The Faculty Lounge

Washington and Lee Conference on Restatement Third of Restitution

Next February the Washington and Lee Law School will host a conference on "Restitution Rollout: The Restatement (Third) of Restitution and Unjust Enrichment."  From the call for papers: 

With the accolades at last month's American Law Institute meeting ringing in its ears, Restatement (Third) of Restitution and Unjust Enrichment (R3RUE) reached final form, subject only to conforming and editorial changes. This splendid achievement for the ALI, Reporter Andrew Kull, and all who assisted is now ready to face the curiosity and candor of the legal profession. In aid of that we issue this Call for Papers. 

The Frances Lewis Law Center, the Washington and Lee Law Review, and the American Law Institute are delighted to sponsor a conference, Restitution Rollout: Restatement (Third) of Restitution and Unjust Enrichment, on February 25, 2011. Reporter Andrew Kull and ALI Director Lance Liebman will introduce R3RUE. The Washington and Lee Law Review will publish a R3RUE symposium issue featuring the conference papers.

The sponsors' goal is to encourage and recognize excellent legal scholarship on R3RUE and restitution. To advance their goal, the sponsors invite lawyers, judges, and scholars to submit papers on the brand-new restatement. A paper may praise or criticize the whole restatement or any particular section of it.

More information is available at the conference's website.  Looks very exciting.  And it reminds me that one of the many collateral benefits of Kull's work on the restatement was his re-discovery of the slavery restitution cases from the late nineteenth century. (Here's a link to the Hein on line version of the article for those coming from a url that allows access to it.)

Marshall on Gershon on Franken on Originalism

My colleague Bill Marshall has a post up over at Huffinton on Michael Gershon's op-ed in the Washington Post on Al Franken's speech on originalism at the ACS meeting. 

What Makes You A "Visitor"?

My caption is prompted by a comment posted to an earlier iteration of our list of "visitors."  In many instances, the info on our list has been provided by the individual, rather than the host institution (sometimes we received info from the individual and the institution; sometimes from just the institution; sometimes from a colleague or friend; sometimes from another internet source).  I have no reason to question the accuracy of the info (regardless of source), choosing instead to believe that the repercussions of any blatant falsehoods would be quickly brought to light and swiftly (and perhaps painfully) addressed. 

But I do wonder if we all assign the same meaning to the term "visitor."  Consider the following:

1) With my school's permission, I move from Houston to Cleveland to teach a regular load of courses at Case Western for a semester.  I'm not teaching any courses at South Texas during that semester.  I probably return to Houston three or more weekends during the semester.  I continue to draw my paycheck from South Texas, which is reimbursed by Case Western (which may or may not pay me a relocation supplement).  I'm a "visitor," right?  (And whether Case Western identifies me as such on its faculty roster is irrelevant, right?)

2) I teach one course at cross-town Texas Southern during a semester.  I continue with my normal responsibilities at South Texas.  TSU pays me directly for my services.   Am I a "visitor"?  Does the answer depend on whether TSU lists me as a "visitor" on its faculty directory?

3) I leave practice to become a Bigelow Fellow at Chicago or a participant in the VAP Program at Duke.  Am I a "visitor"?  Can I be a "visitor" if I'm not temporarily leaving a position at another university?

4) I am scheduled for a sabbatical next semester.  For whatever reason (e.g., family, financial, professional, etc.), I contact several schools and express an interest in relocating just for the semester to teach commercial law courses.  My friend Richard Gershon invites me to Oxford for the semester.  I'll continue to draw my salary and benefits from South Texas, but I'll also be drawing a nice  salary from the University of Mississippi.  Am I a "visitor"?  Does it matter whether Mississippi lists me as a visitor on its faculty directory?  (Query whether your sabbatical policy allows you to teach elsewhere during the sabbatical.  Perhaps that's a worthy topic for another day.)

Thoughts on these, or other, examples?

Denial: It Ain’t Just A River In Egypt

In this series of posts on the Jérôme Kerviel trial, I’ve argued that, contrary to Société Générale’s contentions that they were duped by a genius, the bank itself is to blame for Kerviel’s massive losses. Soc Gen ignored major warning signs regarding the size and scope of Kerviel’s trades, and ultimately was complicit in the risky activities of Kerviel and other traders, throwing aside risk management in the pursuit of trading profits.

