Mario Massillamany

Your Annoying Neighbor is Still Lighting off Fireworks. When Do You Call the Cops?

2017-06-30T11:13:00.001-07:00

The 4^th of July is now just days away, and while the excitement of celebration builds up in all of us, so does the dread of knowing some neighbors will be extending their festivities far past Independence Day. Whether you’re already hearing the fireworks go off, they’re being lit off at 3:00 a.m. on July 4^th, or a week after the holiday you still hear them trying to get rid of those left over firecrackers, you should know when you can and when you can’t call the police. Citizens of Fishers, Noblesville, Westfield and Carmel; Attorney Mario Massillamany has your answer.

According to Fishers Ordinance 041513C, “It shall be unlawful to use or display or permit to be used or displayed within Fishers' municipal boundaries any type of consumer firework on any day or time other than the following:

(A) Between the hours of 5:00 p.m. and two hours after sunset on June 29, June 30, July 1, July 2, July 3, July 5, July 6, July 7, July 8, and July 9;

(B) Between the hours of 10:00 a.m. and 12:00 midnight on July 4 (…).”

The Noblesville Common Council unanimously approved Ordinance #3-1-09, an ordinance revising the Noblesville Fire Prevention Code. This ordinance adopts changes approved by the Indiana General Assembly under Indiana Code 22-11-14-10.5. The City of Noblesville's fireworks ordinance now states that consumer fireworks may only be used in the Noblesville city limits during the following days and times:

“(A) Between the hours of 5:00 p.m. and two hours after sunset on June 29, June 30, July 1, July 2, July 3, July 5, July 6, July 7, July 8, and July 9;

(B) Between the hours of 10:00 a.m. and 12:00 midnight on July 4 (…).”

The Westfield Fireworks ordinance states that the use of fireworks within the City of Westfield is prohibited at all times and locations with the following exceptions:

“(A) Between the hours of 5:00 p.m. and 12:00 midnight on June 29, June 30, July 1, July 2, July 3, July 5, July 6, July 7, July 8, and July 9;

(B) Between the hours of 10:00 a.m. and 12:00 midnight on July 4 (…).”

Carmel’s Fireworks Ordinance D-1968-09 similarly states that, “Legal consumer fireworks can be shot off:

Between the hours of 5 p.m. and midnight on the following days:

o June 29

o June 30

o July 1

o July 2

o July 3

o July 5

o July 6

o July 7

o July 8

o July 9

Between the hours of 10 a.m. and midnight on July 4^th (…).”

Pay close attention to the specified dates and times of your city’s ordinance. If you have a neighbor that is not complying with said ordinance, call the local law enforcement. Have a fun and safe 4^th of July, and remember to be mindful of the above regulations!

Mario Massillamany is a founding partner of Massillamany & Jeter LLP, a full-service law firm serving central Indiana. For more information on this topic, please contact Mr. Massillamany at (317) 432-3443 or by e-mail at: mario@mjattorneys.com.

This article is not intended to serve as legal advice. Should you have questions about this topic, you should consult with a licensed lawyer.

How to Hold Your Landlord Accountable: Your Rights as a Renter

2017-03-09T11:29:00.002-08:00

(Fishers, Indiana) Typically, as a tenant, one pays rent on a month-to-month basis for a set term of months, also referred to as a lease. Throughout the duration of that lease, the tenant is required to meet certain obligations, so it is important that the leaseholder understands their rights, responsibilities and obligations to the landlord. It is then equally as important that the leaseholder understand what to hold their landlord accountable for.

In Indiana, under Indiana Code 32-31-8-5, a landlord must deliver the rental premise to the tenant in compliance with the rental agreement. Meaning that the rental property must be in a safe, clean and in habitable condition. The Landlord must comply with all health and housing codes applicable to the rental premise. If common areas exist, also known as shared spaces, the Landlord is responsible for making sure these areas are clean and maintained in proper condition. It is also standard that the Landlord ensure the rental property has fully functioning electrical systems; plumbing systems, hot and cold running water, sanitary heating, ventilating, and air conditioning systems at all times.

In concern with the tenant’s individual rights, the landlord may not raise the amount of rent or change the terms of the lease until after the lease has expired. However, if the lease specifies that a change may be made mid-lease, it is permitted. A landlord may not force you to vacate prior to the expiration of the lease without cause. Such causes consist of: failure to pay rent, or violate any other significant term of your lease. As stated under Indiana code 32-31-1-6, a landlord must provide you with 10 days notice to pay the rent or vacate the premises before filing an eviction lawsuit. A tenant has the right to pay the rent in full before the notice period expires.

If you or a family member has had their tenant rights violated, Massillamany & Jeter LLP can help assist you in that matter. Call their offices at (317) 432-3443 to schedule a free consultation with a lawyer that specializes in landlord-tenant law, or just visit their website to learn more about their tradition of excellence and selection of practice areas.

Indiana’s New Second Chance Law

2015-04-16T07:56:00.005-07:00

Mario Massillamany

We all make mistakes in our youth. Sometimes even as adults. Luckily for us, the Indiana General Assembly just revised the expungement laws (Indiana Code 35-5-5.5 and 35-38-8, 9) to give Hoosiers a second chance. The Legislature understood that old arrests and convictions can prevent you from getting a job, renting an apartment, serving in the military, or participating in service groups. Known as the “Second Chance Law,” the new law allows for sealing arrest records and expunging certain convictions.

Sealing Prior Arrests:
Sometimes a person will get arrested but the charges will be dismissed due to mistaken identity, not committing the crime, or lack of evidence. But those arrests still appear in that person’s record. Under the new law, if you were arrested but never convicted of the crime charged, you can have the arrest sealed one year later. This can be vital for future employment, as the arrest will not appear in a background check, nor would you need to disclose the arrest on a job application.

Expunging Your Record:
If you were convicted of a misdemeanor or Class D Felony that was reduced to a misdemeanor (AMS), you can petition the court for an expungement five years after the conviction. For D Felony convictions that did not result in a bodily injury, the waiting period is eight years from the date of conviction. For more serious felonies, the waiting period will be either eight or ten years and can require written consent from the prosecuting attorney. Note: expungement is not available to sex offenders, violent offenders, or those convicted of official misconduct.

How Records Are Expunged:
If you have multiple convictions that qualify, you must expunge them at the same time. If your convictions occurred in the same county, you can file them under one petition. If they are from multiple counties in Indiana, you must file separately in each county. There are no filing fees for sealing records but there is a $141 state civil filing fee for expunging convictions. You must not have an existing or pending driver’s license suspension or pending charges to get an expungement.

Do You Need an Attorney?:
Due to the intricacy of the law and only getting one chance at expungement in the State of Indiana, it is highly recommended that you consult an attorney. It is a once-in-a-lifetime opportunity that restores all of your civil rights, including the right to vote and the right to own firearms. Take advantage of the new law to clear those youthful (or adult) indiscretions from your record.

If you or someone you know needs an expungement or their records sealed, call the experienced attorneys at Massillamany & Jeter LLP. We are available to answer your questions 24 hours a day, 7 days a week at 317-432-3443 or Mario@mjattorneys.com.

Supreme Court Clarifies Who Is The “Maker” Of A Statement For Rule Private Rights Of Action Under 10b-5

2012-05-29T20:11:00.001-07:00

One of the decisions securities fraud attorneys need to make before even bringing the claim is who to name as defendants in the lawsuit. Typically this is the party who made the material misstatement, but what does that really mean? In the case of many Wall Street firms the identity of the real maker of the statement can become cloudy, with wholly own subsidiaries and corporations formed by other corporations all interacting with each other. This is the exact issue that the Supreme Court has recently addressed, defining who the “maker” of a statement is. Although the Supreme Court provided clarity in the opinion about who was a “maker,” this clarity created legal loopholes which allow corporations to avoid liability under private rights of action of Section 10b-5 for those entities with creative ways of creating additional corporations that observe corporate formalities.
In the United States Supreme Court case of Janus Capital Group, Inc. v. First Derivatives Traders, decided by the Court on June 13, 2011 the Plaintiff, First Derivative Traders, brought a private 10b-5 securities claim as a class representatives against Janus Capital Group (“JCG”). The allegation was that JCG and its wholly owned subsidiary, Janus Capital Management (“JCM”) made false statements in mutual fund prospectuses filed by Janus Investment Fund (“JIF”) — for which JCM was the investment advisor and administrator — and that those statements affected the price of JCG’s stock. Although JCG created JIF, JIF is a separate legal entity that is owned entirely by mutual fund investors.

To he held liable under a 10b-5 claim for false statements the party must, “make any untrue statement of material fact.” The issue was whether or not the investment advice and counsel given by JCM to JIF, which it incorporated into its prospectus, constituted “making” a misrepresentation for the elements of a 10b-5 claim.

The district court dismissed the claims, finding the defendants were not the makers, and then the Fourth Circuit reversed. Then, the Supreme Court stepped into the fray granting certiorari to the case. There the plaintiffs continued to argue that JCG had made the statements, and in addition, also argued that JCG should be held liable as a control person under Section 20(a). The Supreme Court disagreed, holding that JIF was the only “maker” of the statement and therefore JCM and JCG could not be held liable under a private action under Rule 10b-5.

The Supreme Court clarified that JCM, even though it was the primary architect of JIF’s prospectus did not “make” the misrepresentations within the prospectus, but instead JIF was their maker. The Court found that under 10b-5 the “maker” of statements, “is the person or entity that has ultimate authority over the statement, including its content and whether and how to communicate it.” In its reasoning the Court made the analogy to a speechwriter and a speaker saying, “Even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it.”

The Court also made clear the stark division between bringing a private action under 10b-5 and the SEC bringing claims under the rule. Relying on its decision in Central Bank of Denver N.A. v. First Interstate Bank of Denver, N.A., 511 U.S. 164 (1994), the Court stated that the private right of action under rule 10b-5 does not extend to aiders and abettors of securities fraud, those avenues of redress being reserved to the SEC. Since, the Court concluded that the JCM did not “make” the misrepresentation under 10b-5 the Plaintiffs claim failed.

