• Bad Policy For Good Policies: Article 9's Insurance Exclusion

      Verstein, Andrew (2011-01-01)
      Article 9 of the Uniform Commercial Code excludes from its scope any transfer of an interest in a life insurance policy. Thus, any lender whose security is a life insurance policy may not look to the UCC to determine her rights. This Article argues that the exclusion should be eliminated because it leaves insurance governed by antiquated and problematic law. Three specific problems are considered:non-UCC law does not have a satisfactory alternative to UCC perfection; non-UCC law is insufficient to prevent lenders from abusively taking more than their share of value from defaulted policies; and non-UCC law allows insurance companies to hinder securitization through the reservation problem.‖ The result is that Americans borrow $121 billion worth of policy loans, almost all of which comes without serious competition. Eliminating the life insurance exclusion will rationalize the law of lending in this area, and improve prospects for a secondary market.
    • Index Theory: The Law, Promise, And Failure Of Financial Indices

      Verstein, Andrew (2013-01-01)
      Financial indices, like the S&P 500 or the Consumer Price Index, have become a ubiquitous feature of our financial markets. One index, the London InterBank Offered Rate ("Libor"), may be the world’s most important number, an interest rate benchmark upon which hundreds of trillions of dollars depend. Yet, almost every day new revelations emerge that Libor was tampered with during the height of the financial crisis by one or many of the world's most prominent banks, with billions of dollars potentially misappropriated. This index disruption has attracted tremendous interest from regulators, private litigants, and market observers. Despite their importance, however, financial indices are poorly understood, and almost completely unstudied. In this Article, we explain why and how people use financial indices as well as how they are created. We show human discretion and value judgment to be essential ingredients in even the most "objective" indices. We then develop a taxonomy of financial indices, illustrating how the risks indices can pose, and the solutions applicable to those risks, are intimately related to the motivation that drives the index's creation. We show that the manipulation of indices is unsurprising given the precarious state of intellectual property rights in indices. While many call for prosecuting or regulating the Libor banks, our novel solution is to strengthen property rights for those who create financial indices.
    • Misregulation Of Person To Person Lending

      Verstein, Andrew (2012-01-01)
      Amid a financial crisis and credit crunch, retail investors are lending a billion dollars over the Internet, on an unsecured basis, to total strangers. Technological and financial innovation allows person-to-person (“P2P”) lending to connect lenders and borrowers in inspiring ways never before imagined. However, all is not well with P2P lending. The SEC threatens the entire industry by asserting jurisdiction with a fundamental misunderstanding of P2P lending. This Article illustrates how the SEC has transformed this industry, making P2P lending less safe and more costly, threatening its very existence. The SEC’s misregulation of P2P lending provides an opportunity to theorize about regulation in a rapidly disintermediating world. The Article then proposes a preferable regulatory scheme designed to preserve and discipline P2P lending's innovative mix of social finance, micro lending, and disintermediation. This proposal consists of regulation by the new Consumer Financial Protection Bureau.
    • Revolution In Manipulation Law: The New CFTC Rules And The Urgent Need For Economic And Empirical Analyses

      Verstein, Andrew (2013-01-01)
      Three major banks have now admitted that their employees manipulated worldwide interest rates through the London Interbank Offered Rate (Libor), the most widely used interest rate index. Libor is the interest rate term for trillions of dollars of swaps and loans, and its manipulation may have been used to extract billions of dollars. These allegations come just as commodities manipulation law has been dramatically reformed and the Commodity Futures Trading Commission (CFTC) given vast new regulatory powers. This article provides the first extended, scholarly analysis of the CFTC’s new anti-manipulation rules. We consider the difficulty the rules address: Commodities manipulation claims have traditionally faced nearly insuperable obstacles to success in prosecuting manipulations like that of Libor. We then analyze the new rules, including their extension of the CFTC's powers to cover the swap market. The new rules appropriately lower the standards of pleading and proof, and yet the breadth of the new rules invites abuse. Both to implement the new rules and to prevent overuse, we argue for more elaborate, sophisticated, and creative economic analysis than ever before. We provide a wide-ranging overview of empirical tools for assessing manipulation claims, while re-engaging a decades-old debate on the place of empiricism in the laws of evidence and intent. We provide detailed examples of how manipulation screens are necessary to complete the Dodd-Frank Wall Street Reform and Consumer Protection Act's (Dodd ­ Frank)'s revolution in manipulation law.
    • Strict Criminal Liability Limiting the State's Power to Condemn

      Verstein, Andrew (2003-01-01)
      H. L. A. Hart argues that strict criminal liability often undermines the moral condemnation associated with punishment and therefore its capacity for deterrence. Hart explains that insofar as legal punishment expresses the "odium, if not the hostility" of a community towards those who break its laws strict liability forces us to either condemn those who are not deserving of condemnation or to negate the moral condemnation of the law in general. One choice is immoral and the other reduces the effectiveness of a significant deterrent and is therefore counterproductive. Either way, the consequences of strict liability are undesirable. In this paper, I will defend Hart's thesis against its objectors. I will also propose and defend an original reason to believe Hart's thesis. I will build my case around the crime of statutory rape, although discussion of principles and objections will involve other crimes.