Prior case holdings allowed the government to restrict a defendant’s access to “untainted” or “innocent” assets in an amount sufficient to offset against what the government agency alleged it could expect to obtain after conviction and forfeiture proceedings. Stated differently, at the inception of a case the government would deprive a defendant from using his “clean” or “untainted” money which resulted in a defendant not being able to hire a skilled defense team of his choosing. Before a defendant’s case even began, he was placed in a position of defeat. This forced defendants to borrow money from family to defend them or otherwise be defended by an over-worked Federal Defender.

Undoubtedly there will be extensive litigation over the interpretation over what a “reasonable fee for the assistance of counsel” means as that term was used by the Supreme Court. Also, it is important to remember that “untainted” means that a defendant will not be able to use the money he has from selling cocaine or from liquidating his “burglar tools”. This too will undoubtedly be subject to great litigation going forward as well. However, being able to cite to a Supreme Court case that relies upon the Sixth Amendment is a great strategic arrow to have in a defense attorney’s quiver when we now make our emergency motions to set aside government restraining orders that froze our clients’ assets. Previously we were making these arguments but did not have the power of a Supreme Court case directly on point.

If you find yourself on the wrong end of a government investigation, please feel free to call one of the attorneys with Danziger Shapiro, P.C. to discuss this and other issues affecting you or your company.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

From an officer or director’s point of view in light of the Yates Memo, they need to take a critical review of the indemnity provisions that are currently in place. By this I mean, what is their employer’s obligations to them if the officers, directors or even high level employees are accused of corporate wrongdoing by either an outside entity like the Justice Department, a disgruntled shareholder in the form of a derivative lawsuit, or perhaps even an internal company investigation? Hiring an independent lawyer to protect your interest in any of these situations is expensive so it is better if the company will pay your legal expenses and even better if your company will advance your legal expenses. Click here for a blog entry I wrote two months ago that explains why it is important to have your own lawyer represent you during these investigations.

To determine what your company will or will not indemnify requires a review of the company’s by-laws. Additional places indemnity provisions can be found are in an employment agreement and not surprisingly, an indemnity agreement. The best protection for an officer or director is actually to have a separate indemnity agreement. Too often I see my clients come to me with their problems but say, “I am not worried, I have indemnification. Look at the by-laws I brought.” Don’t get me wrong, this is a good start, but that is all it is. Do the by-laws require indemnification or is it permissive and require a vote of the board of directors? Even if it is required, are legal fees advanced or only paid after you are found not to have violated your fiduciary duties? Even if the by-laws state it is required and legal fees are to be advanced, what is the process for advancing legal fees? Will the company and its insurance carrier be able to hide behind a convoluted process to delay payments? Does the employer have the ability to restrict your choice of counsel? As you can see there are a myriad of issues even when it seems clear. Even if you have D&O Insurance, keep in mind that the carrier’s policy has exclusions. For example, a typical D&O policy will not cover attorneys’ fee in an internal corporate investigation. Also, D&O policies change year to year as companies are always shopping for better prices so what coverage you have in year one may not be what you have in year two and beyond. However, a well drafted indemnity agreement will require the company to cover all expenses, including legal, incurred in connection with your position as an officer or director of the company to the fullest extent permitted by law and will not change in scope from year to year. These are big differences.

The takeaway – As an employee or an employer review your by-laws, employment agreements and D&O policies and indemnity agreements if you have them. Perhaps it is time to change your by-laws to make what once was permissive indemnification to mandatory? Alternatively, perhaps you only want to offer mandatory indemnification to certain individuals so indemnification agreements are the better approach? If you are an employee, you may want to negotiate for additional protections when the opportunity arises. Whatever course of action you decide, please feel free to call one of the attorneys with Danziger Shapiro, P.C. to discuss this and other governance issue affecting you or your company.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

If you find yourself in the situation where you are about to be interviewed in connection with a company investigation you need to ask yourself two questions. Do I need a lawyer? Who pays? If you truly played no role in what the company is investigating you don’t need a lawyer. However, if you are a key insider who has information that will shed important details on what transpired you certainly would want to retain your own lawyer. There are many reasons why and I will address them below.

