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In June the Supreme Court held that an inherited individual retirement account (IRA) was not protected by federal bankruptcy law. Specifically, the Court considered whether an inherited IRA is a “retirement fund” within the meaning of the bankruptcy code and thus entitled to federal bankruptcy protection. The Court surprised everyone by ruling inherited IRAs are available for distribution to creditors just like any other debtor account. Click here to view the opinion.

To understand the significance of this decision, first a bit of background is in order. The Bankruptcy Code generally protects a debtor’s “retirement funds” from a debtor’s bankruptcy estate thereby keeping it out of reach from creditors. However, trustees and creditors began to attack inherited IRAs (as opposed to an IRA that you actually contributed) and ask if an inherited IRA where you did not contribute any of your money was fundamentally different from an IRA that you personally funded.

The Court relied primarily on three points to reach the conclusion that inherited IRAs were not retirement funds and thus not entitled to protection under the bankruptcy code. First, you cannot contribute money to an inherited IRA. Second, there are withdrawal requirements separate and apart from your retirement age and third, you can withdraw the balance at any time and for any purpose without a withdrawal penalty.

This ruling affects more than just the bankruptcy arena. For example, non-spousal beneficiaries under an IRA are at risk at having their IRA inheritance attacked by existing or future creditors. Perhaps the better plan now in light of this recent decision is to designate a spendthrift trust for the benefit of the beneficiary? The corpus of the trust would be protected if drafted properly and distributions to the beneficiary could be made over the life of the trust. While there are other options available, the point is that there are new considerations that must be taken into account in light of this recent decision by our Supreme Court that impacts not only estate planning going forward but also past estate planning decisions.
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The Pennsylvania Superior Court recently examined what impact, if any, the Pennsylvania Uniform Written Obligations ACT (PUWOA) has on an employment agreement that contained a covenant not to compete entered into after the employee started working with the employer. The short answer is – no effect at all.

First a little background is in order. In order for a covenant not to compete to be enforceable against an employee, the employee must receive something valuable (consideration) from his or her employer. If this covenant is bargained for by the employer prior to the employee starting work, then the prospect of future employment with the employer satisfies the “valuable right” or “valuable consideration” needed for a court to enforce a covenant not to compete. However, if the employee is already employed by the employer, continued employment is not sufficient additional consideration; something more must be given by the employer.

The case before the appellate court involved the situation where an employer wanted to enforce a covenant not to compete that was entered into after the employee was already employed by the employer. The employer tried to avoid the requirement of providing additional consideration by relying upon the PUWOA. This act states that an agreement will not be enforceable for lack of consideration if the words “intending to be legally bound” are in the agreement. Unfortunately for the employer, the appellate court held that the language “intending to be legally bound” did not constitute sufficient additional consideration in the context of a covenant not to compete.

So what is the important take away here? Review your employment agreements and if you have a restrictive covenant, revisit what consideration was given to your employee and when it was given. Ask yourself if the employee is mission critical and whether you really want to enforce the covenant? It does just have to be money that will support a court finding sufficient additional consideration.
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The United States Department of Labor recently revised the notice and distribution requirement notices to take into account that employees now have the ability to choose health insurance through the newly created Health Insurance Marketplace. The Department of Labor’s website contains both revised notices and can be found by clicking this Link. DOL is also in the process of issuing new regulations to assist employer COBRA compliance. The proposed regulation may also be found on the DOL website.

The DOL only changed the content of the notices and not the distribution requirements. For example, employers are still required to provide new employees with Cobra notices within 90 days of an employee’s enrollment in a group health plan.
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I came across an interesting blog that was posted by a professional hacker whose job is to find vulnerabilities in top corporations’ IT security. His official title is “penetration tester”. Rather than just summarize what is already a short blog, I decided to just let the hacker speak for himself and tell you directly what he believes are the top 3 mistakes corporations make with their IT security programs. I think the top 3 will surprise you. Click here for the security blog.

