Two recent posts at the Business Law Prof Blog address the issue of financial literacy among law students and the alarming level of incompetence among regulators. The first post concerned Mark Klock’s recent article Lessons Learned from Bernard Madoff: Why We Should Partially Privatize the Barney Fifes at the SEC the abstract of which on SSRN says:

Financial markets do not function well when fraud is pervasive. Around September of 2009, the investigations into the SEC examinations of Bernard Madoff Investment Securities, LLC were completed and released to the public. The simple facts reveal an alarming level of incompetence and lack of financial literacy on the part of the guardians of the integrity of our financial markets. I suggest two important tools for addressing these problems. One is to supplement enforcement of anti-fraud rules with more private attorney generals by expressly creating a private right of action for aiding and abetting violations of securities laws. This will foster a stronger culture of integrity and ethical conduct in the auditing profession. An additional tool is to increase financial literacy in our law schools which supply the regulators of our markets.

The second post entitled The SEC and Hiring expresses dismay at the slavish devotion to formality exhibited by the agency’s human resources department. The post is worth quoting at length:

To wit, today’s law students – regardless of passion for the subject or practical experience – are keenly aware that the Commission (just like any large law firm) shall be predictably seeking to hire the top of the law school class. This lemmings approach to filtering applicants leads the SEC to the very same students who win the beauty pageant of grades that commences around Christmas of the first year of law school and ceases sometime near retirement. Inevitably, such forerunners are, at best, anticipating a brief “training period” employment with the Commission or, at worst, gobbled up by the largest Wall Street employers halfway through interview season.

Each semester I encounter students who, despite acumen and desire, lose out to the simplistic approach of an agency that, despite a perennial wealth of applicants, seems to get outmaneuvered by market players each decade. Without fail, a number of students in courses like Securities Regulation and Corporate Finance evidence a practical utility and an earnest hope to work for a regulator (e.g., the former hedge fund trader willing to explain the real value in a real time stock ticker; the former State examiner who’s interviewed 100+ investors; the economics major who can readily distinguish between the boilerplate of a 10Q and a 10K; the part-time student who’s worked in a stock loan department). In fairness to the Commission, the Regional Offices outside of New York and Washington D.C. do seem more willing to value work experience and a corporate course load over high scores in Torts and Contracts. But in those two largest offices, the message is clear: Third year students ranked high in the class of a top law school shall be given the most serious consideration (and likely stand the only realistic chance at something called “The SEC Honors Program”).

It may very well take stalwart leadership, a generation of creativity, and unfettered funding to completely reform the Commission. But a large step towards it regaining composure can be made in a year by simply redirecting the hiring process to favor experience and desire over scores on tests gauging a first year law student’s knowledge of generalized legal concepts. Stated bluntly: Lighten up SEC, and give the students with focused skills a chance.

An April article from AmLaw Daily entitled And Now for Something Completely Different: The Future of Legal Education addressed the need for more “skill development” in law schools during the current economic downturn, as businesses are “not going to pay for people who can’t add value.” The article noted that most law schools do not teach lawyers such practical business management skills as financial literacy and effective executive communication.

In a victory for the plaintiff shareholders, the US Supreme Court unanimously ruled in Merck & Co., Inc. v. Reynolds that the statute of limitations actions brought under §10(b) of the Securities Exchange Act of 1934 begins to run upon “discovery of the facts constituting the violation.” The Court held “facts showing scienter are among those that ‘constitut[e] the violation.’” Justice Breyer, writing for the Court ruled that, due to delayed discovery of the claim, the two-year statute of limitations did not bar the investors from bringing a securities fraud action. The decision stated:

We conclude that the limitations period in §1658(b)(1) begins to run once the plaintiff did discover or a reasonably diligent plaintiff would have “discover[ed] the facts constituting the violation”—whichever comes first. In determining the time at which “discovery” of those “facts” occurred, terms such as “inquiry notice” and “storm warnings” may be useful to the extent that they identify a time when the facts would have prompted a reasonably diligent plaintiff to begin investigating. But the limitations period does not begin to run until the plaintiff thereafter discovers or a reasonably diligent plaintiff would have discovered “the facts constituting the violation,” including scienter—irrespective of whether the actual plaintiff undertook a reasonably diligent investigation.