First, consider that earlier this year the Department of Justice set forth a Memorandum that identified that it would go after the individuals responsible for corporate wrongdoing and work its way inward towards the corporate hub. In addition, Justice conditioned any corporate cooperation credit that a corporation could hope to receive would be conditioned upon the disclosure of all corporate wrongdoings and all of the individuals that performed them. Think about this for a second. If the company you are working for is the subject of an investigation and wants in effect what is leniency in its “corporate sentence,” it must turn you over to Justice.

Second, before any interview begins, you must understand that the lawyer is NOT YOUR LAWYER. The lawyer is the company lawyer and therefore there is no guarantee that what you say will remain confidential. To avoid an employee raising an allegation that the interviewing attorney has a conflict of interest because the employee believed that the attorney was also representing him, all interviews begin with the Upjohn Warning.

The Upjohn Warning originated from a case before the United States Supreme Court. The Court found that while there is an attorney client privilege covering communications between counsel and the employee, the privilege belongs to the employer and not the employee. Therefore, the employees or key insiders always run the risk that the company will waive the privilege and share the results of the interview with government investigators and/or prosecutors. In fact, based upon the recent DOJ Memo discussed above, you can almost be certain that what you say will be turned over to the appropriate authorities.

In 2009 the ABA White Collar Crime Committee produced a sample Upjohn Warning. It reads as follows:

I am a lawyer for or from Corporation A. I represent only Corporation A, and I do not represent you personally.

I am conducting this interview to gather facts in order to provide legal advice for Corporation A. This interview is part of an investigation to determine the facts and circumstances of X in order to advise Corporation A how best to proceed.

Your communications with me are protected by the attorney-client privilege. But the attorney–client privilege belongs solely to Corporation A, not you. That means that Corporation A alone may elect to waive the attorney-client privilege and reveal our discussion to third parties. Corporation A alone may decide to waive the privilege and disclose this discussion to such third parties as federal or state agencies, at its sole discretion, and without notifying you.

In order for this discussion to be subject to the privilege, it must be kept in confidence. In other words, with the exception of your own attorney, you may not disclose the substance of this interview to any third party, including other employees or anyone outside of the company. You may discuss the facts of what happened but you may not discuss this discussion.

Do you have any questions?

Are you willing to proceed?

Now, very simply put, if you are a key employee and receive this warning placed in front of you and are asked to sign it, don’t you think you might want your own attorney present during this interview?

Obviously retaining your own independent lawyer can be expensive. However, in certain instances the company may or even be required to advance you the attorneys’ fees you incur. For instance, the company by-laws might require the advancement of your legal fees if you are an officer or director subject to repayment if it is found that you committed fraud. Other times such advancement of legal fees might be required under your employment agreement. Understandably it is certainly better to have an advancement of legal fees subject to repayment rather than a reimbursement of legal fees after a determination that you did not commit fraud. Whether or not you have one outcome or the other may very well depend on if you had competent counsel assisting you at the times these documents were created.

There are countless more issues to consider that are beyond the scope of this short article. If you should find yourself in the situation where you are going to be interviewed in connection with a company investigation, please feel free to call us at Danziger Shapiro, P.C. We would be happy to discuss your situation and develop a plan to minimize your exposure.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

This short conversation raises two of the most common mistakes made by early stage companies when they try and raise money. First, a company may not offer or sell its securities to third parties unless the securities have first been registered with both the SEC or there is an exemption from registration that applies. If you don’t make the required filings, you are exposing yourself to serious consequences that include not only an investor’s right to rescission (get their money back) but also fines, penalties and criminal actions against you on an individual basis. Most start-up or early stage companies can avoid this by making the appropriate filing under Section 4(2) of the Securities Act of 1993 and the corresponding safe harbor provisions under Regulation D. There are also corresponding state law security filings too under state “Blue Sky” laws. The point here is that the security laws are complicated and you should not play “security lawyer.”

