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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

Practitioners involved in qui tam 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 “ 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 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 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.

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 Och 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 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 deferred­prosecution 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 Fact Press SEC Press Release SEC Order

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 “concur with” Judge Oeken’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 “ 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: The 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.

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, “ 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

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

What is being done about fraud in the FHA's mortgage insurance program? In September, the U.S. Department of Justice announced that Regions Bank ("Regions") agreed to pay $52.4 million to resolve allegations that it violated the False Claims Act. The Alabama-based bank knowingly  originated mortgage loans insured by the Federal Housing Administration ("FHA") that did not meet the underwriting guidelines of the U.S Department of Housing and Urban Development ("HUD"). What is an FHA Direct Endorsement Lender? Since January 2006, Regions has been a direct endorsement lender ("DEL") in the FHA’s mortgage insurance program which gives these lenders the authority to originate, underwrite and endorse mortgages for FHA insurance. If the borrower subsequently defaults, the holder of the note can submit an insurance claim to HUD to recoup the losses related to the default. Under the program, the FHA relies on the DEL to certify compliance. As part of the settlement, Regions admitted that from January 1, 2006 to December 31, 2011, it certified loans that did not meet HUD underwriting requirements regarding borrower creditworthiness.  The bank also admitted that it's quality control department did not review a sufficient number of FHA loans. Even worse, when deficiencies were identified, bank employees often cured the deficiencies, understating the defect rate being reported to senior management. In addition, Regions did not comply with HUD guidelines regarding the bank's review of Early Payment Default loans. The guidelines require a review of all  loans that became 60 days past due within the first six months, but Regions reviewed only those loans that became 90 days past due. Lastly, the bank did not fully adhere to HUD's self-reporting requirements, which require DELs to report fraud and other serious violations or other material deficiencies. In fact, the bank identified numerous loans containing deficiencies between 2006 and 2011, but did not begin self-reporting until 2011. By failing to comply with the requirements of the FHA program, HUD insured hundreds of loans that were ineligible and incurred substantial losses. The Takeaway The FHA mortgage insurance program is designed to encourage home ownership for lower income borrowers or those suffering from financial hardship. Lenders are given incentives to make potentially riskier loans in exchange for government guarantees to reimburse holders of the loans for default-related losses. By failing to adhere to HUD's underwriting guidelines, and recover losses from the FHA program, Regions essentially made false claims to the government. The question remains as to how far reaching these issues are at the FHA, and whether there is the potential of a crisis similar to the one that culminated in the collapse of the subprime mortgage market in 2008. For this reason,  the False Claims Act rewards whistleblowers who successfully recover funds on behalf of the government .

How can I protect my business from conduct risk? The U.S. Attorney in Manhattan recently announced a number of charges against two former executives of American Realty Capital Properties, Inc. ("American Realty"), a real estate investment trust ("REIT"), for their role in a 2014 accounting scandal. Brian Block, the former chief financial officer ("CFO"), is facing six criminal counts for securities fraud, conspiracy and the making of false statements.  Lisa McAlister, the REIT's former chief accounting officer, previously pleaded guilty to four counts, including securities fraud and conspiracy, and has been cooperating with authorities, according to U.S Attorney Preet Bharara. "Market investors are entitled to be told the truth from publicly traded companies," Bharara said in a statement. "When investors are lied to about material information, as is alleged to have happened here, the perpetrators need to be investigated and prosecuted." In addition, the Securities and Exchange Commission has filed civil charges against the two former executives, seeking fines as well as officer and director bans. The attorney representing the fallen CFO said that the charges were "unwarranted" and that his client would prevail at trial. The American Realty Scandal The September 2014 accounting scandal wiped out almost $4 billion of the REIT's market value. The U.S. Attorney alleges that the defendants manipulated American Realty's adjusted funds from operations ("AFFO"), a key metric used by analysts to measure the performance of a REIT. Authorities contend that Block concealed an error in the calculation of AFFO -- one that he had been warned about internally -- and, with McAlister in his office, input fictitious numbers into a spreadsheet that was later incorporated into the financial results American Realty reported to the public and the SEC. According to the government, the fictitious data made it appear that American Realty met Wall Street forecasts, when, in fact, it had not. On October 29, 2014, the REIT acknowledged that the executives "intentionally" concealed the accounting errors, which caused American Realty to overstate its AFFO. On that day, the REIT's shares plunged by 37 percent. American Realty eventually restated 3-1/2 years of its reported financial results. American Realty, which went public in 2011 and was part of Nicholas Schorsch's commercial real estate empire, is now the Phoenix-based VEREIT, Inc. Although Schorsch has not been charged in the case, another of his businesses filed for bankruptcy seven months ago, giving lenders control of an affiliated investment advisory unit. At this juncture, it is unclear whether the U.S. Attorney is investigating these matters further. The Takeaway This case illustrates how essential it is for investment firms and other financial service providers to have policies and procedures in place to mitigate conduct risk. The illegal actions of senior executives, officers and directors can have a significant adverse affect on a business, resulting in serious market losses that ultimately harm investors. If your firm is being investigated or is embroiled in an investor lawsuit, you should engage the services of an experienced business litigation attorney .

