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Last year was a banner year for fines levied by the Financial Industry Regulatory Authority (FINRA) regarding the sale of variable annuities. In 2016, $30.3 million in fines were assessed over 30 variable annuity cases. Now, the industry watchdog is continuing its crackdown on these financial products, with an emphasis on annuity exchanges. Annuity Exchange Abuses Recently, FINRA’s enforcement unit suspended two brokers and ordered the disgorgement of more than $185,000 in commissions for causing financial harm to investors related to Section 1035 exchanges. Under Section 1035 of the Internal Revenue Code, variable annuities can be replaced with a like investment without incurring additional tax liabilities. At the same time, these transactions generate broker commissions, which often leads to account churning of annuity products. The recent cases saw clients incur higher annuity fees and excessive surrender charges relative to the exchanges. Moreover, the brokers in question tried to cover their tracks by not categorizing the annuity replacements as 1035 exchanges, which resulted in significant tax liabilities for these investors. Although FINRA and other regulators have been focused on exchange-traded funds and derivative transactions in recent years, variable annuities were prioritized beginning in 2016, the first time since 2009. Last year, the number of variable annuity cases rose by 20 percent,  while fines increased by more than 190 percent over the prior year. In fact, FINRA levied its largest fine ever involving variable annuities against MetLife Securities Inc., to the tune of $25 million. ( Here .) The pace of enforcement has moderated this year with 12 variable annuity cases and $510,000 in fines reported through the first 6 months. FINRA is still on the case, however, as the self-regulatory organization tries to stay ahead of what some believe will be an inevitable crash in the annuity market. While FINRA has not explicitly cited variable annuities in its recent announcements of examination priorities, ongoing enhanced regulatory scrutiny on these complex products is likely given the fact that they are often marketed to retirees. Annuity exchanges are a high-value target because there is often little justification for these transactions, other than generating broker commissions. Why This Matters Today, investing in annuities has become more complex, with new products being introduced. This includes hybrid annuities - which combine the features of fixed and variable products, and “No-Load” variable annuities, which have become increasingly popular due to the Labor Department’s fiduciary rule. (Discussed here.)  As such, the potential for abuses and harm to investors is growing.

Certain provisions of New York’s Labor Law require that construction workers be provided with a safe work environment.  Contractors and owners can be held strictly liable under certain circumstances if a construction worker is injured while working on a construction project.  Such strict liability may apply to homeowners if they become too helpful or involved with construction and, therefore, render inapplicable the exceptions inserted into the Labor Law for their protection. Villafane v. Ridge Electric Corp. ( here ), decided on October 2, 2017, in New York Supreme Court, Kings County, illustrates relevant issues concerning New York’s Labor Law. The plaintiff in Villafane was injured using a grinder provided by his employer, Ridge Electric Corporation (“Ridge”), while working at a two-family home.  While it is not clear from the decision, it appears that plaintiff’s position is that the grinder that caused the injury was either being hoisted at the time of the injury or otherwise should have been secured to be used safely.  The Villafane plaintiff sued Ridge and the homeowners under, inter alia, the following provisions of the Labor Law: Labor Law § 240(1) – requires that “…contractors and owners and their agents … in the erection, demolition, repairing, altering, painting, cleaning or pointing of a building or structure shall furnish or erect, or cause to be furnished or erected for the performance of such labor scaffolding, hoists stays, ladders, slings, hangers, blocks, pulleys, braces, irons, ropes and other devices which shall be so constructed, placed and operated as to give proper protection to a person so employed….” This provision is designed to protect against injuries from elevation related risks. Labor Law 241(6) – requires that “ ll contractors and owners and their agents … when constructing or demolishing buildings or doing any excavating …” shall see to it that “ ll areas in which construction, excavation or demolition work is being performed shall be so constructed, shored, equipped, guarded, arranged, operated and conducted as to provide reasonable and adequate protection and safety to the persons employed therein or lawfully frequenting such places….” To find liability under §240(1), there must be a violation of that statute that was the proximate cause of the plaintiff’s injury.  According to the Villafane court, liability under §240(1) can occur not only when injury results from a falling object in the process of being hoisted or secured, but also where the object “was a load that required securing for the purposes of the undertaking at the time it fell.” Similarly, §241(6) requires contractors and owners to provide a safe work environment to construction workers complying with rules and regulations promulgated by the Commissioner of the Department of Labor.  According to the Villafane court, the “ o establish liability pursuant to Labor Law §241(6), plaintiff must plead and prove that a specific violation of the Industrial Code was the proximate cause of accident.”  In Villafane, the plaintiff alleged a violation of the rules regarding the use of ladders. Both Labor Law §§240 and 241 contain an exception that protects the owners of one and two-family homes from liability if they “contract for but do not direct or control the work” being performed.  According to the Villafane court, “ he homeowner’s exemption was enacted to protect owners of one and two-family dwellings who are not in a position to realize, understand, and insure against the responsibilities of strict liability imposed by Labor Law §§240(1) and 241(6)” (quoting Abdou v. Rampaul , 147 A.D.3d 1047 (2 nd Dep’t 2013)). The critical issue before the Villafane court on the decided motion, was the applicability of the homeowner exception.  The Villafane court determined that the exception was applicable and granted summary judgment to the homeowner defendants.  The homeowners demonstrated that the work was conducted in a one to two-family dwelling, thus satisfying the first prong of the statutory test. To satisfy the second prong, the Villafane homeowner defendants were required to demonstrate that they did not direct or control the work.  