Terra Extraneus

During the inter-war generation in the Western democracies, the wealthy elites that arose created a generation of wastrels. That was the basis of the first hit television series starring Hugh Laurie (House), Wooster & Jeeves (BBC). Bertie Wooster (Laurie) was a young man who lived well on an allowance from his family money administered by his stern aunt. Jeeves, the practically omniscient “gentleman’s gentleman,” protected Wooster and his friends from themselves.

Apparently, we have created a similar group in the United States, and its spokesman is Timothy Sykes. In his self-published autobiography, An American Hedge Fund, Mr. Sykes tells his story of how during his high school years he became a day trader using his Bar Mitzvah money. By riding market volatility like a barroom mechanical bull, he turned $12,500 into a million or so. He managed to graduate from high school, even though, as he tells the story, he spent more time using the school’s Internet pipeline to trade than he did in class. He attended college at expensive private universities. He does not exactly admit that his parents were paying his living expenses while he was dodging class and day trading, but that seems to be the gist of it. He migrated to Tulane from the Northeast, and rather than majoring in either economics or business, he majored in philosophy. Throughout, his autobiography makes him sound like wastrel.

After college, and especially after day trading became too difficult for him to continue to derive profits, he engaged in short selling, and especially in the world of what he calls “micro-cap” stocks. He tried to get others to allow him to invest their money in what he labeled a “hedge fund,” but he ultimately failed to attract significant investors.

Sykes claims in his book that he failed to attract investors due to marketing restrictions on hedge funds. That has not stopped growth in that industry that has deserved so much comment, but it apparently did stop him. So, the title of his book is apparently a marketing ploy.

Like all authors, Sykes revealed his true reasons for failure: he had no true business education. He read hundreds of business books and, it seems, is claiming to have learned finance by reading in a log cabin with a candle. But he had no discipline or interest in actually taking classes in finance.

Another reason Sykes failed to create a hedge fund, and the reason he was nothing more than a day trader with an Internet account, is because while he was in high school and college, he did not understand what investing really meant. He thought it was a game, like a video game, or more like video poker. He saw the impact of the people cheating at the game: pump and dumpers, stock spammers, and chat room lounge lizards. Many of the stocks he worked with were nothing more than an idea looking for capital, or worse, just a scam. Sykes never saw the entrepreneur. Sykes never saw the small business. Over sixty thousand businesses in central Oklahoma alone employ five or fewer people.

Sykes says that he “immediately” (his own word) saw a trading opportunity in the destruction and death that rained on New York when airliners were turned into cruise missiles on September 11. Likewise, he saw the tsunami that destroyed Asia in December 2004 and “quickly began to ponder” its impact on the markets. Like the typical wastrel, Sykes has no feel for the businesses destroyed by short selling, no feel for investors cheated by pump and dump schemes, and no appreciation for investing as a means of saving the product of work for expenditure at a later time. The only thing that saved Sykes from consuming everything he made was his obsessive focus on his own net worth.

Sykes described his book as entertainment. That was not, as I first thought, because Sykes wanted to avoid liability for any trading lesson he might have inadvertently taught in the book becoming a trap for the unwary. Rather, as the closing pages of the book reveal, he now thinks of himself as a mini-celebrity and as a sort of financial entertainer. He has tried to cloak himself with a cause: freedom of speech for hedge fund managers (even though with the growth in the industry, it is clear they are not finding advertising restrictions too limiting).

Sykes is a wastrel. For that reason, his book and life is entertaining. But, it is not terribly educational, nor is it any sort of real lesson. I will put his book on the shelf next to The Radioactive Boy Scout, The True Story of a Boy and His Backyard Nuclear Reactor, by Ken Silverstein. They have much in common.

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I received an email from Jim Guest, President, Consumers Union, as did probably every subscriber to Consumer Reports. Mr. Guest was appealing for a petition to Congress to get these dangerous products off the market. What products? Toys containing lead; Sesame Street’s Elmo, Dora the Explorer, Winnie th Pooh “and more.” 20 million got through.

Well, Jim, all I can say is America got what America asked for. America wanted tort reform. America got tort reform. America made products liability cases against sellers of poisonous toys nearly impossible. If the sellers were afraid, from fear of a products liability lawsuit, to offer their products for sale without have them tested in a lab first, your campaign might be unnecessary.

One thing bears scrutiny: Is the official Consumer Reports position that government bureaucrats will police the system better than products liability lawsuits?

“We played the flute for you, and you did not dance, we sang a dirge, and you did not mourn.” Matthew 11:17 (NIV)

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After my recent experience with finding a felon on a federal court civil jury, I encountered a local judge who related a similar story. In his case, in state court, the jury was seated and voir dire was progressing when an employee in the court clerk’s office noted that the name of a juror seemed familiar. The court clerk looked up the name and discovered that the juror was a felon, by then on probation. The judge was informed, and the judge called the juror and counsel for the parties into chambers with the court reporter and proceeded to inquire on the record, but out of the hearing of the other jurors. After the essential facts were determined and captured on the record, the juror was excused for cause. The juror indicated that he was awaiting a break so that he could approach the court and report himself, but the court clerk staff member with the long memory beat him to the punch.

