it’s time for Sens. Warren and Sanders to retire the metaphor of the financial sector as vampires or “vultures” engaged in “sucking” or “bleeding” [Ira Stoll, related]
- Volume of securities litigation is on sharp upswing, policy remedies needed [Kevin LaCroix/D&O Diary and more, Chubb “Rising Tide” report] Rising in Australia too [Nicola Middlemiss, Insurance Business Australia]
- Unconstitutionality of CFPB structure hasn’t gone away and neither has the need for the Supreme Court to tackle the issue [Ilya Shapiro on Cato certiorari amicus brief in Seila Law LLC v. CFPB] Appointment process for Puerto Rico financial oversight board under PROMESA law is of doubtful constitutionality [Shapiro on Cato amicus brief in Financial Oversight & Management Board for Puerto Rico v. Aurelius Investment, LLC]
- In an age of professional consultants, why does the law continue to require corporate governance to be delivered by way of individual board members? Firms specializing in board services could offer attractive alternative [Todd Henderson, Charles Elson, Stephen Bainbridge, Federalist Society Forum]
An amusing correction in New York magazine’s profile of Sen. Elizabeth Warren: “predators” to “creditors.” (The misheard quote is from a law professor who studied with Warren, not from Warren herself.) My new Cato post explains.
My new piece at Cato, citing Carissa Byrne Hessick and Benjamin Levin at Slate, discusses Sen. Elizabeth Warren’s proposal to lower the standard for criminal culpability in many white-collar prosecutions to simple negligence. It begins:
Presidential candidate and Sen. Elizabeth Warren (D-Massachusetts) wants to see more business people behind bars, and she’s not fussy about how to make that happen. In a Washington Post op-ed last week she unveiled a new Corporate Executive Accountability Act, which in her words would expand “criminal liability to any corporate executive who negligently oversees a giant company causing severe harm to U.S. families.” She says she wants top executives to know that they can be (again in her own words) “hauled out in handcuffs for failing to reasonably oversee the companies they run.”
The civil courts already hear many thousands of cases seeking damages over claims that serious harm arose from industry conduct that falls short of being reckless or deliberately wrongful. Not infrequently – as with claims over supposed “sudden acceleration” in cars, cancer from Roundup, and autoimmune disease from silicone breast implants – large sums get paid even when science finds no basis for concluding the products caused the harms alleged, such is our legal system’s tendency to tilt against business defendants as unsympathetic. Under the Warren standard, complaints that driverless cars have gotten into avoidable accidents or vaccines have caused side effects – maybe even that cheeseburgers, supersize sodas, and margaritas have worsened the harms of obesity – will put business people at risk for long prison terms. To her backers, will this count as a bug? Or a feature?
Aside from the propriety of criminalizing simple negligence, the issue is not so much that individuals as such are the wrong target for white-collar prosecution — as Stephen Bainbridge has argued, holding them personally culpable will often make more sense than prosecuting the corporate entity — as that notions of collective guilt must not be used to impute criminal culpability to others within an organization not proved to have committed wrong acts or acted with wrong mind. While the Warren proposal would march off in the wrong direction, in the Cato Handbook for Policymakers two years ago,
I contributed a chapter on white-collar prosecution with the following recommendations:
Congress and state lawmakers (and where appropriate, the president and executive branch law enforcement officials) should
- review existing law with an eye toward rolling back overcriminalization and replacing criminal penalties with civil sanctions where feasible;
- enact reforms such as the model Criminal Intent Protection Act to bolster recognition of mens rea (punishment should ordinarily require a guilty state of mind, not inadvertent noncompliance) as well as the related mistake of law defense in criminal law;
- codify the common law rule of lenity (ambiguity in law should be resolved against finding guilt), as Texas joined other states in doing in 2015;
- devise safe harbor provisions that enable economic actors to avoid criminal liability by behaving reasonably and in intended compliance with the law;
- limit agency discretion to create new crimes without an act of the legislature;
- enact guidelines to strengthen judicial oversight of deferred prosecution agreements and nonprosecution agreements (explicit court approval, not the unilateral say-so of government prosecutors, should be required for appointment of corporate monitors or the extension of time under supervision);
- enact asset forfeiture reforms such as Rep. Jim Sensenbrenner’s (R-WI) Due Process Act, including requiring that conviction be a prerequisite for forfeiture; review and, where appropriate, reduce or coordinate per offense fines and sanctions to avoid levying penalties disproportionate to the gravity of misconduct;
- prohibit, as a proposed New Mexico law would do, the allocation of settlement moneys (cy pres) to charities, nonprofits, or advocacy groups not themselves injured;
- assign penalties, forfeitures, and settlement proceeds to the public treasury or, where appropriate in certain cases, to private parties who can show specific individual injury from the offense (penalties should not fund particular government agencies in ways that incentivize zealous enforcement or insulate the agencies from appropriations oversight);
- prohibit the payment of public lawyers and forensics experts on contingency, that is, in ways dependent on case outcome or the magnitude of penalties (this principle should apply alike to career prosecutors, other staff public lawyers, experts, and outside law firms); existing contingency arrangements should be terminated; and
- impose transparent principles of selection and payment on outside contracting for legal services.
