Tag: Military

Not Ship Shape: SEC Sues Retired Chief Petty Officer for Fraudulent Offerings to Navy-Related Victims

The U.S. Securities and Exchange Commission (“SEC”) Office of Investor Education and Advocacy (“OIEA”), which dates from last century, is concerned with explaining aspects of the capital markets for “Main Street” investors and warning them against potential risks and fraud schemes. On Sept. 25, 2017, the Commission announced the formation of the Retail Strategy Task Force (“RSTF”) in its Division of Enforcement. Its purpose is to consider and implement “strategies to address misconduct that victimizes retail investors,” according to the SEC Press Release issued that day. A primary focus area of the OIEA and RSTF is so-called “affinity investments,” i.e., investment offerings aimed at groups such as churches, ethnic communities, college alumni groups, etc.

On Wednesday, July 27, 2022, the SEC filed suit in the Federal Court for the Northern District of Ohio, Eastern Division, against Robert F. Murray, 42, a retired U.S. Navy Chief Petty Officer residing in North Canton, Ohio, for conducting an unregistered offering of securities in Deep Dive Strategies, LLC, an Ohio private pooled investment fund (the “Fund”). Murray controlled the Fund and acted as investment adviser, telling investors the fund would invest in publicly traded securities. Murray marketed the offering through a Facebook group “with over 3500 active duty, reservists and veterans of the U.S. Navy who shared an interest in investing,” according to the Complaint. Most certainly an “affinity” group. Murray also created “a channel on the Discord social media platform where he live-streamed his trading activity and posted trading advice with a focus on options.”

The Fund was organized in September 2020 and solicited investors through February 2021. Although Murray told investors they could change their minds within 15 days and get their money back, in fact he “almost immediately began spending Fund money on personal expenses.” He transferred monies to his personal checking account and even withdrew cash from the Fund, so by February 2021, $148,000, or approximately 42% of the $355,000 invested by the unsuspecting “Goats” (a nickname for the Navy affinity group), had been “misappropriated” (i.e., stolen) by Murray. By March 2021 he had ceased regular communication with the Goats and failed to respond to requests to redeem “invested” dollars. Some of that misappropriated money was lost gambling at casinos in Cleveland and elsewhere in the Midwest.

Murray provided potential investors with both a Disclosure Statement and a copy of the Fund’s Operating Agreement, and the Complaint identifies several material misstatements and omissions in the two documents. In addition, Murray made oral material misstatements and omitted material information when speaking with potential and actual investors. In fact, Murray lost most of the Fund’s brokerage account on Jan. 13, 2021, when GameStop options purchased in the account saw their value plummet. In that connection see my Feb. 2, 2021, Blog “Rupture Rapture: Should the GameStop?” When the SEC began investigating Murray and the Fund, he asserted his Fifth Amendment rights and declined to answer questions.

In the Complaint, the Commission charges Murray with seven different securities law violations, each set out in a separate Count as follows:

  1. Violation of Section 10(b) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 thereunder by using devices, making untrue statements, and misleading omissions, and engaging in a business which operate as a fraud on securities purchasers.
  2. Violation of Section 17(a)(1) of the Securities Act of 1933, as amended (the “33 Act”), by offering and selling securities by means of interstate commerce using devices to defraud.  Violations of the 33 Act can be proven without the need to prove scienter (broadly, intent).
  3. Violation of Section 17(a)(2) of the 33 Act by obtaining money or property in connection with the sale of securities by means of untrue statements of material facts and making misleading omissions, engaging in transactions which operate as a fraud on the purchaser, where Murray was at least negligent in engaging in these activities.
  4. Violation of Sections 5(a) and 5(c) of the 33 Act by selling securities without the offering being registered (or exempt from registration), and with the use of a prospectus where the offering was not registered.
  5. Violation of Section 206(1) of the Investment Advisers Act of 1940, as amended (the “40 Act”) by acting as an investment adviser using devices to defraud clients and prospective clients.
  6. Violation of Section 206(2) of the 40 Act by acting as an investment adviser engaging in transactions which operate as a fraud on clients and prospective clients.
  7. Violation of Section 206(4) of the 40 Act and Rule 206(4)-8 thereunder by acting as an investment adviser to a pooled investment vehicle, making untrue statements of material fact and making misleading omissions and engaging in acts that are fraudulent with respect to investors in the pooled investment vehicle.