Now, you might say, “Sure, Kim’s so insightful with the benefit of hindsight.” (Well, you might not even say that, but let’s pretend that you did.)  “But, if these warning signs were so clear, why didn’t anyone notice them at the time?” 

Well, many people did notice them at the time. Société Générale ignored inquiries regarding Kerviel’s trading anomalies from both outsiders and its own risk management personnel. On two occasions, in April and May 2007, trading managers failed to react to reports from risk management personnel regarding trading anomalies uncovered during a review of Kerviel’s trades, in which his responses to questions were evasive and incoherent. 

Later, in November 2007, the bank failed to respond to two written inquiries from EUREX, one of the world’s largest derivatives exchanges and Europe’s leading clearinghouse.  One of these inquiries mentioned the purchase by Kerviel of 6000 DAX futures contracts in just two hours (a value of about EUR 1.2 billion).

Similar organizational indifference is evident in the case of Nick Leeson at Barings Bank (previously discussed here and here), whose activities failed to arouse suspicion within Barings, long after rivals at other firms had noticed his increasing positions and risky trading strategy, generating market rumors that Leeson was engaged in substantial unauthorized trading activity.  At the time of Barings’ collapse, its positions on the Osaka exchange were eight times greater than its nearest rival, and its positions on the Singapore exchange were even larger. 

Yet Barings’ ignored repeated inquiries from SIMEX officials highlighting trading violations regarding account 88888—an account about which Barings’ management later professed complete ignorance.  Those within the firm who expressed concern with Leeson’s activities were put off with reassurances that management was investigating the matter.

AIB had similar incidents, in which it ignored inquiries from other banks, the SEC, and market sources (see here and here).  Kidder Peabody also ignored several inquiries from the Federal Reserve regarding Joseph Jett’s trading activity, which by May 1993 had grown to represent 40–50% of all recon activity in the United States.  By this time, Jett’s recon trading had grown so large that his false profits accounted for 45% of Kidder’s 1993 profits, and his forward recon instructions on some bonds were so large that they exceeded the world-wide availability of the component STRIPS.  Despite this, four former Kidder employees claimed in litigation that their complaints that Jett’s forward recon trading strategy made no sense and could not possibly produce real profits were ignored. (I previously discussed the Jett case here).

NAB went a step further when another Australian bank raised concerns in March 2002 regarding the size and risk of the currency options trades emanating from NAB. NAB accused the inquiring bank of failing to comprehend NAB’s pricing models and trading strategy, and warned that if rumors regarding the bank’s concerns leaked into the marketplace, NAB would terminate its dealing relationship with the bank. (See prior NAB posts here and here)

In each of these cases, the “rogue” traders were rarely questioned in any depth about unusual trading activity and the back-office confirmation of those activities was half-hearted or, in some cases, nonexistent.  Skeptics within the firm were deterred with vague assurances that all was well or that the questioner lacked the skills to sufficiently understand the trading strategy and/or the explanations given.  In some cases, back and middle office personnel were essentially bullied into submission.  In all cases, relatively senior management ignored or failed to adequately investigate inquiries or alerts from their own employees, regulators, exchanges, and other market participants, treating such inquiries more as public relations problems than as a potential signal of rising operational risk levels.

Today is the last day of the trial, which means that this series of posts is drawing to a close (what excuse will I find now to avoid work?)  I’m planning to wind up by answering two lingering issues raised by the trial: (1) the contention, raised by Daniel Bouton in testimony this week, that no bank would knowingly allow a trader to take such risks as Kerviel’s and (2) a reminder of the potential systemic implications of these types of events, which is why they should concern us.

All facts, figures, and calculations used in this post, and the sources and citations from which they are derived, are detailed here.

Image Source

Related Posts:



It’s The Stupid Culture
It’s The Culture, Stupid


Kerviel’s Fake Trades: Genius Or Copy Cat?

