VIEWS: 156 PAGES: 11 POSTED ON: 4/1/2011
ANTITRUST CASES Daimler Chrysler AG Receives Reduced Fine The European Union’s Court of Justice has reduced an antitrust fine against Daimler Chrysler AG to $12 million from $88.2 million, rescinding the decision by regulators that it violated competition rules in Spain and Germany. The justices, however have upheld the decision that Daimler Chrysler participated in anti-price-slashing agreements with Belgian dealers. This ruling follows earlier EU court decisions to reduce fines against car manufacturers. Volkswagen AG had its antitrust fine reduced $22 million in 2003. Banana Price-Fixing – One More Thing That Makes King Kong Really Mad Chiquita, Dole and Del Monte are under suspicions of price fixing in Europe and have touched off a sudden increase in U.S. class-action suits; alleging conspiracy to hike or maintain banana prices. At least eight complaints have been lodged in U.S. District Court in Miami against Chiquita Brands International, Dole Food Co., Fresh Del Monte Produce and Grupo Noboa alleging these four companies exchanged information that helped fix the price of the most popular fruit in the world. The lawsuits allege the companies formed a cartel, exchanged information about prices and sales volumes, arranged to sell bananas at agreed-upon prices and agreed to reduce production capacity. According to a Chiquita report filed with the Securities and Exchange Commission, the banana firm disclosed in June to European authorities that "some employees had shared pricing and volume information with competitors in Europe over many years in violation of European competition laws and company policies." Historically the US DOJ has been the most aggressive in antitrust enforcement but the EU continues to flex its muscles more and more as illustrated by the thread cartel and beer price fixing cases (see below). 11 Firms Accused of Thread Cartel The European Commission fined 11 European companies nearly $54 million for fixing the price of industrial thread, indicating that their practices restricted access to the European market for competition. The European Union head office said 11 companies from Germany, Belgium, the Netherlands, France, Britain and non-EU member Switzerland were involved in fixing the price of the thread, which is used to make clothes, automotive seats, leather goods and footwear. The EU accuses the “cartel” of participating in regular meetings and holding bilateral contracts to agree on price increases and target prices. Bartender, One Price Fixing Allegation Please The European Commission has evidence that a number of companies in the Netherlands got together to fix beer prices in cafés, restaurants, hotels and supermarkets between 1996 and 1999. The EU accused the brewers of affecting the price of beer by agreeing on prices, allocating customers, discussing the conditions with individual customers and sharing market information. Heineken, Interbrew (Dutch arm of Inbev), Grolsch and Bavaria have each received a letter from the Commission. If any are found guilty, the Commission would have the power to impose a fine worth 10 per cent of the company's yearly sales revenue. That means going by 2004 turnover, Grolsch could be charged around €31.4m, Heineken as much as €1bn and Inbev €856m. While certainly this does not factor into European Commission prosecutorial decisions, the average European beer drinker (and we understand that there are quite a few) is going to be able to relate to (and cheer) this move by the Commission. Perhaps some helpful PR for the EC. Antitrust/Anticompetitive Practices Judgment Against News Corporation A long-standing antitrust and unfair competition dispute between Theme Co-Op Promotions of San Francisco and News America Marketing FSI, Inc., a subsidiary of Rupert Murdoch’s News Corporation, came to a conclusion when a jury in the U.S. District Court for the Northern District of California found in favor of Theme on antitrust, unfair competition and related claims. The dispute involved News America’s attempt to corner the market for "free standing inserts" or "FSIs," the promotional circulars that are included in Sunday newspapers across the nation. Theme claimed it was harmed as a result of News America’s enforcement of exclusive dealing contracts with packaged goods companies that were designed to lock Theme out of the FSI market, which is in violation of California’s antitrust and unfair competition laws. The jury found in favor of Theme on its claims under the Cartwright Act and on claims of unfair competition, as well as intentional and negligent interference with prospective economic relations and assessed punitive damages against News America for its predatory business practices. While Theme Co-Op prevailed in this case, it appears that very little damages have been or may be awarded. You Hear Me Now? I am Saying “No Illegal Tying” The judge ruled in New York U.S. District Court that the five largest carriers of wireless telephone services in the United States do not engage in antitrust practices when they require customers to buy an approved handset to subscribe to their services. The judge tossed out a group of five lawsuits brought by wireless customers who claimed that the companies from 1998 to the present have unlawfully tied the sale of handsets to the sale of wireless services. The wireless telephone services listed as defendants were AT&T Wireless Services Inc., Verizon Wireless, Cingular Wireless LLC, T-Mobile and Sprint Spectrum L.P. The lawsuits were first brought in April 2002 by customers who said the defendants had, in effect, created a monopoly on the market for wireless handsets compatible with their wireless services. The judge noted in her ruling that the Federal Communications Commission has repeatedly described the wireless services market