The SEC seeks entry of findings by the Court of the facts cited in the Complaint and of conclusions of law that concur with the Commission’s assertions of violations. In addition, the SEC seeks entry of a permanent injunction against future violations of the cited securities laws; an order requiring disgorgement of all Murray’s ill-gotten gains plus prejudgment interest; an order imposing a civil penalty of $1,065,000; and an order barring Murray from serving as an officer or director of any public company.

Murray preyed on his fellow Naval servicemen in violation of the unspoken understandings of the “Goats,” that a fellow Navy NCO would not seek to take financial advantage of them. That is why the SEC’s July 28, 2022, Press Release reporting this matter includes an express warning from the OIEA and the RSTF not to make “investment decisions based solely on common ties with someone recommending or selling the investment.” One wonders whether, if the Goats were to catch up with Murray, he would be keelhauled.

Article By Peter D. Hutcheon of Norris McLaughlin P.A.

For more securities and SEC legal news, click here to visit the National Law Review.

©2022 Norris McLaughlin P.A., All Rights Reserved

AUVSI and DOD’s Defense Innovation Unit Announce Collaboration for Cyber Standards for Drones

The Association for Uncrewed Vehicle Systems International (AUVSI), the world’s leading trade association for drones and other autonomous vehicles, announced a collaboration with the Department of Defense’s (DOD) Defense Innovation Unit (DIU) to further commercial cyber methodologies to design a shared standard. AUVSI’s effort is meant to expand the number of vetted drones that meet congressional and federal agency drone security requirements.

This pilot program would extend relevant cyber-credentialing across the U.S. industrial base and assist the DOD and other government entities in streamlining and accelerating drone capabilities across the board. Overall, this collaboration will help make the drone industry more secure. The program will work with numerous cybersecurity firms to conduct technical cyber assessments before the DIU, DOD, and other government entities conduct additional vetting as necessary.

Currently, the Blue UAS (Unmanned Aircraft Systems) Cleared List has 14 drones on it and 13 more drones are scheduled to be added. The Blue UAS Cleared List is routinely updated and contains a list of DOD-approved drones for government users. These drones are section 848 FY20 NDAA compliant, validated as cyber-secure and safe to fly, and are available for government purchase and operation. However, even with these additions, the demand for additional cleared drones with new capabilities and technology has outpaced the DIU’s ability to scale the program. This collaboration seeks to close that gap and offer cybersecurity certification in close cooperation with the DIU. With off-the-shelf drones serving as critical tools to help conduct diverse government operations, partnership with AUVSI and cybersecurity experts will make it easier for government users to use commercial technology and achieve effective operations in a secure manner.

Article By Kathryn M. Rattigan of Robinson & Cole LLP

For more cybersecurity and data privacy news, click here to visit the National Law Review.

Copyright © 2022 Robinson & Cole LLP. All rights reserved.

Defense Department Takes Aim at Anticompetitive Mergers in Defense Industry

Government says market concentration poses a national security risk.

In 1990, the Department of Defense could turn to 13 companies to produce tactical missiles, eight to make fixed-wing aircraft, and another eight to build ships. Now there are only three missile and three aircraft makers, and only two surface ship builders. There were eight satellite manufacturers in 1990; today there are only four. Tanks and other tracked vehicles are now made by a single company.

Such market consolidation is potentially harmful for the usual reasons, such as less innovation, higher prices, and a lower level of customer service. But when that customer is the DOD, having only one or a handful of defense equipment makers, suddenly critical military missions, military and civilian lives, and national security are put at risk, “[P]articularly in cases where the existing dominant supplier or suppliers are influenced by an adversary nation ….”

That is the worrisome assessment contained in a report issued by the DOD which is following up on President Biden’s July 2021 executive order, titled “Promoting Competition in the American Economy.” DOD is just one of the agencies now responding with plans to evaluate their respective competitive landscapes and to make recommendations to restore productive rivalries.

