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All of us at Scherzer International wish you a happy, healthy and prosperous 2011!
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Tracking industry's hot topics
Information scrapers mine for sensitive personal data
Although there are various ways to scrape information, the basic tracking is done through cookies, as well as the more powerful "flash cookies" and bits of software code called "beacons." The automatic nature of the process means that just about any content is up for grabs, from buying preferences to job histories to health records. The U.S. courts have ruled that it is legal to deploy the simplest type of cookies, but no verdicts have been rendered on the more complex trackers. And some of the so called information brokers have been found to sell personal data with disregard for ethical concerns, using automated software to log into private message boards and online forums.
The most intrusive monitoring comes from "third party" tracking files which compile robust personal profiles. In recent tests conducted by The Wall Street Journal, more than half of the sites it examined installed 23 or more "third party" cookies. Dictionary.com installed the most, placing 159. The majority of sites that the Journal examined also put at least seven beacons from outside companies. Again, dictionary.com had the most at 41, including several from companies that track health conditions and one that says it can target consumers by dozens of factors, including zip code and race. Apart from Comcast.net, the sites investigated by the Journal installed no flash cookies. (After the Journal's report, dictionary.com president Shravan Goli said that the company cut the number of networks it uses and beefed up its privacy policy to more fully disclose its practices.)
Other media reports revealed that within seconds of visiting sites such as eBay.com or Expedia.com, details about a visitor's activities were likely to be auctioned on a data exchange run by BlueKai, a Seattle startup. BlueKai sells 50 million pieces of information daily about people's browsing habits, for as little as a tenth of a cent per piece. To further invade people's privacy, PeekYou.com has applied for a patent for a way to match people's real names to pseudonyms they use on blogs, Twitter and online forums.
And Spokeo, the social network aggregator, claims that it can provide financial data for making employment decisions. Also getting on the bandwagon of employment information scraping is a Florida company that supplies details to employers scraped from social networking sites.
2010 in review: SEC's significant cases and developments
The SEC had a busy year, filled with new regulations and proposals under the recently passed Dodd-Frank Act, and bringing fraudsters and other criminals to justice. For the fiscal year 2010, Rob Khuzami, director of SEC's division of enforcement, said that the SEC filed approximately 680 enforcement actions which represented $2.8 billion in penalties for disgorgement of ill-gotten profits, 45 emergency temporary restraining orders, and 56 orders to freeze assets and preserve funds for investors. Approximately $2.2 billion was distributed in fair funds to injured investors.
In a sample of 14 cases associated with the credit crisis in some way, eight were settled for a combined penalty of $960 million. Of those 14, the SEC brought charges against four CEOs, three CFOs, and 11 senior officers such as chairman, president, CAO, controller, and even a head of investor relations. Khuzami emphasized that the commission starts with the premise that individuals are responsible for the wrongdoing as well as the company. He commented that SEC penalties and fines are never eligible to be paid by indemnification rights or coverage, and that individuals who settle have to pay out of their own pockets. Disgorgement, however, sometimes is covered by indemnification or liability coverage policies.
Khuzami also referenced various 2010 financial statement and accounting fraud cases, which historically constitute 20 to 25% of the SEC's annual docket. Among the significant cases, was a July action against Dell and its senior management, including CEO Michael Dell, for, among other causes, disclosure and wide-range accounting fraud. All defendants settled by agreeing to a $100 million penalty.
In June, the commission filed fraud and other charges against Diebold, its former CFO, former controller and later CFO, and former director of corporate accounting, alleging fraudulent accounting practices to inflate the company's earnings to meet forecasts, including improper revenue recognition, manipulated reserves and accruals, and inventory valuation. Diebold agreed to an injunction and a $25 million civil penalty. Khuzami noted that an interesting part of the case was that the company used boiler-plate language in a form contract to claim that customers had requested transactions on a bill-and-hold basis, which formed part of the charges.
In March, the SEC brought actions against InfoUSA, alleging that it paid its former CEO and chairman, Vinod Gupta, approximately $9.5 million of unauthorized and undisclosed perquisites, which included personal use of company chartered aircraft and other personal expenses such as a yacht, cars and 28 club memberships. The complaint charged that the audit committee chair failed to respond appropriately to various red flags concerning these expenses and violated the federal securities laws by signing the filings. The SEC settled with Gupta, the company and the former audit committee chair, but the action against a former CFO continues.
In the last five months, the commission charged Thomas Flanagan, a former Deloitte partner, alleging that Flanagan traded in the securities of Deloitte clients, often while serving as a liaison between those companies' management and Deloitte's audit engagement teams. Flanagan and his son, who also traded, agreed to pay more than $1.1 million to settle the charges. In a second Deloitte case, filed recently, the SEC alleged that a former Deloitte tax partner and his wife repeatedly leaked confidential M&A information to family members overseas in a multimillion dollar insider trader scheme.
