Tag: SEC

Week Adjourned: 12.2.11

A wrap-up of the latest class action lawsuits and settlements for the week ending December 2, 2011

Top Class Actions

Are your text messages being traced–by your own hand, so to speak? Ten years ago this would have been the stuff of a James Bond film. Today, sadly, it seems to be business as usual–or more accurately—if you can get away with it…

A group of consumers filed a nationwide class-action lawsuit this week, alleging that smartphone manufacturers HTC Corporation, HTC America, Inc. and Samsung Electronics Co., Ltd use software developed by Carrier IQ, Inc. (“CIQ”) that illegally intercepts incoming text messages and captures users’ key strokes—including those used to compose email and text messages or to dial numbers—without consumers’ knowledge or permission. The lawsuit asks the court to award damages under the Federal Wiretap Act, and prevent companies from including similar software in future smartphones.

The back story—in mid-November, software developer Trevor Eckhart published a video blog illustrating the operation of the CIQ software recording keystrokes, including information sent to secure websites using HTTPS security protocols used in e-commerce and other security-sensitive sites.

After Eckhart published his discovery and documents he found on CIQ’s website, CIQ accused him of copyright violations and threatened legal actions unless he capitulated to the company’s demands. The Electronic Frontier Foundation, a public-interest digital rights watchdog stepped in to defend Eckhart and CIQ later apologized to Eckhart and rescinded its demands.

According to CIQ, its software is embedded on smartphones to allow the company to collect data for the benefit of cellular carriers and device manufacturers, which is important to improving customer experience, such as logging information related to dropped calls. CIQ says its program does not log keystrokes or intercept messages and it does not store or resell the information.

The lawsuit alleges that, in reality, the program does record keystrokes and the content of messages, and could transmit the information to third parties, possibly including information sent to secure websites using HTTPS security protocols used in e-commerce and other security-sensitive sites such as banking.

The complaint was filed on behalf of four smartphone users and names smartphone manufacturers HTC and Samsung as defendants along with CIQ. The lawsuit could be amended to include other smartphone manufacturers that embed the CIQ software on their devices.

The suit, filed in the U.S. District Court for the Northern District of California, accuses the companies of violating the Federal Wiretap Act and California’s Unfair Business Practice Act. The Federal Wiretap Act prohibits the unauthorized interception or illegal use of electronic communications.

Very creepy.

Top Settlements

Could this be a Christmas Bonus? Borders Group Inc has agreed to settle an employment class action lawsuit brought by 198 former employees over Borders’ alleged violations of the Worker Adjustment Retraining and Notification (WARN) Act.

Borders, unfortunately, is in the last stages of liquidation, but has agreed to pay $240,000 as settlement to the former employees who claim they were laid off without sufficient notice, violating federal regulations. After legal fees are deducted, reports indicate that each plaintiff could receive $797. The lawsuit was filed by former employees of Borders’ Ann Arbor headquarters, led by an employee named Jared Pinsker. According to the settlement filing, the parties agreed to settle their dispute to avoid a protracted and costly legal battle.

Borders, which finished closing its stores and liquidating its inventory in September, filed for Chapter 11 bankruptcy protection in February. The company converted its case into a Chapter 11 bankruptcy liquidation in July. A U.S. bankruptcy judge in Manhattan must approve the settlement. Fingers crossed on this one.

Citigroup Settlement Update. Here’s an update on a proposed settlement we wrote about in late October, involving Citigroup and allegations of investor fraud. Judge Jed Rakoff, of the infamous New York Southern District, has rejected a proposed $285M settlement offered by Citigroup to end an civil complaint brought by the Securities & Exchange Commission (SEC) over allegations that they defrauded investors through highly risky mortgage-backed investments. The specific transaction referred by the SEC involved a $1 billion portfolio of mortgage-related investments. (Anyone seen “Margin Call”?)

According to a report by Forbes, “Rakoff is a critic of the custom that allows firms to use their pocketbook to settle charges rather than admitting guilt, and said there is a public interest in finding out the truth.” Consequently, Rakoff has scheduled a trial, for July 16, 2012. However, the SEC and Citi could bring a settlement to the table prior to that, again pending judge’s approval, which, if approved would keep the case out of court. Me thinks an example may be made here.