If market consolidation suggests harmful anticompetitive conditions, then the defense industry’s merger history should send up multiple flares. “Since the 1990s, the defense sector has consolidated substantially, transitioning from 51 to 5 aerospace and defense prime contractors,” the report says.

DOD offers five general recommendations to increase defense industry competition, saying it should:

  • Strengthen Merger Oversight. When a merger threatens DOD interests, DOD will support the Federal Trade Commission and Department of Justice in antitrust investigations and recommendations involving the defense industry.
  • Address Intellectual Property Limitations. Certain practices surrounding intellectual property and data rights have been used to limit competition in DOD purchasing and to induce “vendor-lock” and other undesirable results. DOD says it will identify its long-term intellectual property needs early in the bidding process. This should ensure that intellectual property is a key factor in evaluating competitive awards, and a negotiation objective in sole-source awards and when contracting with vendors willing to provide the government the intellectual property and rights it needs.
  • Increase New Entrants. To counteract the shrinking list of contractors, DOD says it will work to attract new entrants to the defense marketplace by reducing barriers to entry. This will be accomplished through small business outreach and support. DOD says it will use “acquisition authorities” that will give it the flexibility to adopt and incorporate commercial best practices to reduce barriers and attract new vendors.
  • Increase Opportunities for Small Businesses. DOD will increase small business participation in defense procurement, with an emphasis on increasing competition in priority segments of the defense industry.
  • Implement Sector-Specific Supply Chain Resiliency Plans. DOD calls for greater resilience in the supply chain for five priority sectors: casting and forgings, missiles and munitions, energy storage and batteries, strategic and critical materials, and microelectronics.

In June 2021, Bradley Martin, Ph.D., a retired Navy captain now with the RAND National Security Supply Chain Institute, wrote of the dangers of the defense industry’s shift to practices that make resupply of military equipment “highly questionable” should demand for equipment suddenly spike.

Abrams Main Battle Tank manufactured by General Dynamics, the sole producer of tanks and other tracked combat vehicles for the Department of Defense. Photo from General Dynamics’ website.

“If evaluated solely against meeting steady-state demand, the military operational supply chain works as it should,” Martin wrote. “The problem is not performance relative to incentives. Rather, the problem is that the existing guidance does not lead the system to conduct analyses and make decisions needed to support the highly demanding combat operations likely in a conflict with a major power. As a result, the ability of this system to properly support the joint force in the event of major conflict is at best untested and could be highly problematic.”

Recent Public and Private Actions

In addition to the government’s focus on the overall industry, it has been taking action to address specific instances of alleged and potentially anticompetitive behavior. In one instance, a private class action quickly followed.

In January, the FTC sued to stop Lockheed Martin Corp.’s $4.4 billion acquisition of Aerojet Rocketdyne Holdings Inc., marking the first time in decades the government opposed a defense industry merger. (Read FTC Sues to Torpedo Lockheed’s $4.4 Billion Aerojet Acquisition.)

The FTC noted that Aerojet, which reported more than $2 billion in 2020 revenue, is the last independent U.S. supplier of defense-critical missile propulsion systems. If the deal were to go through, the FTC said, “Lockheed will use its control of Aerojet to harm rival defense contractors and further consolidate multiple markets critical to national security and defense.”

Lockheed leads the pack of the largest defense contractors in the world. It is one of the leading suppliers of missile technology in a concentrated group that includes Raytheon Technologies, Inc., Northrop Grumman Corporation, and The Boeing Company. All are missile system prime contractors to the Department of Defense. The FTC says these companies are intermediaries between the U.S. government and the missile supply chain, including subcontractors like Aerojet.

In December 2021, a federal grand jury in Connecticut returned an indictment charging a former manager of leading aerospace engineering company Pratt & Whitney, Inc., and five executives of outsource engineering suppliers for participating in a long-running conspiracy to restrict the hiring and recruiting of employees among their respective companies. (Read Aerospace Execs Indicted for Conspiracy to Limit Worker Pay and Job Prospects.)

The conspiracy is said to have affected thousands of engineers and other skilled workers in the aerospace industry who perform services in the design, manufacturing, and servicing of aircraft components for both commercial and military purposes. According to the felony indictment, unsealed in U.S. District Court for the District of Connecticut, six individuals conspired with others to allocate employees by agreeing not to hire or solicit professionals from each other’s ranks.

