Karen Morris' Bio
Karen Morris is a Distinguished Professor of Business Law at Monroe Community College in Rochester, New York where she has taught for 31 years. She is also an elected town judge and the author of two textbooks - New York Cases in Business Law and Hotel, Restaurant and Travel Law. Karen also writes a treatise on New York Criminal Law and a column in Hotel Management Magazine. She recently published her favorite work - Law Made Fun Through Harry Potter's Adventures. Professor Morris is the recipient of numerous teaching awards and recently received the Humanitarian Award from her county Bar Association.
Marianne Jennings' Bio
Professor Marianne Jennings is a member of the Department of Management in the W.P. Carey School of Business at Arizona State University and is a professor of legal and ethical studies in business. At ASU she teaches graduate courses in the MBA program in business ethics and the legal environment of business. She served as director of the Joan and David Lincoln Center for Applied Ethics from 1995-1999. From 2006-2007, she served as the faculty director for the MBA Executive Program.
is a term that is short for the robots created by programmers that are designed
to get into sites and, appearing to be human, register on the site, or, in the
case of concert ticket sites, buy up tickets.
Using bots, scalpers are able to buy up as much as 60 percent of the
tickets available for a concert. Those
tickets are then resold on the secondary ticket market. Ben Sisario, “Concerts Industry Struggles With ‘Bots’ That Siphon Off tickets New York Times, May 27, 2013, p. B1. Concert promoters say that bots users purchase up blocks of tickets and then when they can't be sold there are empty seats at the concerts, a bad image for an artist. Those who use bots says they are the cyber space equivalent of using diggers, those who were paid by scalpers to stand in line to buy tickets before online ticket sales existed. However, the scale of ticket purchasing using bots is much larger.
ticket sellers and promoters can find ways to program around bots. For example, when you use a site and are
required to type in those letters that appear in funny shapes in a box, you are
experiencing an anti-bot program.
However, as quickly as concert ticket sites rewrite their programs to
weed out bots, bot users rewrite the programs for their robots to find a way
around them. You can watch a video on the issue here.
ticket sites have experts who study purchases online to try and distinguish
between human purchasers and bots purchasing.
Ticketmaster’s expert, John Carnahan, says that bots are detectable
through their speeds in clicking. Humans
take their time in buying and their speeds for clicking on various parts of the
purchase transaction vary. Bots are
programmed and click quickly and at timed intervals. The response to uncovered bots is to slow
down their purchases or put them at the end of the cyberspace line so that the
human traffic has first shot at the tickets.
Often, the detection devices of concert ticket sites indicate that bots
are present at a rate of 600 times that of the human purchasers. There are some brokers who have hundreds of computer modems in their places of business that simply buy tickets daily. With the inventory secured through bots, brokers are able to set back and assess the market and with the extent of their inventory and controlled release influence ticket pricing.
bots be stopped by the law? The concert
the option of banishing bots users from the site. The difficulty lies in figuring out who they
are, when they are online, and how to ban them.
There are some laws against bots are at the state level, but the laws
are not written as strongly as they might be and enforcement is difficult and
virtually non-existent. Ticketmaster has
been using private litigation based on theories such as unauthorized access
(Computer Fraud and Abuse Act) or copyright infringement (unauthorized sale of
the copyrighted tickets). Under federal law, the issue is whether there is a
site. If the latter, then it is a
contract issue and self-enforced by site owners. The courts have not found criminal intent in
There are arguments pro and con around the industry, arguments that largely shake out according to the roles played. The National Association of Ticket Brokers has a code of ethics that prohibits the use of bots. Some companies, such as Live Nation benefit from original sales, but they also benefit from secondary sales on their TicketsNow site. The ticket industry is not moving in one direction on bots use. Private litigation may have to resolve the issue. Some ticket brokers feel it is simply a matter of time before bots users push too far and either damage payments or criminal prosecution curbs the use of bots.
1. What is the problem that prevents criminal prosecution for using bots?
2. What contract rights might help ticket sites in stopping bots?
A former senior partner at KPMG has pled guilty to insider trading (the purchase or sale of stock while the trader is in possession of nonpublic information that would impact the value of the stock) for providing inside information about the firm’s clients to a friend. In return the partner, Scott London, received cash and other valuable items.
The relationship lasted several years before the scheme was uncovered by law enforcement, not the firm. The charge of insider trading is a felony and subjects London, who is 50 years old, to a maximum of 20 years in jail. He was the Regional Audit Partner in Charge for KPMG’s southern California region which includes Los Angeles. The recipient of the information was a jeweler who used the information to buy and sell stock before the public was alerted. This enabled him to avoid losses and position himself well to benefit from increases in stock prices. He profited thereby to the tune of $1.2 million. The stock involved in the illegal transactions include Herbalife and Sketchers USA.
London supervised more than 500 accounting professionals and personally handled audits for major clients. In court he admitted to giving the jeweler tips involving at least 14 separate earnings announcements and acquisitions by the firm’s clients. For his participation in the illegal dealings, he received money, a $12,000 Rolex watch, jewelry for his wife, and other goodies. His total take is estimated to be “only” $50,000, an insignificant amount in comparison to what his annual compensation at the firm likely was. The jeweler pled guilty to one count of conspiracy to commit securities fraud (plotting with one or more people to engage in insider trading) and faces a maximum of 5 years in prison.