The second problem mentioned in the scenario described above is that my friend paid a finders’ fee to an unregistered broker-dealer. If the “consultant” was a registered broker-dealer and my friend otherwise made the appropriate Reg D filings he would have been fine. However, by providing compensation to an unregistered broker-dealer, my friend was also violating Section 29 of the Exchange Act which also provides for among other things, the right of rescission. Paying finders’ fees to unregistered broker-dealers has been a recent hot topic for the SEC and the Reg D form filing was updated in 2008 to specifically request information directly to this point (See Item 12 of Form D).

The take away here is that raising capital requires compliance with complicated securities laws. Entrepreneurs can avoid running into these issues by focusing on what they know best, their company, and allowing their lawyers to assist them so they do not make mistakes that are all too common in the capital raising world. If you have any questions regarding this or any other aspect affecting your business, please feel free to contact us at Danziger Shapiro.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

While this may be common practice stateside to grant a favor to a valuable customer by employing his son or daughter, to do so when a foreign official is involved violates the FCPA. The FCPA does not allow a company to influence a foreign official by giving the official “anything of value”. Value is broadly defined and includes cash, gifts, favors and apparently, internships too. While at first blush, this may seem to be a “small favor”. However, the FCPA does not distinguish between “small” or “large” favors only that anything of value were given. In addition, the broadly written FCPA covers any “department, agency or instrumentality” of a foreign government. The foreign wealth fund identified above fell under the “agency or instrumentality” rubric because it was controlled by a foreign government notwithstanding that it operated like any other investment company.

Once again this shows the importance that it is not enough just to have Code of Conduct Policy or an Anti-Corruption Policy without the proper training of the right people in your organization. Training needs to focus not only on the basics but also on the hidden dangers. For example, do changes to the employment application process need to be made? Should an applicant certify that he or she has not been employed as a foreign official or that they do not have a relative or a close personal friend who is a foreign official? If the answer to the foregoing is yes, a strong anti-corruption policy will flag the applicant for further in house review (or legal department) to make the correct determination. This is not a question of discrimination against certain applicants but rather that the correct questions or sensitivities are being looked into so your company does not run afoul of the FCPA. In any event, the point is that your employees need to be trained to look between the trees and make the right determinations when a more nuanced review is needed. The cost of failing to do this is too high and the SEC is bringing the heat.

If you have any questions regarding this entry or the FCPA in general, please feel free to contact us at Danziger Shapiro. We will be happy to discuss your concerns and assist you with this or any other matter affecting your business.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

The SEC uncovered certain employees who were subject to the internal investigation process were required to sign confidentiality agreements. Among other things, the agreements included language that required the employee to first discuss what they were going to say to the SEC with in-house counsel and that violation of the confidentiality agreement could result in termination of employment.

As a result of this agreement, the SEC imposed a relatively modest fine of only $130,000. The Director of Enforcement for the SEC stated that, “By requiring its employees and former employees to sign confidentiality agreements imposing pre-notification requirements before contacting the SEC, KBR potentially discouraged employees from reporting securities violations to us. SEC rules prohibit employers from taking measures through confidentiality, employment, severance, or other type of agreements that may silence potential whistleblowers before they can reach out to the SEC. We will vigorously enforce this provision.”
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The take away here is that once again you must review your employee handbooks, employment agreements and other similar historical company agreements to make sure you do not otherwise run afoul of the anti-retaliation provisions of the Dodd Frank Act. Please feel free to contact us at Danziger Shapiro for insight into this and other litigation issues that may affect business.

This entry is presented for informational purposes only and is not intended to constitute legal advice

Attorneys will self-designate their case for this program on the civil case information statement or they may move for inclusion or removal from this program depending on what opposing counsel may or may have not selected. Case will have a minimum $200,000 threshold but in certain circumstances a case may be included in the program due to the complex nature of issues even if the amount in controversy is less than $200,000.

