• mother rhino and baby
    July 21, 2017

    Using mom’s brokerage account for insider trading

    The Securities and Exchange Commission announced insider trading charges against an MIT research scientist who allegedly searched the internet for “how sec detect unusual trade” before making a pre-acquisition trade that the SEC flagged as suspicious. https://www.sec.gov/news/press-release/2017-125 The SEC’s complaint alleges that Fei Yan purchased stocks and options based on material nonpublic information obtained from his wife, an associate at a law firm that worked on the acquisitions. According to the SEC’s complaint, Yan made approximately $120,000 in illicit profits by selling his holdings in two public companies following public announcements that they would be acquired by other companies.

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  • July 20, 2017

    Presidential tweets – how to get them into evidence

    How does one get the tweets of @realDonaldTrump into evidence? This is an interesting question raised by Kelly Twigger in Above the Law this week. Above the Law – Are Donald Trump’s Tweets Self-Authenticating  It is a question that litigators face in seeking to admit all kinds of social media but it is more fun to apply the rules to the President’s tweets. There are two hurdles that must be jumped to get the tweets into evidence. Kelly Twigger addresses whether the tweets are self-authenticating. I will address that hurdle as well as the hearsay hurdle. The Authentication Hurdle: To use the tweets, you need to show that they they are what they purport to be — statements of President Trump. According to Federal Rule of Evidence number 901, “[t]o satisfy the requirement of authenticating or identifying an item of evidence, the proponent must produce evidence sufficient to support a finding that the item is what the proponent claims it is.” How do you do that? (1) You could show that the statement is from a government office where items of this kind (presidential statements) are kept. FRE 901(b)(7). President Trump, Sean Spicer, and others have said that the statements of @realDonaldTrump are made by the President. This might be enough. OR (2) You could show that the tweets bear the distinctive characteristics of President Trump. Under FRE 901(4), you can prove authenticity through evidence of “[t]he appearance, contents, substance, internal patterns, or other distinctive characteristics of the item, taken together with all the circumstances.”  This would seem to be a winner for many @realDonaldTrump tweets. The Hearsay Hurdle:  While hearsay objections are a staple of all those police and law television series, that is not much of a problem here. Hearsay is an out of court statement offered to prove the truth of the matter asserted. FRE 801(c). A tweet may not be hearsay at all. Or it may fall within an exception to the hearsay rule. (1) Not hearsay: If you are not seeking to admit the tweet for the truth of the matter asserted, then it is, by definition, not hearsay. You may be seeking to admit a tweet to show that President Trump was watching a particular television broadcast or that he was aware of a particular fact addressed in the tweet — things that do not hinge on the truthfulness of the statements in the tweet. If you are seeking to use a tweet against President Trump, then the tweet is likely not hearsay. Statements of a party-opponent are not hearsay. Under FRE 801(d)(2), an out of court statement is not hearsay if the statement was made by the party-opponent, is one the party-opponent adopted, was made by a person whom the party authorized to make a statement on the subject, was made by the party’s agent or employee on a matter within the scope of that relationship and while it existed, or was made by a co-conspirator during and in furtherance of the conspiracy. (2) Exception to hearsay: There are a number of exceptions to hearsay that may apply to President Trump’s tweets. FRE 803. These […]

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  • July 19, 2017

    Investor trust is important, but how important?