Kerviel’s Fake Trades: The Anatomy of A Cover-Up


On Warning Signs II: Follow The Money


On Warning Signs: You Can’t Get There From Here

Rogues Versus Scapegoats

Kerviel Trial Opens to Fanfare


Société Générale: Back In The Saddle Again


Jérôme Kerviel to Société Générale: Stand By Your Man

 

The Case For A Tough Curve

The media is loving the law school GPA inflation story. As we learn from scholars of social crises, news stories work best - and gain the most traction - when they are part of an existing, understandable, and compelling news frame. In this case, the pre-existing frame could either be characterized as "hating on lawyers" or "the legal industry in crisis." I think this story has legs because it neatly fits into both. One might re-title the narrative as "look at these sleazy law schools doing anything they can to find their sleazy law grads jobs." 

While I find the media angle pretty interesting, I'd like to ask another question: why might a school choose to have a tough curve?  It's not that lower grades are inherently more accurate.  Grades are not in any sense natural, and law school grades are particularly synthetic.  So why not build the curve around an A-?

First, a school might want to signal to the outside community that it's tough. An implicit, but not necessarily accurate, message flowing from a lower mean GPA is that the school is more rigorous  and consequently produces better grads. For example, my sense is that the military academies give relatively low grades and we expect (and respect) that. One reason that grade inflation is such a scandal is that many people seem to infer that courses at these schools have suddenly become easier. (Of course, that may or may not be true.)

Second, tough grades help employers identify the strongest students. A lower mean typically widens the curve, creating more differentiation between students. Top schools, like Harvard, want to blur the lines between average and exceptional students. That's because an elite firm will hire Harvard grads no matter what - even if they are at risk of hiring a few underperforming students. At the 185 schools outside the Top 15, however, big firms are less interested in absorbing this risk. And any law school that inflates this risk will be less appealing to selective employers.  This goes double when the prospective employer is a Federal judge.  

Finally, and perhaps most importantly, a wide curve  helps law schools better identify at-risk students and thus allows the institutions to provide crucial academic support earlier. It turns out that, with early intervention, weak students can still pass the bar at pretty decent rates (assuming, that is, that the law school only accepts qualified applicants.) Thus, low grades can actually benefit the students who might appear to suffer the most.

There are reasons to boost the curve as well - reasons worth exploring - but the decision is far from a gimme. 

Lazarus, Come Forth!

Former U.S. Senator Bob Graham and former EPA administrator William Reilly, co-chairs of the National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling, have selected Georgetown law professor Richard Lazarus (pictured) to serve as the Commission's executive director.  Story here and here.

Camille A. Nelson Chosen As Suffolk Dean

Camille A. Nelson, a distinguished legal scholar and professor of law at Hofstra University School of Law, will become dean of Suffolk University Law School, effective Sept. 1, 2010.

Nelson will be the first woman and the first person of color to hold that position in Suffolk Law School’s 104-year history.

The full Suffolk announcement is here.

Law School Visitors 2010-2011, updated!

The list is organized alphabetically by host school and has been updated since the last list appeared on May 10.  New additions have two red stars next to the name.

Albany:  Megan Fairlie (Florida International) (2010-11)

Brooklyn:  Donna Coker (Miami) (Fall 2010)

Case Western Reserve:  Tawia Ansah (New England School of Law) (Fall 2010)

Charleston:  Angela Laughlin (Texas Tech) (2010-11)

Columbia:  Akhil Amar (Yale) (Fall 2010); Jody Kraus (Virginia) (2010-11); Daniel Rodriguez (Texas) (Spring 2011); Olivier de Schutter (Université de Louvain Collège) (Fall 2010); Paul Stephan (Virginia) (Fall 2010); Horatia Muir Watt (Université Paris) (Spring 2011); J. H. H. Weiler (NYU) (Fall 2010)

Connecticut: Donna Coker (Miami) (Spring 2011); Mark Weiner (Rutgers-Newark) (Spring 2011)

Cornell:  Neil Buchanan (George Washington) (Fall 2010)

Denver:  Leonard Rotman (University of Windsor) (2010-11)

Drake:  Jennifer Bard (Texas Tech) (2010-11); Miguel Schor (Suffolk) (2010-11)

Drexel:  Carl Bogus (Roger Williams) (2010-11); Jeremy Telman (Fall 2o1o)

Duke:  Ehud Guttel (Hebrew University) (2010-11)