as competitive. While the concept of “illegal tying” exists in antitrust law, aside from the famed Microsoft Windows illegal tying litigation, it is extremely rare to see successful plaintiffs or prosecution over illegal tying charges. This just reinforces that trend. Not surprisingly “illegal tying” has dropped in severity and likelihood score precipitously in the ECERA risk assessment score over the past couple of years versus other 15 common risk areas within antitrust. Eisenhower Settles Whisteblower/Medicare Lawsuit on Overbilling for $8 Million Eisenhower Medical Center paid $8 million to the federal government to settle a "whistleblower" lawsuit, which alleged the Rancho Mirage hospital fraudulently over-billed Medicare and other federal health insurance programs from 1990 to 1998. Eisenhower did not admit wrongdoing, but the hospital released a statement that referred to the alleged practices as "over-payment" by the government rather than over-billing on its part. Mark Razin filed the lawsuit under the False Claims Act and stated in the lawsuit that HFA assisted its clients in preparing two cost reports, "an inflated one that was submitted to Medicare and a second one, which more accurately reflected the amount of reimbursement the hospital should have received." The Eisenhower case is the fourth settlement involving alleged cost-report fraud. “Overpayment” vs. “overbilling”. If an organization is aware that they are being “overpaid” by the government most counsels would advise them to self-report the situation to the Government to meet the criteria of an effective compliance and ethics program under Federal Sentencing Guidelines for Organizations. HRH Settles with State of Connecticut Over Undisclosed Insurance Commissions Connecticut officials have announced a $30 million settlement with an insurance broker. Attorney General Richard Blumenthal, accuses Hilb Rogal & Hobbs Co. of collecting extra commissions from certain insurers to steer more business to them, without telling customers. The suit alleges violations of unfair trade and insurance practices laws by Hilb Rogal and also mentions the roles executives of Travelers and The Hartford played in creating and enforcing the agreements with Hilb Rogal for the alleged steering of customers. Hilb Rogal's $30 million is earmarked for restitution to tens of thousands of individual consumers and small businesses across the nation. The fallout from the Marsh case with Spitzer continues. Expect more states to continue to pursue the insurance and benefit consulting companies. Timex Looking to Put Fossil Underground on Antitrust Charges Timex Corporation has filed a lawsuit against Fossil Inc. in California federal court, charging that a proposed licensing deal between Fossil and clothing maker Guess Inc. violates antitrust laws and a previous agreement Timex had with Guess. The lawsuit which Timex subsidiary Callanen International Inc. filed in U.S. District Court for the Central District of California stems from a 10-year global licensing agreement between Fossil and Guess. Timex called the proposed agreement between Fossil and Guess "illegal," adding it would stifle competition and hurt consumers. Fossil already controls nearly 40 percent of the domestic market and would control 60 percent of the market if it goes ahead with the Guess licensing deal. Timex said it was seeking to bar Fossil from making and selling watches under license from Guess, and asked for Fossil to award Callanen treble damages under federal antitrust laws. We expect that this case will be thrown out as Timex/Guess was soon to expire. But it does raise the point that in negotiating agreements, just a matter of months can be a significant issue from a legal perspective and perhaps Fossil might have been better off letting the Timex agreement lapse first. A Dozen More KPMG Employees May Be Charged in Tax Shelter Scheme Federal prosecutors have planned to file new charges and name as many as a dozen new defendants in their investigation of questionable tax shelters sold by KPMG. Prosecutors described the widening criminal investigation after the arraignment of nine former executives who were charged last month with conspiracy to devise and sell fraudulent tax shelters. The additional charges against the nine could include tax evasion and obstruction of justice for hindering aspects of the government's investigation of the tax shelters. The criminal investigation into the tax shelters; which were sold to about 350 people from 1996 to 2002 and cost the government at least $1.4 billion in unpaid taxes, found that KPMG earned fees of $124 million on those sales. KPMG reached a settlement acknowledging wrongdoing and agreed to pay a $456 million penalty and accepting limits on the scope of its tax practice. Car Salesmen Practices Could Result in Prison Terms A federal jury convicted Angel Hernandez, the former general manager of Shoreline Mitsubishi and three of his salesmen of wire fraud and conspiracy charges for inflating prices, tacking on unwanted options and sneaking massive balloon payments onto the end of car loans from 2 years. The former employees were convicted on all 22 counts and all four men face a maximum prison term of five years and a fine of up to $250,000 on each count. We are told that this is common practice and rarely prosecuted. Perhaps not surprising as systematically the incentives in the car dealership (generally 100% commission only after just a few weeks) are going to continue to drive such practices. That sort of compensation system, difficult to change in an extremely high turnover industry, can make it difficult to create major compliance practice changes in this industry despite this case. EMPLOYMENT LAW Change in Disabilities Act Scare Many Business Owners The Justice Department continues to progress and take