• Prescriptive, “Rules-Based” Regulation Is Key to Enhancing Cybersecurity in Financial Institutions

    by  • March 10, 2017 • 0 Comments

    By Alexander Dill
    Clearing Corporation Charitable Foundation Practitioner in Residence

    There is much debate in the compliance community about the virtues and drawbacks of a “principles-based” versus a “rules-based” regulatory approach in ensuring effective compliance with regulatory obligations. On the one hand, in “principles-based” regulation agencies establish broad but well-articulated principles that a business is expected to follow. There is clarity about the regulatory objective, but not how to design and implement a compliance system that accords with it. (more…)

    Governor Tarullo’s Departure Will Create a Vacuum in Bank Regulation: How Big Will it Be?

    by  • February 17, 2017 • 0 Comments

    By Alexander Dill Clearing Corporation Charitable Foundation Practitioner in Residence Governor Daniel Tarullo’s resignation as governor of the Federal Reserve Board has important implications for future bank regulation and supervision. Its most likely medium-term effect is to reduce the priority the Fed has given to this component of its mandate. Governor Tarullo has played...

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    Dean Krent: Thoughts on the February 7 Ninth Circuit Oral Argument on the Immigration Executive Order

    by  • February 8, 2017 • 0 Comments

    By Dean Harold Krent First, kudos to the Ninth Circuit Court of Appeals for livestreaming the oral argument.  The technology was not perfect, but opening the hearing to all citizens represents a needed step toward transparency in light of the controversy engendered by the Executive Order. Second, the panel was prepared and peppered both...

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    Before the Gorsuch Hearings: Originalism and Textualism Hide Ideological Judgments Behind Claims of Objectivity

    by  • February 3, 2017 • 0 Comments

    By Professor Carolyn Shapiro

    Now that President Trump has nominated Judge Neil Gorsuch of the U.S. Court of Appeals for the Tenth Circuit to the Supreme Court, we will be hearing a lot about the proper role of a Supreme Court justice. In introducing Judge Gorsuch, for example, Trump said that he had sought a nominee who would “interpret [the Constitution and laws] as written.” Praising Trump’s choice, Sean Hannity noted that Trump was fulfilling his promise to appoint someone who would “strictly adhere to the original meaning of the words of the Constitution” and claimed that Gorsuch is not someone who will “legislate from the bench.” Other conservatives have hailed him as a “textualist” and one who “espouses judicial restraint.”

    All of these statements are wrong. They are wrong not necessarily because they misdescribe Gorsuch’s jurisprudence, but because they misdescribe the job. The job of the judge — and especially the job of a Supreme Court justice — is much more complex and nuanced than catchphrases like “applying the law as written” suggest.

    The statements are also code. They are code for a particular type of judge – and make no mistake, it is a judge who conservatives believe will produce results that, by and large, they like. This is not to say that a judge has to do something illegitimate to reach those results. Rather, it is to say that such a judge is – like all judges addressing hard and indeterminate questions of law – making judgments, considering facts, weighing competing principles and taking account of precedent, history, and societal norms and expectations.

    Justice Scalia, and his many followers, claim otherwise. They claim that originalism — interpreting the Constitution as understood at the time of the Framing (or the time of the enactment of relevant amendments) — and textualism — refusing to look beyond the text of a statute to determine its meaning — constrain judges and prevent them from imposing their own views. But the sources of information about original meaning are limited and indeterminate, the language of both the Constitution and statutes is often general and sometimes ambiguous, and the factual circumstances can be far removed from anything that the Framers or statutory drafters could have imagined. A judge’s judgments about the underlying purpose of the provisions, how those purposes should be prioritized against other legal principles, how much weight to give relevant precedent, and the likely effects of different results in the world will all come into play.

    Perhaps the best way to illustrate these realities are by example. In his book, The Living Constitution, Professor David Strauss (an ACS Board Member) offers a number of important examples of originalism’s failures. The most powerful example, of course, is that based on the original meaning of the Fourteenth Amendment, Brown v. Board of Education was wrongly decided. There is little question that most people at the time of the enactment of the Fourteenth Amendment thought that segregated schools were just fine and did not think that the amendment rendered them unconstitutional. (Justice Scalia himself hated talking about Brown and complained about non-originalists “waving the bloody shirt of Brown.”)

