A US Chamber Institute for Legal Reform study by NERA finds (no surprise) that the US legal system is the most costly in the world, even when one accounts for the difference in social-insurance programs between American and Europe. Of interesting note: UK legal expenses are up 47% in the last three years, though still substantially cheaper than the US. More: Fisher @ Forbes; Sunday Times ($); related: Zywicki @ Volokh on auto safety.

I'd like to see the full report, because even the figure of an extra 1% of GDP going to excess legal expenses relative to Europe is likely an understatement. A 2011 edition of a similar report by NERA didn't include the expense of securities litigation, where much of the money goes to attorneys (and a disproportionate share of the proceeds goes to institutional investors at the expense of small shareholders). (Update: here it is, and, indeed, the 0.82 to 1.03% estimate is very definitely an underestimate.)

While the trial bar argues the expense of the liability system as a deterrent to make medicine and consumer products safer, I'm not aware of any evidence that Europe is less safe than the US. For example, though Germany has both an Autobahn without speed limits and a much higher percentage of mini cars like the "Smart," in 2005, their auto fatality rate was 7.8 deaths per billion km travelled versus 9.1 in the United States the same year. New Zealand has no medical-malpractice cause of action at all, and there is no evidence that patients there are being butchered as a result. And fear of liability and overcautious pharmaceutical regulation is likely costing lives at the margin.

This morning, the Manhattan Institute released my latest finding in the Proxy Monitor series: 2013 Proxy Season Underway: JPMorgan Chase Chairman vote looms large in busy May proxy season. As of May 3, 175 of America's 250 largest publicly traded companies, tracked in the ProxyMonitor database, had filed proxy documents and 72 of these had held annual meetings. In addition to summarizing proxy submission and voting results to date, I look at JPMorgan Chase's looming --and widely publicized--May 21 annual meeting, in which shareholders will consider a proposal sponsored by the pension fund of the American Federation of State, County, and Municipal Employees (AFSCME) to separate the bank's chairman and CEO positions, which the market may read as a referendum on the leadership of incumbent chairman and CEO Jamie Dimon--and which may, if the board reacts to the vote by stripping him of his chairmanship, prompt Dimon to leave the bank he steered ably through the financial storm.

Key statistics on filings to date include:

Bitcoin, the burgeoning virtual currency, lately has been the subject of much speculation--in every sense of the word. Lots of people have been speculating about what it is and whether it has a future. Some people have been speculating on its future by purchasing the currency in hopes that its price will rise and they can cash in. The regulators have been speculating too--speculating about whether and how they can regulate the currency.

A recent study, Swept Away by the Crowd? Crowdfunding, Venture Capital, and the Selection of Entrepreneurs, claims that investors on popular crowdfunding websites focus on many of the same qualities and indicia of potential success as venture capitalists.

According to an analysis published by the CrowdFund Intermediary Regulatory Advocates (cfira.org) this study "casts doubt [on the claims of critics] that crowdfund donors are an unsophisticated lot".

The study, led by Wharton School of Business Professor Ethan R. Mollick, reviewed 2,101 crowdfunded projects on Kickstarter. The study reviewed the history of success of a project, the influence of endorsements on a crowdfund project, the level of preparation demonstrated by an entrepreneur, quality, social networks, geographic outcomes and gender. The study concluded that crowdfunders act much like venture capitalists in making predictions on the success of a project, focusing on factors like the quality of the product, the resume of the team members and the likelihood of success.

According to Professor Mollick, "the signals of quality that are used by VCs to assess the viability of new ventures are also used by crowdfunders. This bolsters the validity of these signals as indicators of start-up potential, but also suggests that crowdfunding has the ability to distinguish quality potential projects from less promising ones."

This is an important conclusion Critics of the crowdfunding provisions of the 2012 JOBS Act claim that it is likely to increase levels of fraud, by permitting business promoters to pitch investment opportunities directly to non-accredited investors. If, as Professor Mollick's study suggests, crowdfund investors consider the same signals of quality as professional venture capitalists, the potential for fraud seems overblown.

In the past several days, there has been news of the forging of a long-awaited compromise among the commissioners at the Commodity Futures Trading Commission (CFTC). The potential deal, which will be discussed at a meeting next Thursday, relates to the rules governing swap execution facilities (SEFs). SEFs are the new swap trading venues created by Dodd-Frank. The CFTC's proposal was perceived by many to be unworkable.

Even if the CFTC successfully crafts a better final set of rules for SEFs, SEFs may not attract much business. Last month, Bloomberg--a would-be SEF operator--sued the CFTC over a Dodd-Frank rule that Bloomberg alleges will create a competitive disadvantage for SEFs. The challenged rule relates to margin, which is money that a clearinghouse collects to protect itself from the risks associated with the swaps and futures that it clears. In determining how much margin to collect, a clearinghouse considers, among other factors, how long it would take to liquidate the particular swap or future. Bloomberg is arguing that the CFTC violated its requirements under the Administrative Procedure Act and its statutory obligations to conduct benefit-cost analysis. At issue is a directive that clearinghouses use a 5-day minimum liquidation time for financial swaps and only a 1-day minimum for other types of swaps and futures. As a consequence, margin requirements for financial swaps will be higher than for comparable futures.