The result of the program will be a win for all parties involved. Consistency will be developed as fewer judges will be ruling on complex commercial disputes. This will help the attorneys provide better cost benefit advice to their client based upon what they can expect at trial.

Judges will benefit as well as they will gain more experience in handling complex business disputes and gain experience and insight into what works and does not work from the point of view from the bench. For example, the judges will see what impact their discovery ruling has at the trial stage and whether they would have liked more information on a particular topic. Now the judges will see what impact their discovery ruling has at trial. In the past, a discovery judge might limit an area of inquiry, but at trial you are faced with a different judge looking down at you with a perplexed look wondering why you did not develop this through further discovery.
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And finally, perhaps the biggest win is consistency in rulings. If this program is similar to the programs already in place in Delaware Chancery Court and the Commerce Court in Philadelphia, an opinion bank will be developed where you will be able to see very quickly how the judges will likely rule on a particular topic. If you have any questions regarding the new complex litigation program in New Jersey (or Philadelphia) please contact Doug Leavitt at Danziger Shapiro. Mr. Leavitt regularly appears on behalf of his commercial clients in complex litigation cases throughout New Jersey and Pennsylvania and can provide insight into the process affecting your business or personal issues.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

Circular 230 was the IRS’s compilation of regulations regarding tax services provided by lawyers and other tax professionals with respect to the tax shelter abuses of the 1990s. Circular 230 set the minimum standard with respect to written tax advice and therefore wound up being placed on everything.

Thankfully the IRS issued new rules on June 12 (click here for PDF of rule) which included the following statement; “Treasury and the IRS expect these amendments will eliminate the use of a Circular 230 disclaimer in email and other writing.” Good riddance and where are we meeting for lunch again?
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The lawyers at Danziger Shapiro P.C. are always available to assist you with your business and litigation needs in a professional and cost effective manner. Having said this, it is with laughter I must include the following:

This entry is presented for informational purposes only and is not intended to constitute legal advice.

For example, in July 2013, a new pilot program was put into place that protected federal grant workers from whistleblower retaliation. In a nutshell, the new program is designed to protect an employee from employment retaliation for reporting mismanagement of a federal grant or contract funding. An employee who claims to have been retaliated against must file a claim with the Inspector General of the agency involved. If no retaliation is found, the employee can then file a complaint in federal court. If successful, in addition to reinstatement and back pay, attorneys’ fees and costs will also be awarded
Last month I discussed the new path the Securities and Exchange Commission was embarking upon in its efforts to enforce the securities laws from the outside in with the use of deferred prosecution agreements. I noted this was a philosophical change made from the highest levels of the SEC to pursue companies that violate the securities law by targeting employees of suspected target companies. The questions you need to ask yourself as an employee of a company that is involved in fraud are; do I wait until the government agency contacts me as part of its investigation, or do I contact the government agency when I have knowledge of my employer’s widespread fraud? By contacting the government first, you may be entitled to a piece of the substantial awards discussed above. In addition, by taking preemptive action you can protect yourself from being brought down by fellow employees who allege you were part of the fraud.
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Whether you were part of a fraud and want to get out with a deferred prosecution agreement, or just want to do the right thing and stop the fraudulent activity that is presently happening at your company, navigating these waters are dangerous. At Danziger Shapiro we can assist you with these difficult decisions. Please call our office to set up a consultation.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

A deferred prosecution agreement is a voluntary agreement between an individual and a government agency, in this case the SEC, where the agency will agree to lesser charge in exchange for the individual’s cooperation in connection with the investigation. In the Hochfield case, Scott Herckis voluntarily came to the SEC with concerns over certain accounting irregularities involving Hochfield’s hedge fund, Heppelwhite Fund, LP. Herckis produced a substantial number of documents and described in detail to the SEC how Hochfield perpetrated his fraud. Based upon the information Herckis provided, the SEC was able to take emergency action and freeze the fund’s assets within weeks of Herckis reaching out to the SEC. While Herckis did not get off “scot free” for his participation in the fraud scheme, he did receive a substantially reduced penalty. For example, instead of being unable to be a hedge fund administer for the remainder of his life, Herckis was only prohibited from being a fund administrator for 5 years. Herckis also had to disgorge the fees (approximately $50,000) he received in connection with the fraud.

