When Smart Contracts are Outsmarted: The Parity Wallet “Freeze” and Software Liability in the Internet of Value

The recent Parity wallet “freeze” provides yet another example of a coding vulnerability in a smart contract (rather than a flaw in the underlying blockchain or cryptography) resulting in an exploit that compromises cryptocurrency worth millions, according to Proskauer Rose LLP’s Blockchain and the Law.

Wai Choy and Pengtao Teng write: “It again highlights some of the pitfalls of insecure code in the context of digital assets and raises questions regarding the extent to which software developers can be held liable to its users for losses suffered due to those oversights. As blockchain-related software that serve as storage vaults for digital assets continue to proliferate, it will be interesting to see how industry standards and the existing software liability regime in the U.S. and other jurisdictions evolve to reflect the critical role of secure software in the ‘Internet of Value.'”

Read the article.

 

 




The Eighth Circuit Raises the Bar for Would-Be Indemnitees

The U.S. Court of Appeals for the Eighth Circuit issued an order dealing with indemnification for prior settlements, and it could have a hugely beneficial impact on potential indemnitors, including sellers of mortgage loans as well as insurers, reports Bilzin Sumberg in its Mortgage Crisis & Financial Services Watch.

The appellate court affirmed a lower court’s ruling that, when an insured seeks indemnification for settlements that encompassed both covered and non-covered claims, the insured must present sufficient evidence to establish with reasonable certainty the value that the settling parties attributed to the covered claims, explain Philip R. Stein and Shalia M. Sakona.

They discuss the background of the case, the limitations on using expert testimony to establish allocation, and the application of the holding to the mortgage industry.

Read the article.

 

 




Timing of $24 Million Stock Sale by Intel CEO Draws Scrutiny

Brian Krzanich
Image by AP Photo/Intel Corporation,Bob Riha, Jr.

Two U.S. lawmakers are calling for an investigation into whether Intel’s chief executive, Brian Krzanich, improperly sold company stock after learning of a serious security flaw in the tech giants’ microchips before it was publicly disclosed, reports The Washington Post.

Intel’s stock price went down after the announcement of the flaw.

Reporter Renae Merle writes: “Intel learned of the security flaw in June and several months later, in late November, Krzanich exercised and sold nearly 900,000 company shares and stock options, making about $24 million, according to Securities and Exchange Commission filings. The sales reduced Krzanich’s holdings in company stock by 50 percent to the minimum number of shares he’s required to own, according to Intel corporate policy.”

Read the Post article.

 

 




Vendor Risk Management as Applied to Fintech Contracts

Regulatory compliance is an area of fundamental concern – not only for strategic investors – but also for financial institutions contracting for services from financial technology providers, warns Adam Chernichaw, a partner in the New York office of White & Case.

“Where a financial institution classifies a product or service being procured as an ‘outsourcing,’ its vendor risk management (VRM) function will carefully scrutinise the proposed relationship,” Chernichaw writes. “The VRM function will usually take the position that regulators will look at the service provider as an extension of the institution. Accordingly, the institution is required to impose contractual obligations on the provider so that the provider acts as the institution itself would act when it comes to compliance.”

In his article he emphasizes the importance of parties to align on the contractual VRM requirements that will be sought by the financial institution, and whether the fintech provider can meet those obligations.

Read the article.

 

 

 




Two Wells Fargo Execs, Including HR Lawyer, Out After Scandal

The former head of a Wells Fargo legal department responsible for employment matters is one of two high-ranking executives who are no longer with the company, reports The Charlotte Observer.

The executive changes are the latest at the top of the bank since a sales scandal broke more than a year ago.

The former legal department group head is Deanna Lindquist. The other former executive mentioned in Deon Roberts’ report is Tracy Kidd, who was head of human resources for Wells’ community banking segment in Charlotte, NC.

Read the Observer article.

