The Consumer Financial Protection Bureau’s first five months in existence have been a bit like the old children’s story, where terrified townspeople were convinced a monster was coming, only to find it was a lamb with its foot stuck in a can.
That was the CFPB in 2011: docile and crippled. But many Republicans in Congress remain convinced there’s a wolf under those sheep’s clothes, just waiting to tear out the throat of American businesses.
They’ve steadfastly blocked the nomination of former Ohio Attorney General Richard Cordray to head the agency, and without a director, the CFPB’s powers are severely limited. The agency can exercise the authority it inherited from seven other agencies, but it can’t perform what is perhaps its most important new function under the Dodd-Frank Act: policing the murky world of nonbank lenders.
Instead, the CFPB in 2011 released reports, created task forces and made new, simplified forms for mortgage disclosures, credit cards and student financial aid. But it didn’t bring a single enforcement action against a predatory lender.
The White House shares the blame for the impasse. President Obama waited nearly a year after Dodd-Frank was signed into law — and three days before the agency was slated to open its doors on July 21 — to nominate a director. Before that, Obama turned to Harvard Law School professor Elizabeth Warren, now running for the U.S. Senate in Massachusetts, to set up the agency. As McDermott Will & Emery partner Stephen Ryan put it, the arrangement made for “the most awkward liftoff I’ve ever seen of a new agency.”
Warren invoked deep opposition — and passionate defense. While the president delayed deciding whether to nominate her (she did, after all, come up with the idea for the CFPB in the first place), the window to get a director confirmed apparently closed.
In May, 44 Republican senators signed a letter stating that they would refuse to consider any nominee unless the CFPB was restructured with a board of commissioners rather than a single leader, and made subject to the congressional appropriation process — in effect, demanding to re-open Dodd-Frank a year after it passed the Senate by a vote of 59-39 and the House, 223-202. Republicans say the agency’s current structure vests too much power in the director and doesn’t allow for adequate congressional oversight.
Cordray, an accomplished lawyer/politician/five-time Jeopardy champion, is currently serving as head of enforcement at the CFPB. On Dec. 8, 45 Republicans in the Senate blocked his nomination from coming to a vote; Senate Democrats lacked the 60 votes necessary to end the filibuster. Senate Majority leader Harry Reid said it was the “first time in Senate history a party blocked a qualified candidate solely because it disagrees with the existence of an agency that was created by law.”
It’s not that the International Trade Commission hasn’t had important cases before, the kind with megacompanies and outcomes that move markets. It’s just that the agency has never had so many all at once.
In fiscal year 2011, there were 70 new intellectual property investigations instituted at the ITC, making it far and away the busiest year ever. By comparison, there were 51 new cases in 2010 and 29 in 2009.
Companies suing or being sued at the ITC this year include Apple Inc., which is battling smartphone rivals Samsung Group, Motorola Inc. and HTC Corp. in a series of cases that could result in Android phones being banned from the U.S. market.
Apple has the dubious honor of being involved in more ITC cases in 2011 — 10 new matters — as complainant or respondent than any other company.
Samsung and LG Corp. aren’t far behind, with seven suits apiece. Several of the fights involve patents for light-emitting diodes, or LEDs, used in flat-screen televisions.
ITC disputes are typically complex and enormous. One suit filed this year involving GPS devices, for example, names virtually every car maker in the world — 18 companies from Audi A.G. to Volvo, plus another 30 subsidiaries. Little wonder virtually every major law firm now has an ITC practice. Indeed, Quinn Emanuel Urquhart & Sullivan, counsel of choice for many Apple opponents, announced in September it was opening a Washington office for one reason: to be near the ITC.
The cases are presided over by six administrative law judges, or ALJs. During the summer, legendary chief judge Paul Luckern, who spent 27 years on the ITC bench, retired, and another ALJ left to join a law firm. They’ve both since been replaced, but there are signs the judges are still struggling under the workload.
On Oct. 14, for example, Judge Theodore Essex pushed back the target date by six weeks to finish his initial determination in a case brought by Apple against Motorola, writing, “While such a timeline might have been feasible when the investigation was instituted in November 2010 and the ALJ’s docket was lighter, since that time the ALJ’s docket has become increasingly busy.”
As any IP lawyer will tell you, the No. 1 reason for going to the ITC is speed. If the cases start to jam up, would-be litigants may look elsewhere for the next hot IP forum. But for 2011, it’s clear that the ITC was the place to be.
