By Jeffrey M. Haber What type of fraud is Laurence Balter accused of? Laurence Balter, a former fund adviser and registered investment advisor, stands accused by the Securities and Exchange Commission ("SEC") of "multiple breaches of fiduciary duty." Breaches of fiduciary duty occur when financial advisers prioritize their own interests over those of their clients. The SEC accuses Balter, who was operating through Oracle Investment, located in Washington and Hawaii, of collecting more than $500,000 in profitable trades from an omnibus account (an account between two future brokers), while leaving his clients, many of them elderly, relatively naïve investors, holding the bag. The SEC initiated a cease-and-desist proceeding on the matter. Allegations of this type are, of course, serious. Often the situation is extremely complicated. Professional experience is always required to unravel the tangle of evidence. If you find yourself or your firm accused of improperly managing a customer's account, or if you are an investor who believes that your account has been mismanaged, you should immediately contact a securities arbitration attorney. The SEC, which is taking its case against Balter before an internal administrative court, alleges that he "reaped more than a half-million dollars in ill-gotten gains by siphoning winning trades from his clients and withdrawing more than his fair share of management fees," while misleading his clients about both his investment strategies and his fees. The SEC states that its goal in the matter is to determine appropriate remedial action in terms of appropriate civil penalties and reimbursements to Balter's former clients. Not the First Time Balter's Actions Have Come Under Scrutiny This is not the first time Balter has been accused of fraudulent conduct. According to Financial Industry Regulatory Authority (FINRA) records, Balter has twice before been the subject of customer disputes, one involving excessive fees and the other concerning suitability of investments and charges of an unauthorized sale. The SEC describes three distinct schemes, involving 120 accounts, that Balter is accused of perpetrating between 2011 and 2014, and points out that during the years in question, Oracle Investment Research managed accounts were, at their peak, valued at $47 million. An Ounce of Prevention For the advisor, the best way to deal with allegations of misconduct is to prevent them by following the rules of the road. This is one of the reasons it is invaluable to engage the services of an experienced securities attorney to make sure your actions comply with existing (and changing) regulations. For the customer, the best way to protect yourself from misconduct is to be vigilant in the review of your account. This means, among other things, reviewing your monthly statements and asking questions if something looks wrong. After all, it is your hard-earned money that may be at risk. This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By Jeffrey M. Haber Bryan Reichel, founder of PureChoice — deceptive or duped? Business lawsuits involving accusations of fraud can be complicated and confusing. It is sometimes difficult to decipher who is lying and who is telling the truth. On the one hand, there is a successful CEO, who is alleged to have committed fraud to develop or maintain a lavish lifestyle. While, on the other hand, there is an accuser who stands to gain money and power by overthrowing the existing kingpin. If you find yourself accused of fraudulent behavior, it is essential that you engage the services of an experienced business attorney who will untangle the threads to find out where the deception begins and where it leads, and to vigorously defend you from your accuser. Two Opposing Views of Bryan Reichel Bryan Reichel, 61, founder and CEO of PureChoice, a Minnesota company that developed and sold air-monitoring equipment, has been described by his lawyer as a visionary who managed to survive the financial crisis, but was then evicted from his own company by greedy investors. The prosecuting attorney, of course, has an entirely different point of view. He presented Reichel as a fraud who lied to the investors who helped him establish his new business in order to retain the profits for himself. According to the federal grand jury that indicted Reichel in 2014, he committed seven counts of wire fraud and lied to his investors. In 2015, a grand jury added five more charges based on his alleged attempts to hide his assets in order to defraud the bankruptcy court. The federal prosecutor, in addressing the jurors, claimed that “This case is all about self-dealing.” The Specific Allegations When Reichel was soliciting investments, he touted PureChoice as a company on the cusp of success. Indeed, his company initially drew attention from some big Minnesota companies, such as Honeywell and 3M. It is alleged, however, that he was lying about his company's success and that PureChoice was already losing money at the time. It is further alleged that, in a Ponzi-like scheme, he was using new investment money to pay off old investors, as well as to fund his lavish lifestyle, which included a large mansion, many posh vehicles, pricey trips, and an expensive gun collection. From 1992 until 2011, his investors lost a net total of approximately $25 million. In addition, by 2010, his company had racked up $40 million in debt. Unsurprisingly, at trial, Reichel's attorney presented an entirely different story. He described Reichel as an innovative entrepreneur who won the support of many well-informed corporate executives who invested millions of dollars in PureChoice. Some were even guarantors of PureChoice's debt. Among the investors in PureChoice were a father-and-son team, George and David Anderson, heirs to Crown Iron Works. While the government alleges that they were the ones who lost the most from Reichel's scheme, approximately $12.3 million, Reichel's attorney presents a completely different series of facts. Reichel's attorney notes that George Anderson believed, after the Sept. 11 attacks, that Reichel's technology could be used to save the U.S. power grid from an electromagnetic pulse attack. Armed with this idea, Anderson traveled to Washington to testify before a congressional committee about "his" proposed solution to an imminent threat. Having started investing in PureChoice in 2003, he and his son eventually took over the company and its intellectual property, ousting Reichel in 2010. In 2011, Reichel filed for bankruptcy while fighting a lawsuit in which Anderson was seeking to recover a $1.5 million loan from him. If this all seems complicated, hold onto your hats. Anderson's attorney says that Reichel moved family finances and failed to disclose significant amounts of personal property when he filed for bankruptcy protection. Reichel's lawyer, on the other hand, says this was the result of poor advice he was given by a previous attorney. Reichel also accuses Anderson of falsely reporting to the bankruptcy court that Reichel had hidden gold bars and stashed substantial amounts of money in the Cayman Islands. The Takeaway It is clear from the complications of a case like this why it is so important to retain an experienced business law and litigation attorney if you become entangled in a lawsuit alleging fraud. It is unlikely that anyone without such a background could extricate him or herself from such a situation. This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

What is behind the lawsuit accusing Hitachi of Stealing Trade Secrets from Purolite? At the end of August, Purolite, an American water treatment company based in Pennsylvania, filed a lawsuit against the American branch of Japanese conglomerate Hitachi. According to Purolite, Hitachi violated the stipulations of a business agreement by sharing Purolite's confidential trade secrets concerning the decontamination of water, including water contaminated by radioactive waste. Purolite accuses Hitachi of sharing Purolite's trade secrets with other companies in expectation of securing a major contract and cutting Purolite out of the deal. The lawsuit was filed in U.S. District Court for the Southern District of New York. The case revolves around technological methods Purolite developed for repair of the damage caused by the disaster at Japan's Fukushima Daiichi Nuclear Power Plant in 2011. The catastrophic damage resulted from the combined forces of an earthquake and subsequent tsunami that shut down the facility's cooling system. Tragically, the plant still continues to contaminate not only the water used to cool its nuclear reactors, but the groundwater as well. What Makes the Fukushima Site Unique? Several factors differentiate the Fukushima site from other nuclear power plants. These include: the large amount of saltwater at Fukushima; the presence of a much higher number of atoms with excess nuclear energy (radionuclides); and the tremendous amount of water requiring radioactive waste removal (the largest in history). All of these factors complicate the cleanup process and all were taken into consideration when Purolite began work on developing a core technology. The water decontamination system Purolite created makes use of ion-exchange resins formed into tiny beads that are capable of trapping radioactive ions for removal. What makes the system developed by Purolite all the more effective is that it enables the removal of radionuclides to a non-detectible level without a desalination process. Purolite's Case of Trade Secret Misappropriation A confidential business agreement signed in 2011 by Purolite