Even though they are still largely theoretical, smart contracts are being hailed as a force that will disrupt a number of industries, write Mark Hines and Niklas Holmberg of Gowling WLG in a post on Lexology.com. However, only superficial attention has been paid to the impact smart contracts will have on contract law and the role of the law in determining where and how smart contracts will be used.

Their post provides an overview of smart contracts and how they work and identifies some of the areas of contract law that we expect will be the focus of jurisprudential change.

They explain smart contracts, blockchain technology, and the legal implications of smart contracts.

Read the article.

A federal judge in Houston sentenced an Austin attorney to 17 years in prison for harboring and concealing his client who was a fugitive in Mexico and for conspiring to commit wire fraud in the client’s stock sale scam, reports The Houston Chronicle.

Patrick Lanier, 67, represented Harris Dempsey “Butch” Ballow, of Tiki Island in Galveston County, during proceedings before the Securities and Exchange Commission in 2004 and during the criminal case that led to Ballow to flee the country. The report says Ballow was indicted in 2003 on fraud and money laundering charges stemming from misrepresentations he made in connection with the sale of stock, according to the U.S. Attorney’s Office.

“A jury convicted Lanier on 16 counts in February 2014 for helping sell shares of stock purchased by Ballow’s corporation while Ballow was on the run,” according to the report.

Read the article.

The SEC announced the promotion of Anthony Kelly on Thursday, the same day he participated in a panel discussion at the Investment Adviser Association’s annual compliance conference. In the panel, he took the opportunity to reassure the audience that his team is not singling out CCOs for enforcement actions, reports Financial Planning.

“I know there’s a sense out there that the SEC is targeting compliance professionals,” Kelly said.

“I can tell you that is not the case. There is no change in policy where we are now trying to target compliance professionals,” he said. “There’s no shift in our thinking.”

“Industry concerns about regulators targeting CCOs gained steam last summer after the SEC brought an enforcement action against BlackRock and its CCO in a case turning on the failure to disclose a conflict of interest and other compliance lapses,” the report says.

Read the article.

By Rob Scott
Scott & Scott LLP

I am a technology lawyer representing banks and other financial institutions in technology transactions. As you might imagine, many of my clients are investing heavily in security products and services. In some instances, they are considering cloud solutions to enhance their customers’ experiences. Financial institutions are regulated by the Gramm, Leach, Bliley Act, (“GLBA”) which is codified at 16 CFR 314. GLBA defines financial institutions as all business, regardless of size, that are significantly engaged in offering financial goods or services. GLBA includes both privacy and safeguard rules related to customer information. These rules require financial institutions to implement adequate administrative, procedural, and technical safeguards designed to safeguard customer information.

What is a service provider under GLBA Safeguard’s Rule?

GLBA extends to the financial institution’s vendors by operation of law if the vendor meets the definition of service provider. A service provider is defined as:

Any party that is permitted access to a financial institution’s customer information through the provision of services directly to the institution.

Given the complexity of hosted and cloud based services, it is sometimes difficult to determine if a vendor meets the service provider definition under GLBA. This is an important threshold issue in any transaction because GLBA has specific rules regarding vendor due diligence and required contract provisions for contracts with service providers.

What is customer information under GLBA Safeguard’s Rule?

At the beginning of a new project, counsel should discuss the potential operational and legal risks of the proposed transaction. It is critical to understand where the data will reside and how it will be moved, shared, and stored. Counsel should keep probing until clear on the question of whether the proposed transaction involves customer information as that term is defined under GLBA 16 C.F.R. 313(n) which provides:

(n)
(1) Nonpublic personal information means:
(i) Personally identifiable financial information; and
(ii) Any list, description, or other grouping of consumers (and publicly available information pertaining to them) that is derived using any personally identifiable financial information that is not publicly available.

(2) Nonpublic personal information does not include:
(i) Publicly available information, except as included on a list described in paragraph (n)(1)(ii) of this section; or
(ii) Any list, description, or other grouping of consumers (and publicly available information pertaining to them) that is derived without using any personally identifiable financial information that is not publicly available.

(3) Examples of lists —
(i) Nonpublic personal information includes any list of individuals’ names and street addresses that is derived in whole or in part using personally identifiable financial information (that is not publicly available), such as account numbers.
(ii) Nonpublic personal information does not include any list of individuals’ names and addresses that contains only publicly available information, is not derived, in whole or in part, using personally identifiable financial information that is not publicly available, and is not disclosed in a manner that indicates that any of the individuals on the list is a consumer of a financial institution.

