Professor Spooner's Blog

You are all too young to remember this song.

Executives at Countrywide, a mortgage company, played this song and danced around the conference room while announcing the HSSL mortgage program, which stands for the High Speed Swim Lane program. Get it: HSSL = Hustle. Anyway, the dancing bankers were celebrating the program that would keep their company profitable by speeding up the approval process for mortgages. Countrywide saw the writing on the wall; the mortgage bubble was about to burst, and the bank needed to get a lot of mortgages approved quickly. The HSSL program tied bonuses to speed. Anyone else see where this is headed?

Soon after Countrywide hustled its way into many mortgages for people with bad credit, the company was acquired by Bank of America. What was Countrywide's problem because Bank of America's problem, and last week Bank of America was found liable in a mortgage fraud case. The jury also found a a former top manager at Countrywide, Rebecca Mairone, liable as well. She was accused of valuing quantity over quality, and knowingly defrauding the government by requiring that her staff approve mortgages for unqualified borrowers.

The case is being seen as a big victory for the government in its efforts to hold banks accountable for the financial collapse in 2007-2008. Interestingly, the case was brought by a qui tam plaintiff, meaning a whistleblower from within Countrywide, so he will win a portion of the federal government's award, reportedly up to $1.6 million.

The government used The Financial Institutions Reform, Recovery, and Enforcement Act to bring its claim against Countrywide. FIRREA, as the law is known, allows the government to pursue civil charges for a range of violations usually addressed through criminal statute that we have just discussed in class, including mail fraud, wire fraud and bank fraud. But unlike criminal cases, which require prosecutors to establish guilt beyond a reasonable doubt, FIRREA cases only require guilt be established by a preponderance of the evidence.

Next, Judge Rakoff will decide the punishment. The Department of Justice has asked for $848.2 million in fines. If the fine is even close to that, it will be an extremely expensive dance party for Bank of America.

As discussed in class and in previous posts here and here, technology presents new challenges to our constitutional rights all the time. The use of GPS tracking devices by law enforcement is a perfect example. It used to be that the police had to do long and boring stakeouts in order to get information on your comings and goings. Now technology makes that easy. By slapping on a GPS device to the back of your car, the police can monitor your car's every move, which can be quite bad evidence in certain cases.

That is exactly what happened in U.S. v. Katzin. There had been a series of robberies of drug stores, all of which involved cutting the wires to the alarm system before the robbery. The Katzin brothers, who were all electricians, were suspects in the ongoing investigation because of their criminal histories and been seen lurking by some of the Rite Aids before the crimes.  Without obtaining a warrant, the police put a GPS tracking device on the back of the Katzin van. The GPS tracked the van's movements to a Rite Aid store. When they discovered that the store had been burglarized, police pulled over Katzin’s van and discovered all three brothers inside as well as merchandise from the store inside the van, including pill bottles and Rite Aid storage bins. The brothers made a motion to suppress the evidence found in the van, arguing that a warrant was required to put the GPS device on their van. 

We know from the Jones case that the Supremes did rule that affixing a GPS device is a search. But the Court did not go farther and rule on whether it was a search that required probable cause, or a warrant, or could be conducted on the lesser standard of reasonable suspicion. The Katzin case put that question squarely before the Third Circuit Court of Appeals: the police relied on their reasonable suspicion (lurking around the Rite Aids, belong electricians) in order to conduct the search without a warrant. Was that constitutional?

According the the Third Circuit, it was a violation of the 4th Amendment to do a GPS search without a warrant. The Court found the GPS device to be intrusive enough that there is a reasonable expectation of privacy, and that requires the protection of a warrant. The Court rejected the government's argument that law enforcement could not gather the information required to establish probable cause without the GPS devices, saying that it was the "tail wagging the dog." The opinion is long but thorough, and attached here. (By the way this is a very good paper topic.)

I am still not convinced that we can adequately distinguish this from watching someone in a stakeout, aside from the Supreme Court's conclusion that affixing the device is a physical trespass. What do you think? Are we hampering law enforcement unfairly? Or protecting our rights against unreasonable search and seizure?

***Many thanks to Sayeed for bringing this new case to our attention. Although I don't condone emailing during class, it is OK if it is to send me an important current event.***

I am a fairly devoted watcher of Shark Tank. I am convinced that one day I will have a "million dollar idea," so I am drawn to the show. I also really like the mix of judges. Mark Cuban, one of the judges on the show and the owner of the Dallas Mavericks, is in the midst of a trial for insider trading right now. Insider Trading is the trading of securities while in the possession of material nonpublic information. It can be both a crime and a civil violation -- here Cuban is only charged with a civil violation by the SEC. He faces significant fines, but no jail time.

Cuban is alleged to have sold all his stock in a Canadian search website, mamma.com,  because of inside information he received from the company's CEO. Although not entirely clear because the trial has just begun, it sounds like Cuban's defense is that he didn't believe the information was confidential. It is rare for these cases to go to trial, so it will be very interesting to see how Cuban's defense pans out.

Do you like Mark Cuban? Do you think he was "cheating" when he sold his shares? Is our stock market fair?

Are you someone that freely "Likes" on Facebook? I must admit I do. It is a great shorthand for communicating that you have seen your friend or family member's message, and you support it. But is your "Like" speech under the First Amendment? Are you really expressing a viewpoint, or just randomly clicking? In practical reality, I think it probably depends on the person. But according to the Fourth Circuit Court of Appeals, a Facebook Like is speech that is protected under the First Amendment.

The case arose when a former deputy sheriff in Virginia was fired for "Liking" the Facebook page of his boss's political opponent in a race for city sheriff. The deputy was fired, and sued, claiming that his Like was protected speech. The trial court disagreed, ruling that although written posts on Facebook have been considered speech, a "Like" is not a statement, just a click of a button. On appeal to the Fourth Circuit, the case was reversed. The opinion states, "On the most basic level, clicking on the 'Like' button literally causes to be published the statement that the user 'likes' something, which is itself a substantive statement."

This decision raises all sort of interesting questions about whether the First Amendment protects our actions online. What about a retweet? Should that be considered speech? It is fascinating to watch as the Courts try to keep up with our evolving world.

The Wall Street Journal featured an article this morning about the increasing use of "pay for performance" for executive compensation. In other words, the company has to reach certain financial targets in order for the executive to receive restricted stock. The article focuses on whether the targets are real, but the more interesting question for me is what incentives this compensation structure creates. Ethics students, what dangers do you see in this "pay for performance" structure?