and Hitachi-GE Nuclear Energy ("HGNE") was designed as a collaboration in which Purolite would provide water treatment expertise to HGNE, whose expertise is in the operation of power plants, in order for the team to obtain contract work at Fukushima. According to the agreement, HGNE was prohibited from sharing trade secrets for a period of 10 years. When their joint proposal was submitted to TEPCO, the Japanese electric company poised to complete the cleanup of Fukushima, however, the bid was rejected. Purolite alleges that HGNE, having violated the business agreement, began working with other companies to develop less costly water treatment processes based on Purolite's technologies and to outbid their "partners." Purolite further alleges that HGNE had already breached the agreement, even before the bid was filed, by disclosing trade secrets to competitors, including Avantech, a water treatment firm located in South Carolina. The lawsuit lists eight counts of allegations against Hitachi, Avantech and other defendants and seeks damages of at least one billion dollars. One count included in Purolite's complaint has been made under the terms of the recently passed Defend Trade Secrets Act of May 2016. This act amended the federal criminal code, enabling owners of trade secrets to file civil action in U.S. district courts to seek injunctive relief, compensatory damages and attorney's fees in cases of trade secret misappropriation. If your company is involved in a dispute involving misappropriation of trade secrets, it is crucial that you have the support of a skilled business attorney to protect your firm's reputation and its bottom line. This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

By: Jonathan H. Freiberger As discussed in our prior BLOG “Courts Will Not Assist An Effort To Enforce An Illegal Contract,” New York courts will not aid in the enforcement of a contract when the subject matter is illegal. For example, in Bonilla v. Rotter, 36 A.D.3d 534 (1st Dept. 2007), the plaintiff was a suspended attorney. The Defendants assumed responsibility for the plaintiff’s cases during the suspension. The plaintiff claimed that he had an agreement with the defendant to provide services as an “investigator” pursuant to which he would, using his contacts at various hospitals, contact injured individuals and “encourage” them to use the defendants’ personal injury firm. In exchange, the plaintiff would receive a $2,500 fee for each referred case that was settled. The motion court denied the defendants’ motion to dismiss. The First Department reversed, finding that the agreement that the plaintiff sought to enforce was “one between a nonlawyer and an attorney to split legal fees which is proscribed by Judiciary Law § 491 [and a]ccordingly, … is illegal and plaintiff is foreclosed from seeking the assistance of the courts in enforcing it.” Bonilla, 36 A.D.3d at 535 (citations omitted). To support its holding, the Bonilla Court reiterated that “[i]t is the settled law of this State that a party to an illegal contract cannot ask a court of law to help him carry out his illegal object, nor can such a person plead or prove in any court a case in which he, as a basis for his claim, must show forth his illegal purpose.” Id. (citations, internal quotation marks and ellipses omitted; hyperlink added). The plaintiff in Sabia v. Mattituck Inlet Marina and Shipyard, 24 A.D.3d 178 (1st Dept. 2005),[1] previously sold a boat he owned (the “First Boat”) to defendant Boat Broker. When the plaintiff found a replacement boat (the “Second Boat”) at defendant Mattituck (a boat seller), he structured the transaction as a purchase from Boat Broker (instead of Mattituck) to avoid sales tax on the “trade-in” value of the First Boat. Thereafter, the plaintiff sued, inter alia, Mattituck for, inter alia, breach of contract alleging that the Second Boat was defective. The First Department reversed the motion court’s denial of summary judgment because “the contract for the purchase of the boat was illegal” because “the deal was documented in a fictional manner for the purpose of improper tax avoidance [and] no right of action can arise from an illegal contract”. Sabia, 24 A.D.3d at 179 (citation omitted). Accordingly, the plaintiff was “barred, as a matter of law, from suing on the alleged agreement for the purchase of the boat.” Id. (citation omitted). See also Valenza v. Emmelle Coutier, Inc., 288 A.D.2d 114 (1st Dept. 2001) (employees action for intentional infliction of emotional distress against the defendant employer dismissed because the plaintiff, who failed to report her income to the IRS, was being paid “off the books” “pursuant to an illegal contract”); see also Carmine v. Murphy, 285 N.Y.413, 416 (1941) (plaintiff cannot recover the unpaid balance on the sale of alcoholic beverages because he did not possess the required license to sell alcoholic beverages and, thus, the sales contract was illegal and “no right of action can spring” therefrom); Advanced Dental of Ardsley, PLLC v. Brown, 229 A.D.3d 589 (2d Dept. 2024) (asset purchase agreement for dental practice found to be unenforceable illegal fee splitting arrangement in violation of the Education Law). Topical to today’s BLOG and the GLP-1 craze is Roberts v. Puopolo M.D., P.C., 24 CIV. 8162 (LGS), 2025 WL 2773007 (S.D.N.Y. Sept. 25, 2025).[2] The plaintiff in Roberts was employed by the defendant physician as COO until he was “de facto” terminated. Roberts, 2025 WL 2773007 at *2. While employed, however, the plaintiff was treated by the defendant physician with GLP-1s for weight loss. The Plaintiff experienced rapid weight loss and developed side effects that, according to two of the plaintiff’s physicians, resulted from the defendant’s “depart[ure] from the standard of care” regarding the prescribed GLP-1 regimen. Plaintiff ultimately signed a separation agreement with his employer that provided for severance and additional payments for “transition services fees”. Significantly, the agreement also contained a broad release. The plaintiff subsequently sued the defendant physician for, inter alia, malpractice. In response, the defendant moved for summary judgment based on the release. In opposition to the motion, the plaintiff argued, inter alia, that the release was unenforceable because the separation agreement was actually a medical malpractice settlement designed to circumvent the mandatory reporting requirements for such settlements under federal and state law. The Plaintiff’s motion was denied because “the current record cannot resolve whether the Agreement[] operated, in effect, as malpractice settlements structured to evade mandatory reporting, discovery is warranted.” Id. at 6. The Court noted that if “Plaintiff[] can show that the Agreement[ was], in effect, [a] medical malpractice settlement[] that circumvented reporting requirements, the release[] may be unenforceable. Id. at 6. Against this backdrop, we discuss Compensation Guidance, Inc. v. Aspro Plumbing, Inc., a case decided by the Appellate Division, Second Department, on September 2, 2026.[3] The plaintiff in Compensation is a “consultant specializing in obtaining credits, refunds, and reduced premiums on workers' compensation policies and past audits.” The plaintiff entered into a contract with defendant pursuant to which the plaintiff was “‘to obtain refunds on workers compensation premiums’ the defendants paid in exchange for the plaintiff ‘receiving a fixed percentage of the savings obtained’ on a contingency basis.” The plaintiff commenced an action for breach of contract and unjust enrichment after the defendant stopped making payments under the agreement. The plaintiff moved for summary judgment and the defendant cross-moved to dismiss the complaint pursuant to CPLR 3211(a)(7). The motion court denied the motion and granted the cross-motion. The Second Department affirmed, holding that the agreement was an illegal contract because the plaintiff was an unlicensed insurance consultant. In so doing, the Court stated: Insurance Law § 2102 provides that "[u]nless licensed as an insurance agent, insurance broker or insurance consultant, no person, firm, association or corporation shall in this state identify or hold himself [or herself] or itself out to be an insurance advisor, insurance consultant or insurance counselor." "It is impermissible for a person, firm, association or corporation to hold itself out as an insurance consultant, receive any fee for examining policies, or make recommendations with regard to insurance in New York without being licensed as an agent, broker or consultant, even though employed by a company that is itself licensed" (Ops Gen Counsel NY Ins Dept No. 07-03-04 [Mar. 2007], 2007 WL 1119254, * 1; see Insurance Law §§ 2102, 2107). Here, the factual allegations and inferences to be drawn from the complaint do not allow for an enforceable right of recovery, as it is undisputed that the plaintiff, Compensation Guidance, Inc., was not licensed by the State of New York at the time it allegedly provided services. Accordingly, the plaintiff is not legally permitted to receive any fee for examining policies and, therefore, the alleged contract was unenforceable. [Some citations omitted; hyperlinks added.] Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice. [1] Eds. Note: while at a different law firm, the writer of this article was counsel to Mattituck Inlet Marina and Shipyard, Inc. (“Mattituck”) in Sabia. [2] The factual recitation of Roberts is simplified for editorial purposes. [3] The factual recitation of Compensation is simplified for editorial purposes.