Florida International:  Juan-Javier del Granado (Instituto de Investigaciones Jurídicas, Universidad Nacional Autónoma de México; Escuela Libre de Derecho;  Universidad Francisco Marroquín) (2010-11); Lydie Nadia Cabrera Pierre-Louis (St. Thomas [FL]) (Fall 2010); Eloisa Rodriguez-Dod (Nova Southeastern) (Spring 2010)

Florida State:  Susan Bandes (DePaul) (Fall 2010); Elizabeth Burleson (South Dakota) (Fall 2010); Neil Cohen (Tennessee) (Spring 2011); Gary Lucas (Texas Wesleyan) (Spring 2011); Deana Pollard Sacks (Texas Southern) (Fall 2010)

Fordham: Aditi Bagchi (Penn) (2010-11); James Brudney (Ohio State) (Fall 2010); Nestor Davidson (Colorado) (Fall 2010); Joshua Dressler (Ohio State) (Spring 2011); Brian Fitzpatrick (Vanderbilt) (Fall 2010); Clare Huntington (Colorado) (Fall 2010); Katherine Kruse (UNLV) (Fall 2010);  Ethan Leib (Hastings) (Spring 2011); Carl Minzner (Washington Univ.) (2010-11); Alice Ristroph (Seton Hall) (Fall 2010); Avishalom Tor (Haifa University) (Spring 2011)

Georgetown:   Mark Kende (Drake) (2010-11); Henry Lischer (SMU) (Fall 2010); Shari Motro (Richmond) (Spring 2011); Ani Satz (Emory) (Fall 2010); David Super (Maryland) (2010-11)

Georgia:  William Corbett (LSU)  (Spring 2011); Erik Gerding (New Mexico) (Fall 2010); Elizabeth Leonard (Kansas) (Fall 2010)

Harvard:  Robert Sloane (Boston Univ.) (Spring 2011)

Hofstra:  Judd Sneirson (Oregon) (2010-11)

Iowa:  Emily Hughes (Washington Univ.) (Fall 2010); Susan Kuo (South Carolina) (Spring 2011); David Orentlicher (Indiana-Ind.) (2010-11)**; Song Richardson (DePaul) (Spring 2011); Rebecca Zietlow (Toledo) (Spring 2011)

John Marshall (Chicago): Jeffrey Parness (Northern Illinois) (2010-11)

Kansas:  Laura Dooley (Valparaiso) (Fall 2010)

Loyola (Chicago):  Erika George (Utah) (Fall 2010); Juan Perea (Florida) (Fall 2010)

LSU:  Stephen Black (Franklin Pierce) (2010-11)

Miami:  Susan Bandes (DePaul) (Spring 2011)**

Michigan:  Christine Chinkin (University of London) (Winter 2011); Jelani Exum (Kansas) (2010-11); Damien Garadin (Tilburg University) (Fall 2010); Karthigasen Govender (University of Natal) (Winter 2011); Noah Hall (Wayne State) (2010-11); John Hudson (University of St. Andrews) (Winter 2011); Andrea Lyon (DePaul) (Winter 2011); Christopher McCrudden (University of Oxford) (Fall 2010) 

Michigan State: Phillip Pucillo (formerly Ave Maria) (2010-11)

North Carolina:  Jarod Gonzalez  (Texas Tech) (Spring 2011)

Notre Dame:  Peter Alexander (Southern Illinois) (Fall 2010); Roger Alford (Pepperdine) (Fall 2010);  Margaret Chon (Seattle) (Fall 2010); Tahirih Lee (Florida State) (Spring 2011); Avishalom Tor (Haifa University) (Fall 2010)

NYU:  Victor Fleischer (Colorado) (Fall 2010); Adam Samaha (Chicago) (Fall 2010)

Ohio State:  Nancy Kim (California Western) (2010-11)

Oregon:  Elizabeth Burleson (South Dakota) (Spring 2011); Steven Macias (California Western) (2010-11); Jackie Gardina (Vermont) (Spring 2011); Lance Long (Stetson) (2010-11)

Pepperdine:  Paul Caron (Cincinnati) (Spring 2011)

Penn:  Anna Gelpern (American) (Spring 2011)**

San Diego: George Mundstock (Miami) (Fall 2010);  Mark Lee (Southern Illinois) (2010-11)*