Following the indictment, a jet engine mechanic formerly employed by Pratt & Whitney filed a class action suit in federal court in Connecticut against the company and five outsource engineer suppliers. The plaintiffs seek damages because of the alleged conspiracy to suppress labor costs and hamper employees’ career prospects using illegal no-poach agreements in violation of antitrust laws.

Ukraine Invasion Demonstrates ‘Rapid Escalation’

Combined with Russia’s invasion of Ukraine and the alarming specter of a widening conflict, security supply chain expert Bradley Martin’s assessment that the industry may not be set up to address a spike in demand for military equipment illustrates why the DOD’s plan to improve competition in the defense industry is an urgent one.

“The Ukraine crisis shows that situations can rapidly escalate, potentially leading to situations where spikes in demand might occur in largely unexpected ways,” Martin told the MoginRubin Blog. “If the U.S. had to deal with an expanded conflict in Europe, such as might occur if Russia were to threaten a NATO ally, DOD could reallocate munitions and supplies for some period, but expanding production and inventory over a longer period would be very challenging. This would likely be exactly the kind of conflict where low-standing issues with supply chains would show themselves, sometimes in unexpected ways.”

Defense is just one of several industries seeing increased scrutiny from enforcers. Healthcare also has been a focus of late (see our article regarding FTC’s action to stop a New England hospital merger). The technology sector is getting attention, too. As we wrote in February, chipmaker Nvidia called off its vertical acquisition of Arm Ltd. following an FTC challenge to the deal. A recent Treasury Department report on the alcoholic beverage industry foreshadows greater attention from the FTC and DOJ regarding deals in that sector.

In October the FTC said it was bringing back its policy of routinely restricting anticompetitive mergers, putting “industry on notice” that it will require aggressive acquirers to obtain prior approval “before closing any future transaction affecting each relevant market for which a violation was alleged, for a minimum of 10 years.” The agency is clearly making good on its promise.   

Edited by Tom Hagy for MoginRubin LLP.

© MoginRubin LLP
For more articles about antitrust, visit the NLR Antitrust Law section.

Whistleblower Rewarded Over $2 Million for Exposing Contractor of Military Helicopters That Provided Unsafe Helicopters, Risking the Lives of Military Members Deployed to War Zones

An Illinois-based aviation services company and its subsidiary in Florida have agreed to pay the government $11,088,000 to resolve allegations that they violated the False Claims Act by breaching their contract to maintain military aircraft that were “fully mission capable.”

The aviation service companies own and maintain helicopters.  They had contracted with the Department of Defense to supply helicopters for use in transporting cargo and personnel in support of missions in Afghanistan and Africa.  However, according to a whistleblower, the aviation companies schemed to maximize profits by failing to provide the resources needed to maintain the helicopters.  This resulted in the helicopters not being airworthy.  Yet, the companies continued to certify the helicopters as “fully mission capable.”  Thus, it was alleged, the companies knowingly risked the lives of military personal who were using the aircraft while deployed in war zones and committing fraud against U.S. taxpayers.

The same companies also paid an additional amount to resolve a separate matter brought by the Federal Aviation Administration (FAA) against them for deficiencies in helicopter maintenance work.

This lawsuit originated from a former employee of the aviation service companies who brought suit under the qui tam, or whistleblower, provisions of the False Claims Act. Whistleblower lawsuits allow private parties, known as “relators,” to bring suit on behalf of the government and to share in any recovery, usually 15% to 25% of the settlement amount.  In this case, the whistleblower will receive $2,162,160.  The False Claims Act allows the government to intervene and prosecute an action, as it did in this case.  Fraud in government contracting is often exposed by individuals with knowledge that the fraud is occurring, as in this case. Whistleblowers may be employees, clients, or competitors of the wrongdoer.  Such individuals can use their inside knowledge to bring fraud to the attention of the government, saving lives and protecting taxpayer money.