The accounting partner also faces civil charges filed by the Securities and Exchange Commission. He has been terminated by KPMG which plans to sue him for damages and to avoid paying his retirement benefits. His contract with the firm likely entitled him to significant retirement payments unless he was terminated for illegal or other significant misconduct.
For more information, click here.
Who are the victims in insider trading cases?
What would motivate an accomplished and highly-paid member of a top accounting firm such as London to engage in insider trading?
What controls might the firm have initiated to enhance the possibility of early discovery of insider trading by an employee?
Craigslist is learning how the classified ads sections of newspaper must have felt in 1995 when it began its site for classified ads. Craigslist was free, except for job postings and real estate sales, and it gained a quick following. Because it was first, Craigslist has become the go-to place for everything from selling stuff to personals.
However, competition has begun. Craigslist begins by sending cease-and-desist letters to competitors, asking them to stop using Craigslist’s intellectual property. Sites such as 3Taps, PadMapper, and Discover Home Network take the information posted on Craigslist and do something nifty with it to attract users to their sites, known in cyber law as "scraping and repackaging." For example, PadMapper takes information from Craigslist, Apartments.com, and Rent.com to provide users with a full range of real estate options. PadMapper also has a Google maps tool that allows users to determine exact location of available properties, a feature not available on Craigslist or other real estate ad sites. have felt the heavy litigation arm of Craigslist. The three were sued by Craigslist for copyright infringement. You can read 3Taps' answer and counterclaim to the suit here.
Without the copyright issue, what happens to the suit? Well, the suit will march forward on other grounds. The Computer Fraud and Abuse Act (CFAA) is the statute that will be the basis of Craigslist’s claims that were not dismissed by the judge and that will be allowed to go forward. The legal basis grounded in CFAA is very simple – Craigslist sent a cease-and-desist letter to the defendants. They continued to use Craigslist data through work-arounds, something that constituted unauthorized access and, therefore, a violation of the CFAA, assuming that there is proof of a work-around.
What is happening with Craigslist is similar to what happened with eBay in its early days. New auction sites were creeping up on eBay. So, eBay blocked companies such as Bidder’s Edge from “scraping and repackaging.” Bidder’s Edge found its way around the eBay blocks and continued to use eBay data. eBay won an injunction against Bidder’s Edge by using a common law doctrine of trespass to chattels. The legal theory was quite simple -- you are on my property after I told you not to come here. Bidder’s Edge tried to continue without eBay data, but without that big franchise in its mix, it could not compete. Therein lies the consumer and antitrust concern. If there is no competition in a particular line of business and the original firm can effectively preclude market entry by competitors, is such a protected market best for consumers? If there is only one choice in online classifieds, is that one choice the best for consumers? You can read more about these competition issues here.
The issues involved in Internet competition are complex because they cross so many fields. Basing a decision on property rights may hamper competition. Allowing competition through “scraping and repackaging” may cost the original innovator its market position or its existence. More litigation to come!
1. Explain why Craigslist wants to protect its ads from use elsewhere.
2. List the legal theories used in preventing “scraping and repackaging.”
New York University School of Medicine (NYU) was awarded a multi-million dollar grant from the National Institute of Health to fund research on magnetic resonance imaging (MRI) technology. The funding enabled the college to hire a top scientist in the field, Dr. Yudong Zhu, a Chinese citizen. In turn, Zhu hired two close associates, both research engineers, who moved to New York from China to help direct the research..
The research methodology and results are confidential and quite valuable. A Chinese medical imaging company, United Imaging Healthcare, and a Chinese-sponsored research institute were allegedly willing to pay $500,000 for access to that information, and Dr. Zhu was allegedly willing to provide the data for that price. Dr. Zhu had no authority to sell or otherwise disclose the information which the university maintained as confidential. The two Chinese entities are direct competitors of NYU on MRI research, .and are involved in a similar MRI research project funded by the Chinese government.
Dr. Zhu and his associates have been arrested and charged with conspiracy to commit commercial bribery. Commercial bribery includes an employee accepting, without the employer’s knowledge, some benefit from another party, with the understanding that such benefit will influence the employee’s conduct in relation to the employer’s affairs. Conspiracy is the act of agreeing with one or more other person to jointly engage in illegal conduct.
Dr. Zhu is also charged with one count of falsification of records, which includes making a false entry in a company’s business records, and omitting to make a true entry in such records despite a duty to do so imposed by the nature of his position. Specifically, Dr. Zhu is accused of failing to disclose his relationships with the competing research companies in China, and the payments he received from them.
Said the federal prosecutors, the alleged theft of research “is a serious crime and will not be tolerated by this office . . . Protecting our nation’s technology and intellectual property against these types of thefts remains one of the FBI’s top priorities.” All three have been suspended from NYU, and the university is cooperating with the investigation.
