Month: May 2009

Workplace Challenges of Pandemics

h1n1-virus

The reality of an influenza pandemic has now reached the American workplace. The Swine Flu H1N1 Influenza seems to have been overblown and is now ebbing. There were only two confirmed deaths. It appears that H1N1 is neither particularly contagious or deadly. In comparison, the H5N1 virus (the Avian Flu) is very deadly with an almost 50% mortality rate. Fortunately, the H5N1 virus is not contagious and is very difficult to spread.

Even though H1N1 did not turn into a pandemic, it is a good time to address your workplace plans for pandemics.

Employers need to to implement responses that protect their healthy employees, guard the privacy of sick employees, and comply with applicable national, state, and local law requirements. It is essential that employers do not permit overexcited media coverage to push them into taking actions that may be illegal or frightening to their employees.

The first step is to encourage healthy behavior by your employees:

  • Cover your nose and mouth with a tissue when you cough or sneeze. Throw the tissue in the trash after you use it.
  • Wash your hands often with soap and water, especially after you cough or sneeze.
  • Avoid touching your eyes, nose or mouth. Germs spread that way.
  • Stay home if you get sick. Limit contact with others to keep from infecting them.

In planning for a pandemic, you need to be careful if you decide to survey your employees about factors that may cause them to miss work in the event of a pandemic. You can trip over health privacy issues and ADA limitations. The EEOC made an ADA-Compliant Pre-Pandemic Employee Survey:

Directions: Answer “yes” to the whole question without specifying the reason or reasons that apply to you. Simply check “yes” or “no” at the bottom.In the event of a pandemic, would you be unable to come to work because of any of the following reasons:

  • If schools or day-care centers were closed, you would need to care for a child;
  • If other services were unavailable, you would need to care for other dependents;
  • If public transport were sporadic or unavailable, you would be unable to travel to work, and/or;
  • If you or a member of your household fall into one of the categories identified by CDC as being at high risk for serious complications from the pandemic influenza virus, you would be advised by public health authorities not to come to work (e.g., pregnant women; persons with compromised immune systems due to cancer, HIV, history of organ transplant or other medical conditions; persons less than 65 years of age with underlying chronic conditions; or persons over 65).

Answer: YES __________ NO __________

It’s time to give some thought about what your workplace would to in the event there is a pandemic.

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The image is the H1N1 influenza virus, taken in the CDC Influenza Laboratory.

“Hello, Madoff” What the Secretary Saw

vanity-fair-june-2009

The June issue of Vanity Fair continues its coverage of Bernie Madoff. This issue centers around Eleanor Squillari, who spent two decades as Madoff’ private secretary.

The article, entitled “Hello, Madoff!,” is accompanied by more than a dozen intimate photos of Madoff and his family from as far back as the 1970s.

According to Eleanor Squillari, Bernie Madoff was a sexist, egomaniacal, short-tempered control freak—yet everybody loved him.

At first, I was not interested in the story. It looked a little sordid for me. Then I saw this quote:

Squillari recalls an unusually prescient conversation she had with Madoff years earlier, after a client’s secretary had been arrested for embezzlement. “You know, [he] has to take some responsibility for this,” Madoff told Squillari. “He should have been keeping an eye on his personal finances. That’s why I’ve always had Ruth watching the books. Nothing gets by Ruth.” Squillari says she was surprised when he added: “Well, you know what happens is, it starts out with you taking a little bit, maybe a few hundred, a few thousand. You get comfortable with that, and before you know it, it snowballs into something big.”

Perhaps the story will give us some insight into what makes a person go bad.

For a preview, there is a video of Vanity Fair’s Mark Seal interviewing Eleanor Squillari: Bernie Madoff’s Secretary Spills His Secrets.

Part I of Vanity Fair’s coverage of Madoff was in the April issue: Madoff’s World.

Perspectives on Hedge Fund Registration

house-commitee-on-financial-services

On Thursday, May 7, 2009, 11:00 a.m., the Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises will hold a hearing on: “Perspectives on Hedge Fund Registration”

The Committee will be offering a live webcast of the hearing.