© 2021 by Tycko & Zavareei LLP

Trump Administration to Discharge the Federal Student Loan Debt of Totally and Permanently Disabled Veterans

On August 21, 2019, President Trump signed a Presidential Memorandum that streamlines the process by which totally and permanently disabled veterans can discharge their Federal student loans (Federal Family Education Loan Program loans, William D. Ford Federal Direct Loan Program loans, and Federal Perkins Loans).  Through the revamped process, veterans will be able to have their Federal student loan debt discharged more quickly and with less burden.

Under federal law, borrowers who have been determined by the Secretary of Veterans Affairs to be unemployable due to a service-connected condition and who provide documentation of that determination to the Secretary of Education are entitled to the discharge of such debt.  For the last decade, veterans seeking loan discharges have been required to submit an application to the Secretary of Education with proof of their disabilities obtained from the Department of Veterans Affairs.  Only half of the approximately 50,000 totally and permanently disabled veterans who qualify for the discharge of their Federal student loan debt have availed themselves of the benefits provided to them.

The Memorandum directs the Secretary of Education to develop as soon as practicable a process, consistent with applicable law, to facilitate the swift and effective discharge of applicable debt.  In response, the Department of Education has said that it will be reaching out to more than 25,000 eligible veterans.  Veterans will still have the right to weigh their options and to decline Federal student loan discharge within 60 days of notification of their eligibility.  Veterans may elect to decline loan relief either because of potential tax liability in some states, or because receiving loan relief could make it more difficult to take future student loans.  Eligible veterans who do not opt out will have their remaining Federal student loan debt discharged.

Copyright © by Ballard Spahr LLP
Article by Stacy H. Rubin of Ballard Spahr LLP.
For more veteran’s affairs, see the National Law Review Government Contracts, Maritime & Military Law page.

The VA Mission Act: Expanding Access to the VA Telemedicine System

On June 6, 2018, President Trump signed the “John S. McCain III, Daniel K. Akaka, and Samuel R. Johnson VA Maintaining Internal Systems and Strengthening Integrated Networks Act” a.k.a. the VA MISSION Act of 2018 (“VAMA”) into law, a $52 billion reform bill aimed at improving access to, and the quality of, medical services provided to veterans by the Department of Veterans Affairs (the “VA”).  We explored the pros and cons associated with VAMA in a June 12, 2019 blog article that we have linked here.

Contrary to VAMA’s primary goal of increasing access, and the quality of, medical services provided to veterans by the VA, as currently drafted, VAMA only allows VA covered practitioners (which only includes physicians) to provide telehealth services via the VA’s telemedicine system. It does not allow trainees, including interns, residents, fellows and graduate students from providing care via the VA’s the telemedicine system.  This seems contrary to one of the main goals of VAMA, which is to increase access to telemedicine services by veterans.

On June 12, 2019, Congressman Early L. Carter introduced legislation to increase veterans’ access to telemedicine by expanding the types of health care providers that would be eligible to provide telemedicine services under VAMA.  The proposed bill would allow trainees who participate in professional training programs (i.e., residents, interns and fellows) to use the telemedicine system available under VAMA so long as they are supervised by a credentialed VA staff member.  Congressman Carter has indicated that his goal is to improve telehealth training at VA health centers and to increase access to care by increasing the eligible providers.

While there is general bi-partisan support for this new legislation, there are still concerns relating to the costs associated with VAMA. It is, therefore, likely that the approval process of this new legislation will be slow as any additions to VAMA undergoes a high level of scrutiny.

Copyright © 2019, Sheppard Mullin Richter & Hampton LLP.

DoD Issues Targeted Class Deviation Updating Recently Adopted Cybersecurity DFARS Clauses

Last week, on October 8th, DoD issued a class deviation replacing DFARS 252.204-7012 and 252.204-2008 with revised clauses that give covered contractors up to nine (9) months (from the date of contract award or modification incorporating the new clause(s)) to satisfy the requirement for “multifactor authentication for local and network access” found in Section 3.5.3 of National Institute of Standards and Technology (NIST) Special Publication 800-171, “Protecting Controlled Unclassified Information in Nonfederal Information Systems and Organizations.”