 

 




Financial Restructuring and Banking Partners Join Barnes & Thornburg

Barnes & Thornburg LLP has added financial restructuring and banking attorneys Thomas Hoffman and Michael Cavallaro as partners in the firm’s Minneapolis office.

Hoffman and Cavallaro have almost 30 years of in-house bank counsel experience, including indenture trustee representation, restructuring work and bank advisory and regulation advice, the firm said in a news release.

“As we approach our tenth year in Minneapolis, we’re continuing to attract the best legal talent in the region, while also putting our people in positions to provide valuable counsel and services to clients, both in the Twin Cities and other markets, and take advantage of our national platform,” said Connie Lahn, managing partner of Barnes & Thornburg’s Minneapolis office. “In Mike and Tom, we’ve added two highly respected, dynamic attorneys with decades of banking and financial services experience.”

“Mike and Tom bring invaluable in-house experience and are well-regarded by their peers and the broader business and legal communities in Minneapolis,” said David Gotlieb, chair of Barnes & Thornburg’s Corporate Department. “Their arrival underscores the concerted effort we’re making to grow this office and our larger corporate group with practitioners who can best address the increasing regulatory and compliance challenges facing large financial institutions.”

The pair, who was previously at Fox Rothschild, will be members of the Corporate Department.

Barnes & Thornburg has seen an influx of lateral growth with a group of four partners who launched the firm’s Family Law group in the Minneapolis office: Karen Schreiber, Sonja Trom Eayrs, Brittany Stephens Pearson, and Gloria Myre. Bruce Little, an intellectual property partner, also joined in Minneapolis in the first four days of the year. Barnes & Thornburg’s Minneapolis office, which opened in 2009, now has increased its attorney ranks to 32.

About the Attorneys

Thomas Hoffman has more than 34 years of experience in the financial services industry as a consumer regulatory and compliance attorney and as a commercial financial restructuring and bankruptcy attorney. In the consumer space, he concentrates on default servicing, consumer regulatory and compliance issues, foreclosure, and secured and unsecured claims. In his commercial practice, he represents national banks, trustees, and other creditors in financial restructuring and bankruptcy cases. Earlier in his career, Hoffman worked for more than 25 years as an in-house attorney at Wells Fargo & Company and became a managing counsel.

Hoffman received his J.D. from the Mitchell Hamline School of Law, cum laude, and his B.A. from the University of Minnesota.

Michael Cavallaro focuses his practice on advising banks and financial services companies on national and regional consumer regulatory and legal compliance issues related to consumer and commercial bankruptcy and restructuring, collections, vendor management, foreclosure, loss mitigation and default servicing. His representation of financial institutions includes credit unions, community and national banks, and mortgage servicing companies. Cavallaro also served as the U.S. Trustee Single Point of Contact for one of the top five largest financial institutions in the country, in addition to having worked as senior corporate counsel at U.S. Bank.

Cavallaro received his J.D. from the Mitchell Hamline School of Law, and his B.A., cum laude, from Gustavus Adolphus College.

 

 

 




Legal Symposium to Explore Groundbreaking Terror-Financing Case

Mark S. WerbnerTrial lawyer Mark Werbner of Dallas litigation firm Sayles Werbner will address Texas lawyers about his decade-long quest to hold the Arab Bank responsible for providing financial support to U.S.-designated terror organizations.

Werbner will discuss Linde, et al. v. Arab Bank PLC in a presentation titled, “Fighting Terror-Financing in the Courtroom,” during the State Bar of Texas Litigation Update Institute’s 34th annual course Jan. 11–12, 2018.

In 2014, a jury in New York sided with Werbner, finding Jordan-based Arab Bank responsible for providing financial services to Hamas for 24 terror attacks during the “Second Intifada” in Israel and the Palestinian territories. The verdict was the culmination of a lawsuit filed in 2004 to obtain justice for nearly 300 American victims and their families. The case marked the first liability verdict against a foreign bank for violating the Anti-Terrorism Act.