The case elevates ongoing concerns about Chinese theft of U.S. trade secrets. Cases with similar allegations are pending in which defendants are accused of providing to Chinese companies trade secrets of Motorola, General Motors, and Dow Chemical.
What additional steps, if any, might the University have taken to protect itself from this crime?
Rajat Gupta is a businessman of no small accomplishment . He was a board member of numerous large corporations including Goldman Sachs, Proctor and Gamble, and American Airlines. He advised numerous corporate chief executives, and also non-profit organizations including the Bill & Melinda Gates Foundation.
His impressive business achievements were overshadowed in June, 2012 by his conviction for securities fraud (a deceptive practice in the purchase and sale of stock) and conspiracy (plotting with one or more other people to do something illegal) to commit insider trading.
Insider trading refers to the purchase or sale of a company’s stock while the trader is in possession of material, nonpublic information that would impact positively or negatively the value of the stock. Access to nonpublic information gives the insiders an unfair advantage. The concept is that all investors should be on equal footing when deciding whether to buy or sell securities. Also prohibited is informing others of inside information, known as tipping, and trading by the "tippee" utilizing that information.
Gupta’s convictions were based on evidence that he tipped Rajmaratnam information Gupta learned as a board member. Gupta was sentenced to two years in prison followed by a year of supervised release, plus payment of $5 million in fines. He is appealing (asking a second court to review decisions of a lower court) the decision and remains free while the appeal is pending.
To win an appeal on a case, a defendant must show more than that he disagrees with the earlier outcome. Instead, the defendant must establish a reversible error, meaning the judge in the original proceeding made errors on rulings that would have likely changed the outcome of the case. The opposite is a harmless error which does not call into question the validity of the judgment and will not result in reversal of the original decision. Unlike a trial which includes witnesses, direct and cross examination, the in-court proceeding in an appeal consists of only lawyers for each side arguing to (usually) a panel of judges, rather than just one jurist.
The hearing in Mr. Gupta's appeal was recently held. His attorney argued that the lower court made several incorrect decisions. One primary argument was that the trial judge wrongly excluded evidence from Mr. Gupta's daughter that she was told by Gupta that Rajaratnam had stolen money from him. Per Gupta’s argument on appeal, since he was angry at Mr. Rajmaratnam, Gupta would not have been inclined to help Rajmaratnam by giving him insider information.
The prosecutor argued that regardless of the correctness of the judge's ruling, the challenged testimony would not have changed the outcome of the case. Noted the prosecutor, Gupta called Mr. Rajaratnam within a minute of completing a phone conference of the Goldman board. Quickly thereafter Rajaratnam bought close to $35 million of Goldman stock.. Said the prosecutor, "The agrument that the phone calls and trades were coincidental was made to the jury, and it was rejected because of its absurdity."
A ruling on the appeal is expected sometime in the next few months.
For information click here and here.
Is Gupta likely to win his appeal?
U.S. Trustee Program, a division of the Department of Justice, monitors
bankruptcy cases, and the expenses and bills submitted by attorneys handling the
cases have caught their eye. Here are
some samples expenses submitted to bankruptcy courts by lawyers as reported by Emily Glazer and Jennifer Smith.
[“Bankruptcy Costs Attacked,” Wall Street Journal, May 13, 2013, p.
· reimbursement for a
pack of gum
· First-class airfare
for all trips taken by lawyers working on the bankruptcy
· Two three-night stays
at the Waldorf-Astoria for $3, 451.41 (the law firm did agree to knock $1,000
off this expense)
· Hourly fees of up to
$1,000 per hour for lawyers working on the bankruptcy estate
· Dinner for 17 people
that exceeded the federal guidelines of 20 per person for dinner by $3,605.60 –
the expense was ultimately withdrawn by the law firm
Law firms defend the expenses by arguing that
spending time on such expenses is penny-wise and pound-foolish, and that
overseers should focus on whether the process is being handled well.
Nonetheless, judges are tamping down on
expenses and are limiting reimbursement.
For example, one judge disallowed business class and first-class
flights, stating that the law firms could pay for the upgrade, but the bankrupt
estate was not going to do so.
Administrative expenses, including those of
accountants, appraisers, attorneys, and liquidation specialists are paid after
secured creditors in bankruptcy proceedings.
Other creditors and shareholders are paid for their losses only after
these administrative expenses have been paid.
The result is that most estates are gone following the disbursements to
secured creditors and administrators.
U.S. Trustee Program has completed several drafts of expense guidelines for bankruptcy attorneys, a guide that will place limits on their reimbursement. In addition, the U.S> Trustee Program will be looking into the
reimbursement of expenses of other professionals involved in bankruptcy
proceedings. The Program began with
attorneys, but plans to expand until it has audited all professionals involved
in providing services to bankrupt estates.
