SEC Adopts Final Rules Amending Its Whistleblower Program

On September 23, 2020, the U.S. Securities and Exchange Commission (SEC) voted 3-2 to pass the final rules amending its whistleblower program. The five following changes will have the most impact on SEC whistleblowers who report potential violations of securities law:

  1. Creation of a presumption in favor of awarding the maximum statutory award to whistleblowers who face a maximum potential award of $5 million or less;
  2. Providing for the SEC’s broad discretion in evaluating and applying award criteria, including explicitly the SEC’s consideration of dollar amounts of awards;
  3. Expanding the definition of successful enforcement actions to include deferred prosecution and non-prosecution agreements, as well as any settlement agreements that the SEC enters into outside of a formal proceeding;
  4. Limiting recovery from the program where a whistleblower may be able to recover from another program; and
  5. Revising the definition of whistleblower in light of Digital Realty Trust, Inc. v. Somers, 138 S. Ct. 767 (2018).

The details of these changes and their potential impact on whistleblowers are discussed in more detail below. In passing the rules, the SEC emphasized its intention “to provide greater transparency, efficiency and clarity to whistleblowers.”  Final Rules at 2. In implementing the final rules, some of which require greater clarity, the SEC should keep in mind these goals.

Background on the SEC Whistleblower Program

First established in 2010 under the Dodd-Frank Act, the SEC whistleblower program allows the Commission to award individuals who have provided the SEC original information about fraud and securities violations between 10% and 30% of the monetary sanctions recovered from a successful SEC enforcement action. The program has been very successful thus far. Since its inception, the SEC has obtained more than $2.5 billion in monetary sanctions as a result of whistleblower tips and has awarded approximately $521 million to 96 whistleblowers. In July 2018, the SEC voted 3-2 to propose amendments to the whistleblower program. Over two years later, the SEC passed the final rules, which largely adopt the proposed amendments with some important modifications. The new rules will take effect 30 days after publication in the Federal Register.

Changes to Whistleblower Award Payouts

The regulations implementing the SEC whistleblower program set criteria for determining the appropriate amount of an award under Rule 21F-6.[1]  These include factors that may increase the whistleblower’s award, such as the significance of the information provided by the whistleblower, the whistleblower’s level of assistance to the SEC and his or her participation in internal compliance systems,[2] and the extent to which the whistleblower’s information advanced law enforcement goals of the Commission. The regulations also allow the SEC to decrease an award based on various factors, such as the whistleblower’s level of culpability regarding the securities violations, whether the whistleblower unreasonably delayed reporting, and whether the whistleblower interfered in internal compliance systems.

In the final rules, the SEC voted not to pass one of the more controversial proposed amendments, which would have allowed the SEC to cap a total payout for any whistleblower award at $30 million based solely on the size of the award. Id. at 61-62. The proposal received numerous comments in opposition that argued that the rule would discourage whistleblowers from coming forward and that it would arbitrarily penalize whistleblowers. See id. at 60-61 (summarizing comments in opposition to the proposed amendment). Instead of adopting a bright line rule as initially proposed, the SEC instead modified language of Rule 21F-6. Id. at 48. The modified provision explicitly folds in consideration of the potential dollar amount of an award into the SEC’s analysis of award criteria. Id. at 48-49. The SEC framed this provision as a clarification of its broad discretion; however, whistleblowers and their advocates are left with little clarity. While not explicitly adopting the rule as proposed, the SEC instead has adopted a more expansive rule that would allow for discretionary downward adjustments of any award amount.

One significant positive change for whistleblowers was the SEC’s adoption of a presumption in favor of awarding the maximum statutory award of 30% of recovered proceeds to whistleblowers who are eligible to receive a maximum award of $5 million or less. The final rule benefits more whistleblowers than the proposed amendment, which would have allowed such a presumption for cases involving maximum awards of $2 million or less. The majority of whistleblowers, 75% according to the SEC’s data, will benefit from this new rule. Once the SEC determines that no negative factors exist, such as engaging in culpable conduct with regards to an internal compliance program or securities law, the presumption applies, and the whistleblower should receive the maximum award of 30%. Id. at 52-53. The new rule helps to streamline the awards process. It also represents a positive step towards encouraging more whistleblowers, especially those who may be concerned about jeopardizing their careers for relatively low potential awards, to come forward.