The attorneys at Danziger Shapiro, P.C. can help you with developing your security protocols and smart phone/tablet work policies customized to the unique needs of your business. Call us today to set up a free consultation to discuss this and any other issue affecting your business.
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These are dangerous times to be starting your new business. The economy is tight, money is not readily available and your legal budget is next to nil. You’ve heard that you need to incorporate to protect your family assets and you keep hearing on the radio that you don’t need a lawyer. In fact, you do some quick internet research and feel you can do it yourself. Having practiced for over 20 years now I am confident in stating that yes you can do this on your own but you might make a critical mistake. Doing legal research online without the appropriate background is dangerous. The first answer you get may not be the correct answer and you really are not in a position to recognize whether what you found on the web is just what you “wanted” to find or really the legally correct answer.

For example, after you incorporate you need to decide whether you want to be a C corporation or an S corporation. Usually the S election is preferable for smaller entities because it eliminates taxation at the shareholder level whereas a C corporation is taxed at both the corporate level and the shareholder level. Seems straightforward enough, right? You google S election and click on a link to the Department of Revenue website (click here) where it clearly states that any federal S election is automatically a S election unless you opt out. However, right under the Department of Revenue’s link is Pennsylvania’s Open for Business website link (click here) that clearly states you must file for S-corporation status within 75 days of incorporation. This is a website that was created for the purpose of assisting new business owners and has the Governor’s name on the top yet its advice is 180⁰ opposite the Pennsylvania Department of Revenue.
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The SEC’s Office of the Whistleblower (OWB) awarded individuals over $14 million in 2013 for their “significant and original contributions” to successful enforcement of the securities laws. The OWB is now in its 3rd full year and the number of tips and complaints is trending upward. OWB reports that it received 3,001 tips and complaint in 2012 and 3,238 in 2013. These numbers are certain to increase as the OWB continually expands the whistleblower laws.

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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Just last week a new law went into effect in Pennsylvania with very little fanfare but it’s likely to have a major impact on anyone who buys, sells, or owns real estate in the Commonwealth.

Act 93 changed the tax lien law, making real estate tax judgments personal. What does this mean? Before this new law took effect, when a property owner failed to pay their tax bill the municipality would obtain a lien against the property. But because of the way liens worked, this was not a judgment against the owner, only against that one property. This procedure led to a situation in which many property owners simply did not pay their real estate taxes. In cities like Philadelphia, where a lot of rental properties are owned by small investors or passed down between family members, this has created tax collection issues. Since the municipal lien didn’t affect the owner’s personally, many owners found it advantageous to simply not pay. If a property owner owed more than the property was worth, they could just kept collecting rent until the Sheriff Sale, if it ever happened. The municipality never got paid what was owed, and personal liability never attached.

Under the new law, the idea is that the lien will also be against the owner, not just the property. This means you will not be able to finance or sell a different property until the lien on the tax delinquent property is paid. Additionally, your own home may be at risk, and you can no longer just walk away from a property without ever paying the tax due. This makes perfect sense; it’s finally giving local municipalities the ability to collect outstanding taxes which is something cities like Philadelphia have spent years clamoring for.

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Late last year the Securities and Exchange Commission announced that it had entered into its first deferred prosecution agreement (DPA) with an individual who worked in an administrative capacity at a large hedge fund. The DPA allowed the SEC to successfully go after hedge fund manager Berton Hochfield who reportedly stole more than 1.5 million from his hedge fund and overstated the fund’s performance to investors.

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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It seems we cannot go a day without big news regarding online security and privacy or the lack thereof. Most recently it was Target and tomorrow who knows. California has always been at the forefront when it comes to protecting consumers and internet privacy. Thus it comes as no surprise that, as of January 1, 2014, every business with an online presence will need to comply with California’s amendment to its Online Privacy Protection Act. This recent amendment has teeth and you must comply if a California resident clicks on your commercial web site either through his computer or mobile phone.

In a nutshell, privacy policies will now be required to include how the website will respond to a web browser’s “do not track” security option and if the web site allows third parties to collect personally identifiable information from users and across third party websites. Failure to comply will cost you $2,500 for each violation. However, before any fine is imposed, the noncomplying business will be given 30 days to correct its privacy disclosures.

What is interesting about this new law is that while it places the onus on businesses to state how their website responds to a customer’s “do not track” option, it does not require the business to honor that request. We are truly operating in one unified economy and it is becoming increasingly important to be aware of the laws of other states as you do business on the global web.
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For Immediate Release
Contact: Danziger Shapiro, P.C.
215-545-4830 leavitt@DS-L.com
Danziger Shapiro, P.C.
Announces Investigation of NQ Mobile, Inc.

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.
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