commentary on its previously announced major overhaul of ADA rules for the first time in 15 years. Many businesses are scared due to the possible costs associated with the changes. If applied only to new buildings, the added cost would be limited. However the cost would skyrocket if the new laws would be applied to existing buildings under ADA provision. The Justice Department is considering more than 800 comments from groups as diverse as the Little People of America, Golf course owners and Disability groups. This is the first major overhaul of the regulations in 15 years. It will be interesting to see how it impacts both infrastructure as well as employment law. SPD to Supplement Gender Discriminated Employee Salary by Another $95,000 Joan McLaughlin complained to the U.S. Equal Employment Opportunity Commission when men in the workplace were doing the same job as a woman but getting paid more. SPD Electrical Systems, has agreed to pay $95,000 and increase her annual salary to settle her sex-discrimination complaint. When McLaughlin complained to SPD Electrical Systems about her low rate of pay, one of her bosses allegedly told her it was no big deal because her income "merely supplements her husband's." While denying any wrongdoing, SPD has agreed to provide training to all its Philadelphia employees about workers' rights and company obligations under federal discrimination laws. Allstate to Settle Overtime Lawsuit Allstate Corp. stated that it would pay as much as $120 million to settle claims that some of its white-collar employees in California were routinely required to work long hours without overtime pay. Previous settlements by RadioShack Corp., Bank of America Corp., Starbucks Corp., and Rite Aid Corp. have highlighted the practice of classifying workers as managers or administrators to avoid paying overtime. In the Allstate case, adjusters alleged that the company refused to pay overtime but routinely assigned them so many claims that they had to work nights and weekends to keep up. The Allstate case is the latest in a wave of class-action litigation by white-collar workers claiming overtime exploitation in industries such as retail, restaurants and banking. This is simply the latest in a march of FLSA lawsuits that have been filed against corporations. The plaintiff’s bar has driven the ECERA risk metric of FLSA substantially higher in the past 2 years. CIO Works $300,000 Sexual Harassment Settlement Los Angeles County must pay more than $300,000 to settle a claim brought by Diane Lee, who claimed that she was racially and sexually harassed by a top manager at the Department of Public Works. Diane Lee, the chief information officer for public works, complained about Thomas J. Remillard, a deputy director in the department. The county's Office of Affirmative Action Compliance hired an outside firm to investigate the allegations filed by Lee, along with other allegations filed against Remillard by other female workers. The investigation found fourteen other women complained about the behavior of Remillard. We believe that this award will stand and not be contested, unlike the $7 million award in a recent San Diego sexual harassment case which was thrown out by the judge as “excessive”. In the San Diego case, there will be another trial simply to determine a new award. Call (1-800) FLSA LAWSUIT Call center employees throughout the nation have joined a lawsuit alleging that ClientLogic Operating Corporation violated federal labor laws. The lawsuit was initiated by two former employees of ClientLogic's non-operational Buffalo, N.Y., facility and alleges that the company failed to pay overtime pay to call center workers as required by federal Fair Labor Standards Act ("FLSA") and state laws have been expanded to include ClientLogic call center employees in up to 16 states. The lawsuit alleges that the company pervasively required overtime-eligible workers to work off-the-clock before and after their shifts. FLSA suits continue to pop up around the country, particularly in low-wage, high turnover industries such as retail, call centers and insurance adjusters. Nutty (or Scary) Professor Proves Sexual Harassment Can Exist Without Direct Evidence The Ninth U.S. Circuit Court of Appeals ruled that harassing conduct directed at female employees may violate federal law, based on circumstantial evidence that male and female employees were treated differently, even in the absence of direct evidence that the harassing conduct or the intent that produced it was because of sex. A panel reinstated a suit brought on behalf of three employees of the National Education Association’s Alaska affiliate, alleging that all three were subjected to a hostile working environment and that one of them was constructively discharged. The women testified that Thomas Harvey frequently yelled at them for no reason and occasionally made intimidating physical gestures. Senior Judge Alfred T. Goodwin, in his opinion, said there was sufficient evidence to enable a trier of fact to infer that Harvey treated the men and women in the office differently by creating what one male employee testified was “general fear” on the part of the women. Fast-Food Chain Settles Lawsuit Over Refusing to Hire Employee with Disfigured Face In a Kansas City U.S. District Court, Hardee's the St. Louis-based fast-food chain, which is owned by CKE Restaurants Inc. has agreed to pay $34,000 to settle a lawsuit alleging that one of its restaurants repeatedly refused to hire an applicant because her face was disfigured. The EEOC said the suit alleged that the job seeker applied more than once for entry-level work at the Hardee's, but was never hired. The woman has Treacher Collins Syndrome, a birth defect that caused a malformed cranial bone structure, asymmetrical eye placement and the absence of ears. The EEOC