Law Commons^™

Education Fraud At The Margins: Using The Federal False Claims Act To Curb Enrollment Abuses In Online, For-Profit K-12 Schools, Erin R. Chapman

Michigan Law Review

America’s online schools have some things to account for. In recent years, an increase in the number of for-profit K–12 schools has coincided with the rise of online education. Meanwhile, funding models that award money for each additional student incentivize for-profit schools to overenroll students in online programs that were once reserved for specialized subsets of students. Although, to date, reported incidents of enrollment fraud have been rare, there are many reasons to think that the problem has gone largely undetected. As education reformers on both sides of the political spectrum continue to push privatization and charter schools, figuring out …

Protecting Whistleblowing (And Not Just Whistleblowers), Evan J. Ballan

Michigan Law Review

When the government contracts with private parties, the risk of fraud runs high. Fraud against the government hurts everyone: taxpayer money is wasted on inferior or nonexistent products and services, and the public bears the burdens attendant to those inadequate goods. To combat fraud, Congress has developed several statutory frameworks to encourage whistleblowers to come forward and report wrongdoing in exchange for a monetary reward. The federal False Claims Act allows whistleblowers to file an action in federal court on behalf of the United States, and to share in any recovery. Under the Dodd- Frank Act, the SEC Office of …

Retaliatory Rico And The Puzzle Of Fraudulent Claiming, Nora Freeman Engstrom

Michigan Law Review

Over the past century, the allegation that the tort liability system incentivizes legal extortion and is chock-full of fraudulent claims has dominated public discussion and prompted lawmakers to ever-more-creatively curtail individuals’ incentives and opportunities to seek redress. Unsatisfied with these conventional efforts, in recent years, at least a dozen corporate defendants have “discovered” a new fraud-fighting tool. They’ve started filing retaliatory RICO suits against plaintiffs and their lawyers and experts, alleging that the initiation of certain non meritorious litigation constitutes racketeering activity— while tort reform advocates have applauded these efforts and exhorted more “courageous” companies to follow suit. Curiously, though, …

Regulating Electricity-Market Manipulation: A Proposal For A New Regulatory Regime To Proscribe All Forms Of Manipulation, Matthew Evans

Michigan Law Review

Congress broadly authorized the Federal Energy Regulatory Commission (“FERC”) to protect consumers of electricity from all forms of manipulation in the electricity markets, but the regulations that FERC passed are not nearly so expansive. As written, FERC’s Anti-Manipulation Rule covers only instances of manipulation involving fraud. This narrow scope is problematic, however, because electricity markets can also be manipulated by nonfraudulent activity. Thus, in order to reach all forms of manipulation, FERC is forced to interpret and apply its Anti-Manipulation Rule in ways that strain the plain language and accepted understanding of the rule and therefore constitute an improper extension …

Securities Class Actions And Bankrupt Companies, James J. Park

Michigan Law Review

Securities class actions are often criticized as wasteful strike suits that target temporary fluctuations in the stock prices of otherwise healthy companies. The securities class actions brought by investors of Enron and WorldCom, companies that fell into bankruptcy in the wake of fraud, resulted in the recovery of billions of dollars in permanent shareholder losses and provide a powerful counterexample to this critique. An issuer's bankruptcy may affect how judges and parties perceive securities class actions and their merits, yet little is known about the subset of cases where the company is bankrupt. This is the first extensive empirical study …

The Law Of Ponzi Payouts, Spencer A. Winters

Michigan Law Review

When a Ponzi scheme collapses, there will typically be net winners and net losers. The bankruptcy trustee will often seek to force the net winners - those who received more money back from the Ponzi scheme than they invested - to disgorge their profits. Courts diverge on whether they should compel disgorgement in this instance. This Note argues that under prevailing fraudulent transfer law, net winners in a Ponzi scheme need not disgorge their profits. This is because the investor's dollar-for-dollar discharge of a preexisting debt constitutes the transfer of value in exchange for the payout. There are two exceptions …

Are Artificial Tans The New Cigarette? How Plaintiffs Can Use The Lessons Of Tobacco Litigation In Bringing Claims Against The Indoor Tanning Industry, Andrea Y. Loh

Michigan Law Review

Indoor tanning salons have grown significantly in popularity during recent years. Scientific research has revealed a strong link between skin cancer and ultraviolet light exposure from indoor tanning lamps. Despite such dangers, federal regulations place minimal restrictions on the labeling of indoor tanning lamps. Indoor tanning salons work vigorously to dispel notions of a link to skin cancer, often falsely promoting various health benefits of indoor tanning. The first lawsuit for injuries resulting from indoor tanning was recently filed against an indoor tanning salon, and other such litigation is poised to follow. This Note examines three potential tort claims against …