The SEC also brought a number of actions under the Foreign Corrupt Practices Act (FCPA). Most of the cases included not only charges for the bribery scheme itself, but also for violations of the reporting and internal control provisions of the securities laws, as the bribe payments were not properly recorded in the companies' books and records. Khuzami pointed out that in many instances, the issuers lacked adequate internal controls to prevent, detect or deter the bribes, such as vendor due diligence procedures. And even where the amount may not have been quantitatively material, the penalty, the disgorgement and the nature of these payments made them qualitatively material. Khuzami cautioned that auditors must be cognizant of their 10A obligations for FCPA allegations and other illegal acts.
In other developments, Khuzami recapped the details of Section 922, which is the whistleblower provision of the Dodd-Frank legislation, reminding that the SEC's recent proposal seeks to incentivize insiders, i.e., the persons who typically possess the most valuable information about fraud and other wrongful conduct, to come forward early and assist the SEC with identifying and prosecuting the perpetrators. In response to an argument that corporate employees will be incentivized to report out, rather than up, and that the whistleblower program will undermine the efficacy of such compliance and audit functions, the SEC included three provisions in its proposed rules: 1) whistleblowers would have a 90-day grace period to report the information to the commission, which means that they can first report internally and maintain their "place in line" as the original information source; 2) excluded from eligibility would be persons who acquired the information as a result of their or their company's legal compliance audit or similar functions; and 3) there would be an incentive for persons to first report evidence of wrongdoing internally, as such reporting would be one of the 10 factors in determining how much of the statutorily mandated 10 to 30% penalty should be awarded to the whistleblower.
Khuzami also explained the two changes in the second provision (aiding and abetting) under Dodd-Frank. First, Section 929O clarifies that the sienter standard or the state of mind standard, can be satisfied by recklessness in aiding and abetting matters. Second, Dodd-Frank gave the SEC explicit authority to pursue actions against aiders and abetters under both the Securities Act of 1933 and the Investment Company Act of 1940. As a result of these provisions, auditors and others are subject to a wider range of sanctions, including penalties in administrative proceedings and enhanced secondary liability under the securities laws.
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Update on our featured charity
The Library Project
December 3, 2010 was volunteer day at the soon-to-be library for the Richard Merkin Middle School and Gertz-Ressler High School in downtown Los Angeles. Ernst & Young donated complete furnishings for the library, and dozens of its employees worked alongside students from RMMS and GRHS to construct book shelves and recreate classic book covers to decorate the library space.
Both Ernst & Young and Scherzer International have held book drives and contributed volunteer time, but we still need your help! Click here to access the RMMS and GHRS PayPal account to purchase books needed for this worthwhile project. Further information about the schools and the library project can be found on the RMMS and GRHS Web sites. Thank you for your support! |
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Among several wrongful death lawsuits filed by the Jackson family, is a September 2010 action against event production company AEG Live and others alleging that they are responsible for the singer's death because his "This Is It" tour contract with AEG created a legal duty to keep him healthy.
In its complaint, among other causes, the Jackson family accuses AEG of "negligent hiring" and retention of Dr. Conrad Murray to care for Jackson instead of his usual doctor. Earlier this year, prosecutors charged Murray with involuntary manslaughter, to which he pleaded not guilty. The doctor is accused of administering the drug Propofol to Jackson without the necessary resuscitation equipment or nursing support, and subsequently causing his death. The 'Negligent Hiring' cause of action in the complaint filed in Los Angeles County states:
"In undertaking to hire Murray, AEG performed absolutely no diligence in investigating or checking into Murray's background, specialties, ability, or even whether he was insured, which it had a duty to do. In choosing to hire and employ a physician to treat Jackson, AEG undertook to act, and it needed to do so reasonably. AEG did not act reasonably and breached its duty."
"During the course of Murray's treatment, it became clear to AEG that Jackson was not doing well at all. AEG did nothing to terminate Murray and instead negligently retained him as an employee, and in so doing violated its duty of care. AEG insisted that Jackson continue treatment with Murray and receive no treatment from other physicians, a further breach of its duty of supervision."
Along with negligent hiring, training and supervision, the complaint calls for unspecified damages for breach of contract, fraud, and negligent infliction of emotional distress. And in the most recent case filed November 30, 2010 in the Los Angeles County Superior Court, Joe Jackson is also claiming negligent hiring, training and supervision and negligence by the Murray-affiliated clinics and negligence against the pharmacy (and Murray.) A similar suit filed this past June did not include the pharmacy, and was dismissed.
Shortly after Michael Jackson's death, ABC News learned that Murray was arrested on domestic violence charges in 1994 after an incident with his then-girlfriend. The doctor was tried and acquitted. When a company fails to conduct a background check, the employer can be held legally liable for a worker, independent contractor or volunteer who causes injury to a customer, co-worker or the general public. Whether the individual was acting within the capacity of the job for which he/she was hired does not matter. The legal theory is that even if an employer did not possess direct knowledge of the liability posed by an employee, the company is legally responsible because the employer should have known about the threat presented by the individual. Currently, fewer than 50% of the states uphold the doctrine of negligent hiring, and the criteria for determining negligent hiring differ from state to state.
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