What anticompetitive business actions are considered unfair? Amidst the recent commotion surrounding the wildly elevated prices of certain products sold by Mylan Pharmaceuticals ("Mylan"), New York State Attorney General Eric Schneiderman is investigating whether the drug company has unfairly limited competition. Although Mylan has been accused of profiteering before, this time the product involved is EpiPen®, the emergency injector used for extreme emergency allergic reactions (anaphylaxis). Allergies requiring EpiPen administration may include severe allergic reactions to insect stings, nuts, shellfish, or certain medications. Because EpiPens are auto-injectors, they can be easily carried and used anywhere and can be administered by patients themselves or by untrained people who happen to be nearby. A single jab to the thigh dispenses lifesaving epinephrine. Mylan's Business Practices under Investigation Right now, the state attorney general's office is examining data to find out whether Mylan unfairly limited competition as a means of steeply increasing its prices for EpiPen. In a preliminary report, Schneiderman announced that the company "may have inserted potentially anticompetitive terms" into sales contracts with many school systems, thereby engaging in anti-competitive business practices or violating antitrust laws. If this turns out to be the case, Schneiderman says, "We will hold them accountable." Recently, Mylan was served with subpoenas for company information. Of course, investigation does not mean proof of wrongdoing. If your company is accused of, or investigated for, illegitimate practices, it is essential that you have a strong business attorney with skill and experience in commercial and complex litigation . Just how steep are the increases in price? The possible legal charges here are serious since they not only involve potentially illegal business practices, but matters of public health and lifesaving medical treatment. Mylan has increased the cost of the EpiPen product astronomically, apparently just because they can. In 2007, pharmacies paid less than $100 for a two-pen set (patients are advised to carry two in case they require a second dose). By 2009, the price had increased marginally to $103.50 per set. By July 2013, however, the cost was up to $264.50, and by May 2015 it had risen to $461. The alarming increases in price did not stop there. By May of this year, the price of two EpiPens skyrocketed to $608.61! This represents an increase of 500 percent in less than a decade. For individuals whose lives depend on these products (which typically have to be replaced annually), this is a tremendous burden. Possible Alternatives to the Outrageous Pricing In response to the uproar surrounding its pricing, the company has announced that will be launching a $300 generic version of the medication within several weeks. Also, Mylan has stated that it has distributed more than 700,000 free EpiPens to 65,000 schools nationwide. While there are other generics, such as Adrenaclick, presently available, EpiPen is the recognizable brand name and patients are extremely reluctant to trust their lives to an unknown product. While the controversy and investigation rage on, Mylan spokeswoman Nina Devlin stated, "The program continues to adhere to all applicable laws and regulations."