Getting The Word Out About Fraud: A Theoretical Analysis Of Whistleblowing And Insider Trading, Jonathan Macey

Michigan Law Review

The purpose of this Article is to show that corporate whistleblowing is not analytically or functionally distinguishable from insider trading when such trading is based on "whistleblower information," that is, the information a whistleblower might disclose to the authorities. In certain contexts, both insider trading and whistleblowing, if incentivized, would reduce the incidence of corporate pathologies such as fraud and corruption. In light of this analysis, it is peculiar that whistleblowing is encouraged and protected, while insider trading on whistleblower information is not only discouraged but criminalized. Often, insider trading will be far more effective than whistleblowing at bringing fraud …

A Business Ethics Perspective On Sarbanes-Oxley And The Organizational Sentencing Guidelines, David Hess

Michigan Law Review

This Article assesses the ability of Sarbanes-Oxley and other recent changes in the law and stock exchange listing requirements to reduce the incidence of fraud and to increase the reporting of financial misconduct. It begins by examining the individual decision-makers within a corporation and analyzing their intentions and behaviors under the Theory of Planned Behavior. It then examines the ability of the organization to influence the employees' intentions and behaviors through codes of ethics and compliance programs, and finds growing support for the usefulness of integrity based compliance programs. Finally, the Article considers how the Sarbanes-Oxley legislation and Organizational Sentencing …

Conscripting Attorneys To Battle Corporate Fraud Without Shields Or Armor? Reconsidering Retaliatory Discharge In Light Of Sarbanes-Oxley, Kim T. Vu

Michigan Law Review

This Note advocates that federal courts should allow attorneys to bring retaliatory discharge claims under SOX. Traditional rationales prohibiting the claims of retaliatory discharge by attorneys do not apply in the context of Sarbanes-Oxley. This Note contends that the Department of Labor and the federal courts should interpret the whistleblower provisions of § 806 as protecting attorneys who report under § 307. Assuring reporting attorneys that they have protection from retaliation will encourage them to whistleblow and thereby advance SOX's policy goal of ferreting out corporate fraud. Part I explores the legal landscape of retaliatory discharge suits by attorneys. This …

Opting Out Of Liability: The Forthcoming, Near-Total Demise Of The Modern Class Action, Myriam Gilles

Michigan Law Review

It is reasonable to expect that courts will demonstrate great solicitude for the recent innovation that I term "collective action waivers" - i.e., contractual provisions contained within arbitration agreements whereby consumers and others waive their rights to participate in any form of collective litigation or class arbitration. The history of mass tort class actions and the hegemonic expansion of pro-arbitration jurisprudence compel this conclusion. And, as the now-dominant economic model of contract law has moved the focus of courts from the value of consent to the value of efficiency, arbitration agreements found in all manner of shrink-wrap, scroll-text and bill-stuffer …

The Perils Of Courtroom Stories, Stephan Landsman

Michigan Law Review

As Janet Malcolm1 tells it, Sheila McGough was a middle-aged single woman living at home with her parents and working as an editor and administrator in the publications department of the Carnegie Institute when she decided to switch careers and go to law school. She applied and was admitted to the then recently accredited law school at George Mason University. After graduation, she began a solo practice in northern Virginia that involved a significant amount of stateappointed criminal defense work. In 1986, approximately four years after her graduation from law school, McGough received a call requesting assistance from an incarcerated …

Judicial Abuse Of "Process": Examining The Applicability Of Section 2f1.1(B)(4)(B) Of The Federal Sentencing Guidelines To Bankruptcy Fraud, Hideaki Sano

Michigan Law Review

The proliferation of bankruptcy filings over the past decade has coincided with a comparable increase in the incidence of bankruptcy fraud. In response to this growing problem, the United States Department of Justice has placed greater emphasis on federal prosecution of bankruptcy fraud. As a result, federal judges are increasingly applying the Federal Sentencing Guidelines ("Guidelines") to bankruptcy fraud and have begun to implement uniform standards for sentencing defendants convicted of this crime. Congress enacted the Guidelines pursuant to the Sentencing Reform Act of 1984. In instituting the Guidelines, Congress sought honesty, reasonable uniformity, and proportionality in sentencing. Congress attempted …

A Case-By-Case Approach To Pleading Scienter Under The Private Securities Litigation Reform Act Of 1995, Matthew Roskoski