Insider Trading on Credit Default Swaps

sec-seal

The Securities and Exchange Commission brought its first insider trading enforcement action involving credit default swaps. Renato Negrin, a former portfolio manager at hedge fund investment adviser Millennium Partners L.P., and Jon-Paul Rorech, a salesman at Deutsche Bank Securities Inc., are charged with insider trading in credit default swaps of VNU N.V., an international holding company that owns Nielsen Media and other media businesses.

The SEC’s complaint alleges that Rorech learned information from Deutsche Bank investment bankers about a change to the proposed VNU bond offering. This change was expected to increase the price of the CDS on the VNU bonds. Rorech tipped Negrin about the contemplated change to theVNU bond offering, and Negrin then purchased CDS on VNU for a Millennium hedge fund. When news of the restructured VNU bond offering became public, the price of VNU CDS substantially increased. Negrin closed Millennium’s VNU CDS position at $1.2 million profit.

“This is the first insider trading enforcement action involving credit default swaps,” said Scott W. Friestad, Deputy Director of the SEC’s Division of Enforcement. “As alleged in our complaint, Rorech and Negrin checked their integrity at the door and schemed to engage in insider trading of CDS to the detriment of investors and our markets.”

James Clarkson, Acting Director of the SEC’s New York Regional Office, added, “CDS may still be obscure to the average individual investor, but there is nothing obscure about fraudulently trading with an unfair advantage. Although CDS market participants tend to be experienced professionals, there must be a level playing field with even the most sophisticated financial instruments.

It should not come as no surprise that the buying and selling of Credit Default Swaps is subject to the insider trading laws.

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Corporate Compliance & Ethics Week at The Home Depot

home depot

Crystal M. Consonery, PhD, CCEP shared the experiences of Home Depot during the 2008 Corporate Compliance & Ethics Week. The goal was increasing awareness of the Corporate Compliance department. So they decided to use Corporate Compliance & Ethics Week  to launch their departmental awareness and branding.

One of Home Depot’s eight core values is “Doing the Right Thing.” Corporate Compliance is the embodiment of the value: Doing the “right” thing was at the forefront when they were tailoring their message to meet the needs of the company’s diverse population and in the selection of events and topics of discussion that would appeal to associates at different levels
in the organization.

Their schedule of events was announced through various communication channels, including elevator posters, lobby easels, the company’s weekly communication newsletter, and a company-wide communication from the CEO. They also invited external corporate compliance colleagues to the week’s events.

corporate compliance and ethics week

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Advertising Limitations for Investment Advisers on Social Networking Sites

While FINRA has a very strict limitation on advertisements focusing on procedures, investment advisers have a principles driven approach to limitations on advertising.

To start, an advertisement is any communication addressed to more than one person that offers (1) analysis concerning a security, (2) any information to used in making a determination to buy to sell a security, or (3) any investment advisory service with regard to securities. That means bulk emails, television ads, radio ads, websites, and social networking sites are advertisements. If you label yourself as an investment adviser in your Facebook profile, Twitter profile, or blog information, those sites are advertisements. Even if you use them solely for personal purposes, they may be considered an advertisement if you mention securities or offer your services.

Given the broad definition of advertisement, you should just assume that your activity on a social networking site is an advertisement.

Let’s focus on the things you can’t do in an advertisement and then come back to how they affect an investment adviser’s use of the internet and social networking sites. These all come from the general prohibition on fraud under Section 206 of the Investment Advisers Act.

First, you can’t have “any testimonial of any kind concerning the investment adviser or concerning any advice, analysis, report or other service rendered by such investment adviser.” That means no recommendations on LinkedIn or other social networking site. That means you would need to moderate your blog comments and delete any that seem like a testimonial or recommendation.

Second, you can’t refer to past specific recommendations of securities. However, you can separately provide a separate detailed list of all past recommendations over at least the past year, with name of the security, the date recommended, and the price at which it was recommended. You also need to include a legend that past performance is not an indication of future performance. That means you can’t advertise your past success. Effectively, you can’t cherry-pick your best performing securities recommendations. You also need to disclose all material facts necessary to avoid unwarranted inference.

Third, you can’t advertise a graph, chart, formula, or other device for use in determining which securities to buy or sell or when to do so.

Fourth, you can’t offer any report, analysis, or other service for free, unless it is actually entirely free and without any condition or obligation.

Fifth, your advertisement can’t have any untrue statement or material fact or otherwise be false or misleading.