I look to 313(n) for the definition of customer information even though it is in the GLBA Privacy Rule. The GLBA Safeguards Rule’s definition of customer information is contained in 16 CFR 314.2 and reads as follows:

Customer information means any record containing nonpublic personal information as defined in 16 CFR 313.3(n), about a customer of a financial institution, whether in paper, electronic, or other form, that is handled or maintained by or on behalf of you or your affiliates.

Therefore, I have to understand whether the vendor will be permitted access to any record containing personally identifiable financial information or any list, description or grouping derived using personally identifiable financial information. If I conclude that that data in question includes personally identifiable financial information then I continue to the next line of questions.

What is permitted access under GLBA?

After determining whether or not customer information is at risk, counsel should evaluate the proposed architecture and service delivery options. These questions may include: How the vendor will deliver services? Where are the applications hosted? Who owns the hardware? To properly apply the GLBA safeguards rules, everyone should understand how the vendor will interact with customer data throughout the project life cycle. It is usually pretty easy to determine whether the vendor will be permitted access to customer data if they are hosting in the vendor’s cloud. More difficult permission cases include service and support of on-premises applications where service providers are given access to customer data to trouble-shoot or resolve issues. I assume all vendors whose applications store customer information to be service providers under GLBA’s safeguards rule unless I am convinced otherwise during the client interview. Rarely, the client will present a use case involving an on-premises deployment of an application where the vendor never has access to the application. Most of the time, even when on-premises deployments are further evaluated, the vendor is a service provider because they are permitted access to the application during implementation or when performing maintenance and support. A vendor is not a service provider under GLBA merely because a compromise of the vendors system could lead to access to customer data. Accordingly, the GLBA safeguards rule is triggered only when access is given by permission, either through the contract or operationally.

Transactions between financial institutions and their technology services providers are often regulated by GLBA. Lawyers need to determine whether the transaction involves personally identifiable financial information and if so, whether the vendor will ever be permitted access to any records at any time. These two issues will determine whether the vendor is a service provider under GLBA’s Safeguards Rule. Once the determination has been made, GLBA imposes numerous additional requirements for both the service provider and financial institution.

The statute of limitations on an unsuccessful job applicant’s Fair Credit Reporting Act claim began to run when he discovered that his credit report had been pulled, not when he learned that the employer’s action was an FCRA violation, according to the U.S. Court of Appeals for the Sixth Circuit.

Richard A. Roth wrote in Wolters Kluwer‘s Law & Business website that the general rule is that a statute of limitations begins to run when the facts giving rise to a claim are discovered, and the FCRA adheres to that general rule. The case is Rocheleau v. Elder Living Construction, LLC, Feb. 18, 2016, Siler, E.

“The job applicant asserted that the two-year limit began to run not when he discovered that the background report had been ordered but rather when he discovered that doing so was an FCRA violation,” Roth explained. But the appellate court disagreed.

Read the article.

Photo by Michael Vadon

Trump Entertainment Resorts has exited bankruptcy, reports Seeking Alpha. With that process complete, the equity is transferred to the senior lenders.

The report says former debt holder Carl Icahn provided Trump Entertainment Resorts with $82.5 million in exit financing, meaning he now owns its properties, including the Trump Taj Mahal and Trump Plaza Hotel and Casino in Atlantic City.

“Trump branded casinos have been through bankruptcy multiple times. Donald Trump had equity ownership for the first three,” the report says. “Trump branded casinos have had to use the bankruptcy process to protect it against litigation, cut labor cost, and restructure debt that it could not pay. Previous to the Trump Entertainment Resorts bankruptcy, Trump Atlantic City went bankrupt, then Trump Hotels & Casino Resorts went bankrupt, then Trump Atlantic City went bankrupt again.”

Read the story.

The whistleblower, employment and civil rights law firm Katz, Marshall & Banks, LLP has announced the release of its 2016 comprehensive practice guides for the whistleblower programs for the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC).

The firm has produced its SEC Whistleblower Practice Guide annually since the inception of the SEC Whistleblower Program in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank). As a companion manual, the firm’s first-ever CFTC Whistleblower Practice Guide covers the whistleblower program for the CFTC, an independent agency with regulatory authority over futures trading.