We previously reported on the August 26th Department of Defense (DoD) interim rule that greatly expanded the obligations imposed on defense contractors for safeguarding “covered defense information” and for reporting cybersecurity incidents involving unclassified information systems that house such information. The interim rule, which went into effect immediately, requires non-cloud contractors to comply with several new requirements, including those in DFARS 252.204-7012, Safeguarding Covered Defense Information and Cyber Incident Reporting” and DFARS 252.204-7008, “Compliance with Safeguarding Covered Defense Information Controls.”  While the class deviation is a welcomed development for contractors that may struggle to implement the NIST SP 800-171 requirements for multifactor authentication, the deviation: (1) requires contractors to notify the government if they need more time to satisfy those requirements, and (2) does not alter any other aspect of the August 26th interim rule. 

DFARS 252.204-7012 requires prime contractors and their subcontractors to employ “adequate security” measures to protect “covered defense information.” Specifically, contractors must adhere to the security requirements in the version of NIST SP 800-171 that is in effect “at the time the solicitation is issued or as authorized by the Contracting Officer,” or employ alternative security measures approved in writing by an authorized representative of the DOD Chief Information Officer. Special Publication 800-171 describes fourteen families of basic security requirements. As described in section 2.2 of 800-171, each of these fourteen families has “derived security requirements,” which provide added detail of the security controls required to protect government data. These basic requirements are based on FIPS Publication 200, which “provides the high level and fundamental security requirements” for government information systems. The derived requirements are taken from the security controls contained in NIST Publication 800-53, “Security and Privacy Controls for Federal Information Systems and Organizations.” Among those derived requirements is one for “multifactor authentication for local and network access.”

DoD contractors and subcontractors should be aware of what the class deviation does and does not change:

  1. Effective immediately, DoD contractors and subcontractors are required to comply with the clauses at DFARS 252.204-7012, Safeguarding Covered Defense Information and Cyber Incident Reporting (DEVIATION 2016-O0001) (OCT 2015) and DFARS 252.204-7008, Compliance with Safeguarding Covered Defense Information Controls (DEVIATION 2016-O0001) (OCT 2015), in lieu of the clauses that were issued as part of the August 26th interim rule.
  2. Under the new clauses, DoD contractors (and subcontractors, through the prime contractor) may notify the contracting officer that they need up to 9 months (from the date of award or the date of a modification incorporating the new clauses) to comply with the requirements for “multifactor authentication for local and network access” in Section 3.5.3 of NIST SP 800-171.
  3. The revised clauses apply to all DoD contracts and subcontracts, including those for the acquisition of commercial items.
  4. The class deviation only impacts non-cloud contractor information systems that are not operated on behalf of the government (e.g., contractor internal systems).
  5. DoD contractors and subcontractors that cannot meet the specific requirements of NIST 800-171, including the requirements of Section 3.5.3, may still seek authorization from DoD to use “[a]lternative but equally effective security measures.”
  6. With the exception of the targeted changes to DFARS 252.204-7012 and DFARS 252.204-7008 (i.e., affording contractors up to 9 months to comply with Section 3.5.3 of NIST 800-171, provided they notify the contracting officer), all other requirements introduced by the August 26th interim rule remain in effect.
  7. Non-cloud contractor information systems that are operated on behalf of the government remain “subject to the security requirements specified [in their contracts].”
  8. The class deviation does not impact DoD cloud computing contracts, which remain subject to DFARS 252.239-7010, Cloud Computing Services.

Ensuring Compliance With the Revised DFARS Clauses and NIST SP 800-171 Section 3.5.3

During the solicitation phase of a procurement subject to the revised DFARS clauses, DoD contractors and subcontractors should engage technical experts to determine whether they would need additional time to satisfy the NIST requirements for multifactor authentication. If a contractor determines that additional time is needed, and is later awarded a contract subject to the new requirements, then the contractor should immediately notify the contracting officer in writing and should ensure that all subsequent communications with the government are adequately documented.