By: Jonathan H. Freiberger The Courts of New York will not aid in the enforcement of a contract when the subject matter is illegal. Cases standing for this seemingly unremarkable proposition are varied. For example, in Bonilla v. Rotter, 36 A.D.3d 534 (1st Dept. 2007), the plaintiff was a suspended attorney. The Defendants assumed responsibility for the plaintiff’s cases during the suspension. The plaintiff claimed that he had an agreement with the defendant to provide services as an “investigator” pursuant to which he would, using his contacts at various hospitals, contact injured individuals and “encourage” them to use the defendants’ personal injury firm. In exchange, the plaintiff would receive a $2,500 fee for each referred case that was settled. The motion court denied the defendants’ motion to dismiss. The First Department reversed, finding that the agreement that the plaintiff sought to enforce was “one between a nonlawyer and an attorney to split legal fees which is proscribed by Judiciary Law § 491 [and a]ccordingly, … is illegal and plaintiff is foreclosed from seeking the assistance of the courts in enforcing it.” Bonilla, 36 A.D.3d at 535 (citations omitted). To support its holding, the Bonilla Court reiterated that “[i]t is the settled law of this State that a party to an illegal contract cannot ask a court of law to help him carry out his illegal object, nor can such a person plead or prove in any court a case in which he, as a basis for his claim, must show forth his illegal purpose.” Id. (citations, internal quotation marks and ellipses omitted). In Parpal Restaurant, Inc. v. Robert Martin Co., 258 A.D.2d 572 (2nd Dept. 1999), the Appellate Division affirmed the motion court’s finding that “as a matter of law, by reason of the affidavit of the plaintiff’s president, its sublease … was created for the purpose of improper tax avoidance [and, therefore,] the contract was illegal, thereby precluding any right of action arising from such unlawful undertaking.” Parpal, 258 A.D.2d at 573 (citation omitted). A similar result was reached in Sabia v. Mattituck Inlet Marina and Shipyard,24 A.D.3d 178 (1st Dept. 2005). [Eds. Note: while at a different law firm, the writer of this article was counsel to Mattituck Inlet Marina and Shipyard, Inc. (“Mattituck”) in Sabia.] There, plaintiff previously sold a boat he owned to defendant R. Gil Liepold Assoc. (the “First Boat”). When the plaintiff found a replacement boat (the “Second Boat”) at Mattituck that he wanted purchase, he structured the transaction as a purchase from R. Gil Liepold Assoc. so that sales tax could be avoided on the “trade-in” value of the First Boat. Thereafter, he sued, inter alia, Mattituck for breach of contract and fraud alleging that the Second Boat was defective. The motion court denied Mattituck’s motion for summary judgment finding that issues of fact existed “as to which defendant was the true seller”. The First Department reversed noting that the identity of the actual seller was of no moment because “the contract for the purchase of the boat was illegal.” Sabia, 24 A.D.3d at 179. The Court found that “the deal was documented in a fictional manner for the purpose of improper tax avoidance [and] no right of action can arise from an illegal contract.” Id. Accordingly, the plaintiff was “barred, as a matter of law, from suing on the alleged agreement for the purchase of the boat.” Id. (citation omitted). The Court also held that “[t]he fraud claim based on the same transaction must also be dismissed, since relief cannot be granted on a tort cause of action that requires proof of the plaintiff's knowing entry into an illegal contract.” Id. (citations omitted). The First Department, in Valenza v. Emmelle Coutier, Inc., 288 A.D.2d 114 (1st Dept. 2001), also found illegality to bar any recovery by the plaintiff. In Valenza, the plaintiff sued her former employer for intentional infliction of emotional distress after her employment was terminated. Because the plaintiff was being paid “off the books” and not reporting her income to the IRS, the Court concluded she was employed “pursuant to an illegal contract” and held that “[s]ince a party to an illegal contract cannot resort to a court of law for help in obtaining its enforcement, it follows that plaintiff's claim for intentional infliction of emotional distress, which in this case requires proof of the illegal contract, cannot be enforced.” Valenza, 288 A.D.2d at 114. See also Carmine v. Murphy, 285 N.Y.413, 416 (1941) (plaintiff cannot recover the unpaid balance on the sale of alcoholic beverages because he did not possess the required license to sell alcoholic beverages and, thus, the sales contract was illegal and “no right of action can spring” therefrom.). On July 17, 2024, the Appellate Division, Second Department, decided Advanced Dental of Ardsley, PLLC v. Brown, a case in which the plaintiff sought to enforce an illegal contract. The plaintiff in Advanced Dental sold its dental practice to the defendant (a licensed dentist who maintained his own separate practice) pursuant to an asset purchase agreement. A portion of the purchase price was to be paid as a percentage of the revenue generated by, inter alia, the plaintiff’s practice. The motion court denied the defendant’s motion to dismiss the plaintiff’s complaint sounding in breach of contract and unjust enrichment and the defendant appealed. In reversing the motion court, the Second Department stated: As the defendant correctly contends, the APA constituted a voluntary prospective arrangement for the splitting of fees in violation of the Education Law because it required the defendant to pay the plaintiff a percentage of revenue generated by the plaintiff's practice and, under certain conditions, the defendant's own separate dental practice (see Education Law §§ 6509-a, 6530[19]). It is the settled law of this State (and probably of every other State) that a party to an illegal contract cannot ask a court of law to help him or her carry out his or her illegal object, nor can such a person plead or prove in any court a case in which he or she, as a basis for his or her claim, must show forth his or her illegal purpose. Where the parties' arrangement is illegal the law will not extend its aid to either of the parties or listen to their complaints against each other, but will leave them where their own acts have placed them. Accordingly, the Supreme Court should have granted those branches of the defendant's motion which were pursuant to CPLR 3211(a)(7) to dismiss the causes of action alleging breach of contract and unjust enrichment. (Some citations, internal quotation marks and ellipses omitted.) Jonathan H. Freiberger is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

Practitioners involved in quitam litigation often encounter questions concerning when the statute of limitations begins to run. Under the False Claims Act (“FCA”), the government (or relator) must file a suit not “more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed.” 31 U.S.C. § 3731(b). The majority of the courts have held that “the official of the United States” means the U.S. Attorney General or his/her designees. E.g., United States v. Wells Fargo Bank, N.A., 972 F. Supp. 2d 593, 607 (S.D.N.Y. 2013). Recently, a federal district court in Illinois had the opportunity to consider this issue. Although the court adopted the majority interpretation concerning who within the government must have notice of an FCA claim, it allowed discovery into other governmental entities to determine whether the government was on notice of the alleged claims. United States v. Kellogg Brown & Root Services, Inc., No. 4:12-cv-04110-SLD-JEH (C.D. Ill. Sept. 16, 2016). Background: On November 19, 2012, the government filed a lawsuit against Kellogg Brown & Root Services, Inc. (“KBR”), alleging violations of the FCA and breach of contract relating to logistical support provided by KBR to the United States Army during the Iraq war in 2004. According to the government, KBR submitted bills from a subcontractor, First Kuwaiti Trading Company (“FKTC”), that it “knew or should have known” were “wildly inaccurate.