Topic: Law and Civil Liberties

Second Circuit Slams Feds on Insider Trading Prosecutions

For years the U.S. Department of Justice and Securities and Exchange Commission have been on a crusade to prosecute “insider trading,” even though it’s far from clear that activity should be criminal to begin with. Lately, those efforts have been led by Preet Bharara, U.S. Attorney for the Southern District of New York, who has obtained more than 80 convictions and plea deals, ruining countless careers and fortunes along the way.

On Wednesday, things changed. A three-judge panel of the New York-based Second Circuit U.S. Court of Appeals—the most influential lower court on questions of financial regulation—unanimously threw out Bharara’s high-profile conviction of hedge funders Todd Newman and Anthony Chiasson, directing that charges against them be dropped. It’s a “huge blow” to Bharara’s campaign, notes the New York Post, while Bloomberg Media calls it a “harsh rebuke” that “is likely to have far-reaching effects.” Alison Frankel of Reuters describes the ruling as “emphatic” and its conclusion “momentous.” The opinion is here.

Yale law professor Jonathan Macey, writing in the WSJ:

[The SEC and Bharara] prefer that the law exalt vague conceptions of “fairness” above the more concrete goals of having robust, liquid and efficient securities markets.

The new opinion is a game-changer. It signals to prosecutors that they cannot bring flawed cases and then hide behind the excuse that the law is vague. The Court of Appeals admonished that “the Supreme Court was quite clear” in previous cases about what is required to establish illegal insider trading.

Specifically, the Supreme Court and the lower federal courts have been explicit in saying that trading on an informational advantage is not necessarily illegal. To be illegal, the courts have said, trading by insiders must involve breaching a duty of trust and confidence. Courts have been clear, as the Supreme Court noted in Chiarella v. U.S. (1980) and again in U.S. v. O’Hagan (1997), that there is no “general duty between all participants in market transactions to forgo actions based on material, nonpublic information” because it is possible to acquire such information legitimately.

Tellingly, the Court of Appeals pointed out “the doctrinal novelty” of the government’s “recent insider trading prosecutions, which are increasingly targeted at remote tippees many levels removed from corporate insiders.”

Police Misconduct — The Worst Case in November

Over at Cato’s Police Misconduct web site, we have identified the worst case for the month of November. It turns out to be the Cleveland Police Department.

To begin with, in late November, a Cleveland police officer shot and killed a 12-year old boy, Tamir Rice.

The press reports based on the police accounts at the time of the incident read:

A rookie Cleveland police officer shot a 12-year-old boy outside a city recreation center late Saturday afternoon after the boy pulled a BB gun from his waistband, police said.

Police were responding to reports of a male with a gun outside Cudell Recreation Center at Detroit Avenue and West Boulevard about 3:30 p.m., Deputy Chief of Field Operations Ed Tomba said.

A rookie officer and a 10-15 year veteran pulled into the parking lot and saw a few people sitting underneath a pavilion next to the center. The rookie officer saw a black gun sitting on the table, and he saw the boy pick up the gun and put it in his waistband, Cleveland Police Patrolmen’s Association President Jeffrey Follmer said.

The officer got out of the car and told the boy to put his hands up. The boy reached into his waistband, pulled out the gun and the rookie officer fired two shots, Tomba said.

As detailed in this video report by MSNBC’s Chris Hayes, the initial reports by the police do not jibe with video evidence in several major respects.

The video shows Rice, alone, playing with his toy gun and also with the snow, as 12 year olds are wont to do. He was not, as the police said, with “a few people” in the pavilion. Other police reports to the press said the shooting officer got out of his car and told Rice three times to put his hands up. The video, unfortunately without audio and recording at the speed of two frames per second, shows the officer shooting Rice within 1.5-2 seconds after exiting the police vehicle.

The officers also waited several minutes before administering CPR to the fallen child.

The original call that drew the police to the park in the first place said the person with the gun in the park was likely a minor and likely was a toy gun. Apparently, this information was not relayed to the responding officers, who called-in the shooting victim as “possibly 20” years old.