Describe the order of who gets paid in a
is responsible for oversight of expenses submitted for payment from the
all went public on April 15, 2013 when FBI raided the headquarters of Pilot Flying
J in Knoxville, TN, as the culmination of a five-year investigation into rebate
fraud by sales representatives of the company. The FBI seized spreadsheets,
e-mails, billing records, and discount notification sheets. Under contract terms, Flying J trucking
companies are entitled to rebates based on their levels of fuel purchasing. However,
salespeople for the company were not processing the rebates in order to
increase sales levels, profits, and, as a result, their bonuses and
commissions. Informants working for the
company secretly recorded conversations among Pilot employees and sales staff
who called the rebate withholding scheme terms such as “trimming,” “cost-plussing,”
and “screwing.” Lori McFarland, the discount coordinator at Pilot was recorded
on tape as saying, "Sometimes the salesperson is kind of jackin' around
with (the customer) and not wantin' em to know.” Alison Grant, “Federal raid of Cleveland
Browns onwer Jimmy Haslam’s Pilot Flying J offices yields contracts, emails,
spreadsheets,” The Cleveland Plain Dealer,
April 23, 2013.
salespeoples’ homes were also raided simultaneously.
Haslam, the CEO of Pilot, and a part-owner of the Cleveland Browns, released a
statement when the charges surfaced indicating that he had no knowledge of the
rebate scheme. However, an affidavit supporting the warrant for the searches
indicates that Haslam was aware of the five years of rebate fraud, an approach
that increased revenues at the expense of small and unsophisticated customers
the potential for extensive litigation from customers for breach of contract
increased, Mr. Haslam took the unusual step of speaking directly to trucking
company executives at a meeting in Indianapolis, saying, “I apologize for the
actions of our people. And I want to
look everyone in the eye and say we’ll do everything we can to make things
right.” Alison Grant, "Pilot Flying J's Jimmy Haslam says he absolutely had no knowledge of fuel rebate cheating by sales managers," The Cleveland Plain
Dealer, May 16, 2013.
Haslam also added a plea for the trucking executives to give his company a
second chance, to not work through lawyers, and then offered a promise, “You’ll
get 100% of your dollars and it will go very quickly. I think you’ll find it to be an efficient
process, much less cumbersome and all the money will come to you.” Valerie
Bauerlein and Betsy Morris, “Pilot Truck-Stop Chief Pleads: Don’t Sue Us,” Wall Street Journal, May 17, 2013, p. B1.
least one suit has been filed by Atlanta Coast Carriers and alleges inaccurate
billing and rebate procedures as well as racketeering activity. John Caniglia, “Haslam’s
Trucking service firm, sued by Georgia trucking company,” The Cleveland Plain Dealer, April 22, 2013. You can read the full
complaint filed in the suit here.
Watch Haslam discussing the issues with rebates here.
the customers’ rights under their contracts?
What damages might the customers have as a result
of having their rebates withheld?
Abercrombie and Fitch (A&F) is a clothing retailer that caters to young adults, teen-agers and children. It has 700 stores in the United States, employing 22,000 people, most of whom are college-age.
Social media has ignited anew comments made by A&F president Mark Jeffries in 2006. He was quoted as saying, “In every school there are the cool and popular kids, and then there are the not-so-cool kids. We go after the cool kids. We go after the attractive all-American kid with a great attitude and a lot of friends. A lot of people don’t belong in our clothes. Are we exclusionary? Absolutely.”
These statements suggest the company is targeting its clothes to certain categories of high school and college kids, and not others. Indeed, the company sells nothing larger than a size 10 except for large in women’s sizes and XXL (extra, extra large) for men. Although someone who fits in the latter size might not fit A&F’s description of “attractive”, Jeffries explains this apparent incongruity by noting that some “jock types” have large muscles and so need the larger size shirt. So athletes qualify as cool.
There are two situations in which illegal discrimination customarily occurs. One involves employment and the other, places of public accommodation. The law forbids treating protected classes differently in employment situations, including hiring, firing, promoting, providing access to training, etc. Additionally, a place open to the public cannot refuse admission or service to someone based on being in a protected class.
A&F, and virtually all stores, are places of public accommodation. Thus, they cannot refuse entry or services to would-be customers based on race, color, religion, national origin, gender, or disability. However, the status of being unpopular or not cool is not a protected class. Nor is being a loner or harboring a bad attitude Therefore, the stores can discriminate on these grounds. . Likewise, the law does not protect against discrimination based on body size, with one possible exception. If a person is obese and that circumstance causes disabling conditions, protection against discrimination based on disability may apply.
The store’s interest in “all-American” kids presents a different scenario. “All-American” suggests that people from other nationalities are not welcome. If A&F refused admission to, say, Hispanics or a Frenchman or someone who hailed from Japan, that would constitute illegal discrimination.
A&F apparently ran afoul of the employment anti-discrimination laws a few years ago. The fashion retailer was sued by African, Asian, Latino, and female employees claiming discrimination. The case was settled in 2006 with the clothier agreeing to pay $50 million and to undertake various initiatives to encourage diversity in its workforce. The action required by A&F includes periodic reports on the company’s efforts to hire diverse employees, mandatory advertising of openings in publications targeted to minorities, creation of a new Vice President for Diversity, institution of diversity training for all employees with hiring authority, adding “progress towards diversity” to assessment criteria of managers for bonus and compensation purposes.
