Professor argues judicial oversight needed for fines leveled by SEC

Wednesday, July 24, 2013

LAWRENCE — Since the financial crisis of 2008, attempts to penalize and curb activity that caused the crash have drawn criticism for being too arbitrary and leaving the sentencing to an ineffective agency. Also under scrutiny are regulations that may disproportionately affect small banks and agencies more than larger, repeat offenders. A University of Kansas law professor has authored an article arguing that federal courts should approve or deny penalties on financial wrongdoers, thereby leveling the playing field and creating a more fair economy.

Quinton Lucas, associate professor of law at KU, has authored “Rubber Stamp Review: Federal Court Deference to the SEC.” In the article he argues that by requiring the Securities and Exchange Commission, commonly known as the SEC, to levy transparent, meaningful fines in cases of financial wrongdoing, federal courts can provide a balance to a system in which investors and the public have lost confidence.

“There are cases that are filed all the time. The majority are settled out of court, but is there a way courts can help us avoid what happened before?” Lucas asked, referring to the 2008 financial crisis. “We currently are not seeing sufficient deterrence in white collar crime and related areas. Especially when compared to what could be called traditional, blue collar crime.”

The 2010 Dodd-Frank act was intended to prevent financial malfeasance on a large scale. An unintended consequence has been harshly punishing small banks while allowing massive firms to get away with relatively small fines for large-scale wrongdoing, Lucas argues. He cites two examples. In 2009 Bank of America absorbed Merrill Lynch, which was failing, on the condition it not pay executive bonuses that year. It later paid $3.6 billion in bonuses, and the SEC levied a fine of $33 million. In 2011 the SEC levied a fine of $95 million against Citigroup after it nefariously sold weak investments, which resulted in $700 million of investor loss.

In both cases a federal judge rejected the sentences, stating they were unclear in how the fine amount was reached and not proportionate to the losses suffered. The SEC has appealed, claiming they have sole authority to determine public interest and that courts should simply approve sentences it hands down. Lucas holds federal courts both can and should be able to reject such sentences.

“My argument is that courts don’t have to be a rubber stamp. If they follow the SEC model, that is all they will be,” Lucas said.

He compares the situation to a criminal case. If a defendant makes a plea bargain with prosecutors, it still has to be approved by a judge, preventing overly lenient deals. Federal judges could do the same by reviewing an alleged financial crime, reviewing the statutes that govern it and deciding whether a penalty levied by the SEC is acceptable. Judges should also be able to allow sentences to vary, based on the severity of the wrongdoing, Lucas said.

He proposes a system by which the SEC makes clear a set of criteria through which it set penalties, and why and how it determines fine amounts. Such a system could also return the deterrent factor, making it clear that large recidivist firms will not be able to simply view small fines as a “cost of business.” Such an approach would also help stop small firms from being disproportionately punished for minor misgivings and help businesses as well by making it clear what sort of actions are not tolerable. All of that could ultimately lead to increased consumer confidence and a stronger economy, Lucas said.

The question of whether federal courts can reject SEC penalties is currently before the U.S. Court of Appeals Second Circuit. If the court finds that the federal court overstepped its bounds in the previous cases, the question may come before the U.S. Supreme Court. It is likely that similar cases will continue to crop up in other circuits, Lucas said. Whatever the decision is, he maintains there is a role for courts in ensuring regulation and prevention of financial malfeasance similar to that which led to the global economic crisis.

“If you hold for the SEC, you’re saying that the court has to simply be a rubber stamp,” Lucas said. “If Congress doesn’t want the courts to have a role, they need to rewrite the statutes. There is a way to ensure that effective regulation is happening.”

SCOTUS rules that human DNA cannot be patented

In what might be something of the Court trying to find a middle ground, justices did say something they create out of gene isolation could be patented making it a win for Myriad genetics – one of the players in this case – because they created a synthetic form of the genes.

Host Carmen Russell-Sluchansky spoke with Andrew Torrance, a law professor at the University of Kansas, and Dr. Caleph Wilson, of the Translation Research Unit and the Department of Microbiology at the University of Pennsylvania, to discuss the story.