…” Slip op. 1-2. These bills were submitted in 2004; the government, however, did not file its complaint until November 19, 2012. KBR filed a motion to compel the government to respond to various discovery requests, including those relating to the running of the statute of limitations. KBR argued that the government’s suit was time-barred, because a government official may have had knowledge of the allegations prior to November 19, 2009. In response, the government claimed that the action was not time-barred under the FCA’s tolling provision. See 31 U.S.C. § 3731(b)(2). The Court’s Ruling: The court framed the question to be resolved as “which government officials’ knowledge matters” in determining when the statute of limitations begins to run. Slip op. at 6. It began answering that question by noting that “[T]he text and structure of the False Claims Act, as well as the overwhelming weight of the case law that construes it, require a narrower reading of § 3731(b)(2) ….” Id. As such, “The official of the United States,” as used in the FCA, “means the Attorney General or her designees.” Id. KBR argued that Section 3731(b) “should be construed as broadly as” the statute of limitations applicable to breach of contract actions. Slip op. at 7 (citing 28 U.S.C. § 2416(c)). Section 2416(c) provides that a suit is time barred after a certain period of knowledge “by an official of the United States charged with the responsibility to act in the circumstances.” (Emphasis added.) Courts have interpreted Section 2416(c) “to encompass government employees outside the Department of Justice.” Slip op. at n.11. Looking at the two provisions, the court emphasized that they were different in text and meaning. Id. at 6-9. Noting the difference between “an official” and “the official,” the court found that the breach of contract statute of limitations applied to lawsuits filed by a broad range of government entities, while the FCA statute of limitations applied to lawsuits filed by the Attorney General or his/her designees. Id. Having answered the question framed (i.e., “which government officials’ knowledge matters”), the court turned to when the statute of limitations is triggered, noting that the statute of limitations begins to run when “the government official charged with bringing the civil action discovers, or by reasonable diligence could have discovered, the basis of the lawsuit.” Slip op. at 7 (citing United States ex rel. Miller v. Bill Harbert Intern. Const., 505 F. Supp. 2d 1, 7 (D.D.C. 2007)). Thus, if the “relevant government official or officials knew or should have known of the basis of the FCA claims via reasonable diligence before November 19, 2009, then those claims are time-barred.” Id. KBR sought broad discovery to show that, as noted, the statute of limitations was triggered before November 19, 2009. KBR argued that many government agencies had investigated KBR for similar alleged misconduct. Thus, if any of those agencies “report[ed] facts that would put DOJ Civil on notice of a potential FCA claim,” it was entitled to learn of those reports. Slip op. at 12. The court agreed, holding that “KBR [was] entitled to discovery related to government communications to DOJ Civil that could tend to show DOJ Civil’s knowledge of facts that should have put it on notice of any FCA claims arising out of KBR’s alleged false claims.” Id. In so holding, the court rejected the government’s argument that only “publicly available government reports or memoranda are relevant to its knowledge” as being “unduly narrow.” Id. at 11. A copy of the court’s opinion can be found here. Takeaway: The court’s decision is consistent with Rule 26(b) of the Federal Rules of Civil Procedure, which provides, in pertinent part, that the scope of discovery in a civil action encompasses “any nonprivileged matter that is relevant to any party’s claim or defense . . . .” Fed. R. Civ. P. 26(b). Whether the DOJ received information to put it on notice of the claims asserted against KBR sufficient to trigger the FCA’s statute of limitations cannot be determined in a vacuum. A court should be provided all information received by the DOJ material to the alleged claims in considering when the FCA statute of limitations was triggered. As the KBR court noted, it would be “unduly narrow” to limit the inquiry to only publicly-available information. It remains to be seen whether other federal courts will adopt the holding and rationale of the KBR court. However, reason and fairness dictate that a defendant should be able to inquire whether the Attorney General and his/her designees received material information from other government agencies that would put it on notice of the claim being asserted. This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

On September 29, 2016, the Securities and Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) announced that Och-Ziff Capital Management Group LLC (“Och-Ziff”), a New York-based alternative investment and hedge fund manager, and OZ Africa Management GP LLC (“OZ Africa”), its wholly-owned subsidiary, agreed to pay more than $400 million to settle charges that they used intermediaries and business partners to bribe officials of various African governments. The SEC will receive nearly $200 million to settle civil charges that Och-Ziff violated the Foreign Corrupt Practices Act (“FCPA”) and the DOJ will receive more than $213 million to settle criminal charges that Och-Ziff and OZ Africa bribed officials in the Democratic Republic of Congo (“DRC”) and Libya. The settlement amount represents one of the largest criminal penalties levied on a U.S. hedge fund. As part of the settlement, Och-Ziff Chief Executive Officer, Daniel Och (“Och”), agreed to pay $2.2 million to settle charges that he “caused certain violations” of the FCPA. Joel Frank (“Frank”), Och-Ziff Chief Financial Officer, also settled SEC charges for ignoring red flags, though his penalty is to be determined. In addition to the monetary payments, OZ Africa pleaded guilty to one count of conspiracy – an unusual violation for a hedge fund since the law at issue is aimed at preventing bribery of foreign officials – and Och-Ziff entered into a deferred prosecution agreement, in which the charges related to misconduct in Congo, Libya, Chad and Niger would be dropped after three years if it complies with the terms of the deal. The Scheme Beginning in February 2007, Och-Ziff retained a third-party to secure an investment from the Libyan Investment Authority (“LIA”), Libya’s $67 billion sovereign wealth fund, knowing that the “agent would need to pay bribes to Libyan officials.” By late November 2007, the LIA invested $300 million in Och-Ziff hedge funds. Och-Ziff paid the agent “a ‘finder’s fee’ of $3.75 million, knowing that all or a portion of the fees would be paid to Libyan officials in return for their assistance in obtaining the LIA’s investment.” To conceal and disguise the bribes, Och-Ziff “falsified its books and records” “by paying the ‘finder’s fee’ through a sham consulting agreement.” “Och-Ziff engaged in complicated, far-reaching schemes to get special access and secure significant deals and profits through corruption,” said Andrew Ceresney, director of the SEC’s enforcement division. “Senior executives cannot turn a blind eye to the acts of their employees or agents when they are aware of suspicious transactions with high-risk partners in foreign countries.” Separately, in late 2007, Och-Ziff employees began discussions with a businessman operating in the DRC “about entering into a partnership based on special access to lucrative investment opportunities in the DRC involving the country’s diamond and mining sectors.” Och-Ziff knew that the businessman (later identified as Dan Gertler, an Israeli businessman with close ties to high-level Congolese officials) made corrupt payments to senior DRC officials to gain access to these investment opportunities. As explained in the plea agreement, Och-Ziff entered into several DRC-related transactions in conjunction with the businessman, understanding that Och-Ziff’s funds would be used, in part, to bribe high-ranking DRC officials to secure access to, and preference for, the investment opportunities. In late 2008, Och-Ziff tried to cover-up these payments in connection with an audit of the businessman’s records. According to the DOJ, the cover-up occurred “after an Och-Ziff employee was alerted that an audit of the businessman’s records revealed payments to DRC officials.” In response, the Och-Ziff employee “instructed that any references to those payments be removed from a final report of the audit.” According to DOJ press release, “the businessman paid tens of millions of dollars in bribes to DRC officials in exchange for investment opportunities that resulted in more than $90 million in profits for Och-Ziff.” The Settlement In settlement of the DOJ’s allegations – i.e., two counts of conspiracy to violate the anti-bribery provisions of the FCPA, one count of falsifying its books and records and one count of failing to implement adequate internal controls – Och-Ziff agreed to pay a total criminal penalty of $213,055,689. Och-Ziff also agreed to implement numerous internal controls, retain a compliance