Federal Law Postsall federal law posts from Tollefsen Law

The law of the United States of America

 

All Federal law posts from Tollefsen Law

 

Disclaimer

Note our disclaimer – these materials are no substitute for legal advice. The articles may be out of date, be incomplete, contain errors, or not be relevant to the fact situation you are researching. Do not rely on the information found on this website to make a legal or business decision.

 

Regulating ICOs

by | Apr 17, 2018 | Fraud, Fraud, Fraud WA, SEC, Securities US

  Regulating ICOs The regulators of money and securities are facing a new challenge with the emergence of crypto-currencies like Bitcoin. Not only do crypto-currencies live in cyberland computers usually outside the jurisdiction of the regulators, their mere existence is a challenge to the modern notion that only nation-states have the right to issue fiat currencies. Recently the Securities and Exchange Commission has entered the fray. It used to be said the securities regulators could be divided between the philosophy of the states and the philosophy of feds. The states were adherents to the central government control view (called “merit review”) believing that the staff of the Department of Financial Institutions (DFI) in Olympia knew what was good for investors and would be the appropriate gate-keepers for the investing public. For example, when Apple Computer went public, DFI would not approve its IPO stock for sale in Washington (it was too risky) so Washington investors had to purchase post-IPO stock at a substantial premium on the national public markets. The SEC was said to hold to a view that anything could be sold if there was full disclosure. Over time, the positions modified. The SEC is now known to make it difficult or impossible to register an offering its employees do not like. Recently the SEC insisted on applying traditional stock trading and Investment Company Act of 1940 rules to registration of crypto-currency ETF-like funds which were designed to allow investor speculation in a basket of crypto-currencies1Staff Letter: Engaging on Fund Innovation and Cryptocurrency-related Holdings, January 18, 2018. In a typical government “catch-22”, now that the SEC had held...

Whistleblowers Lose Again

by | Feb 26, 2018 | Fraud, Whistleblowing US

1802 Digital Realty Trust v Somers (download the case) One of the hopes of those who support whistleblowing as a remedy for fraud was that Dodd-Frank had plugged the holes in whistleblowing protection that existed under Sarbanes-Oxley. One common trap was the short deadlines of Sox. Originally the whistleblower had only 90 days to file a complaint with OSHA (increased to 180 days by Dodd-Frank). Often whistleblowers start out as team players and report internally only to be disappointed by the response after waiting many months for the company to address the problem. When they won’t let go of the issue after the company whitewashes it, the 180 days have elapsed, and they have no legal protection. Dodd-Frank seemed to fix this problem by giving six years to file in federal court and skip the OSHA step. Unfortunately, when congress defined “whistleblower” in Dodd-Frank it required a report to the SEC. On February 21, the U.S. Supreme Court confirmed that whistleblowers have 180 days to either file with OSHA or report to the SEC. Whistleblowers Lose...

U.K. Begins to Advance Protection of Whistleblowers

by | Apr 10, 2017 | Blog, SEC, Whistleblowing US

U.K. Begins to Advance Protection of Whistleblowers Jes Staley, the American CEO of Barclays went after whistleblowers the American way – “get that rat!” This time the U.K.’s Prudential Regulation Authority and Financial Conduct did something about it. They called it an ethical breach and put pressure on Barclays to do something. Barclays issued a statement stating it reprimanded Mr. Staley and will make a “significant” cut to his bonus. How does this balance out? The whistleblower loses his or her career and the executive who cause that damage may lose some part of their future bonus. In the U.S., the SEC insists on revealing the name of the whistleblower if there is a settlement. The SEC justifies its policy by claiming it is merely trying to buttress internal reporting. In my experience, corporations circle the wagons when there is credible whistleblowing. Corporate counsel interrogates and human resources attempts to find legal grounds to terminate. Investigators comb the whistleblower’s computer and office looking for something negative. Usually whistleblowing is a career ending exercise in the U.S. The U.K. does not give rewards to whistleblowers. The SEC does but refuses to allow anonymous filings. It allows temporary anonymity if the whistleblower uses an attorney to file the claim. Like many CEOs, Mr. Staley apparently thinks whistleblowers are disloyal and he felt in this case it was “an unfair personal attack.” After he was told it was not appropriate to inquire into the identity of the whistleblower, he continued to pressure his internal security investigator for the information. A U.S. law-enforcement agency was asked to help. Consider Wells Fargo Bank. It...