    Some originalists attempt to explain Brown by reference to the principles of the Fourteenth Amendment. In a 1987 article in the New York Review of Books, Ronald Dworkin described Robert Bork’s attempt to do so: “Bork says that the Brown case was rightly decided because the original intention that judges should consult is not some set of very concrete opinions the framers might have had, about what would or would not fall within the scope of the general principle they meant to lay down, but the general principle itself.” But identifying a general principle and figuring out how to apply it today is what all judges do. And doing that requires judgment, not simply deductive reasoning or poring over historical documents. Although documents may play a role, they are often inconclusive or inconsistent, and figuring out which statements and sources, which principles and motivations, should carry the day is itself a judgment-laden exercise.

    Textualism, which Justice Scalia championed and which claims to apply the text of a statute without regard to legislative intent, similarly subsumes judgment calls under a patina of objectivity. For one example, look to the Supreme Court’s jurisprudence on the Federal Arbitration Act. The main operative section of this statute, which was passed at a time when many state courts were refusing to honor arbitration clauses at all, provides that arbitration clauses in contracts “involving commerce … shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” But in case after case (almost all of them 5–4 decisions, with the majority opinion authored by Justice Scalia), the Supreme Court read this language to reveal a preference for arbitration over other forms of dispute resolution, even in situations where that preference effectively eliminates any possible relief and in situations where state law would invalidate the contract as unconscionable. That is not textualism. That is a judgment that the statute does and should privilege arbitration and the protections arbitration provides to corporations and other large entities over other important legal principles, including the respect for state contract law that the statute itself identifies.

    So while we prepare for the confirmation hearings and go over Judge Gorsuch’s record with a fine tooth comb, do not let the myth persist. Originalism and textualism, declining to “legislate from the bench,” “exercising judicial restraint” — these are all nice words, but they mean something quite specific. They refer to a conservative brand of jurisprudence, one that is just as judgment-laden and contingent as any other.

    This post was originally published on the American Constitution Society blog and also appeared in the Huffington Post.

    Dean Krent on President Trump’s Executive Order on Immigration

    by  • February 1, 2017 • 0 Comments

    By Dean Harold J. Krent

    AS A SCHOLAR OF PRESIDENTIAL POWERS, I am appalled at the lawlessness of Friday’s executive order on refugees. The Order flouts congressional authority, undermines settled rights of visa holders, and impinges on the Freedom of Religion. The President’s power in immigration matters is broad, but not limitless.

    AS AN EDUCATOR, I am saddened by the Order’s categorical exclusion of individuals who have brought insights, vitality, and intelligence to this campus and so many others. We have learned from students from Syria, Sudan, Iraq, Iran, Libya, Somalia, and Yemen, and hope to continue to do so in the future. We are better for it.

    AS A CITIZEN AND SON OF A REFUGEE, I am aghast at the repudiation of our country’s cherished past as a country of immigrants. Wealthier countries have the moral obligation to open their doors to those fleeing the carnage of the current fighting in Syria, Iraq, Somalia and Yemen. Refugees from those countries have committed no terrorist acts here, and there is no reason to believe that our current screening will be less able to filter out individuals posing a threat from those countries as opposed to others. All people are worthy of security and protection without regard to race, religion or country of origin.

    I encourage interested faculty, staff, and students to join in the representation of those turned away at our nation’s doorstep. In the coming days, we will be disseminating information and holding workshops as to how you can help.

    Dean Krent emailed the message above to Chicago-Kent students, faculty, and staff on January 30, 2017, under the subject line “President Trump on Immigration.”

    Court Rulings on SEC’s In-house Courts May Accelerate Deregulatory Trend, But Compliance Professionals Should Not be Complacent

    by  • January 25, 2017 • 0 Comments

    By Alexander Dill

    Two recent federal appeals courts take opposite positions on the constitutionality of how the SEC hires its administrative law judges (ALJs), who administer the federal securities laws in its in-house courts. The D.C. Circuit found the process constitutional, while the 10th Circuit did not. Commentators note that, given this conflict and the importance of the issue for other federal agencies that employ in-house courts, the Supreme Court is likely to take up the issue. As Peter Henning pointed out earlier this month, a holding by the Court that the appointment process is unconstitutional would have wide-ranging ramifications throughout the federal administrative system. Such a ruling could raise questions regarding the validity of existing ALJ judgments even if the SEC revised its ALJ hiring practices to pass constitutional muster. The specific issue is whether the ALJs are “inferior officers” under Article II of the Constitution, who must be appointed by the President, a court, or the head of a “Department” (such as an SEC Commissioner), or “employees,” subject only to an agency’s own internal hiring practices. Currently, the SEC’s Office of Administrative Law Judges hires ALJs, not Commissioners. The underlying policy rationale is to safeguard the separation of powers: the executive branch must retain accountability over important appointments.

