Articles Posted in Breach of Fiduciary Duty

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The primary laws that govern the disclosures to shareholders and the marketplace include the Securities Act of 1933 and the Securities Exchange Act of 1934 and the rules adopted by the Securities and Exchange Commission (the “SEC”).  These laws have come subject to scrutiny in the Camping World Holdings, Inc. who suffered financial losses in excess of $100,000 due to a failure to disclose.  Some of their executives have been charged with failing to disclose material information during the Class Period, violating federal securities laws.

Generally speaking, causes of action have been interpreted by the federal courts to specifically set forth in the statutes and to address claims brought as class actions.  These types of claims are often brought forward and against the corporation, its directors and officers, purchasers and sellers of securities, persons otherwise having a duty to investors who participate in the alleged disclosure violation.  Sometimes accountants and underwriters and persons required to make public filings with the SEC.  The history behind it is entrenched in common law notions of disclosure claims such as fraud and negligent misrepresentation. Continue reading

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We all know the basic concept of supply and demand. When supply is low and demand is high, prices tend to go up. When this happens with houses, realtors refer to it as a “seller’s market,” but what if it’s really a “realtor’s market?”

That allegation is at the heart of a recently proposed class action lawsuit against Houlihan Lawrence, a large brokerage firm with 30 offices spread throughout the northern New York suburbs and Fairfield County, Connecticut.

The lawsuit was filed by Pamela Goldstein, an associate general counsel for a communications company who fell in love with a four-bedroom, white, colonial house located in White Plains, New York. The agent who showed her the house, Daniel Cezimbra, allegedly told her there were other offers on the house and that she had better act fast and bid above the $599,000 asking price.

Goldstein took his advice, and eventually bought the house for $637,000, but then she discovered something that made her question that interaction – and her agent’s motives.

It turns out that Houlihan Lawrence was also representing the person selling the house. This meant that, when Cezimbra was supposed to be negotiating on Goldstein’s behalf and representing her interests in the bidding war, he was going up against his boss – who also happens to be his brother-in-law. No matter how hard people work to be fair and unbiased, it has to be hard to do your best negotiating when the person across the table from you has the power to fire you. Continue reading

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The past few years of Shari Redstone’s life sound like something taken directly from a soap opera after her aging father, Sumner Redstone, fell ill and required a full-time nurse to take care of him.

You probably know Sumner Redstone as the media mogul who ran the National Amusements theater chain (which owns CBS) for more than half a century. When he got sick, Shari kicked his long-time girlfriend out of his mansion, moved in herself, and took control of her father’s media company. Sumner’s girlfriend is suing Shari for having kicked her out and allegedly turned Sumner against her.

But now Shari Redstone has a bigger problem on her hands. Leslie Moonves, the CBS chief executive, has led a sort of a coup against her with other CBS directors. Moonves and the board of directors are suing Redstone for allegedly acting in her own best interests, even when it allegedly went in direct opposition to the best interests of the company’s shareholders. As a result, they are seeking to dilute Redstone’s voting rights as the majority shareholder of CBS and to strip her of much of her control over the media company.

Since Redstone has the power to fire anyone from the board of directors, why would they do all this at the risk of their own jobs? Continue reading

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It may have once been thought that officers constituted as being fiduciaries in a manager-managed LLC setting. Who or what are fiduciaries? Fiduciaries are individuals in whom another has placed the utmost trust and confidence to manage and protect property or money. The relationship wherein one person has an obligation to act for another’s benefit. Typically, it has been those members who operated the business that owed fiduciary duties of loyalty and reasonable care to non-managing LLC owners.  They normally uphold legal positions of trust with one or more parties and  take care of money or assets for another person.  Now, a managing member of an LLC is an individual who holds an ownership interest in the company, participates in its day-to-day management and has authority to contract on behalf of the company. So are managing members fiduciaries? Since most states have codified the fiduciary duties owed by officers and directors, a recent First District Court has affirmed a trial court finding that this is NOT the case.