According to the Villafane court, “ he statutory phrase ‘direct or control’ is construed strictly and refers to situations where the owner supervises the method and manner of the work.” In Villafane , there was deposition testimony, inter alia , that: the only direction received from the homeowner was the location of the fixtures and outlets that were to be installed, to protect the floors and to keep the home neat; neither the grinder nor any other tools used to perform the work were provided by the homeowner defendants; and, the homeowner defendants did not provide instructions to the contractor or his workers on the manner, method or means to be used in performing the work.  Based on the deposition testimony, the Villafane court found that the homeowner defendants did not control or supervise the work.  Accordingly, the Villafane court found the homeowner defendants satisfied the second prong of the statutory test.  Having demonstrated the applicability of the homeowner exemption, the burden shifted to the plaintiff to raise a triable issue of fact – which he could not due.  Thus, summary judgment was granted to the homeowner defendants. TAKEAWAY Owners of one or two-family homes should be aware that, under certain circumstances, they may be held strictly liable for the injury to construction workers at their homes.  To minimize the potential for liability, a homeowner should: resist the urge to direct the contractor or its workers in the manner, means and methods of their work; make sure that any dangerous condition created by the contractor is removed promptly upon learning of same; eliminate any conditions in the home that could put workers at risk; and, refuse to permit the contractor or its workers to use the homeowner’s tools or equipment. <1> There are other provisions of Labor Law §§ 240 and 241 that were not asserted in Villafane . <2> The Villafane court also discussed Labor Law §200 , which codified the common law duty of homeowners and contractors to provide workers with a safe workplace. The court recognized that a homeowner can be found liable for a violation of Labor Law §200 if injuries to a construction worker were caused by the condition of the premises and the homeowner created or had actual knowledge of a dangerous condition created by the contractor.

On October 12, 2017, the House Financial Services Committee approved legislation that would provide legal protection for financial advisers who report the financial abuse and exploitation of senior Americans to authorities. The bill, which was unanimously approved by the committee, will go to the House floor for a vote. Like the current bill, the previous version of the Safe Act received broad bipartisan support during the last Congress. Congressman Bruce Poliquin (R-ME) and Congresswoman Kyrsten Sinema (D-AZ) reintroduced the Senior Safe Act earlier in the year. The Senior Safe Act encourages individuals and financial institutions to report suspected instances of financial fraud and abuse of elder Americans. It also incentivizes firms to train employees to identify and stop financial abuse and exploitation before it happens. The bill helps law enforcement track down financial criminals who target seniors by enabling banks, credit unions, investment advisors, broker-dealers, and other financial service providers to communicate with appropriate agencies when they suspect financial fraud and exploitation of seniors. In particular, the bill provides that: a supervisor, compliance officer, or legal advisor for a covered financial institution ( g. , a credit union; a depository institution; an investment adviser; a broker-dealer; an insurance company; an insurance agency; and a transfer agent) who receives training regarding the identification and reporting of the suspected exploitation of a senior citizen (at least 65 years old) will not be held liable for disclosing such exploitation to a covered agency ( e.g. , a state financial regulatory agency, including a state securities or law enforcement authority and a state insurance regulator; the Securities and Exchange Commission; a law enforcement agency; and a state or local agency responsible for administering adult protective service laws) if the individual made the disclosure in good faith and with reasonable care; and a covered financial institution will not be held liable for such a disclosure by such an individual if the individual was employed by the institution at the time of the disclosure and the institution had provided such training. Financial fraud and exploitation of the elderly is too common an occurrence. According to the U.S. Department of Justice, financial exploitation of senior adults is one of the most frequently reported forms of elder abuse. A recent survey from the North American Securities Administrators Association (“NASAA”) found that three in 10 state securities regulators had reported an increase in complaints from victims of financial fraud and exploitation. ( Here .) As the incidence of financial exploitation and abuse increase, so do the costs to its victims. An oft-cited study by the MetLife Mature Market Institute, the National Committee for the Prevention of Elder Abuse, and the Center for Gerontology at Virginia Polytechnic Institute and State University, titled “Broken Trust: Elders, Family & Finances,” estimates that about one million seniors lose approximately $2.6 billion annually from financial exploitation and abuse. ( Here .) In 2011, MetLife updated its estimate to at least $2.9 billion. Other, more recent studies, estimate the losses to exceed $36 billion a year, 12 times the MetLife estimate. Last October, the Financial Industry Regulatory Authority (“FINRA”) announced that it had submitted proposed rule changes to the Securities and Exchange Commission (“SEC”) to help member firms detect and prevent the abuse and financial exploitation of senior and vulnerable adult customers. (This Blog wrote about the proposed rule changes here .) On March 30, 2017, FINRA announced that the SEC approved the proposed rule changes. In connection with the announcement, FINRA issued Regulatory Notice 17-11 ( here ), and set February 5, 2018, as the effective date for the new rules. The changes approved by the SEC involve two key protections for seniors and other vulnerable investors. First, member firms will be required to make reasonable efforts to obtain the name and contact information of a trusted contact person for a customer’s account. Second, member firms will be permitted to place a temporary hold on the disbursement of funds or securities when there is a reasonable belief of financial exploitation and abuse. Earlier this year, Senators Susan Collins and Claire McCaskill introduced the Senior $afe Act in the Senate. The act derives from Maine’s Senior Safe program, a collaboration by state regulators and legal organizations to educate bank and credit union employees about elder fraud and financial exploitation. Jaye Martin, the Director of Maine’s Legal Services for the Elderly, said the program has been very successful. “Hundreds of financial institution managers and employees have been trained, and we are really seeing an increase in the number of