The firm says in a release that both guides provide in-depth explanations of the rules and procedures concerning the respective programs, offer valuable practice trips for whistleblowers and their counsel, and outline the legal protections that whistleblowers have against retaliation for reporting violations to the SEC and CFTC.

“The Katz, Marshall & Banks SEC guide is an invaluable resource containing all of the ‘nuts and blots’ about reporting securities violations to the U.S. Securities and Exchange Commission,” said David J. Marshall, a founding partner of the firm and the SEC guide’s principal author. “The guide offers great detail on everything from preparing a winning ‘tip’ to cooperating in an SEC investigation to claiming a financial whistleblower award for helping to enforce the nation’s securities laws.”

SEC officials have continually praised the whistleblower program as a significant addition to the Commission’s ability to enforce the nation’s securities law – in some cases facilitating early intervention to minimize the harm to investors from unlawful conduct. To date, the SEC has paid over $55 million to 23 whistleblowers under the program.

The CFTC Whistleblower Program, which also was established through Dodd-Frank, began accepting whistleblower tips in September 2012, with the number of tips steadily rising since the program’s inception. The CFTC thus far has paid two awards to whistleblowers in connection with these tips, including a September 2015 payout totaling $290,000.

“We are pleased to introduce the Katz, Marshall & Banks CFTC Whistleblower Practice Guide to help whistleblowers earn the financial awards for helping to regulate commodity futures trading in the United States,” said Lisa J. Banks, a founding partner of the firm and the principal author of CFTC guide. “Following a couple of recent, significant awards under the CFTC Whistleblower Program, and with $300 million set aside in a special whistleblower fund, the Commission clearly is gearing up for a greater number and higher quality of whistleblower tips and payout of substantial awards.”

Available for free download from the Katz, Marshall & Banks website, the SEC Whistleblower Practice Guide can be found here, and the CFTC Whistleblower Practice Guide is available here.

About Katz, Marshall & Banks, LLP

Katz, Marshall & Banks, LLP is a boutique law firm representing plaintiffs in the areas of whistleblower, employment discrimination and sexual harassment law; Title IX of the Education Amendments; and other civil rights and civil liberties matters. The firm’s lawyers also represent whistleblowers in seeking monetary rewards by submitting tips to the Securities and Exchange Commission and Commodities Futures Trading Commission Whistleblower Programs, and through the filing of “qui tam” actions under the False Claims Act.

One the world’s largest telecommunications companies and its subsidiary agreed to fines and forfeitures with U.S. and Dutch authorities totaling more than $800 million to resolve a long-running bribery scheme involving a government official in Uzbekistan, USA Today reports.

The report says Manhattan U.S. Attorney Preet Bharara said VimpelCom, headquartered in Amsterdam, and its Uzbek-based subsidiary Unitel LLC, made “bribery a foundation of their business model” throughout Uzbekistan.

“More than $114 million in bribes, according to federal prosecutors, was funneled to the Uzbek official during a six-year period by the firm, which issues publicly-traded securities in the U.S. The companies concealed the bribes through various payments to a shell company that some VimpelCom and Unitel officials knew was owned by the recipient of the bribe payments,” the newspaper reports.

Read the article.

M&A deal volume in the U.S. reached a record high in 2015, reports the National Association of Corporate Directors. The NACD is offering a complimentary copy of the summary from a recent meeting of the NACD Advisory Council on Risk Oversight, which focused on the board’s oversight of M&A transactions including understanding the board’s role during a transaction, identifying questions to consider when evaluating potential deals, and establishing a process for determining transaction success.

Topics covered include:

• Engaging management about possible deals
• Determining if a proposed deal advances company strategy
• Identifying culture and talent risks
• Measuring the success of a transaction
• Establishing effective oversight processes

Download the summary.

Three bankers have left Goldman Sachs Group Inc. after the U.S. firm determined they breached internal guidelines in connection with the bank’s advisory role on the planned acquisition of a consumer company in the Middle East, reports Bloomberg News, citing sources familiar with the matter.

“The bankers who departed in December were involved in advising a potential buyer on an investment in fast-food company Kuwait Food Co., which operates KFC restaurants in the Middle East, said the people, who asked not to be identified because the matter is private,” the report says. “Two employees were based in Dubai and another in London, the people said.”

