The Corporate Observer Blog : Consumer Protection, Corporate Abuse : Class Action Lawyer & Attorney : Steven Berk Law Firm

It must be pretty scary right now to be a retiree of Kodak.  You work with pride for decades for an iconic American company, only to learn late in life (beyond when you can find meaningful employment) that your health and pension benefits may just be gone.  Poof.  Thought you could afford to keep a little house on a lake in the summer for fishing and visits from your grandchildren.  Forget about it.  The $40,000 pension (give or take $5,000) is now at risk, as Kodak spent all its money trying to make printers when most offices were going paperless (hmmmm).  Worse, the health benefits that cover you and your ailing spouse might disappear as well.

Of course—thank goodness—you have social security and medicare (let’s hear it for the New Deal and FDR), and a few pennies of lifesaving remaining (after paying for three college tuitions, two weddings and start-up capital for your son in law’s failed restaurant).  But not much else; you can’t sell your house in Rochester, New York, for any amount because the town’s largest employer—yes, Kodak—is out of business and those U.S. Savings Bonds aren’t going to last too long if you have to pay for a basketful of prescription drugs.

Sadly, Kodak retirees are not alone.  Workers at great smokestack stalwarts like Bethlehem Steel and the huge auto-parts giant Delphi faced the same plight.  It’s a problem that politicians cannot ignore and continue to “kick down the road” much longer.  Maybe the answer lies with the work of a little-known Washington lawyer, Andrew Kramer, who recently passed away (at 67, before he had to face a long retirement without income).  From the Washington Post:

Mr. Kramer represented some of the biggest manufacturing companies in the automotive, steel, shipbuilding, aluminum and tire industries. He was best known for helping his most financially distressed clients reduce or eliminate “legacy costs,” the retiree health-care benefits that could mean billions of dollars of liability in perpetuity.

This became especially important over the past 20 years, when new financial accounting rules forced companies to put retiree health costs on their balance sheets as something other than a footnote. The psychological effect was huge: Company executives and shareholders suddenly had to reckon with the immensity of their obligations.

While private companies could simply eliminate health-care benefits for retirees, unionized industries would never stand for it. Mr. Kramer was among the first to use the trust structure known as a Voluntary Employees’ Beneficiary Association to offload a company’s entire financial obligation to retiree health care...

In recent years, Mr. Kramer was instrumental in crafting VEBAs for clients such as Goodyear Tire & Rubber, the auto-parts maker Dana Corp. and Crown Cork & Seal Co. In 2007, he helped orchestrate the agreement between GM, the country’s largest automaker, and the automotive workers union that resulted in a $35 billion payment by GM into the VEBA. In return, the VEBA would pay the retiree health-care bills.

Kodak did not have a VEBA.  Why not?  Will it take federal legislation to require all companies to do something to protect retirees (a status we all hope to attain because the alternative is, well, likely far less interesting)?  Perhaps.  I leave that to folks with more expertise than me in these matters, but—and here is where the Corporate Observer gets political—is Mitt Romney the guy to tackle this problem?  The same Mitt Romney who was recently quoted as saying that $370,000 of income from speaking engagements was “not very much”?  Ask retirees of Kodak if they could use $370,000 right about now.

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Today we feature a guest post from blogger and D.C. resident Beckley Mason.  He takes on the rising issue of cell phone legislation.  Please enjoy.

The government recently warned that any use of a cell phone, hands-free or otherwise, is dangerous.  So why are car companies investing heavily to integrate communication devices in their new vehicles?  It’s probably the same reason McDonald's keeps promoting Big Macs even though everyone knows the health risks: people want them.

In-car communication systems aren’t popular with everyone, though.  U.S. Transportation Secretary Ray LaHood has been vocal in his disapproval of systems like Ford’s Sync, which allows people to complete essential modern tasks, watch video they are simultaneously recording, connect to the internet, and sync with the applications on your phone.

As LaHood told the Wall Street Journal, "There's absolutely no reason for any person to download their Facebook into the car.  It's not necessary."

Maybe.  But desire, not necessity, is the father of consumer product innovation.  People are literally scientifically hooked on communication devices.  So Ford’s system wasn’t designed by some evil genius, it is simply keeping up with GM, Toyota, and other manufacturers that are trying to slake car buyers’ lust for communication at the tips of their vocal cords.

LaHood’s and the National Traffic Safety Board’s recommendation that states outlaw all use of cell phones while driving isn’t just a tough sell because major automakers have invested thoroughly in allowing us to use cell phones while driving, but also because state officials aren’t keen to legislate against the wishes of their constituents.

David Adkins, executive director and CEO of The Council of State Governments, said, "It's just one of those things that would be the equivalent of the 18th Amendment today.  It's a Prohibition that would not work.  I don't believe most state lawmakers would say (the NTSB recommendation) is viable."  Adkins continued, "To check to see what's for dinner and who's going to pick up the kids, those are so ingrained as conveniences in our daily lives, to say that we're not going to allow you to connect, that seems so unrealistic."

The metaphor falls apart when we consider that officials aren’t advocating a cell phone ban in bars or the privacy of your own home, but where their use can cost lives.  It’s drinking and driving legislation redux.  As such the NTSB won’t back down, and has called the proposed ban a step against “the new DUI.”

Where it can, the federal government is throwing its weight around on this issue.  There is now a near-$3,000 fine for interstate truckers—one of the few demographics under federal oversight—who use a cell phone while driving.

It seems like common sense to legislate against behavior that has been proven dangerous in multiple studies, but even states with strict laws aren’t seeing a sufficient decrease in accidents resulting from distraction, according to The Highway Loss Data Institute.  Its study found that while laws decrease the number of people who use phones, they do not impact crash figures like one might expect.  Seat belt legislation became uniform in the 1980s, and still only 84% of drivers and passengers buckle up.  Legislation alone won’t curb dangerous behavior, there have to be consequences and a comprehensive educational program as well.