This ruling seemingly creates a massive loophole in the scope of private claims actionable under 10b-5, in essence shielding parties that originate misrepresentations simply because they were not the party to effectuate their dissemination. The dissent to the Court’s opinion voiced by Justice Breyer picked up on this inequitable result. Justice Breyer argued that the Court’s definition of “make” was far too limited and in fact had no basis not only in securities law but in the wider English language usage of the word. For him, to construe “make” as the Court did was to artificially create a statutory loophole that limited the effectiveness of private claims under 10b-5 without support of legislative intent to do so. When taking in the policy concerns focused on the availability of equitable remedies for securities fraud and the maintenance of a fair market place, Justice Breyer’s position is both more sensible and defensible. Unfortunately though, it is not the law of the land.

Wrongful Death Of An Adult

2012-05-29T19:45:00.000-07:00

At Starr Austen & Miller we help family members who have experienced the wrongful death of an adult loved one, as well as a child. (Click here for more information about child wrongful death claims, since they are handled differently under a different statute.)

When a family member dies it can be a very emotional and gut wrenching experience. Unfortunately, when that death was caused by another person, in addition to having to deal with the grief and loss the surviving family members may also be left with complicated legal issues.

A wrongful death lawsuit may be necessary if a loved one dies as a result of a truck or automobile accident, work related injuries, medical negligence, or injury from a defective product, for example.

Even when a death is accidental in nature, if there is negligence involved, it may allow surviving family members to get compensation for their loss. The Indiana Wrongful Death Statute, and accompanying case law have confirmed what kinds of damages are, and are not allowed, and it depends on many factors surrounding both the decedent and the surviving family members.

If a decedent has left behind surviving dependents, such as a spouse, dependent children or other dependent next of kin, then the following damages may be awarded, taking into consideration both the decedent’s age, health and life expectancy and how long the dependents were expected to remain so:

• Loss of earning capacity, including probably future earnings, reduced by persona living expenses

• Value of future support the dependents could have reasonably expected to receive

• Loss of love, care and affection that dependents could reasonably have expected

If a decedent, on the other hand, did not have any dependents since he or she was unmarried, but did have either parents or non-dependent children who survived, then, as long as those parents and/or children had a genuine, substantial and ongoing relationship with the decedent, they could be awarded damages for loss of love and companionship.

In addition to the damages listed above, the personal representative of the decedent’s estate could also be entitled to damages in a wrongful death action for the following:

• Value of hospital and other health care services provided to the decedent in connection with the injuries caused by the defendant

• Value of necessary and reasonable funeral and burial expenses

• Cost of administering decedent’s estate, including reasonable attorney’s fees and expenses

• The costs of pursuing the wrongful death lawsuit, including reasonable attorney’s fees and expenses

You cannot receive punitive damages in a wrongful death action used to either punish the defendant or discourage similar conduct. In addition, you cannot receive damages to compensate you for your grief.

As mentioned previously, Indiana has specific statutory laws about wrongful death in this state, and they can be complicated, with issues experienced attorneys should handle for you. The attorneys at Starr Austen & Miller are experienced in this specialized area of the law and are here to assist you to get the maximum compensation allowed by law for your circumstances.

If you’ve lost a loved one due to someone else’s fault or negligence, we’re here to help.

Deceptive Accounting Practices Can Constitute Both Material Misrepresentations And Scienter For 10b-5 Claims

2012-05-29T19:40:00.000-07:00

In securities fraud litigation it can be difficult to identify the material misrepresentation sometimes without careful scrutiny because typically companies try to be sly about it. This is what happened with Gateway, Inc. in a case recently, where the company tried to use deceptive accounting practices to misrepresent to investors the health of its quarterly sales. Turns out that these deceptive accounting practices constituted both the material misrepresentation, and because the deception made it look like Gateway was trying to hide something it also constituted the scienter element necessary for the case.

In the case styled Securities And Exchange Commission v. Todd, decided by the Ninth Circuit on June 23, 2011 the SEC brought a securities fraud claim against Gateway Inc. and several of its corporate officers under the Securities Exchange Act of 1934, section 10(b) and Rule 10b-5. The allegations in the complaint dealt with three unusual transactions during the year 2000 where Gateway had unusual large sales to other corporations and reported them in a deceptive way through its accounting practices to make it look like they had better normal quarterly sales than they really did.

The case actually went all the way to a jury trial, where the jury found the former Gateway financial executives liable on all claims by the SEC. Thereafter, the defendants brought motions for judgment as a matter of law, which the district court granted, basically nullifying the jury’s decision. The SEC then appealed to the Ninth Circuit, which after review of the evidence determined that at least some of the district court’s orders should be reversed and the jury’s verdict reinstated for the 10b-5 claims.

Specifically, the Court of Appeals reviewed the evidence supporting the viability of the SEC’s 10b-5 claim. Liability under 10b-5 requires evidence of (1) a material misrepresentation, (2) in connection with the purchase or sale of security, (3) with scienter, (4) by means of interstate commerce. In reviewing the jury verdict of the Plaintiffs’ 10b-5 claim the court acknowledged that the standard of review for such considerations was that “a jury’s verdict must be maintained if it is supported by substantial evidence.” In light of the facts, the majority of the court’s attention focused on whether or not the SEC had provided enough evidence to support the jury’s verdict on the misrepresentation and scienter elements of their claims. The court concluded that the deceptive accounting and reporting of these incidents by Gateway was enough evidence to support the jury’s verdict in regard to the misrepresentation and scienter elements of the 10b-5 claims.

The Gateway decision illiterates one of the basic protections afforded by securities

fraud litigation. While not involved in a blatant Ponzi scheme or similar activity the corporate officers of Gateway were riding the line of accurate account and report
practices in an effort to maximize the company’s profits and live up to the market
forecasters’ expectations of their quarterly revenue growth. Feeling the weight of a
more competitive and shrinking personal PC market in 2000 Gateway felt pressure to
preserve its perception of corporate health through suspect accounting. This type of
misrepresentation is no less harmful to investors and the case is a way of sending a message to companies not to engage in these deceptive accounting practices in the future.

Contractual Promises For The Future Which Are Breached Are Not Material Misrepresentations Under Securities Law

2012-05-29T19:35:00.000-07:00

All securities fraud lawyers know it can be tough to make it past a 12(b)(6) motion in securities fraud cases, because of the intense scrutiny all complaint allegations get under the law and procedural rules. That’s why its important to first make sure you properly identify the material misrepresentations upon which your client relied, since this is the cornerstone of the case. Unfortunately, what we’re learning is that promises of future behavior that investors may rely upon, if they are part of contractual language, will not constitute the first critical element of securities fraud cases.

The recent case of Reese v. BP Exploration (Alaska), Inc., decided on June 29, 2011, by the Ninth Circuit illustrates this point well, since many of the claims brought against the company failed because the court determined no material misrepresentation was properly alleged. The appeal originated with a securities fraud action involving British Petroleum Exploration of Alaska (BPXA). In fall 2006 BPXA was in charge of supervising its pipeline and oil production facilities in Prudhoe Bay Alaska. During that time two separate pipeline leaks resulted from the buildup of bacterial colonies in the pipeline due to sediment accumulation. In the resulting action under the Clear Water Act brought by the U.S. government BPXA admitted to being aware of the sediment buildup before the spills. The class of Plaintiffs represented by Claude A. Reese, were those individuals who purchased shares of BP in the time frame leading up to the spill, who collectively suffered billions of dollars of capital loss when the stock plummeted in the spill’s aftermath. The Plaintiffs alleged that BPXA had given them assurances that such spills, which had occurred before, were a thing of the past due to new safety protocols. Based on that assurance the Plaintiffs filed a securities fraud suit against BPXA.

The Plaintiffs claimed that BPXA made false and misleading statements about its

operations in Prudhoe Bay through the SEC filings of the BP Prudhoe Bay Royalty
Trust, a trust created to distribute royalty interest from oil production in Prudhoe Bay to
purchasers of Trust units traded on the New York Stock Exchange. When BPXA created
the trust, it executed an Overriding Royalty Agreement to govern the details of the
interest distribution. Pursuant to the Overriding Agreement, BPXA contracted to operate
its production in Prudhoe Bay according to a “prudent operating standard.” Then during
each quarter the Trust attached the Overriding Agreement, with its “prudent operating
standard” clause to its SEC filings.

The Plaintiffs claim that this act when taken with the admitted negligent operation of the Prudhoe Bay pipeline constituted a material misrepresentation and the grounds for a securities fraud action. The Court of Appeals rejected this claim by the Plaintiffs using the general “reasonable investor test,” which holds that a statement is misleading in the context of securities fraud if “it would give a reasonable investor the impression of a state of affairs that differs in a material way from the ones that actually exist.” For the Court of Appeals the Trust’s Overriding Agreement, with its prudent operating procedure clause, constituted only a contractual promise to perform services, not a material guarantee that such services would be performed in the future. They reasoned that a breach of a contractual promise of future action does not constitute a material misrepresentation that will support the allegation of fraud. Thusly, the Court of Appeals affirmed the District Court’s partial dismissal of the Plaintiff’s claim based on a failure to show a material misrepresentation.

The case provides a valuable lesson in the standards to which investors will be held when engaging in securities trading. Recent trends in securities law focus on the doctrine of “investor beware” and increasingly hold investors to a high standard of due diligence in their investment activity. Here the court held that investors should not assume that a contractual promise of a company to act in a certain manner is a guarantee of such action, relying on the contractual doctrine of efficient breach, which assumes that people will sometimes intentionally breach their contractual agreements for no other reason than financial gain. While the Court of Appeals left open the issue of whether or not the Plaintiffs could recover contractual remedies from BPXA, their ruling illustrates the proactive environment of investing that all Plaintiffs should be aware is required.