monitor for three years and cooperate with the DOJ’s ongoing investigation, including its investigation of individuals. The criminal charges will be dismissed if the company complies with the terms of the deferred prosecution agreement and does not violate any other laws over the next three years. OZ Africa pleaded guilty to conspiracy to violate the anti-bribery provisions of the FCPA. Sentencing has been scheduled for March 29, 2017. “This case marks the first time a hedge fund has been held to account for violating the Foreign Corrupt Practices Act,” said Principal Deputy Assistant Attorney General Bitkower. “In its pursuit of profits, Och-Ziff and its agents paid millions in bribes to high-level officials across Africa. By exposing corruption in this industry, the Criminal Division’s Fraud Section continues to root out wrongdoing of all types in the financial sector.” In settlement of the SEC’s allegations, Och-Ziff and OZ Management agreed to pay $173,186,178 in disgorgement, plus $25,858,989 in interest, for a total of $199,045,167. Och agreed to pay $1.9 million in disgorgement and $273,718 in interest to settle the charges that he caused two illegal transactions in the DRC. Frank agreed to pay a penalty that will be assessed at a future date for causing illegal transactions in Libya and the DRC. Och and Frank consented to the SEC’s order without admitting or denying the findings. “Och-Ziff falsely recorded the bribe payments and failed to devise and maintain proper internal controls,” said Kara Brockmeyer, Chief of the SEC Enforcement Division’s FCPA Unit. “Firms will be held accountable for their misconduct no matter how they might structure complex transactions or attempt to insulate themselves from the conduct of their employees or agents.” The cases are pending in the U.S. District Court, Eastern District of New York: U.S. v. OZ Africa Management GP LLC, No. 16-cr-00515 (NGG), and U.S. v. Och-Ziff Capital Management Group LLC, No. 16-cr-00516 (NGG). Links: DOJ Press Release Och-Ziff Deferred Prosecution Agreement OZ Africa Plea Agreement and Statement of Facts SEC Press Release SEC Order This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

New York, NY (Law Firm Newswire) October 14, 2016 - The Law Office of Jeffrey M. Haber is pleased to announce that Mr. Haber has once again been named by Super Lawyers magazine to be among the top lawyers in the New York metropolitan area. The Law Office of Jeffrey M. Haber was recognized for his work in securities litigation. As part of his history of professional achievements, he was also recognized as a Super Lawyer in 2008-2010 and 2012-2015. Super Lawyers magazine is an affiliate of Thomson Reuters. It recognizes attorneys who have distinguished themselves by both a high degree of professional achievement and by peer recognition. Each year, no more than 5 percent of lawyers are recognized as Super Lawyers by the magazine. The annual selection involves a survey of lawyers, independent research evaluation of candidates, and peer reviews within each practice area. The magazine publishes its lists nationwide, as well as in leading city and regional magazines and newspapers across the country. A description of the selection process can be found on the Super Lawyers website. About The Law Office of Jeffrey M. Haber Located in New York City, The Law Office of Jeffrey M. Haber is dedicated to representing corporations, small businesses, partnerships and individuals engaged in a broad range of business and litigation matters. For over 25 years, The Law Office of Jeffrey M. Haber has been involved in high-profile, complex litigations and arbitrations and has served in various roles in both individual and class action lawsuits which have resulted in million and multimillion-dollar settlements and awards. The Law Office of Jeffrey M. Haber practice combines the sophistication and counsel of a large national law firm with the economy, flexibility, commitment, and personal attention of a small firm. ATTORNEY ADVERTISING. © 2016 The Law Office of Jeffrey M. Haber. The law firm responsible for this advertisement is The Law Office of Jeffrey M. Haber, 708 Third Avenue, 5th Floor, New York, New York 10017, (212) 209-1005. Prior results do not guarantee or predict a similar outcome with respect to any future matter. For more information, please contact Freiberger Haber LLP at (212) 209-1005. The Law Office of Jeffrey M. Haber 708 Third Avenue, 5th Floor New York, N.Y. 10017 Tel: (212) 209-1005 Fax: (212) 209-7101 Email: jhaber@jhaberlaw.com

By: Jeffrey M. Haber Few principles of contract law are more fundamental than the requirement that parties reach a meeting of the minds on all material terms before a binding agreement will be enforced. Under New York law, an enforceable contract requires an offer, acceptance, consideration, mutual assent, and an intent to be bound. Where the parties continue to negotiate essential terms, exchange draft agreements, or contemplate future execution of a written contract, courts are often reluctant to conclude that a binding agreement has been formed. These principles were at issue in MEP Capital Holdings II, L.P. v. Arclight Films International Pty Ltd., where the Commercial Division addressed whether an unsigned sales agency agreement could bar fiduciary duty, unjust enrichment, constructive trust, and declaratory judgment claims. The defendant argued that the parties’ email communications and conduct demonstrated the existence of a binding contract, rendering plaintiffs’ equitable claims duplicative of contract remedies. The plaintiffs countered that no contract was ever formed because the parties never agreed on a material term, leaving only a common-law principal-agent relationship. The motion court agreed with the plaintiffs and held that the parties did not have an enforceable agreement as there was no meeting of the minds. MEP Capital Holdings II, L.P. v. Arclight Films International Pty Ltd. The dispute arose from the acquisition of the “Lotus Library,” a collection of film and media assets. According to the complaint, defendant encouraged MEP Capital Holdings II (“MEP II”) to acquire the library and later sought to serve as the sales and servicing agent for the collection. The parties negotiated a proposed Sales Agent Agreement pursuant to which defendant would act as the servicing and sales agent for the Lotus Library titles, which would entitle it to certain fees on existing licensing obligations from the library’s distributors, as well as a commission on deals it closed for the acquisition or renewal of distribution agreements. During the negotiations, both parties expressed their shared understanding that plaintiffs would retain discretion to approve or reject deals proposed by defendant. Plaintiffs alleged that they conveyed to counsel their expectation that this reservation of rights would be included in the Sales Agent Agreement, but that counsel did not include the provision in the draft. Plaintiffs asserted that this approval right was a material term of any agreement between the parties. The Sales Agent Agreement was never finalized or executed. Despite the absence of a finalized contract, defendant purportedly held itself out as plaintiffs’ sales agent for the Lotus Library titles and allegedly entered into several unauthorized agreements with distributors. Plaintiffs claimed that defendant entered an agreement to distribute at least two Lotus Library films without obtaining their approval, concealed these agreements, underreported or did not report revenues collected therefrom, and then provided plaintiffs with “misinformation, incomplete information, and fraudulent documentation” when asked for disclosure. Defendant also allegedly misappropriated revenues assigned to plaintiffs on films it produced and financed. Separately, plaintiffs allege that MEP III was induced into financing a film by defendant’s execution of an irrevocable Guarantee of payment of $900,000, and that defendant defaulted under the Guarantee by failing to secure distribution rights for the film. Plaintiffs asserted five causes of action for: (1) breach of fiduciary duty (asserted by MEP II); (2) unjust enrichment (asserted by MEP II); (3) constructive trust (asserted by both Plaintiffs); (4) breach of contract under the Guarantee (asserted by MEP III); and (5) declaratory judgment that no sales agent relationship exists between plaintiffs and defendant with respect to the Lotus Library titles (asserted by MEP II). Defendant moved to dismiss, contending that the first, second, third, and fifth causes of action should be dismissed as duplicative of a breach of contract claim that plaintiffs allegedly could have asserted