In the case of 800 South Wells Commercial LLC v. Cadden, 2018 IL App (1st) 162882 (May 9, 2018) Cook Co., 3rd Div, (FITZGERALD SMITH), the courts looked at these issues in greater depth and length and gave more definitive answers in terms of scopes and duties of member-managed LLCs.  It looked at a situation that involved a manager-managed Illinois LLC which was formed to obtain a leasehold interest in River City Complex’s commercial space and parking garage and the manager and member appointed Cadden to be the LLC’s vice president. Within four years, the LLC defaulted on both its mortgages. The LLC claimed that fiduciary duties were owed only because he held the title of vice president. The Court was quick to grant summary judgment which went further to say that there was no evidentiary basis to demonstrate that any fiduciary duty was owed to the LLC.  Consequently, there was no breach.  Continue reading

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While not all Catholic priests decide to take a vow of poverty when they’re ordained, a priest with a 10-acre estate in Williamston that includes six bedrooms, 12 bathrooms, 10 fireplaces, three barns, an indoor swimming pool, and stained-glass windows seems pretty suspicious. And that’s just one of his properties. The priest in question has been maintaining (although allegedly not paying taxes on or properly insuring) other properties for his personal use – all allegedly funded by money that was intended for his parish.

Reverend Jonathan Wehrle, who founded St. Martha Church in Okemos, Michigan, has recently been accused of embezzling more than $5 million from his church, and prosecutors are pointing to his vast estate as evidence of the theft. Wehrle allegedly spent $45,000 on an indoor swimming pool, $55,000 on stained-glass windows, and more than $134,000 on landscaping. According to a statement from the police, bills for the construction and landscaping did on the property match checks written from St. Martha.

Lawrence Nolan, the attorney representing Wehrle in the lawsuit, claimed the priest had an agreement with a bishop that allowed Wehrle to use parish money to fund his private residence. Unfortunately, that bishop is no longer living.

But Andrew Stevens, the assistant prosecutor for Princeton Excess and Surplus Lines Insurance Corporation, which insures the Catholic Diocese of Lansing, Michigan, tells a different story. According to Stevens, Wehrle had maintained almost complete control over the church and its funds since founding it in 1988. Continue reading

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Although bitcoin’s meteoric rise in price and prominence has some people wondering if it’s a bubble, the Chicago Mercantile Exchange and CBOE Futures Exchange agreed to start trading in the digital currency in December. Just a few months later, the first criminal lawsuit over bitcoin was filed against a Chicago trader.

At 24 years old, Joseph Kim, who was working as an Assistant Trader for a Chicago firm called Consolidated Trading, was accused of stealing $2 million from his employer from September to November of 2017 – right before bitcoin became eligible for trading in the local exchanges. In fact, it may have been the preparation for trading on the exchanges that alerted the firm to Kim’s alleged illegal activity.

According to the complaint, Kim allegedly funneled millions of dollars in the form of bitcoin and Litecoin from the firm’s funds into his possession. He allegedly used the digital currency to cover his personal trading losses, then lied about the funds to cover up his illegal activities. The firm’s management discovered Kim’s alleged misappropriation of their funds and charged him with fraud.

A short hearing was recently held regarding the allegations of stolen digital funds. Kim was charged with wire fraud, but he has not yet entered a plea. His bond was set at $100,000, and if he gets released on bond, he is not allowed to travel outside of northern Illinois, except to Arizona, where he owns a home. The bond deal also prohibits him from communicating with his former co-workers. Kim agreed to all terms of the bond deal and readily surrendered his passport. Continue reading

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Sometimes things happen outside a business owner’s control that affects the business. It’s understandable, but that does not justify failing to reveal to investors if the company is suffering financially as a result. In fact, executives and board directors of publicly traded companies are required to disclose the financial state of the company to their investors on a regular basis.

After the documentary, “Blackfish,” was released, SeaWorld’s business suffered significantly, but executives and board directors allegedly refused to reveal to shareholders the effect the documentary was having on the amusement park’s business.

