Postscript Archives – Page 3 of 11 – Southern California Law Review

Justices on Yachts: A Value-Over-Replacement Theory

April 2024April 2024Peter Salib & Guha Krishnamurthi

The Justices have it made. On top of their government salaries, guaranteed until retirement or death, they are pampered with luxuries supplied by various wealthy benefactors—billionaire friends, big publishing houses, and well-funded nonprofits. These benefactors make (and forgive) large loans, book fancy resorts in exotic locations, and save seats on their yachts—glacial-iced cocktails included. The public is rankled. Something seems amiss, but it is hard to say exactly what. There is scant evidence of any quid pro quo. None of this luxury treatment has likely changed any Justice’s vote in any particular case. Thus, the problem here is not run-of-the-mill corruption.

In this Article, we explore an alternate theory. These donors are not trying to influence individual votes; they are trying to influence Justices’ decisions about whether to keep voting at all. The Justices’ government salaries are generous. But their private-sector earning potential is far higher, providing a strong incentive to retire relatively early and maximize lifetime consumption. Supplying a sitting Justice with a luxury lifestyle reduces the retirement incentive, “locking in” the Justice as a voter in more cases.

We explore this strategy for influencing the Court and model its expected results. We argue that, rationally, the strategy will be deployed differentially. All other things equal, Justices who are older and more ideologically extreme, compared with the expected replacement Justice, will receive more pampering. This will systematically alter both the mix of cases the Court hears and its substantive decisions to favor moneyed and politically hard-line interests.

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The Societal Interest Theory—Preserving the Marketplace of Ideas in the Twenty-First Century

March 2024April 2024Michelle Kim

With respect to free speech, the good is prior to the right: the goods achievable by the practice of free speech are the reason for protecting speech, and the protection should be shaped with those goods in mind.¹

On January 6, 2021, a mob of 2,000 to 2,500 supporters of then-President Donald Trump rushed into the Capitol building and disrupted a joint session of Congress in response to the former president’s allegations of vote fraud on Twitter.² Soon afterward, Twitter banned President Trump’s account on its platform. To justify the ban, a spokesman expressed concerns regarding the risks of keeping President Trump’s commentaries live.³ The spokesman stated, “[o]ur public interest policy—which has guided our enforcement action in this area for years—ends where we believe the risk of harm is higher.”⁴ Facebook and Instagram followed Twitter’s actions by barring former President Trump from posting on their social network platforms for twenty four hours.⁵ While some responded by pressing for more regulations to prevent future potential spread of misinformation and violent insurrections, others met the social media companies’ actions with criticism, alleging that these companies silenced “conservative viewpoints and ideas.”⁶ Within the broad range of responses were the Florida and Texas legislatures’ criticism of these companies’ actions. To express their disapproval, the two states passed legislation prohibiting social media companies from certain behaviors such as deplatforming a candidate in office.⁷ For example, the 2021 Florida legislature enacted Senate Bill 7072, which created three Florida statutes: section 106.072, section 287.137, and section 501.2041.⁸ The statutes were met with vigorous disapproval from major social media companies and unsurprisingly resulted in a lawsuit filed by NetChoice and the Computer & Communications Industry Association challenging the statutes’ constitutionality.⁹

In response to the district court’s grant of a preliminary injunction enjoining enforcement of the Florida statutes, Jameel Jaffer—the executive director of the Knight First Amendment Institute at Columbia University—and Scott Wilkens—an attorney at the Knight Institute—raised an interesting point:

The companies are right that the laws violate the First Amendment, but some of the arguments they are making are deeply flawed. If these arguments get traction in the courts, it will be difficult for legislatures to pass sensible and free-speech-friendly laws meant to protect democratic values in the digital public sphere . . . . [T]he companies’ arguments would make it almost impossible for legislatures to enact carefully drawn laws that protect the integrity of the digital public sphere. They would make it difficult for legislatures to impose even modest transparency requirements on the companies, to require the companies to share data with academic researchers or to require them to provide explanations to users whose posts are removed or . . . accounts are suspended.¹⁰

The discussion poses a pressing question: Is limited government regulation of private entities, particularly social media companies, justified to protect the integrity of public discourse on social media platforms? Although the First Amendment is ordinarily thought to apply only to government actions, is the fundamental value of free speech rights so essential to also warrant government regulation of private entities? This Note attempts to address these issues and argues that the societal interest of free speech values calls for government regulation of private social media companies to protect the integrity of the public squares of the twenty first century.