seniors that are getting help before it’s too late,” Martin said. The Senior $afe Act attempts to address one of the biggest impediments to the reporting of financial fraud and exploitation – privacy laws. Under current law, it is difficult to report financial fraud, even if a financial advisor or institution suspects such wrongdoing. “One of the biggest problems we’ve had with financial institutions is making these reports,” said Diane Menio, executive director of the Center for Advocacy for the Rights and Interests of the Elderly, at a Senate hearing. As long as employees have been trained and reports have been made in good faith to the appropriate regulatory authorities, the Senior $afe Act would offer protection against civil lawsuits. “If we can better protect our seniors from fraudsters in some of the most vulnerable years of their lives, we should use every tool at our disposal to do so,” Senator McCaskill said. “We’ve got to give financial professionals the ability to combat fraud when they see it—while protecting the privacy of their customers.” On August 2, 2017, Senators Amy Klobuchar (D-MN) and John Cornyn (R-TX) announced that their bipartisan legislation to protect seniors from neglect and financial exploitation passed the Senate. The Court-Appointed Guardian Accountability and Senior Protection Act is intended to crack down on elder abuse by strengthening oversight and accountability of guardians and conservators. “While most court-appointed guardians and conservators are undoubtedly professional, caring, and law-abiding, there are some who use their position of power to exploit seniors,” Senator Klobuchar said. “This bipartisan legislation would strengthen oversight and accountability for those entrusted to with the well-being of seniors, and will protect those who are most vulnerable.” “This bill strengthens support for our nation’s senior citizens by ensuring they get the court-appointed care they need, while also protecting them from exploitation and fraud,” said Senator Cornyn.  “I’m proud to join Sen. Klobuchar in standing up for enhanced oversight to ensure this critical program helps, not harms, America’s senior citizens.” The Court-Appointed Guardian Accountability and Senior Protection Act makes state courts eligible to participate in an existing program designed to protect seniors. Under the program, state courts would be able to apply for funding to assess the handling of proceedings relating to guardians and conservators, and then make the necessary improvements to their practices. For example, the courts could conduct background checks on potential guardians and conservators, or implement an electronic filing system in order to better monitor and audit conservatorships and guardianships. Takeaway Financial exploitation and abuse of seniors is a problem that spans every community and social condition. It is underrecognized, underreported, and underprosecuted. Government efforts to empower financial advisors and institutions to detect, prevent and stop the financial abuse and exploitation of seniors is an important step in addressing the problem. However, government action is not enough. Vigilance by seniors and the persons charged with overseeing their assets and property is the best way to help detect and stop financial abuse and exploitation before it results in financial ruin. This Blog will continue to follow the legislation discussed in this post.

The SEC recently announced that fraud charges were being brought against the creator of two Initial Coin Offerings (“ICOs”). The complaint alleges that Maksim Zaslavskiy ("Zaslavskiy") defrauded investors with two ICOs, the REcoin Group Foundation, LLC ("REcoin") and the DRC World, Inc. (also known as the Diamond Reserve Club) ("DRC"), that were said to be backed by investments in real estate and diamonds. What is an ICO? ICOs are a way for startups to raise money by issuing their own cryptocurrencies through the use of blockchain cloud-ledger technology pioneered by Bitcoin. These entities sell “digital tokens” that are purported to be the equivalent of company shares. Currently, ICOs are under enhanced regulatory scrutiny because they are being used to raise quick cash without disclosing substantive information to investors. The Scheme to Defraud Both REcoin and DRC were pitched as real companies with staff, attorneys, and retail relationships from which investors could expect sizeable returns. However, neither company had any real operations. According to the SEC, these shell companies never made investments on behalf of token-buyers and the digital tokens they claimed to be selling did not actually exist. In other words, REcoin and DRC were not even running blockchains, and so were not bona fide ICOs. In particular, the SEC alleged that Zaslavskiy and REcoin misrepresented that ICO proceeds would be invested in real estate. They also claimed that between $2 million and $4 million had been raised from investors when the actual amount was about $300,000. The DRC scheme centered on investments in diamonds. According to the SEC, DRC purportedly invested in diamonds and obtained discounts with product retailers for individuals who purchased "memberships" in the company. Despite their representations, Zaslavskiy and DRC did not purchase any diamonds and did not engage in any business operations. Yet they continued to solicit investors and raise funds. This is the first time the SEC has brought charges related to assets pitched as an ICO. However, the securities watchdog is said to be taking a measured approach to weeding out fraud in the nascent ICO market. Some observers tout the positives of ICO technology, such as the ability to raise funds quickly on a global level, however, the infrastructure linking digital tokens to offline assets in the broader marketplace is a work in progress. The SEC’s action comes on the heels of an investor alert issued in July ( here ) that ICOs would be subject to regulatory scrutiny and that digital tokens may be deemed securities.  "Investors should be wary of companies touting ICOs as a way to generate outsized returns," said Andrew M. Calamari, Director of the SEC’s New York Regional Office. "As alleged in our complaint, Zaslavskiy lured investors with false promises of sizeable returns from novel technology." The SEC charged Zaslavskiy, REcoin, and DRC with violations of the antifraud and registration provisions of the applicable federal securities laws . The SEC is seeking permanent injunctions and disgorgement, as well as an officer and director bar for Zaslavskiy. The SEC's complaint can be found here . The Takeaway Many agree there is great potential for the application of blockchain technology in financial services, supply chain, logistics, healthcare, agriculture, real estate, biotech, data, retail and government operations. Nonetheless, this case highlights how bad actors are seeking to gain entry into the ICO sector. Ultimately protecting investors in these novel technologies will require the joint efforts of regulators and experienced securities fraud attorneys.