claimed that Hardee's officials threw away the woman's application which is a violation of the Americans with Disabilities Act. The settlement also calls for the chain to apologize in writing and further train its managers and human resources employees. While this case appears to be ADA related as the “disability” was apparent, there are other cases working their way through the courts about prospective employees not being “attractive enough” to be hired. Not surprisingly a lot of companies try to get ahead of the issue through sensitivity training rather than having such training being mandated by an EEOC settlement and expensive legal fees. INTERNATIONAL LAW Wal-Mart Accused of Violating Its Own Code of Conduct The world's biggest retailer is being accused of sweatshop conditions at supplier factories around the world by the same labor group that last year forced Unocal Corp. to settle human-rights claims. This case extends the current litigation against the retail giant, which is already fighting a massive suit alleging it has underpaid female employees. The International Labor Rights Fund filed the suit in Los Angeles Superior Court on behalf of hundreds of thousands of factory workers in China, Bangladesh, Indonesia, Swaziland and Nicaragua. The suit asserts that Wal-Mart failed to enforce its corporate Code of Conduct, particularly the code that applied to suppliers which mandated basic wage and working conditions. The suit alleges that Wal-Mart's suppliers forced its employees to work overtime without pay, and in some cases denied them breaks and days off, locked them in factories and fired them for trying to unionize. ILRF was able to force Unocal into an undisclosed settlement as unfavorable publicity and legal fees grew in that case. Wal-Mart can be expected to take a more aggressive defensive stance than Unocal did. However, what this case does highlight is the double-edged sword nature of the increased trend of corporations to issue public codes of conduct and “global citizenship” reports. Keep an eye out for future nCompass newsletters that discuss the benefits and hazards of these voluntary public codes and reports. Open 6 Days a Week…Sometimes 7 Eleven Harvey Norman stores in Western Australia have been fined more than $40,000 in the Perth Magistrates Court for opening illegally on a Sunday. The stores were prosecuted for opening on a Sunday in June 2003 in breach of the Retail Trading Hours Act. Six companies and five directors of stores in Port Kennedy, Peppermint Grove, Fremantle, Mandurah, Maddington and Morley were fined a total of $43,500. The latest prosecution brings the total fines imposed on Harvey Norman stores to more than $350,000. In the age of 24x7 store availability in the United States and aggressive competitiveness, global corporations sometimes forget that local business laws, such as those governing operating hours, still apply in countries such as Australia and Germany. Scrap Metal Deal Appears Rusty from FCPA Perspective The U.S. Securities and Exchange Commission opened a formal investigation into Schnitzer Steel Industries' practice of paying commissions to Asian scrap buyers. Schnitzer previously launched its own inquiry late last year and has since notified the SEC and the U.S. Department of Justice of its findings. In the fiscal year ended Aug. 31, 2004, Schnitzer and its former joint venture partners exported more than 3 million tons of scrap metal to China and South Korea. Schnitzer may face criminal penalties under the Foreign Corrupt Practices Act and the Sarbanes-Oxley Act of 2002. DOJ and SEC continue to investigate FCPA cases. Schnitzer may benefit from mitigation due to self-identification. GOVERNANCE, BOARDS, CEOS Molson Coors Executives Under Scrutiny The board of Molson Coors Brewing Co. has hired an outside law firm to assist a wide-ranging investigation into actions by the company's current and former executives surrounding the February merger of Adolph Coors Co. and Molson Inc. The lawsuit alleges that the company knew about the negative sales trends before the merger votes and should have disclosed them. The board is investigating stock transactions by Molson insiders in the days before the merger. The investigation will also cover how the company failed to tell shareholders in the official merger proxy that Brazilian authorities were claiming Molson's operations were owed more than $500 million of unpaid taxes. KPMG Waives Goodbye to “Any Claim of Privilege” In its agreement with the government, the accounting firm KMPG promised not to try to use "any claim of privilege" to keep information from prosecutors. The promise did not get much attention, perhaps because waiving the privilege that protects communications between a lawyer and client is now commonplace for corporate defendants. In making the decision whether to indict, prosecutors consider whether a company has cooperated, and the government defines cooperation to include sharing information that may otherwise be protected by privilege. The so-called Thompson memorandum, drafted in 2003 by the deputy attorney general, Larry Thompson, in the wake of a wave of corporate fraud, laid out guidelines on prosecutions of corporations. It’s the trend. Many of our clients tell us that they have been asked to “waive privilege” 100% of the time in government investigations over the past year and seem resigned to accept the disappearance of any meaningful Attorney-Client privilege protections in these contexts. In the October issue of nCompass, we will discuss the results of a survey of 500 corporate general counsels and compliance officers on this issue. In the interim, most companies are operating under the assumption that privilege will not exist and are conducting their risk assessments and other compliance program activities accordingly. That being