Even in the long term, as technology accelerates, one wonders if legislation is the answer.  Though organizations like the NTSB and government voices like Ray LaHood should continue to rail against the evils of distracted driving, it may be more realistic to hope for systems that are more effective and safe.  Interactive systems that warn drivers about cars stopping short or pedestrians in the road are a good start.  If there are a rash of lawsuits over crashes resultant from in car communication systems, it might inspire some movement as well.  But today’s standard of government intransigence, personal negligence and companies rushing to develop the most distracting technology is little more than a recipe for unsafe roadways.

Beckley Mason writes a Bay Area Street Safety Blog for GJEL Accident Attorneys.

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Can a serious candidate for President be willing to suggest the end of democracy as we know it – in order to pander for a few thousand votes?  Yikes.

We are a country built upon the rule of law.  It may not be perfect.  With every case there is a winner and a loser, and sometimes the losers have the better argument.  But it works in the main.  And it works in large amount because we have an independent judiciary.  Judges—yes they are human—bringing their personal opinions and biases to deliberations.  Remember, that's why they were chosen or elected.  But they mostly get it right.  (That's hard for me to swallow because my practice and larger sense of jurisprudence resides on the other side of "mostly," but I must concede the point.)  Say Judges are "wrong" (a subjective term of course) 30% of the time.  The system works fine.  No worries.  

So why does Mr. Gingrich wants to topple the whole thing.  Why?  Well for political expediency mostly.  He needs to excite a few thousand Christian Evangelical voters in Iowa and elsewhere to get on buses and go to caucuses and support his candidacy for President of a 200-plus year-old democracy.  Indeed, a thriving democracy with an independent judiciary.

His message: we need to destroy that independence.  Haul them up for hearings before Congress, fire them, (how bout “tar and feather them,” sure that works and if need be throw them in their own secular jails).  This makes Roosevelt’s court-packing plan seem almost pedestrian in contrast.  And if Congress won’t play ball, well… throw them in jail too.

Can a serious candidate for President be willing to suggest the end of democracy as we know it in order to pander for a few thousand votes?  Yikes.

I say the best solution is ship Mr. Gingrich over to North Korea.  They need a new dictator and he’s got the perfect message.

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As a trial lawyer, my world operates on the adversarial system.  In other words, my job is to clobber my opponent.  I have a duty – yes an ethical duty – to “zealously” advocate for my clients’ interest.  Zealously, with ardent passion and enthusiasm and all the skills I can muster.  But that duty must be exercised within the rules governing my profession.  For example, I have a duty of candor to the court that trumps my role as an advocate.  Put simply, even if it is inconsistent with my client’s interest, I must always be honest with the Court.  Similarly, I am required to act professionally and with civility toward my opponent.  So when the bell rings, no low blows or dirty tricks, and when the round is over it is over.

Seems to me politics is similar (or it ought to be).  Democrats clobber Republicans and Republicans in turn clobber Democrats.  They are adversaries.  Okay, I get it.  It has worked that way for over 200 years.  It may not be perfect, but it’s the best we got.  But like my legal duties, there must be some limitations to the “clobbering” among the parties.  Most importantly, the losing party in an election must allow the winning power to govern.  They must respect and follow the system.  Yes, you have to stand when the President enters your chamber to present his State of the Union address.

Importantly and here is my point (finally): If the winning party seeks to have a nominee confirmed, the losing party can’t just say no.  Their review should be limited to a searching and complete review of a nominee's credentials.  But the confirmation process cannot be a partisan free-for-all – where the goal is to amend or overturn legislation – which disrespects the will of the people and effectively overturns the election results.  The winning party is entitled to govern.

That leads us to the case of Mr. Cordray.  In every way, he is qualified to head the CFPB.  Former law clerk for Supreme Court Justices White and Kennedy; former Attorney General for the state of Ohio; heck, he even won Jeopardy five times.  Indeed, Republicans do not disagree about his background.  But they have stated they will vote against any nominee unless the Dodd-Frank legislation is rewritten.  In essence, they are holding his confirmation ransom.  That is just not the way it is supposed to work.

A party wins the election and they must be allowed to govern.  If they fail to do so, vote them out of office in two years or four years, but allow them to fulfill the mandate of the electorate.

As President Obama recently said:

Does anyone here think the problem that led to our financial crisis was too much oversight of mortgage lenders or debt collectors?

We need to give Dodd-Frank and Richard Cordray a chance to govern.

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Dear Mr. Stephenson:

I am one of your faithful customers, paying my bill every month and never complaining.  Until now.

I do not ask much.  I don’t need to make calls from the cargo hold of a jet liner at 30,000 feet – like Jack Bauer.  No, in fact, all I want to do is call my mother.  Yes, my mother.  You see my parents are getting older and they really look forward to my calls at the end of each workday.  And I enjoy the calls too – at least when I finally reach them.  As I slide deeper into middle age, no matter what the slogan of the day is (“40 is the new 30,” nope “50 is the new 30!”), I am acutely aware that time is a precious commodity.  (Mr. Stephenson, I hope your parents are around for you to call, and if not some other loved one or close friend.)

I live in a medium-sized East Coast City (Washington, DC actually – our nation’s capital for heaven’s sake); they live in the Midwest just outside of a small town called Chicago.  So I’m not asking for something extraordinary I don’t think.  I’m not trying to reach them off the coast of Antarctica and I’m not calling from a village in Central China.  This should be basic stuff.  Cell phone technology 1.0.

Well it doesn’t work.  Time and time again I cannot make a lasting connection.  Nearly every time I call, the conversation is dropped three or four times before, well, I give up and revert to that great technology of a bygone era – the “landline.”  Thank goodness for the landline and Alexander Graham Bell.

I hear your expensive company ads that service will be improving in my area.  But alas I see no change, nothing, nada, no improvement.