Michigan Law Review

Securities fraud litigation under Rule lOb-5 threatens all publicly traded companies: according to the Stanford Securities Class Action Clearinghouse, in 1998 a securities fraud lawsuit was filed for nearly every day that the stock markets were open. Some of these lawsuits appear to be frivolous, triggered by inevitable fluctuations in stock prices (so-called "fraud by hindsight" complaints), while others represent legitimate efforts at private enforcement of the securities laws. Disposition on the pleadings is a critical defense strategy for all securities lawsuits. Securities fraud lawsuits that withstand a 12(b)(6) motion almost always settle, regardless of the actual merits of the …

Strings Attached--Violin Fraud And Other Deceptions, Carla J. Shapreau

Michigan Law Review

A Review of Violin Fraud: Deception, Forgery, Theft, and the Law by Brian W. Harvey

Allocation Of Loss Due To Fraudulent Wholesale Wire Transfers: Is There A Negligence Action Against A Beneficiary's Bank After Article 4a Of The Uniform Commercial Code?, Robert M. Lewis

Michigan Law Review

This Note argues that where a bank reasonably should have known of a fraud but still pays out a wire transfer to an unauthorized recipient, common law negligence should provide a basis for recovery despite the absence of an explicit Code provision imposing liability on the bank. Part I examines the UCC's language itself and analyzes possible cases, under 4A and under articles 3 and 4 by analogy, and discusses the applicability of these other parts of the UCC to wire transfers. Part II examines how extra-Code regulatory systems and the common law would determine wire transfer liability. Part II …

Negligent Accounting And The Limits Of Instrumental Tort Reform, John A. Siliciano

Michigan Law Review

This article first explores the relationship between the accountant and the reliant third party, and recounts the mounting judicial hostility to the accountant's traditional privity defense. Next, the article critically examines the arguments that have supported traditional privity-based regimes. The third section turns to the reform courts and tests whether the rationales offered for reform justify abandoning the privity requirement.

Concluding that a convincing case for reform has yet to be made and - given the complexity of a properly executed instrumental analysis - may never be made, the article's final section reconsiders the utility of instrumental reasoning as a …

Heartbalm Statutes And Deceit Actions, Michigan Law Review

Michigan Law Review

This Note considers whether actions in deceit based on fraudulent marriage promises should be deemed barred by the heartbalm statutes. It determines that they should not. Part I examines the policies and arguments against the common law breach of promise to marry action that are embodied in the heartbalm statutes and looks at the limits courts have placed on the reach of the statutes. Part II re-examines the deceit action in light of the purposes of the heartbalm acts and their intended scope, as well as in light of criticism of the action by the courts and commentators. In particular, …

Abandoning Bankruptcy Law's "Identity Of Interest" Exception, Michigan Law Review

Michigan Law Review

Section I of this Note discusses the goals and weaknesses of the identity of interest exception; Section II explains the advantages of consolidation and novation; and the final Section suggests a way to separate cases where novation is appropriate from those where consolidation is the preferred remedy.

Criminal Consumer Fraud: A Victim-Oriented Analysis, Donald P. Rothschild, Bruce C. Throne

Michigan Law Review

The poor and the elderly are the principal victims of the high pressure and often sophisticated sale techniques of criminal consumer fraud in this country. The problem is compounded when the poor and the elderly live in inner cities where legal assistance is costly and inadequate, and the courts, prosecutors, and investigators are overburdened. Yet the executive and legislative agencies responsible for law enforcement continue to assign a low priority to criminal consumer fraud. President Ford has reflected this orientation: "For effective management [of law enforcement], we first have to have some hard decisions on priorities. As a starter, I …

Private Causes Of Action Under Section 206 Of The Investment Advisers Act, Michigan Law Review

Michigan Law Review

This Note examines the propriety of implying a cause of action for damages under section 206. Upon concluding that such an implication is appropriate, it then suggests a scope for section 206 actions that implements the Act's underlying purposes.

Limiting The Plaintiff Class: Rule 10b-5 And The Federal Securities Code, Michigan Law Review

Michigan Law Review

The Penn Central litigation, involving a large, publicly held corporation, illustrates the need to examine the reach of the federal antifraud provisions. This Note discusses the problem of defining the plaintiff class when the number of past and present shareholders who are potential plaintiffs is very great. Attention will center on the methods courts have used to limit the class of investors compensable under rule 10b-5. Also, the effect that enactment of present drafts of the American Law lnstitute's proposed Federal Securities Code would have on the composition of the plaintiff class in analogous actions will be discussed. Finally, the …

Investment Advice And The Fraud Rules, Robert N. Leavell

Michigan Law Review

Every day thousands of Americans are assaulted by mail, telephone, and personal contact with advice on how to invest their money for capital gains, often with dazzling reminders of the opportunity for great profits. If the advice is good, they may indeed one day have their treasure ship which will send their children to college or provide a round-the-world trip after retirement. If the advice is bad, they will of course learn by experience. But many of them will have to apply their lesson to a second inheritance or twenty years' savings. The quality of investment advice is therefore a …

Products Liability--The Expansion Of Fraud, Negligence, And Strict Tort Liability, John A. Sebert Jr.