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Squeezed: the Narrow Bank, the Federal Reserve, and the Future of Full-Reserve Banking

March 2024March 2024Jack Frisbie

To say the U.S. Federal Reserve System (“Fed”) is the most important financial institution in the world is not so much a bold claim as a banal statement of fact. Since the Fed’s initial charter in 1913, the U.S. economy has grown from roughly $500 billion in gross domestic product (“GDP”)—a comprehensive measure of economic activity¹—to more than $23 trillion, from less than 19% of the world’s GDP, to almost 25% of it, even while other Western countries shrunk comparatively.² The Fed’s first century of existence has not been without crises, however, and each crisis catalyzed systematic changes in the U.S. banking system, as well as accretion of the Fed’s power. The most recent economic downturns are no exceptions. In the wake of the 2008 financial crisis, Congress passed the Emergency Economic Stabilization Act (“EESA”) and authorized the Fed to begin paying interest on excess reserves³ (“IOER”⁴). For the first time, a commercial bank⁵ could earn interest by holding its reserves instead of loaning them out, a complete inversion of the traditional banking model. And unlike interest on loans, IOER was a virtually riskless income stream.⁶

One corporation saw the potential for a viable full-reserve, or “narrow,” bank that would not lend any money, but instead collect IOER and pay depositors above-market interest on their savings, profiting a modest difference. The Narrow Bank (“TNB”) received a temporary endorsement from its state chartering authority, yet its business model was dependent on a master account⁷ at the Fed. After long deliberation, the Fed expressed concerns about TNB’s business model and opted to continue evaluating the bank’s economic implications. TNB sought a declaratory judgement of its entitlement to a master account, but its complaint was dismissed because the Fed did not officially reject its application but rather declined to rule on it.

On its face, the challenge to a central bank’s discretion in determining which institutions can avail themselves of its services may seem arcane, inconsequential, and distant from the legal issues that affect most Americans. Its consequences, however, are broad and far-reaching. Since the Fed began paying IOER, interest paid on retail (consumer) savings accounts and certificates of deposits (“CDs”) has lagged significantly. TNB, on the other hand, was designed to pass nearly all of its earned interest to account holders, providing them a more attractive savings option and incentivizing them to save more—a nudge toward financial security in a country where the median family’s bank account balances total $8 thousand.⁸

The Fed’s opposition to TNB was rooted in concerns that a full-reserve bank could destabilize the economy by challenging the Fed’s ability to regulate liquidity and interest rates. But beyond the economic effects of full‑reserve banking, which have been debated by scholars for almost a century, the conflict between TNB and the Fed raises important, relatively unexplored legal issues and implicates sociopolitical questions related to fairness and federalism. This Note contributes to full-reserve banking scholarship by exploring those legal and social topics and situating them in an assessment of full-reserve banking’s future, using TNB USA Inc. v. Federal Reserve Bank of New York, No. 18-cv-7978, 2020 U.S. Dist. LEXIS 62676 (S.D.N.Y. Mar. 25, 2020), as a guidepost.

The Note proceeds in three parts. Part I examines the history of the U.S. banking system and, in particular, the Fed. It also introduces full-reserve banking and outlines economic arguments for and against its adoption. Part II analyzes TNB USA and the legality of the Fed’s decision to deny TNB a master account. Part III explores the future of full-reserve banking in the United States, explains its relevance, and argues that the Fed’s restrictions on full-reserve banking are undesirable from legal and social perspectives because they rob start-up banks and depositors of the opportunity to capitalize on programs that perpetually benefit large, legacy financial institutions. A short conclusion follows.