Final Rule Expanding “Successful Enforcement”

Another rule beneficial to whistleblowers is the expansion of the meaning of “successful enforcement.” Because whistleblowers cannot control the law enforcement mechanism chosen by the Department of Justice (DOJ) or the SEC, this new rule allows whistleblowers to collect awards should the DOJ or SEC choose to pursue specific types of enforcement actions; however, the final rule is narrower than the one initially proposed. Under the new final rule, “successful enforcement” includes deferred prosecution and non-prosecution agreements entered into by the DOJ in a criminal case and settlement agreements entered into by the SEC in actions outside of a judicial or administrative proceeding that involve violations of securities laws. Id. at 13-14, 17. Such actions would be deemed “administrative actions,” and any money recovered would be considered a “monetary sanction,” which would allow the whistleblower to recover a percentage of that monetary sanction. Id. The final rule eliminated the extension of “successful enforcement” to include deferred prosecution and non-prosecution agreements entered into by state attorneys general. Id. at 17. One commenter argued persuasively to the SEC that securities violations under state law may differ considerably from those under federal law and warned of inconsistency in determining whistleblowers’ eligibility across states. Id. at 20-21. While not as expansive as initially proposed, the rule nonetheless benefits whistleblowers who provide information that results in these specific forms of law enforcement action.

New Definition of “Related Action” and Its Limitations on Recovery

The final rule amends the definition of “related action,” which effectively limits recovery under the SEC program where the whistleblower is eligible to recover under a different whistleblower program in addition to the SEC’s. Prior to this rule, where another enforcement agency in addition to the SEC brings an action based on the information the whistleblower provided—a “related action” under the whistleblower program rules—the individual can also receive from the SEC whistleblower award fund a percentage of the other agency’s recovery. The new rule does not provide a bright line; rather, the SEC will evaluate the facts and circumstances of the action to determine whether the SEC whistleblower program has the “more direct or relevant connection to the action.” Id. at 43-44. The SEC was not persuaded by commenters who opposed the proposed amendment, including some who argued that the rule would undermine the program’s goal of encouraging whistleblowers to come forward. Id. at 41-43.

Changes to Definition of “Whistleblower Status” and Anti-Retaliation Provisions

The SEC adopted the new definition of “whistleblower” as proposed. The new definition, articulated in the Supreme Court case, Digital Realty Trust, Inc. v. Somers, 138 S. Ct. 767 (2018), confers “whistleblower status” to “(i) an individual (ii) who provides the Commission with information ‘in writing’ and only if (iii) the information relates to a possible violation of the federal securities law (including any law, rule, or regulation subject to the jurisdiction of the Commission) that has occurred, is ongoing, or is about to occur.” Id. at 65-66.

Under the new rule, anti-retaliation protections under the Dodd-Frank Act are available only if the individual first qualifies for “whistleblower status” by having reported the information to the SEC. This was the holding of Digital Realty. In its definition, the SEC goes farther than the Supreme Court, specifying that the information be presented to the Commission “in writing.”  The SEC justified the “in writing” requirement by noting it imposes “a minimal burden to individuals who want to report potential securities violations” and provides greater “efficiency and reliability” to the Commission in processing both internal and external reports of possible violations. Id. at 75-76. The SEC assured commenters who expressed concerns that this new definition would generate uncertainty for whistleblowers by noting that the “in writing” requirement “will be applied in a flexible manner to accommodate whistleblowers who make a good-faith effort to comply with our rules in seeking retaliation protection.” Id. at 79-80. Individuals who report securities violations only within their companies have no protection under Dodd-Frank. If an individual reports internally and then reports to the Commission in writing, then that individual is protected only for retaliation experienced after, but not before, the SEC report. Id. at 78.

Change to Reporting Requirements

The final rule concerning reporting requirements for award eligibility was modified in order to address commenters’ concerns that, in practice, an individual’s initial communication with the SEC does not typically meet those requirements. Id. at 94-97. The final rule requires that whistleblowers submit either a tip through the SEC’s online portal or a specific form, a Form TCR, by mail or fax to the SEC; however, recognizing that many individuals initially contact SEC officials informally prior to submitting a form, the SEC clarified that “an individual need not in the first instance provide original information to the Commission” through filing a specific form, though that individual must comply with the form reporting requirements within 30 days of first providing information to the SEC. Id. at 97. Consequently, an individual’s first contact with the SEC need not meet the form requirements, as long as the individual follows those requirements within 30 days. This modification relieves some fears generated by the initial proposal that whistleblowers would have been penalized for filing with the incorrect agency or making a procedural error in the initial report, or by contacting SEC enforcement staff before the Office of the Whistleblower.

While the final rules will not substantially hinder the progress of the program, some of the rules create additional hurdles for whistleblowers and leave some lingering questions about implementation in practice. The SEC should implement the rules consistently with the agency’s intentions in the rules’ passage, specifically to improve transparency, efficiency and clarity for whistleblowers. The SEC must keep the program’s ultimate goals in mind—to award whistleblowers who present meritorious claims because they provided information that led to enforcement actions, and to encourage future whistleblowers to come forward.

[1] See 17 C.F.R. § 240.21F-6.

[2] Notably, the final rules maintain that a whistleblower’s participation in internal compliance systems is one factor that the SEC considers in awarding an upward adjustment. Id. at 81.

Katz, Marshall & Banks, LLP
For more articles on the SEC,  visit the National Law Review Securities & SEC section.

Overconsumption of Black Licorice Linked to Fatality in Massachusetts

A 54-year-old Massachusetts man died of cardiac arrest after his consumption of a substantial quantity black licorice. The man reportedly consumed a bag and a half of black licorice each day for several weeks.