said, it is a good idea to conduct and structure work under “privilege” regardless should the pendulum begin to swing the other way and reestablish historically available protections of “privilege.” The Largest Insider Trading Settlement Ever? Lawrence J. Ellison, chief executive of Oracle, has reached an agreement where he would pay $100 million to charity to resolve a lawsuit charging that he engaged in insider trading in 2001. The unusual settlement, which requires the approval of Oracle's board and could still break down, would be one of the largest payments made to resolve a shareholder suit of this kind, known as a derivative lawsuit. Under the terms of the settlement, Mr. Ellison would designate the charity and the payments, to be made over five years and would be paid in the name of Oracle. The lawsuit charged that Mr. Ellison, sold almost $900 million shares ahead of news that Oracle would not meet its expected earnings target. The same amount of stock, after the announcement, was worth slightly more than half as much. This is just one more of an increasing number of insider trading allegations reaching into the CEO's office. A common challenge for compliance officers that we work with is helping to police the very people to whom they report. One Company Chooses to Fire Back at Spitzer J.&W. Seligman & Company, a New York investment firm, sued the state's attorney general, Eliot Spitzer, asserting that he had overstepped his authority in his investigation of improper trading in Seligman's mutual funds. The lawsuit, filed in Federal District Court in Manhattan, seeks to suspend Mr. Spitzer's ability to investigate "allegedly excessive advisory fees paid to Seligman." The attorney general and other regulators have accused fund managers of permitting favored investors to make short-term trades, even when their public filings indicated that they discourage the practice. A long list of fund companies have agreed to ban the practice, and to pay about $3 billion worth of fines, restitution and fee reductions to investors harmed by the trading. Some companies feel that Spitzer’s office has overreached and one company has actually decided to fight back. The outcome of this case will have significant repercussions for both Spitizer’s office as well as whether other companies will become more belligerent in the face of investigations in the future – but until that would happen, for now Seligman is plowing a lonely field, and we expect the environment to remain status quo, with companies very quick to cooperate. Shell is Underwater Over Oil Reserves Royal Dutch Shell, will pay $9.2 million and adopt corporate governance principles to settle shareholder lawsuits related to a reserves-overbooking scandal last year. The actions, pending in United States federal courts in New York and New Jersey and in a New York State court, sought to assert claims against current and former directors. Shell has been battling lawsuits and criminal and regulatory probes since it announced in January 2004 that it had overstated its oil and gas reserves by around 20 percent. The scandal led to the sacking of the group's top management and a sweeping restructuring which included the unification of its dual-headed, Anglo-Dutch ownership structure unified into a single firm. Shell has agreed to adopt undefined policies and standards in the areas of board composition and qualifications, membership and functions of board committees, director and senior management compensation, financial reporting and controls, and corporate compliance and ethics. From what we have observed firsthand at Shell, Shell has already made tremendous strides in adopting the policies and standards around ethics and compliance that this settlement stipulated. Is Reg FD Dead? Siebel Systems Case May Begin to Lead that Direction A Manhattan federal district judge has dismissed a lawsuit against Siebel Systems, the world's largest maker of customer service software, brought by the Securities and Exchange Commission. The lawsuit is part of the agency's effort to eliminate the selective disclosure of financial information by public companies. This was the first case to be litigated by the agency under Regulation FD (for fair disclosure.) The commission filed the lawsuit last year against Siebel. It accused Siebel's chief financial officer, Kenneth A. Goldman, of violating the regulation when he told institutional investors at two private events in 2003 that Siebel's business activity was "good" and "better" and that there were "some $5 million deals in Siebel's pipelines." Mr. Goldman's comments were significantly different from public statements made around the same time by Thomas Siebel, the founder of the company who was then its chief executive. The commission said his statements were less positive than Mr. Goldman's. While well-intentioned, Regulation FD is emerging as virtually impossible to enforce due to blurry line as to what is material information and what is not – as well as the fact that meetings with investors (behind closed doors) remains a critical part of the business finance process. We expect Reg FD to fade away as an enforcement emphasis except for any egregious violations which might occur. S&P Pulls Out of Corporate Governance Ratings Business Standard & Poor's Corp. is pulling out of the business of rating U.S. companies on corporate governance. Although the business has been successful in emerging markets, S&P never found its footing importing the business model to the United States. The intensifying regulatory climate in the United States presented the firm with one of its biggest challenges; it could not survive in an era where companies faced the costly and time-consuming process of complying with the Sarbanes-Oxley Act. Let’s face it – ratings is a market driven game. First of all, this was an