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The Trading Game: An Analysis of Robinhood’s Use of Digital Engagement Practices

February 2024February 2024Antoinette Petkov

In December 2020, the Enforcement Section of the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth filed an Administrative Complaint against Robinhood Financial LLC (“Robinhood”), a registered broker-dealer, in part, “for violations of Massachusetts law in connection with Robinhood’s . . . use of strategies such as gamification to encourage and entice continuous and repetitive use of its trading application [“app”].”¹ This action is part of a growing trend in which regulators have voiced potential concerns² about broker-dealer use of digital engagement practices (“DEPs”), which include “behavioral prompts, differential marketing, game-like features (commonly referred to as “gamification”), and other design elements or features designed to engage with retail investors on digital platforms.”³

This Note will evaluate the novel use of gamification, or game-like features, by broker-dealers in their online and mobile platforms. “A broker-dealer . . . is a person or firm in the business of buying and selling securities for its own account or on behalf of its customers” that serves several important roles like “providing investment advice to customers [and] . . . facilitating trading activities.”⁴ Broker-dealer use of gamification to perform these functions will specifically be analyzed in relation to two potential legal issues that the Financial Industry Regulatory Authority (“FINRA”) has already identified. These issues are whether broker-dealer marketing and advertising using game-like features follow regulations governing communications with the public and whether broker-dealers are making recommendations in compliance with relevant rules relating to recommendations when broker-dealers use game-like features.⁵ Ultimately, this Note concludes that the current use of game-like features, at least by Robinhood, does not violate existing regulations. However, additional information is necessary to complete the proposed analysis, which will hopefully be available following the Securities and Exchange Commission’s (“SEC”) recent request for public comment on broker-dealer use of DEPs.⁶ Therefore, based on the proposed analysis, if regulators want to rein in broker-dealer use of gamification, they will probably need to amend existing regulations. This is a favorable objective given critical policy concerns, like protecting retail investors, or “non-professional investor[s]” participating in the securities market,⁷ especially those that are inexperienced or young.

This Note will evaluate the issue of gamification in the context of popular online broker-dealer, Robinhood. The company was founded in 2013⁸ and, over the past few years, has grown into a major player in the securities industry.⁹ As of March 2021, the company had 18 million Net Cumulative Funded Accounts.¹⁰ However, the company has proven particularly popular with millennial and Generation Z investors; the company stated in its Form S-1 filed during its initial public offering in 2021 that “as of March 31, 2021, approximately 70% of our [Assets Under Custody] came from customers on our platform aged 18 to 40, and the median age of customers on our platform was 31,”¹¹ which will prove relevant to the issues analyzed in this Note.

This Note will proceed in several parts. Part I will present the concept of gamification, including its potential risks, the DEPs that Robinhood has implemented in its platform, the history of how broker-dealers came to use these features, including the development of the modern technologies that have made these features possible, and the legal issues raised by broker-dealer use of gamification. Part II will introduce the regulatory bodies that govern the U.S. securities industry, the specific regulations that are relevant to evaluating the legal issues in this Note, and the policy goals that underlie the U.S. securities regulation system. Finally, Part III will analyze whether Robinhood’s use of game-like features violates existing securities regulation, will summarize the legal and legislative actions that have already been taken regarding this issue, and will present policy concerns that lean in favor of increased regulation.

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Modern-Day Poll Tax: How LFO Requirements Undermine Felons’ Right to Vote

January 2024April 2024Geronimo Morales

The United States of America has a notable tradition of disenfranchising its felons. Indeed, the United States disenfranchises more people than any other nation in the world.¹ As such, Americans are beginning to reconsider their support for felon disenfranchisement.² While several states have greatly restored felons’ voting rights, others impose practical or financial barriers to the franchise. One such common example of these hurdles is the legal financial obligation (“LFO”) requirement. Under these schemes, felons must first pay off any outstanding fees, fines, or restitution stemming from their conviction prior to regaining the right to vote. Given that many felons are indigent or of lower socioeconomic status, these LFOs are often the only thing excluding millions of felons from the ballot box.