New York, NY ( Law Firm Newswire ) October 10, 2017 -  Freiberger Haber LLP is pleased to announce that co-founding partner, Jeffrey M. Haber, has been named by Super Lawyers Magazine® to be among the top lawyers in the New York metropolitan area for the sixth consecutive year. Mr. Haber was recognized for his work in business litigation. As part of his history of professional achievements, he was also recognized as a Super Lawyer in 2008-2010 and 2012-2016. Super Lawyers Magazine® is an affiliate of Thomson Reuters. The publication 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 Freiberger Haber LLP Located in New York City and Melville, Long Island, Freiberger Haber LLP is dedicated to representing corporations, small businesses, partnerships and individuals in a broad range of complex business, construction and commercial litigation matters. Founded by Jonathan H. Freiberger and Jeffrey M. Haber, Freiberger Haber leverages more than 50 years of combined experience to deliver sophisticated and creative representation to its clients. The firm’s approach is results oriented and client-centric, providing clients with the sophisticated counsel expected from larger firms with the flexibility and agility of a small firm. ATTORNEY ADVERTISING. © 2017 Freiberger Haber LLP. The law firm responsible for this advertisement is Freiberger Haber LLP, 105 Maxess Road, Suite S124, Melville, New York 11747, (631) 574-4454. Prior results do not guarantee or predict a similar outcome with respect to any future matter. Contact: Jeffrey M. Haber Freiberger Haber LLP Melville Office (Main Office): 105 Maxess Road, Suite S124 Melville, New York 11747 Tel: (631) 574-4454 Fax: (631) 390-6944 New York Office: 708 Third Avenue, 5th Floor New York, N.Y. 10017 Tel: (212) 209-1005 Fax: (212) 209-7101 Email:  info@fhnylaw.com

Contracts are often at the heart of business and commercial disputes. Not all contract disputes result in litigation. A well-drafted contract can often prevent or resolve a dispute before the parties run to court. But, when the parties cannot resolve their differences, and resort to litigation, it is important to understand the rules governing the breach of contract claim. As a general matter, to allege a breach of contract, a plaintiff must plead (and prove) the following: (1) the existence of an enforceable agreement; (2) performance by plaintiff; (3) the defendant breached the agreement; and, (4) the plaintiff sustained damages as a direct result of the defendant’s breach. JP Morgan Chase v. J.H. Elec. of N.Y., Inc. , 69 A.D.3d 802, 803 (2d Dept. 2010). The failure to satisfy each of the foregoing elements is fatal to a breach of contract claim. Perhaps the most difficult element to satisfy is the first one – the existence of an enforceable agreement. Putting aside the issue of enforceability ( e.g. , some agreements are unenforceable under the Statute of Fraud (discussed here , here and here ), while other agreements are void as against public policy), a plaintiff must identify the specific terms of the agreement upon which the claim is based. M&T Bank Corp. v. Gemstone CDO VII, Ltd. , 68 A.D.3d 1747, 1750-51 (4th Dept. 2009). After all, if the plaintiff cannot identify the terms of the agreement alleged to have been breached, s/he cannot prove that the defendant breached the agreement. Recently, Anna Barrett (“Barrett”) ran into this problem in a lawsuit that she brought against TD Ameritrade Holding Corporation (“TD Ameritrade”), among others. Barrett v. Grenda , 2017 NY Slip Op. 07031 (4th Dept. Oct. 6, 2017) Barrett commenced her action against the defendants for conduct relating to her investment in a private fund established by Walter Grenda, Timothy Dembski, and Reliance Financial Advisors, LLC (collectively, the “Reliance Defendants”) and TD Ameritrade. Barrett sought damages as a result of the defendants’ fraud, negligence, breach of contract, breach of fiduciary duty, and violation of General Business Law § 349. Barrett’s claims arose from investments made in April 2011 in the Prestige Wealth Management Fund (the “Prestige Fund”), a fund that was established by the Reliance Defendants in November 2010. Barrett made her investment in the Prestige Fund through TD Ameritrade, and claimed, among other things, that TD Ameritrade breached its agreement (an IRA Application and Client Agreement) with her by failing to supervise the Reliance Financial Defendants. TD Ameritrade moved to dismiss. Regarding the contract claim, TD Ameritrade argued that Barrett failed to plead the formation of a contract from which a breach could arise – that is, she failed to identify any of the terms of the agreement claimed to have been breached: “Plaintiff has failed to state a claim for breach of contract, because Plaintiff has failed to identify any provision in any contract between her and TD Ameritrade by which it agreed ‘to provide prudent professional financial advice,’ or to ‘supervise’ her account or her investment advisors.” Concluding that the motion was “premature” in the absence of discovery, the motion court denied it without reviewing TD Ameritrade’s substantive contentions. The Fourth Department reversed, concluding that the motion court erred in denying the motion. In doing so, the Court agreed with TD Ameritrade, finding that Barrett “failed to identify the particular contractual provision that was breached.” The Court went further, noting that “the documentary evidence submitted by the TD Ameritrade defendants, i.e. , the IRA Application and Client Agreement, conclusively refutes plaintiff’s allegation that the TD Ameritrade defendants owed any such contractual obligations to her.” A copy of the decision can be found here . Takeaway To form a contract, there must be: (1) at least two parties with legal capacity to enter the contract; (2) mutual assent to the terms of an agreement; and (3) consideration. Furia v. Furia , 116 A.D.2d 694, 695 (2d Dept. 1986). In claiming a breach of contract ( i.e. , enforcing or attempting to enforce a contract), the first step for the plaintiff is to plead the existence of a valid contract. In that regard, the plaintiff must identify the specific terms of the contract that the defendant is alleged to have breached. General allegations that the contract has been breached will not suffice. Kraus v. Visa Int’l Service Assoc. , 304 A.D.2d 408 (1st Dept. 2003). Barrett learned this lesson the hard way.