How has Turing managed to get into even more trouble after last year's bombshell? It is difficult to imagine Martin Shkreli ("Shkreli") being shamed even more than he already has been, nor Turing Pharmaceuticals AG ("Turing") having its reputation further blackened by more bad news. Nonetheless, this is exactly what's happening. After last fall's commotion surrounding pricing discrepancies, Nancy Retzlaff ("Retzlaff"), once looked at as the most likely candidate for CEO of the company, has now brought federal charges against Turing for retaliating against her after she testified in a case involving a sexual assault by one of Shkreli's friends and a co-founder of the company -- Edwin Urrutia. When companies are involved in litigation and their reputations are on the line, the stakes can be very high. Executive positions, as well as the firm itself, can be at risk. Under such circumstances, it is imperative that the company brings in a business law firm of unchallenged competence to settle disputes, represent them vigorously in a court of law, and help them keep the business afloat and moving full-steam ahead through stormy waters. It is also important to hire attorneys able to understand and protect the rights of whistleblowers whose attempts to repair company defects are all too often met with retaliation. The Background Last February, Shkreli famously appeared smug and flippant during a Congressional investigation of his company's astonishing pricing practices. Retzlaff, a highly valued member of the Turing team at the time, supported the company, explaining away the fiftyfold overnight increase in the price of the drug Daraprim, used for over 50 years to treat a deadly parasitic infection, by stating that it had previously been underpriced and that it had great value to the patients who required it. While not especially convincing, her defense was considered professional and well-articulated, particularly in contrast to Shkreli's unseemly antics in the face of such serious charges. Shkreli later stepped down as chief executive of Turing after being arrested on securities fraud and wire fraud charges in connection with his activities at hedge funds and another pharmaceutical company he founded. Turing also faces investigations by the  New York attorney general  and  the Federal Trade Commission . The Current Case Retzlaff now claims that, while in Washington for a Congressional hearing on the inflated price case, Edwin Urrutia, Shkreli's friend and the interim chief financial officer of Turing, made unwanted sexual advances to her, eventually assaulting her in a hotel bedroom. Retzlaff did not originally report the sexual assault because she feared, according to her lawyer, "reprisal, victim blaming, and being denied the C.E.O. position for which she was eminently qualified — all of which are now happening." When a co-worker made a strong complaint of unwanted sexual advances by the same man, however, Turing hired a private company to investigate the charges, and at that time Retzlaff spoke up. The investigation company substantiated the charges that Urrutia had made unwanted sexual advances to his accuser and had assaulted Retzlaff and other members of the staff. Urrutia, as a result, resigned from Turing "in lieu of termination." According to Retzlaff, before the assault and its aftermath, she had been a candidate for chief executive of the firm and had been promised restricted stock in the company. She charges that more recently she was told that she is no longer eligible for either. She also alleges that Shkreli had set a sexist and vulgar tone for the office with his own crude behavior, although he had left the company by the time her own sexual assault took place. Shkreli now states “I know she was made some promises, but she fell a little bit short of expectations.”

On September 20, 2016, the Securities and Exchange Commission (“SEC”) announced that it awarded more than $4 million to a whistleblower who provided original information about a fraud that resulted in the recovery of monetary sanctions. Since 2011, the SEC has awarded more than $111 million to 34 whistleblowers pursuant to the agency’s whistleblower program. The SEC did not identify the whistleblower. By law, the SEC protects the confidentiality of whistleblowers and does not disclose information that might directly or indirectly reveal a whistleblower’s identity. Commenting on the award, Jane Norberg, Acting Chief of the SEC’s Office of the Whistleblower, stated: “Our program continues to incentivize whistleblowers to come forward with solid information that helps us bring violators to justice before more wrongdoing can occur.” Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, a whistleblower who provides original information to the SEC that leads to a successful enforcement action resulting in over $1 million in monetary sanctions may be awarded an amount not less than 10% and not more than 30% of the monetary sanctions collected. All payments made to whistleblowers are paid out of an investor protection fund established by Congress that is financed through monetary sanctions paid to the SEC by securities law violators. Links: SEC Press Release SEC Order SEC Whistleblower Resources