I do not expect perfection, even from the mighty new AT&T, but what is the plan?  Although it’s not just about the money, what am I paying for?  I am hardly alone.  On behalf of myself, my parents, and the readers of my blog (The Corporate Observer): (1) tell us how and when your service will improve to a level of basic competency; and (2) set out a rebate program that provides me (and your millions of customers) a fair methodology for obtaining some form of credit for calls that are dropped.  Otherwise, what is your incentive to improve?

Thank you Mr. Stephenson and I look forward to hearing from you.

Sincerely,
Steve Berk

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The more things change, the more they really stay the same. Amidst all the outrage over unethical business practices, robust Occupy Wall Street protests nationwide, and high profile prosecutions of corporate misconduct, 25 percent of Yale graduates enter consulting and finance industries each year, with even more from Harvard and Stanford.  Wall Street, Private Equity Firms and Hedge Funds remain the place to go after graduation.  Our youth unabashedly proclaim they want to make “Bank” and they want it today.

How can that sentiment be reconciled with those thunderous chants of “Yes We Can,” heard throughout colleges across the land in 2008, where students promised to fight for universal health care, better schools, fairness for the poor and greener technologies.  Reality, I suppose.  Right out of college, over $100,000 in debt—where do you take a job?  As a school teacher in Appalachia ($30,000/yr) or an investment banking firm ($150,000/yr.) with offices around the globe and a gold amex card for those little incidentals?

But I don’t think it’s just about the money.  Youth want to feel relevant and part of the game.  They know the world will not turn upside down anytime soon and be run by former school teachers or social workers.  Money talks.  Wall Street bankers become Senators and Governors and sometimes even both (Senagovernor Corzine comes to mind).  And money buys influence and opportunity.  Our youth can rightfully surmise that down the road they can make more of a contribution if they become heavy hitters on Wall Street – with the money and contacts that brings. Are they wrong?  

It is not for me to say.  But if they do take the path of Wall Street and “finance” they should be required to take and pass a rigorous one-year ethics course and exam.  And that course should include a field trip to a minimum security prison – the one in North Carolina comes to mind – where Bernie Madoff will spend the rest of his life and Raj Rajaratan will soon become a guest of the Federal Government.  

Maybe then, the next generation on Wall Street, will use their skills to finance schools and clean energy and not synthetic derivatives that do nothing more than add volatility to an economy that is far too close to the brink.

Assisted by Arezu Hadjialiloo

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Over the past decade or so, companies have been sprouting up that fund litigation. Not just any litigation but big time, multi-billion dollar, “bet-the-company” litigation.  Juridica, the first such company of which I became aware, was started by ex-pat Richard Fields, a prominent anti-trust lawyer (on the defense side).  Fields traded in his heavy litigation bag for a small valise favored by fund managers.  A prominent new player to the field is Sean Coffey, one of the most successful plaintiff-side securities lawyers in the country, who helped start the oddly named BlackRobe fund.

This new application of an age-old concept is fueled by a fund raised from institutional investors (insurance companies, pension funds and the like) and wealthy individuals.  A piece of that fund is offered to the General Counsels of Fortune 1000 companies who are looking to finance existing or proposed litigation.

Here’s an example.  Let’s say a leading manufacturer of beds, call them Restwell, finds out that its major competitor, Sleepbetter, has stolen the top secret specs to its latest mattress – a mattress that is guaranteed to not only give you a good night’s rest, but improve… well let’s just say other aspects of the bedtime experience.  It’s truly a game-changer. It is estimated by the Restwell team to be worth billions over the next ten years.  But now Restwell will have to share its profits with Sleepbetter unless they can stop Sleepbetter in its tracks.  The problem is Sleepbetter is part of a multi-billion dollar conglomerate (think Berkshire Hathaway) and has vowed to fight any effort by Sleepwell to enforce its claim of exclusive rights.

Our beleaguered General Counsel of Restwell, Nancy, meets with her outside counsel at Queen & Wilson and they estimate the litigation costs will be $10 to $15 million a year and the fight with appeals might take five years.  Wow, that’s easily five times her legal budget.  She marches over to discuss the costs with her CFO.  He is hardly enthusiastic and grumbles “that’s a lot of our free flow cash, which is in short supply as you know because every penny we have is going into the development and marketing of the once-secret new bed.”  Frustrated, she returns to her office.   She can’t let Sleepbetter get away with the chicanery.  She remembers meeting Mr. Fields at an Association for General Counsel’s conference, and places a call.  She also calls Mr. Coffee, who successfully sued Restwell a few years back.

Both Juridica and Black Robe make presentations.  They have done their due diligence (which includes a comprehensive review of every document, a psychological analysis of the judge and a mock presentation to the jury where Mr. Coffee himself presents the Plaintiff’s case).  The assessment alone is a comfort to our nervous general counsel. These guys know how to evaluate a lawsuit. It’s like asking Billy Beane to assess the value of a second baseman for the Braves' AAA affiliate, or Warren Buffet valuing an investment in NetJets.  These guys know the law, the lawyers, the judge and the business dynamics on both sides of the transaction.

Using that expertise, they agree to fund costs up to $10 million a year.  In return, they seek an interest rate of 8% and 30% of any recovery from the lawsuit.  While the rates are high, Nancy does not need to beg for money from her CFO or nervously open the bills from Queen & Wilson every month.

So what is the Chamber of Commerce’s gripe?  They throw out the tired lines about “generating frivolous lawsuits” and the ancient legal concept called champerty, which forbids lawyers from “ginning up lawsuits”.  Excuse me, my knee just jerked up against my desk.

This new model for funding litigation is capitalism at its best.  Over time, money will find the most meritorious suits, guided by Adam Smith’s “invisible hand”.  Say Mr. Coffee’s brilliance as a lawyer does not translate into predicting litigation outcomes.  Over time, his fund will return a lower yield.  No problem, capital will flow to a new fund – maybe run by a law school drop out.  But the point is over time the most meritorious claims will be funded.  I think Judge Posner and his disciples would agree. Messrs. Fields and Coffee and their investors are in it to make money.  That money will not flow to weak and frivolous claims.  They will add unique value to the market, and the nature of the instrument will tend towards funding legitimate lawsuits.