- Was this an entry in a contest to draft the most unconstitutional bill? “Florida Bill Would Make It a Crime for Minors to Post Pictures of Guns on Social Media” [Eugene Volokh]
- “Everyone involved in politics has bad days, when one’s interests conflict with one’s ideals.” But conservatives should resist the temptation to call in government to regulate the Internet [John Samples] New Republican interest in antitrust explainable by wish to bust corporations considered unfriendly to Republicans [Steven Greenhut]
- Lafayette, La. mother jailed after posting video to social media showing fight between two high school students [Megan Wyatt, The Advocate; editorial; Dave Cohen, WWL]
- Suit over online harassment could puncture liability protections of Section 230, some hope and others fear [Elizabeth Nolan Brown]
- “So, to be blunt here, Warren’s campaign screwed up with its ad design [by] including the [Facebook] logo.” The really bad part, though, was the spinning afterward [Scott Shackford]
- Tweeting wrong sorts of things about gender can result in a visit from the British police, cont’d [Tom Potter, Ipswich Star (Suffolk; quoting local activist who “said police had a right to intervene if it was felt the posts were causing offence.”)] And another case from Hitchin, Hertfordshire [Martin Beckford, Daily Mail; earlier here, here, etc.
- Content moderation “is, in many ways, the commodity that platforms offer.” Will they be left free to offer it? [Will Duffield, Cato Journal, reviewing Custodians of the Internet by Tarleton Gillespie]
- “Near the end of her new proposal to break up Facebook, Google, Amazon, and Apple, Senator Warren asks, ‘So what would the Internet look like after all these reforms?’ It’s a good question.” [Geoffrey Manne and Alec Stapp, Truth on the Market/CNBC]
- Floral arrangements as constitutionally protected expression: Cato files amicus on behalf of First Amendment rights of Washington florist Barronelle Stutzman not to serve a wedding of which she disapproves [Ilya Shapiro and Patrick Moran, Washington Supreme Court]
- “Over several months, man repeatedly threatens his next-door neighbor with profanity, racial epithets. The police investigate, warn the man to stop, and then arrest him when he does not. Eventually, the man leaves the apartment complex after the landlord declines to renew his lease. Can the neighbor sue the landlord for failing to intervene sooner? The Second Circuit says yes, the neighbor’s Fair Housing Act claims should not have been dismissed. Dissent: The FHA doesn’t say landlords can be liable for tenant-on-tenant harassment; more likely it precludes such claims.” [IJ “Short Circuit” on Francis v. Kings Park Manor, Second Circuit; Scott Greenfield]
- Gender identity: R. Shep Melnick on where the momentum is headed among judges, regulators, and administrators [Liberty and Law]
- Comfort for lawmakers means discomfort for taxpayers? Study finds “growth in state government expenditures in warm states was higher after the introduction of air conditioning” [Thomas A. Garrett and Natalia A. Kolesnikova, Cato Journal]
- “Succubustic” is not a word you should probably use at all, certainly not to describe any real person, and most definitely not if you are a lawyer to describe a judge [Lowering the Bar]
Ten years ago I wrote this piece for City Journal pronouncing slavery reparations dead as a national cause. Now, as Astead W. Herndon reports in the New York Times, presidential candidates are getting behind the word: Sens. Kamala Harris (D-Calif.) affirmed her support, and Elizabeth Warren (D-Mass.) “also said she supported reparations for black Americans impacted by slavery — a policy that experts say could cost several trillion dollars, and one that Barack Obama, Hillary Clinton, Bernie Sanders and many top Democrats have not supported.” Did I speak too soon?