The Food and Drug Administration (FDA) has warned consumers about the potential risks of overconsumption of black licorice.  Specifically, FDA has warned people 40 or older that eating 2 ounces of black licorice a day for at least two weeks may cause an irregular heart rhythm or arrhythmia.

Licorice root and black licorice contain glycyrrhizin, which can cause potassium levels in the body to fall, potentially triggering abnormal heart rhythms, as well as high blood pressure, edema, lethargy, and congestive heart failure.

FDA advises consumers not to eat large amounts of black licorice at one time, to stop eating black licorice if experiencing irregular heart rhythm or muscle weakness, and to consult a healthcare professional regarding possible interactions that licorice may have with drugs or supplements.

© 2020 Keller and Heckman LLP
For more articles on food and drug law, visit the National Law Review Biotech, Food, Drug section.

Coronavirus and the Constitutional Rights of Businesses: Butler v. Wolf

In Butler v. Wolf, Judge Stickman of the Western District of Pennsylvania issued an important ruling on Pennsylvania Governor Wolf’s coronavirus lockdown orders which impacts the Governor’s ability to re-impose some of the more draconian restrictions that he, and governors in New York, New Jersey, and elsewhere, put in place between March and June. Whether or not you agree with the result from a political standpoint, the decision is a must-read for anyone interested in the constitutionality of the ongoing, and unprecedented, government intervention in citizens’ daily lives in response to the coronavirus pandemic. Judge Stickman’s ruling touches on many civil liberties, including the First Amendment’s right to assemble, as well as the Fourteenth Amendment’s protection of the right to travel, the right to leave one’s home for any reason or no reason, the right to support oneself by pursuing a chosen occupation, and other rights.

This firm has litigated the constitutional rights of businesses —particularly the Fourteenth Amendment right to due process—on behalf of its clients, and readers of this blog will be most interested in Judge Stickman’s ruling that the orders shutting down non “life sustaining” businesses violated businesses’ rights to due process and equal protection under the Fourteenth Amendment. “An economy is not a machine that can be shut down and restarted at will by government. It is an organic system made up of free people,” and “[t]he ability to support oneself is essential to free people in a free economy.” Small businesses should also take comfort in this ruling, which prohibits the re-imposition of blanket closures of all businesses.

The Ruling

The plaintiffs in Butler v. Wolf included small businesses that sold furniture and health and beauty products; these businesses were shut down by the Governor’s orders, while Walmart, Lowes, and The Home Depot stayed open and sold the exact same products. The judge found that the lockdown orders unfairly favored these big-box retailers over the plaintiff small businesses because it “treated these retailers differently than their larger competitors, which were permitted to remain open and continue offering the same products that Plaintiffs were forbidden from selling.” The court noted it was “paradoxical that in an effort to keep people apart, [the Governor’s] business closure orders permitted to remain in business the largest retailers with the highest occupancy limits.” The Governor’s order, therefore, was not rationally related to combatting the virus, because closing a small furniture store “did not keep at home a consumer looking to buy a new chair or lamp, it just sent him to Walmart.” “In fact, while attempting to limit interactions, the arbitrary method of distinction used by [the Governor] almost universally favored businesses which offered more, rather than fewer products,” and which also, therefore “attract large crowds.”

Because the business closures treated two types of businesses differently, and that different treatment did not actually accomplish the stated goal of limiting interpersonal interactions to combat the virus, Judge Stickman found the lockdown order violated the Equal Protection Clause of the Fourteenth Amendment. Right now, this ruling applies only in the Western District of Pennsylvania (Pittsburgh and its surrounding areas), but once Judge Stickman’s ruling is appealed to the Third Circuit, the decision of that court (whether they agree with Judge Stickman or overrule him), will become binding in New Jersey, all of Pennsylvania, and Delaware.

The Big Picture

The ruling issued on September 14, 2020, only a few days shy of the 233rd anniversary of the founding fathers’ signing of the Constitution on September 17, 1787. It is fitting that the Judge wrote a lengthy and well-written opinion reminding us of the importance of the rule of law, and role of courts, even in times of crisis. As he stated, “[t]he liberties protected by the Constitution are not fair-weather freedoms—in place when times are good but able to be cast aside in times of trouble. . . . Rather, the Constitution sets certain lines that may not be crossed, even in an emergency.” Anticipating what will most certainly be many peoples’ reactions to the ruling—i.e., that we must do whatever it takes to protect ourselves from the virus—the Judge wrote:

[G]ood intentions toward a laudable end are not alone enough to uphold government action against a constitutional challenge. Indeed, the greatest threats to our system of constitutional liberties may arise when the ends are laudable, and the intent is good—especially in a time of emergency. In an emergency, even a vigilant public may let down its guard over its constitutional liberties only to find that liberties, once relinquished, are hard to recoup and that restrictions—while expedient in the face of an emergency situation—may persist long after immediate danger has passed.