Why then is the Chamber backing a socialistic, regulatory approach?  An approach that restricts—I can hardly bear to say it—the “free flow of capital”.  I suppose it is rooted in a basic distrust of financial innovation.  Worse, it might be the product of vested interest that fears these new guys might just revolutionize the $36 billion dollar litigation market.

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It’s official.  I was not dreaming.  Professor Warren will run for the Senate from Massachusetts.  Although its only Day 1, she has the full support and endorsement of the Corporate Observer.

For too long consumers and the middle class have shouldered the cost of corporate malfeasance.  Most recently, it was the corporate greed that caused the meltdown of 2008.  Who picked up the tab?  The American consumer, of course.  Why?  Big business controls the agenda.  Led by the U.S. Chamber of Commerce and a slew of well-heeled lobbyists, they have the resources and guile to divert blame.

With her brains, charm and experience, Elizabeth Warren will be an advocate for the middle class and consumers.  (See our recent posts explaining her contributions to consumers).  Not just for Massachusetts but for our entire nation.  When its time, as they say in my hometown of Chicago, “vote early and often” for Elizabeth Warren.  For now send her a check, send her two, at www.ElizabethWarren.com.  The country needs her more than ever.  Scott Brown, her opponent, is a nice guy and nice looking, but he hardly has the brains, gravitas and devotion to the needs of consumers embraced by Professor Warren.

An Elizabeth Warren only comes along once a century or so, she is the true heir to the Senate Seat of Edward Moore “Ted” Kennedy.

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Social Security is not a Ponzi scheme.  My firm represents victims of four Ponzi schemes, totaling nearly a billion dollars in losses.  We know something about Ponzi schemes.  All such schemes begin with a bogus investment vehicle and the promise of a significant return on that investment.  In Madoff, it was a portfolio of stocks and other securities that didn’t really exist.  The schemes my clients have fallen for include the purchase of phony certificates of deposit, participations in phantom bridge loans, and the sale of nonexistent commodities.

At the outset the scheme pays what appears to be a hefty return on investment, but that return is merely funded by the proceeds of investments from new entrants joining the scheme.  There are no real returns.  There is no investment.  It is all just hot air.  And eventually, it runs out of new investments and crumbles.

I suppose Governor Perry finds it politically expedient to claim the Social Security system is a Ponzi scheme.  Best I can figure, his conclusion about Social Security is based on the fact that today’s contributors are not putting their dollars toward their own retirement, but rather funding the pensions of current retirees.  And when baby boomers retire they are going to need to rely on tomorrow’s workforce to fund their retirement and so on and so on.

Clever, Governor, but not a Ponzi scheme; just a system that is underfunded and needs reform.  I’m not a politician, but what’s the benefit of using the moniker of “Ponzi scheme”?  Why not simply address the issue with thoughtful analysis and intellectual rigor.  Seems to me we need a President with real ideas and concrete solutions and not phony slogans that in the end only consist of hot Texas air.

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Sufficiently confused?  Decidedly undecided?  You are not alone.  TCO opined a few months ago—tentatively—that the merger is a good thing for consumers, but the Justice Department disagrees.

Every coin has two sides, though in Washington we often see one side simply screaming “Headsheadsheads!” while the other side screams “Tailstailstails!”  The louder voice prevails; meanwhile the true value of the coin is left ignored.  The fight over the AT&T and T-Mobile merger, which would give AT&T over 40% of the wireless communications market share, is no exception.

I mean, of course the merger will benefit consumers by consolidating companies, making production more efficient and therefore driving down costs.  But of course it will decrease competition, effectively creating a duopoly of AT&T and Verizon, which will drive up prices.

And of course it will hurt the job market, eliminating the inefficient overlaps between the two companies.  But of course it will help the job market; otherwise why would the majority of labor groups support the merger?

Customer service, at least, will improve as AT&T is able to operate on a larger scale and allocate a more efficient group to assistance.  But of course customer service will suffer; after all, what incentive is there for AT&T to provide higher-quality customer service if there is only one viable wireless alternative?  (And have you ever tried calling Verizon for assistance? Not exactly a friendly substitute.)

Sufficiently confused?  Decidedly undecided?  You are not alone.  TCO opined a few months ago—tentatively—that the merger is a good thing for consumers, but the Justice Department disagrees.  Yesterday the Department filed an antitrust suit against AT&T, the United States’ second-leading wireless company (for a copy of the United States’ Complaint click here).

The reality is the DOJ will use the legal action as leverage in merger negotiations.  “If you agree to terms X, Y and Z, we will drop our suit and allow the merge to proceed.”  But until that day, we’re left guessing and arguing as to the true pros and cons of the merger.

Left guessing.  Of course.

Assisted by David Martin

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Despite ending with the dismissal of all charges, it seems to me at least a bit of rough justice was achieved.

First, what is rough justice?  Well it is not a Rolling Stones lyric or a new footwear company.  Rather to me it simply means “getting it mostly right”.

DSK: For having some level of forced sex with a hotel maid (we will never know what if any of his despicable behavior was consensual) he is denied a run for Prime Minister; outed to the world as a sexual deviant with poor judgment; and finally, between attorneys fees and legal expenses (remember he paid for his house arrest), his wallet (or rather his wife’s wallet) is lighter by a few million dollars.  Not perfect, but punishment to be sure.

Ms. Diallo: She had filed a civil suit against DSK.  My guess is she will likely get something in the mid-six figures with her agreement to keep the event confidential at the heart of negotiations.  Surely no amount of money can compensate her for enduring what appears to be the violence of that afternoon.  But we are talking about “rough justice”.

And for all of us watching: A criminal justice system that get’s it mostly right – eventually.

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Kobe: Hey, DSK. Congrats.  All charges dropped.  Nice work.  I have to tell you I thought they had you nailed.

