Topic: Law and Civil Liberties

Three Year Mark for Cato’s Police Misconduct Reporting Project

Cross-posted from PoliceMisconduct.net:

So today marks our three year anniversary here at PoliceMisconduct.net!  One of our prime objectives has been to draw more attention to the problem of police misconduct across the country.  Long time readers must be amazed (as are we!) at the attention this subject has been receiving the past few months.  The President himself has acknowledged the “slow-rolling” crisis has been on-going for many years and also that some “soul searching” is in order.   Yes, it’s long overdue.  Better late than never.

The victims of police misconduct are too often without a voice and the extent of the problem was (is) unknown because few seemed interested enough to study it.  We at Cato thought it important to lend some institutional support to this critical area.  And, increasingly, the media (and others) have found this site to be a valuable resource.  Over the past year, we’ve been cited by the Washington Post, Wall Street Journal, the Economist, ABC News, the Atlantic, and Frontline.  If the first step toward addressing a problem is recognizing that a problem exists, then we’re there.

Of course, there’s much more to do.  Just wanted to mark this occasion and provide our friends with an update on our work.  One easy way you can help us is by spreading the word by taking a moment to blast a note to all your contacts via twitter and Facebook.  Thanks for your consideration and support!

Hunting Whales: The Problem with Prosecuting SIFIs

Yesterday, Attorney General Loretta Lynch made the unprecedented announcement that five of the world’s largest banks – JP Morgan, Citi, Barclay’s, RBS, and UBS – would be pleading guilty to criminal charges.  According to the allegations, traders and executives working at the banks’ foreign exchange (FOREX) desks colluded through the use of chat rooms to fix currency prices on a daily basis.   The fines are in the hundreds of millions, with Barclay’s total penalty (including those levied by US and UK authorities) at $2.4 billion topping the charts and Citigroup’s $925 million following behind.  According to Assistant Attorney General Leslie Caldwell, these guilty pleas “communicate loud and clear that we will hold financial institutions accountable for criminal misconduct.”

But do they?  Can they?  In the world of “too big to fail,” JP MorganChase and Citigroup are whales among whales.  Dodd-Frank, with its “living will” provision, was supposed to end too big to fail by requiring that systemically important financial institutions (SIFIs) create a plan for an orderly unwinding in the case of failure.  But this provision contains the seeds of its own destruction.  By designating firms as SIFIs, the government has made the too big to fail designation explicit when it was previously only implicit.

If a SIFI behaves badly, even very very badly (and there is no doubt that, if the allegations are true, the FOREX traders at these banks behaved badly indeed), how much can it be punished?  While corporations can be held criminally liable, you obviously cannot imprison a corporation.  Instead, criminal penalties for companies mean two things: (1) public censure and (2) fines.  The big banks are not very popular these days and it’s unlikely the taint of public censure will cause much additional pain. 

So that leaves the government with fines.  For a fine to be a punishment, it must be large enough to hurt.  These fines are not small.  Even for a bank as large as Citi, $925 million is a chunk of change.   But in imposing these fines, the government must walk a fine line.  If Citi is a SIFI, can the government risk imposing a fine large enough that it risks destabilizing the entire company?  Almost certainly not. 

Complicating the government’s position is the fact that three of the banks – RBS, Barclay’s, and UBS – are foreign (RBS and Barclay’s are British, and UBS is Swiss).  These banks have large footprints in the U.S. markets but, even if they were to falter, the government would be hard-pressed to offer a bailout even if it wanted to.  Consider what happened during the financial crisis.  Several large foreign banks were put at risk when AIG failed.  Because the U.S. government could not, for political reasons if for no other, directly bail out these banks (even though their failure would impact U.S. markets), it instead engineered the so-called “back door bailout” by which TARP funds injected into AIG wound up in the hands of foreign banks.  If the Department of Justice were to impose a heavy enough fine on RBS, Barclay’s, and UBS today that it really hurt those banks, that is, that it put any significant part of their business at risk, it could harm U.S. markets.

Secret price-fixing is bad.  It distorts markets and prevents them from performing one of their most essential functions: price discovery.  But having doubled-down on the too big to fail designation, the government has put itself into an impossible situation when it comes to reining in SIFIs’ bad behavior.

The IRS Folds, Returns 100% of Lyndon McLellan’s Money

Defying a demand from the federal government to stop publicizing his case, today Lyndon McLellan was told the IRS is abandoning its efforts to keep more than $107,000 it took from his bank account without ever charging him with a crime.

The case received national attention and outrage, including from a member of Congress, which led to this threatening message from an Assistant U.S. Attorney to McLellan’s lawyers:

Whoever made [the case file] public may serve their own interest but will not help this particular case. Your client needs to resolve this or litigate it. But publicity about it doesn’t help. It just ratchets up feelings in the agency. My offer is to return 50% of the money. 

So much for that; Mr. McLellan will be receiving 100% of his money back.  

A Spurned Vendor — And a Tip To the FTC

In 2010, the Federal Trade Commission approached an Atlanta-based medical testing company, LabMD, with accusations that it had wrongfully left its customer data insecure and vulnerable to hackers. LabMD’s owner denied that the company was at fault and a giant legal battle ensued. To quote my post last year at Overlawyered:

…according to owner Michael Daugherty, allegations of data insecurity at LabMD emanated from a private firm that held a Homeland Security contract to roam the web sniffing out data privacy gaps at businesses, even as it simultaneously offered those same businesses high-priced services to plug the complained-of gaps.