Class Action Versus Mass Action

2012-05-23T06:09:00.000-07:00

Practical And Legal Differences Between Class And Mass Actions

Before filing a case on behalf of multiple people who have been injured, either physically or monetarily, an initial decision must be made of whether to bring each person’s claims individually, or as a group. If you believe bringing the claims as a group would be more beneficial for purposes of economy of scale, greater bargaining power collectively, and efficiency, the next issue that needs to be decided is whether to pursue the case as a class action or a mass action. These two types of procedural mechanisms for bringing a group of claims together are appropriate under different circumstances, and each have their own pros and cons.

Sometimes the decision of which type of action to pursue is easy, while other times there is some strategy and weighing of options involved, as well as legal considerations of whether the proposed class meets the criteria for certification. Here are some considerations to keep in mind when making this decision with your clients:

How Many Plaintiffs Can Be Practically Joined And Can They Represent Others Or Just Themselves?

One of the most obvious differences between a class and mass action are the number of plaintiffs named in the lawsuit. Class actions have only one or a few named plaintiffs, who act as representatives of the entire class, because, as Trial Rule 23 says, the class is so large joinder of all the members would be impracticable. That means technically there are only a few named parties to the lawsuit, and those class members not listed as class representatives have very limited input and responsibilities with regard to the lawsuit.

Those absent class members normally don’t have to answer discovery, go to depositions or court hearings, and don’t have to prove their claims individually (at least not their liability claims). Instead, although there are some chances along the way for them to opt out or contest any settlement, for example, even class counsel only has to communicate with class members during certain limited times during the lawsuit. The other side of the coin of this representation, however, is that if the class is certified the results of the lawsuit are res judicata for all class members -- whether named or not. That is why to get certified as a class the court must determine that the class is adequately represented by both the class representatives and the attorneys for the class.

On the other hand, mass actions typically have many allegedly injured parties too, but instead of choosing one or two people to represent everyone, each person is individually listed as a plaintiff in the lawsuit. Since the Class Action Fairness Act (CAFA) was signed into law in 2005, whenever such a mass action lists over 100 plaintiffs though, it is typically deemed to be a class action removable to federal court by defendants. 28 U.S.C. 1332(d)(11). Further, when many lawsuits, even across districts, deal with the same issues they are often brought together with federal multi district litigation, governed by the procedural rules found at 28 U.S.C. 1407 and 2112.

Unlike with class actions, each plaintiff in a mass action has responsibilities for doing all the activities that any regular plaintiff must do, like discovery, etc. Further, although there are some procedural mechanisms that can be put in place to try to prove some elements of the case across the board for all claimants, at the end of the day each person’s case ultimately is decided individually.

How Similar Are The Plaintiffs Claims In Regard To Both Commonality And Typicality?

The other major difference between a class action and mass action is whether the claims are similar enough, either factually and/or legally, to be able to prosecute them as a whole. Class actions can only be brought if they meet all the requirements of Federal Rule of Civil Procedure 23 (or a similar state rule, such as Indiana Rule of Trial Procedure 23), whereas mass actions are a default when all such requirements cannot be met.

There are many procedural rules set in place for determining when a class action is appropriate, but ultimately the idea behind each of them is to make sure that the person who is the class representative can adequately represent the interests of his or her fellow class members. This was touched upon above, but it also is important for the other two major requirements for a class to be certified -- commonality and typicality. The idea is that a class representative could not adequately represent another absent person if they do not pose questions of law and fact common to the class, and if the named parties claims or defenses are not typical of the class.

Mass Torts Sometimes Are Not The Right Fit For Class Actions

A common example of claims that are sometimes not appropriate as class actions are mass torts, where multiple people are injured such as in a large accident. Mass torts can include such things as injuries from pharmaceutical drugs, large scale accidents and even products liability claims. In fact, the comment to FRCP 23(b)(3) explicitly cautions against the use of the class action device in mass tort cases. The reasons for this include that these cases involve personal injuries and sometimes even death, meaning that each claim is not easily described as “typical,” because there is a need for individual evidence of exposure, injury and damages for each plaintiff, not just class representatives.

Here in Indiana we are unfortunately too familiar right now with such a large accident, the stage collapse at the Sugarland concert at the Indiana State Fair. In that case the victims have brought a mass action, not a class action, against various defendants alleging fault for the accident. It would not have been appropriate to try to bring a class action because there was no commonality regarding the injuries, and therefore each plaintiff’s case ultimately must be decided on its own. On the other hand, the State Fair stage collapse case is perfect for a mass action as the liability claims (what caused the stage to collapse and who is responsible) will require the same proof for all the injured parties.

There are both factual and legal differences between individual claims in mass actions. These differences make it impossible to fulfill the elements of typicality and adequacy which are required for Rule 23(a). Further, these same differences make it difficult to demonstrate that the putative class has the requisite “cohesiveness” which is required in Rule 23(b)(2) and makes it difficult to demonstrate that the putative class as common issues which “predominate” which is required for Rule 23(b) claims.

Another reason not mentioned in procedural rules themselves, but which often is an important factor in why class actions do not practically work for mass torts is that when someone suffers a personal injury they and the courts have major concerns about autonomy, and being properly represented as a class member. Each plaintiff has significant interest in individually controlling the prosecution of separate actions, and a substantial stake in making individual decisions on whether and when to settle. This came into stark focus when, for example, in the nationwide asbestos settlement classes proposed in Amchem Products, Inc. v. Windsor, 521 U.S. 591 (1997) and Ortiz v. Fibreboard Corp., 527 U.S. 815 (1999) the individual absent class members had concerns so great about the proposed class action settlements that they pursued their objections all the way to the United States Supreme Court on multiple occasions.

While there are many legal and practical differences between class actions and mass actions, they often have the same general goal in mind -- get relief for the injured parties as quickly, efficiently, and in as cost-effective manner as possible. Certain factual situations lend themselves better than others to one procedural mechanism or the other, so the first step is to examine the facts of the case and decide which has a better chance of achieving the goals of your clients before going forward.

If you believe that you have a class or mass action case, please contact Mario Massillamany at Starr Austen & Miller at 574-722-6676.

What Can A Victim Of A Ponzi Scheme Expect To Get Back, If Anything?

2012-04-25T08:57:00.000-07:00

Mario Massillamany, securities attorney

Ponzi schemes, once thought to be rare and few and far between, are now coming to light left and right it seems. As investment fraud attorneys,we need to be able to recognize the signs of such a scheme and the fallout that ensues from them. One such lesson can be learned from what is perhaps the most famous Ponzi scheme yet uncovered, from the recent case of In re Bernard L. Madoff InvestmentSecurities LLC, decided on August 16, 2011, by the Second Circuit.

This case stems from the fallout of Bernard Madoff’s multibillion dollar securities

investment Ponzi scheme. After the revelation of the massive Ponzi scheme engineered by Bernard Madoff, which consisted of him fraudulently soliciting millions of dollars in securities investment funds that were ultimately never invested, Irving Picard was appointed as a trustee to oversee the liquidation of Bernard L. Madoff Investment Securities’ (BMIS) remaining assets pursuant to the Securities Investor Protection Act. Acting in his capacity as trustee, Mr. Picard elected to reimburse claimants that had invested funds with BMIS with the “Net Investment Method,” as outlined in the Securities Investor Protection Act. Under the “Net Investment Method,”claimants would be credited the amount of cash that they had deposited with BMIS minus any amounts withdrawn from their accounts prior to the Ponzi collapse.

A range of claimants filed this action with the bankruptcy court objecting to this allocation method, contending that the trustee should have elected to reimburse them using the “Last Statement Method,” which would have taken into account the fictitious investment gains that BMIS represented to their clients on their last customer report. Since those profits and rates of return were entirely fictitious and made up, it is no surprise that the court and trustee did not allow their recovery. The claimants then filed an appeal again seeking to recover not only the initial sum of their investments, but also the investment profits that the company claimed the investors had earned in their quarterly accounting statements.

The Second Circuit upheld the decision of the bankruptcy court, agreeing that the trustee’s use of the “Net Investment Method” of reimbursement was the appropriate and most equitable resolution to the unfortunate situation. The Second Circuit emphasized that the purpose of the Securities Investor Protection Act was to serve as a protection for investors against financial losses that results from the insolvency of their investment broker, not to prevent or reverse fraud. The Court of Appeals also leaned heavily on the equitable treatment of all claimants who were adversely impacted by the fraudulent

actions of BMIS. The court reasoned that use of the “Last Statement Method” to

distribute the assets of BMIS would be “absurd” due to the fact that all of the financial customer statements issued by BMIS were completely fabricated documents, created after the fact and not based on any type of actual investment by BMIS.

The court also stressed that using the “Last Statement Method”would create inequity within the class of claimants itself. The payment of any claim based on fictitiously created profits above a claimant’s initial investment would amount to taking away money from the pool of resources meant to go to reimburse all claimants for the sum that they initially invested. The result would be to favor those claimants who withdrew funds from their BMIS accounts that exceeded their initial investments as the expense of other claimants. The court rightfully held that such a result would only create an even worse situation out of the financial mess created by the BMIS Ponzi scheme.

The lesson learned from this case is that investors who are unlucky enough to become involved with what they later learn is a Ponzi scheme will be lucky to get even their initial investment money back. They might as well say “bye bye” to any alleged profits that they thought they had gained from those investments since they were fictitious to begin with. This is a hard lesson for investors to learn, but unfortunately it is the most equitable way to deal with a bad situation.

Importance Of The Mandatory Victims Restitution Act For Victims Of Ponzi Schemes

2012-04-25T08:35:00.000-07:00

If you’ve been the victim of securities fraud, including a Ponzi scheme, your first thought may be to call an investment fraud attorney and sue them in a private right of action. While this may be a valid course of action, the case of United States v. Marino, decided on August 18, 2011 by the Second Circuit illustrates why getting the federal government involved to prosecute the defendants criminally may also be something to put on your wish list.