DSK: So did everyone else.

Kobe: You must be angry as all hell.  Are you going to sue the prosecutors?

DSK: No, no, of course not.  Did they act too quickly?  No doubt.  Should they have fully interviewed Ms. Diallo before parading me out for the cameras and sending me to Rikers without bond?  Indeed.  But this was my fault my friend, I am to blame.

Kobe: Come on now Dominque, don’t be so hard on yourself.  You were set up.  This maid and her drug dealing friends were out to take you for a ride.

DSK. Not exactly. It all started with my stupidity and arrogance.

Kobe: Now you are starting to sound like an NBA superstar.

DSK: No really, I’ve had a lot, I mean a LOT, of time to think this all through.  Days and days of house arrest – with only my wife staring daggers at me.  You have some time to reflect.  I may be a world class banker – I invented the Euro you know – but when it comes to women, I’m worse than a sixteen year old boy.

Kobe: Whoa… where’s this coming from?  This isn’t the same DSK I partied with in Cap Ferrat last summer.  You were quite the charmer, as you went from one bikini-clad guest to another.  What was it you were whispering in their ears?  They sure did blush.

DSK: That’s my problem.  I think every woman who meets me is completely charmed and would do anything to satisfy me.

Kobe: Okay.  Sure.  I know you invented the Euro and all, but did they not have mirrors in that $50,000/month apartment you rented?

DSK: Yes, Kobe, I am fat and gray and could likely not get down the court one time just in case you missed a fast break layup, but I deluded myself into believing women wanted me.  All women, all the time.

Kobe: I hear you.  My own arrest in Colorado for a similar offense all started with the same arrogance.

DSK: So I am heading back to France.  Hopefully, this experience will change me for the better.  I was lucky this time, really lucky.  Next time… well I hope there is no next time.

Kobe: Okay.  You may see me in Paris.  With the NBA locking us out, I may be heading to Europe for a season or two.  And yes, I’ll remember what you said.

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The burly, taciturn New York City cop, looked over at his most famous prisoner on Riker’s Island with blithe disdain, “Hey, DSK, see that pay phone ovah thar, yeh got ten minutes.”

Dominque Strauss-Kahn, stands up, feeling a bit dizzy from lack of sleep and the fall from world leader to common perp. He dials slowly from a crinkled card in his wallet. “Hello, hello, is ‘zis Kobe? Kobe Bryant?”

Kobe: Man, it’s four in the morning, who the hell is this.

DSK:   Dominique, Dominique Strauss-Kahn, we met last summer in St. Tropez at Mick’s place. 

Kobe: Oh yeah … right … guess you’re having a bad day.   Heck and I thought being swept by the Mavs was bad.

DSK:  Pardon moi, “Swept by the Mavs?”

Kobe: Never mind. What can I do for you Dom?

DSK:   Well how do I get out of ‘zis mess,  

Kobe: You’re in a mess alright, Dude, what were you thinking?

DSK:   I know, I know, Très stupide”.

Kobe: Next time try a little of that French, “savoir faire”, or whatever you call it. At least offer her some champagne … I could send you a bottle of some good California Champagne.

DSK:  That’s not Champagne, it’s sparkling wine!

Kobe:  What?

DSK:  Kobe, listen! My dear friend”, with tears filling his eyes, I will not survive 5 minutes, let alone 5 years in a New York jail. Oh, mon dieu. C’est tout perdu.

Kobe: Alright calm down, Dom this is what you gotta do:

First you must get yourself a woman attorney, someone who commands respect. And no trying to put the moves on her! A dirt ball like you (oops, sorry Dom) needs a lady at his side in times like these.  Call my friend, Stacey Richman, who represents Lil’ Wayne.

DSK:  Lillie Wayne?

Kobe: No … “Lil’….forget it. Anyway, If Stacey’s busy call my savior Pamela Mackey or in New York, I hear Judy Livingston gets its done. 

Second, find out everything you can about this woman … who “claims” you assaulted her. I mean everything, from her birth to yesterday. Everything, particularly anything about her boyfriends, husband, … anything. You get the idea. You’re a smart guy, you bailed out all of Greece and Portugal. You have to take the smallest piece of dirt and make it into a mud slide. And of course, then leak the bad stuff to the press so they can take credit for “excellent journalistic skills”. And, if you can’t find out anything about her, try her family and friends. Dom, everyone has some dirty laundry.

Third, get some cash together, lots of cash. You may need to pay this gal of yours.

DSK:   She’s not my gal, In France we always jump naked out of our bathrooms. It is how we get dressed.

Kobe: Well whatever she is to your sleazy mind, you are going to need to offer her not one, but two suitcases filled with cash, to have her conclude and tell the prosecutors and the world, “I’m sorry, I changed my mind. Mr. Strauss-Kahn was a perfectly charming, gracious man and I am sorry for what I have put him, his lovely family through these past months.” 

DSK:   You’re right Kobe, it sure is going to take a lot of Euros (which I helped create) for her to say that.

As the New York City cop begins fidgeting and signals with a commanding arm, time is up, Dominque Strauss-Kahn, looking even more bewildered and forlorn, and says plaintively into the phone, “Kobe will it work? Can I ever become President of my beloved France”.

Kobe: “Well, Dom, it sure looks bad, but hey, think of my case, I was a famous, rich, black man in Colorado accused of raping a wholesome blonde white girl. Anything is possible. You could try changing your number… do politicians have numbers? Whatever, Peace.”

** The C.O. apologizes if this effort at comedy offends any of our readers. We take very seriously the nature of this crime and have the utmost respect and sympathy for all victims of sexual assault and violence to women. We also respect DSK’s right to a defense and the presumption of innocence to which all criminal defendants are entitled.