under the proposed Sales Agent Agreement. According to defendant, the Sales Agent Agreement constituted a valid and enforceable contract notwithstanding the absence of signatures because contemporaneous email communications purportedly demonstrated that the parties agreed to its terms and partially performed under it. Defendant further argued that MEP III’s constructive trust claim was duplicative of its breach of contract claim under the Guarantee and that any constructive trust claim asserted by MEP II was likewise duplicative of contract claims purportedly arising from the financing arrangements referenced in the Complaint. In opposition, plaintiffs maintained that no valid contract ever existed between MEP II and defendant because the parties never finalized or executed the proposed Sales Agent Agreement and instead operated, at most, within a common law principal-agent relationship. Plaintiffs argued that the draft agreement was never ratified because it omitted what they characterized as a material, industry-standard reservation of rights that permitted MEP II to approve or reject proposed distribution transactions. Plaintiffs further contended that defendant’s email correspondence did not conclusively establish contract formation or ratification and therefore failed to refute their allegations. In the absence of an enforceable contract, plaintiffs asserted that their claims for breach of fiduciary duty, unjust enrichment, and constructive trust were properly pleaded and, in any event, could be asserted in the alternative. Plaintiffs also argued that declaratory relief was appropriate to resolve the parties’ respective rights and obligations arising from their alleged principal-agent relationship, particularly where no contractual remedy was available. The motion court agreed with plaintiffs, finding, among other things, that the parties neither executed the proposed Sales Agent Agreement nor reached agreement on all material terms.[1] Noting that “an enforceable contract exists where there is ‘an offer, acceptance of the offer, consideration, mutual assent, and an intent to be bound . . . [and a] meeting of the minds . . . on all essential terms,’”[2] the motion court found that the Sales Agent Agreement was not an enforceable agreement.[3] The motion court explained that the “Complaint explicitly allege[d] that the ‘parties never finalized or executed the [Sales Agent Agreement]’ because they did not agree on an essential term of the contract, namely the exclusion of MEP II’s purported ‘customary rights’ as owner of the Lotus Library to approve or deny deals entered by Defendant for the library’s content.”[4] As such, the motion court held that “Plaintiffs sufficiently allege[d] that the Sales Agent Agreement was never approved and that MEP II and Defendant only had a common law principal-agent relationship with respect to the Lotus Library.”[5] In so holding, the motion court rejected defendant’s proffered documents – namely the emails exchanged by the parties – in support of the motion.[6] The first set of emails that defendant proffered, noted the motion court, reflected the parties’ ongoing negotiation of the terms of the Sales Agent Agreement in October 2020.[7] “These emails do not indicate unambiguous agreement between the parties on the putative agreement’s terms; rather, they indicate the exchange of ‘redlines,’ ‘tweaks,’ and ‘proposed language,’” said the motion court.[8] “Nowhere does this set of emails indicate that the Sales Agent Agreement was finalized, approved, or executed,” concluded the motion court.[9] The motion court found that the “second tranche of emails from January and February 2022, between the parties and a non-party licensee of a Louts Library title, contain[ed] no mention of the Sales Agent Agreement.”[10] The motion court concluded that references to defendant as MEP II’s “sales agent” did not conclusively demonstrate the existence of an enforceable Sales Agent Agreement. Instead, said the motion court, the communications were consistent with plaintiffs’ allegation that defendant served in a common-law agency capacity, leaving unresolved the central question of whether the parties ever formed a binding contract.[11] Particularly significant to the motion court was a May 2023 email exchange in which a plaintiffs’ representative inquired whether a signed copy of the Lotus Sales Agent Agreement existed and, if not, requested that efforts be made to put one in place.[12] Counsel’s response that he did not possess a signed copy was difficult to reconcile with defendant’s position that the agreement had already been finalized and was enforceable. The motion court concluded that, when read together with the other communications, the emails fell short of conclusively establishing the formation of a contract.[13] Takeaway The motion court’s decision in MEP Capital Holdings highlights several principles of contract law for parties litigating disputes involving unsigned agreements, agency relationships, and equitable claims. Perhaps most significantly, the decision underscores that a defendant cannot dismiss fiduciary duty and quasi-contract claims at the pleading stage by pointing to a contract that the plaintiff plausibly alleges was never formed. First, the case serves as a reminder that New York courts remain steadfast in requiring a meeting of the minds before recognizing an enforceable contract. Although defendant argued that the parties’ email communications and subsequent conduct demonstrated the existence of a binding agreement, the motion court focused on plaintiffs’ allegation that the parties never agreed on a material term: MEP II’s right to approve or reject distribution agreements involving the Lotus Library. Because mutual assent on all essential terms is a prerequisite to contract formation, the motion court refused to treat the proposed agreement as enforceable merely because the parties had engaged in negotiations and had performed to some degree. Second, the decision illustrates the limited role of documentary evidence on a CPLR 3211(a)(1) motion. To warrant dismissal, documentary evidence must conclusively establish a defense as a matter of law and utterly refute the plaintiff’s factual allegations. The emails relied upon by defendant fell short of that standard. The motion court found that the communications reflected continuing negotiations through the exchange of redlines, revisions, and proposed language rather than a finalized agreement. Other communications referring to defendant as the “sales agent” did not establish the existence of a written contract because those references were equally consistent with plaintiffs’ allegation that the parties operated under a common-law agency relationship. Particularly damaging to defendant’s position was a May 2023 email exchange in which a plaintiffs’ representative inquired whether a signed Sales Agent Agreement existed and, if not, requested that efforts be made to put one in place. Counsel’s response that he did not possess a signed copy significantly undermined the contention that the agreement had already been finalized and ratified. Third, the decision confirms that plaintiffs may pursue fiduciary duty, unjust enrichment, constructive trust, and other equitable remedies where the existence of a governing contract is disputed or nonexistent. Defendant attempted to characterize plaintiffs’ equitable claims as duplicative of contract claims that plaintiffs could have brought under the proposed Sales Agent Agreement. The motion court rejected that argument because the threshold question of contract formation remained unresolved. Finally, the case demonstrates that agency relationships may give rise to fiduciary obligations independent of a written contract. Accepting the complaint’s allegations as true, the motion court concluded that plaintiffs had adequately alleged the existence of a common law principal-agent relationship relating to the Lotus Library. That finding was sufficient to permit the fiduciary duty claim to survive dismissal. __________________________________ Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes only and is not intended to be, and should not be, taken as legal advice. Unless otherwise stated, Freiberger Haber LLP’s articles are based on recently decided published opinions or litigation releases and not on matters handled by the firm. ___________________________________ [1] Slip Op. at *3. [2] Id., quoting Kowalchuk v. Stroup, 61 A.D.3d 118, 121 (1st Dept. 2009). [3] Id. [4] Id. [5] Id. [6] Id. [7] Id. at *4. [8] Id. [9] Id. [10] Id. [11] Id. [12] Id. [13] Id., citing VXI Lux Holdco S.A.R.L. v. SIC Holdings, LLC, 171 A.D.3d 189, 193 (1st Dept. 2019).