Mario Massillamany, securities fraud attorney

The Marino case involved a large Ponzi scheme called the Bayou Fund, which was run by three individuals, including a CPA named Daniel Marino. Daniel brought his brother, Matthew, who was the defendant in this particular case, into the scheme too, having him help set up and run the fake independent accounting firm, called Richmond-Fairfield Associates, the brothers set up to pass their fake blessing onto all the trades and accounts of the Ponzi scheme. While the defendant was not involved in the actual trades which lost investors money, he was actively involved in concealing the fraudulent nature of the so-called independent accounting firm, and of Bayou. In addition, he also played a substantial role in concealing Bayou’s losses from its investors. In fact, he often went by the pseudonym Mr. Richmond, the fictitious principal of the accounting firm, to give the appearance of the accounting firm’s independence.

Eventually the Ponzi scheme fell in around the ears of the four people with knowledge of it, and all four were arrested. Defendant Marino plead guilty to the crime of misprision of a felony for failing to report the Ponzi scheme and being actively involved in the concealment of the fraud. As part of that plea he was sentenced to 21 months in prison, and the district court issued a restitution order against him, ordering him to pay $60 million, pursuant to the Mandatory Victims Restitution Act (MVRA), 18 U.S.C. 3663A.

Marino appealed the restitution order, arguing it was too large and that he did not proximately cause the victims’ losses because of his less prominent role in the scheme. The Second Circuit affirmed the restitution amount, and took the opportunity to explain more about the MVRA at the same time. The MVRA requires sentencing courts to order restitution for certain crimes, including any offense committed by fraud and deceit, with the goal that victims can be restored, to the extent possible, back to the position they occupied before sustaining the injury. There is a requirement in the statute that the victim’s harm must be directly and proximately caused by the defendant’s criminal activity. This causation requirement does not appear to be as strenuous as the element of loss causation in private action securities fraud cases however, based on the reasoning of the Second Circuit in the Marino case.

Instead, in the Marino case it was enough that the evidence showed that Marino not only failed to disclose the fraud, but also took active steps to conceal it. The court noted that this concealment was critical to bringing in the approximately $60 million in new investments into the Bayou fund during the time in question, and therefore affirmed the $60 million dollar restitution order from the district court.

Victims of Ponzi schemes may need to try many different methods in an attempt to get back the money they invested. Gaining some money back directly from the perpetrators through an order of restitution is potentially another tool in victims’ tool belts for bringing back in what they lost, and should not be discounted as a possible viable strategy. This is especially true in gaining restitution from those involved as secondary and supporting players in the fraudulent scheme since the causation elements are relaxed in this criminal setting, after conviction.

Mario Massillamany Discusses Receiver in Keenan Hauke Ponzi Scheme Case Appointing Starr Austen & Miller as Counsel to Recover Additional Funds for Receivership Estate

2012-03-30T05:11:00.001-07:00

Mario Massillamany of the Indiana law firm of Starr, Austen & Miller, LLP, announced today that the judge has allowed the Receiver in the case of a prominent Indiana money manager, Keenan R. Hauke, who late last year plead guilty to a large Ponzi scheme, to appoint Starr Austen & Miller’s attorneys to initiate litigation to “recover additional funds for the Receivership estate.”

Mario Massillamany

Fishers, Indiana-Mario Massillamany of the Indiana law firm of Starr, Austen & Miller, LLP, announced today that the judge has allowed the Receiver in the case of a prominent Indiana money manager, Keenan R. Hauke, who late last year plead guilty to a large Ponzi scheme, to appoint Starr Austen & Miller’s attorneys to initiate litigation to “recover additional funds for the Receivership estate.” In the case entitled “State of Indiana et al., v. Keenan R. Hauke, et al.”, in Hamilton County Superior Court 4 in Indiana, under cause number 29D04-1104-PL-003478, the Receiver, William E. Wendling, Jr., has been tasked with marshaling assets to reduce investor losses.

According to court documents, the discovery of this Ponzi scheme happened in April 2011, when a former employee of Hauke reported his concerns about Hauke to the Indiana Securities Commission. The Commission acted quickly in investigating and then bringing a complaint against Hauke, and getting the court to freeze the assets of the former Fishers money manager and hedge fund operator. Hauke, who was the CEO of Samex Capital Advisors, LLC, had been previously kept a high profile, writing a regular column in the Indianapolis Business Journal, and being a frequent guest on cable networks and local TV shows, such as CNBC and Fox Business News, discussing financial issues.

While being very vocal within the financial community Hauke was at the same time involved in an elaborate Ponzi scheme involving many of his client investors, according to court documents. In this Ponzi scheme Hauke, who had great losses for his investors in a large Michigan real estate deal, began to solicit money from new clients, and he used most of this money to pay off previous investors. In addition, he converted some of these funds for his own uses, including paying off his mortgage, paying taxes and purchasing property. He also created a false trail of documents to deceive his investors about what was really happening to their retirement and life savings.

Court documents state that in December 2011 Hauke pleaded guilty in federal court to a single count of securities fraud, in which he admitted to defrauding 67 investors of over $7 million from 2004-2011. A sentencing hearing was held for him on March 23, 2012 in federal court, in the Southern District of Indiana, and he was sentenced to ten years and one month in jail.

Although the federal criminal case is now concluded, the Indiana state case continues against Hauke. According to court documents, one of the goals of this continued litigation is to try to recover as much of the Ponzi scheme victims’ money as possible, since on average each investor affected lost over $100,000, with some more, and some less because of Hauke’s misdeeds. Therefore, the Court appointed William E. Wendling, Jr. as a Receiver in June 2011, to take control over assets held by Hauke. He was tasked with establishing a claims process to distribute funds to shareholders and partners, and also creating a restitution fund for investors.

A part of gathering these assets for the estate is to gather funds from those who received them with knowledge of the Ponzi scheme, which can sometimes require the initiation of litigation. Therefore, on March 19, 2012, a judge in Hamilton County, Indiana, granted the Receiver’s petition to retain Starr Austen & Miller to initiate litigation on the Receiver’s behalf. Specifically, the Court ordered that “The Receiver may initiate litigation to recover profits received by investors, fund received by investors with knowledge or information of the Ponzi scheme, and any litigation investigated and believed viable by the Receiver to recover additional funds for the Receivership estate.”

Starr Austen’s securities arbitration attorney, Scott Starr, has stated, “Now that we’ve been appointed as counsel for the Receiver we’ll begin the task of investigation and initiation of litigation. We’ll do our best to discover and recover as much money as possible for the Receivership estate, which will, in turn, help reduce investor losses from this Ponzi scheme which has harmed so many innocent victims.”
Currently, Starr, Austen & Miller LLP has pending litigation against DuPont for the alleged environmental damages caused by their Imprelis product in the case entitled as Shomo v. E.I. du Pont de Nemours & Company (Case Number 1:11-00633) in the Eastern District Court of Pennsylvania. Starr, Austen & Miller LLP handles stock broker fraud cases, truck accident cases, and multimillion dollar, nationwide class actions. Mario Massillamany hosts a live chat session every Wednesday at 5pm to help people understand their rights.

http://www.prweb.com/releases/2012/3/prweb9346623.htm#

Tips to Protect Yourself and Your Family Against Internet Fraud

2012-03-28T08:17:00.000-07:00

Mario Massillamany's Tips to Prevent Internet Fraud:

Tips for Avoiding Internet Auction Fraud:

Understand as much as possible about how the auction works, what your obligations are as a buyer, and what the seller’s obligations are before you bid.

Find out what actions the website/company takes if a problem occurs and consider insuring the transaction and shipment.

Learn as much as possible about the seller, especially if the only information you have is an e-mail address. If it is a business, check the Better Business Bureau where the seller/business is located.

Examine the feedback on the seller.

Determine what method of payment the seller is asking from the buyer and where he/she is asking to send payment.

If possible, purchase items online using your credit card, because you can often dispute the charges if something goes wrong.

Be cautious when dealing with sellers outside the United States. If a problem occurs with the auction transaction, it could be much more difficult to rectify.

Ask the seller about when delivery can be expected and whether the merchandise is covered by a warranty or can be exchanged if there is a problem.

Make sure there are no unexpected costs, including whether shipping and handling is included in the auction price.

There should be no reason to give out your social security number or driver’s license number to the seller.

Tips for Avoiding Non-Delivery of Merchandise:

Make sure you are purchasing merchandise from a reputable source.

Do your homework on the individual or company to ensure that they are legitimate.

Obtain a physical address rather than simply a post office box and a telephone number, and call the seller to see if the telephone number is correct and working.

Send an e-mail to the seller to make sure the e-mail address is active, and be wary of those that utilize free e-mail services where a credit card wasn’t required to open the account.

Consider not purchasing from sellers who won’t provide you with this type of information.

Check with the Better Business Bureau from the seller’s area.

Check out other websites regarding this person/company.

Don’t judge a person or company by their website. Flashy websites can be set up quickly.

Be cautious when responding to special investment offers, especially through unsolicited e-mail.

Be cautious when dealing with individuals/companies from outside your own country.

Inquire about returns and warranties.

If possible, purchase items online using your credit card, because you can often dispute the charges if something goes wrong.

Make sure the transaction is secure when you electronically send your credit card numbers.

Consider using an escrow or alternate payment service

Tips for Avoiding Credit Card Fraud:

Don’t give out your credit card number online unless the site is a secure and reputable. Sometimes a tiny icon of a padlock appears to symbolize a higher level of security to transmit data. This icon is not a guarantee of a secure site, but provides some assurance.

Don’t trust a site just because it claims to be secure.

Before using the site, check out the security/encryption software it uses.

Make sure you are purchasing merchandise from a reputable source.