Many contracts require that a party procure an “Additional Insured” endorsement to their commercial general liability (and similar) insurance policies.  Generally, the purpose of an “Additional Insured” endorsement is to provide insurance coverage to individuals or entities other than the purchaser of the policy.  For example, many commercial lease agreements require not only that a tenant procure insurance to cover a variety of risks, but that the landlord be named as an additional insured.  If the landlord is named as a defendant in a lawsuit as a result of an accident, or the landlord suffers a loss as a result of a casualty such as fire or flood at the leased premises, the landlord can make a direct claim to the tenant’s insurance carrier for defense and/or indemnification. Like commercial leases, construction contracts typically contain an “Additional Insured” endorsement requirement.  Construction contract scenarios can frequently be more complicated than a typical bipartite lease.  For example, a construction contract between an owner and a contractor may require that the contractor obtain an “Additional Insured” endorsement naming as additional insureds numerous different types of individual or entities such as architects, construction managers, owner’s representatives, project engineers, lenders, local municipalities and the like. The comfort obtained from an “Additional Insured” endorsement can quickly turn to anxiety when the carrier denies coverage.  Such was the case in Gilbane Building Co./TDX Construction Corp. v. St. Paul Fire and Marine Insurance Company , 143 A.D.3d 146, 38 N.Y.S.3d 1 (1st Dep’t 2016).  The plaintiff in Gilbane , entered into a written contract with the Dormitory Authority of the State of New York (the “DASNY”) to provide construction management (“CM”) services in conjunction with a construction project at the Bellevue Hospital Campus.  The CM contract between Gilbane and DASNY required that any contractor hired by DASNY name Gilbane as an additional insured under that contractor’s liability policy. Thereafter, Samson Construction Company (“Samson” or “GC”) entered into a written contract with DASNY to “…perform services as the prime contractor for all foundation and excavation work on the project[]”  ( Gilbane , 143 A.D.3d at 148, 38 N.Y.S.3d at 3)  and in which Samson agreed that an endorsement to its general liability policy would name as additional insureds: Dormitory Authority of the State of New York, The State of New York, the Construction Manager (if applicable) and other entities specified on the sample Certificate of Insurance provided by the Owner. ( Gilbane , 143 A.D.3d at 148, 38 N.Y.S.3d at 3.)  The sample Certificate of Insurance specifically named Gilbane, among others, as additional insureds. The policy obtained from defendant Liberty Insurance Underwriters contained an “Additional Insured—By Written Contract” clause, which provided: WHO IS AN INSURED (Section II) is amended to include as an insured any person or organization with whom you have agreed to add as an additional insured by written contract but only with respect to liability arising out of your operations or premises owned by or rented to you. ( Gilbane , 143 A.D.3d at 149, 38 N.Y.S.3d at 3.) Samson’s work on the project allegedly caused damage to neighboring property resulting in litigation in which Gilbane, among others, was named as a defendant.  After Gilbane’s request to Liberty for a defense and indemnification was denied, it commenced an action “… seeking a declaration that Liberty is obligated to provide with coverage.”  ( Gilbane , 143 A.D.3d at 150, 38 N.Y.S.3d at 4.)  The First Department described the ruling in the court below as follows: Supreme Court denied Liberty’s motion, holding that plaintiffs qualified as additional insureds under the policy.  The court found that the policy “requires only a written contract to which Samson is a party” and that this requirement was met by Samson’s written contract with DASNY, which obligated Samson to procure insurance naming as additional insured “the Construction Manager (if applicable)” and that was undisputedly the construction manager. ( Gilbane , 143 A.D.3d at 150, 38 N.Y.S.3d at 4.) The First Department disagreed.  In reversing the supreme court, the First Department reiterated that: an insurance policy is a contract between the insured and the insurer and must be interpreted according to the rules of contract interpretation; and, the extent of coverage is controlled by the terms of the policy “and not the terms of the underlying trade contract that required the named insured to purchase coverage.”  ( Gilbane , 143 A.D.3d at 151, 38 N.Y.S.3d at 5 (quoting Bovis Lend Lease LMB, Inc. v. Great Am. Ins. Co., 53 A.D.3d 140, 145, 855 N.Y.S.2d 459 (1 st Dep’t 2008).) The Appellate Court found that the language of the “Additional Insured—By Written Contract” clause in Samson’s policy with Liberty was clear and unambiguous and “…requires that the named insured execute a contract with the party seeking coverage as an additional insured.”  ( Gilbane , 143 A.D.3d at 151, 38 N.Y.S.3d at 5.)  Because Samson never entered into a written contract with Gilbane, “…Samson’s agreement in its contract with DASNY to procure coverage for is insufficient to afford coverage as an additional insured under the Liberty policy.”  ( Gilbane , 143 A.D.3d at 152, 38 N.Y.S.3d at 5.) Gilbane was left without the coverage to which it was entitled in its agreement with DASNY.  All Gilbane may be left with, however, is a possible breach of contract claim against DASNY and/or a third-party beneficiary claim against Samson for failing to procure the required insurance set forth in Samson’s prime contract with DASNY. The Second Department, relying on Gilbane came to a similar result in Harco Construction, LLC. v. First Mercury Insurance Company , 148 A.D.3d 870, 49 N.Y.S.3d 495 (2017), when interpreting a similar, but not identical, endorsement. TAKEAWAY There are many different “Additional Insured” endorsements/clauses that typically appear in insurance policies.  Gilbane and Harco make plain that courts in the First and Second Department will continue to construe such provisions as written – when clear and unambiguous. Those seeking the benefits of an “Additional Insured” endorsement such as the one at issue in Gilbane (that requires privity of contract with the policy purchaser) must make sure that they have a written agreement with policy purchaser to provide such coverage.  This may be as simple as having the individual or entity seeking additional insured status execute the prime contract solely for compliance with the additional insured provisions therein.