By: Jeffrey Haber. Whether a party has standing to bring a lawsuit is often considered through the constitutional lens of justiciability – that is, whether there is a “case or controversy” between the plaintiff and the defendant “within the meaning of Art. III.” Warth v. Seldin, 422 U.S. 490, 498 (1975). To have Article III standing, “the plaintiff ‘alleged such a personal stake in the outcome of the controversy’ as to warrant invocation of federal-court jurisdiction and to justify exercise of the court’s remedial powers on behalf.” Id. at 498–99 (quoting Baker v. Carr, 369 U.S. 186, 204 (1962)). To show a personal stake in the litigation, the plaintiff must establish three things: First, he/she has sustained an “injury in fact” that is both “concrete and particularized” and “actual or imminent.” Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992) (internal quotation marks omitted). Second, the injury has to be caused in some way by the defendant’s action or omission. Id. Finally, a favorable resolution of the case is “likely” to redress the injury. Id. at 561. When a person or entity receives an assignment of claims, the question becomes whether he/she can show a personal stake in the outcome of the litigation, i.e., a case and controversy “of the sort traditionally amenable to, and resolved by, the judicial process.’” Sprint Commc’ns Co., L.P. v. APCC Servs., Inc., 554 U.S. 269, 285 (2008) (quoting Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 777–78 (2000)). To assign a claim effectively, the claim’s owner “must manifest an intention to make the assignee the owner of the claim.” Advanced Magnetics, Inc. v. Bayfront Partners, Inc., 106 F.3d 11, 17 (2d Cir. 1997) (internal quotation marks and brackets omitted). A would-be assignor need not use any particular language to validly assign its claim “so long as the language manifests intention to transfer at least title or ownership, i.e., to accomplish ‘a completed transfer of the entire interest of the assignor in the particular subject of assignment.’” Id. (emphasis added) (citations omitted). An assignor’s grant of, for example, “‘the power to commence and prosecute to final consummation or compromise any suits, actions or proceedings,’” id. at 18 (quoting agreements that were the subject of that appeal), may validly create a power of attorney, but that language would not validly assign a claim, because it does “not purport to transfer title or ownership” of one. Id. On September 15, 2016, the New York Appellate Division, First Department, issued a decision addressing the foregoing principles, holding that one of the plaintiffs lacked standing to assert claims because the assignment of the right to pursue remedies did not constitute the assignment of claims. Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l., 2016 NY Slip Op. 06051. BACKGROUND: Cortlandt involved four related actions in which the plaintiffs – Cortlandt Street Recovery Corp. (“Cortlandt”), an assignee for collection, and Wilmington Trust Co. (“WTC”), an indenture trustee – sought payment of the principal and interest on notes issued in public offerings. Each action alleged that Hellas Telecommunications, S.a.r.l. and its affiliated entities, the issuer and guarantor of the notes, transferred the proceeds of the notes by means of fraudulent conveyances to two private equity firms, Apax Partners, LLP/TPG Capital, L.P. – the other defendants named in the actions. The defendants moved to dismiss the actions on numerous grounds, including that Cortlandt, as the assignee for collection, lacked standing to pursue the actions. To cure the claimed standing defect, Cortlandt and WTC moved to amend the complaints to add SPQR Capital (Cayman) Ltd. (“SPQR”), the assignor of note interests to Cortlandt, as a plaintiff. The plaintiffs alleged that, inter alia, SPQR entered into an addendum to the assignment with Cortlandt pursuant to which Cortlandt received “all right, title, and interest” in the notes. The Motion Court granted the motions to dismiss, holding that, among other things, Cortlandt lacked standing to maintain the actions and that, although the standing defect was not jurisdictional and could be cured, the plaintiffs failed to cure the defect in the proposed amended complaint. Cortlandt St. Recovery Corp. v. Hellas Telecom., S.à.r.l., 47 Misc. 3d 544 (Sup. Ct., N.Y. Cnty. 2014). The Motion Court’s Ruling As an initial matter, the Motion Court cited to the reasoning of the court in Cortlandt Street Recovery Corp. v. Deutsche Bank AG, London Branch, No. 12 Civ. 9351 (JPO), 2013 WL 3762882, 2013 US Dist. LEXIS 100741 (S.D.N.Y. July 18, 2013) (the “SDNY Action”), a related action that was dismissed on standing grounds. The complaint in the SDNY Action, like the complaints before the Motion Court, alleged that Cortlandt was the assignee of the notes with a “right to collect” the principal and interest due on the notes. As evidence of these rights, Cortlandt produced an assignment, similar to the ones in the New York Supreme Court actions, which provided that as the assignee with the right to collect, Cortlandt could collect the principal and interest due on the notes and pursue all remedies with respect thereto. In dismissing the SDNY Action, Judge Oetken found that the complaint did not allege, and the assignment did not provide, that “title to or ownership of the claims has been assigned to Cortlandt.” 2013 WL 3762882, at *2, 2013 US Dist. LEXIS 100741, at *7. The court also found that the grant of a power of attorney (that is, the power to sue on and collect on a claim) was “not the equivalent of an assignment of ownership” of a claim. 2013 WL 3762882 at *1, 2013 US Dist. LEXIS 100741 at *5. Consequently, because the assignment did not transfer title or ownership of the claim to Cortlandt, there was no case or controversy for the court to decide (i.e., Cortlandt could not prove that it had an interest in the outcome of the litigation). The Motion Court “concurred with” Judge Oetken’s decision, holding that “the assignments to Cortlandt … were assignments of a right of collection, not of title to the claims, and are accordingly insufficient as a matter of law to confer standing upon Cortlandt.” In so holding, the Motion Court observed that although New York does not have an analogue to Article III, it is nevertheless analogous in its requirement that a plaintiff have a stake in the outcome of the litigation: New York does not have an analogue to article III. However, the New York standards for standing are analogous, as New York requires “[T]he existence of an injury in fact—an actual legal stake in the matter being adjudicated.” Under long-standing New York law, an assignee is the “real party in interest” where the “title to the specific claim” is passed to the assignee, even if the assignee may ultimately be liable to another for the amounts collected. Citations omitted. Based upon the foregoing, the Motion Court found that Cortlandt lacked standing to pursue the actions. The Appeal Cortlandt appealed the dismissal. With regard to the Motion Court’s dismissal of Cortlandt on standing grounds, the First Department affirmed the Motion Court’s ruling, holding: [T]he court correctly found that plaintiff Cortlandt Street Recovery Corp. lacks standing to bring the claims in Index Nos. 651693/10 and 653357/11 because, while the assignments to Cortlandt for the PIK notes granted it “full rights to collect amounts of principal and interest due on the Notes, and to pursue all remedies,” they did not transfer “title or ownership” of the claims. Citations omitted. The Takeaway Cortlandt limits the ability of an assignee to pursue a lawsuit when the assignee has no direct interest in the outcome of the litigation. By requiring an assignee to have legal title to, or an ownership interest in, the claim, the Court made clear that only a valid assignment of a claim will suffice to fulfill the injury-in-fact requirement. Cortlandt also makes clear that a power of attorney permitting another to conduct litigation on behalf of others as their attorney-in-fact is not a valid assignment and does not confer a legal title to the claims it brings. Therefore, as the title of this article warns: when assigning the right to pursue relief, always remember to assign title to, or ownership in, the claim. Jeffrey M. Haber is a partner and co-founder of Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

On September 29, 2016, the Securities and Exchange Commission (the “SEC” or the “Commission”) announced that International Gaming Technology (“IGT”), a casino-gaming company, agreed to pay $500,000 to settle charges of retaliating against one of its executives with several years of positive performance reviews because he reported to senior management and the SEC concerns about the accuracy of IGT’s financial statements. According to the SEC’s order, within weeks of raising concerns that the company’s cost accounting was arbitrarily inflated, senior managers retaliated against the whistleblower by removing him “from two opportunities he considered significant to performing his job successfully.” IGT terminated the whistleblower approximately three months later, following the conclusion of an internal investigation into the whistleblower’s allegations. As noted by the SEC, “[T]he internal investigation found that the cost accounting model IGT used … was appropriate and did not cause its reported financial statements to be distorted.” The case marks the first time that the SEC has brought an enforcement action under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act” or the “Act”) against a company without an underlying securities law violation. Section 21F(h) of the Act protects whistleblowers who provide information to the SEC about violations of the securities laws, or violations of any protected activity under the Sarbanes-Oxley Act of 2002, from retaliation. Under SEC rules, the Commission may, as it had done with IGT, prosecute violations of the anti-retaliation provisions of the Dodd-Frank Act through an enforcement action. “Bringing retaliation cases, including this first stand-alone retaliation case, illustrates the high priority we place on ensuring a safe environment for whistleblowers,” said Jane A. Norberg, Chief of the SEC’s Office of the Whistleblower. “We will continue to exercise our anti-retaliation authority when companies take reprisals for whistleblowing efforts.” Without admitting or denying the SEC’s findings, IGT agreed to pay the $500,000 penalty and cease and desist from committing or causing any further violations of Section 21F(h) of the Securities Exchange Act of 1934. Takeaway As this Blog wrote last month, the SEC has been making good on its promise to crack down on employers that retaliate (or attempt to retaliate) against employees who report securities fraud to the SEC. The IGT penalty and cease and desist order is another example of the success of these efforts. Links: SEC press release SEC Order Section 21F(h) of the Dodd-Frank Act T his article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.