The company is thought to have discovered that two of the bankers didn’t identify themselves as bank employees when they met with the target company attended by other financial services firms. “The third banker was aware that colleagues participated in the meeting, two of the people said, and all three were deemed to not have adhered to the firm’s internal guidelines. Other employees were also disciplined as a result of the incident, the people said.”

Read the article.

Morgan Stanley will pay a $2.6 billion penalty to resolve claims related to Morgan Stanley’s marketing, sale and issuance of residential mortgage-backed securities (RMBS), the Justice Department reported Thursday.

The settlement constitutes the largest component of the set of resolutions with Morgan Stanley entered by members of the RMBS Working Group, which have totaled approximately $5 billion. As part of the agreement, Morgan Stanley acknowledged in writing that it failed to disclose critical information to prospective investors about the quality of the mortgage loans underlying its RMBS and about its due diligence practices. Investors, including federally insured financial institutions, suffered billions of dollars in losses from investing in RMBS issued by Morgan Stanley in 2006 and 2007.

“In today’s agreement, Morgan Stanley acknowledges it sold billions of dollars in subprime RMBS certificates in 2006 and 2007 while making false promises about the mortgage loans backing those certificates,” said Acting U.S. Attorney Brian J. Stretch of the Northern District of California. “Morgan Stanley touted the quality of the lenders with which it did business and the due diligence process it used to screen out bad loans.  All the while, Morgan Stanley knew that in reality, many of the loans backing its securities were toxic. Abuses in the mortgage-backed securities industry such as these helped bring about the most devastating financial crisis in our lifetime.  Our office is committed to dedicating the resources necessary to hold those who engage in such reckless actions responsible for their conduct.”

Read the announcement.

The former in-house counsel of an Ocean County, New Jersey-based home health care company was sentenced Thursday to 18 months in prison for using his attorney trust account to steal more than $2.6 million from his employer, U.S. Attorney Paul J. Fishman announced.

Matthew S. Neugeboren of Manalapan, N.J., pleaded guilty in May to charges of wire fraud and filing a false tax return before U.S. District Judge Mary L. Cooper.

According to documents filed in this case and statements made in court:

From 2006 through 2013, Neugeboren was in-house counsel for Company A, a home health care company in Ocean County. As such, Neugeboren maintained an attorney trust account to pay for Company A’s expenses. To cover those expenses, Neugeboren requested checks and wire transfers be made from Company A’s bank accounts into his attorney trust account.

As part of the scheme, Neugeboren caused Company A to transfer more money into his attorney trust account than was necessary to cover company expenses. Neugeboren admitted that he used the additional money for his personal benefit, including gambling. Neugeboren admitted that from January 2008 through December 2012, he stole $2,644,912 from Company A.

In addition to the wire fraud scheme, Neugeboren knowingly and willfully filed a false tax return that failed to include approximately $630,000 in gross income that he received in calendar year 2011 from his scheme to defraud Company A.

In addition to the prison term, Judge Cooper ordered Neugeboren to serve three years of supervised release, entered a forfeiture order of $1,404,963 and ordered him to pay restitution of $1,404,963 to the victim company and $474,814 to the IRS, the U.S. Attorney’s office said in a statement.

“Those who aspire to a life of white collar crime, and there are always a few misguided business-people out there, believe they have a full-proof scam that will go undetected, ” writes Walter Pavlo on Forbes.com. “Even in the unlikely event that their crime is discovered, they have an escape plan that includes some exotic, warm destination where they will live happily ever after.”

Pavlo tells the story of once-fugitive Lawrence “Larry” Hartman, a U.S. citizen and a Columbia Law School graduate who once thought himself a king of penny stocks.

“Hartman and some other scammers created empty-shell companies that had the appearance of being publicly traded, after which they cold-called elderly investors in the UK and Ireland to buy shares in the companies. The scam operated between July 2004 and March 2008.  According to his indictment, the group brought in $132 Million into a Costa Rican bank account” Pavlo writes.

The story describes Hartman’s  life on the run and his eventual downfall.

Read the article.

A former partner at the law firm Fox Rothschild was found guilty on Friday of engaging in insider trading after learning that a client at his law firm was about to announce a merger, according to a Reuters report.

A federal jury in Philadelphia convicted Herbert Sudfeld, 64, on charges of securities fraud and making a false statement.