Do your homework on the individual or company to ensure that they are legitimate.

Obtain a physical address rather than simply a post office box and a telephone number, and call the seller to see if the telephone number is correct and working.

Send an e-mail to the seller to make sure the e-mail address is active, and be wary of those that utilize free e-mail services where a credit card wasn’t required to open the account.

Consider not purchasing from sellers who won’t provide you with this type of information.

Check with the Better Business Bureau from the seller’s area.

Check out other websites regarding this person/company.

Don’t judge a person or company by their website. Flashy websites can be set up quickly.

Be cautious when responding to special investment offers, especially through unsolicited e-mail.

Be cautious when dealing with individuals/companies from outside your own country.

If possible, purchase items online using your credit card, because you can often dispute the charges if something goes wrong.

Make sure the transaction is secure when you electronically send your credit card number.

Keep a list of all your credit cards and account information along with the card issuer’s contact information. If anything looks suspicious or you lose your credit card(s), contact the card issuer immediately.

Tips for Avoiding Investment Fraud:

Don’t judge a person or company by their website. Flashy websites can be set up quickly.

Don’t invest in anything you are not absolutely sure about. Do your homework on the investment and the company to ensure that they are legitimate.

Check out other websites regarding this person/company.

Be cautious when responding to special investment offers, especially through unsolicited e-mail.

Be cautious when dealing with individuals/companies from outside your own country.

Inquire about all the terms and conditions.

Tips for Avoiding Business Fraud:

Purchase merchandise from reputable dealers or establishments.

Obtain physical address rather than simply a post office box and a telephone number, and call the seller to see if the telephone number is correct and working.

Send an e-mail to the seller to make sure the e-mail address is active, and be wary of those that utilize free e-mail services where a credit card wasn’t required to open the account.

Consider not purchasing from sellers who won’t provide you with this type of information.

Purchase merchandise directly from the individual/company that holds the trademark, copyright, or patent.

Tips for Avoiding the Nigerian Letter or “419” Fraud:

Be skeptical of individuals representing themselves as Nigerian or foreign government officials asking for your help in placing large sums of money in overseas bank accounts.

Do not believe the promise of larges sums of money for your cooperation.

Guard your account information carefully.

Mario Massillamany Discusses Sugarland Lawsuit In Entertainment Weekely

2012-03-23T13:36:00.001-07:00

Indianapolis, Indiana- Mario Massillamany, in Entertainment Weekly, discusses Sugarland's decision making process that tragic night when the stage collapsed at the Indiana State Fair. During a hearing this morning, Judge Sosin ordered Sugarland to testify next month in depositions regarding their role in the Indiana State Fair Stage collapse. Sugarland will not be able to use their summer concert schedule as an excuse in an effort to delay the depositions. Sugarland claims that the tragedy was an "act of God" and also blames the victims that attended the concert for their injuries.

Securities Attorneys Get Additional Guidance On Pleading What Constitutes A Domestic Transaction In Other Securities

2012-03-15T10:52:00.000-07:00

In 2010 the Supreme Court muddied the waters of the Securities Exchange Act of 1934, declaring it did not apply extraterritorially, after all, and rejecting the until then used test of “conduct and effects.” Now, securities attorneys have been given additional guidance about how to make adequate allegations in their complaint to pass the new test created by the Supreme Court to pass muster under Rule 12(b)(6), when making claims under Section 10(b) or Rule 10b-5.

In Morrison v. National Australia Bank Ltd., 130 S.Ct. 2869 (2010), the Supreme Court held that Section 10(b) and Rule 10b-5 of the Exchange Act only applies to “transactions in securities listed on domestic exchanges and domestic transactions in other securities.” While the Court, in that case, was able to analyze the facts under the first test, regarding securities listed on domestic exchanges, it did not address the second test, and it remained significantly ambiguous what constituted a “domestic transaction in other securities,” after Morrison.

Therefore, it came as a relief to get additional guidance about this second test from the Second Circuit in the recent case of Absolute Activist ValueMaster Fund Ltd. v. Ficeto, decided on March 1, 2012. In that case the plaintiffs were nine Cayman Island hedge funds who sued the defendant, their investment manager, Absolute Capital Management Holdings Limited, and several of its officers and employees (several of whom were not U.S. citizens nor located in the U.S.), basically alleging a pump and dump scheme resulting in losses of over $195 million. The plaintiffs purchased securities issued by U.S. companies however, and the deals were brokered through a U.S. broker dealer.

The case came before the Second Circuit who considered the issue of whether the allegations in the complaint were sufficient to allege a “domestic transaction in other securities,” to survive scrutiny under Federal Rule of Civil Procedure 12(b)(6). When considering these allegations the court provided very helpful guidance in determining what factors are, and are not, relevant in passing this test to see if Section 10(b) and Rule 10b-5 are applicable to the transactions.

The Second Circuit held that to sufficiently allege the existence of a “domestic transaction in other securities” the plaintiff must allege facts leading to the plausible inference that either irrevocable liability was incurred or title transferred within the United States. The court explained that the parties “incur irrevocable liability” basically when the contract is formed between the parties. The point of irrevocable liability can be used to determine the locus of a securities purchase or sale. Facts that can be alleged which make this plausible inference could include, but are not limited to, facts concerning the formation of the contracts, the placement of purchase orders, the passing of title, or the exchange of money.

The Second Circuit was also clear about what types of allegations would not be sufficient to constitute a domestic transaction in other securities. For example, the conclusory allegation that the transaction took place in the United States is insufficient. Further, the focus should be upon the locus of the purchases and sales of the securities, and not on the place where the alleged deception originated which constituted the securities fraud. Therefore, in making allegations, although these things may be relevant, they will not be conclusory: the identity of the parties, the type of security at issue, or whether each individual defendant engaged in conduct with in the United States.

The additional clarification by the Second Circuit in Ficeto will be of great help to securities attorneys who represent clients who have purchased or sold securities which are not listed on domestic exchanges. In such instances focusing on the locus of where the contract was formed, or title passed, can help determine whether the Exchange Act applies to the transaction, or not.

An Interesting Twist Where Broker-Dealer Seeks To Enjoin Customer From Arbitration In FINRA And Is Denied By The Second Circuit

2012-01-25T10:14:00.000-08:00

An interesting case that securities arbitration attorneys should find ironic. In the case of UBS Financial Services, Inc. v. West Virginia University Hospitals, Inc., decided on September 22, 2011, the Second Circuit upheld the decision of the district court to dismiss a motion to enjoin arbitration in FINRA filed by a FINRA member, UBS, against its customer.

Although the more typical case involves a customer filing a securities fraud action in court, and having the defendant move to enforce an arbitration agreement, and remove the case to FINRA, in this recent case the tables were turned. Instead, it was the customer, West Virginia University Hospitals (WVUH) who wanted to bring an action against UBS in FINRA arbitration, and UBS fought tooth and nail to try to get it thrown out of arbitration and into court.

The case deals with auction rate securities (ARS), which UBS persuaded WVUH to use as the vehicle for a large financing project, where UBS would serve as both the underwriter and the broker-dealer in the auction services. Unknown to WVUH, UBS, as the broker-dealer, would place additional bids on all its auctions to make sure they did not fail, which concealed the true risks of liquidity of this made-up market which collapsed in February 2008 during the financial crisis. This collapse caused WVUH to have to pay much higher interests rates on the debt until it could refinance several months later.

Therefore, WVUH filed an arbitration Statement of Claim against UBS, alleging that UBS had violated the Securities Exchange Act of 1934 and the Uniform Securities Act by advising WVUH to issue ARS while withholding critical information about the ARS market and UBS’s role. Further, WVUH alleged that UBS fraudulently induced it to purchase auction services, while UBS withheld critical information about the ARS market and UBS’s role. Interestingly, in all the agreements between the parties there were no documents which contained an arbitration clause, and none referred to any provisions of the FINRA code.

UBS is a member of FINRA, and as such when it joined it agreed to comply with FINRA’s rules. One of those is Rule 12200 of the FINRA Code, which obligates UBS to arbitrate a dispute with a “customer” at the customer’s demand, if the dispute arises “in connection with” the business activities of the member. This is the rule WVUH used to initiate arbitration. UBS argued this rule did not apply because WVUH was not a “customer,” but the Second Circuit determined, as a matter of law, that WVUH was a customer of UBS when it served as a broker-dealer for the ARS auctions. The court further determined that a “customer” is a non-broker or non-dealer who purchases, or undertakes to purchase, a good or service from a FINRA member.

This case is interesting for all securities arbitration attorneys to note, because it turns the tables on the normal considerations in FINRA arbitration cases. Normally FINRA arbitration is seen as a shield for the broker-dealers, who invoke their arbitration clauses to stay away from the court. However, as this case demonstrates in certain instances customers who wish to can use this FINRA rule as a sword to compel a FINRA member into arbitration even without an arbitration agreement in place, if they so desire.

Self-Directed IRA Fraud: Are You A Victim?

2012-01-09T12:04:00.000-08:00

What Are Self-Directed IRAs?

Self-directed IRAs are a type of financial instrument which allows a person to invest in a larger range of assets than a traditional IRA. Many of us are familiar with IRAs that invest in stocks, bonds, mutual funds, and certificates of deposit, but self-directed IRAs expand from these more traditional investing avenues, and also allow someone to invest in promissory notes, real estate, precious metals, private placement securities, tax lien certificates, and other investments which may not be registered.

This type of IRA is becoming increasingly popular in the United States, with about $94 billion of retirement funds invested in them. They are completely legal, when used correctly. However, some of the inherent characteristics of this financial instrument have not only attracted legitimate investments, but in addition scammers and fraudsters who use the patina of the self-directed IRAs legality to defraud investors of their life savings.

What Are The Inherent Characteristics Of Self-Directed IRAs That Make Them Susceptible To Fraud?

