Asset searches: who can get bank account information and why

A quick Internet search for ways to get someone's bank or investment account information returns at least a dozen private investigation companies that promise to find these records "anywhere in the US and worldwide" for judgment collections, verification of net worth and for "just about any other purpose." But a closer look at these Web sites reveals a fine-print disclaimer stating that the information is from public records such as divorce cases and probate filings. And there are a few that do not bother with a disclaimer, providing only an 800 number to call.

Asset searches, which may include bank and investment accounts, are not illegal; however, certain actions to obtain this information, such as pre-texting, are illegal. And although there are methods that can be used to obtain financial information covertly, most if not all, are questionable and often futile. There is no clear way for anyone other than the account holder, a designated representative or a party with a valid court order to get account information without violating the law.

There is a general misconception that a judgment, just by virtue of its issuance, can be used to force a bank or financial institution to disclose account information, but the enforcement of judgments is governed by each state's laws. In California, for example, a writ of execution is necessary. These writs are rendered on a county-by-county basis and direct a levying officer (usually a sheriff) to serve the writ on the named institution. The institution then may be required to freeze the account and in some cases to hand over the account balance. State laws also allow the creditor, after a judgment is obtained, to examine and request asset information from the debtor. This, however, puts the debtor on notice and may result in draining an account before a writ of execution is served.

The privacy protection laws that govern access to financial information under false pretenses depend on whether the affected customer is a consumer or a business entity. The more significant legislation is directed at protecting consumers, defined generally in the laws and in interpretative decisions as "individuals consuming goods or services for personal or household use." The Gramm-Leach-Bliley Act (GLBA) prohibits obtaining customer information from a financial institution under false pretenses and imposes an obligation to protect customer information. Under the GLBA, a customer means "an individual consumer," which is essentially the same as the definition of a consumer under the Fair Credit Reporting Act (FCRA). In addition to the GLBA and FCRA, there are other potentially applicable federal privacy laws, as well as a long list of state laws. But even if a specific law may cover only consumers, the financial institution's contract with the business customer would certainly be construed as preventing third-party access.

Law firm intern background checks more important than ever

 Prominent law firms report downsized internship programs for this summer as they cope with a still challenging legal marketplace and clients' demands for experienced lawyers. Many firms are shortening their programs, paying less and lavish recruiting strategies appear to be a thing of the past. 

Before the economic decline, law firms flocked to campuses to compete for top second-year students with weekly salaries as high as $2,700. They brought in large "classes" of summer interns, some with only one year of law school. Those class sizes were based on expectations of how many lawyers the firm would add in the next two years, and most summer associates received offers of full-time employment. While the legal profession is showing a slow recovery, future attorney staffing remains unpredictable and investing in the right people from the start is more important than ever.

The number of law firms performing background investigations on all employees including summer interns is rapidly increasing, as news headlines unfold scandals of insider trading and other corrupt activities that cause significant economic harm and reputational damage. Although a background investigation cannot guarantee that the prospective employee will not engage in a wrongful act, it does reduce the firm's liability in negligent hiring, negligent training and negligent supervision lawsuits, and saves the high cost of replacing a "bad" employee.

Major law firms have concluded that a successful background investigation program is based upon the relative risk to the firm itself. By instituting pre-employment screenings as a standard part of the hiring process - and often re-screening when a temporary associate is offered a permanent position or when an employee is up for a partner position - many firms and employees feel comfortable that everyone is given a "fair shot."  Protecting integrity and reducing liability benefits every member of the firm.

On May 25, 2011, the Securities and Exchange Commission (SEC) proposed a rule to deny certain securities offerings from qualifying for exemption from registration if they involve "felons and other bad actors."  

When an individual or a company offers or sells a security such as a stock or bond, generally the offering must be registered with the SEC. However, the SEC's Regulation D provides three exemptions that can used to avoid such registration. The most widely used exemption is Rule 506, which accounts for more than 90% of the offerings made, as well as the majority of capital raised. If an offering qualifies for the Rule 506 exemption, an issuer can raise unlimited capital from an unlimited number of "accredited investors" and from up to 35 non-accredited investors.  

Section 926 of the Dodd-Frank Act requires the SEC to adopt rules that would deny this exemption to any securities offering in which certain "felons and other bad actors" are involved. This new rule is substantially similar to the bad actor disqualification provisions of another limited offering exemptive rule - Rule 262 of Regulation A - which provides for an exemption from registration for certain small offerings.  

Under the proposed rule, an offering cannot rely on the Rule 506 exemption if the issuer or any other person covered by the rule (including the issuer's predecessors and affiliated issuers, directors, officers, general partners and managing members of the issuer, 10% beneficial owners and promoters of the issuer, persons compensated for soliciting investors, and the general partners, directors, officers and managing members of any compensated solicitor) has had a "disqualifying event" identified as follows:

• Criminal conviction in connection with the purchase or sale of a security, making of a false filing with the SEC or arising out of the conduct of certain types of financial intermediaries. The criminal conviction would have to have occurred within 10 years of the proposed sale of securities (or five years, in the case of the issuer and its predecessors and affiliated issuers).
• Court injunction and restraining order in connection with the purchase or sale of a security, making of a false filing with the SEC or arising out of the conduct of certain types of financial intermediaries. The injunction or restraining order would have to have occurred within five years of the proposed sale of securities.
• Final order from state securities, insurance, banking, savings association or credit union regulators, federal banking agencies or the National Credit Union Administration that bar the issuer from: 1) associating with a regulated entity; 2) engaging in the business of securities, insurance or banking; 3) engaging in savings association or credit union activities, or 4) orders that are based on fraudulent, manipulative or deceptive conduct and are issued within 10 years before the proposed sale of securities.
• Certain commission disciplinary order relating to brokers, dealers, municipal securities dealers, investment companies and investment advisers and their associated persons, which would be disqualifying for as long as the order is in effect.
• Suspension or expulsion from membership in a "self-regulatory organization" or from association with an SRO member, which would be disqualifying for the period of suspension or expulsion.
• Commission stop order and order suspending the Regulation A exemption issued within five years before the proposed sale of securities; and
• U.S. Postal Service false representation order issued within five years before the proposed sale of securities.

The proposed rule would provide an exception from disqualification when the issuer can show it did not know and, in the exercise of reasonable care, could not have known that a disqualification existed. Any pre-existing convictions, suspensions, injunctions and orders would be disqualifying. For further information, see http://www.sec.gov/rules/proposed/2011/33-9211.pdf 

July issue preview

SI's July issue will feature an article about international background investigations.