Seattle:  Darren Rosenblum (Pace) (Spring 2011)**

Seton Hall:  Steven Willborn (Nebraska)  (Fall 2010)

South Texas:  Ken Williams (Southwestern)  (2010-11)

SMU:  David Elkins (Netanya College School of Law, Israel) (Fall 2010)

St. Louis:  Miriam Cherry (McGeorge)  (2010-11)

Stanford:   Nita Farahany (Vanderbilt) (Spring 2011); Mark McKenna (Notre Dame) (Fall 2010); Bernadette Meyler (Cornell) (Spring 2011);  Nicholas Rosenkranz (Georgetown) (Fall 2010)**

Texas:  Aaron Bruhl (Houston) (Fall 2010); Adam Rosenzweig (Washington Univ.) (2010-11)

UC-Berkeley:  Russell Robinson (UCLA) (2010-11)

UC-Irvine:  Richard Hasen (Loyola LA) (Spring 2011)

UCLA:  Youngjae Lee (Fordham) (Spring 2011); Vicki Schultz (Yale) (2010-11); Julie Suk (Cardozo) (Spring 2011)

Vanderbilt:  Jacob Cogan (Cincinnati) (Spring 2011); Susan Franck (Washington and Lee) (Fall 2010)

Villanova:  Juan Perea (Florida) (Spring 2011)

Washington:  John Miller (Idaho) (2010-11)

West Virginia:  Ruthann Robson (CUNY) (2010-11)

Widener:  Andre Smith (Florida International) (2010-11)

William & Mary:  Colin Miller (John Marshall [Chicago]) (Fall 2010)

Yale:  Michael Fischl (Connecticut)  (Spring 2011); Ruth Mason (Connecticut) (Spring 2011)

Thanks to Tim Zinnecker for originally creating this list, and to everyone who provided information.  Please make corrections and additions in the comments.

Australia Appoints First Woman Prime Minister

Today (or really yesterday because of the time difference), Australia appointed its first female Prime Minister, Julia Gillard.  This was an internal change in the Labor Party ie it was not a popular election, but an internal switch of leaders of the party.  But Julia Gillard will run for PM in the forthcoming federal election and it will be interesting to see if the Australian population is ready to go to the ballots and vote for a woman as head of a major political party. 

Lianos and Sokol: Global Competition Law and Economics

From Stanford University Press, a forthcoming series: Global Competition Law and Economics, edited by Ioannis Lianos and D. Daniel Sokol.  From the Stanford Press website:

Competition law and economics (known in the United States as antitrust) is an area of cutting-edge academic work with significant policy implications. Once confined to the United States and a few other countries, antitrust has taken off as an area of study in a relatively short period of time. More than 100 jurisdictions now have competition laws. Increasingly, enforcement activities abroad have far-reaching implications for any antitrust regime. Moreover, developments in economic thinking have helped to reformulate attitudes in both academic and policy circles. This book series will be at the forefront of the development of new ideas and approaches within the field.

Stay on the lookout for the forthcoming volumes in the series.

The Takings Clause

Readers with an interest in the Takings Clause and the recent SCOTUS opinion in Stop the Beach Renourishment Inc. v. Florida Department of Environmental Protection may wish to read this editorial from today's local newspaper, written by Texas Wesleyan law prof Timothy Mulvaney (pictured). 

Advice to Law Students at Literary Table

Sticking my head up from edits on Integrating Spaces, I notice that the summer's really going by.  How do I know this?  Prawfs have put up their call for hiring chairs to report for duty and ... the annual advice to incoming law students is sprouting on the blogs.  Over at theliterarytable, Warren Emerson's offering some advice to incoming first years.  Yup--annual review; changing of the fiscal year; clerkship letters.  You know it's the middle of the summer.   The next annual ritual?  Requests for law review note topics.

Utah Senate Race: Update

Updating this earlier post:  Mike Lee (son of former Solicitor General Rex Lee and brother of recent Utah Supreme Court nominee (and BYU law prof) Tom Lee) will be the GOP's nominee to the U.S. Senate, winning his state's special primary election yesterday.  Story here.

Hat Tip:  SVU President Rod Smith.

Friends You Haven't Met Yet

As a mother of a pre-school age summer camper, I was struck this week as I always am by the way teachers refer to meeting "new friends", as in "We have some old friends and some new friends at camp this week."  And my preschooler told me that he "met some new friends" on the first day at camp.