As this author said in March, people following China’s response to the outbreak would have seen references to the idea that a democracy, like the United States, could not impose such severe restrictions on its own citizens. Then governors here did impose extreme restrictions as the virus spread and have openly stated that these restrictions will become the “new normal.” Judge Stickman noted the incongruity created by states adopting the same approach as China: “[i]t appears as though the imposition of lockdowns in Wuhan and other areas of China—a nation unconstrained by concern for civil liberties and constitutional norms—started a domino effect where one country, and state, after another imposed draconian and hitherto untried measures on their citizens.” But, the Judge found, “the Constitution cannot accept the concept of a ‘new normal’ where the basic liberties of the people can be subordinated to open-ended emergency mitigation measures.” That is why, as this author also predicted in March, the constitutionality of restrictions here, unlike in China, will be subject to judicial review if and when they go too far. Judge Stickman’s ruling in Butler v. Wolf came in one of the many cases now winding their way through the courts raising these exact types of challenges.

Nothing is certain, but it is likely that this case, and others like it, limit future “blanket” type orders, and force governments to take a more nuanced approach to combatting the virus (which includes deeper consideration of constitutional freedoms). Businesses trying to navigate the uncertainty created by government orders that have been ruled unconstitutional should consult experienced attorneys.

©2020 Norris McLaughlin P.A., All Rights Reserved
For more articles on COVID-19, visit the National Law Review Coronavirus News section.

Advocating for Transgender, Intersex, and Gender Nonconforming People’s Equal Access to Homeless Shelters

Nearly one-third of transgender individuals experience homelessness at some point in their life, and 70% of those who have stayed in a homeless shelter have reported some form of mistreatment, including harassment and refusal of service, due to their gender identity.  Transgender individuals are significantly more likely to end up homeless than the general population because they often face rejection by their family members and discrimination in employment and housing.  The levels of discrimination and income inequality are even higher for transgender women of color, and the COVID-19 pandemic has further exacerbated the rates of unemployment, poverty, and homelessness among the transgender population.

On September 22, 2020, pro bono attorneys filed a public comment letter on behalf of The National LGBT Bar Association and Foundation urging the withdrawal of a Proposed Rule issued by the U.S. Department of Housing and Urban Development (HUD) that would severely harm homeless transgender, intersex, and gender nonconforming individuals by allowing federally funded homeless shelters to discriminate against them on the basis of their gender identity.  The Proposed Rule would eliminate key non-discrimination protections previously afforded to transgender shelter-seekers under HUD’s 2016 Equal Access Rule and would permit single-sex shelters to turn away transgender, intersex, and gender nonconforming individuals if the shelter operator determines that the individual is not of the same “biological sex” as the other shelter residents.

The Proposed Rule is premised on the medically and legally indefensible presumption that an individual’s sex can be determined solely on the basis of their external physical characteristics.   In reality, an individual’s “biological sex” is complex, multi-faceted, and primarily determined not by external physical characteristics, but by an individual’s gender identity—which is sometimes referred to as one’s “brain sex.”  The Proposed Rule’s reduction of “biological sex” to physical sex stereotypes such as “height, the presence (but not the absence) of facial hair, the presence of an Adam’s apple, and other physical characteristics,” would not only result in discrimination on the basis of gender identity and transgender status, but would also enable single-sex shelters to arbitrarily provide or deny shelter based solely on a shelter worker’s assessment of whether an individual appears sufficiently “male” or “female” enough to enter.   Denying shelter to transgender, intersex, or gender nonconforming individuals on the basis of such physical sex stereotypes constitutes a type of gender discrimination that numerous courts have found unlawful.

HUD’s justifications for the Proposed Rule are rooted not in fact, but in transphobia and harmful gender stereotyping.  HUD claims that the Equal Access Rule burdens faith-based shelter providers, but provides no evidence of this.  HUD also claims that the Proposed Rule is necessary to protect the privacy and safety of cisgender (that is, non-transgender) shelter residents, again with no evidence that the Equal Access Rule has resulted in any harm to these residents.  Rather, HUD posits a hypothetical fear that “non-transgender, biological men” may pretend to be transgender women “to obtain access to women’s shelters” where they will harm cisgender women.  In so doing, HUD perpetuates what courts have identified as the “transgender predator myth,” a harmful, false, and unsubstantiated belief that laws protecting the rights of transgender people to access public accommodations such as restrooms will cause cisgender men to pose as transgender women to enter women’s facilities and assault cisgender women.