Upon providing such notice, contractors will have up to nine months (from the date of contract award or modification incorporating the revised clauses) to comply with Section 3.5.3 of NIST SP 800-171, which requires contractors to: “Use multifactor authentication for local and network access to privileged accounts and for network access to non-privileged accounts.” See NIST SP 800-171, Section 3.5.3 (emphasis added). Section 3.5.3 is a derived requirement of the basic security requirement in section 3.5 for identification and authentication. Section 3.5.3 of NIST SP 800-171 notes that:

  • “Multifactor authentication” requires two or more different factors to achieve authentication. Factors include: (i) something you know (e.g., password/PIN); (ii) something you have (e.g., cryptographic device, token); or (iii) something you are (e.g., biometric). The requirement for multifactor authentication does not require the use of a federal Personal Identification Verification (PIV) card or Department of Defense Common Access Card (CAC)-like solutions. Rather, “[a] variety of multifactor solutions (including those with replay resistance) using tokens and biometrics are commercially available. Such solutions may employ hard tokes (e.g., smartcards, key fobs, or dongles) or soft tokens to store user credentials. See id., n. 22.
  • “Local access” is any access to an information system by a user (or process acting on behalf of a user) communicating through a direct connection without the use of a network.

“Network access” is any access to an information system by a user (or a process acting on behalf of a user) communicating through a network (e.g., local area network, wide area network, Internet).

Article By Susan B. Cassidy, Alejandro L. Sarria, Patrick Stanton & Catlin M. Meade of Covington & Burling LLP
© 2015 Covington & Burling LLP

Twitter Terrorism: Criminals Choose the Hack Attack

In what appears to be yet another brazen demonstration of capability following an earlier hijack of government social media sites, a group calling itself the Syrian Electronic Army (SEA) recently hacked into the U.S. Army’s main news and public information website, positing its own message for website visitors: “Your commanders admit they are training the people they have sent you to die fighting.” In response, the Army was forced to shut down the site to implement additional security measures to protect its systems.

Earlier this year, two of the U.S. military’s Central Command social media websites on YouTube and Twitter were similarly attacked and compromised. There, organization profile images were replaced by those of ISIS supporters on the official Twitter page, and two ISIS propaganda videos were uploaded to the Central Command YouTube account. Over the past several years, SEA has initiated similar attacks on the Twitter accounts of the BBC, The New York Times, 60 Minutes and the Associated Press.

Business Concerns

While the U.S. government reported that none of the internal systems were compromised and that there was no loss of classified information, the attacks have certified the anxiety of many business leaders over the potential vulnerability of their own companies, and highlight the concerns regarding the lack of knowledge or ability to prevent such attacks. Recent surveys have confirmed that risks associated with social media, whether through external portal access or internal sabotage, are among the top concerns facing businesses in 2015.

Without question, social media has become a crucial advertising vehicle for thousands of businesses around the world. The number of Facebook, Twitter, LinkedIn and other social media users continues to grow at an exponential rate, allowing businesses access to many new customers and clients every day. The ability to maintain control over these new electronic profiles, however, has become increasingly difficult as the perpetrators become more skilled and the targets more prized. In one particularly publicized account in 2013, social media hackers changed the Twitter account name of a premiere fast-food company to that of its chief competitor and posted multiple offensive tweets. Thereafter, damage control was all that could be done.

Businesses in 2015 have become enthralled by virtually unlimited access to customers and business partners via online platforms. Unfortunately, many have focused on the potential profits arising from such undertakings without sufficient consideration for the problems that too frequently arise from the use of such platforms. Social media has become the soft underbelly of many growing businesses eager for success but unaware of its vulnerabilities. In addition to direct attacks, courthouses nationwide have been flooded by lawsuits tied to the use and regulation of social media sites. The governance of employee use of social media, ownership of content and retention of information gathered through social media are generating more litigation every day. While increased exposure may be the incentive, preventative medicine will likely prove integral to long-term success.

Such “preventative medicine” includes not only the appropriate policies and procedures on access to and use of social media, but also an understanding of the vulnerabilities created by using these online platforms.  Most importantly, organizations must train their employees on these issues. Defending itself from perils arising out of social media starts at the first line of defense – the user.