One of the attorneys for the plaintiffs summed up the lawsuit as follows, “ Employees of Abercombie and Fitch should have been judged on their qualifications, and not their skin color or gender. The class action settlement compensates class members for being subjected to the challenged practices and ensures that Abercrombie will improve its employment practices and diversity efforts nationwide.”
Would you add any categories to the list of protected classes? If so, what would they be?
Here are the stats on texting, teens, and habits:
34% 16-17 yr olds texts while driving; but other studies put the figure at a range between 25 and 75%.
82% have a cell phone
77% believe they can safely text while driving
The teens who do text while driving are also
more likely to engage in other risky activities, such as riding with an
intoxicated driver or not wearing a seatbelt.
Researchers from the U.S. Centers for Disease Control and
Prevention (CDC) found four in every nine high school students had sent or
received texts while
driving in the past month.
And commuters are worse, with 49% indicating that they text while driving to and from work.
Although it is against the law to text while driving in 45 states, there has been an increase in the amount of texting going on while folks are driving, and there is very little enforcement done in any of the states to ticket those who do text while driving. In 39 of the states, texting while driving is considered a primary offense, which means that you can be ticketed just for texting -- texting while driving does not require that you be pulled over for another offense, such as running a red light or speeding. The ranges among the states for ticketing are 6-24 drivers per month receiving citations. Larry Copeland, "Few Drivers Nabbed While Texting," USA Today, ay 14, 2013, p. B1.
The one time when it becomes easy to issue a ticket is when you have an accident while texting. Your phone records will do you in --- they offer absolute proof of what you were doing when the accident occurred. If you are texting and have an accident, then you have not behaved as a reasonable person and you will have some level of liability for any injuries to others or damage to their cars and/or property. Texting drivers are 23 times more likely to have an accident while driving and texting. Because of an increasing number of accidents being caused by texting, Verizon, AT&T, Sprint, and T-Mobile have launched an "It Can Wait" ad campaign to convince drivers to stop texting while driving. In addition, there is some research into developing phones that would not work in cars.
1. Explain why you would have liability if you caused an accident if you were texting while driving.
2. Is lack of enforcement a reason for not obeying a law?
We are all sometimes attracted to restaurants with themes, such as ethnic (Chinese, Italian, Japaneese), family-oriented (Chuck-E-Cheese, Rain Forest Cafe ), or more adult-focused (Hooters). However, staying true to the theme cannot justify discrimination against a protected class. These are groups of people against whom federal and state laws prohibit discrimination. Protected classes include race, color, religion, national origin, gender, disability, age, union activity, and in some locales, marital status, criminal record if not job-related, sexual orientation, battered women, and possibly a few others.
The Longbow Pub and Pantry, a British tavern and sports bar in Brooklyn, NY, is accused of discriminating on the basis of national origin. Its British theme is reflected in its menu which includes fish-and-chips (of course!), London Pride Pub Ale, Welsh rabbit, and a Full English Breakfast. The sports it broadcasts are rugby and soccer. You get the picture.
The Pub was in need of a bartender. It placed an ad on Craig’s List that read, “Energetic and enthusiastic men and women with an appreciation of craft beer, good food, whisky and real football (a k a soccer). Being British definitely works in your favor.” Enter the New York City Commission on Human Rights. It has accused the pub of violating anti-discrimination laws by advertising for a particular national origin. The agency has offered to settle the case for $2500. So far the Pub has refused. It’s refusal appears to be based on a misunderstanding of the law.
The tavern owners claim that it is essential their employees are knowledgeable about things British. The Pub relays that it previously hired someone from New Jersey who didn’t know anything about English culture. The employee did not last long because the clientele was intolerant of her.
The Pub thus defends its actions claiming that being British is a bona fide occupation qualification. This is a defense to a discrimination case that requires the employer to prove that belonging to a protected class is an actual requirement of the job.
The Pub references the Hooter’s case but is misdirected. Hooter’s fought gender discrimination allegations by claiming that being female was a reasonably necessary trait to be a server at Hooter’s eateries, given the theme of scantily-clad women. Similarly Joe’s Stone Crab, a famous Miami Beach upscale restaurant, defended its policy of hiring only male servers by explaining it was emulating a mode of service practiced in England in high-end restaurants where males only served, and did so while dressed in tuxedos and gloves.
The Equal Employment Opportunity Commission, a federal agency that enforces laws against workplace discrimination, rejected both arguments. It held that preferences for certain traits in furtherance of a restaurant theme does not constitute a bona fide occupational qualification. Meals at Joe’s Stone Crab are now served by both women and men dressed in tuxedos and gloves. Hooters created a new class of employees, perhaps best described as very well-paid bussers, who earn the equivalent of women servers. This satisfied equal opportunity issues and enables the chain to preserve primary server responsibilities for revealing-attired females.
Concerning the Longbow Pub, EEOC would respond that the pub need not hire someone ignorant of things British, noting that lack of information about England is not a protected class. However, the Pub cannot exclude applicants of non-English origin who have the necessary knowledge. The agency’s general counsel explains it this way. “There’s an argument that someone who works in a Chinese restaurant, for example, may need to speak Chinese in order to communicate with their co-workers. But there’s a difference between saying you have to speak Chinese and saying you have to be Chinese.”