As with all IRAs, a self-directed IRA must be held by a trustee or custodian. However, with the more traditional IRAs the custodians are typically banks and broker-dealers who only allow investment in firm approved stocks, bonds, mutual funds and CDs. However, with a self-directed IRA the trustee or custodian has no responsibility to investigate the securities offered for investment, or the background of the promoter. Further, they also do not need to keep accurate records or perform audits. With these laxer requirements it is easy to see why those wishing to engage in fraud would be interested in using this financial instrument to perpetrate it.

The fact that this type of IRA allows investment in a broader range of assets can increase the likelihood of fraudulent behavior. For example, unregistered securities are permitted in this type of IRA. There is typically less investigation into this type of security, with less information easily available, and further there is no guarantee that any information provided has been audited. Therefore, in a situation in which more due diligence is typically required there is less opportunity to review accurate information to perform that due diligence.

In addition, the broader range of assets allowed for self-directed IRAs can create unique risks for investors that should be considered, such as lack of liquidity and difficulty in valuing assets. The result of the characteristics of these assets means that the self-directed IRA custodians will often list the value of the assets as the original purchase price, plus any gains as determined arbitrarily by the promoter. These values that are told to investors may not reflect the true value of the investment if sold on the open market. Further, because the custodians don’t have to evaluate the quality or legitimacy of the investments, and have no responsibility for investment performance, these self-promoting statements may go unchecked and unquestioned.

Finally, the fact that self-directed IRAs are a tax-deferred account can impact psychologically how much oversight an investor has over this type of investment instrument. The fact that there is a financial penalty for early withdrawal means people tend to invest in these types of accounts for the long term, when more prudent investors in these types of investments may more actively manage such accounts. This same mind set may also allow the person committing the Ponzi type scheme or other fraud to conduct their fraud longer before their misdeeds are detected.

Scott Starr, a partner in this firm, has stated, “Some of these investment advisors and stockbrokers are clearly committing malpractice and breaching their fiduciary duties” when directing individuals to invest in these self-directed IRAs. Further, he states that “It is not uncommon for these individuals to place their clients in investments that are either too high risk, carry a time horizon that is too far in the future, or fail to properly diversify these portfolios.”

Examples Of Self-Directed IRA Fraud Close To Home

Although fraudulent actions surrounding self-directed IRAs can, unfortunately, happen anywhere in the country the state of Indiana, and surrounding states, have had several instances of this type of fraud coming to light.

1. Randell Morrison - Indiana

One of the most recent cases of self-directed IRA fraud reported in Indiana is the case of Randell Morrison, which has been reported extensively in the Fort Wayne, Indiana Journal Gazette. http://www.journalgazette.net/article/20111120/LOCAL/311209934 On November 10, 2011, Mr. Morrison was sentenced to six years in prison, followed by a year of home detention and then one year of probation for bilking 15 investors in Indiana, mainly in the Allen County area, out of $1.4 million.

Mr. Morrison was a businessman in the community, and used his personal associations with fraud victims, including being a friend of the family, and attending country clubs, churches and social clubs with them, to gain their trust over several years. He then convinced these investors to roll their more traditional IRAs and life insurance proceeds into a self-directed IRA custodial company, called Equity Trust, with which he was associated. His victims thought they were investing their money in conservative and traditional investments, but instead once he gained control of the money he used it for his own personal use and for his businesses.

The Indiana Secretary of State, Charlie White, said, “Randell Morrison preyed on those who considered him a friend. He didn’t just gamble with their life savings, he squandered their life savings.” Many of the victims of this scheme were close to retirement age, and have now lost their entire retirement account and life savings. They have suffered not only financial losses, but also emotional and even physical distress because of the fraud perpetuated against them.

2. Jerry Smith and Jason Snelling - Indiana

Another case in Indiana that is currently pending involves Jerry Smith and Jason Snelling, who are accused of conducting a long-running Ponzi scheme, defrauding investors in three states, Indiana, Ohio and Kentucky, of over $4.5 million. Smith and Snelling were allegedly selling unregistered securities, and neither was licensed to sell them.

In this case the accusation is that investors were convinced and encouraged to roll over their traditional IRA accounts into self-directed IRAs at a trust company. Then, Smith and Snelling allegedly took the funds from the accounts and used them for their own personal use. The investors had no idea their money was no longer available, since they still received regular statements from the trust company, and even were billed fees on the accounts.

Smith and Snelling are charged with over 50 counts of violations of the Indiana Uniform Securities Act, and charges are pending in both Franklin County and Dearborn County, Indiana.

Things To Consider To Determine If You May Be A Victim Of A Fraudulent Self-Directed IRA

The U.S. Securities and Exchange Commission’s Office of Investor Education and Advocacy (OIEA) and the North American Securities Administration Association (NASAA) have jointly issued an Investor Alert about the potential risks associated with investing in self-directed IRAs. You can find this short PDF here. http://www.sec.gov/investor/alerts/sdira.pdf In addition, here is information you should consider if you’re concerned you may be a victim of self-directed IRA fraud.

Verify the information in the self-directed IRA. Many of the investments that can be purchased through one of these financial instruments can be hard to value, since they are illiquid. Therefore, the statements provided will often state their value as the price you paid for it, or what the promoter is valuing it at. However, that does not necessarily reflect what the investment could actually be sold for on the open market, which may be a much lower amount.

Was your choice to get a self-directed IRA the result of an unsolicited investment opportunity from a total stranger, or even a friend? As stated previously, self-directed IRAs are legal and there are some which may produce high rates of return for investors. However, if someone, unsolicited, asked you to invest in such a financial instrument red flags should be raised to determine if they are a legitimate individual, or instead a fraudster.

Were you promised a guaranteed gain or rate of return, or a low-risk, high reward investments? Similarly, when someone promises you something too good to be true, it usually is. Almost nothing in life is guaranteed, and if there were legitimate low risk, high reward investments out there lots more people would be rich than are today. Too good to be true promises such as these should also raise red flags in your mind, to investigate further about whether you are the victim of self-directed IRA fraud.

Is the self-directed IRA promoter registered in the state they are doing business, and in addition are the investments they are selling licensed? Many states, including Indiana, have laws and regulations in place which require those selling securities to be registered with the state. Further, only certain types of investments are deemed registered securities. While unregistered securities are permitted to be included in self-directed IRAs they are much riskier, and their inclusion may still violate state law, if not federal law. It is best to make sure what you are purchasing through your self-directed IRA is licensed, and the person you’re purchasing it from is registered to sell you these types of products.

Have you contacted another professional yet for a second opinion, such as an investment advisor or attorney? Many of the investments that can be purchased through a self-directed IRA are not ones that can be purchased through a traditional IRA, generally for the reason that they are even more inherently risky, illiquid, or complex. Therefore, before investing in such financial instruments it is a good idea to get a second opinion from an independent professional, such as an investment advisor or attorney, to help you determine whether this is a good investment for you.

If You Think You May Be A Victim Of Self-Directed IRA Fraud Call A Securities Fraud Attorney

If you think you may be a victim of fraud using this financial instrument you should act quickly to try to minimize further losses, and potentially try to reclaim money you’ve lost already. To do this, it is best to contact a knowledgeable securities fraud attorney in your area to see if you have a case, and determine the best course of action for you.

If you have lost money in a fraudulent investment scheme involving a self-directed IRA or a third-party custodian or trustee, or have information about one of these scams, you should contact Starr Austen & Miller LLC to learn more about the self-directed IRAs and report your experiences. Our attorneys, Mario Massillamany and Mark Fryman are available for direct live chat every Wednesday at 5 pm.

Indiana Law Firm Investigating Securities Fraud Stemming From Self-Directed IRA Schemes

2012-01-03T14:06:00.000-08:00

Fishers, IN, January 3, 2012 - Mario Massillamany of the Indiana law firm of Starr, Austen & Miller, LLP, announces an investigation into securities fraud scams involving self-directed IRAs. A self-directed IRA is an IRA held by a trustee or custodian that permits an investment in a broader set of assets than is permitted by most IRA custodians.

Most IRA custodians are banks and broker-dealers that limit the holdings in IRA accounts to firm-approved stocks, bonds, mutual funds and CDs. Custodians and trustees for self-directed IRAs, however, may allow investors to invest retirement funds in other types of assets such as real estate, promissory notes, tax lien certificates, and private placement securities. $94 billion of IRA retirement funds are held in self-directed IRAs making them a favorable scam for fraud promoters

Fraud promoters who want to engage in Ponzi schemes or other fraudulent conduct may exploit self-directed IRAs because they allow investors to hold unregistered securities. Additionally, the custodians or trustees of these accounts have no responsibility to investigate the securities or the background of the promoter. Furthermore, self-directing IRAs do not typically require the trustee or custodian to keep accurate records or perform audits.

"Some of these investment advisors and stockbrokers are clearly committing malpractice and breaching their fiduciary duties in the way they are advising their clients to invest in their self directed retirement programs such as IRA’s and 401k’s," said attorney Scott Starr. “It is not uncommon for these individuals to place their clients in investments that are either too high risk, carry a time horizon that is too far in the future, or fail to properly diversify these portfolios."

The self-directed IRA custodial process gives the aura of protection for the investor but it is elusive. A few ways to avoid fraud with self-directed IRAs is to verify information in self-directed IRA account statements, avoid unsolicited investment offers, ask questions from the promoter, be mindful of “guaranteed” returns, and seek advice from a trained professional.

About the law firm:

The law firm of Starr Austen & Miller LLC has over 90 years of experience in securities and class action litigation. The firm has earned a national reputation among litigators by handling cases ranging from personal injury caused by exposure to toxic chemicals to mass and class actions against national brokerage firms for securities fraud.

Legal Resources for Impacted Investors

If you have lost money in a fraudulent investment or scheme involving a self-directed IRA or a third-party custodian or trustee, or have information about one of these scams, you should contact www.starrausten.com to learn more about the self-directed IRAs and report your experiences.