Now the shareholders may pursue their claims that Merck & Co. Inc. violated federal securities law by misrepresenting the safety and commercial viability of Vioxx, a pain reliever ultimately withdrawn from the market. The Court affirmed the Third Circuit Court of Appeal’s decision In re Merck & Co. Securities, Derivative & ERISA Litigation, 543 F.3d 150 (3d Cir. 2008), which held that the statute of limitations does not begin to run until the plaintiff has information suggesting defendant’s scienter. The Third Circuit decision reversed the judgment of dismissal entered by the US District Court for the District of New Jersey, which ruled that the claims were barred by the statute of limitations because the plaintiffs “were put on inquiry notice of the alleged fraud more than two years before they filed suit.” See In re Merck & Co., Inc. Securities, Derivative & “”Erisa” Litigation, 483 F.Supp.2d 407 (D.N.J. 2007).

Justice Scalia, joined by Justice Thomas, concurred in part and concurred in the judgment. Justice Scalia argued for an even more plaintiff-friendly result, stating that the statute of limitations should begin to run when a plaintiff actually discovers facts constituting the violation, rather than when a reasonably diligent plaintiff should have known such facts.

In its decision the Court rejected Merck’s proposed “inquiry notice” standard as inconsistent with the statute, which provides that “discovery” is the event that triggers the 2-year limitations period—for all plaintiffs. It noted that courts applying the traditional discovery rule have long had to ask what a reasonably diligent plaintiff would have known and that courts in at least five Circuits already ask this kind of question in securities fraud cases. Whether the interpretation of “knowledge” to include constructive knowledge will make a meaningful difference in a significant number of cases is unclear. District courts may yet find complaints untimely based on what a “reasonably diligent” investor would do.

The end of the semester is a stressful time for every law student.  If you need a break, watch The Oath, the latest documentary produced by Professor Kaplan.  The Oath presents the story of two brothers-in-law, Abu Jandal, Osama bin Laden’s former bodyguard, and his most famous recruit, Salim Hamdan, who is on trial for terrorism. The film delves into Abu Jandal’s daily life as a taxi driver in Yemen and Hamdan’s military tribunal in Guantanamo Bay prison.   The Oath premiers in New York City on May 7 and runs through May 20 at the IFC Center.   The IFC Center is located on 6^th Avenue and West 3^rd Street in Manhattan.

If after seeing the documentary and finishing exams you want to read more about Hamdan or the Guantanomo trials, check out the books below from the Brooklyn Law School Library.

The Challenge : Hamdan v. Rumsfeld and the Fight Over Presidential Power, by Jonathan Mahler

The description below is provided by the publisher.

In November 2001, Salim Ahmed Hamdan, a 31-year-old Yemeni, was captured and turned over to U.S. forces in Afghanistan. After confessing to being Osama bin Laden’s driver, Hamdan was transferred to Guantánamo Bay, and was soon designated by President Bush for trial before a special military tribunal. The Pentagon assigned a military defense lawyer to represent him, a 35-year-old graduate of the Naval Academy, Lieutenant Commander Charles Swift. No one expected Swift to mount much of a defense. The rules of the tribunals, America’s first in over fifty years, were stacked against him–assuming he wasn’t expected to throw the game altogether.   Instead, with the help of a young constitutional law professor at Georgetown, Neal Katyal, Swift sued the Bush Administration over the legality of the tribunals. In 2006, Katyal argued the case before the Supreme Court and won. This is the inside story of what may be the most important decision on presidential power and the rule of law in the history of the Supreme Court.

Honor Bound: Inside the Guantanamo Trials, by Kyndra Rotunda.

The description below is provided by the publisher. 

Honor Bound is an intriguing book that explains the law of war and the inside story of military commissions. The author is a former JAG lawyer who served on the prosecution team, worked in Guantanamo Bay, and was legal advisor to an elite team of war crimes investigators.  Through a series of entertaining vignettes, Rotunda discusses and analyzes the laws governing the war on terror, the Geneva Conventions, and the laws related to detainees held in Cuba.

Bar exam study passes will be available on Tuesday, May 18, 2010 at 9:00am at the first floor reference desk for non-Brooklyn Law School graduates. The fee is $50.00 for most law school graduates. The fee for graduates of Pace University Law School is $100.00. Graduates of Fordham University Law School, see the reference librarian. Please bring two pieces of identification, including your law school ID card. The individual purchasing the pass must have graduated in the previous twelve months. If the law school ID card is not available, a letter from the law school with the date of graduation may be substituted.

The library reserves the right to limit the number of passes for sale.

The purchase of a bar exam study pass entitles the individual to use the facilities of the BLS Library with the exception of the computer workstations and printers, wireless access and the study/conference rooms.