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Who is surprised that Arizona and Utah are the first US states to adopt an official state gun, Utah choosing the Browning M1911 semi-automatic pistol as its state gun in March, and Governor Jan Brewer signing legislation designating the Colt single-action army revolver as the Arizona state gun this past week?  Utah chose the Browning because John Browning was a native son of Ogden and the M1911 was the standard issue sidearm for all US military branches for most of the 20th century, and Arizona selected the famed Colt revolver with its Connecticut pedigree because the Colt single-action killed a lot of people in Arizona and across the American West. 

The gun people are going to keep shoving their guns down our throats whether we like it or not.  Gun control, all but dead, has no political mojo and faces an activist pro-gun Supreme Court majority.  Arizona and Utah, host of and neighboring state to the shooting of Gabby Giffords, choose to honor the American handgun mere months after her grocery store parking lot shoot down, with the dead freshly buried and Congresswoman Giffords working her way down rehab corridors pushing a shopping cart.

There is a deep and ascendant gun culture nutty to those of us not part of it, those who don’t own a gun, don’t want a gun, hope the guy next to us isn’t packing a gun, and can’t understand how infamous shootings don’t accelerate momentum for sensible hand gun restrictions where the opposite seems to be true, that each big killing boosts gun sales and makes the gun more dear to the gun folk and less likely to be subjected to restrictive legislation.

But you know what they say, “guns don’t kill people, people kill people.”  If that’s the case then why honor the weapon at all?  Be true to the slogan and honor the killer: a California license plate for Sirhan Sirhan (.22 caliber Iver-Johnson Cadet revolver), Howard Unruh Proclamation Day in New Jersey (killer of 13, Luger PO8), a Seung Hui Cho rest stop on Virginia’s Route 81 (Glock 19, Walter P 22), a postage stamp for John Wilkes Booth (Philadelphia Deringer), etc -- state flower, state song, state fruit, state bird, state hand gun killer.

Guest post by Jeffrey Goldberg

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Reasonable doubt is one of the more difficult concepts in criminal law.  If my memory from my days as a prosecutor serves me correctly, the Judge will instruct jurors that it is a doubt based on "a reason." Rather circular but it makes sense.

Reasonable doubt.  It seems attorney John Dowd is left with that amorphous standard to keep his client out of jail.  When a defense attorney relies on reasonable doubt they are in trouble.  Surely it brings a smile (albeit hidden) to the prosecutors lips as they sit politely and listen.  They know if the defense was strong, they would be pounding on the facts and not what to many laypeople is a technicality.

Reasonable doubt is one of the more difficult concepts in criminal law.  If my memory from my days as a prosecutor serves me correctly, the Judge will instruct jurors that it is a doubt based on "a reason." Rather circular but it makes sense.  It must also be a reason that is supported by or flows from the evidence.  It is not a doubt that is fanciful or irrational -- such as "Lloyd Blankfein took over Raj's mind and body and instructed him to make the trades to take pressure away from Goldman."

Here Raj can point to a couple possibilities for establishing a reasonable doubt based on the evidence.  One, that government witnesses, hoping to avoid jail, lied.  Two, that the information they are calling "insider" was public and just part of the "mosaic" of information available to the hardworking managers at Galleon (snicker, snicker).

I'd put the chances of a "not guilty" verdict at 100 to 1.  But juries can do some strange things.

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He saved his real ire, however, for Professor Warren.  Early on in his personal attack, he called her a “lady”.  It was the word and his emphasis on the word that gave me pause.  It made two young women at my table flinch too, and they rolled their eyes as they whispered to each other.

I am a white male born just at the end of the baby boom.  I grew up in a comfortable middle class home in a nice suburb in one of the nation’s largest cities.  From my earliest memories of elementary school, I competed with women (at the time they were of course 1st graders like me).  I remember running from the bus to meet my mother with my report card, which had a few A’s but was also smattered with a few other letters.  Alas, I knew that my best friend, neighbor and competitor in all matters, Marisa was delivering another set of straight A’s to her mother... who would talk with my mother (you get the picture).  Through high school and college and into law school, women were always at least half the class.  Some were superstars and some were not, but it never seemed based on anything but merit.

Entering the workforce, as a young lawyer, women were -- as they always had been -- my colleagues and competitors.  But for the first time, I started seeing a distinction between men and women in the workplace.  Women bear children.  Men do not.  Because of that basic biological reality, I started seeing woman in significant numbers going part time, or taking a position in-house where the hours were more regular.  They had biological imperatives that I could not appreciate. Another more troubling change was the behavior of some men, mostly of my father’s generation, and how they treated women in the workplace.

They, the men, were the partners, women were associates and the male partners exploited that power.  I knew that took place, subtly and overtly, and some law firms were worse than others. Without minimizing this underside of my profession, many of my female friends and colleagues deservedly persevered and reached the pantheon of our profession, becoming Judges, Managing Partners of law firms, general counsels of large corporations, and law professors.  Based on my limited slice of reality, where women had done quite well, I have always been a bit dubious of claims for gender discrimination, particularly as it relates to female professionals.

My comfortable (and naïve) perception that all was right in the world of gender and employment was snapped earlier this week.  I was attended a conference at no less than the United States Chamber of Commerce in Washington, DC, just across Lafayette Park from the White House.  I was there to see and hear Professor Elizabeth Warren.  Since 2008, she has been a powerful voice for consumers; no, she has been the most powerful voice for consumers.  And now as she races to get the new Consumer Finance Protection Board (CFPB) up and running, she faces the full court press of corporate, banking and Wall Street interests attempting to derail her.

As I learned the other day, that fight includes gender.  Preceding Professor Warren’s presentation were some remarks by Congressman Spencer Bachus, Chair of the House Financial Services Committee.  The Congressman rambled on a bit about the economy and competition and the absolute evils of regulation -- nothing more than a worn out stump speech.  Most interesting was his awkward attempt to compare regulators in the U.S. to Maoist China (but that is for another day).