If enacted, the Proposed Rule will present transgender, intersex, and gender nonconforming individuals with the untenable “choice” of either being placed in a homeless shelter inconsistent with their gender identity or sleeping on the street.  Those who opt for shelter at a single-sex facility that does not match their gender identity will be subjected to the psychological trauma of being misgendered and will face the high risk of physical violence that has been documented in various settings in which transgender people have been forced into facilities inconsistent with their gender identities.  Those who opt to go unsheltered will also face a serious risk of harm, as studies have found as many as 66% of homeless transgender individuals have experienced a physical assault, and 33% have experienced sexual violence.  While a staggering 47% of transgender people report being sexually assaulted during their lifetime, the number climbs to 65% among transgender individuals who have experienced homelessness.  These grim statistics are symptomatic of a growing epidemic of violence against transgender individuals, as recent FBI data shows hate crimes against transgender people are on the rise.

We are proud to support The National LGBT Bar Association and Foundation in challenging this Proposed Rule and championing the rights of transgender, intersex, and gender nonconforming people who need access to emergency shelter.  HUD must protect homeless transgender individuals, who are among the most vulnerable members of the LGBTQ community, by ensuring that homeless shelters provide them with safe and equal access in accordance with their gender identities.

To read the public comment letter in full, click here.

© 2020 Proskauer Rose LLP.
ARTICLE BY Erin M. Meyer  of Proskauer Rose LLP
For more articles on civil rights, visit the National Law Review Civil Rights section.

Mastering the Zoom Apology

A CEO, executive director, bar president, section chair or another leader has to apologize or speak about something very important. The stakes are high – and in this COVID-19 era, the apology is going to have to be done using Zoom or another virtual platform.

Under any circumstance, delivering an effective apology can be a daunting experience. It involves conveying the right words, in the right tone of voice, with the right facial expression. It requires authenticity combined with the ability to convince the individual (or group) you’re apologizing to that you really mean what you say — and that you are really sorry.

If you’re sincerely sorry, and you really feel sorrow, you may succumb to emotions that affect the message you’re trying to convey – a quavering voice, maybe some welling up, perhaps some tripping over your words. If those feelings are true and 100% authentic, it’s OK to express emotion.

But if you really don’t believe you were at fault, it may be challenging to keep a tone of resentment out of your voice and a steely look out of your eyes. In these situations, your apology will likely fail to convince anyone of your remorse and the whole exercise will have been for naught.

With the onsite of COVID-19, the ability to deliver an effective apology has become even more challenging. Why? Because most of them are now being delivered via Zoom or a comparable video platform.  Depending on the situation, the apologizer will be facing a small group, or potentially a throng of hundreds. The apology will be delivered to a camera lens instead of a live audience. Every flaw will be captured close-up. And your words will be captured for all eternity if the Zoom call is taped and uploaded to a website, to YouTube or any of the other platforms designed to share content throughout cyberspace.  It makes the prospect of going on live television seem a far better alternative – and very few individuals are well-equipped to undertake that experience.

We recently saw a business executive deliver an apology via Zoom. It was clear the individual was apologizing under duress. The delivery was void of emotion. There was scant eye contact. Worse yet, the apologizer read from a prepared script. The term “hostage video” came to mind as we watched this individual struggle toward his concluding remarks. Technically, an apology was delivered. In actuality, it’s doubtful anyone’s opinion was altered by the words that were spoken. As part of a larger strategy to rehabilitate this individual’s reputation or standing, the undertaking was a failure.

Zoom apologies can be improved and can achieve the larger goal behind them – even those that are coerced.  Here are some recommendations to improve performance and enhance results.

Start with the right words.  This applies to all apologies, but especially those that will be memorialized online.  If someone is writing your apology for you, make sure it reflects the way you speak and the phrases you use. Don’t let someone else put words in your mouth that will be difficult for you to deliver. Especially to be avoided are words you don’t believe.

Ask someone familiar with the situation to review what’s been written. Do the words ring true? Can you deliver them with a straight face? Think back to the example a couple years ago when the CEO of United Airlines , Oscar Munoz, was forced to apologize for the police officers that dragged a paying passenger off one of its flights. “I apologize for having to re-accommodate that customer,”said Munoz – two days later. What does that even mean?. How satisfied do you think the affected passenger felt after receiving it? And what about the public, which now had just another reason to hold United Airlines in contempt?

Contrast the United Airlines situation with one that happened shortly after to an American Airlines passenger who was attempting to board a plane while holding two infants in her arms along with a stroller. An airline employee got into a shouting match with her and another passenger. Of course, the entire incident was caught on-camera with a mobile phone and uploaded to Facebook where it then went viral. Don’t remember that story? That’s because the president of United Airlines immediately issued an apology, an apology without equivocation. United Airlines’ story lasted weeks; American Airlines’ story lasted a day or two.

As you consider the content of your apology, beware of the false apology. “I’m sorry you feel that way,” is not an apology. Apologizing – without qualification – for what your or your organization did or the problems you caused is an authentic apology. The former will only make your victims more resentful and more inclined toward revenge or retribution. The latter may actually help you makes progress toward resolution of the problem your actions have caused. For a great short summary of the 12 kinds of fake apologies, read this article.