One such LFO scheme exists in the State of Florida. Since the enaction of its 1838 Constitution, Florida has automatically disenfranchised people convicted of any felony.³ However, in 2018, Florida voters passed Amendment 4, a constitutional referendum restoring the right to vote to felons not convicted of violent crimes (that is, murder and sexual offenses) who had satisfied all the terms of their sentence. The next year, the Florida Legislature passed S.B. 7066, which implemented the amendment.⁴ However, the law requires felons to pay off all of their LFOs before their right to vote can be restored. As a result, many eligible felons who cannot afford to pay will remain disenfranchised. Further, because the Florida Legislature failed to provide a central process (or resources) to identify and pay LFOs, many eligible felons who can pay will remain disenfranchised for an undetermined period of time until their individual cases are resolved. Despite a district court finding that S.B. 7066 was unconstitutional, the U.S. Court of Appeals for the Eleventh Circuit reversed in a 6-4 en banc decision, holding that the LFO requirement violated neither the Equal Protection Clause nor the Twenty-Fourth Amendment.

Using S.B. 7066 as a case study, this Note will argue that this scheme violates the Equal Protection Clause. I will argue that, given the importance of the right to vote, heightened scrutiny of S.B. 7066 is warranted. In the alternative, I will also analyze S.B. 7066 under rational basis scrutiny. Either way, I conclude that S.B. 7066 fails both tests. Finally, I will argue that S.B. 7066 amounts to a poll tax and is thus unconstitutional.

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Statutory Interpretation in the 2020s: A View of the Cathedral

December 2023February 2024Ethan J. Leib & Nora Donnelly

This Comment looks at eighty-seven statutory interpretation cases in the Supreme Court’s docket over the 2020–2022 Terms to evaluate trends in how the nation’s highest court reads statutes in the modern era. It concludes that the overarching story is neither a purely “textualist” one, nor one in which the liberal bloc is very often at odds with the conservative bloc. Instead, statutory interpretation is much more consensual than it is often credited to be—and contextual and purposive arguments continue to remain valid modalities of interpretation, even as standard textualist tools also remain relevant.

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Prosecuting Cybercrimes: The Case for Making the Computer Fraud and Abuse Act a Predicate Act Under the Racketeer Influenced and Corrupt Organizations Act

November 2023February 2024Diana Chung

During the first six months of 2021, financial services firms throughout the United States raised alarms concerning nearly $600 million of transactions that were flagged as suspected payments to perpetrators of ransomware attacks.¹ Meanwhile, the U.S. Department of Treasury identified another $5.2 billion of potential ransomware payments that were funneled through bitcoin transactions.² In total, global ransomware attacks were expected to have accounted for about $20 billion of loss in 2021³ and are predicted to result in $265 billion of loss by 2031.⁴ Ransomware is just one of twenty-four different categories of internet crimes identified by the Federal Bureau of Investigation (“FBI”) in its annual Internet Crime Report, and the figures cited in the report represent only a fraction of the total amount lost to cybercrime every year.⁵ As the number of cybercriminals and the sophistication of their methods continue to grow and evolve, the true cost of cybercrime worldwide is estimated to reach a disastrous $10.5 trillion by 2025.⁶

The scale and scope of cyberattacks have increased dramatically in recent years, spurred by a growing reliance on technology, increased connectivity among users, and the rise in popularity of virtual currency exchanges. Another contributing factor is that the very nature of cybercrime makes it difficult to block these attacks or punish those responsible. For example, cybercriminals frequently rely on a variety of techniques to hide their identities and evade detection by law enforcement, such as by operating out of the dark web or routing their activities through a virtual private network (“VPN”). The increasing use of virtual currencies also contributes to this problem by making it more difficult to trace monetary payments made by victims of cybercrime.

Prosecutions of cyberattacks have been constrained by decades-old statutes that are either inapplicable or insufficient to address rapidly changing social and technological environments that contribute to the proliferation of new cybercrimes. In addition to these challenges, many cybercriminals often reside in or flee to countries that are beyond the jurisdictional reach of the United States. In several widely publicized cases, cyberattacks were also believed to be sponsored by hostile foreign state actors. Unfortunately, many victims of these cybercrime attacks are reluctant to report them, usually due to the fact that while reporting an attack does little to address the harm caused, doing so may draw unwanted publicity or attention. Therefore, if the United States wishes to properly address the rise of cybercrime and its accompanying harm to the global economy, Congress must first pass legislation that would authorize the government to overcome these barriers and increase prosecutorial power over cybercrime.