admirable effort but S&P, but creating a rating that actually measures effective corporate governance is close to impossible. This wasn’t lost on institutional investors and as they saw very little value in it, they weren’t going to demand it of corporations. And if investors don’t demand, few companies are willing to bear the cost and hassle of working with a rating agency to get one. That does not mean the effective corporate governance is dead – just that it is not easily measured and created into a business metric. FINANCE & FRAUD SEC Sues Biopure A civil complaint filed in US District Court in Boston, the Securities and Exchange Commission said Biopure, and three executives failed to tell investors that the Food and Drug Administration had safety concerns about the company's Hemopure product. In the SEC's complaint, the company applied to test Hemopure on trauma patients, but the request was denied by the FDA over concerns about health risks seen in a previous trial.The allegations finalize a long investigation and marks one of the most extensive cases filed by the SEC since its pledge with the FDA to keep on eye on claims against drug makers. Former MBIA CEO Under Investigation David H. Elliott, MBIA Inc.'s former chairman and chief executive officer, is being investigated by federal prosecutors in connection with a reinsurance agreement that caused the world's biggest bond insurer to restate seven years of earnings. The US attorney in Manhattan is probing whether Elliott approved a secret arrangement to cover losses that were supposed to be paid by another insurer. Elliott, is one of the most senior executives under investigation by state and federal prosecutors probing abuses in accounting for reinsurance, purchased by insurance companies to limit their losses. Regulators are examining instances in which insurers mask losses or inflate capital by classifying what is essentially a low-cost loan as reinsurance in cases involving little or no transfer of risk. Ben & Jerry’s Former CFO Gets Creamed Over Embezzlement Stuart "Mickey" Wiles, the former chief financial officer at Ben & Jerry's Homemade Inc., has agreed to plead guilty to a federal wire fraud charge for embezzling more than $300,000 from the company. The U.S. attorney's office for Vermont said that Mr. Wiles used his authority as CFO to cause company checks to be issued for charitable contributions, unspecified professional fees, or unspecified legal settlements when, in fact, no such expenses or obligations existed. Wiles would then cash those checks to pay off personal expenses, such as vacations, entertainment expenses, car repairs, clothing, electronics and gifts that he had charged on a credit card provided to him by Ben & Jerry's. Wiles could get 20 years in prison and a $1 million fine, though his punishment is expected to be less severe, in accordance with federal sentencing guidelines. Donating a percent of profits to charity does not include putting it into the pocket of the Stuart "Mickey" Wiles Legal Defense Fund. Illegal Gifts Under the Christmas Tree Shirley McMayon, the former Chicago Park District employee, plead guilty in U.S. District Court to steering $8 million in landscaping work at the city's Millennium Park and other sites to Mundelein-based James Michael Co. in return for cash, gifts and free vacations. In a signed, 26-page plea agreement, McMayon, stated that the company furnished her with $137,000 in benefits and that she also received concert and sporting events tickets, along with computers, a spa gift certificate and a bicycle. The agreement also stated that a $321,000 holiday lighting contract awarded to James Michael included $107,000 for two generators needed to light two Christmas trees on Michigan Avenue. Gift and gratuity policies are an increased focus for corporations and other employers alike. A survey we recently conducted showed a pervasive lack of understanding of the difference between an acceptable gift and a bribe among much of the American workforce. Not surprisingly “Conflicts of Interest” training has grown to a Top 5 topic area in the ECERA database. TRADE SECRETS & IP Apple Internal Investigation into Trade Secret Theft is Not a Trade Secret Last week, the Electronic Frontier Foundation (EFF) prevailed in its request to require the unsealing of confidential court documents that Apple filed in the Apple v. Does case. This case involved Apple subpoenas to AppleInsider and Powerpage to demand the identification of their anonymous sources for a secret Project Asteroid product launch under development by Apple. According to EFF “the unsealed documents allow the public to see that Apple failed to conduct an exhaustive investigation. It never took depositions, never issued subpoenas (other than to journalists), and never asked for signed declarations or information under oath from its own employees”. nCompass readers can see the unsealed Apple documents posted at EFF here. The fact that a court is helping to determine whether an internal investigation was properly conducted clearly is new ground. How an internal investigation into compliance issues is conducted is always of critical importance to not only uncovering the facts surrounding an event but also factors into employees’ rights (e.g. confidentiality and retaliation considerations) including whether they cooperate in the internal investigation. This case may help define legal precedent under California law (and perhaps elsewhere) as to what constitutes an effective internal investigation. Ill-Will to Those Who Sell Windows Codes William P. Genovese Jr., entered a plea in a Manhattan federal court to charges that he unlawfully sold and attempted to sell portions of Microsoft's source code for Windows NT 4.0 and Windows 2000. Genovese initially found the source code in February 2004, after another