The documentary details the story of Tilikum, a performing killer whale that was held captive in amusement parks for decades, including SeaWorld, where he famously killed a trainer – the first trainer to die at SeaWorld, although not the first time Tilikum had been involved in a death in a marine park.

Contrary to their name, killer whales have never been known to kill humans in the wild, leading many to wonder what causes them to attack when in captivity. The film examines the lives Tilikum took, before they were cut short, the cruel treatment of killer whales held in captivity, and the pressures of the sea-park industry, which makes billions of dollars every year. Continue reading

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Persons convicted of federal financial crimes who are ordered to pay restitution cannot expect their retirement funds to be off-limits to the government.

The Seventh Circuit Court of Appeals recently ruled that a defendant who committed mail fraud could be required to pay court-ordered restitution out of his retirement account because it was not protected as earned income. (United States v. Rafi Sayyed, No. 16‐2858 (7th Cir. 2017))

Rafi S. pled guilty to federal mail fraud for receiving kickbacks from contractors as an executive for the American Hospital Association. He was ordered to pay $940,000 in restitution to AHA pursuant to the Mandatory Victims Restitution Act. In post-conviction proceedings, the federal government sought to enforce the judgment by accessing some $327,000 in non-exempt funds that Rafi held in two retirement accounts.

Rafi objected on the grounds that the funds were exempt “earnings” subject to the 25-percent garnishment cap of the Consumer Credit Protection Act. The district court found that because Rafi, who was 48 at the time, had the right to withdraw all his funds at will, the funds were not “earnings” exempted under CCPA. Continue reading

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Despite stepping down as CEO of Uber, the ride-sharing start-up he founded, Trevor Kalanick’s troubles are far from over. On top of allegations that the company mistreats its drivers, discriminates against and sexually harasses women at work, and stole trade secrets from another ride-sharing service, Kalanick is now being sued by Benchmark, one of Uber’s investors.

In 2016, Kalanick proposed an amendment to Uber’s charter, giving him the right to nominate three new directors to the start-up’s eight-member board. At the time, Kalanick got Benchmark to approve the amendment, but Benchmark is now saying Kalanick deliberately misrepresented key information regarding the company and the amendment, and is now asking for the amendment to be voided.

Six years ago, Benchmark invested in what was then a tiny ride-sharing start-up, called Uber. It bought a 20% stake in the company, which has since grown to be worth billions of dollars. Kalanick and Gurley (and, by extension, Uber and Benchmark) remained close for years until Kalanick and Uber started getting hit by one scandal after another. At that point, Gurley began to put some distance between himself and Kalanick, finally joining other investors to push Kalanick out as CEO of the company.

Although he was forced to give up his seat on the board when he stepped down as CEO, Kalanick immediately reappointed himself to one of the board seats he controls as a result of the amendment he had added last year, and he still holds a 10% stake in the company. It’s not as much as Benchmark’s 13% stake, but it’s enough to make life at Uber difficult for anyone who opposes Kalanick – something he has allegedly set out to do. Continue reading

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If someone leaves their employer to start their own company (which then gets bought by a competitor of their former employer), can it be a coincidence when that person just happens to end up working for a competitor a few months later on the same material he had been helping his former employer develop?

What if it wasn’t a coincidence? What if it was all an elaborate plot for the competitor to poach the employee, as well as internal documents containing invaluable trade secrets from his former employer?

Alphabet, Google’s parent company, is seeking a court order for documents it thinks will prove that’s exactly what happened when Anthony Levandowski left his job at Google to start his own company, Otto, which was quickly bought by Uber.

Levandowski was working on lidar technology (the technology that allows self-driving cars to navigate their environments) for Waymo, Google’s own ride-share company, before leaving to start Otto in early 2016. Otto was a company that made self-driving trucks, and just a few months after its creation, it was bought by Uber for a few million dollars and Levandowski became the head of Uber’s self-driving department. Continue reading