I know this is just a colloquialism, but it always strikes me as odd to talk about "meeting new friends".  Isn't the definition of a "friend" someone you actually know well enough to have decided whether or not you like them (and to give them a chance to decide whether or not they like you)?  I can understand "meeting new people" or "meeting new kids", but "meeting new friends" always seems a little jarring.

OK - I know that this is just a nice way of referring to new people, the assumption being that they should all be friends and they should all be nice to each other.  The phrasing has always just struck me as odd.  Any other preschool idioms that people find cute, but logically inconsistent?

It’s The Stupid Culture

In my last post, It’s The Culture, Stupid, I noted that a review of the Société Générale scandal reveals a familiar pattern of organizational and departmental change that stressed trading and oversight systems, followed by a failure to respond to common red flags and warning signals. But, rather than increasing their vigilance regarding potential employee misconduct in the wake of these business line and organizational changes, Société Générale ignored common warning signs of potential problems, breeding a culture of noncompliance. 

These two features – internal control problems and a culture of noncompliance -- are common to other large rogue trading scandals.  For example, internal controls that fail to keep pace with rapid business growth was identified as a factor contributing to the Nick Leeson rogue trading scandal at Barings.  As explained by John Dare, Director of Barings:

They [Leeson’s unit] were usually in a bit of a catching-up position because their business had gone through a few periods of quite rapid growth, when it is challenging, to say the least, to keep your controls on top of a business that is growing rapidly. There were times when I was aware that this was a strain; that the front office were marching faster than the back office.

Similarly, subsequent investigation points to the inexperience and understaffing of risk management and audit as a factor facilitating John Rusnak’s losses at AIB (previously discussed here and here).

In addition to internal control problems, an organizational culture that minimizes risk management is another common thread among institutions plagued with rogue trading scandals.  For example, according to the Ludwig report, the bullying and intimidation of AIB’s back-office staff by Rusnak and front-office supervisors (and management’s willingness to overlook such behavior) contributed to an environment in which back-office operations were perceived as pointless formalities and management was predicted to take the trader’s side in the event of any dispute, since trading was the moneymaking operation. 

PricewaterhouseCoopers was even more explicit about the role played by a corporate culture of non-compliance at NAB, where a group of four currency options traders regularly breached position and risk limits, and concealed their activity through the smoothing of profits and losses (previously discussed here):

Our investigations indicate that the culture fostered the environment that provided the opportunity for the Traders to incur losses, conceal them and escape detection despite ample warning signs. This enabled them to operate unchecked and flout the rules and standards of the National. Ultimately, the Board and the CEO must accept responsibility for the “tone at the top” and the culture that exists in certain parts of the National.

In sum, Jérôme Kerviel lost nearly EUR 5 billion at Société Générale and concealed those losses through a series fake trades, lies, and forged documents – the same strategy employed by most other rogue traders.  Yet, like other financial institutions that have suffered debilitating rogue trading losses, Société Générale ultimately enabled those losses through its poor internal controls, faulty risk management, and an organizational culture that tolerated, or even encouraged, such behavior.

Meanwhile, in the trial’s most dramatic moment so far, Daniel Bouton, the former chairman and chief executive of Société Générale, took the stand yesterday, stating, “I cannot believe for one second any of Jérôme Kerviel’s supervisors were aware [of his bets].” “I’m sorry, my dear fellow.” (Apparently, this last bit was said with heavy sarcasm) (See the NY Times and FT stories)

Bouton was the last witness in the three-week trial, which ends on Friday -- the final three days will be spent on closing arguments.  And that means that my series of posts on the trial are about to come to an end.  My plan is to begin wrapping up over the next few days, returning to some items in Bouton’s and other prosecution witness’s testimony, drawing some lessons from the incident, and reiterating why we should care about such debacles (remember the days when EUR 5 billion seemed like a big loss for a single bank?)

All facts, figures, and calculations used in this post, and the sources and citations from which they are derived, are detailed here.