ARTICLE BY Scott Sweeney & Ian A. Stewart of Wilson Elser Moskowitz Edelman & Dicker LLP

© 2015 Wilson Elser

Department of Defense Contractors Agree to Pay the U.S. Government $5.5 Million for Allegedly Supplying the Military with Low-Grade Batteries for Humvee Gun Turrets Used in Iraq; Minnesota Whistleblower to Receive $990,000

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On September 16, 2014, the Department of Justice (DOJ) announced that Department of Defense (DOD) contractors, M.K. Battery, Inc. (M.K. Battery), East Penn Manufacturing Company (East Penn), NPC Robotics, Inc. (NPC), BAE Systems, Inc. (BAE) and BAE Systems Tactical Vehicle Systems LP (BAE) had agreed to a settlement of $5.5 million for allegedly violating the False Claims Act (FCA) by selling the U.S. Military substandard batteries for Humvee gun turrets used on military combat vehicles in Iraq. Minnesota whistleblower, David McIntosh, former employee of M.K. Battery, will receive $990,000 which represents his share of the settlement for reporting fraud against the government – in this case misrepresentation of a vital product supplied to the DOD.

A gun turret is a weapon mount that protects the crew or mechanism of a projectile-firing weapon and at the same time lets the weapon be aimed and fired in many directions. Sealed acid batteries are used as a backup to turn the turrets on the Humvees in the event that the engine gives out.  According to Mr. McIntosh, and unbeknownst to the Army, the manufacturing process of the batteries was allegedly changed from the original design presented to the DOD, consequently cutting the battery’s life span by as much as 50 percent and potentially putting U.S. Troops in harm’s way.  Mr. McIntosh, from Stacy, Minnesota, who at the time was employed by M.K. Battery as a regional sales representative, brought his concerns to top company officials at M.K. Battery.  However, in 2007 after numerous unsuccessful attempts to convince M.K. Battery that its decision to cut costs on these batteries could be hazardous to U.S. Troops, especially during combat, Mr. McIntosh alerted the DOD to this matter.  Three month later, M.K. Battery fired Mr. McIntosh.

Shortly thereafter, Mr. McIntosh and his attorneys filed the lawsuit under the whistleblowersprovisions of the False Claims Act, which is one of the most effective methods that the government has implemented for combating fraud. Under the FCA, any person, who knows of an individual or company that has defrauded the federal government, can file a “qui tam” lawsuit to recover damages on the government’s behalf.  Mr. McIntosh filed this particular lawsuit on behalf of himself and the Department of Defense. Additionally, a whistleblower who files a case against a company that has committed fraud against the government, may receive an award of up to 30 percent of the settlement. In this case, Mr. McIntosh’s share of $5.5 million is approximately 18 percent of the settlement.

ARTICLE BY

Whistleblower Practice Group
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Tycko & Zavareei LLP
© 2014 by Tycko & Zavareei LLP

The Exploding Use of Drones

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The potential for drones, i.e., unmanned aircraft systems (“UAS”), is tremendous.  After years of being associated with military operations, the civilian UAS market is expected to dramatically expand in the United States in the next ten years.  A multitude of conceivable applications for UAS — including mapping, weather forecasting, law enforcement, news gathering, real estate, photography, agriculture, and freight transport — promises to change the way business is done across a diverse array of industries and companies.

By any measure, the UAS market is significant and growing. Optimistic analysts project that annual U.S. civilian spending on UAS will grow from $1.15 billion in 2015 to $4 billion in 2020 and $5.11 billion in 2025.   Less sanguine analysts place the annual worldwide civilian UAS market between $498 million and $1 billion  by 2020.  The FAA predicts that UAS will be the “most dynamic growth sector within aviation industry.”

However, many legal and regulatory obstacles remain before drones can be widely used in our national airspace.  Current federal law prohibits UAS in most circumstances with exceptions for test flights and government aircraft that secure special permission from the FAA.

This will change because Congress delegated to the Federal Aviation Administration (FAA) the task of integrating UAS in to the National Airspace System by September 2015.  Quite apart from the regulatory framework developed by the FAA, numerous legal issues will arise ranging from takings and property torts relating to flights over private property to privacy issues.  State tort laws will be heavily involved.

Notwithstanding these legal and regulatory challenges to widespread UAS usage, there is great momentum and potential for this new form of aviation.  Businesses should focus on how they can benefit from the use of drones.  Once they have done so, they should navigate the legal and regulatory thicket.  The rewards could be substantial.

Article By:

Jack L. Schenendorf
Of:
Covington & Burling LLP