This DPA is significant because it seems to support new SEC Chair Mary Jo White’s earlier statement that the SEC is going to strongly pursue individuals on the periphery to build its case against greedy insiders and their business entities. By adopting this outside in approach and offering DPAs to periphery individuals, the SEC is placing a significant carrot in front of those who were part of an overall fraud scheme but perhaps feel trapped and want out but do not know how to safely do so.
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Time will tell if this is an isolated DPA or just evidence of a new direction the SEC has embarked upon in gathering information in support of its investigations of securities fraud and other illegal market manipulations. Either way, if you believe you have information that may be important to the SEC, it is critically important that you approach the SEC. If done so in an appropriate manner, you may be able to negotiate a DPA that takes into account all of the issues you may be facing as a result of your involvement in the alleged illegal activity. If you have any questions, please feel free to contact H Adam Shapiro of Danziger Shapiro, P.C. and we will be happy to review and discuss your situation in confidence.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

PHILADELPHIA, PA, December 16, 2013- Danziger Shapiro, P.C., a Philadelphia based litigation law firm, (www.DS-L.com) is investigating securities fraud claims against NQ Mobile, Inc.. (NYSE: NQ). This inquiry centers on allegations that statements issued by NQ Mobile regarding its business operations and the company’s financial condition were deceptive and false.

NQ Mobile purports to provide security solutions for the mobile phone market. On October 24, 2013, a report issued by Muddy Waters states that NQ Mobile had engaged in fraudulent practices by, among other things, vastly overstating its market share in China by asserting it had a 55% share of the market when in fact it only had a 1.5% market share and that at least 72% of NQ Mobile’s alleged Chinese security revenue is fictitious. Upon the release of this news, in less than 36 hours, shares of NQ Mobile dropped approximately 56%, representing over $500 million in losses to investors
Individuals who purchased NQ Mobile shares between May 5, 2013 and October 24, 2013 who would like to learn more about this investigation, have an interest in joining a class-action lawsuit, or have any questions concerning this announcement and their rights, should on or before December 23, 2013, contact Douglas M. Leavitt, Esquire: (215) 545-4830 or visit: www.DS-L.com. You may also email Mr. Leavitt at leavitt@DS-L.com.

This press release may be considered Attorney Advertising in some jurisdictions under the applicable law and ethical rules.

About Danziger Shapiro, P.C.

Danziger Shapiro, P.C., is a litigation law firm committed to representing investors nationwide in securities matters and shielding investors against corporate misconduct. For additional information, please visit www.DS-L.com.

If you are company that is under investigation by the SEC, or an officer or director of a company that is under investigation by the SEC, and want to obtain a better understanding of the investigative process, please feel free to contact us at Danziger Shapiro, P.C.. We can walk you through the investigative framework and assist you in navigating a complicated and difficult situation.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

This new policy creates a tactical dilemma for defense counsel on several fronts. Defense counsel needs to be cognizant that shareholders will be able to use the admission of wrongdoing as the main exhibit in any civil lawsuit brought against their client. As a result, timing is a consideration. Settle to early before the statute of limitations runs on the civil side and the results can be disastrous.

However, the real conundrum for defense counsel is predicting how the Department of Justice will react in its parallel criminal investigation when its target has just admitted wrongdoing in writing. Making matters worse is the fact that it is the “egregious” cases that the DOJ is interested in. Will DOJ prosecutors be satisfied with the admission of wrongdoing in the SEC case or use it as low hanging fruit in its criminal prosecution?

In addition, can you even enter into a settlement with the SEC where you admit wrongdoing and not commit perjury? Defendants will occasionally give testimony to the SEC early in the process minimizing their role. Does the admission of wrongdoing in the settlement directly contradict the earlier statements? Do you need to take the 5th amendment earlier on in the SEC investigation to prevent this from happening?