1. Devise an employment ad for the Pub that would pass legal muster.
was the biggest bank heist in the world, and it was accomplished in one fell
swoop by 26 men moving quickly at 2,904 ATMs in New York City alone and through
a total of 36,000 transactions throughout 26 countries using debit cards they
had created themselves after hacking into a Visa and MasterCard contractor for
prepaid cards. The prepaid card
companies are less secure than financial institutions and more readily “hackable.”
the thieves hack the system, thereby obtaining the account numbers used for the
withdrawal of cash for the prepaid accounts, they raise the withdrawal limits
on prepaid MasterCard debit accounts.
Using prepaid debit cards that they had created and encoded themselves,
the hackers were then able to take money from ATMs without targeting individual
bank accounts, something that results in a trigger because customers report the
unauthorized withdrawals. They were withdrawing from larger accounts that
belong to the banks and from which there is an expectation of ongoing
withdrawals from debit cards.
FBI described the crime as bank robbery via cyberspace. It was bigger than both “Good Fellas” and “Ocean’s
11.” A patient group of computer
geniuses put together a plan that exposes systemic risk in the banking system. Bank
robbers found physical weaknesses in security at banks and then cleaned out the
bank. These cyber thieves find weaknesses
in security on the Internet and then use the banks’ physical property (the
ATMs) to clean out the bank.
did a trial run in December, and were able to take $5,000,000 at 4,500 ATMs
without detection. So, on February 19, 2013, when the multinational heist was
pulled off, they went bigger. However, while the thieves were computer geniuses
in terms of developing their plan, they forgot the old-fashioned aspect used
for catching bank robbers – there are cameras running. The FBI was able to view surveillance videos
at ATMs, and two of the group’s members can be seen looking gleefully into a
is liable for the losses? Well, assuming that the money has been spent, the law
on electronic transactions is that customers are not liable for unauthorized
withdrawals as long as they report the transactions. However, in this case, the accounts that were
compromised were the banks’ own accounts. The bank ends up bearing the losses.
eight men who were indicted were charged with various crimes, including
computer theft as well as physical theft crimes related to the withdrawals at
the ATM. One FBI agent noted that “the dynamics of the Internet and cyberspace
are so fast that we have a hard time staying ahead of the adversary.” Marc
Santora, “In Hours, Thieves Took $45 Million in A.T.M. Scheme,” New York Times, May 10, 2013, p. A1.
does liability ultimately rest in a case of theft such as this?
will the systemic risk be addressed by banks and credit card companies?
The collapse of a clothing factory in Bangladesh not only killed 617 people but has appropriately set off a firestorm over the issue of workers' safety in that country. The death toll follows the loss of 112 workers at another clothing factory in November, 2012. In the wake of the latter event, building owners and governments promised factory inspections and worker safety. Sadly, not enough was done.
Concerning the current disaster, five factories were operating in the building although it was never approved for industrial use. In this country, a building cannot be used as a work site unless it has been approved for such use. Approval requires verification of compliance with many safety rules including construction integrity, fire safety, ventilation standards, and much more. The Bangladesh building also contained eight stories although it had been approved for only five. On the day of the collapse, large cracks appeared in the edifice. Police ordered an evacuation but the building’s owner assured tenants it was safe. A bank and some first-floor shops closed, but managers of the garment factories directed workers to report to their shifts.
Textiles make up more than 10% of Bangladesh’s gross domestic product and about 80% of the country’s exports, mainly to the United States and the European Union, an economic and political union of 27 nations. Owners of the Bangladesh companies say Western retailers put heavy emphasis on pricing, which affects low wages and poor working conditions for employees. Safety costs money.
Months before this most recent event, the United States had been considering revoking Bangledesh’s preferred trade status which lowers or eliminates tariffs on some products imported into this country. The reason given by the US is, “the lack of progress by the government of Bangladesh in addressing worker rights issues . . . we have conveyed our concerns on numerous occasions to the highest levels of the Government”. Likewise, the European Union is mulling over trade sanctions.
Among the companies believed to buy products produced by the factories housed in the collapsed building are J.C. Penny, Wal-mart, H&M, Benetton, Joe Fresh clothing line, and more. In 2011, some of these companies considered a proposal that would have required each of them to pay up to $500,000/year to fund independent inspectors who would be authorized to close unsafe facilities. The cost however was a deterrent and the retailers backed out.
In contrast, the United States boasts government regulation that requires employers to provide a safe working environment for their employees. Those laws are enforced by the Occupational Safety and Health Administration (OSHA). This agency, created by Congress in 1970, establishes safety standards for work places and enforces them against employers who put workers at risk. The agency also offers assistance to companies seeking to comply with the agency’s regulations. Additionally, OSHA educates workers about job hazards and how to minimize them, and offers training for supervisors and managers. OSHA also invites workers to file complaints if they observe unsafe conditions at work. The complaint need not be formal and can be filed by phone, mail, email or fax. It can be submitted anonymously to avoid fear of retribution although retaliation is expressly illegal. In response to a complaint, an OSHA inspector will likely conduct an on-site investigation. If violations are found, remediation will be required and follow-up inspections will result.