It is a fact of life that many securities brokers and financial advisors will be the subject of one or more customer complaints during his/her career. To be sure, some of those complaints will be justified. However, many of them will not be. In those latter instances, innocent brokers and financial advisors will have a blemish on his/her record that can be cleared only through an expungement proceeding. Expungement is essentially a three-step procedure. First, the broker or financial advisor must persuade a court or arbitration panel to expunge his/her record of the negative event. Rule 2080(b)(1) promulgated by the Financial Industry Regulatory Authority (“FINRA”) provides the grounds upon which an order of expungement should be granted: (a) the claim, allegation or information is factually impossible or clearly erroneous; (b) the broker or financial advisor was not involved in the alleged investment-related sales practice violation, forgery, theft, misappropriation or conversion of funds; or (c) the claim, allegation or information is false. The process is started by filing an application naming the customer or the firm as a respondent. FINRA is also named as an additional party, unless FINRA waives the requirement. Second, if an expungement award is issued by an arbitration panel, the award must be judicially confirmed. Third, if confirmed, the award and the judgment (confirming the award) are to be sent to the Central Registration Depository (“CRD”) so that the matter can be removed from the broker or financial advisor’s record. In addition to Rule 2080, the process for seeking expungement is governed Rule 12805 of the FINRA Code of Arbitration Procedure for Customer Disputes. Rule 12805 covers the responsibilities of the arbitration panel hearing an application for expungement. The rule requires the panel to “ old a recorded hearing session (by telephone or in person) regarding the appropriateness of expungement.”  In a case that has gone to hearing on the merits, a panel will often consider a request for expungement as part of its deliberations. Rule 12805 further instructs that if the panel grants expungement, it must “ ndicate in the arbitration award which of the Rule 2080 grounds for expungement serve(s) as the basis for its expungement order and provide a brief written explanation of the reason(s) for its finding that one or more Rule 2080 grounds for expungement applies to the facts of the case.” If, however, a customer complaint is settled before a hearing on the merits, the panel must nevertheless hold a hearing on the record to evaluate the expungement application, including “review settlement documents and consider the amount of payments made to any party and any other terms and conditions of a settlement.” The broker or financial advisor must present testimony and evidence to the panel in support of the application, and the customer or other interested party must be given an opportunity to respond and be heard. Upon request of the broker or financial advisor, FINRA will typically keep the arbitration panel intact following the settlement for purposes of holding a hearing limited to the issue of the broker or financial advisor’s expungement request. Expungement Gets Some Bad Press: Royal Alliance Associates Inc. v. Liebhabe r The foregoing expungement process received some adverse press in September of 2014, when The New York Times Dealbook published an article (“A Murky Process” dated September 25, 2014) about an expungement proceeding in which Sandra A. Liebhaber (“Liebhaber”), a customer of Royal Alliance Associates, Inc. (“Royal Alliance”), attempted to oppose an expungement application by her broker, Kathleen Tarr (“Tarr”) (FINRA ID No. 13-01522 (Los Angeles, 9/10/14)), and was rebuffed by the panel, which issued the expungement award. As discussed below, in Royal Alliance Associates, Inc. v. Liebhaber , B264619 (Cal. Ct. App. Aug. 30, 2016) , the Court of Appeals of the State of California vacated the expungement award because the arbitrators failed to allow Liebhaber and her counsel the opportunity to present testimony and evidence at the hearing. The Arbitral Proceeding From July 2002 through July 2010, Tarr was employed as a financial advisor with Royal Alliance, a securities broker-dealer and FINRA member. Starting in 2007, Tarr sold high-commission variable annuities and non-traded real estate investment trusts, or REITs, to dozens of AT&T employees who were eligible to receive early retirement offers from the company. By 2010, many of Tarr’s customers complained that she improperly steered them into portfolios of illiquid securities that were unsuitable for their retirement accounts. Liebhaber was a customer service representative for AT&T and one of Tarr’s clients.  