Topic: Law and Civil Liberties

The Supreme Court Helps Out the Economy

Today the Supreme Court, in one of the most important securities law rulings in years, Stoneridge Investment Partners v. Scientific-Atlanta, decided that fraud claims are not allowed against third parties who did not directly mislead investors but were business partners with those who did. Investors, the Court said in a narrow 5-3 ruling (Justice Breyer took no part in the case), may only sue those who issued statements or otherwise took direct action that the investors had relied upon in buying or selling stock – whether that involved public statements, omissions of key facts, manipulative trading, or other deceptive conduct. One impact of the decision is likely to be the end of a $40 billion lawsuit against financial institutions growing out of the Enron scandal.

Although this was the result expected by Court-watches, the split decision – along the usual “liberal/conservative” lines, with Justice Kennedy writing the opinion as he has tended to in such situations – was a bit of a surprise. The opposite result would have been disastrous for Wall Street, with massive ramifications on the economy as a whole. It would also have greatly expanded the court-created private right of action that is not expressly spelled out in the relevant securities laws. Ultimately, the Court’s ruling in Stoneridge wisely prevents an implied cause of action against the whole marketplace in which those who do directly mislead investors do business.

Data Security for Me But Not for Thee

At his press conference announcing the REAL ID Act last week, Department of Homeland Security Secretary Michael Chertoff said:

We are not going to have a national database. REAL ID does not require that states start to collect additional information from applicants that they have not already created. We are not going to wind up making this information available willy-nilly. In fact, the steps we are taking under REAL ID will enhance and protect privacy rather than degrade and impair privacy.

…[A]mong the things we’re doing under REAL ID is requiring that state motor vehicle agencies have in place background checks and security plans for their databases at – in terms of the motor vehicle information. Traditionally, again and again we have seen corruption at motor vehicle agencies leading to people improperly disseminating personal information. These security plans and these background checks will actually minimize the risk that employees will improperly take that information and disseminate it.

Meanwhile, Section 508 of the Court Security Improvement Act of 2007, signed into law by President Bush last week, allows federal judges and Supreme Court Justices to withhold their addresses from the REAL ID database system, giving the addresses of their courts instead.

The federal judiciary evidently doesn’t trust Secretary Chertoff’s assurances.

REAL ID Regulations Issued

Today, the Department of Homeland Security issued final regulations implementing the REAL ID Act, our moribund national ID law that several states have already refused to implement.

The regulations, in two parts, can be found here and here.

I will have more to say after studying them, but the House Committee on Homeland Security’s chairman has already registered his preliminary objections. Cost issues, the difficulty of implementing this national ID, and privacy issues concern Chairman Thompson, who notes that DHS has spent close to $300 million on programs that have been discontinued because of failure to adhere to privacy laws and regulations.

REAL ID is, of course, a wasteful affront to privacy whether or not DHS follows all the rules. The department is not in a position to correct the errors in this fundamentally misguided policy.

Campaign Finance Regulation without Romance

Candidates are in hot pursuit of the party nominations and eventually the presidency. That means they are defining enemies, inducing fear, and offering voters hope — that their enemies will be punished and their fears relieved.

The rhetoric of campaign finance regulation is replete with such  enemies — the special interests, “Big Money,” the rich and so on — and one set of friends, “reformers.” Barack Obama has been especially skillful practicing this politics of fear to pave the way for additional restrictions on money in politics.

However, the reality of campaign finance regulation is a lot different from the rhetoric, and the 2008 campaign has already brought an exemplar of regulation absent romance.

Unity08 is an organization that tried to put together a “centrist, bi-partisan approach to the solving of our nation’s problems and the possibility of an independent, unity ticket for the presidency.” Unity08 sought to be a movement first and a third party with a candidate, second. I use the past tense here because a posted letter to their supporters suggests their effort has come to an end.

Unity08’s analysis of the reasons for their failure merits attention. They now lack enough members or money to go on. The two are interdependent: more members generate more money and vice versa. The Unity08 leaders think a lack of money posed the biggest obstacle:

The Federal Election Commission … has taken the position that we are subject to their jurisdiction … and, therefore, that we are limited to $5000 contributions from individuals (even though the Democrat and Republican Parties are able to receive $25,000 from individuals). Needless to say, this position by the FEC effectively limited our fundraising potential, especially in the crucial early going when we needed substantial money fast to get on with ballot access and the publicity necessary to build our membership. We were caught in a peculiar catch-22; we wanted to break the dependence on big money by getting lots of small contributions from millions of members, but needed some up-front big money to help generate the millions of members to make the small contributions. And the FEC (in effect, an arm of the parties) didn’t let that happen.

The need for large donations to build fundraising capacity was first discovered by the best political science book you never heard of. Contribution limits complicate political organizing by outsiders and thereby stabilize the status quo and benefit those who hold power.

Campaign finance regulations are sold as a panacea for all that ails Americans. They are said to foster competition, prevent corruption, and purify political speech. The Unity08 leaders have found out the truth about such regulations. Such rules are largely created to stifle electoral competition to help out one party or the other, or — as in this case — to permit both parties to stifle a third alternative. Such regulations don’t outlaw competition; they do establish arcane rules that discriminate against outsiders like Unity08.

When a candidate starts demonizing Big Money, remember Unity08 and the reality its leaders discovered, too late for their cause.

A Capital Waste of Time

Yesterday the Supreme Court heard argument in Baze v. Rees, otherwise known as the “lethal injection case.”  Contrary to popular perception—and the wishes of certain activist groups—Baze considers neither the constitutionality of lethal injection as a method of execution nor the validity of the death penalty itself.  Instead, the issue is whether the particular three-chemical formula used by most states that employ lethal injection causes undue pain and suffering such that the method violates the Eighth Amendment’s proscription of “cruel and unusual punishment.”  The Court’s decision—likely to be 5-4 with Justice Kennedy the swing vote as always—may turn on what weight the justices place on the availability of other “ drug cocktails” that purportedly accomplish the same result with less chance for “undue pain and suffering.”  But that critical point raises two further (non-legal) questions: 1) Whether the case is about little more than delaying executions that will take place regardless of this particular ruling; and 2) Why haven’t all the relevant states simply adopted the “better” chemical protocols and rendered this case moot?  Ultimately, this high profile case is a waste of judicial resources.