Get familiar with the medium.  No doubt you are using Zoom, Microsoft Teams or some other platform almost every day to conduct business. Staging an apology on Zoom requires a higher level of preparation. Make sure you are seated at the right height so you are looking straight into the camera and making eye contact with your audience. You want to be close enough to the camera to appear engaged, but not so close that you look as though you’re peering through a keyhole trying to intimidate your audience. Nor do you want to sit too far away, which gives the appearance that you are trying to distance yourself from your viewers – and perhaps subconsciously, from the issue at hand. Don’t let your eyes roam off-camera as though you’re looking for someone to rescue you. And, as anyone who has been media trained for a sit-down interview will also tell you, sit straight up and don’t swivel in your chair.

Set the stage. Lighting is critical to a good Zoom appearance. Avoid overhead lights that can create shadows on your face. Never sit in front of a bright window or other light source that will cast your face in darkness and likewise cast doubt on your character. Strive instead for a soft source of light to illuminate you from the front.  An inexpensive LED light can do the trick (for a few selections, click here).

Be very mindful of the background. What do the framed photos and art in the background say about you? If you’re apologizing for misspending someone else’s money, avoid pictures that show you in expensive vacation spots, enjoying the company of celebrities or otherwise telegraphing your bad financial management skills. Apologies should be delivered in neutral locations that will not generate envy, questions about your judgement or other distracting speculations about your personal life. Stick to pictures of the family, your pets, framed awards and other items that speak to your professionalism and values.

Lastly, make sure the door to the room you are Zooming in is closed and that those on the other side understand it is not to be opened until you do so. Spouses wandering in the background, small children climbing into your lap and a photobomb from the family pet will undercut the professionalism and solemnity you want for this critical communication.

Dress the part. What you wear for your Zoom apology should reflect the seriousness of the situation.  Dress at least one step up from the look you typically put on for day-to-day business meetings. At the same time, avoid an outfit that will make you visibly uncomfortable and distract from the important message you are delivering. Try to be rested before you confront the camera and do take a good look in the mirror before the session starts to make sure you are presenting yourself in the best light possible. And if you choose to wear shorts or sweat pants, you must make 100% certain they won’t be seen on the video, even inadvertedly.

Say it, don’t read it.  Apologies that are read from a piece of paper in your hand compel you to lose eye contact with the camera and your audience. If you can’t memorize your apology and deliver it without stumbling, consider attaching notes to your desktop screen (without blocking your camera) containing key phrases to prompt you through your delivery. Just be sure the type is large enough that you don’t need to tilt your head or squint to read it.

Practice and practice some more.  Ask someone you trust – ideally, someone who also understands Zoom – to hold a few sessions for the two of you so you can practice delivering your apology to a live audience. Ask your friend or colleague to give you a frank assessment. How do you look on camera? How is your delivery? Do you sound sincere, do you sound credible and, most important, do you sound sorry?

As we often tell clients, more often than not it’s not what you say, but the way you say it. Matching the right words with the performance techniques detailed above is the one-two punch that will make your apology believable.

© 2020 Hennes Communications. All rights reserved.
For more articles on the legal industry, visit the National Law Review Law Office Management section.

Breaking News: President Trump Issues Executive Order on Combating Race and Sex Stereotyping

On September 22, 2020 President Trump issued an Executive Order “on Combating Race and Sex Stereotyping” (“September 22 EO”) covering government contractors and certain grant recipients that outlines what those organizations cannot include in employee training. It appears, the September 22 EO covers all federal contractors and subcontractors and will require contracting agencies to insert a contract clause in contracts (presumably, from the language of the EO new contracts only) entered into 60 days from September 22, 2020 addressing race and sex stereotyping.

Stemming from the belief that

[i]nstructors and materials teaching that men and members of certain races, as well as our most venerable institutions, are inherently sexist and racist are appearing in workplace diversity trainings across the country

the Order establishes a requirement that contractors and grant recipients not use any workplace training that

“inculcates in its employees” any form of race or sex stereotyping or any form of race or sex “scapegoating”

This includes prohibition on the following concepts:

  • one race or sex is inherently superior to another race or sex;
  • an individual, by virtue of his or her race or sex, is inherently racist, sexist, or oppressive, whether consciously or unconsciously;
  • an individual should be discriminated against or receive adverse treatment solely or partly because of his or her race or sex;
  • members of one race or sex cannot and should not attempt to treat others without respect to race or sex;
  • an individual’s moral character is necessarily determined by his or her race or sex;
  • an individual, by virtue of his or her race or sex, bears responsibility for actions committed in the past by other members of the same race or sex;
  • any individual should feel discomfort, guilt, anguish, or any other form of psychological distress on account of his or her race or sex; or
  • meritocracy or traits such as a hard work ethic are racist or sexist, or were created by a particular race to oppress another race.

Given this, the Executive Order could severely limit and curtail diversity and inclusion, sexual harassment, and related EEO training contractors and government grant recipients are allowed to provide to their employees.