party misappropriated the code and distributed it over the Internet without Microsoft's authorization. The defendant, who used the alias of "illwill" posted the code to his site and offered it for sale. He instructed buyers, including an investigator for Microsoft and an undercover FBI agent, to pay $20 into a PayPal account in order to gain access to the code. Genovese was charged with one count of unlawfully distributing a trade secret. Google This: GMail Trademark Google is facing a renewed threat of legal action from a company that claims to own the intellectual property rights to its GMail e-mail service. Independent International Investment Research, a British company that specializes in research and has several leading City investment banks as clients, argues that it launched "G-Mail™ web based email" in May 2002. IIR said that, after about 15 months of "correspondence and negotiations" with Google in an effort to have the "superiority" of its claim over the trademark to G-Mail recognized, discussions are now at an end with no agreement having been reached. IIR, led by chairman and chief executive Shane Smith, accused the search engine of "failing to respect the intellectual property rights of others" and said it had no alternative but to pursue an expensive legal action that it admitted it could ill afford. An independent valuation report commissioned at the end of last year by IIR, whose clients include Bank of America and Commerzbank, estimated a "conservative" value of between £25 million and £34 million for a royalty claim against Google for the G-Mail trademark. A cautionary reminder to always do a thorough search before creating new product and service names. Google is just one source to help do so. PRODUCT LIABILITY A Very Creative Virus Creative Technology, the maker of the Zen portable digital-music player, has determined that more than a hundred devices were infected with a virus called “Wullik” or “Rays” that runs on Microsoft Windows. Creative called the virus low risk, but has determined that it will be collecting any devices that may be infected. The company said that the malicious program got onto the players during the factory’s final packing process. Sounds easier to catch than the flu if it could be acquired during “packing”. Kudos to Creative for staying ahead of this issue and addressing it head on publicly (as they did not necessarily have to) before having a customer discover it instead and then suffering the by-product negative publicity that could have resulted. Breast Cancer, Hormone Therapy or Both Thousands of American women are filing lawsuits against Wyeth Pharmaceuticals, alleging that its hormone-replacement medications caused breast cancer, blood clots and other serious health problems. Columbus lawyer Gerald Leeseberg filed the suits recently in U.S. District Court in Cleveland on behalf of two of her clients. Both women contend that their use of Wyeth-produced hormone- replacement therapy led to their breast cancers. The lawsuits allege that Premarin, Provera and Prempro are ``dangerous and defective drugs.'' Wyeth faces between 3,600 and 5,500 lawsuits by women who say they were harmed by hormone therapy. MARKETING & CONSUMER DATA Yahoo “Forced” to Disclose? Yahoo! Holdings Hong Kong, a subsidiary of Yahoo! Inc., provided email account information that helped lead to the conviction of Shi Tao. Yahoo! Inc. had to comply with the demand by Chinese authorities to provide information about a personal email of a journalist. He was being sought after by authorities for breaking state secrecy laws and was convicted for 10 years. Shi Tao was a former writer for the financial publication Contemporary Business News. Jerry Yang, the companies co-founder stated that the demand for the information was a “legal order” and Yahoo gets such requests from law-enforcement agencies all the time, not just in China. While much of the compliance focus for U.S. and other global companies operating in China has been on bribery and FCPA, this case opens up a new front regarding consumer privacy and companies potentially cooperating with the government in ways that would not be allowed in the U.S. or E.U. Yahoo understandably is vigorously defending its actions in this case and the fallout in the U.S. will likely not be in the legal arena, but rather possible negative brand impact with consumers who are already very wary about ”cookies” and other privacy concerns when using the Internet. WORKPLACE & CUSTOMER SAFETY Drugs (and Employer) to Blame in Fatal Crash Danny Lee Hendrix, of Hardway Hauling Inc., was speeding when his dump truck crossed the center line and collided with 36-year-old Timothy Douglas Robbins Sr.'s pickup. Blood tests taken after the crash showed that Hendrix was under the influence of methamphetamines. Jurors awarded $29 million to the estate of Timothy Douglas Robbins Sr. The attorney for the family, David Marsh of Birmingham argued that speed, the dump truck's faulty brakes and Hendrix's inattention to the road and driving under the influence caused the 2002 wreck on Alabama 70. Marsh said the company had failed to test Hendrix for drugs at any time during his employment and that the company had no records of any maintenance or pre-trip inspections on the dump truck. This case should be a wake-up call to companies that do not have a formal drug-testing policy for employees who work with any kind of heavy equipment or operate motor vehicles. Hanford Whistleblowers A Benton County jury awarded more than $4.7 million in damages to 11 pipefitters who sued a contractor at the Hanford nuclear reservation, alleging that they were fired for speaking up about safety concerns. The workers filed suit six years ago against Fluor Federal Services, a contractor at the South Central Washington nuclear site. In 1997, a crew of seven pipefitters