In looking at these principles, you can’t communicate something on a web 2.0 site that you could not put in a newspaper advertisement.

There has not been any additional guidance from the SEC on the use of Web 2.0 by investment advisers.  In a speech last week, Mary Schapiro said that the SEC “hasn’t come to a resolution on the new technology.” That alone may shy investment advisers away from using web 2.0 and social networking sites.

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Ethics and Facebook

facebook

Can a lawyer hire a third person to send a “friend request” to a witness? According to an opinion from the Philadelphia Bar Association’s Professional Guidance Committee the answer is no.

Although the information on someone’s Facebook profile is discoverable, a lawyer can’t try to access the page through deception. Although imperfect, I liked this analogy in the Bar Opinion:

The inquirer has suggested that his proposed conduct is similar to the common — and ethical — practice of videotaping the public conduct of a plaintiff in a personal injury case to show that he or she is capable of performing physical acts he claims his injury prevents. The Committee disagrees. In the video situation, the videographer simply follows the subject and films him as he presents himself to the public. The videographer does not have to ask to enter a private area to make the video. If he did, then similar issues would be confronted, as for example, if the videographer took a hidden camera and gained access to the inside of a house to make a video by presenting himself as a utility worker.

This opinion should not affect a workplace from putting a sensible policy in place for dealing with Facebook and other Web 2.0 tools.  Make sure you have a Blogging / Social Internet Policy.

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The fi360 Fiduciary Score Methodology

fi360

The fi360 Fiduciary Score is a quantitative evaluation of how well a fund meets a minimum set of due diligence criteria. The score can quickly help identify a list of Mutual Funds and Exchange Traded Funds that are worth further research in your selection process. You can also use the score as part of your ongoing monitoring process since it can highlight funds with potential deficiencies.

If you are an investment adviser, you need to conduct your diligence on the investment choices you distribute. As we saw in the Hennessee Group administrative action, if you promote your diligence program you have to actually follow that program. [Failure to Conduct Diligence Can Lead to SEC Sanctions]

The fi360 scoring system weights a fund’s standing in relation to thresholds in nine areas. The more points, the worse the fund choice. Zero is good and 100 indicates significant shortfalls. The nine areas for scoring:

  • regulatory oversight;
  • track record;
  • assets in the fund;
  • stability of the organization;
  • composition consistent with asset class;
  • style consistency;
  • expense ratio/fees relative to peers;
  • risk-adjusted performance relative to peers; and
  • performance relative to peers.

Fi360 offers investment fiduciary education, practice management, and support. They also offer training and certification for investment fiduciary professionals.

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What You Should Know About California AB 1825 – Harassment Prevention Training for Supervisors

petrides_tom

AB 1825, (California Government Code 12950.1) mandates that employers who do business in California and employ 50 or more employees provide two hours of sexual harassment prevention training to supervisors located in California at least once every two years.

Kaplan Eduneering offered a webinar: What You Should Know About California AB 1825 – Harassment Prevention Training for Supervisors. Thomas H. Petrides a Partner at K&L Gates LLP gave the presentation. These are my notes.

The law was first enacted effective January 2005, so for many employers, 2009 is another required “training year”.

In August of 2007, the California Fair Employment & Housing Commission issued Regulations regarding the required content of the training materials for AB 1825 harassment prevention training programs, including “E-learning” interactive, computer-based programs.

“Supervisors” have a broad definition. Anyone that has the authority to direct other employees may be enough to classify that person as a supervisor.

Under California law, the employer will be strictly liable for unlawful harassment of its supervisors, even if the harassment was unknown by the employer. (This is different than federal law.)

Training is only required for supervisors that are located in California. But if you don’t do the training for other similar supervisors in other states, you risk having a different standards attack in a lawsuit.

It is better to be over-inclusive in providing the training. The regulations provide that attending training does not create an inference that the employee is a supervisor.

The supervisors have to stay for two full hours, whether is in person training or remote training. If you leave 15 minutes early, you are not sufficiently trained. Tom pointed out that the training need not be two consecutive hours.

New supervisors have to received training within 6 months. However, if it’s a new employee and they received training at their prior job, you can use that. The burden is on the new employer to show that the prior training was sufficient.

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