This Blog has previously written about the financial exploitation of America’s seniors. ( Here , here , here and here .) As noted in these prior posts, unscrupulous investment professionals (such as, stockbrokers, financial advisors and insurance brokers) often exploit the fact that many elder and disabled investors are not market savvy and financially sophisticated or are trusting of those in a position of knowledge and authority. They prey on the fact that senior and vulnerable investors are often hesitant to admit they do not understand what is being presented to them. On September 29, 2017, the Securities and Exchange Commission (“SEC”) announced that it had charged a former broker, his company, and his business partner for preying on retirees and other investors in an alleged real estate investment scheme in which the defendants used high-pressure sales tactics to steal $6 million from their victims. In its complaint , the SEC alleged that Leonard Vincent Lombardo (“Lombardo”) operated the scheme over a four-year period at his Long Island-based company, The Leonard Vincent Group (“TLVG”), with assistance from its CFO Brian Hudlin (“Hudlin”). As noted in the SEC compliant, Lombardo has a long history of preying on investors: he previously worked at several brokerage firms, including Stratton Oakmont, the former pump-and-dump brokerage firm that was at the center of the “Wolf of Wall Street,” and has been barred from the brokerage industry by the Financial Industry Regulatory Authority for multiple violations, including fraud and unauthorized trading in customer accounts. According to the SEC, more than 100 investors were defrauded with false claims that their money would be invested in distressed real estate. Some were told that their investments had increased by more than 50 percent in a matter of months when in fact there were no actual earnings on their investments.  Lombardo allegedly invested only a small fraction of investor money in real estate and used the bulk of it for separate business ventures into the e-cigarette industry and personal expenses, such as car payments on his BMW and Mercedes, marina fees on his boat, and visits to tanning salons. “As alleged in our complaint, retirees entrusted their money to TVLG believing they were investing in high-return real estate investments, not electronic cigarettes or trips to the tanning salon,” said Andrew M. Calamari, Director of the SEC’s New York Regional Office.  “This is another case involving a fraudster trying to look the part of a wealthy financial advisor while doing nothing more than trying to separate people from their hard-earned money.” “Investors should be suspicious anytime they are guaranteed high investment returns,” said Lori J. Schock, Director of the SEC’s Office of Investor Education and Advocacy.  “High investment returns typically involve high risk, and cannot be guaranteed.” TLVG, Lombardo, and Hudlin agreed to settlements that are subject to court approval.  TLVG and Lombardo agreed to pay disgorgement of $5,878,729.41.  Earlier this year, Lombardo pled guilty in a parallel criminal case brought by the U.S. Attorney’s Office for the Eastern District of New York.  Without admitting or denying the SEC’s allegations, Hudlin agreed to pay a $40,000 penalty. Takeaway Financial exploitation of senior and vulnerable adults remains an all too common fact of life. Enforcement efforts, such as the action discussed in this article, should help. At the end of the day, however, vigilance by investors and those trusted persons charged with overseeing their assets and property is the best way to help detect and stop financial exploitation before it results in financial ruin. As Director Schock noted: “Investors should be suspicious anytime they are guaranteed high investment returns.” After all, there are no guarantees when it comes to investing.