Michigan Law Review

While judicial acceptance of this concept of strict tort liability has been proceeding apace, far less dramatic but equally significant developments have been occurring with respect to both negligence and fraud liability. The possibility of recovering for a seller's misrepresentations concerning his product has been enhanced by a plaintiff-oriented judicial redefinition of two elements of a cause of action for fraud: defendant's knowledge of the falsity of his representation and plaintiff's reliance upon the deception. At the same time, negligence liability has often come to resemble liability without fault as courts continue to deemphasize, as a prerequisite to the application …

Proof Of Scienter Necessary In A Private Suit Under Sec Anti-Fraud Rule 10b-5, Michigan Law Review

Michigan Law Review

Of the vast amounts of statutory and quasi-statutory material governing the securities business, the Securities and Exchange Commission's rule 10b-51 has potentially the greatest direct importance to the largest number of people. While several provisions in the government's regulatory scheme set more or less specific standards of conduct for securities issuers, broker-dealers, or corporate insiders, the anti-fraud provisions of rule 10b-5 apply to all persons directly or indirectly connected with any sale or purchase of securities transacted through a facility of interstate commerce, the mails, or on a national exchange. In its three clauses, rule 10b-5 forbids any person (1) …

Commissioner May Examine Taxpayer's Records For Years Barred By Statute Of Limitations Without Proving Reasonable Suspicion Of Fraud--United States V. Powell, Michigan Law Review

Michigan Law Review

The Commissioner of Internal Revenue has power to summon witnesses and to examine records in order to ascertain the correctness of a taxpayer's return. If a summons is not obeyed or if the records sought are not produced, the Commissioner may seek enforcement by applying to the proper federal district court. Although the Commissioner's investigative powers are broad, they are not unlimited. In the absence of fraud, he must act within the confines of a three-year statute of limitations. In addition, the Code makes it abundantly clear that taxpayers may not be subjected to unnecessary examinations or investigations and that …

Government Contracts-Judicial Review Under Disputes Clause, Amos J. Coffman Jr.

Michigan Law Review

In a factual dispute arising under a standard government construction contract, the contractor followed the procedures required by the disputes clause. The contractor, after its claim was denied by the contracting officer, appealed to the Board of Claims and Appeals of the Corps of Engineers. The Board rejected the claim, and the contractor brought suit in the Court of Claims, alleging, in the words of the Wunderlich Act, that the Board's decision was "capricious or arbitrary or so grossly erroneous as necessarily to imply bad faith, or was not supported by substantial evidence." Over the Government's objection, a commissioner of …

New And Comprehensive Duties Of Securities Sellers To Investigate, Disclose, And Have An "Adequate Basis" For Representations, Willoughby C. Johnson

Michigan Law Review

The duties of investigation and disclosure imposed upon securities salesmen have been significantly enlarged by several recent cases generated by the Second Circuit's 1963 decision of Berko v. SEC. In a hearing before the Securities and Exchange Commission it was found that Berko was a salesman working out of an acknowledged "boiler room." His employer had provided its salesmen, including Berko, with fraudulent sales brochures, some of which were subsequently distributed by Berko. The action by the Commission against Berko arose out of the sale of a specific security to a customer who had received fraudulent sales brochures and …

A Reappraisal Of The Role Of Disclosure, Robert L. Knauss

Michigan Law Review

The objective of this paper is to assess the current role of disclosure in its various aspects in security regulation. Following a brief description of the current uses of disclosure in securities regulation, there are separate sections describing and evaluating (1) the obligation of disclosure imposed on issuers at the initial sale of securities, (2) the obligation of disclosure resting on issuers if they have securities which are traded, and (3) obligations of disclosure imposed on parties in the securities business other than issuers. This last section includes obligations of insiders, broker-dealers, and investment advisers, as well as duties of …

Current Problems In Securities Regulation, Robert N. Dorosin, Ira J. Jaffe, Rolfe A. Worden, James C. Lockwood, Willoughby C. Johnson

Michigan Law Review

This comment analyzes four areas of central significance to adequate protection for the investor: (1) qualifications of those in the securities industry who deal with the public; (2) dissemination of corporate publicity; (3) dissemination of investment advice; and (4) selling practices in the securities industry. The findings and recommendations of the Special Study are given special attention insofar as they bear upon the problems covered. In certain areas, however, recent developments in court and Commission decisions have brought about changes equally as significant as the findings and recommendations of the Special Study. Thus each section covers the background and recent …