    According to a Cornell University study of investments after the Bernie Madoff Ponzi scheme was revealed, people who knew Madoff’s victims or who lived in areas where victims were concentrated dramatically changed their investment behavior. According to the  study, investors withdrew $363 billion invested with financial advisors — even though many had nothing to do with Madoff. A significant portion of the withdrawals were put in safe assets like bank deposits. Even four years after the fraud was revealed, investors had not reinvested these funds in the markets. Financial advisory firms take note:  the $363 billion in investment withdrawals is nearly 20 times the $17 billion in restitution the courts ordered Madoff to pay his investors. According to one of the study’s authors Steve Yonker, “That’s a pretty big effect. The withdrawals were so hefty in some areas that some investment firms ended up shutting their doors and going out of business.”  Investment firms with clients in regions that were affected by the fraud were over 40 percent more likely to close than firms in a control group. “We show the importance of trust in investors’ allocation decisions,” Yonker said. “At the macro level, economic growth critically depends on the efficient allocation of capital.” “Capital flows stemming from distrust in intermediaries instead of the underlying investment opportunities can potentially lead to suboptimal allocations.” Fraud is bad for business. Investors fled when they lost trust in the markets. Perhaps the brokerage industry should work harder to maintain the trust of investors rather than opposing investor protection regulation. It’s good business. The Cornell study is published in The Review of Financial Studies. Thanks to BusinessInsider.com for its reporting on this study. http://markets.businessinsider.com/news/stocks/bernie-madoff-ponzi-scheme-363-billion-dollar-exodus-investment-funds-2017-7-1002183521 http://mediarelations.cornell.edu/2017/07/18/madoff-rip-off-shattered-trust-changed-investment-behavior/

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  • July 18, 2017

    Fed employee nest eggs – less safe than you would think

    When federal government employees recommend an investment adviser who steals employee retirement funds, “sovereign immunity” prevents recovery against government. In many ways the retirement savings of federal employees are safer than employees of private companies. The Thrift Savings Plan and other 401(k)-like plans offered by the federal government have fewer of the inappropriate investment options that are in many private employer retirement plans. But, as a recent Eleventh Circuit Court of Appeals decision reveals, federal employee retirement savings are still at risk. Alvarez v. U.S., Case No. 16-16479 (11th Cir. July 17, 2017), available at http://media.ca11.uscourts.gov/opinions/pub/files/201616479.pdf According to the Eleventh Circuit: In the late 1980s, Kenneth Wayne McLeod began contracting with various federal agencies to provide retirement advice to federal law enforcement employees in Florida. McLeod founded and ran the Federal Employee Benefits Group, Inc. (“FEBG”) Bond Fund. Most of the federal employee investors met McLeod at retirement seminars hosted by their agency employer, where McLeod spoke generally about finances and retirement and also pitched his fund. McLeod would sometimes follow up with individual employees, promising high, secure returns in the FEBG Bond Fund. Not surprisingly, federal employees invested in the FEBG Bond Fund.  In 2010, when investigators questioned McLeod, he admitted the FEBG Bond Fund was a Ponzi scheme and committed suicide. In an attempt to recover $30 million in losses, investors filed suit alleging that federal agency employees had failed to exercise reasonable care and made misrepresentations in recommending McLeod and the FEBG Bond Fund. So far, this is similar to many cases against private companies who recommend investment advisers to their employees. But, unlike private employers, the government must consent to be sued. It has discretion to invoke the defense of sovereign immunity — a doctrine that protects the government against lawsuits that it does not expressly authorize. Investors brought claims that the federal government was negligent in contracting with McLeod and that by doing so it gave the appearance of undue confidence in McLeod. They sought to fall within the Federal Tort Claims Act (“FTCA”), which authorizes certain tort claims against the federal government. But, as the Eleventh Circuit said, a court must strictly observe the ‘limitations and conditions upon which the Government consents to be sued’ and cannot imply exceptions not present within the terms of the waiver.” One such exception is the [FTCA] intentional tort exception, which bars: [a]ny claim arising out of assault, battery, false imprisonment, false arrest, malicious prosecution, abuse of process, libel, slander, misrepresentation, deceit, or interference with contract rights . . . The Eleventh Circuit ruled that that the alleged omissions during McLeod’s seminars, which gave investors “undue confidence in McLeod’s credibility,” constituted misrepresentations. The court found that all of the alleged negligent conduct of the agency employees from their failure to stop McLeod’s solicitation (non-communications) and their endorsement of McLeod was fundamentally based upon misrepresentations. As a result, the federal government is immune from liability for recommending this scoundrel to its own employees. Federal employees beware! http://law.justia.com/cases/federal/appellate-courts/ca11/16-16479/16-16479-2017-07-17.html

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