One complication is that while candidates have begun using the word, it’s often to describe policies that wouldn’t fit the definition accepted up to now. For example, as I noted in the City Journal piece, beginning in the 1960s many programs were enacted aiding poor persons of all races, often conceptualized and argued for as an alternative to more explicit race-based reparations. Some of the candidates who now describe themselves as being for reparations are vague about whether they intend to go beyond support for new programs that are formally race-neutral. [Jeff Stein, Washington Post]
- Great moments in public employee unionism, cont’d: D.C. Metro track inspector charged after derailment with falsifying records wins reinstatement and back pay in arbitration [Max Smith, WTOP, earlier here (similar after fatal smoke incident) and here] Could be permanent? “Bus drivers’ union threatens strike over driverless buses” [Jason Aubry, WCMH (Columbus, Ohio)]
- Letting guests skip housekeeping = grievance: “Union Threatens Strike over Marriott’s Green Initiative” [Darrell VanDeusen, Kollman & Saucier]
- Stephen Bainbridge series on what’s wrong with Sen. Elizabeth Warren’s proposals [earlier, etc.] continues with a post on labor co-determination and employee involvement in corporate governance;
- “Public Sector Unions Win Big at the California Supreme Court: California citizens must now meet and confer with union bosses before qualifying any compensation-related initiatives for the ballot.” [Steven Greenhut, Reason]
- My Frederick News Post letter to the editor opposing Question D (mandatory binding arbitration and collective bargaining for career firefighters). More on mandatory binding arbitration in the public sector: Ivan Osorio et al on California, for Cato (see pp. 12 et seq.); Steve Eide, Public Sector Inc., 2013.
- “Waikiki, Hawaii hotel workers decline to join union; the union demands they pay full dues anyway, starts process to garnish their wages. Does the union’s conduct amount to an unfair labor practice? NLRB: No, the union made an honest mistake. D.C. Circuit: That ‘makes no sense.’ The union never apologized or said it made a mistake. Its message to the workers was, ‘We can do this the easy way, or we can do this the hard way.'” [John Kenneth Ross, IJ “Short Circuit”]
- Critique of political-spending provisions of Sen. Elizabeth Warren’s proposals on corporate governance [Prof. Bainbridge] Plus, some WSJ letters on her plan [same; earlier here, here, and here]
- “The Impact of the Dodd-Frank Act on Small Business” [Michael D. Bordo and John V. Duca, Cato Research Briefs in Economic Policy]
- Something to keep in mind in New York Attorney General races: “The Martin Act Gives New York Politicians Way Too Much National Power” [Jeff Patch, Real Clear Markets, and thanks for quotes]
- Through its Charities Bureau the New York AG’s office can also make life difficult for private nonprofits of whose ideology it disapproves; Democratic nominee Letitia (Tish) James says she intends to use the power to go after crisis pregnancy centers and NRA [Zach Williams, City And State NY]
- Treasury based a list of supposed Russian oligarchs on Forbes mag list of wealthy Russians. Now a 79-year-old laser scientist faces sanctions who’s been a U.S. citizen for 10 years and says he isn’t friendly with Putin [Steven Mufson, Washington Post]
- “Why California’s Gender Quota Bill [for corporate boards] Is More Likely To Be Unconstitutional Than California’s Pseudo-Foreign Corporation Statute” [Keith Paul Bishop, California Corporate & Securities Law (Allen Matkins)]
Schemes like a government mandate of worker representation on corporate boards (an element of German “co-determination”) are not new, and scholars have studied their track record in Europe for years. In particular, they tend not to provide robust incentives for risk-taking and dynamism; that’s aside from their interference with the contractual liberty of all parties to adopt alternative governance methods agreed to by all parties. I talk with Cato’s Caleb Brown about that and Massachusetts Senator Elizabeth Warren’s other ideas for revamping how large companies are run. Earlier here and here.
General incorporation laws were a huge 19th century advance, replacing favoritism-riddled corporate chartering at official pleasure with automatic operation of legal right. Sen. Elizabeth Warren’s corporate governance scheme would risk taking us back to the bad old days. I’ve got a new post at Cato, channeling Richard Epstein and other commentators on the topic. Earlier here, and some extended critique of the “stakeholder” idea in this 2002 piece by Norman Barry.