Image Source

Related Posts:


It’s The Culture, Stupid

Kerviel’s Fake Trades: Genius Or Copy Cat?
Kerviel’s Fake Trades: The Anatomy of A Cover-Up

On Warning Signs II: Follow The Money

On Warning Signs: You Can’t Get There From Here


Rogues Versus Scapegoats


Kerviel Trial Opens to Fanfare



Société Générale: Back In The Saddle Again




Jérôme Kerviel to Société Générale: Stand By Your Man

Hiring Chairs 2010-2011: Announce Yourselves at Prawfs

It’s that time of year again, already (where has my summer gone?) So, law school hiring chairs for entry and lateral candidates, please announce yourselves over at Prawfs and feel free to share who's on the committee and whether the search is limited in a particular way.

It’s The Culture, Stupid

In testimony yesterday, Eric Cordelle, Jérôme Kerviel's immediate supervisor at Société Générale confirmed a point about which I’ve previously blogged: the Delta One desk on which Jérôme Kerviel worked at Société Générale exceeded trading limits "quite frequently."  Cordelle claimed, however, “that this was usually for technical reasons and he had not known of a trader intentionally overstepping the mark.”

For reasons that I’ve already discussed, that seems unlikely.  The sheer size and scope of Kerviel’s trades cast doubt on the claim.  Recall that Kerviel’s earnings grew six-fold between 2006 and 2007 to constitute a substantial percentage of total desk (59%) and division (27%) earnings. Recall also that Kerviel’s authorized trading activity could not possibly have accounted for such large profits. This means that not only Kerviel’s now-infamous 2008 losses, but a significant portion of his 2007 profits, on which he was paid a substantial bonus, are attributable to his “rogue” trading.

Finally, recall the conclusion of PricewaterhourseCoopers in its subsequent review of the event:

Front office activities developed against the backdrop of a strong entrepreneurial culture based on trust. The surge in Delta One trading volumes and profits was accompanied by the emergence of unauthorised practices, with limits regularly exceeded and results smoothed or transferred between traders. (emphasis mine)

But there is one point from Cordelle’s testimony on which I want to elaborate:  Cordelle said that “he was overworked and had neither the resources nor the tools to monitor individual traders' positions.” This is likely true, and is yet another reason why Société Générale bears ultimate blame for the trading losses. 

A review of the Société Générale scandal reveals a familiar pattern of organizational and departmental change that stressed trading and oversight systems, followed by a failure to respond to common red flags and warning signals.  Kerviel’s division had experienced strong, rapid growth (a common element in prior rogue trading scandals), with trading personnel expanding from four to twenty-three in two years.  The risk management and compliance departments were unable to keep pace with these changes. Although the size of middle office personnel doubled, they suffered frequent departures and were chronically understaffed.

Moreover, despite a doubling in middle office staff size, many of the employees were new, undertrained, and lacking in sufficient experience.  These problems were exacerbated by the weakness of Kerviel’s direct supervisor, his lack of supporting staff, and the initial tolerance of Kerviel’s unauthorized intraday positions, which created an environment that minimized the importance of internal controls.

But, rather than increasing their vigilance regarding potential employee misconduct in the wake of these business line and organizational changes, Société Générale ignored common warning signs of potential problems, breeding a culture of noncompliance.  As I’ll demonstrate in my next post, It’s The Stupid Culture, this feature is common to other large rogue trading scandals.

All facts, figures, and calculations used in this post, and the sources and citations from which they are derived, are detailed here.

Image Source

Related Posts:



Kerviel’s Fake Trades: Genius Or Copy Cat?
Kerviel’s Fake Trades: The Anatomy of A Cover-Up

On Warning Signs II: Follow The Money

On Warning Signs: You Can’t Get There From Here


Rogues Versus Scapegoats


Kerviel Trial Opens to Fanfare



Société Générale: Back In The Saddle Again




Jérôme Kerviel to Société Générale: Stand By Your Man

Ediberto Roman (Florida International), Citizenship and its Exclusions, NYU Press

Ediberto Roman's new book, Citizenship and its Exclusions, has just been published by NYU Press.  He has been at Florida International since 2003, and previously served as Associate Dean.  Prof. Roman is also the editor of NYUP's Citizenship book series.  Submission information for the series can be found here.