Ok–That’s enough for this week. See you at the bar.

Week Adjourned: 11.11.11

The weekly wrap up of Class Action Lawsuits and Settlements for the week ending November 11, 2011.

Top Class Actions

We’re Mad about Madoff! Still. Again. No kidding. Only this time someone’s naming a bank. Two former Bernard L. Madoff investors have filed a proposed consumer fraud class-action lawsuit against JP Morgan Chase & Co, claiming the banking giant was complicit in aiding Madoff in orchestrating the Ponzi scheme that robbed investors of more than $65 billion.

The lawsuit comes after a similar suit filed by the trustee appointed to represent Madoff’s victims was dismissed. The court ruled that the case filed by Irving Picard lacked standing, holding those claims belonged exclusively by the victims of Madoff’s fraud.

Among the allegations leveled in the lawsuit, investors charge that JP Morgan operated as Bernard L. Madoff Investment Securities LLC’s (BLMIS) primary banker for more than 20 years, and were faced with many indications that the fund was nothing more than a Ponzi scheme.

The lawsuit details that since 1986, all the money BLMIS collected from unwitting investors passed through JP Morgan in an account known as the 703 Account, where BLMIS co-mingled funds from investors.

The lawsuit contends that JP Morgan should have known that BLMIS’s activities were grossly inconsistent with those of an investment firm through a number of signs of impropriety.

JP Morgan, for example, was required to review a filing submitted by BLMIS to the SEC known as the Financial and Operational Combined Uniform Single Reports or FOCUS. That report, the lawsuit states, contained glaring irregularities that JP Morgan should have reported to the SEC, including factual omissions and errors, such as failing to report any commission revenue.

Beginning in 2006 JP Morgan sold structured investment products related to BLMIS feeder funds to its clients, profiting on those transactions as well. In the course of structuring those products, JP Morgan performed due-diligence on BLMIS and became suspicious that the BLMIS was a fraud but did not report its findings, the lawsuit alleges, but did redeem $145 million from BLMIS and $276 million from BLMIS feeder funds in 2008.

The lawsuit has been filed on behalf of Stephen and Leyla Hill, investors who incurred losses in BLMIS. It claims JP Morgan had knowing participation in a breach of trust, aided and abetted fraud, aided and abetted a breach of fiduciary duty, aided and abetted conversion and received unjust enrichment. The suit seeks damages for the plaintiffs.

Top Settlements

Big Banks paying Big Bucks: But are the bucks big enough? A $410 million settlement was approved this week—you may have seen it splashed all over the news—by a federal judge in Miami, ending an overdraft fees class action lawsuit against Bank of America (BoFA) that claimed the bank charged excessive overdraft fees.

Only thing is there are reportedly more than 13 million current and former customers who will be affected by the decision, customers who used debit cards over the past 10 years. Some reports suggest that most of the plaintiffs will likely only receive a fraction of the overdraft fees they paid. Ummm.

The lawsuit alleged that BoFA processed its debit card and check payments in such a way as to incur more customer overdrafts and consequently more fees. BoFA insists that its system was proper, despite the settlement. The settlement includes an estimated $123 million in legal fees for plaintiff’s lawyers…

Another bittersweet asbestos settlement this week. The widow of a man who died from peritoneal mesothelioma cancer has been awarded a settlement—a “substantial” sum—amount not publicly disclosed as compensation for loss of her husband, to put it bluntly. The settlement, negotiated on behalf of Mrs. Veraldo, was obtained midway through trial.

Mrs. Veraldo sued as executrix of the estate of her late husband, Randy Veraldo. He was 52 when he died in 2009, seven months after being diagnosed with peritoneal mesothelioma cancer, court records show.

Mr. Veraldo was a parts handler at a Teterboro, N.J., warehouse from 1978-85. The job required him to unpack clutch plates delivered on a near-daily basis from various suppliers. The clutch plates were said to contain asbestos, a mineral once widely used in the U.S. as a cheap insulating material until it was found to cause mesothelioma cancer.

Ok—That’s enough for this week. See you at the bar. And on this Veterans Day, a toast to all veterans, living and gone, the world over.