Bar exam study for non-BLS graduates is a courtesy that the library extends to non-BLS individuals. This access is subject to visitors complying with all library rules and policies. Any non-BLS graduate who violates any rule or policy will lose his or her right to use the library for the remainder of the bar exam study period and will forfeit any fees paid.

News reports feature two distinguished Brooklyn Law School graduates being appointed to prominent positions. ArtDaily.org has an article on Claudine K. Brown, Class of 1985, being named the Smithsonian Institution director of education. Brown has been director of the arts and culture program at the Nathan Cummings Foundation in New York since 1995. In her new position, Brown will be responsible for defining the Smithsonian’s education program and will develop a plan for educational initiatives, assessment strategies and funding for students in the K-12 range. She will oversee two of the Smithsonian’s educational organizations: the National Science Resources Center and the Smithsonian Center for Education and Museum Studies.

As director of the arts and culture program at the Nathan Cummings Foundation, Brown worked to strengthen community-based arts education programs and to help young people acquire new-media literacy. She worked at The Brooklyn Museum from 1977 to 1985 in several managerial positions inolving education. She also served for more than 20 years as a faculty advisor and instructor in the Leadership in Museum Education Program at Bank Street Graduate School of Education in New York City. She earned her bachelor’s degree from Pratt Institute in New York City and master’s degree in museum education from Bank Street College of Education and her law degree from Brooklyn Law School in 1985.

A report in the Brooklyn Daily Eagle says that another BLS alumnus, Kings County Civil Court Judge Noach Dear, Class of 1992, has been elevated to the Supreme Court. A NYC Councilman for the Midwood, Borough Park and Bensonhurst sections of Brooklyn for about 20 years and a former Taxi and Limousine Commissioner, Judge Dear has been appointed as “acting” Supreme Court Civil Term Judge. He will handle cases dealing with foreclosure and real estate equity issues and consumer debt cases. Elected in 2007 to an 10-year term on the Kings County Civil Court bench, he has impressed court administrators with his work in the consumer debt court. Brooklyn’s consumer debt court deals exclusively with consumer debt collection issues and is the first court of its kind in the country. See the report in Yeshiva World News. Judge Dear has surprised critics as noted in the June 2009 Village Voice article An Unlikely Rescuer from the Jaws of Debt telling of his transformation into a heroic debt court judge, dispensing justice to debt collectors and inept process servers.

A story by Zach Lowe in AmLaw Daily tells of a major law firm partner becoming one of six name plaintiffs in a lawsuit in the US District Court for the Eastern District of New York alleging sex abuse perpetrated by a former teacher at a Brooklyn Catholic prep school. The amended complaint in Zimmerman et al v. Poly Prep Country Day School et al. charges that the school covered up decades of sex abuse by the now deceased coach. Counts I through IV raise claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) 18 U.S.C. §§ 1961-1968.

Efforts to assert civil RICO claims for the Catholic Church cover-up of incidents of sexual abuse by priests have not fared well in the past. For example, the US District Court in Magnum v. Archdiocese of Philadelphia dismissed a class action against the archdiocese of Philadelphia on a 12(b)(6) motion, finding that the plaintiffs lacked RICO standing and failed to state a claim of RICO conspiracy. The Third Circuit affirmed the dismissal, emphasizing the inapplicability of civil RICO to personal injury claims. Lowe’s article also cites a “handful of past high-profile RICO claims alleging a conspiracy within the Albany Roman Catholic Diocese to cover up sex abuse [that] met with disastrous dismissals and a one-year suspension” for the plaintiff’s lawyer in those cases. For a discussion of criminal RICO liability, see Pursuing Criminal Liability for the Church and Its Decision Makers for Their Role in Priest Sexual Abuse (HeinOnline access) by Laura Russell in 81 Wash. U. L. Q. 885 (2003).

For more on the topic of child sexual abuse by clergy, the Brooklyn Law School Library has in its collection Sin against the Innocents: Sexual Abuse by Priests and the Role of the Catholic Church edited by Thomas G. Plante (Call # BX1912.9 .S56 2004).

The Library recently added to its collection Civil RICO: a Definitive Guide by Gregory P. Joseph (Call #KF9375 .J67 2010) with chapters on Jurisdiction and venue — Standing — Elements of cause of action — Imputed and secondary liability — Relief — Pleading and practice issues — Statutes of limitation — Res judicata and collateral estoppel — Constitutionality.