    The SEC has been widely criticized by the industry and other commentators for bringing cases it can’t win into its in-house system. ALJs are alleged to be conflicted since they are hired by the very agency that brings the enforcement action. The Dodd-Frank Act helped make the in-house process more controversial by increasing the SEC’s authority in bringing cases before its ALJs. The SEC’s success rate in the administrative courts is considerably higher than in federal court. Defendants have limited discovery rights and must exhaust the in-house process in order to appeal to federal court. And even when defendants get to court, the appeals court rules on the basis of a court record compiled in-house, often to the SEC’s advantage.

    A ruling by the Supreme Court that the SEC’s ALJ appointment process is unconstitutional could reinforce a deregulatory trend that the new Administration has promised for financial markets regulation. Compliance and risk-management professionals should monitor how the controversy unfolds. However, they should not become complacent. On the one hand, a roll-back of Dodd-Frank and the appointment of a new SEC Chair and other SEC Commissioners will contribute to a lighter regulatory “touch.” On the other hand, prosecution of financial scandals is a bipartisan issue. The control functions in financial institutions, risk management and compliance in particular, should not relax their vigilance concerning industry-wide practices that skirt ethical strictures in capital market transactions.

    Originally posted January 22, 2017, on Compliance Today: A Blog on Financial Institution Compliance.

    From November 8 to December 19: The Electoral College Evaluates Trump

    by  • December 2, 2016 • 0 Comments

    Shapiro_Carolyn_portraitOriginally posted December 1, 2016 on The Huffington Post

    by Carolyn Shapiro


    The presidential election is not over. The election on November 8 was the mechanism for each state to select its slate of electors, who will not themselves elect the president and vice-president until December 19. That six-week gap has never been more crucial. We can all observe Donald Trump’s conduct during that time, but by the time the members of the Electoral College are called upon to exercise their judgment, they will, as Alexander Hamilton explained, “possess the information and discernment necessary to” evaluate him in ways that the public at large could not. And if the electors take the Constitution and the wellbeing of the country seriously – if they are conscientious – they will watch carefully.

    Already, some electors, calling themselves the Hamilton Electors, are pushing, not to elect Hillary Clinton (despite her having received the majority of the popular vote by at least 2.5 million), but for a bipartisan effort to elect a compromise candidate, probably a Republican, to prevent Trump from becoming President. And with good reason. Trump is poised to take an oath to the Constitution and to violate it at the very same time. The Constitution prohibits government officials from receiving gifts or compensation (“emoluments” in the language of the Constitution) from foreign governments. Yet Trump is eager to use his new position to increase his personal wealth. His hotel in Washington, for example, has hired a “director of diplomatic sales,” and foreign diplomats are lining up to stay there to curry favor with him. And the New York Times has detailed numerous possible conflicts of interest around the globe, including ways that Trump’s business could benefit from favorable acts by foreign governments. As Richard Painter, former ethics counsel to President George W. Bush, explained on CNN, the electors will violate their own duty if they vote for Trump without assurances that he will not violate his oath even as he takes it.

    Trump has no regard for the truth, for preserving our government and civic institutions, or for promoting national unity, even at a time when he has every reason to be gracious. He claimed on Sunday night, in the form of a Twitter storm, that he would have won the popular vote except that “millions of people voted illegally.” This is entirely false. Let us be clear about what Trump is doing here: in response to formal, legal recount efforts (which will ensure the accuracy of the vote count but are not expected to change the result), he is making utterly baseless accusations – accusations that serve only to undermine confidence in American democratic institutions. And the insinuation that these illegal voters are undocumented immigrants, combined with claims he made during the election about voter fraud in cities and “other communities” serve only to stoke racial division and suspicion.

    This latest temper tantrum, along with other actions, belies Trump’s claims that he wishes to be “president for all Americans” and – when pressed – that he denounces white supremacy. He has appointed the incendiary Steve Bannon as his chief strategist, a man who, by his own account, provided “the platform for the alt-right,” part of the white nationalist movement. And he has failed to personally acknowledge – much less denounce – the more than 800 documented incidents of harassment and hate crimes in the first ten days after the election, including many in which the perpetrators expressly invoked his name. In light of all this, Trump’s recent claim that he does not know why his campaign and election have “energized” white nationalists is either an outright lie or remarkable ignorance.