Local EB-5 VISA Fraud

by | Jan 9, 2017 | Blog, Federal Law, Fraud, Fraud, International, Securities US

Local EB-5 VISA Fraud SEC Complaint: 15-sec-v-dargey-complaint Recent Seattle newspaper headlines have informed us that Lobsang Dargey, a local real-estate developer, has agreed to plead guilty to EB-5 fraud allegedly involving at least $125 million from 250 Chinese investors. This type of fraud is a form of securities and immigration fraud and has become more common on both sides of the transaction: investors make fraudulent claims regarding their eligibility for the program and promoters misappropriate their investments. EB-5 was enacted by Congress in 1990 to stimulate the U.S. economy through job creation and capital investment by foreign investors. Under a pilot program enacted in 1992, and regularly reauthorized since then, investors may also qualify for EB-5 visas by investing through regional centers designated by U.S. Citizenship and Immigration Services (USCIS) based on proposals for promoting economic growth. On September 29, 2016, President Obama signed Public Law 114-223 extending the regional center program through December 9, 2016. Ten thousand visas are allocated each year and processing times can be two years. Not only does the investor and family need to be vetted for the visa (e.g. where did the money come from?). There are two investment amounts $500,000 and $1,000,0000. Both require creation of ten full time (35 hours per week) permanent jobs. The $500,000 is by far the most popular and is only available in rural and high unemployment area. This is where the developers get involved. They package a deal, arrange for USCIS processing, and arrange permanent management. Teams of well-paid sales agents sell the package in China and elsewhere. Since the package involves an investment with an expectation...

National Whistleblower Appreciation Day

by | Jul 30, 2016 | Blog, Whistleblowing US

CELEBRATING WHISTLEBLOWING Where were you on July 30, 2016? The United States Senate unanimously declared July 30, 2016 as “National Whistleblower Appreciation Day” in a resolution adopted on July 7, 2016. It stated “. . . in 1777, before the passage of the Bill of Rights,10 sailors and marines blew the whistle on fraud and misconduct harmful to the United States. . . . the Founding Fathers unanimously supported the whistleblowers in words and deeds, including by releasing government records and providing monetary assistance for reasonable legal expenses necessary to prevent retaliation against the whistleblowers. . . . on July 30, 1778, in demonstration of their full support for whistleblowers, the members of the Continental Congress unanimously enacted the first whistle blower legislation in the United States that read: ‘Resolved, That it is the duty of all persons in the service of the United States, as well as all other [of] the inhabitants thereof, to give the earliest information to Congress or other proper authority of  any misconduct, frauds or misdemeanors committed by any officers or persons in the service of these states, which may come to their knowledge’” The 2016 resolution further provided: “. . . . it is the public policy of the United States to encourage, in accordance with Federal law (including the Constitution, rules, and regulations) and consistent with the protection of classified information (including sources and methods of detection of classified information), honest and good faith reporting of misconduct, fraud, misdemeanors, and all other crimes to the appropriate authorities at the earliest time possible. . .” The resolution was cosponsored by Grassley and Wyden...

Federal Anti-kickback Statutes

by | May 10, 2016 | anti-kickback, Blog, Federal Law

There are at least three federal anti-kickback statutes the anti-fraud community should be familiar with. A fourth is the Stark Law (anti-physician self-referral). Federal Anti-kickback Statutes The earliest of the three is the Copeland “Anti-kickback” Act (Pub.L. 73–324, 48 Stat. 948, enacted June 13, 1934, codified at 18 U.S.C. § 874) which supplements the Davis–Bacon Act of 1931. Congress discovered that employers during the Depression were scheming to get around the prevailing wage provisions on federal contracts by requiring wage “kickbacks” from employees. The Copeland Act prohibits a federal building contractor or subcontractor from inducing an employee into giving up any part of the compensation that he or she is entitled to under the terms of his or her employment contract. The second anti-kickback statute was enacted as part of the Social Security Amendments of 1972 to make efforts to prosecute Medicare and Medicaid fraud easier. The statute was broadly construed in United States v. Greber (3rd cir., 1985).  Dr. Greber was convicted by a jury on 20 of 23 counts in an indictment charging violations of the mail fraud, Medicare fraud, and false statement statutes. His defense was that the payments were for professional services. The court held a jury could find him guilty if part of the reason for using the service was the payment. “If the payments were intended to induce the physician to use [the] services, the statute was violated, even if the payments were also intended to compensate for professional services”. The ruling prohibited business transactions that were once fairly innocuous, leading to the creation of safe harbors. (See e.g. 42 CFR 411.355). The safe harbors are now complex and detailed. The third federal statute...

Regulatory Compliance: It’s the Little Things…

by | Apr 5, 2016 | Administrative US, Administrative WA, Attorneys, Blog, Business Law, Corporate Law DL, Entrepreneurship, Regulatory Compliance, SEC, Securities Law WA, Securities US, Tollefsen Law

Regulatory penalties can be devastating for a company, yet many companies, especially small companies, fail to plan for or devote resources to regulatory compliance. These companies can be confused and incredulous when they become the focus of investigations or sanctions and may delay responding until their very existence is at stake. Proper counsel can help companies understand regulators’ focus which helps them to prepare for and address compliance issues in a timely manner.