Securities Litigation 101: Commencing and Contesting a Federal Securities Class Action Panelist: Jeffrey M. Haber A motion to dismiss often proves a decisive event in resolving a federal securities class action, raising the stakes both for defeating or winning the motion.  A premier faculty of experienced members of the plaintiff and defense bar will present an overview of the legal issues and strategic considerations that inform the filing of a securities class action and lead plaintiff selection process, the drafting of a securities complaint and the briefing of a motion to dismiss.  The panel will address the fundamentals of a securities claim, existing precedent and evolving theories, as seen from both sides of the bar.  The panel will also offer practical suggestions to increase each side’s chance of success.  The presentation will be particularly useful for litigators who are beginning a securities litigation practice as well as seasoned litigators returning to the practice who would like to refresh their knowledge. When : 6:00 pm – 8:00 pm Wednesday, October 4, 2017 Where : New York City Bar 42 West 44th St New York, NY 10036 For additional information or to register for the seminar or the live webcast, click here . ATTORNEY ADVERTISING. © 2017 Freiberger Haber LLP. The law firm responsible for this advertisement is Freiberger Haber LLP, 105 Maxess Road, Suite S124, Melville, N.Y. 11747, (631) 574-4454; 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. Contact: Freiberger Haber LLP Melville Office (Main Office) : 105 Maxess Road, Suite S124 Melville, N.Y. 11747 Tel: (631) 574-4454   New York Office : 708 Third Avenue, 5th Floor New York, N.Y. 10017 Tel: (212) 209-1005 Fax: (212) 209-7101 Email: info@fhnylaw.com

In the wake of the hack of personal consumer information from Equifax Inc.’s computers, congressional lawmakers have asked the Securities and Exchange Commission ("SEC") to investigate whether company executives violated insider trading laws. The cyber breach involved the theft of 143 million Americans’ personal data --including Social Security numbers, driver’s license records and birth dates. Equifax is one of the main credit bureaus that compiles data to form credit histories that banks rely on to issue loans. It has been reported that three executives of the company sold shares in an aggregate amount of $1.8 million days after the security breach was discovered on July 29. Equifax did not publicly disclose the hack until 6 weeks later, however. The company has “apologized” for the security breach, but has repeatedly claimed the executives were unaware of the breach at the time they sold their shares. Equifax has offered consumers the option of “locking” their credit information for free and to sign up for a credit monitoring service. In order to do so, consumers were required to waive their right to join a class action lawsuit that was filed in connection with the hack.  However, Equifax has since said that it is no longer enforcing the waiver, stating that it has updated its policy to provide that: "enrolling in the free credit file monitoring and identity theft protection products that we are offering as part of this cybersecurity incident does not prohibit consumers from taking legal action." Class Action Lawsuits Consumer Class Actions On September 11, 2017, USA Today reported that more than 20 consumer class actions had been filed against Equifax, adding that “additional cases are likely to come.” Among other things, the actions allege that Equifax negligently failed to protect customer information and willfully and/or negligently delayed notifying the public of the breach. The lawsuits also refer to earlier, smaller data breaches the company sustained in 2013, 2016, and earlier this year. According to one of the lawsuits, Equifax “knew and should have known of the inadequacy of its own data security.” Securities Class Actions Along with the consumer class actions, investors have filed securities class actions against Equifax and certain for its officers -- namely, the company’s Chairman and CEO, Richard F. Smith ("Smith"), and its CFO, John W. Gamble, Jr. ("Gamble"). According to a press release issued on September 11 by the plaintiff's attorneys, the defendants issued materially false or misleading statements or failed to disclose that “(1) the Company failed to maintain adequate measures to protect its data system; (2) the Company failed to maintain adequate monitoring systems to detect security breaches; (3) the Company failed to maintain proper security systems, controls and monitoring systems in place; and (4) as a result of the foregoing the Company’s financial statements were materially false and misleading at all relevant times.” The complaint ( here ) was filed in the United States District Court for the Northern District of Georgia on behalf of all persons who purchased Equifax shares between February 25, 2016 and September 7, 2017 (the "Class Period"). The plaintiff specifically references the insider trading by Gamble and other company executives. The complaint also references a variety of alleged statements by the company during the Class Period relating to the quality of its data protection and security measures. As a result of the disclosure of the data breach, the complaint alleges that the company’s shares fell nearly 17%. Lawmakers’ Letter On September 12, letters signed by thirty-six U.S. Senators were sent to the SEC and the Federal Trade Commission seeking a probe of the stock sales by Equifax insiders -- namely, Gamble; the President of U.S. Information Solutions Joseph Loughran; and the President of Workforce Solutions Rodolfo Ploder. The bipartisan request highlights the degree of public outrage over the company’s handling of the cyber breach and the subsequent insider sales. “We request that you conduct a thorough examination of any unusual trading, including any atypical options trading, for violations of insider trading law ... and that you spare no effort in your investigations," the senators wrote in the letter. The Takeaway The insider trading allegations make the securities class action lawsuit more problematic for the defendants. Although Equifax has maintained that the selling executives were not aware of the breach when they traded and the sales themselves were relatively small, representing only a small portion of the sellers’ holdings, the timing of the sales is suspicious.  As noted, the trading took place after the breach had been discovered but before the breach was publicly disclosed. Courts look at the timing of the sales, in addition to the amount of the sales versus the insider’s total holdings, to determine if the sales are unusual or suspicious. None of the sales were made pursuant to scheduled 10b5-1 trading plans. Complicating the issue for the insiders are recent reports that Equifax was the victim of a separate security breach in March of this year. Equifax has not publicly disclosed the March breach. According to Bloomberg , in early March, “Equifax began notifying a small number of outsiders and banking customers that it had suffered a breach and was bringing in a security firm to help investigate.” According to the article, “the hackers entered the company’s computer banks the second time through a flaw in the company’s web software that was known in March but not patched until the later activity was detected in July.”  Gamble sold 14,000 shares on May 23, for proceeds of $1.91 million, more than twice the size of his Aug. 1 sale of 6,500 shares for $946,374. The securities class action plaintiffs and regulators will no doubt find this transaction and its timing worth investigating. The securities class action will be interesting to follow, in addition to the various regulatory and congressional investigations. In the past, securities class action and shareholder derivative plaintiffs have not fared well after bringing actions following the disclosure of data breaches. Time will tell what happens in this case. But, given the regulatory and congressional scrutiny of the breach and the insider trading, the outcome of this securities class action may be different than the previous data breach class actions involving other companies. Stay tuned.