Court clerk staff members with long memories seem to be the entire system for protecting the sacred jury trial in state court from inadvertently seating a felon.

I have contacted a few jury consultants, and most of them say that they conduct a background search on each potential juror. One even claimed that he conducted criminal background checks. When I inquired about the process used, I came away with the definite impression that this particular jury consultant did not understand the difficulty of conducting a criminal background check.

To conduct a criminal background check on a juror requires certain information that counsel for a litigant is not likely to have or get. Birthdate and social security number are the only data points short of a DNA sample and fingerprints that can effectively identify a United States citizen. With 300 million citizens resulting in a similarity of names, and with the use of error-prone human data entry systems, reliance on names as search parameters is problematic at best. A residential address can sometimes limit point the search in the direction of correctly identifying a person, but not always.

Criminal records are not online for public access in every jurisdiction. They are available online in Oklahoma for state offenders, if you have the correct name. But that does not include federal offenses or offenses committed in other states. Texas is not online. Criminal records online are not always complete. Sometimes only by examining the file in a criminal matter is an exact identification of the accused or the convicted possible. Some relational databases contain entries but not scanned documents. In Oklahoma, only 80% of our court system is online at all.

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The District Attorney of Oklahoma County according to The Oklahoman has announced that the sellers at the Affair of the Heart craft show will not be prosecuted for violation of trademarks of the University of Oklahoma or Oklahoma State University. The District Attorney has not announced and has reserved on the issue, according to the newspaper, whether that office will prosecute representatives of OU or OSU for confiscating crafts displayed at Affair of the Heart that bore either or both school logos.

Obviously, I am not privy to what precisely what happened, and all I know of the facts came from the newspaper. But this incident bothered me. Trademark and copyright protection of late has become very edgy. Now frustrated with the deliberate machinery of the court system, or maybe in ignorance of it, it may be turning to something else.

Self-help repossession, of course, has been permitted to secured creditors under the Uniform Commercial Code for many years. Indeed, the leading case on self-help repossession, Williams v Ford Motor Credit Co., dates from 1982. The rule has been in such cases that self-help repossession remains lawful under the uniform commercial code for secured lenders if there is no breach of the peace. But in Williams, the court made it clear that if the car owner had objected to the repossession, it would have been a breach of the peace for Ford to proceed to repo the car.

There is no corresponding right of self-help repossession in trademark or copyright law. It is possible to get a court order permitting seizure of the infringing goods, especially in cases in which the infringing goods are in fact ringers, i.e., counterfeit knock offs. See, Lorillard Tobacco Co., Inc. v. A&E Oil, Inc., ___ F.3d ___, 2007 WL 2736622 (7th Cir. 2007)(counterfeit cigarettes with counterfeit tax stamps), in which a couple packs of the counterfeit cigarettes were purchased by Lorillard and then used as evidence to support a seizure order. This would have been the correct procedure for OU and OSU to follow. Also, they could simply have photographed the infringing items and then prepared lawsuits against the crafts people.

Both OU and OSU have so many lawyers in their employ that they own their own small law firms, and they no doubt employ many private law firms as well. Therefore, there would have been no excuse if in fact OSU and OU personnel wrongfully seized anything. If they seized anything without a court order and over the objection of anyone, it was a breach of the peace, and if they acted under color of state authority, it was a violation of civil rights statutes.

If the OU and OSU people, as alleged in one news story, had in their company a law enforcement officer, then that officer, too, breached the peace, because without a warrant or a court order and over the objections of anyone, even a bystander, the law enforcement officer was violating the civil rights of the owners. The law enforcement officer could have stood there and prevented disturbance of any evidence if a crime was being committed in the officer’s presence, while lawyers scrambled to obtain the appropriate court orders. While the Oklahoma Governmental Tort Claims Act might shield some the actors, or place dollar limits on some of the theories of recovery, it likely would not much impact a federal lawsuit under §1983.

The other thing that bothers me about all of this is that OU and OSU are public universities, not private businesses. They are political subdivisions of the State of Oklahoma. They survive on legislative appropriations, regardless of the profitability of their fund raising, their R&D programs (if any) or their sports programs. While that does not place their logos in the public sphere for random or unlicensed use, it does at least morally qualify their claims to protect those logos.

Moreover, both OU and OSU use their logos to brand high profile products, their multi-million dollar sports programs: revenues of $30 million for OU and $15 million for OSU. Legitimate public comment about those logos is lawful. Honoring one’s favorite team by creating a homemade craft incorporating one or both of the logos is just as much a fair comment as making fun of them. That a crafts hobbyist made a few extras and sold them at Affair of the Heart is hardly a threat to those logos, especially since they exist, as a practical if not a legal matter, partly in and partly out of the public domain.

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