Time will tell how this new course being embarked upon the SEC will play out. What I can say for sure however it that at this point, at least, the real play is to convince the SEC at the outset that the conduct being investigated is not “egregious” thereby bypassing the need for any admission of wrongdoing. If you have questions please feel free to contact H. Adam Shapiro at Danziger Shapiro, P.C. and we will be happy to discuss your situation in confidence.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

Earlier this summer, the Pennsylvania Supreme Court confirmed what we have always told our clients when they have asked us this question. When a written contract states that it is an “instrument under seal” and has the word “SEAL” next to or part of the signature block, the statute of limitations to enforce the terms of the written contract in question has been increased from the standard 4 year limitation period to 20 years!

So what is the important take away here? Review your loan agreements and other agreements (a guaranty for example) to make sure this language is standard on all agreements going forward. Not only does this give you a longer time period to decide if you want to bring legal action for nonperformance, but it also makes your negotiable instruments more marketable should you decide to sell them to third parties.

If you have any questions concerning the commercial agreements your business uses, please feel free to call the attorneys at Danziger Shapiro & Leavitt for a free consultation. We are more than happy to discuss how we can assist you with respect to updating your commercial agreements and any other business issue you care to discuss as well.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

The Suitability Obligation

Investors go to their stockbrokers not only to get advice as to which stocks are likely to offer good returns. They also are seeking input on which investments are suitable for their specific circumstance. The suitability rule is intended to provide the investor with peace of mind that his/her broker has reasonably believes the broker’s investment recommendations are appropriate at the time the investment is made. Unfortunately, we have seen far too many situations where the proposed investment makes more sense for the broker than for the investor.

Rule 2111 requires that brokers:

“have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer, based on the information obtained through the reasonable diligence of the member or associated person to ascertain the customer’s investment profile”

FINRA Rule 2111(a) essentially takes existing case law and codifies it into three specific suitability claims. (1) reasonable-basis suitability; (2) customer-specific suitability; and (3) quantitative suitability.

1. Reasonable-Basis Suitability Reasonable-basis suitability means that a broker must perform reasonable diligence to understand the investment products and strategies that the broker recommends to her customer. The broker must also be able to demonstrate that she actually understands the product that she is recommending to her client.

2. Customer-Specific Suitability Customer-specific suitability means that a broker must have a reasonable basis to believe that her recommendations are suitable for a customer based on the customer’s “investment profile.” The broker must be able to establish that she understands who her client really is, what their needs are, and how this recommendation fits into what they are trying to accomplish.

3. Quantitative Suitability Quantitative suitability means that a broker who has control over a customer’s account must have a reasonable basis to believe that a series of recommended securities transactions is not excessive (often called a churning analysis). The broker’s must be able to establish that her overall trading record comports with the client’s goals.

New Requirements Imposed Upon Brokers

FINRA is clearly trying to send a message to brokers in this new economic climate and that message is “You will be responsible to your clients.” They are also expanding the potential definition of “clients” to include those who only had an informal relationship with the broker or prospective customers who may never have opened an account with the firm. Even recommended strategies, such a “hold” recommendation, may come under the purview of new FINAR Rule 2111. There is no requirement that the advice resulted in a commission before Rule 2111 comes into play. Simply put, brokers are now responsible for all customer recommendations.
While this is not an exhaustive discussion of the impact the new FINRA Rule will have upon brokers and their customers, it is clear FINRA is trying to chart a new course with an emphasis on protecting the individual customer from abuse. FINRA arbitration is relatively cheap and quick, especially in comparison to litigation a case in court. In fact, there is an expedited process for the elderly wherein you can file your complaint and have your case heard in less than 9 months.

The attorneys to Danziger Shapiro, P.C. have a long-established record of representing investor claims before FINRA. If you would like more information about the FINRA arbitration process or if you would like to discuss investment concerns regarding your situation generally; please call our office to set up a consultation today.