Interview: Mark Werbner discussing Arab Bank case

Currently under review by the U.S. Supreme Court is Jesner, et al., v. Arab Bank, a related case that would clarify if the Alien Tort Statute (ATS) applies to corporations under the 1789 U.S. law.

The Linde verdict earned Werbner the 2016 Trial Lawyer of the Year Award from Public Justice, which honors attorneys who made the greatest contribution to the public interest through their work in precedent-setting, socially significant cases. His work has also been consistently recognized in top legal publications, such as The Best Lawyers in America.

 

 




Martin Shkreli’s Former Lawyer May Join Him in Prison for Helping to Defraud Investors

Evan Greebel, former lawyer of “Pharma Bro” Martin Shkreli, was convicted Wednesday by a federal jury of conspiring with his ex-client to defraud investors, reports Newsweek.

Greebel, “who was an outside counsel to Shkreli’s former company, Retrophin Inc, was found guilty of conspiring to commit wire fraud and securities fraud when he helped Shkreli steal $11 million from a pharmaceutical company to pay back investors after the former pharma bro lost their money in risky investments,” writes Christina Zhao.

Prosecutors accused Greebel of conspiring with Shkreli by helping him devise sham settlement and consulting contracts to pay back investors, using Retrophin assets.

Read the Newsweek article.

 

 




HousingWire Webinar: Digital Montgages – Don’t Get Left Behind

HousingWire will present a complimentary webinar on digital mortgages on Thursday, Dec. 14, 2017, at 11 a.m. Pacific time / 2 p.m. Eastern time.

Anyone who cannot watch the presentation in real-time can register to receive a recording of the webinar afterwards.

eSignLive by Vasco will sponsor the event.

“With emerging alternative lenders aggressively entering the market, traditional banks and lenders are looking to the digital mortgage as a competitive advantage,” HousingWire reports. “While originators have successfully automated the initial stages of the mortgage application and disclosure delivery process with electronic signatures, they haven’t fully digitized the entire mortgage workflow. With the help of eClosing and eVaulting platforms however, the “holy grail” of the digitization of complex mortgage transactions is now at arm’s length.”

Topics will include:

  • How and where the industry is adopting eMortgage technology
  • Legal and regulatory requirements
  • E-apps, e-disclosures, e-closings, e-vaulting… where you should start
  • Implementation options for a phased transition
  • A live demonstration

Register for the webinar.

 

 

 




Legal Symposium to Explore Groundbreaking Terror-Financing Case

Mark S. WerbnerTrial lawyer Mark Werbner of Dallas litigation firm Sayles Werbner will address Texas lawyers about his decade-long quest to hold the Arab Bank responsible for providing financial support to U.S.-designated terror organizations.

Werbner will discuss Linde, et al. v. Arab Bank PLC in a presentation titled, “Fighting Terror-Financing in the Courtroom,” during the State Bar of Texas Litigation Update Institute’s 34th annual course in January 2018.

In 2014, a jury in New York sided with Werbner, finding Jordan-based Arab Bank responsible for providing financial services to Hamas for 24 terror attacks during the “Second Intifada” in Israel and the Palestinian territories. The verdict was the culmination of a lawsuit filed in 2004 to obtain justice for nearly 300 American victims and their families. The case marked the first liability verdict against a foreign bank for violating the Anti-Terrorism Act.

Currently under review by the U.S. Supreme Court is Jesner, et al., v. Arab Bank, a related case that would clarify if the Alien Tort Statute (ATS) applies to corporations under the 1789 U.S. law.

The Linde verdict earned Werbner the 2016 Trial Lawyer of the Year Award from Public Justice, which honors attorneys who made the greatest contribution to the public interest through their work in precedent-setting, socially significant cases. His work has also been consistently recognized in top legal publications, such as The Best Lawyers in America.