 

U.S. Supreme Court rulings on gay rights could affect Kansas

In a 5-4 decision, the court struck down a provision of the federal Defense of Marriage Act that denies federal benefits to legally married same-sex couples.

The decision, according to Rick Levy, the J.B. Smith Distinguished Professor of Constitutional Law at KU, "raises questions about the validity of the Kansas constitutional amendment."

Levy said any change to the Kansas situation would take years.

"Someone has to apply to get married and get denied so that they have legal standing, then it would go to district court," he said.

Supreme Court Says Human Genes Can't Be Patented

The U.S. Supreme Court has unanimously ruled that segments of naturally-occurring human genes cannot be patented. The ruling may change the focus of genomic research, but it won't stop it.

Professor Andrew Torrance specializes in biotechnology patent law at the University of Kansas. He says the ruling falls hardest on companies that have invested billions of dollars, hoping to profit from patents on human gene fragments like those that help reveal a person’s risk for breast cancer.

Law professor named to KU's new class of senior administrative fellows

Tuesday, June 11, 2013

LAWRENCE — Ten University of Kansas faculty members have been named senior administrative fellows for 2013-2014.  

Fellows are selected annually from nominations and applications submitted during the spring semester from across campus. Fellows learn more about senior administration in higher education by meeting with senior administrators, visiting administrative units across campus, discussing national trends in academia and developing their leadership skills. The program has been in place for more than 20 years and is directed by Mary Lee Hummert, vice provost for faculty development, with the assistance of Jenny Mehmedovic, assistant to the provost. 

The new class of fellows is: 

  • William Elliott, associate professor, School of Social Welfare 
  • Judith Emde, librarian and assistant dean, KU Libraries 
  • Michael Engel, professor, ecology & evolutionary biology, College of Liberal Arts & Sciences
  • Mechele Leon, associate professor and chair, theatre, College of Liberal Arts & Sciences 
  • Lumen Mulligan, professor, School of Law 
  • Scott Reinardy, associate professor, School of Journalism 
  • Susan Scholz, professor, School of Business 
  • Joan Sereno, professor, linguistics, College of Liberal Arts & Sciences 
  • Kelli Thomas, associate professor, curriculum & teaching, School of Education
  • Z.J. Wang, Spahr professor and chair, aerospace engineering, School of Engineering.

All tenured faculty members at KU are eligible to apply. Requests for nominations and application instructions for the 2014-2015 senior administrative fellows will occur in April 2014.  

Should we bring back the passenger pigeon and the woolly mammoth?

Ethicists, scientists, lawyers and biologists gathered at Stanford University for a day-long conference to discuss whether we should bring back species that have been extinct over the past several thousand years. A USA Today story on the conference quoted Andrew Torrance, professor of law, who participated:

The legal issues that will surround revived species are very unclear, said Andrew Torrance, a law professor at the University of Kansas and former biotech patent lawyer. But in general, he thinks "there are no solid legal barriers yet to de-extinction."

Supreme Court: US genes patent decision may depend on strands in Myriad argument

In June, the Supreme Court will release its decision on whether genes may be patented, which will have a far-reaching impact on the biotechnology industry. A Financial Times article on the subject quoted Andrew Torrance, professor of law.

Kirchgaessner wrote:

"It was obvious from the questions they asked and analogies that they dreamt up that the nine US Supreme Court justices hearing one of the most important and complex patent cases in a decade were not wholly comfortable with the subject at hand.

Pages

Subscribe to RSS - faculty
Why KU
  • One-third of full-time faculty have written casebooks used at U.S. law schools
  • 2 KU law faculty were U.S. Supreme Court clerks
  • KU’s Project for Innocence: 28 conviction reversals since 2009
  • 7,300+ alumni live in all 50 states and 18 foreign countries
  • Routinely ranked a “best value” law school
  • 12 interdisciplinary joint degrees
  • 26th nationwide for lowest debt at graduation. — U.S. News & World Report
  • 23rd nationally among public law schools. “When Lawyers Do the Grading,”
    —U.S. News & World Report
  • 70 percent of upper-level law classes have 25 or fewer students
  • 37th: for number of law graduates who are partners at nation’s largest law firms