by John J. Tollefsen | 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...
by John J. Tollefsen | 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...
by John J. Tollefsen | Feb 25, 2018 | Blog, Fraud
Available for years to people with a specialized digital (ISDN PRI circuit), caller ID spoofing has been used by collection agencies, law-enforcement officials, and private investigators. The first caller ID spoofing service generally available to the public, Star38.com, went online in September 2004. Star38.com was the first service to allow spoofed calls to be placed from a web interface. It stopped offering the service in 2005.1https://en.wikipedia.org/wiki/Caller_ID_spoofing)) The FTC has posted this on whether ID Spoofing is legal: Under the Truth in Caller ID Act, FCC rules prohibit any person or entity from transmitting misleading or inaccurate caller ID information with the intent to defraud, cause harm, or wrongly obtain anything of value. If no harm is intended or caused, spoofing is not illegal. Anyone who is illegally spoofing can face penalties of up to $10,000 for each violation. In some cases, spoofing can be permitted by courts for people who have legitimate reasons to hide their information, such as law enforcement agencies working on cases, victims of domestic abuse or doctors who wish to discuss private medical matters.3https://www.fcc.gov/consumers/guides/spoofing-and-caller-id A quick check of Google reveals there are several internet caller ID spoofing services with adverting pitches like “Fake Calls » Call ID Spoofing describes the method to make fake calls with any number you want to set for a sender. Get the ability to change what someone sees on their caller ID display when they receive a phone call from you and play amazing phone pranks”((https://www.spoofcard.com/features It is easy to spoof caller ID and text messages from your cell phone. Just load an app from Google play like “Spoof Call...
by John J. Tollefsen | Dec 17, 2017 | Blog
2017 1214 WA Text case When we get unsolicited business text messages on our cell phones we tend to feel upset, a little like being defrauded. Someone is taking our time and invading our space without permission. In 2007, Washington’s legislature agreed and passed the Consumer Electronic Mail Act (RCW 19.190) “to limit the practice of sending unsolicited commercial text messages to cellular telephone or pager numbers in Washington.” Sending unsolicited commercial texts was made a violation of the Consumer Protection Act. The wording of the law was flawed. Illegal texting was not made a “per se” violation of the CPA so it appeared that the normal CPA rules applied. In Hangman Ridge Training Stables, Inc. v. Safeco Title Insurance Co., the Washington Supreme Court held that a CPA plaintiff must prove: (1) the business engaged in an unfair or deceptive act or practice; (2) which occurred in trade or commerce (broadly construed); (3) which had a public interest impact;4) which injured the plaintiff’s business or property; and (5) which was caused by the unfair or deceptive practice. All five elements are required. To prove is the first one: an unfair or deceptive act or practice – the complainant must establish that an act or practice has the capacity to deceive the general public or, alternatively, that the act is per se unfair or deceptive (as defined by statute or case law). No intent to deceive is required as long as the conduct has the “capacity to deceive” a significant portion of the general public. For example, a court has held that one use of a standardized (form) deceptive contract that has a capacity to deceive is sufficient. Often the most difficult element to prove is number three: the acts affect the public interest. If the action...
by John J. Tollefsen | 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...
by John J. Tollefsen | Feb 12, 2017 | Blog
The Occupational Safety and Health Administration has published new guidelines for approving settlements between employers and employees in whistleblower cases to ensure that settlements do not contain terms that could be interpreted to restrict future whistleblowing. The guidelines, issued Sept. 9, 2016 make clear that OSHA will not approve a whistleblower settlement agreement that contains provisions that may discourage whistleblowing. OSHA enforces more than 20 federal whistleblowing statures, perhaps the most well-known are the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. § 9610, Section 1057 of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, 12 U.S.C. § 5567, and Sarbanes Oxley Act (SOX), 18 U.S.C.1OSHA has jurisdiction over the whistleblower provisions of the following statutes: Occupational Safety and Health Act (OSHA 11(c) ), 29 U.S.C. § 660(c); Surface Transportation Assistance Act (STAA), 49 U.S.C. § 31105; Asbestos Hazard Emergency Response Act (AHERA), 15 U.S.C. § 2651; International Safe Container Act (ISCA), 46 U.S.C. § 80507; Safe Drinking Water Act (SDWA), 42 U.S.C. § 300j-9(i); Federal Water Pollution Control Act (FWPCA), 33 U.S.C. § 1367; Toxic Substances Control Act (TSCA), 15 U.S.C. § 2622; Solid Waste Disposal Act (SWDA), 42 U.S.C. § 6971; Clean Air Act (CAA), 42 U.S.C. § 7622; Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), 42 U.S.C. § 9610; Energy Reorganization Act (ERA), 42 U.S.C. § 5851; Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR21), 49 U.S.C. § 42121; Sarbanes Oxley Act (SOX), 18 U.S.C. § 1514A; Pipeline Safety Improvement Act (PSIA), 49 ii U.S.C. § 60129; Federal Railroad Safety Act (FRSA), 49 U.S.C. § 20109; National...
by John J. Tollefsen | 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...
by John J. Tollefsen | Nov 3, 2016 | Blog, Civil Litigation WA, Fraud WA, Insurance, Whistleblowing WA
ONE-YEAR STATUE OF LIMITATIONS – EMBEZZLEMENT Copy of case: (Travelers Casualty & Surety Co., v. Washington Trust Bank, No 92483-0) 1611-travelers-casualty-surety-co-v-washington-trust-bank Often the only hope of financial recovery from an embezzlement, other than from insurance policies, is from a bank which paid on forged endorsements (also spelled “indorsements”). A recent case (November 3, 2016) held that the statute of limitations in such cases is only one year in Washington State.1Travelers Casualty & Surety Co., v. Washington Trust Bank, No 92483-0 An employee of a nonprofit serving disabled adult client~ used her position to embezzle more than half a million dollars held by the nonprofit for its clients. She did this by drawing checks from the nonprofit’s account payable to its clients, signing the back of those checks with her own signature, and cashing them at the nonprofit’s local bank. The embezzlement was discovered in an admission in the employee’s suicide note. The Bank sent monthly bank statements during the embezzlement period. These statements included copies of the fronts of the checks that had been cashed at the Bank. The statements did not include copies of the backs of the checks, which would have readily revealed the embezzler’s signature. During the relevant period of time, the victim could access its checking account online at any time to view both the front and backs of checks that cleared its account. The online process required clicking an account to view, clicking a link for the front of the check, clicking a link for the back of the check, closing the check, and repeating as necessary. RCW 62A.4-406(f) provides: “Without regard to care or lack...
by John J. Tollefsen | 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...
by John J. Tollefsen | 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...