 

 




SEC Hires General Counsel From Company Under Investigation

Former TIAA general counsel Paul Cellupica has been hired by the Securities Exchange Commission at a time TIAA is under scrutiny from a NY State Attorney General investigation and a pending SEC whistleblower complaint, reports The Global Legal Post.

The state attorney general has been investigating TIAA’s mutual fund and annuity sales practices following a whistleblower complaint filed by TIAA with the SEC in the autumn outlining questionable sales practices the company and its brokers allegedly perpetuated on public school teachers investing for retirement, the report says.

Read the Global Legal Post article.

 

 




Wall Street Penalties Have Fallen in Trump’s First Year, Study Says

Jay Clayton

In its latest fiscal year, Wall Street’s top regulator sought the smallest amount of penalties since 2013, a drop that took place as the agency went months without permanent leadership and could show a softer approach to policing wrongdoing, Bloomberg reports.

“The U.S. Securities and Exchange Commission tried to obtain $3.4 billion in fines and disgorgement from companies and individuals during the 12 months ended in September, according to data collected by Urska Velikonja, a Georgetown University law professor,” write reporters Matt Robinson and Benjamin Bain. “The SEC filed 612 enforcement cases, also the fewest in four years, Velikonja’s research shows.”

Velikonja points out that since Jay Clayton — the former Wall Street deals lawyer appointed by Trump — took over as SEC chair in May, the agency has pursued just two sanctions against large financial firms. But in the same period a year earlier, more than a dozen big financial companies faced SEC sanctions.

Read the Bloomberg article.

 

 




Insurance Giant Receives New York Subpoena on Sales Practices

The New York Times is reporting that New York’s attorney general has subpoenaed TIAA, the giant insurance company and investment firm, seeking documents and information relating to its sales practices, according to people briefed on the inquiry.

Last month, the newspaper raised questions about the firm’s sales methods. TIAA oversees almost $1 trillion in client assets, for more than four million workers at thousands of nonprofits, according to reporter Gretchen Morgenson.

A related SEC complaint was filed by former TIAA employees who contend they were pressured to sell products that generated more revenue for the firm but were more costly to clients while adding little value.

Read the NYT article.




Dallas-Based Locke Lord Fined for Ethics Violations, “Acting Without Integrity”

Law firm Locke Lord has received the largest fine ever levied by the profession’s U.K. regulatory body, the Solicitors Disciplinary Tribunal, reports The Global Legal Post.

“The firm has to pay £500,000 [$654,632] after accepting four allegations of misconduct, including acting with a lack of integrity, the first time a law firm has admitted to this,” according to the report.

The firm failed to supervise a lawyer involved in transactions showing signs of irregular financial arrangements or investment schemes, the regulatory body alleged.

On its website, the Dallas-based firm says it has offices across the United States, as well as in Hong Kong and London.

Read the Global Legal Post article.

 

 




Silicon Valley Software Startup, Ex-CEO Fined Nearly $1M

SECSilicon Valley software startup Zenefits and its co-founder Parker Conrad have been fined nearly $1 million by the U.S. Securities and Exchange Commission as part of a settlement over charges that they had misled investors, reports Reuters.

Zenefits will pay a $430,000 penalty and Conrad, who resigned as chief executive from the company in early 2016, has been fined more than $533,000, according to Reuters reporter Heather Somerville.

“The SEC found that Zenefits made ‘false and misleading statements and omissions’ to company investors by failing to disclose that it was not compliant with state insurance regulations,” Somerville reports. “Zenefits employees had sold health insurance without proper licensing, the company said, a violation that led to fines from several states.”

Read the Reuters article.

 

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Senate Kills Rule On Class-Action Suits Against Financial Companies

CFPB - Consumer Financial Protection BureauThe Senate has voted 51-50 to get rid of a banking rule that allows consumers to bring class-action lawsuits against banks and credit card companies to resolve financial disputes, NPR reports.