When governments are weak or corrupt, an enforcement system like OSHA cannot thrive. Instead, what limited enforcement efforts may exist are vulnerable to bribery and favor-granting, and disregard of labor laws and safety standards, Corporate social responsibility is a movement seeking to pressure retailers to focus not just on profits, but also on working conditions and the impact of businesses’ operations on the environment. The wanted pressure is derived from such factors as embarrassment from association with incidents like the Bangladesh factory collapse, boycotts, protests, and hoped-for concern about the wellbeing of one’s employees.
For more information click here and here.
1) If you were Vice President of Imported Goods for a company buying from Bangladesh, what action would you propose in the aftermath of the building’s collapse?
2) What action can United States consumers take to impact the safety of factories in Bangladesh and other countries where United States imports are made?.
Low or no sales taxes have been one of the advantages for consumers who use exclusively online retailers. However, a bill pending in the U.S. Senate, and called the Marketplace Fairness Act, would require all online retailers that have $1,000,000 or more in annual sales to collect sales tax for state and local governments for where their buyers live. And those online retailers who would be required to collect these taxes would be subject to audit by any state, city, or town of any buyer of their goods.
The Tax Foundation has issued a report that documents that there are 9,646 taxing entities in the United States, which means, as the Wall Street Journal notes, that a small business with over $1,000,000 in Internet sales would be subject to 9.646 audits. L. Gordon Cravitz, “9,646 Tax Burdens on the Internet,” Wall Street Journal, April 29, 2013 p. A15.
The legal issues have been swirling around Internet sales taxes since the late 1990s. Initially, the Internet was a no-man’s land, with the only retailers required to collect taxes being those who had stores in a buyer’s state. For example, if Nordstrom sells to a buyer in Arizona, Nordstrom must charge and remit Arizona sales tax because it has brick-and-mortar stores in Arizona. Also, if an online retailer has facilities in a state, such as in Nevada where many businesses have warehouses, it must collect and remit sales taxes for Nevada residents who buy from them.
Amazon has, for years, been able to avoid charging sales taxes with very strict rules on which states its employees could travel to and where it located any physical facilities. However, even Amazon has reached sales tax agreements in most states that allow it to escape sales tax collection or remit a pre-negotiated amount. In fact, Amazon has threatened to move facilities from states that have conducted audits of its sale tax collections. Rather than lose the jobs that come from such facilities, the states have negotiated with Amazon. Congress stayed out of the fray with the Internet Tax Freedom Act, passed in 1998. Its laissez-faire policy allowed the Internet market to grow. Now, however, states have been lobbying hard for the new federal legislation because revenues are low and only a handful of states have no sales taxes.
However, the brick-and-mortar/online retailers are behind the proposed legislation because they are at a competitive pricing disadvantage to online retailers who are able to charge no sales tax, hence the name “fairness” in the bill’s title.
There are critical constitutional issues here because of both the Commerce Clause and the limitations on states and local governments collection of taxes. States and cities and towns can tax interstate businesses, but there must be some presence of the online retailer in a state for the tax to be constitutional. In addition, Congress would be imposing taxes on some activities that could be considered intrastate. A long line of cases holds that businesses that simply sell to a resident of a state are not subject to the jurisdiction of that state’s courts. Could they be subject to that state’s or a city’s sales tax? If they add local services, such as Amazon arranging with local retailers for same-day delivery, the taxes apply.
The debate continues, but the bill is also progressing. Interestingly, Amazon is lobbying in favor of the Senate bill despite its years of fighting and negotiating sales taxes.
1. What are the competitive issues underlying Internet sales tax collection?
2. What are the legal and constitutional issues involved in requiring Internet retailers to collect sales taxes?
Five unemployed graduates of Brooklyn Law School sued the institution claiming false advertising and fraud. They asserted they relied on the school’s published employment data relating to its graduates when deciding to attend law school there. The suit accused the school of publishing inflated and misleading employment rates. Specifically plaintiffs allege that the institution failed to disclose that it aggregated the numbers for graduates who obtained full time jobs in law with those who obtained jobs that did not require a law degree and also included temporary, part-time and unpaid positions. Additionally, plaintiffs claimed the information concerning graduates’ salaries was skewed because the school actively pursued well-compensated graduates to respond to its annual graduate survey
The court noted that the information provided by the law school contained more information than plaintiff’s complaint acknowledged. For example, the school identified six employer types and provided the percentage of responding graduates who were employed in each. The six are: law firms, judicial clerkship, corporation, government, public interest and academia. The court stated that plaintiffs should have assumed that all but the first two categories included positions for which a law degree is not required.
Further, the law school alerted the reader that “these figures vary from year to year based upon market conditions as well as the number of graduates reporting salary information to us.” Additionally, the following caution is included with the salary information. “The range of salaries presented below is intended simply as a guideline to the approximate salaries you might expect to receive.”