It is widely known that there is a residential foreclosure crisis throughout the country and New York State is no exception. The New York State Legislature responded by promulgating a series of rules designed to protect residential homeowners.  These rules, however, place additional burdens on foreclosing lenders and courts throughout New York State have demonstrated little sympathy for foreclosing lenders that fail to follow these rules. For example, section 1303 of the Real Property Actions and Proceedings Law (“RPAPL”) requires that, under certain circumstances relating to residential property, a foreclosing mortgagee must send statutory notice to the mortgagor and tenants advising them, among other things, that they are in danger of losing their home and how to avoid foreclosure rescue scams. Similarly, RPAPL 1304 requires that at least ninety days prior to commencing legal action against a borrower with respect to a “home loan” (as defined in the relevant statutes (a “Home Loan”)), a lender must: send written notice to the borrower by certified and regular mail that the loan is in default; provide a list of approved housing agencies that provide free or low-cost counseling; and, advise that legal action may be commenced after ninety days if no action is taken to resolve the matter. In residential foreclosure actions involving a Home Loan, CPLR 3012-b requires that the complaint be accompanied by a certification signed by the foreclosing lender’s counsel that the underlying facts and documents have been reviewed, that based on such review there is a reasonable basis for the commencement of the action and that the foreclosing lender is the proper party plaintiff to the action. The Appellate Division, Second Department, in M&T Bank v. Joseph , 152 A.D.3d 579, 58 N.Y.S.3d 150 (2017), reminds all foreclosing lenders with respect to certain residential mortgages, that the rules established to protect homeowners are to be followed.  In M&T , the Bank loaned the defendant approximately $425,000 and secured the loan with a mortgage on defendant’s residential real property.  The defendant defaulted under the loan in June of 2010 and M&T commenced its action in December of that year.  After the defendant answered and the parties attended a mandatory settlement conference, M&T moved for, and was granted, summary judgment. On defendant’s appeal, the Second Department reversed the supreme court and, in so doing, reiterated that M&T was required to prove its strict compliance with RPAPL 1304 by tendering sufficient evidence in admissible form.  The Appellate Court was unmoved with the “unsubstantiated and conclusory” statement from a bank officer that “a 90-day default letter was sent in accordance with [] RPAPL 1304” as urged by M&T in the papers supporting its motion for summary judgment. Instead, in order to prove compliance, the Second Department required “an affidavit of service or proof of mailing from the post office evincing that it properly served the defendant pursuant to RPAPL 1304.” Significantly, the Second Department found that since M&T failed to meet its burden of proof that the requirements of RPAPL 1304 were satisfied, the motion for summary judgment should have been denied “regardless of the sufficiency of the defendant’s opposition papers.” TAKEAWAY The failure to follow the residential foreclosure rules can have significant consequences.  In M&T , the Second Department’s reversal of the supreme court’s grant of summary judgment came seven years after the action was commenced.  Substantial interest and legal fees likely accrued during the lengthy pendency of the action to the point where the equity in the real property may have been insufficient to make the bank whole.  Moreover, to the extent that the bank was otherwise entitled to recover its reasonable legal fees under the note and mortgage, the court might not consider “reasonable”, those fees related to litigating the insufficiency of M&T’s compliance with RPAPL 1304.

On September 7, 2017, the Securities and Exchange Commission ("SEC") announced that State Street Corp. agreed to pay more than $35 million to settle charges that it fraudulently charged secret markups for transition management services and separately omitted material information about the operation of its platform for trading U.S. Treasury securities.   Hidden Transition Management Fees The SEC charged State Street with defrauding six institutional investors by charging hidden markups for trades of U.S. Treasuries on its electronic platform. The scheme, which reportedly began in 2010, revolved around the highly competitive transition management business. State Street overcharged institutional investors that were changing fund managers of investment strategies for its services. According to the SEC, Ross McClellan, an executive vice president of State Street, oversaw the scheme that targeted large deals for markups because the overcharges would not draw attention. The scheme first targeted a sovereign wealth fund in the Middle East in 2010. The bank offered to rework its $6 billion portfolio without charging a commission. In reality, State Street booked $2.7 million (9 basis points) in markups that were disguised as  a “bid  offer spread.” McClellan directed two U.K.-based State Street traders to take the undisclosed markups, but one of the traders was picked up on a recorded line telling a colleague no one would notice, calling it a “rounding error.” Similar schemes saw the bank cheat an Irish government agency of $4.5 million and a U.K. postal company of $3 million in undisclosed transition management charges. “Agreeing to a fee arrangement and then secretly tucking in hidden, unauthorized markups is fraudulent mistreatment of customers,” said Paul G. Levenson, Director of the SEC’s Boston Regional Office that investigated the overcharges. In a statement, State Street said that the settlement concluded all governmental investigations related to the overcharging. “We deeply regret that our clients were impacted and that a small number of our employees failed to meet our expectations,” State Street said. “The impacted clients were fully reimbursed, and over the past several years we have taken significant steps to strengthen our controls for our transition management business, and more broadly to enhance our compliance program, culture and operating environment.” The settlement comes on the heels of a deferred prosecution agreement the bank previously entered into with the Department of Justice in January to resolve criminal charges that it engaged in the scheme that is the subject of the settlement with the SEC. ( Here .) State Street agreed to pay a penalty of $32.3 million to settle the criminal charges and offered to pay the same amount to the SEC as a penalty to resolve the civil charges. A copy of the SEC's order can be found here . Failure to Make Material Disclosures The SEC also charged the bank with failing to make material disclosures relative to “GovEx,” the bank’s electronic trading platform for U.S. Treasuries. The bank described the platform (known as the Last Look platform) as fair and transparent but gave special treatment to certain subscribers by allowing them to reject matches to quotes they had submitted.  “Firms that run trading platforms cannot mislead subscribers about their order handling operations,” said Kathryn A. Pyszka, Associate Director of the SEC’s Chicago Regional Office that investigated the GovEx-related disclosure failures. A copy of the SEC's order can be found here .