The officer who shot Rice “was specifically faulted for breaking down emotionally while handling a live gun” according to subsequent reporting. The internal memo that informed the report concluded that the officer be “released from the employment of the City of Independence [,Ohio].”

Here’s the thing: The Cleveland Police Department hired the officer without checking his personnel file from his previous law enforcement job!

This tragic event is just the latest that involves police using deadly force, and likely too quickly. The facts released by the police department that favor the police officers involved were either misleading or inaccurate.

At best, this event highlights poor communication and procedure leading up to and immediately following a tragedy. At worst, this is a police department caught covering up a series of preventable mistakes that cost the life of a young boy.

The Department of Justice recently issued a report after looking into the policies and practices of the Cleveland Police Department.  According to the New York Times,

The Justice Department report on Cleveland cataloged many instances of unjustified force, including officers who assaulted, pepper-sprayed and even Tasered people already being restrained. In one case last year, the police fired two shots at a man wearing only boxer shorts who was fleeing from two armed assailants. In a 2011 case, a man who had been restrained on the ground with his arms and legs spread was then kicked by officers. He was later treated for a broken bone in his face.

The city’s policing problems, [Attorney General] Holder said, stemmed from “systemic deficiencies, including insufficient accountability, inadequate training and equipment, ineffective policies and inadequate engagement with the community.”

 

GOP Blocks Marijuana Reform in DC

Last November, voters in Washington, DC overwhelmingly approved a referendum that would have legalized marijuana in the city.  Now that measure has been stymied by House Republicans–led by Rep. Andy Harris (R-MD).

From today’s Washington Post: The move “shocked elected DC leaders, advocates for marijuana legalization and civil liberties groups.”

As a constitutional matter, the Congress can set policies for the District of Columbia, but this is an awful move.  No vote on marijuana reform, just override the voter-approved measure by inserting language into a gigantic spending bill.

Isn’t it interesting that such tactics never seem to be used to downsize the federal government and reduce its powers?  Why not zero out the budget for the DEA or the Export-Import Bank?

‘Justice’ à la Venezuelan

This week a Venezuelan judge indicted opposition leader María Corina Machado on flimsy charges of conspiracy to kill President Nicolás Maduro. If found guilty, she could spend up to 16 years in prison. Can she expect a fair trial from the Venezuelan judiciary?

Not at all, according to the findings of an investigation led by three Venezuelan lawyers and published in a new book, El TSJ al Servicio de la Revolución (“The Supreme Court at the Service of the Revolution”). According to their research, since 2005 Venezuela’s justice system has issued 45,474 sentences, but not once has it ruled against the government.

Machado’s fate thus depends entirely on the whims of Maduro and his entourage. The precedent of Leopoldo López, another opposition leader who has been jailed since February on charges of arson and conspiracy, does not bode well for Machado. 

CBS News Highlights Cato Study on Grand Juries

Here is a link to, “A Grand Facade: How the Grand Jury Was Captured by Government.”

Excerpt:

The prosecutor calls the shots and dominates the entire grand jury process. The prosecutor decides what matters will be investigated, what subpoenas will issue, which witnesses will testify, which witnesses will receive “immunity,” and what charges will be included in each indictment.

Because defense counsel are barred from the grand jury room and because there is no judge overseeing the process, the grand jurors naturally defer to the prosecutor since he is the most knowledgeable official on the scene. That overbearing presence explains the old saw that a competent prosecutor can “get a grand jury to indict a ham sandwich” if he is really determined to do so.

And the reverse also holds true: If a prosecutor does not want an indictment, he can secure that outcome if he is really determined to do so.

Celebrate the 81st Anniversary of Repeal Day at the Cato Institute

On December 5, 1933, the 21st Amendment to the Constitution was ratified, ending our nation’s failed experiment with alcohol prohibition. Yet, 81 years later, modern-day prohibitionists continue to deny the laws of supply and demand, attempting to control what individuals can choose to put into their own bodies.