Book summary:
Citizenship is generally viewed as the most desired legal status an individual can attain, invoking the belief that citizens hold full inclusion in a society, and can exercise and be protected by the Constitution. Yet this membership has historically been exclusive and illusive for many, and in Citizenship and Its Exclusions, Ediberto Román offers a sweeping, interdisciplinary analysis of citizenship’s contradictions.

Román offers an exploration of citizenship that spans from antiquity to the present, and crosses disciplines from history to political philosophy to law, including constitutional and critical race theories. Beginning with Greek and Roman writings on citizenship, he moves on to late-medieval and Renaissance Europe, then early Modern Western law, and culminates his analysis with an explanation of how past precedents have influenced U.S. law and policy regulating the citizenship status of indigenous and territorial island people, as well as how different levels of membership have created a de facto subordinate citizenship status for many members of American society, often lumped together as the “underclass.”

Signing off

I am now officially signing off of my guest blogging stint here. It seems that my actual work responsibilities have begun to get in the way of my blogging. In any case, it has been a pleasure blogging here - many thanks to Dan, Jacqui, and the others for allowing me to share some thoughts with you all. I have gotten many interesting and worthwhile responses, and (if I may be so presumptuous) I look forward to coming back in the future.

Learning How (and Why) To Teach

Thomas Baker recently posted “A Summer Reading List on Teaching” at Prawfsblawg.  As someone relatively new to teaching law, I am often looking for teaching resources, and Baker’s annotated bibliography (linked in his post) is excellent.  I want to highlight three of his recommendations.

Ken Bain’s What the Best College Teachers Do.  I second Baker’s glowing endorsement of this book.  I came across it early in graduate school and make a point of re-reading it before the start of every semester.  As Baker observes, Bain’s student-focused approach raises a number of important challenges.  Here are three:

Invite Participation.  Bain suggests that “[r]ather than laying out a set of requirements for students, [the best teachers] usually talk about the promises of the course, about the kinds of questions the discipline will help students answer, or about the intellectual, emotional, or physical abilities that it will help them develop.” 

 

Be Relevant.  Bain highlights mathematician Donald Saari’s WGAD (“Who gives a damn?”) principle.  Saari “tells his students that they are free to ask him this question on any day during the course, at any moment in class.  He will stop and explain to his students why the material under consideration at the moment—however abstruse and miniscule a piece of the big picture it may be—is important, and how it relates to the large questions and issues of the course.” 

 

Seek Comprehension.  Bain notes that the best teachers have a student-focused approach to course evaluations.  He quotes one teacher’s perspective: “High ratings from students indicate success only if I am satisfied with the quality of what I’m asking them to do intellectually, and that is reflected not in the ratings but in my syllabus, assignments, and the ways I grade their work.  Low ratings, on the other hand, usually tell me I’ve failed to reach my students.” 

 Howard Katz and Kevin O’Neill’s Strategies and Techniques of Law School Teaching.  I learned of this book through Tim’s post a few months ago.  It’s short, clear, and full of practical suggestions.  I particularly liked Katz and O’Neill’s reminders that the “big-picture perspective” drives coherence and that “[c]overage is important—but it’s meaningless if you are shoveling material at your students faster than they can digest it.”  

 Elizabeth Mertz’s The Language of Law School.  Mertz focuses on deeper pedagogical questions, or, as she writes, “the limits that legal epistemology may place on law’s democratic aspirations.”  Her last chapter examines “what kind of person is created through the talk of the law school classroom, and along with this . . . the larger view of the world, of human selves and motivations, and of social context that are entailed in this creation.”  Mertz raises a number of issues central to the enterprise of legal education.  Reflecting on one of these challenges at Mirror of Justice earlier this year, Kevin Lee wrote: 

[Mertz] suggests that legal education, particularly in the first year, promotes objective, dispassionate modes of legal analyses, which denude the student of moral intuitions and empathetic emotion. What’s more, this sort of disengagement from moral feeling may be necessary for the professional formation of the contemporary America lawyer.  Nonetheless, when legal education and legal reasoning obscure the fullness of human wisdom in favor of instrumentalism, consumerism, and fanciful conceptions of autonomy, we should rightly be aghast.

 Lee framed his observations from a Catholic perspective, but I imagine that they resonate with other traditions as well.  They suggest that Mertz offers us insights not only about how we teach but also why we teach.