He saved his real ire, however, for Professor Warren. Early on in his personal attack, he called her a “lady”.  It was the word and his emphasis on the word that gave me pause.  It made two young women at my table flinch too, and they rolled their eyes as they whispered to each other.  They were young staffers of the Chamber of Commerce, so it wasn’t just me.  Mr. Bachus was using Professor Warren’s gender as an attack.  To my ears it was, "how can a lady be trusted to really understand all this important finance regulation?" or similarly, "how dare a lady tell us what to do?"  It was offensive.  And sadly the same sentiment was echoed by the Chairman of the Chamber of Commerce, Tom Donohue.

Just on the other side of the Capitol, attorneys hoping to maintain their class action lawsuit on behalf of over one million past and present female employees of Walmart presented arguments to the Supreme Court.  The crux of the plaintiffs’ case is that Walmart’s management in Arkansas has an unspoken culture, a code, for favoring men over women in promotion and pay.

I admit before my visit the US Chamber of Commerce, while I was supportive of the case I remained somewhat dubious of the merits.  No more.

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Ok.  Let me see if I get this straight.

A longtime resident of the City of Chicago moves to Washington, DC for two years to serve his country at the highest levels – White House Chief of Staff.  Rahm Emanuel does not sell his Chicago home and continues to pay taxes.  Indeed, he always intends to return and keeps many of his worldly possessions in Chicago.

When the Mayor decides not to seek re-election, this longtime resident decides he wants to return to the city he loves and use his considerable political skills (acknowledged by the leadership of both political parties) to run for Mayor.  He hopes to help the citizens of that city navigate the difficult economic times and bring jobs and new opportunities to all.

Yesterday, an appellate court in a split decision (2 to 1) said no.  You are not a “resident” of the city.  Beat it.

This case seems to turn legally on the definition of what is meant in the law by “resident”.  What is a resident?  Do you have to sleep in a bed in Chicago one day, one week, one month a year?  What if you are not sleeping – but merely faking it?  Do you have to close your eyes to WGN on TV and set your alarm to WBBM news radio 780, in the morning or do you have to attend one Bears, Cubs, White Sox, Blackhawks or Bulls game?

I say home ownership and paying your taxes in Chicago affords you the right to be deemed a resident for purposes of throwing your hat in the ring for public office.  It’s an objective test and a fair one.  Consider for a moment those directly impacted by the court’s decision to the contrary.  Only a handful of citizens seek public office.  Most of those will not have a challenge to their residency.  Those that do will likely be like Rahm Emanuel.  They served their country in Washington, or in the military in harm’s way, or as diplomats in embassies too often under attack, or as an aid worker in Darfur.  Are those the people we want to deny the right to serve the citizens of Chicago?

I’ve read that if Rahm had simply not rented out his Chicago home and instead spent a few nights there in his Chicago Cub pajamas he would be just fine.  But that can’t be right.  So a billionaire Tycoon, who lives in Monaco to avoid taxes, can run for Mayor because he did not have to rent out his Trump Chicago Penthouse.  That ain’t right.

In the end, the decision must be left to voters.  In these tough economic times, the citizens of the “City that Works” should have the opportunity to decide who should lead them, not the courts.  They know Mr. Emanuel lived in Washington, DC; if his loyalty to Chicago is somehow compromised by that fact, vote for the other guy – but don’t deny voters the opportunity.

I sure hope the Judges on the Illinois Supreme Court, which will hear the case next, get it right and remember that elections are about the will of the people.

(Full disclosure: I am a former resident of Chicago.)

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Not by land, not by sea; this time by ethernet and fiber optic cable.  Zealous European regulators are in the news daily for their investigation of US based giants such as HP and Google.  And those guys in Switzerland are actually serious about regulating banks.  As funding to support the regulatory regime envisioned in Dodd-Frank flounders, European regulators are filling the gap. 

Since we have recently seen all too well how corporations act when unregulated, this is a positive development.  At least someone is minding the hen house.  But long term, the US must regulate its own companies. Not for some jingoistic reason, but substantively because American regulators can best craft solutions that are tailored to our markets and provide for the best opportunity to protect main street.  You think the European regulators care about citizens in Dubuque, Iowa? 

What the Europeans are doing:

Google

The European Commission as well as the French government on its own behalf are each investigating Google’s practices. Google (ever heard of it?) is the world’s largest internet search provider and, as such, often draws the ire of antitrust regulators around the world. The French Commerce Authority recently judged Google’s role in its market “dominant” with a market share of 43%. (Click here to read more) The Authority did not impose sanctions for this dominance, and even commended Google’s innovation. However, strong warnings were issued that Google must mind its conduct. With such a dominant role, competition laws will limit its actions.

In addition, the European Commission is looking into Google’s recent practice of placing its own ads and sites ahead of competitors’ sites, which are in fact more popular. (Click here and here)  This has the potential to change the entire search engine paradigm.  The Commission has welcomed the French report as “consultative”, but must complete its own, more antitrust-focused inquiry before any decisions are made. The Commission has the power to fine Google up to 10% of revenue – quite a sum considering Google’s size and wealth.

Hewlett Packard

In 2009, German Prosecutors alleged that HP had paid bribes to Russian officials in order to land a $46 million deal - ironically with the offices of the Russian prosecutor general. DOJ and the SEC have recently stepped up efforts to collaborate with the Germans and Russians in the investigation, but what took so long? Why are other countries regulating American businesses quicker than our own agencies? Click here for the WSJ article.

Basel III

The final text of Europe’s central banking overhaul, Basel III, was published yesterday. (click here for the Reuters story) Debate still rages over the advantages and disadvantages of new regulations set to be phased in from 2013 to 2019. One thing however, is not hotly debated – the new Basel rules are a monumental step towards securing the banking industry against risks and shocks like those experienced in 2008. Today’s Wall Street Journal claims that banks would have to add nearly $762.85 billion in order to meet the Basel III demands if they were implemented immediately. Because the international banking system is so interconnected, these changes in Europe will have dramatic effects on this side of the pond as well. Over the coming years we can expect to see safer, sounder financial institutions throughout the world thanks to Basel III.