Source/Contact:

Mario Massillamany

574-722-6676

mario@starrausten.com

Schrenker v. State, 919 N.E.2d 1188 (Ind. Ct. App. 2010)

2011-12-22T11:34:00.000-08:00

In Schrenker v. State, Michelle Schrenker and her husband Marcus were the subjects of an action by the Indiana Securities Commissioner. Marcus Schrenker was registered as an investment advisor with the Indiana Securities Division, and he and Michelle were principals in investment firms called Heritage Wealth Management (HWM), Heritage Insurance Services (HIS), and Icon Wealth Management (Icon). The offices were leased to both Marcus and Michelle, and Michelle kept the books and was chief financial officer (CFO) for the three firms. She was paid $ 11,600 monthly, and the State asserts she “did not consider her position as CFO to be simply a title” She was the majority shareholder and a director of HWM. She handled the books, recordkeeping, and accounting for HWM and Icon, and had the authority to write checks and withdraw money from the HIS account.

The Indiana Securities Commissioner sought the appointment of a receiver over Michelle Schrenker’s assets. The trial court granted the appointment. The appointment was premised on the trial court’s conclusion that the advisor materially aided her husband and his corporations in violating the Indiana Securities Act and she was jointly and severally liable with and to the same extent as her husband and his companies by virtue of her position as Chief Financial Officer of three companies. The advisor had access to one of the company’s checking account. There was a substantial casual connection between the advisor’s culpable conduct, in the form of withdrawing investor funds from one company account, and the harm the investors suffered in the form of lost money. She materially aided her husband in violating the Securities Act. The appellate court affirmed the trial courts appointment of the receiver stating that it did not abuse its discretion.

Police Report and Officer Testimony Admissibility in Indiana

2011-12-12T05:27:00.000-08:00

Whenever you are involved in a truck accident a police report is typically created by an investigating officer. This report is made by an officer who is only at the scene after the accident occurs. He or she interviews witnesses, takes down information about the accident itself, and may or may not make a conclusion as to who caused the accident and/or issue a citation to the person that he or she concludes was at fault.

As you can imagine, the conclusions of a police officer as to who caused an accident can be quite persuasive to a jury, convincing them a defendant caused the accident, or conversely that it was plaintiff’s fault and he or she should not receive damages from the defendant. Therefore, there is often litigation concerning whether the police report, the conclusions it draws, and the investigating officer’s testimony, are admissible evidence in a truck accident lawsuit, and what each side argues is typically related to who the officer says caused the accident.

Investigative Reports by Police and Law Enforcement Personnel Are Hearsay

Although a general exception to Indiana’s hearsay rule is for public records and reports Indiana Rule of Evidence 803(8)(a) makes an exception to the exception, declaring that “investigative reports by police and other law enforcement personnel” are still hearsay. That means that these accident reports, and the evidence they contain, are typically not admissible into evidence in Indiana.

However, the investigative officer is often called to testify in car and truck accident lawsuits, meaning that there are typically some parts of the officer’s testimony which are admissible. Below are some examples of the types of things an officer can testify about, and what he cannot. What follows discusses some general rules of law, but there are always exceptions and factual distinctions between cases which could result in a different outcome. This is especially true in evidentiary law, some of which is based on the discretion of the court regarding the issue of undue prejudice, which is why an experienced truck accident attorney should be consulted.

Officer Can Testify As To Observations He or She Made At Accident Scene but Generally Not the Cause of the Accident If They Didn’t Observe It Personally

One of the reasons courts have given for not allowing an officer to testify about the issue of causation, i.e., who caused an accident, is because they did not typically observe the accident themselves. Typically, investigative officers come to the scene of the accident only after it has occurred, and rely on eye witness statements to make their conclusions. That is exactly what a jury is supposed to do, so since they didn’t actually see it themselves police officers aren’t generally allowed to share their conclusion about who caused the accident, or how the accident occurred.

On the other hand, an investigating officer is often asked to testify about what he did observe at the scene of the accident as a neutral third party. This can include the position of the vehicles and other post-accident information. In addition, there may be questions about observations the officer made of the injured parties, and what they said about how they felt right after the accident, such as any complaints of pain and in what areas of their body.

Often statements of the witnesses are considered hearsay, and the officer cannot testify about them. However, there are quite a number of exceptions to this hearsay rule, and if one applies an officer may testify as to those statements too. One of the most common of these include when a person admits fault for an accident. Since this an admission against interest, and a statement by a party opponent, it is not considered hearsay at all and an officer can testify about what a party said on this subject.

Sometimes Police Officers Can Be Qualified As an Expert and Provide Conclusions about Causation

There is one exception, when an officer is qualified as an expert witness, when he or she is able to testify as to his or her conclusions about who caused the accident. Typically, the court will consider the officer’s years of experience and any training he has had in accident reconstruction in determining whether he can be qualified, and it is in no way guaranteed that all officers will qualify.

If a police officer does qualify as an expert witness he can provide opinions as to the ultimate issue of fact before the jury – who caused the accident. Typically, the opinions of the police officer as an expert cannot be based solely on witness statements, because a jury can decide based on those statements without a police officer’s opinion. Instead, the police officer’s expert opinion must be based on more, such as his own observations at the accident scene, such as by examining the skid marks, the weather and light conditions right after the accident, etc. This information, plus his knowledge of accident reconstruction, can allow in some instances for him to testify as to who he believed caused the accident to occur.

The Importance of Evidence in the “Black Box” For Truck Accident Litigation

2011-12-09T13:50:00.000-08:00

Often in truck accidents there is a lot of conflicting testimony between the truck driver’s version of events and that of the injured person regarding such important issues as speed, acceleration and braking. Some of this conflict may come from a bias of protecting one’s own interests, but in addition these accidents often happen so quickly, and so many things happen in quick succession that it can be difficult to accurately remember or even notice all relevant pieces of information.

That is where a heavy truck’s Event Data Recorder (known in the industry as an “EDR”), and often commonly referred to as a “black box” can be very useful. This piece of electronic equipment, while not required by law to be present in all vehicles, at this time, often is present and can be very helpful in accident reconstruction.

The Types of Data That May Be Recorded in a Truck’s EDR That Help in Accident Reconstruction

There are many types of EDRs, and therefore they do not all record exactly the same type of information in exactly the same manner, although NHTSA (National Highway Traffic Safety Administration) does have some standards and rulings for these recording devices.

Some of the types of data that an EDR may record, and which may be helpful for accident reconstruction, include the following:

Speed
Acceleration rate
Engine revolutions per minute (RPMs)
Gear selection and/or clutch application
Engine malfunction information
Airbag deployment information
Measured changes in forward velocity (Delta-V)
Engine throttle
Brake application
Steering angle
Whether seatbelts were on or off
Sudden stops
Low oil pressure
Coolant loss
Cruise control status
Fuel economy
Idle time
Average travel speeds

Passenger Vehicles Often Have an EDR Too

Not only do many heavy trucks have these black boxes, but often many passenger vehicles may have them as well. Typically, but not always, these EDRs record less information than those within heavy trucks, but still tend to include information used to calculate airbag deployment and seat belt tensioner calculations, for example.

Just as attorneys for injured victims in truck accidents may request the information from an EDR, so too can plaintiffs receive requests to have their data downloaded and analyzed. It can be important for injured parties to have legal representation in such instances to determine what is, and is not, relevant and admissible evidence and what must be provided during discovery.

Expert Testimony Necessary to Interpret and Present This Evidence in Court

The information contained in the black boxes can be used for accident reconstruction, and it is typically downloaded directly from the vehicle(s) involved in the accident soon after the accident occurs. It is important to make sure you obtain legal representation as soon as reasonably possible after an accident occurs to make sure all relevant data is downloaded before it becomes unavailable, lost or destroyed.

Once the information is downloaded into a report it must be analyzed and interpreted by an expert in accident reconstruction to understand what the data means, and to draw conclusions about how the accident occurred (and potentially why it occurred). An experienced truck accident attorney will be able to contact such experts to evaluate the data involved in your case.

Courts often hold that this EDR data is generally accepted and reliable, which meets the requirements for its admission into evidence. However, there are often legal arguments on both sides regarding what the expert can, and cannot say, in regard to conclusions based on the data retrieved. This requires an understanding of evidentiary law, as it relates to expert testimony, to determine which conclusions are appropriate for a jury to hear from an expert.

Indiana State Fair Collapse Lawsuit Filed Against Sugarland

2011-11-22T12:46:00.000-08:00

Date: November 22, 2011:

Today, Mario Massillamany, of the Indiana law firm Starr Austen & Miller, LLP, announced the filing of a complaint on behalf of 47 victims of the Indiana State Fair stage collapse, which occurred on August 13, 2011.

On August 13, 2011, a large crowd of Sugarland fans gathered at the Indiana State Fair Grounds expecting a great country music concert, and instead tragedy struck. During a severe thunderstorm with very strong winds the overhead stage rigging at the outdoor concert collapsed, killing 7 people and injuring over 40 others. Among those victims were Starr Austen & Miller clients Lisa Hite, and her granddaughter Kyla-Reed Brummet, who were both in the Sugar Pit at the concert. "The injuries I sustained have left me unable to provide for my family," Hite stated. "The financial and emotional strain this has caused has left a lasting impact on my family."

The lawsuit has named Sugarland Music, Inc. and other private entities responsible for the organizing, staging and presentation of the Sugarland concert as defendants. The allegations against the defendants include that they breached their duty of reasonable care to the victims of this collapse. Specifically, the complaint alleges that Sugarland and the other private entities owed a duty to provide a safe concert environment and use reasonable care in the operation, direction, management, set-up, control, and supervision of the concert.