Also, the percentage of employed graduates who responded to the survey is included in the information. For example, for 2010 the report states that the salary information was based on “40% of employed graduates overall.” The court said this should have alerted “reasonable college graduates” that the information reported was not a "statistically meaningful measure of the salary experience of all graduates for that year”. The court also held it would be unreasonable for a student to “assume that they could extrapolate from the data the income level they might expect 3-4 years down the road.”
The court also considered the “severe downturn in the economy” that impacted plaintiffs’ employment efforts.
For these reasons, the court determined that the ads were not false or deceptive and dismissed the false advertising claim.
To prove fraud, a plaintiff must establish that defendant made a knowingly false statement for the purpose of inducing plaintiff to rely on it, plaintiff justifiably relied, and plaintiff suffered a loss as a result. Plaintiffs allege they relied exclusively on the employment figures published by Brooklyn Law School in deciding to enroll and later, to remain in school. The court noted that other sources of information were available concerning the employment status of recent law school graduates. For example, the magazine U.S. News and World Report , annually ranks law schools and includes employment data. Also providing such information is the American Bar Association, a national professional association of lawyers, and the National Association for Law Placement, a service that collects and reports salary information in the legal field. The court thus determined that plaintiffs’ sole reliance on the law schools’ statistics was unreasonable.
Additionally, given the severe downturn in the economy during the years plaintiffs attended school and sought employment, even had the information published by the school been misleading or untrue, plaintiffs could not establish a direct connection between their “injury” (loss of anticipated financial benefit from payment of tuition) and the salary information.
The court thus dismissed the fraud case.
The lessons are clear. Marketing and buying goods and services require the engagement of both the buyer and the seller. A seller needs to be truthful when promoting . Buyers must investigate goods or services being considered for purchase, and cannot blindly rely on seller’s representations.
For more information, click here. Also see Bevelacqua v. Brooklyn Law School, 2013 WL 1761504 (Sup.Crt., Kings Co., 4/22/13).
Do you agree with the court's decision? Why or why not?
Sadly, an actress who appears in the just-released movie, "The Big Wedding" with Robert De Niro, has died from excessive alcohol. Shana Dowdeswell, 23, also acted in a broadway show with Cynthia Nixon of Sex and the City fame, and made appearances on the TV show Law and Order.
Dowdeswell’s favorite drinking spot was a bar not far from her house called The Basement. Her mother is suing the establishment claiming it should have stopped serving her before she reached the point of alcohol poisoning.
On a recent night Dowdeswell went to her favorite bar at midnight, drank at least four whiskey shots and left about 2:30. She passed out on the stoop of the house she shared with her parents. A passerby, out walking his dog, called 911. Dowdeswell’s father was awakened, looked out the window and saw the ambulance placing his daughter in the ambulance. She died five days later. The Medical Examiner ruled that the cause of death was "natural causes due to complications of acute and chronic alcoholism."
The bar manager denies ever seeing Dowdeswell drunk, although he acknowledges she was a regular there. Rather, "The times she was here, she had two or three drinks and a glass of water. As far as I know, she never got more than three drinks."
The mother has asked the police to crack down on bars that serve people who are clearly intoxicated. In response the police have begun a crack down on overserving and underage drinking.
Most states have a Dram Shop Act. This law imposes liability on bars that serve visibly intoxicated patrons who then injure a third person. Such injuries typically result from a car accident or a fight. The bar is liable in these situations eventhough the party causing the injury was the customer. Through this Act, the law seeks to encourage bars and restaurants with liquor licenses to dispense beverages responsibly.
Sometimes injuries result to the wrongfully-served patron, as in the case of a one-car accident. Some states’ dram shop laws permit the injured patron to sue the bar. Others do not. Dowdswell lived in New York. The law of that state does not permit the injured patron to sue; only third parties. Thus, if Dowdswell had survived but had been injured while en route home, she could not have successfully sued the bar.
If she lived in a state that permits such lawsuits, she would have to prove that she was visibly intoxicated when she was served. Based on the bar manager’s statement, this fact would likely have been disputed. Evidence in such a case might have included testimony by the bar tender, by a companion of the actress if she had gone out with a friend, and by other patrons at the bar. Additional witnesses might include Dowdsdell herself, and the dog owner who found her on the stoop. Ultimately a jury would have to weigh the evidence and determine whether the actress was visibly intoxicated at the time she was served any of her drinks.
Even in states such as New York where the wrongfully-served patron is not protected by the Dram Shop Act, a bar’s liquor license can be suspended or revoked for violation of liquor laws, including serving a customer who is visibly intoxicated. Usually proceedings to suspend or revoke a liquor license are commenced by the administrative agency responsible for issuing liquor licenses, often called the Alcohol Beverage Control Board or similar name. Without the liquor license, the establishment could not serve alcohol and thus would lose a portion of its business, perhaps forcing closure. While visible intoxication can be difficult to detect given that servers’ encounters with customers is limited, nonetheless liquor licensees must be ever-vigilant.
In many states Dram shop liability also applies when the bar serves alcohol to someone underage.
For further information, click here.
Is the Dram Shop Act unfair to bars and restaurants? Is there good justification for the Dram Shop Act? Are there other ways to achieve the same goal?