While Europeans Are Pushing Forward The Americans Are Dragging Their Heals

Whistleblowers

We blogged about it a few weeks ago, but this story calls for another mention: the SEC lacks the funding it needs for its whistleblower department and it is unclear when the money can be expected. Dodd-Frank’s core reforms mean nothing without the funding it needs and the teeth it deserves. The whistleblower division of the SEC is essential to Dodd-Frank’s central mission.

The CFTC

In addition, Dodd-Frank awarded great new powers to the CFTC to set limits on commodities trading and curb overly-risky investments by limiting the size of positions traders can take. According to Jeffrey Sparshott’s article in today’s Wall Street Journal, CFTC regulator, Gary Gensler “got cold feet” before voting on a formal proposal to regulate the commodities market. The vote has been postponed – most likely until after the New Year. Those in the know are concerned that the rules in their current form may not work as intended. The CFTC should be sure to get it right, but what is taking so long?

Assisted by Zach Kady

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"The elective franchise, if guarded as the ark of our safety, will peaceably dissipate all combinations to subvert a Constitution, dictated by the wisdom, and resting on the will of the people."

Thomas Jefferson

In this most partisan of elections, where it seems Americans are deeply divided on the core issues of the day, we must never forget, nor squander the fact that we all have the right to vote. We all have the right to choose our leaders and in some small way the future of our nation. We encourage you all to exercise this most solemn of responsibilities – one that many have spilled blood to guarantee for this generation and generations to come.

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Elizabeth Warren claims that the Consumer Financial Protection Bureau will be “The first real agency of the 21^st century”. Warren is optimistic about the agency’s potential to help improve the Amrican investing climate.   Click Here For the Story

Three cheers for Obama for his pocket veto of the Notarizations act. The bill was originally intended to help promote interstate commerce by mandating the recognition of notary publics between states. The bill wasn’t drafted in bad faith, but some of its more obscure provisions could help make it easier for banks to foreclose on homes. Click here to read about President Obama’s veto.

Citizens United is certainly rearing its head in the 2010 midterm election. Funding is up, but is political justice taking a hit? Read the New York Times article here. 

Read the New York Time’s article about President Obama’s calls to outspend private interests Here.

Assisted by Zachary Kady

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Score one, two, three…  I count eight for the everyday American, and this summary doesn’t cover all of the changes you will see.

For millions of Americans, six long months of waiting come to an end today as the health care bill finally takes effect (as reported by the New York Times here and the Washington Post here).  In the past, the health care sector (much like the financial sector) has victimized innocent, unknowing citizens through unexpected fees, unfair fine print and severe lack of consumer recourse.  The health care legislation will bring an end to the most nefarious of these practices.

For your convenience, I have compiled a list of the basic changes you can expect in the health care realm:

• Your child can now stay on your coverage until he or she reaches age 26;
• Your child may not be denied treatment for a preexisting condition;
• In an emergency, you may visit the closest emergency room regardless of your coverage (appalling that was not the standard already, huh?);
• You may now choose your own doctor (again, how was this not already status quo?);
• Your insurance provider’s ability to retroactively cancel your policy due to so-called “fraud” on your application is far more difficult due to a fortified policy cancellation standard;
• You may now appeal a denial of coverage by your insurance company to an independent arbiter for review;
• Insurance companies may not place a lifetime limit on coverage; and
• Over the next three years, the annual limit will be phased out of all health plans and eventually disallowed entirely.

Score one, two, three…  I count eight for the everyday American, and this summary doesn’t cover all of the changes you will see.  It is certainly a day to celebrate, but we must also ensure that the parts of the plan needing oversight – denial of preexisting conditions, retroactive cancellation, and the appeals process – are truly governed and enforced.  The next step is to give the bill teeth, but for today let us raise our glasses, this time without fear of throwing out a shoulder.

Assisted by David Martin

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Greed continues unabated and unapologetically on Wall Street.

Wall Street bonuses are skyrocketing. The rate increased to a staggering 31% at Goldman Sachs, JPMorgan Chase announced $9.3 billion in bonuses.   Bank of America has joined in the fun too; dishing out $4.4 billion – yes billion – to investment banking employees, with top employees receiving $5 million a pop. In total for 2009, New York City bank employees were paid a whopping 20.3 billion.

How bout a box of chocolates or simply a thank you for Main Street?  They made it possible with a no strings attached bailout just last year. Think what America could do with $20.3 billion. Schools, a new bridge or two, heck let’s pay off some of that mounting debt to the Chinese.

As troubling as the sheer size of these bonuses, is their source.  The fancy name for it is proprietary trading. Most of us would call it gambling.  Yes trading is gambling.  But generally when you are Goldman Sachs or JPMorganChase, you don’t lose.  Others do though – the fellas on the other side of the trade – that’s why they call it a trade.

All this “proprietary trading” can be an unstable and a risky way to run a bank.  Eventually the music stops and someone loses.  Those losses are multiplied by derivatives upon derivatives and those tidy trading profits can soon vanish turning into colossal losses.  But fear not, Main Street can be scared into at least one or two more bailouts.  

Perhaps more troubling though is when the major Banks are busy at the poker table, with all their chips deployed, little attention is paid to innovative financing for existing and new companies trying to compete in the world economy.  Face it, proprietary trading does not produce value outside of Wall Street; the only beneficiaries are the banking employees themselves. This circular system keeps billions of dollars in the hands of Wall Street bankers, and none of it in the hands of the American people.

The services offered on Wall Street are vital to all Americans, and the work that employees do should be fully compensated. But right now, Wall Street rewards its employees for engaging in selfish transactions that benefit none but their own.

So what do we propose?

Let’s restructure Wall Street bonuses to incentivize banking employees to produce profit on transactions that create jobs, build infrastructure, and reward innovation:  not financial innovation but real world innovation.  How about putting some of that creativity and energy into financing clean coal plants or schools designed to retrain our work force.  Those endeavors deserve a bonus.

Assisted by Jessica Begen

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