On September 14, 2016, Andrew Ceresney (“Ceresney”), Director, Division of Enforcement of the Securities and Exchange Commission (the “SEC” or “Commission”), spoke at the Sixteenth Annual Taxpayers Against Fraud Conference in Washington, D.C. Ceresney covered a lot of ground during his presentation, addressing issues such as the impact of the whistleblower program to the role of whistleblowers and their attorneys in the investigation and claims process. Impact of the Whistleblower Program on the Commission Ceresney described the impact of the whistleblower program on the Commission as “transformative”, “both in terms of the detection of illegal conduct and in moving … investigations forward quicker and through the use of fewer resources.” Since the inception of the whistleblower program, the SEC has received more than 14,000 tips from whistleblowers and paid $107 million to 33 whistleblowers, “in cases with more than $500 million ordered in sanctions.” He also spoke of the Commission’s impact on employers who retaliate (or try to retaliate) against employees that come forward to report fraud – efforts that this blog recently highlighted. In that regard, Ceresney noted the settlement of four actions brought by the SEC “against companies for violating Rule 21F-17”, and the filing of amicus briefs in the courts of appeals and district courts, in support of the SEC’s position that “individuals who make internal reports of possible securities law violations are protected under the Commission’s whistleblower rules.” Finally, Ceresney underscored the transformative impact of the whistleblower program on “other domestic and foreign regulators,” noting that those regulators “have sought to replicate the successes of program.” Types of SEC Cases where Whistleblower Assistance Is Valued While valuing all tips of securities fraud or other violations of the securities laws, Ceresney identified “issuer reporting and disclosure cases” as “a category of cases where whistleblower assistance is extremely helpful.” These cases often involve misconduct that (a) is difficult to uncover, (b) is “very document-intensive”, and (c) involves “sophisticated defense counsel.” For these reasons, whistleblowers, especially company insiders, are valued because they can provide (a) the information necessary to understand the misconduct, (b) guidance on the documents to request, and (c) analysis of the information as it relates to the alleged violation. Another class of cases identified by Ceresney where whistleblowers are helpful is in the enforcement of the Foreign Corrupt Practices Act. Noting that “ost of the activity in these cases is usually overseas, where less access to evidence,” Ceresney emphasized the importance of international whistleblowers. The SEC has made eight awards to whistleblowers living in foreign countries, with the largest award — $30 million — being paid to a foreign whistleblower who provided the Commission with “original information about an ongoing fraud that would have been very difficult to detect.” In making this award, the Commission made it clear that foreign residency “does not prevent an award when the whistleblower’s information to a successful Commission enforcement action brought in the United States concerning violations of the U.S. securities laws.” Who Qualifies as a Whistleblower People wishing to blow the whistle on securities fraud and other violations of the securities laws often have questions about whether they qualify as a whistleblower under the Dodd-Frank Act. Ceresney addressed this question. First, Ceresney identified company insiders, either current or former employees, as the “best positioned to witness wrongdoing” and help “investigators unlock intricate fraudulent schemes and investigate the full extent of violations.” “Through 2015, almost half of the award recipients were current or former employees of the companies for which they reported wrongdoing ….” Second, Ceresney identified compliance and internal audit personnel as important whistleblowers. To underscore their importance, Ceresney noted that awards have been made to this group of whistleblowers in August 2014 and April 2015. Third, Ceresney identified company outsiders as valuable whistleblowers, such as data analysts. “We welcome analytical information from those with in-depth market knowledge and experience that may provide the springboard for an investigation or may supplement an ongoing investigation,” he said. Again, to underscore the importance of outside whistleblowers, Ceresney noted the payment of “more than $700,000 to an individual who was a company outsider and who provided this type of data analysis, leading to a successful enforcement action.” Finally, Ceresney addressed the situation where a person is a participant in the wrongdoing and wants to report the misconduct under the program. Ceresney said that “in many circumstances, they are eligible for awards” because as “culpable insiders with first-hand knowledge of misconduct” they “can provide valuable information and assistance in identifying participants in, transactions relating to, and proceeds of, fraudulent schemes.” In those instances, they can “receive at least 10% … of the monetary sanctions collected in the enforcement action,” said Ceresney Timing of Whistleblower Assistance Ceresney told the audience that whistleblowers should report misconduct “as soon as you learn of ,” because “you never know whether someone else will report, whether the information will become stale, or whether the statute of limitations will run.” He noted that “oming forward without delay also helps prevent misconduct from continuing unabated while investors suffer more harm.” He emphasized the fact that “nreasonable delay in the reporting of information to is a significant factor the Commission considers in determining the amount of a whistleblower award.” Notwithstanding, Ceresney made it clear “there is no requirement under the Dodd-Frank Act or rules that a whistleblower originate a case in order to qualify for an award.” The key is that the information provided “causes the Commission to commence an examination, open or reopen an investigation, or to inquire into different courses of conduct where the resulting enforcement action is based on the whistleblower’s tip, or that otherwise significantly contributes to the success of an enforcement action.” He noted that even if “an investigation is underway, a whistleblower will be eligible for an award if his or her information ‘significantly contributes’ to success by, for example, allowing to bring a successful action in significantly less time or with significantly fewer resources, bring additional successful claims, or bring successful claims against additional parties.” Closing Thoughts For Whistleblowers and Whistleblower Attorneys Ceresney closed his presentation with a discussion on the importance of attorneys in the investigation of securities fraud and other violations of the securities laws. As an initial matter, Ceresney noted that the Commission “welcome the involvement of counsel in whistleblower tips.” He noted the many ways whistleblower attorneys can help advance the investigation, including: identify information having a nexus with the alleged violation of the securities laws; manage client expectations regarding the duration of an investigation and the awards process, especially since the SEC’s investigations are nonpublic; and identify facts or documents that may tend to identify the whistleblower so that the SEC can maintain the confidentiality of the whistleblower and help “to craft document requests and conduct testimony in the most protective manner.” He also identified ways for both whistleblowers and their counsel to assist the Commission, including: identify and provide corroborating information for their tips; avoid providing information that may be protected by the attorney-client privilege or the work product doctrine; and assist the SEC with its outreach efforts – that is, to help publicize the program and increase public awareness of it. Links: Full text of Speech by Andrew Ceresney, Director, Division of Enforcement SEC Whistleblower Resources This article was written by Jeffrey M. Haber, a partner at Freiberger Haber LLP. This article is for informational purposes and is not intended to be and should not be taken as legal advice.