    For any elector to reject the popular vote in their state is highly unusual, and for enough of them to do so to affect the result would be unprecedented. It certainly would itself be divisive. Some of Trump’s supporters warned of violence if Trump lost what they believed might be a “rigged” election; they might make good on those threats if he is not installed in the White House. But now is a seminal moment. The electors should carefully evaluate whether Trump’s post-November 8 conduct is worthy of their votes. And if not, a bipartisan majority should choose a responsible Republican instead of Trump. For electors of both parties, such an action would elevate love of country over party and political advantage. It would be the most patriotic of acts, it would honor the Constitution, and it would remind us all that – like it or not – we are in this together.

    Prof. Shapiro Discusses the Upcoming Supreme Court Term

    by  • September 22, 2016 • 0 Comments

    Yesterday, Professor Carolyn Shapiro spoke on a panel about the upcoming Supreme Court term at the National Press Club in Washington, D.C. The panel was sponsored by the American Constitution Society. Information about the panelists and a video are available on the ACS website.

    Professor Shapiro is co-director of Chicago-Kent’s Institute on the Supreme Court of the United States (ISCOTUS), and she recently returned to Chicago-Kent full time after two-and-a-half years serving as Illinois Solicitor General.

    New Book by Professor William Birdthistle Critiques Mutual Funds Industry and How Americans Save for Retirement

    by  • June 29, 2016 • 0 Comments

    Empire of the Fund book cover artIn his new book, Empire of the Fund: The Way We Save Now (Oxford University Press 2016), Professor William Birdthistle exposes and critiques what he calls the richest and riskiest experiment in our nation’s financial history. He illustrates the flaws in the hypothesis of that experiment: that millions of ordinary, untrained, and busy citizens can successfully manage trillions of dollars in a financial system governed by powerful financial institutions.

    Professor Birdthistle explores the obstacles that individual investors face when using mutual funds to save and offers three solutions for how to safeguard their individual financial destinies as well as the nation’s fiscal strength.

    A single generation ago, many Americans enjoyed the prospects of paying for their golden years with a steady stream of income from their pension plans. Today, only 3 percent of U.S. private-sector workers are covered solely by pensions, while one-third of American households have no retirement savings at all. With the demise of pensions and the rise of 401(k) plans, Americans today will have to support themselves on the returns however high or low of their personal investment accounts.

    To protect their financial security, Professor Birdthistle argues that Americans will need “a greater understanding of mutual funds, more transparency from the financial firms that manage them, and stronger enforcement by prosecutors of the regulations that govern funds.” He proposes opening the federal Thrift Savings Plan to all Americans so they can benefit from a low-cost, well-run saving plan.

    Find out more about Empire of the Fund at the book’s website, and watch the video trailer of Professor Birdthistle introducing the book in verse.

    New Lee Article: Empirical Study on “Patent Trolls” in Media

    by  • April 27, 2016 • 0 Comments

    Professor Edward Lee, Director of the Program in Intellectual Property Law, has authored a new article titled “Patent Trolls: Moral Panics, Motions in Limine, and Patent Reform.” The article is forthcoming in Stanford Technology Law Review, Vol. 19, 2016.

    Abstract:

    This Article provides the first empirical study of the use of the term “patent troll” by U.S. media-specifically, examining leading newspapers and online publications. The study offers several key findings: (1) First, starting in 2006, the U.S. media surveyed used “patent troll” far more than any other term, despite the efforts of scholars to devise alternative, more neutral-sounding terms. The tipping point was the combination of the controversial Blackberry and eBay patent cases in 2006 — prior to that time, “patent holding company” was the most popular term. (2) Second, the media more often portrayed such patent entities in a one-sided, negative light with very little analysis or empirical support. For example, few works provided statistics or discussion of any studies to support their negative portrayal. Practically no articles mentioned the lack of a working requirement in U.S. patent law, which permits all patentees not to practice their inventions. These findings provide support for the recent judicial decisions that have barred, at trial, the use of the term “patent troll” as unfairly prejudicial.

    Download the paper on SSRN here.

    Gerber Article Wins Antitrust Writing Award

    by  • April 8, 2016 • 0 Comments

    At the 2016 Antitrust Writing Awards Gala Dinner on April 5, Professor David Gerber  was recognized for writing one of the best “Cross-Border” transnational antitrust academic articles published in peer-reviewed journals in 2015.

    During an interview at the event, Professor Gerber discussed “two cloudy subjects” he believes are very important in international antitrust.

    “Global competition law convergence: Potential roles for economics”

    by Distinguished Professor David Gerber

    Research Handbook on Comparative Law and Economics, Chapter 9, 2016

    Read the full chapter