In May 2013, Liebhaber filed a complaint against Royal Alliance, claiming that Royal Alliance was negligent, breached its fiduciary duty to her, and violated state securities laws by selling her “illiquid, high-risk investments” that were “inappropriate and unsuitable” for her individual retirement account. Slip op. at 3. Liebhaber sought $325,000 in compensatory damages.  Royal Alliance settled the action for $30,000, or less than 10% of requested damages, after an arbitration panel was convened but before a hearing was held. Id . Royal Alliance requested that the arbitrators keep the case open so that it could seek expungement of Liebhaber’s claim and settlement from Tarr’s CRD record. Id . at 3-4. On June 9, 2014, Royal Alliance submitted a request for expungement on behalf of Tarr to the previously convened arbitration panel. Liebhaber remained a party to the action; Tarr was not, however, named as a party. Royal Alliance sought expungement because it faced other FINRA arbitrations in which former customers claimed that Tarr had caused them harm.  In later briefing, Royal Alliance explained that it wanted to use the expungement award in “ongoing arbitrations and in any later filed arbitration ” as evidence of no wrongdoing. Less than a month later, on June 30, 2014, Liebhaber’s counsel advised the arbitration panel that he did not intend to file a pre-hearing brief but planned to call Liebhaber and Tarr as witnesses at the arbitration hearing. According to the Court, the record was devoid of a response by Royal Alliance or the arbitration panel, as well as written evidence and submissions by the parties. Slip op. at 4. On August 12, 2014, the panel held a telephonic hearing to consider the expungement application. Liebhaber and her counsel, Royal Alliance and its counsel, and Tarr participated in the hearing. Royal Alliance argued that expungement was warranted because Liebhaber’s allegations against Tarr were false, stating that the investments Tarr recommended were suitable for Liebhaber, and Liebhaber’s alleged net losses could be attributed to withdrawals from her retirement account and “the 2008 market crash.” Slip op. at 4. Royal Alliance also noted that a complaint similar to Liebhaber’s had been previously expunged from Tarr’s record. (Note: Tarr had 44 customer complaints and a termination on her record.) Tarr also spoke during the hearing, but did so without being sworn in by the panel. Tarr vigorously disputed Liebhaber’s allegations, noting that the allegations against her were inimical to her background as “the daughter and granddaughter of ministers.” Slip op. at 4-5. Tarr spoke uninterrupted and without questions. Id . at 5. Liebhaber’s counsel contended, among other things, that Royal Alliance failed to show that her claims against Tarr were false or factually impossible, and proposed a procedure in which both Tarr and Liebhaber would be asked to respond to questions about Liebhaber’s claims. Tarr’s counsel objected to the proposed procedure.  The presiding arbitrator concluded that such questioning was unnecessary. Another panel member, however, wanted to hear such questioning, especially since “the guidelines are pretty clear that we’re supposed to be looking at everything because this was a settled case, and that the more information we have, the easier it is for us to make what I would consider to be a fair and well reasoned decision regarding expungement.” That arbitrator undermined the point, however, by adding that such questioning should not exceed “another two hours.” The third arbitrator agreed with the presiding panel member. Thereafter, the presiding arbitrator denied Liebhaber’s request. Slip op. at 6. Liebhaber’s counsel stated for the record his objection to the panel’s ruling, noting that he had “not been given a full and fair opportunity to respond to … the claims that have been made in the hearing.” Id . at 7. After rebuttal and additional discussion about the panel’s ruling, the panel concluded the proceeding. On September 10, 2014, the panel issued an award recommending expungement. Slip op. at 7. The award tracked the language of Rule 2080, and found that Liebhaber’s “claim, allegation, or information” against Tarr was “factually impossible or clearly erroneous; and … The claim, allegation, or information is false.” Slip op. at 7-8. The panel cited several reasons for its findings, including the difference between the damages Liebhaber sought ($325,000) and the settlement amount ($30,000). Id . at 8. The panel concluded the amount of the payment reflected a business decision by Royal Alliance rather than Liebhaber’s actual net out-of-pocket losses. Id . The Petition to Confirm the Expungement Award Pursuant to FINRA Rule 