The Doylestown, Pennsylvania-resident faces a maximum sentence of 25 years in prison, according to the U.S. Attorney’s Office in Philadelphia.

Read the article.

Dallas-based Carrington, Coleman, Sloman & Blumenthal, LLP, has bolstered its corporate transaction and counseling services with the addition of former Fortune 500 general counsel David W. Black.

“Of the roughly 1 million attorneys in the United States today, there are only a handful in private practice after serving as GC at two Fortune 500 companies,” says Carrington Coleman Managing Partner Bruce Collins. “David possesses a profound and virtually unmatched understanding of the challenges facing corporate leaders of emerging, middle market and global companies.”

Black is the former general counsel for both BearingPoint (formerly KPMG Consulting) and Affiliated Computer Services (ACS), and most recently served as counsel for a private equity firm. He joins Carrington Coleman as a partner and will work with the firm’s corporate team on matters relating to a diverse range of business issues, including:

• Corporate governance
• Corporate finance and securities transactions
• Corporate compliance
• Mergers & acquisitions
• Venture capital and private equity
• Commercial banking and lending
• Retail and wholesale operations
• Information technology
• Business process outsourcing
• Managed software services
• Software licensing
• Marketing, branding and endorsement agreements
• Commercial real estate
• Hospital health care providers

In his prior role as general counsel, Black was responsible for global business operations including building a corporate legal department, handling compliance matters arising from investigations by the U.S. Securities and Exchange Commission and Department of Justice, and day-to-day corporate operational concerns. In addition to leading more than 150 acquisitions, he also directed KPMG’s $2.3 billion initial public offering in 2001, the second-largest in NASDAQ history at the time.

Carrington Coleman is a 46-year-old Dallas-based law firm focused on litigation and transactional services in the real estate, oil and gas, securities, construction, information technology, professional services and health care industries, among others. The firm also represents public entities and provides counsel in the areas of corporate transactions, corporate governance, banking, bankruptcy/restructuring, intellectual property, employment, and estate planning.

Wells Fargo has agreed to a $1.2 billion settlement to resolve a long-running mortgage dispute with the U.S. government, a move that slashes the bank’s 2015 profit by $134 million, reports The Charlotte News & Observer.

“The deal involves civil fraud claims brought in 2012 against the San Francisco-based bank, which the government had accused of ‘reckless’ underwriting practices that led to thousands of federally-insured loans defaulting,” according to the report. “The government said Wells Fargo’s false certifications that the loans met requirements for federal insurance resulted in hundreds of millions of dollars in insurance payouts.”

Read the article.

A Minnesota jury has awarded former general counsel Chet Taylor $600,000 from the Feltl & Co. securities firm for defaming him by implying in a 2014 public statement that Taylor lost his job as a result of an enforcement action by a securities regulator, reports the Minneapolis Star Tribune.

In his 2014 lawsuit, Taylor claimed that he left Feltl & Co. in good standing in 2012.

The report says that Feltl, following the jury verdict, also agreed to pay an additional $250,000 to avoid trying a subsequent punitive damages claim.

Read the article.

The New York Supreme Court ruled that the United Nations Convention on Contracts for the International Sale of Goods applied in a contract case in which the plaintiff claimed that the defendant had delivered a nonconforming product that caused $1.7 million in damages plus interest and costs to the plaintiff.

David Zaslowsky and Grant Hanessian of Baker & McKenzie wrote about the case on Lexology.com.

The court denied the majority of the defendant’s dismissal motion, finding the CISG “automatically” applies “when a transaction involves a sale of goods between parties whose places of business are in different countries and those countries are parties to the CISG.”

The case also involved the statute of limitations and the borrowing statute.

Read the article.

An activist organization Global Witness has released a report that says several New York real estate lawyers were caught on camera providing advice on how to move suspect money into the United States.

The New York Times writes that the report is the result of an undercover investigation carried out in 2014 by Global Witness, a nonprofit activist organization that has been pushing for stricter money-laundering rules.

The lawyers featured in the report include a recent president of the American Bar Association.

Read the article.

HSBC says it “successfully defended” an attack on its online banking system on Jan. 29 but services were disrupted on a key day for many people’s personal finances, reports The Guardian.

HSBC customers were locked out of internet banking for several hours after the company was targeted by online criminals in a denial of service attack.

The bank said it was working with the authorities to “pursue the criminals responsible.”

Read the article.