Last week, finally, after five years, the case reached an administrative hearing at the FTC, which heard “bombshell” testimony given under immunity by former Tiversa employee Richard Wallace:

After LabMD CEO Michael Daugherty refused to buy Tiversa’s services, Tiversa reported false information to the FTC about an alleged security incident involving LabMD’s data, Wallace claimed in his testimony.

CNN headlined its story “Whistleblower accuses cybersecurity company of extorting clients” – that is, by threatening to turn them in to the feds if they spurned its vendor services.

To be sure, allegations are merely allegations, and we haven’t heard Tiversa’s side of the story, except for a statement from its CEO Bob Boback: “This is an overblown case of a terminated employee seeking revenge. Tiversa has received multiple awards from law enforcement for our continued efforts to help support them in cyber activities.” The advisory board of the Pittsburgh-based security services company includes former four-star Army general and former Democratic presidential candidate Wesley Clark.

When Are You Going to Get Married?

The Wall Street Journal today reports a policy shift that I had predicted and recommended 20 years ago. Rachel Emma Silverman writes:

Amid a push that has made same-sex marriage legal in 37 states and the District of Columbia, some employers are telling gay workers they must wed in order to maintain health-care coverage for their partners. About a third of public- and private-sector employees in the U.S. have access to benefits for unmarried gay partners, according to a federal tally, but employment lawyers say the fast-changing legal outlook is spurring some employers to rethink that coverage.

“If the Supreme Court rules that suddenly there is marriage equality in 50 states, the landscape totally changes,” says Todd Solomon, a law partner in the employee-benefits practice group at McDermott Will & Emery in Chicago, who has been tracking domestic partnership benefits for nearly two decades.

Such a decision will likely result in more employers dropping same-sex partner benefits in favor of spousal benefits, according to Mr. Solomon.

Over the past decade, a growing share of companies has offered coverage for gay employees and their partners as a way to provide equal benefits for couples who couldn’t legally wed. Others companies offer coverage more broadly to unmarried domestic partners, regardless of sexual orientation. 

Now, some employers who offer benefits targeting same-sex partners say it is only fair to require those couples to marry where legal, just as their straight co-workers must do to extend coverage.

I anticipated that eventuality in a January 4, 1995, op-ed in the New York Times, as the movement for marriage equality, civil unions, and domestic partnership was just beginning:

Peculiar Politics in the USA

The controversy over the upcoming military exercise called “Jade Helm 15” is unfortunate.  It is unfortunate because there really are some alarming trends underway here in the United States, but instead of finding common ground, the Right and the Left too often talk past each other.  Some examples:

Recall the militaristic raid to snatch Elian Gonzales?

The Right said, “That’s outrageous!”

The Left’s reply was, “What are you talking about?  That’s just law enforcement.”

Recall the militaristic police response in Ferguson last summer?

The Left said, “That’s outrageous!”

The Right’s reply was, “What do you mean?  That’s just law enforcement.”

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Let’s take a step back from specific incidents and look at some of the broader trends that have been underway.  First, the line between the police and the military has become badly blurred.  The military itself is more involved in policing and the civilian police are now more militarized.  This is worrisome because the military does not typically concern itself with rights of persons on the other side of the battlefield.  Second, the National Security Agency’s powers used to be directed outward, but we now know those powers are directed inward, on the communications of Americans.  Third, presidents (red & blue) claim the power to take our country to war, and that when we are at war, presidential power trumps constitutional rights.  High-ranking officials tell us that America–from Seattle to Miami (and all the tiny towns in between)–is a “battlefield.”  That’s a bold and disturbing claim since there are no rights on the battlefield, only raw power.

As the next presidential contest gets underway, let us hope these important matters get the attention they deserve. 

ALJs and the Home Court Advantage

The SEC has come under fire lately for its use – some might say overuse – of internal administrative proceedings.  The SEC’s use of administrative proceedings and administrative law judges (ALJs) is by no means unique within the federal government.  Thirty-four agencies currently have ALJs.  Nor is the SEC the heaviest user of administrative proceedings or ALJs; the Social Security Administration has that distinction, with more than 1,300 ALJs according to the most recent data available.  The SEC, by comparison, has only five ALJ positions, two of which are recent additions. 

The SEC’s ALJs have been in the spotlight due to a provision in Dodd-Frank that expands their ability to impose fines.  In the past, the SEC could impose monetary sanctions only on individuals and entities registered with the Commission – typically brokers, investment advisors, and similar entities and their employees.  By registering with the SEC, it was reasoned, these individuals and organizations had submitted to the SEC’s jurisdiction.  Others could be brought before the SEC’s tribunals for violating federal securities laws, and the ALJs could make findings of fact (that is, decide which side’s version of the facts was correct) and issue cease and desist orders, but could not impose fines.  Instead, the SEC’s lawyers would have to bring a separate case in federal district court.  Under Dodd-Frank, registered and unregistered persons are treated the same.

Administrative proceedings have their advantages.  Like a federal judge, an ALJ can issue subpoenas, hold hearings, and decide cases.  Because an ALJ’s cases deal with a very narrow area of law – only that related directly to the ALJ’s agency – the ALJ’s knowledge of that area tends to be deeper than that of a federal judge who hears a broad range of civil and criminal cases.  The proceedings before ALJs tend to be somewhat truncated, with fewer procedural requirements than federal district court, allowing the case to be decided more quickly. 

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