Liability for Opinions – Omnicare

by | Mar 29, 2015 | Blog, Securities US

Putting Omnicare v Laborers District Counsel in Historical Perspective Omnicare, Inc., et al. v. Laborers District Council Construction Industry Pension Fund et al. Argued November 3, 2014—Decided March 24, 2015 Copy of Decision: 1503-Omnicare Overview The author is a Certified Fraud Examiner and is critical of the common law involving fraud and deceit. Too often the common law allows the taking of money from victims through hyper-technical defenses and faulty logic. Most of this comes from the lack of sympathy the judges have shown for the fraud victim through the history of the development of the law of misrepresentation. One example is the liability for opinions expressed in contrast to facts expressed. The general common law allows the person who takes money through a false expression of opinion to keep the money if speaker believed her opinion. Omnicare, in the context of a registration statement, moves the law in a positive direction by creating liability for a factual omission imbedded in the opinion that would be necessary to correct a false impression. Even though the Supreme Court did not delve in the history of the law, the 2015 Omnicare decision moved the court in a positive direction. The law on opinion testimony as fraudulent may be traced to the 1889 House of Lords decision of Derry v. Peek.1Derry v. Peek, (1889) L.R. 14 App. Cas. 337 (House of Lords) which limited liability for misrepresentation to fact patterns involving scienter. Derry excluded from the definition of “scienter” misrepresentation made with an honest belief that the fact represented was true. Although Derry was seemingly accepted be most United States courts and was adopted by the...

Personal Jurisdiction over Foreign Manufacturers

by | Feb 6, 2015 | Blog, Civil Litigation WA, Constitution WA, Constitutional US, Consumer Protection WA

State v LG Electronics, Wash app, div 1, January 12, 2015:150112 State-v-LG-Electronics There has been ongoing debate in the courts over how much contact foreign manufacturers must have with a state for the state court to assert personal jurisdiction over foreign manufacturers and make the foreign manufactures defend in the state’s courts. The state’s power is constrained by the due process clause of the Fourteenth Amendment. The foundational case is International Shoe Co. v. Washington, 326 U.S. 310 (1945), in which the United States Supreme Court] held that a state may authorize its courts to exercise personal jurisdiction over an out-at-state defendant if the defendant has “certain minimum contacts with [the state] such that the maintenance of the suit does not offend traditional notions of fair play and substantial justice.” The courts have subsequently developed two concepts of personal jurisdiction: (1) General Jurisdiction and (2) Specific Jurisdiction. General jurisdiction “permits the exercise of personal jurisdiction over a nonresident defendant where the defendant’s ‘continuous corporate operations within a state (are] so substantial and of such a nature as to justify suit against it on causes of action arising from dealings entirely distinct from those activities.'” Daimler AG v Bauman, 134 S. Ct. at 754-55 (2014). Specific jurisdiction, which since International Shoe “has become the centerpiece of modern jurisdictional theory,” requires that suit arise out of or relate to the defendant’s contacts with the forum. Daimler, 134 S. ct. at 754-55. Specific Jurisdiction requires proof of three elements (1) minimum contacts; (2) action “arises” from minimum contacts; and (3) asserting jurisdiction does not offend traditional notions of fair play and substantial justice. In State v LG...

Why Organize Early?

by | Feb 3, 2015 | Company Formation, Tax Issues US

Although many company founders are reluctant to take the plunge into creating a corporate entity, often putting this step off for as long as possible, there are some good reasons to consider forming as soon as possible. Holding Period Stock Value The IRS will look at the time between forming and value given for stock at that time, and the company’s value at any financing or liquidity event. Hypothetically, if founders gave $.01 of value for their shares at formation, and they receive a funding round that values the company at $.50/share a week later, they need to be able to convince the IRS in an audit that they created enough value in the company in that one week to warrant the 50x increase in the value of the company. In a situation like this, your company is more than likely to arouse the suspicion that you sold yourselves shares at below market value. The General Partnership Many states, including Washington, have ratified some version of the Uniform Partnership Act (UPA). Washington’s is codified as chapter 25.05 of the Revised Code of Washington. Although the preferred form of entity for most startups is a C corporation, a founder should also be attentive to the provisions of the UPA or its equivalent in his or her state. The reason for this is that many of these acts contain provisions similar to the following from RCW 25.05.055:   (1) Except as otherwise provided in subsection (2) of this section, the association of two or more persons to carry on as co-owners a business for profit forms a partnership, whether or not...