Interesting, the September 22 EO does not include a provision that regulations be issued to implement its requirements.   However, importantly, the Office of Federal Contract Compliance Programs has been tapped as the Agency to enforce the Executive Order.  Per the Order, the Director of OFCCP is required to publish a request for information within 30 days of September 22 seeking from federal contractors and subcontractors information regarding training, workshops or “similar programming” provided to employees, and interesting, that those materials, as well as information about the expense, frequency, duration of the trainings be provided to OFCCP.  There is no detail or instruction as to what OFCCP is required to do with the submissions. However, the executive order states violators can be subject to contract suspension or termination and the contractor may be subject to suspension or debarment.

In addition, the September 22 EO requires all federal agency heads to review their grant programs, and identify in a report to be provided to the Director of the Office of Management and Budget (“OMB”) within 60 days of issuance of September 22, programs that the agency determines as a condition of receiving grant monies that the recipient certify that it will not use federal funds to “promote the concepts” identified above with respect to federal government contractor prohibitions in training and related materials.

If fully implemented, the requirements of the Executive Order could require significant modifications to the content of trainings on race and sex including, diversity and inclusion and unconscious bias, that have become the mainstay for many employers, including contractors and grant recipients.  Some of these trainings are, or may be, required by other federal or state requirements, which could pose a conflict for contractors.

We anticipate challenges to this Executive Order.  We will be following this closely and will be back with future insights and developments.

Jackson Lewis P.C. © 2020
For more articles on Trump, visit the National Law Review Election Law / Legislative News section.

DHS Expands Use of Biometric Data in Immigration

Last week, the Department of Homeland Security (“DHS”) announced plans to expand the use of biometric data in determining family relationships for immigration purposes. A proposed rule with the new protocols for biometrics use is expected to be published soon. This rule is also said to allow more uses of new technology as they become available.

The Use of Biometric Data in Immigration

The proposed rule will give the DHS the authority to require biometrics use for every application, petition, or related immigration matter. The current practice by the United States Citizenship and Immigration Services (USCIS) requires biometrics only for applications that require background checks. This new rule is intended to give the DHS broad authority to use biometrics technology. The DHS can use voiceprints, iris scans, palm prints, and facial photos, as well as additional technologies developed in the future.

“As those technologies become available and can be incorporated as appropriate, it gives the agency the flexibility to utilize them. And then it also would give the agency the authority down the road, as new technologies become available and are reliable, secure, etc., to pivot to using those, as well,” said one USCIS official. And while children under age 14 are now generally exempt from the collection of biometric data, the proposed rule will also remove the age restriction.

DNA can be collected by the agency to verify a genetic relationship where establishing a genetic or familial relationship is a prima facie requirement of receiving an immigration benefit. Though the raw DNA will not be stored by the DHS, the test results will be saved in the immigrant’s Alien file, also known as the “A-file.” The A-file is the official file that the DHS maintains with all of the immigrant’s immigration and naturalization records. Any such information collected may be shared with law enforcement, but there is no procedural change in other agencies gaining access to the A-files.

Reactions From Immigration Leaders

The additional collection of biometric data will not result in an increase in existing filing fees, as the cost is covered under new filing fees set to go effect October 2, 2020. The DHS has emphasized that the biometrics rule is to be given top priority; nevertheless, it will undergo the standard review process.

This proposed rule quickly drew severe criticism from pro-immigration activists. Andrea Flores from the American Civil Liberties Union called it an “unprecedented” collection of personal information from immigrants and U.S. citizens. She said, “collecting a massive database of genetic blueprints won’t make us safer – it will simply make it easier for the government to surveil and target our communities and to bring us closer to a dystopian nightmare.”

DHS Acting Deputy Secretary Ken Cuccinelli welcomed the rule, stating that “leveraging readily available technology to verify the identity of an individual we are screening is responsible governing.” He added that “the collection of biometric information also guards against identity theft and thwarts fraudsters who are not who they claim to be.”

©2020 Norris McLaughlin P.A., All Rights Reserved
For more articles on DHS, visit the National Law Review Immigration section.

Federal Judge Sides with Business Owners in Losses Resulting from Pandemic

A federal judge in Kansas City ruled that policyholders whose businesses have been interrupted as a result of the coronavirus pandemic may proceed with their cause of action against their insurers.

U.S. District Court Judge Stephen Bough of the Western District of Missouri who is presiding over a case involving multiple business owners ruled Aug. 12, 2020, that policyholders claiming a loss due to the pandemic may move forward with their cases because they made a plausible argument that their property losses were a direct physical loss attributable to COVID-19.

The seven business plaintiffs in the Kansas City case, led by Studio 417 salon, argued that coronavirus is a widespread airborne virus that very well could have been present in its business establishment, even though it might be undetectable by the naked eye. The presence of this virus rendered their businesses unsafe and unusable, thereby forcing their shutdowns by various municipalities or states’ orders. That shutdown, they argued, triggered their insurance coverage due to the presence of the virus that led to a physical loss even it did not cause structural physical damage. Studio 417, Inc., et al. v. The Cincinnati Insurance Co., Case No. 20-cv-03127-SRB.