One proposition that appeared before Congress was to expand the Racketeer Influenced and Corrupt Organizations (“RICO”) Act, codified in 18 U.S.C. §§ 1961–1968. This proposition was included in Section II of the International Cybercrime Prevention Act, which was originally presented in 2018 and was later reintroduced by a bipartisan group in June 2021.⁷ After it was referred to the U.S. Senate Committee on the Judiciary, the bill stalled and ultimately failed to pass.⁸ The status of the bill reflects the general shortage of political capital when it comes to prioritizing cybercrime despite the FBI’s characterization of “malicious cyber activity” as a threat to “the public’s safety and our national and economic security.”⁹

To raise awareness about the threats posed by cybercrimes, this Note will analyze the proposal to expand RICO and, in particular, examine the benefits of making a violation of the Computer Fraud and Abuse Act (“CFAA”) a predicate act for RICO offenses. While a few successful prosecutions of organized cybercrime rings have already been brought under RICO, this Note will evaluate the limitations of those prosecutions when it comes to computer crimes. The Note will conclude that despite the many challenges associated with tackling cybercrime, the constructive application of RICO carries great potential in prosecuting cybercriminals.

Part I of this Note provides the historical context behind RICO and examines its role in the downfall of the American Mafia. It specifically looks at the provisions in RICO that uniquely positioned it for prosecuting organized crime groups as well as legitimate business enterprises that violated state and federal laws. Part II provides an analysis of how RICO applied to traditional organized crime groups and how cybercrime groups can fall under its broad definition of “enterprise.” It also provides further context on the rise of cybercrime and introduces examples of RICO charges that were brought against two cybercrime enterprises. Part III introduces the CFAA and points to key provisions that could be used against cybercrime. It also seeks to address criticisms of the proposal to make violations of the CFAA a predicate act under RICO and evaluates key policy considerations involved in this discussion.

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The Illusory Moral Appeal of Living Constitutionalism

November 2023February 2024Samuel Izzo

Two prominent theories of constitutional interpretation are originalism and living constitutionalism.¹ One common argument for living constitutionalism over originalism is that living constitutionalism better avoids morally unjustifiable results. This Note will demonstrate that this argument is flawed because living constitutionalism lacks a definitive enough prescriptive claim as to how to interpret the United States Constitution.

Proponents of originalism assert that courts should interpret constitutional provisions in accordance with the public meaning of those provisions at the time of their enactment.² One criticism of originalism is that if the Supreme Court were to faithfully apply the theory, such application leads morally unjustifiable outcomes.³ This criticism has two components: (1) had the Supreme Court subscribed to originalism as its interpretive method in the past, then certain outcomes, such as the banning of racial segregation in public schools in Brown v. Board of Education,⁴ would not have occurred;⁵ and (2) if the Supreme Court employs originalism in the future, the Court might issue rulings contrary to contemporary moral sensibilities.⁶ Moreover, some critics of originalism maintain that when confronted with this problem, proponents of originalism deny that its application would lead to those outcomes and stretch the theory’s meaning beyond its capacity for any meaningful constraint on interpretation,⁷ or, alternatively, they admit that they would find the morally objectionable practice unconstitutional, even if such holding would be inconsistent with the originalist method.⁸ Thus, the claim is that originalists are “faint-hearted;”⁹ that is, they either tailor the definition of originalism to conform to morally required decisions or abandon originalism when it is too much to bear.¹⁰ This, critics of originalism assert, indicates that originalism is not viable as a constitutional method and should be abandoned, some argue, in favor of living constitutionalism.¹¹

This Note will demonstrate the flaws in the above argument. The argument is flawed, not because it can necessarily be proven that originalism leads to more morally justifiable results than living constitutionalism, but because living constitutionalism lacks a definitive prescriptive claim to make such a comparison between the two theories possible. That is, it is impossible to identify past or hypothetical future outcomes of cases as being consistent or inconsistent with living constitutionalism. Moreover, because it is possible to do so with originalism, and thus, posit how implementing originalism could lead to morally undesirable results, living constitutionalism has an illusory moral superiority over originalism.

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