The distinction matters, because market participants, who quite naturally prefer to make smaller margin payments, will favor futures--which do not trade on SEFs--to swaps. That spells trouble for SEFs. Futures that are effective substitutes for swaps are already cropping up, although margin differences are not the only reason for this trend.

The signals coming out of the CFTC regarding a potentially revamped SEF rule are positive, but the SEF battles will continue. As discussed in an earlier post, Dodd-Frank has set up some fierce competitive battles, into which the CFTC and courts are being dragged because of the CFTC's failure to follow sound rulemaking procedures.

Johnson & Johnson (through a wholly-owned subsidiary) manufactures Benecol Regular and Benecol Light Spreads. J&J has had to defend against multiple suits, including one by a Thomas Young, who filed a consumer fraud class action against alleging that Benecol's labeling was false and misleading In particular, the complaint focused on Benecol's claims, on its packaging, that Benecol was: (1) "Proven to Reduce Cholesterol"; and contained (2) "NO TRANS FAT."

In fact, Benecol does contain a tiny amount of partially hydrogenated oil (aka trans fat): an amount that FDA called "insignificant." As for the "Proven to Reduce Cholesterol" claim, Young asserted that it must be false too, because Benecol is allegedly rendered so unhealthy by virtue of containing "dangerous, non-nutritious, unhealthy partially hydrogenated oil" that the cholesterol claim is misleading. So Young sued, invoking New York and New Jersey consumer laws.

In April 2012, the federal district court granted Johnson & Johnson's motion to dismiss the complaint, ruling inter alia that Young's claims were expressly preempted by the Federal Food, Drug, and Cosmetic Act (FDCA), 21 U.S.C. § 301 et seq., which (since the adoption of the Nutrition Labeling and Education Act (NLEA) in 1990) expressly preempts any state law "requirement" regarding food labeling "that is not identical to the requirement[s]" imposed by federal law. FDA regulations "require that trans fat levels less than 0.5 grams per serving 'shall be expressed as zero.'" Thus, even if the trans fat claims were misleading under New York and New Jersey statutes, these laws could not be enforced. Young disagreed and appealed to the Third Circuit, arguing that his state consumer protection claims were not preempted because they were "not inconsistent" with FDA regulations. The alert reader has doubtless noted, however, that the statutory test is not whether state requirements are "consistent" with FDA requirements;, but whether they are "identical." Thus did the Third Circuit today affirm that NLEA pre-empts state consumer laws as regards food product labeling.

Another victory for common labeling standards for goods marketed nationally, and for amicus Washington Legal Foundation, which filed a persuasive brief for the winning side!

The Epstein/Landes/Posner methodology has been refuted numerous times, but it's still getting play as they release a new paper repeating their earlier methodological errors and concluding that the current Supreme Court is more "pro-business" than any other. (Why not conclude that the Ninth Circuit is more anti-business than any other American appellate court in history, and that has resulted in a greater degree of error correction?) Jonathan Adler @ Volokh and Greve take up the cudgel again. More: January 2012 (with earlier links).

A new study's abstract says that it finds that a "physician's years in practice and previous paid claims history had no effect on the odds" of a payout of more than a million dollars to a plaintiff—supporting my contention that, at the margin, the status quo medical malpractice system is largely random and does more to deter practice than malpractice. The authors don't seem to realize this implication of their finding, but only the abstract is available publicly. [JHQ via Torts Prof]

Related on POL: January 2005; April 2011.

My friend Dara Albright sums up the importance of Google's investment in Lending Club (prior post):

Although momentous for the consumer credit sector, many have been wondering how P2P's triumphs relate to securities-based crowdfunding. The fact is, because P2P lending is the precursor to securities-based crowdfunding, its achievements are not only dramatically impacting the emerging crowdfunding industry, they are helping shape it. Securities-based crowdfunding or "Peer-to-Business (P2B)" is simply the next iteration of P2P. However, instead of peers providing personal loans to its peers, securities-based crowdfunding will allow peers to invest in the businesses of its fellow peers in exchange for equity or debt. By demonstrating that people are more efficient at financing each other through the use of social media than with conventional banking intermediaries, P2P has effectively validated the "crowdfinance" model for the entire industry, even compelling the financial establishment to enter the fray.

The Heritage Foundation's The Foundry blog reported today that the House Committee on the Judiciary created the bipartisan Over-Criminalization Task Force of 2013. The goal of the task force is to "conduct hearings and investigations relating to over-criminalization issues within the Committee." The task force, will be chaired by Representative James Sensenbrenner (R-WI) and will consist of five Democrats and five Republicans.

The formation of this task force publicizes both the acknowledgment by Congress that the problem of overcriminalization is real and that the House Judiciary is willing to take active steps to address the alarming criminal law trends which depart from traditional common law norms and threaten individual and economic liberty.