Judge Bough ruled that under the ordinary meaning of “physical loss,” the policyholder suffered a loss when the spread of coronavirus led to prohibition or restrictions on their businesses. He cited a previous case of U.S. District Court Judge Catherine Perry of St. Louis in Mehl v. Travelers that denied summary judgment to an insurance company when a policyholder alleged his house was uninhabitable because of an infestation of spiders. “Mehl supports the conclusion that ‘physical loss’ is not synonymous with physical damage,” Judge Bough wrote in his opinion, and further commented that “other courts have similarly recognized that even absent a physical alteration, a physical loss may occur when the property is uninhabitable or unusable for its intended purpose.”

© 2020 by Clifford Law Offices PC. All rights reserved.
ARTICLE BY Clifford Law
For more articles on insurance, visit the National Law Review Insurance Reinsurance & Surety section.

US Accessibility to WeChat and TikTok in Danger of Being Eliminated

Pursuant to Executive Orders 13942 and 13943, the US Department of Commerce (Commerce) published regulations identifying prohibited transactions related to TikTok and WeChat by any person, or with respect to any property, subject to the jurisdiction of the United States. Certain prohibitions take effect on September 20, 2020 and others take effect on November 12, 2020.

As of midnight on Sunday, September 20, both apps will cease to be available for download in the US, and future patches and updates will not be available. The existing WeChat functionality in the US will start to degrade starting Monday, September 21. The TikTok application will begin to degrade on November 12 (unless a deal is reached with ByteDance to divest the US TikTok business before then).

Although WeChat Pay is not currently available in the US, however, the current Commerce rule signals that no payments may be initiated in the US over WeChat today or in the future.

The exchange between or among TikTok and WeChat mobile application users of personal or business information using the TikTok or WeChat mobile applications, to include the transferring and receiving of funds over the WeChat application is not prohibited.

Specifically, Commerce announced the following:

As of September 20, 2020, the following transactions are prohibited:

  1. Any provision of service to distribute or maintain the WeChat or TikTok mobile applications, constituent code, or application updates through an online mobile application store in the US;
  2. Any provision of services through the WeChat mobile application for the purpose of transferring funds or processing payments within the US.

As of September 20, 2020, for WeChat, and as of November 12, 2020, for TikTok, the following transactions are prohibited:

  1. Any provision of internet hosting services enabling the functioning or optimization of the mobile application in the US;
  2. Any provision of content delivery network services enabling the functioning or optimization of the mobile application in the US;
  3. Any provision directly contracted or arranged internet transit or peering services enabling the function or optimization of the mobile application within the US;
  4. Any utilization of the mobile application’s constituent code, functions, or services in the functioning of software or services developed and/or accessible within the US.

Any other prohibitive transaction relating to WeChat or TikTok may be identified at a future date. Should the US government determine that WeChat’s or TikTok’s illicit behavior is being replicated by another app somehow outside the scope of these executive orders, the President has the authority to consider whether additional orders may be appropriate to address such activities. The President has provided until November 12 for the national security concerns posed by TikTok to be resolved. If they are, the prohibitions in this order may be lifted as to TikTok.

© Copyright 2020 Squire Patton Boggs (US) LLP
For more articles on TikTok, visit the National Law Review Communications, Media & Internet section.

With Retail Bankruptcies on the Rise, Opportunities for Distressed M&A Increase

While there were already a number of high profile retail bankruptcies in 2019, current economic conditions and pandemic-related market challenges have exacerbated an already difficult retail environment, which has led to a significant increase in bankruptcies in 2020. Year to date, more than 30 major retail and restaurant chains have filed for bankruptcy, which is more than in all of 2019. Furthermore, 2020 is on track to have the highest number of retail bankruptcies in 10 years. Although the Q4 holiday season often provides the strongest quarterly financial performance for many retailers, which may slow the pace of bankruptcy filings, projected holiday sales numbers may be uncertain this year, and additional bankruptcies are still likely to follow by year end.

Despite these bleak statistics, distressed companies may present attractive targets for strategic and private equity buyers with available cash or access to financing on favorable terms. Distressed M&A transactions may offer certain advantages that can be attractive to buyers, such as the potential to purchase at a discounted price or the ability to complete a transaction on an accelerated timetable. Already, the retail market has begun to see the reemergence under new ownership of some shuttered companies that were the targets of liquidation sales and distressed M&A transactions within the past two years. Some of these retailers have relaunched with modified business strategies, such as a significantly reduced number of brick and mortar locations or an exclusively online presence. The distressed M&A transaction opportunities resulting from existing market conditions will likely play an increasingly important role in overall M&A deal activity and could lead to a reshaping of the retail landscape in the near future.

Copyright © 2020, Hunton Andrews Kurth LLP. All Rights Reserved.
For more articles on bankruptcy, visit the National Law Review Bankruptcy & Restructuring section.

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