Vice President Pence cast the tie-breaking vote to rollback the Consumer Financial Protection Bureau rule banning restrictive mandatory arbitration clauses found in the fine print of credit card and checking account agreements, writes NPR reporter Scott Neuman.

President Trump is expected to sign the measure, which has already been approved by the U.S. house.

Neuman writes: “CFPB said it was redressing a situation in which consumers were forced ‘to give up or go it alone — usually over small amounts,’ while companies were able to ‘sidestep the court system, avoid big refunds, and continue harmful practices.'”

Read the NPR article.

 

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Lawsuit Alleging General Electric Ripped Off Its Workers Shows the Pitfalls of 401(k) Plans

A lawsuit recently brought against General Electric Co. raises the question: Can your employer be trusted to manage your retirement fund exclusively for your own benefit?

Los Angeles Times reporter Michael Hiltzik explains that the suit alleges that GE managed the plan for its own benefit by loading it with mutual funds owned by its own subsidiary.

“The funds charged high fees while also underperforming the investment markets, a double-barreled drawback that cost employees millions in potential gains,” according to Hiltzik.

Plaintiffs claim that a large portion of the funds was invested in GE-owned mutual funds, and the company pocketed the management fees paid by its own employees. All but one of the five GE funds underperformed its benchmark investment index.

Read the LA Times article.

 

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Jury Slaps JPMorgan Chase with $6 Billion-Plus Verdict in Sabre Creator’s Estate

A jury has awarded the widow and heirs of Sabre airline reservation system pioneer Max D. Hopper more than $6 billion in damages after finding JPMorgan Chase in breach of its fiduciary duty in administering the multimillion-dollar Hopper estate.

“JPMorgan Chase is one of the world’s largest and most respected banks, and its clients expect honesty and fairness in the handling of trusts and estates,” said James S. Bell of James S. Bell, PC, trial lawyer for Hopper’s adult children, Dr. Stephen Hopper, a Tulsa, Oklahoma, psychiatrist, and Laura Wassmer, mayor of Prairie Village, Kansas.

“In this case, the JPMorgan Chase name doesn’t mean the institution put its clients’ interests above its own. When challenged, the bank used the family’s own money to fight them in court over the handling of their father’s estate,” said Bell.

Hopper, who helped create the Sabre reservations system, died unexpectedly in 2010 without a valid will. At the time of his death, his estate was estimated at more than $19 million.

Read details about the case.

 

 

 




Wilmington Trust $60M Settlement Gets Criminal Charges Dropped

Wilmington Trust Corp., the only financial institution to be criminally charged in connection with the federal bank bailout program, reached a $60 million settlement with prosecutors Tuesday just as the corporation and four former top executives were set to go to trial on bank fraud charges, the Associated Press reports.

After the bank reached a settlement, U.S. District Court Judge Richard Andrews postponed the trial for the former executives until March, finding they currently were not prepared to move forward without the bank as a co-defendant.

“Prosecutors accused Wilmington Trust, through its senior executives, of concealing the truth about the bank’s deteriorating commercial real estate loan portfolio from bank regulators, investors and the Securities and Exchange Commission,” writes reporter Randall Chase.

Read the AP article.

 

 




Feds Accuse Georgia GC of Helping Orchestrate Client’s Ponzi Scheme

A civil complaint filed by the U.S. Securities and Exchange Commission alleges that the general counsel for Credit Nation Capital was an “active participant” in fleecing elderly and unsophisticated investors out of their savings, reports the Atlanta Journal Constitution.

Reporter Johnny Edwards writes that Celello is accused of fraud, aiding and abetting and routing investors’ money into his own pocket.

Last year a federal judge effectively dismantled a Credit Nation network of investment companies, subprime auto loan businesses and limited liability companies, and a court-appointed receiver is currently trying to return some $10 million to dozens of investors who lost an estimated $61 million, according to Edwards.

Read the Journal Constitution‘s article.