According to the contract reached between Creative Artists Agency (Sugarland's agent) and the Indiana State Fair Committee, Sugarland was guaranteed:

$300,500 to perform
$30,000 for sound and lights
$4,500 for catering
85% gross box office receipts over $470,000

The contract specifies that Sugarland has the final say on whether to cancel a concert due to weather. "This unimaginable tragedy will forever live in the hearts and minds of the people of Indiana," said plaintiffs' counsel Mario Massillamany. "Unfortunately, this tragedy could have been prevented if the responsible parties had been concerned about the concertgoers that night."

A copy of the complaint can be seen here. If you have information regarding the litigation, please call 574-722-6676.

Will The Dodd-Frank Wall Street Reform Act Make FINRA Arbitration Obsolete?

2011-11-04T07:38:00.000-07:00

The Dodd-Frank Wall Street Reform Act shows a congressional dislike for mandatory arbitration provisions, to say the least. This Act, which was signed into law on July 21, 2010, by President Barack Obama, contains many provisions which could lead, after study, to the prohibition or limitation on these boilerplate clauses in consumer contracts. This includes arbitration provisions in client agreements with broker dealers that cause many securities fraud causes of action to be arbitrated at FINRA at this time.

Widespread Prevalence of These Arbitration Clauses

Statistically, just about everyone in the United States has knowingly, or unknowingly, agreed to a boilerplate mandatory arbitration clause in the contracts or agreements we enter into day in and day out. Some of the most common are those contained in credit card agreements, for example, in which you’ve agreed to take any disputes to arbitration instead of going to court.

The Problem with Mandatory Arbitration Provisions

Arbitration is an alternative way to resolve legal disputes outside the judicial system. Using this method a neutral third party is supposed to hear both sides of the story and then make a binding decision. When arbitration was first introduced in this country it held the promise of improving the dispute process by speeding it up, making it cheaper, and keeping parties from jumping through some of the legal hoops involved in going to court. Arbitration, when conceived, however, imagined two parties of approximately equal bargaining power voluntarily choosing to use the process. That is no longer the case.

Over the years big business has begun inserting these mandatory arbitration provisions in just about every contract they can think of. They’ve done this because they’ve figured out that these arbitration provisions tend to give them the upper hand over consumers in dispute resolution. For instance, there is no jury, no public trial, little to no review by the courts, and instead of going to your local courthouse the arbitration can be located hundreds of miles away from where you live. What makes this worse is that consumers cannot negotiate these provisions, but it is take it or leave it. That assumes, of course, that we even know the fine print clause is in the document, or understand its legal implications to begin with.

Mandatory Arbitration in the Context of Securities Fraud

Arbitration provisions have also creeped into many customer account agreements between customers and their brokers, often without the customer being aware of the provisions existence, and/or unaware of its legal implications. These agreements are typically signed when a customer first begins a relationship with a broker, and agrees that any future disputes between the party, meaning things that have not even happened yet, will be subject to arbitration by the Financial Industry Regulatory Authority (“FINRA”).

The mandatory arbitration provisions in these agreements have been just as controversial as those in credit card and other consumer agreements. Some of the criticisms leveled against FINRA arbitration include that it is biased in favor of the broker dealer, because one of the three arbitrators on the panel is from the securities industry. Further, the broker dealers themselves are the people who make up the membership of FINRA, so is FINRA really going to bite the hand that feeds it? There are those, of course, from the securities industry themselves who defend the FINRA arbitration process [link to SAM article: what is FINRA arbitration?] saying it is speedy, less expensive and fair. However, as hard as many brokers and securities firms fight to enforce these arbitration provisions, and avoid court, critics may just have a point about who is most favored between the brokers and the customers.

The Dodd-Frank Act’s Potential Blow to FINRA Arbitration

It seems Congress may finally be waking up to some of these criticisms, and showing a willingness to investigate the issue further. The language related to FINRA arbitrations in the Dodd-Frank Act is found in Section 921, which confers authority on the SEC to make rules that limit or prohibit these provisions between customers and broker dealers or investment advisors.

Specifically, the section states:

The Commission, by rule, may prohibit, or impose conditions or limitations on the use of, agreements that require customers or clients of any broker, dealer, or municipal securities dealer to arbitrate any future dispute between them arising under the Federal securities laws, the rules and regulations thereunder, or the rules of a self-regulatory organization if it finds that such prohibition, imposition of conditions, or limitations are in the public interest and for the protection of investors.

Currently Arbitration Clauses Are Legal and Common In Securities Fraud Cases

Of course, the Act’s language does not currently prohibit such arbitration provisions in customer agreements, and therefore the industry still includes them as standard at this time. Unless and until the SEC creates a contrary rule these mandatory arbitration provisions continue to be valid and enforceable, as a general rule.

United States Judicial Panel On Multidistrict Litigation Panel Rules On Nationwide Class Action Lawsuits Filed Against DuPont

2011-10-21T07:23:00.000-07:00

The United States Judicial Panel on Multidistrict Litigation, agreeing with the arguments of Starr Austen & Miller, LLP, ruled that the Eastern District of Pennsylvania will be the forum to hear all of the class action lawsuits against DuPont regarding their herbicide Imprelis. DUPONT’S herbicide Imprelis is causing widespread death among trees and other non-targeted vegetation across the country.

The panel's basis was due to the U.S. Environmental Protection Agency office, responsible for the investigation and handling of the Imprelis, was located in Philadelphia. In addition, the federal courthouse in Philadelphia is in close proximity to DuPont's headquarters in Wilmington, Delaware. The panel went on to state that the location is within the geographic concentration of Imprelis damage and is a venue with a willing and experienced transferee judge.

Multidistrict litigation is a procedure utilized in the federal court system to transfer to one federal judge all pending civil cases of a similar type filed throughout the

United States

. The decision whether cases should be transferred is made by a panel of seven federal judges appointed by the Chief Justice of the United States Supreme Court. The purpose of multidistrict litigation is to prevent different rulings on the same issue. If one judge is presiding over all pretrial motions and discovery issues, there will be only one decision.

Additional details on the ruling can be found at:

http://www.starrausten.com/multidistrict-litigation-panel-rules-on-nationwide-class-action-against-dupont/

Does a police officer owe a duty to warn citizens of a icy road?

2011-10-07T06:34:00.000-07:00

In Putnam County Sheriff v. Pamela Price, No. 60S01-1012-CV-665, the high court concluded that the sheriff’s department didn’t owe a duty to alleviate or warn motorists of an icy or hazardous condition on a county roadway. Citing Benton v. City of Oakland City, 721 N.E.2d 224, 230 (Ind. 1999), on which Price relies to support her negligence claim, the justices noted implicit in that case was that the governmental entity maintained and controlled the property giving rise to the injury. Price doesn’t allege that the sheriff owned, operated or controlled any portion of the county road, and absent this ownership or control, the sheriff had no duty to warn of a hazardous condition, wrote Justice Robert Rucker.

Justice Steven David wrote a concurring opinion, in which Justice Brent Dickson joined, because he was concerned the majority’s decision could be interpreted too broadly. He wrote of a scenario where a sheriff may discover a bridge had been washed away and failed to do anything. In that scenario, a sheriff may have a duty to exercise ordinary and reasonable care by warning the highway department and remaining on the scene until assistance arrives.

“… I concur in the outcome of this particular case but am hesitant for the subsequent application of this holding that the sheriff can escape any liability on the basis of non-maintenance and control of the county roadway,” he wrote.

Janus Capital Group Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011)

2011-10-03T11:51:00.000-07:00

This year, the United States Supreme Court addressed the viability of securities fraud claims against secondary actors. On June 14, 2011, the Supreme Court in Janus Capital Group Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011), brought much-needed predictability to the securities markets by articulating a “clean line” separating “those who are primarily liable (and thus may be pursued in a private [Rule 10b-5] suit) and those who are secondarily liable (and thus may not be pursued in private [Rule 10b-5] suit).” Id. at 2302 n.6.

The Court, in a 5-4 opinion, concluded that Janus Capital Management (“JCM”), a registered investment adviser, could not be held liable in a private Rule 10b-5 suit for drafting allegedly misleading prospectuses issued by its mutual-fund client, the Janus Investment Fund. Instead, the Court made clear that the only proper defendant in a private Rule 10b-5 suit is the “maker” of the statement—“the person or entity with ultimate authority over the statement, including its content and whether and how to communicate it.” Id at 2302. “Without control,” the Court explained, “a person or entity can merely suggest what to say, not ‘make’ a statement in its own right,” and therefore “[o]ne who prepares or publishes a statement on behalf of another is not its maker.” Id (quoting 17 C.F.R. § 240.10b-5(b))...

Applying this test, the Court concluded that “JCM did not ‘make’ any of the statements in the [Janus Investment Fund's] prospectuses”--even if it may have participated in the writing and dissemination of the prospectuses--because JCM’s involvement was “subject to the ultimate control” of the Janus Investment Fund. Id at 2305. “There was no allegation that JCM in fact filed the prospectuses and falsely attributed them to Janus Investment Fund,” the Court noted, “[n]or did anything on the face of the prospectuses indicate that any statements therein came from JCM rather than from Janus Investment Fund--a legally independent entity with its own board of trustees.” Id Accordingly, the statements in the prospectuses were made by Janus Investment Fund--not by JCM. Id at 2304-05....

Even though the opinion does not expressly address the liability of persons or entities other than investment advisers who provide services to public companies, those service providers--bankers, lawyers, accountants, financial advisers, and others--should be able to invoke the decision to defend private lawsuits based on their work behind the scenes in preparing offering documents for their issuer clients. The issuer--not the service provider--has “ultimate authority over the statement[s]” in its offering documents, and it is therefore the only “maker of [those] statement[s]”" under the Court’s rationale. Id at 2302..

The U.S. Supreme Court's decision in Janus Capital Group, Inc. v. First Derivative Traders has left many investment company directors wondering whether they should take additional measures either to protect their funds and themselves from liability for prospectus errors or to provide their funds' investment adviser with additional incentives to ensure the accuracy and completeness of fund prospectuses.