The SEC had lots to brag about in 2011, filing a record number of cases and winning record fines. But that hasn’t diffused often withering criticism that the agency hasn’t done enough to hold Wall Street accountable for the 2008 financial crisis, and has let investment banks off with little more than a slap on the wrist.
As U.S. District Judge Jed Rakoff of the Southern District of New York put it in a November opinion rejecting the SEC’s proposed settlement with Citigroup Global Markets Inc., the $95 million civil penalty was “pocket change” to the banking giant. Rakoff also objected to the agency’s policy of settling cases without requiring the defendant to admit wrongdoing, and ordered the case to trial in July 2012.
The SEC is appealing his decision to the U.S. Court of Appeals for the 2d Circuit, calling it “incorrect” and in “legal error.” SEC Enforcement Division head Robert Khuzami pointed out in a December speech, “The reality is that the penalty amount the SEC can seek in a civil action is strictly limited by statute,” adding that Chairwoman Mary Schapiro has asked Congress for authority to increase the maximum fines.
As for settling cases on a no-admit/no-deny basis, Khuzami said that to turn down a “reasonable settlement due to the absence of an admission is, in my view, often unwise policy.”
The Citigroup case wasn’t the SEC’s only big defeat this year. In July, the U.S. Court of Appeals for the D.C. Circuit struck down the SEC’s proxy-access rule that would have made it easier for shareholders of publicly traded companies to nominate corporate directors. The court said the SEC “inconsistently and opportunistically framed the costs and benefits of the rule” and acted arbitrarily.
Still, there was good news as well. In fiscal year 2011, the SEC filed a record 735 enforcement actions — a nearly 9 percent increase from 2010. The SEC also filed 57 insider-trading cases in 2011, a nearly 8 percent increase from the previous year, and won a record $92.8 million civil penalty against Galleon Group hedge fund founder Raj Rajaratnam. The SEC ended the year with a bang, suing six former top executives of Fannie Mae and Freddie Mac for securities fraud.
Overall, since 2008 the agency has filed more than three dozen cases related to the financial crisis. It may not sound that impressive, but as Khuzami pointed out in an apparent dig at the Justice Department, “That’s more cases than any other federal agency can claim.”
For antitrust watchers, 2011 was the year the Department of Justice stepped up to the plate — and the Federal Trade Commission stayed on the sidelines.
Expectations for aggressive activity by DOJ’s Antitrust Division had been high at the start of the Obama administration, when then-division head Christine Varney in her first speech pledged to revive enforcement of Section 2 of the Sherman Act, which prohibits monopolization.
And then…not much happened. DOJ went on to approve the mergers of Ticketmaster Entertainment Inc. and Live Nation Inc.; of Comcast Corp. and NBC Universal; of United Airlines Inc. and Continental Airlines Inc.; of Google Inc. and ITA Software Inc. There were conditions attached, but no outright court challenges.
That all changed when DOJ lawyers in August filed suit to block AT&T Inc.’s proposed $39 billion acquisition of T-Mobile USA Inc., arguing that the deal would substantially lessen competition for cellphone services across the United States and bring about higher prices, poorer quality and fewer choices.
On Dec. 19, AT&T announced that it abandoned the deal.
“Like an Olympic sprinter, the Obama DOJ has hit its stride,” said David Balto, a former policy director for the Federal Trade Commission. “They have revived merger enforcement by showing they are no longer timid about going to court and using the law to fully protect consumers.”
As for the FTC, the agency has certainly been active — but its 2011 docket hasn’t included much in the way of blockbuster cases.
FTC lawyers went to court three times in 2011 to block hospital mergers with mixed results, winning in Ohio and losing in Georgia. A case is pending in Illinois. A major loss came in the U.S. Court of Appeals for the 8th Circuit in a case alleging monopolization of a drug to treat heart defects in premature babies.
The FTC may find itself back in the limelight in 2012. The agency continues its antitrust investigation of Google Inc., assisted by influential academic Tim Wu, on leave from Columbia Law School. The agency is also currently reviewing the merger of pharmacy-benefit managers Express Scripts Inc. and Medco Health Solutions Inc., a transaction that has triggered intense lobbying on both sides.
Jenna Greene can be contacted at email@example.com.