objected when they were told to install a valve rated for 1,975 pounds per square inch for a test of radioactive waste pipes that would need to withstand 2,235 pounds per square inch. The crew was later laid off, but a settlement was reached that required Fluor Federal Services to rehire them. The Hanford site was created as part of the top-secret Manhattan Project to build an atomic bomb. Today, it is the nation's most contaminated nuclear site. Cleanup costs are expected to total $50 billion to $60 billion, with the work to be finished by 2035. Flavors & Fragrances Case Continues Stephen McNeely, a former popcorn-plant machine operator was awarded $15 million for his claim that his exposure to butter-flavoring fumes led to severe respiratory problems. McNeely is one of many former workers for International Flavors & Fragrances Inc. that filed lawsuits against the company over the past two years. This very recent verdict brings the total awarded to nearly $53 million. McNeely worked at the Jasper plant from 1989 to 2001 and developed bronchiolitis obliterans, a serious and unusual lung disease. Four other plaintiffs reached confidential settlements with the defendants last year and at least 20 more cases are awaiting trial. The plaintiffs claimed the company knew that it was using chemicals that cause lung cancer to synthesize butter flavor and did not warn workers. MISCELLANEOUS “Big Al” Greenspan and the Dream Team Files for IPO? The Securities and Exchange Commission alleges that Apollo Publication Corp., mislead investors with a registration filing stating that its board included; Alan (affectionally called “Al” in the filing) Greenspan, Jimmy Carter, George H.W. Bush, Joseph Lieberman and Current Treasury Secretary John Snow. Apollo also falsely stated Canadian Imperial Bank of Commerce (CIBC) was jointly managing its IPO. Apollo filed for an initial public offering to sell $3.6 billion of securities. It also stated that it would market textbooks and other products to “whole world citizens on the earth”, and had already issued stocks to Dick Cheney, Bill Clinton and Al Gore. For some humorous reading you can access the IPO filing here. Hey, maybe the hot IPO market is returning! You have to admit, that board would certainly make for an interesting Board of Directors meeting. I Found Bin Laden Rare photographs of Osama Bin Laden were broadcast by ABC News without the permission of Essam Mohamed Aly Deraz, the Egyptian photographer who owns the pictures. The lawsuit was filed in U.S. District Court, and the photographer is seeking $10 million in damages, alleging copyright infringement, and is requesting the judge to prohibit the network or any of its affiliates from using the photographs. Nearly seven years ago, Deraz twice agreed to allow the network to use his photographs on a one-time only basis, but the lawsuit says the network continued to use the photographs without Deraz's authorization. We have seen an increase this year in allegations over infringements on intellectual capital rights, including copyrights of images as well as claims of original ideas, in the media industry this year. This could simply be due to greater publicity of cases encouraging aggrieved others to roll the dice with a lawsuit. Hey Mom, Look at What I Got at the Library! As originally reported by the Wall Street Journal, Malmo, Sweden is home to the “Living Library.” A homosexual, an imam, a heavy drug user, a politician and a gypsy are all individuals that people can borrow for a 45 minute chat in a nearby pub as part of an effort to fight discrimination. The library also offers a Danish man and a journalist due to the know-it-all sensationalism. This idea may seem crazy, however more “Living Libraries” are popping up, next is the Dutch city of Almelo. The customers can rent a veiled Muslim woman and finally ask her all the questions that they would never dare to ask on the street. The pioneer of the “Living Library” Ullah Brohed, said that she decided to give Swedish bigots the opportunity to come face-to-face with the prejudice of their choice. An interesting idea. We don’t expect it be replicated in corporate diversity programs but thought-provoking all the same. Refill on Gas, Light on the Unleaded The Tennessee state Supreme Court has ruled that store owners can be sued for causing injuries in a drunken driving accident if they sold gas to an intoxicated driver. The court ruled in a lawsuit filed by two men who were severely injured in 2000 when they were struck head-on by Brian Lee Tarver, who later pleaded guilty to vehicular assault and driving under the influence. Before the accident, Tarver bought gas at an Exxon owned by East Tennessee Pioneer Oil Company. The lawsuit alleged that employees at an Exxon station on Rutledge Pike in Knoxville allowed Brian Lee Tarver to buy $3 worth of gas and even helped him pump it when he seemed unable to work the controls. A University of Tennessee professor later determined that Tarver's vehicle would have run out of gas before the crash if he had not been able to buy more fuel. Okay, we have seen cases where establishments have been held legal for serving intoxicants to impaired individuals. However, this case clearly breaks new ground for plaintiff attorneys. We are somewhat amazed. Meter Maid Director Expired Joseph F. Hoffman Jr., former director of Philadelphia’s Bureau of Administration Adjudication was convicted of extortion, mail fraud and conspiracy for sharing $7,000 in bribes to throw out $47,000 worth of parking tickets issued to the city’s long time taxi kingpin, Michael Etemad. The judge ordered restitution to be paid to the city in payments of at least $100 a month towards the lump sum of more than $230,000, according to federal government calculations. Lovely Rita. Tough to feel sorry for anyone on this one.