2080, Royal Alliance sought confirmation of the expungement award. Liebhaber opposed the petition, and requested that the award be vacated on the grounds that: “(a) Liebhaber’s rights were substantially prejudiced by misconduct of the arbitrators; (b) the arbitrators exceeded their powers in denying Liebhaber’s request to present evidence at the hearing; and (c) Liebhaber’s rights were substantially prejudiced by the refusal of the arbitrators to hear evidence material to her claims.” Slip op. at 10. On May 18, 2015, the trial court held a hearing to consider the petition to confirm the award. In connection with the hearing, the court issued a tentative ruling to vacate the award. Following oral argument, the trial court adopted its tentative ruling and vacated the expungement award.  The court did so “on the ground that Liebhaber’s rights were substantially prejudiced by misconduct of the arbitrators, the arbitrators exceeded their powers, and Liebhaber’s rights were substantially prejudiced by refusal of the arbitrators to hear evidence material to the controversy.” Slip op. at 12. The court also found that the arbitrators violated FINRA Rule 2080 “by allowing Ms. Tarr to provide an unsworn statement in support of expungement while also preventing Liebhaber’s attorney from cross-examining Ms. Tarr in order to determine if the requirements of Rule 2080 were met.” Id . THE COURT OF APPEALS’ DECISION The Court of Appeals affirmed the trial court’s ruling. It found that “Liebhaber’s rights as a party to the arbitration proceedings were substantially prejudiced within the meaning of section 1286.2, subdivision (a)(5),” which “provides that the trial court ‘shall vacate’ an arbitration award if ‘The rights of the party were substantially prejudiced by . . . the refusal of the arbitrators to hear evidence material to the controversy or by other conduct of the arbitrators contrary to the provisions of this title.’” Slip op. at 16. Addressing the first question – whether the arbitrators refused to hear evidence material to the controversy or engage in other conduct contrary to the provisions of California law – the Court Appeals found that the panel in fact had refused to give Liebhaber the opportunity to be heard, present oral evidence, and cross-examine Tarr during the hearing. Slip op. at 16-18. As to the second question – whether Liebhaber’s rights were substantially prejudiced – the Court of Appeals found that they were. In so holding, the Court concluded that “‘the arbitrator might well have made a different award’ if they had allowed Liebhaber to tell her side of the story or question Tarr’s.” Slip op. at 19 (citation omitted). Consequently, the Court held that “the hearing was not fair,” because Royal Alliance received “an unfettered opportunity to bolster its written” submission, while Liebhaber was “denied even a limited chance to do the same.” Id . at 20. TAKEAWAY Royal Alliance teaches the importance of making a record during an arbitration proceeding. As discussed above, Liebhaber’s counsel created a substantial record showing that Liebhaber did not have a fair hearing. He was able to use that record to show prejudice from the arbitrators’ conduct – one of the bases for vacatur of an arbitral award.  Since vacatur of an award is very difficult to obtain, as discussed in a July post on this blog, having a detailed record is a good way to persuade a court of entitlement to such relief. Royal Alliance also teaches that, although customers typically remain silent during expungement proceedings, they do not have to remain so, even after settling their claims. As discussed above, Liebhaber felt strongly enough to ensure that other investors would know about Tarr’s behavior notwithstanding the settlement. Of course, customers who believe their broker or financial advisor has been falsely charged with wronging should likewise speak up during an expungement hearing. * * * It should be noted that FINRA participated as a party in the confirmation proceeding and opposed the actions of the arbitrators. At the hearing, FINRA told the trial court that FINRA had “an interest and really a duty here, in protecting the integrity of the and the information contained in it.” As such, given the record of proceedings, FINRA argued that the arbitrators broke FINRA’s rules in denying Leibhaber and her counsel the opportunity to testify and be heard. Also, not long after Liebhaber challenged the expungement award, FINRA revised its expungement guidance with respect to customer participation at expungement hearings. The Arbitrators’ Guide now provides, as mentioned above, that arbitrators should “allow customers and their counsel to participate in the expungement hearing in settled cases if they wish to.”