The War on Drugs is a glaring example of contemporary prohibitionism, but nanny-staters have even attempted to ban substances as innocuous as “too-large” sodas or gourmet cheeses.

This Friday, join the Cato Institute for a look at prohibition 81 years after the repeal of the 18th Amendment.

 

I will be moderating a panel featuring Cato Senior Fellow Walter Olson, editor of the nation’s oldest law blog Overlawyered.com; Stacia Cosner, Deputy Director of Students for Sensible Drug Policy; and Michelle Minton, Fellow in Consumer Policy Studies at the Competitive Enterprise Institute. Panelists will discuss modern prohibitions—from the Drug War to blue laws, and from tobacco regulation to trans fats—drawing connections with their earlier antecedent.

Alcoholic beverages and other commonly restricted refreshments (bring on the trans fats!) will be served following the discussion.

What better place to celebrate the 81st anniversary of the repeal of Prohibition than the Cato Institute? Space is limited, so make sure to register for your chance to go home with a commemorative door prize.

Not in D.C.? The panel will be live-streamed and questions may be submitted via Twitter using #CatoDigital.

#CatoDigital (formerly #NewMediaLunch) is a regular event series at the Cato Institute highlighting the intersection of tech, social media, and the ideas of liberty. Email Kat Murti at kmurti [at] cato [dot] org to get future event updates and more.

The War Between Disparate Impact and Equal Protection Continues

For decades, courts have been struggling to reconcile two conflicting theories of what constitutes unlawful discrimination. The first theory, often called “disparate treatment,” reflects the commonly understood meaning of “discrimination.” Under this theory, a government action discriminates—violates the principle of equal protection or equality under the law—if it explicitly or implicitly treats members of one race or other special group differently from others. Examples of disparate treatment include Jim Crow’s black codes, university admission caps and quotas, and policies excluding women from certain positions.

The second theory, known as “disparate impact,” argues that the definition of discrimination should be much broader and include laws and policies that, while neutral in their application and operation, disproportionately harm members of a specific group. An example of a rule that would be considered discriminatory under this theory, but not under disparate treatment, would be a requirement that all soldiers in a particular unit be over six feet tall—because, as a statistical matter, far fewer women would be eligible than men. In several other cases, Cato has argued that allowing disparate impact theory claims against government bodies is problematic because the only way a government can assure that a rule doesn’t accidentally produce statistically unequal outcomes is to engage in intentionally discriminatory policies—like quotas—that can ensure a specific outcome.

Here is the case that proves this point: Buffalo makes promotions within its fire department on the basis of both merit and seniority. Firefighters who wish to be considered for advancement have to pass a set of exams. Those who are successful are placed on a list of candidates eligible for promotion within a set time period. If a candidate isn’t promoted within that period, however, the promotion qualification expires and he’s forced to re-take the exams.

During one administration of the exam, the only successful candidates were white. Because that was statistically unlikely given the racial makeup of the department, the city feared that if it promoted the successful candidates, it would be sued for having a policy that had a disparate impact on non-white firefighters. Its solution was to make a racially based decision not to promote any of the qualified candidates, allowing their promotion-list placements to expire.

In a litigation battle that has progressed in fits and starts over many years, Cato has now joined the Pacific Legal Foundation and other concerned groups on a brief reminding the New York Court of Appeals (that state’s highest court) that allowing government to engage in disparate treatment to avoid accusations of disparate impact simply trades one form of discrimination for another. And, as Chief Justice John Roberts wrote for a Supreme Court plurality back in 2007, the way to stop discrimination on the basis of race is to stop discriminating on the basis of race.

The New York Court of Appeals will hear argument in the case of Margerum v. City of Buffalo on January 6 in Albany. For more on the “war between disparate impact and equal protection”—in the context of a previous firefighter-promotion case—see this prescient essay by Kenneth Marcus in the 2009 Cato Supreme Court Review.