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Posts Tagged ‘FBI’

The Sixth Circuit Finds Coverage For Fraudulent Wire Transfer Under Crime Policy

Posted on: September 12th, 2018

By: Allen Sattler

Business email compromise (“BEC”) claims consist of incidents where cyber criminals access or use a company’s email system to commit a crime, usually for financial gain and often including the use of trickery to convince an employee to wire transfer corporate funds to the criminal’s account.  According to statistics reported by the FBI,  BEC claims are on the rise, especially in the last three years.  In 2016, there was a 2,370% increase in email account compromise attacks, involving losses of nearly $346 million, and the frequency of BEC claims continues to rise.

Several insurers offer coverage for BEC claims, including for losses sustained as the result of fraudulent wire transfer.  In American Tooling Center, Inc. v. Travelers Casualty and Surety Co. of Am., 5:16-cv-12108 (6th Cir 2018), the Sixth Circuit became the latest federal appeals court to interpret an insurance policy that included coverage for fraudulent wire transfers.  In a decision dated July 13, 2018, the Sixth Circuit ruled that the crime policy provides coverage for the loss incurred by the insured.

American Tooling Center (“ATC”), a Michigan manufacturer in the automobile industry, hired a Chinese company to manufacture stamp dies.  To receive payment for its work, the Chinese company would send invoices to ATC, and ATC would route payment to its vendor via wire transfer.  In 2015, a person outside the company intercepted an email from ATC to its vendor.  That person impersonated an employee of the vendor and told ATC that because of an audit, ATC should wire transfer payment on its outstanding invoices to a different bank account.  ATC complied with the instructions and wired over $800,000 to the thief’s bank account.  The thief was never identified, and the money was not recovered.

ATC made a claim to its insurer pursuant to a “Computer Fraud” provision of its crime policy to recover the money lost.  The insurer denied coverage, arguing that ATC did not suffer a loss until it eventually paid the outstanding invoices to the Chinese vendors, and that ATC therefore did not suffer a “direct loss” as required by the policy wording.  The insurer also argued that the acts by ATC in changing the bank account information without verification constituted intervening acts that break the chain of causation.  The Sixth Circuit disagreed, holding that ATC immediately lost the money when it wired the money to the thief, and that the thief’s instructions to ATC directly caused the loss.  The Court also rejected an argument by the insurer that the policy required that the thief first gain access to ATC’s computer systems prior to triggering coverage, and that here, the thief did not hack into the email system to commit the fraud.  The Court ruled that the policy language was not so limited.

The insurer sought reconsideration of the ruling, which the Sixth Circuit recently denied.

If you have any questions or would like more information, please contact Allen Sattler at [email protected].

How Can The Trump-Cohen Tape Be Public?

Posted on: July 31st, 2018

By: Greg Fayard

A lawyer and client talk. The lawyer records the conversation. The recording is made public. How can this be?

That’s what happened to then candidate Donald Trump and his New York lawyer Michael Cohen. The conversation occurred in September 2016. Trump was not aware Cohen recorded the discussion. The recording is a few minutes long and encompasses several topics, including reference to a possible payment to a Playboy model with whom Trump allegedly had an affair in 2006, although this is never expressly discussed. At one point a cash or check payment is referenced. The two speak in a verbal shorthand.

The FBI, as part of an investigation by the U.S. Attorney’s Office for the Southern District of New York, confiscated the recording in April 2018 (see earlier blog discussing this here) while investigating attorney Cohen. The recording was made public in July 2018, but it is unclear by whom.

The conversation between Cohen and Trump is ordinarily protected by the attorney-client privilege, although it is clear other people were around Trump and Cohen, calling into question whether Trump waived the privilege by speaking openly to his lawyer in front of others. Nevertheless, a special master, working under United States District Judge Kimba Wood in New York determined the tape to be privileged. Trump, as Cohen’s client, “owns” the privilege.

However, the President’s legal team “waived” the attorney-client privilege, permitting the tape’s disclosure. The question is why? Four possible reasons come to mind:

  1. The tape had already been leaked, leaving the President no other viable option but to waive the privilege;
  2. Waiving the privilege permits the President’s advisors to discuss the tape openly;
  3. Discussing the tape without officially waiving the privilege might open the door to a broader waiver of communications between Cohen and Trump; and/or
  4. If Trump’s team asserted the privilege over the tape, the government could try to overcome the privilege by asserting the “crime/fraud exception.” Simply put, a client’s communication to an attorney cannot be privileged if the communication was made with the intention of committing or covering up a crime or fraud.

At worst, if a payment to the model was actually made (not yet confirmed), such a payment might have to be reported under federal campaign finance law. The failure to do so could be a campaign finance violation. Trump allies, however, would argue any such payment was not campaign-related, but a common occurrence for a celebrity dealing with the tabloids. In any event, failing to report a campaign-related payment is not a ordinarily a crime.

Lastly, why would an attorney record his privileged conversations with a client? Only attorney Cohen can answer that (and he has not). It could be innocuous—instead of taking notes, he recorded conversations. But not advising Trump of the recording is problematic. Nevertheless, under New York law, one party recording another party without his consent is legal. (N.Y. Penal Law §§ 250.00, 250.05.)  If Cohen, however, leaked the tape when it was still considered privileged, and before Trump waived the privilege, he could face discipline from the State Bar of New York for breaching an attorney’s duty of confidentiality. (New York Rule of Professional Conduct 1.6.)  Regardless, the President was certainly not pleased with Cohen’s secret recording:

If you have any questions or would like more information, please contact Greg Fayard at [email protected].

Georgia’s Making a List and Long-Term Care Organizations Must Check It Twice

Posted on: May 24th, 2018

By: Will Collins

This month, Georgia’s Governor signed into effect a law implementing a comprehensive background check system in an effort to target and curb elder abuse, placing additional screening, notice, and retention requirements on long-term care organizations as well as presenting liability landmines and safe-harbors that these organizations should be cognizant of moving forward.

Effective October 1, 2019, the Georgia Long-term Care Background Check Program, requires that certain personnel are subject to both a “records check” and a “registry check,” allowing until January 1, 2021 for organizations to either submit a records check application or evidence showing satisfactory completion of a records check within the last twelve months for these personnel to the Department of Community Health (“DCH”).

The records check and registry check take substantial steps beyond Georgia’s current name-based single state criminal background check, expanding required screenings to include checks of the GCIS and FBI fingerprint databases, Georgia Nurse’s Aide Registry, Sexual Offender Registry, and the Federal List of Excluded Individuals and Entities. The Background Check Program goes further, expanding the registry check to any state where an individual resided for the previous two years when the individual has been a Georgia resident for less than two years.

Covered Organizations

The Background Check Program applies to Assisted Living Communities, Personal Care Homes, Home Health Organizations, Intermediate Care Homes, Hospice Providers, Nursing Homes, Skilled Nursing Facilities, and Adult Day Care Facilities.

Covered Personnel

The Background Check Program covers both owners active in operations as well as any applicant or current employee with direct access, which is defined as any position that will routinely:

  • Have contact with patients, residents, or clients including face to face interactions, hands-on physical assistance, and monitoring, reminding, or other stand-by activities;
  • Require the person to be alone with patient, resident, or client property; or
  • Have access to patient financial information, ranging from check books and debit cards to bank records and brokerage accounts

This includes housekeepers, maintenance personnel, dietitians, as well as any volunteer with similar access. Though the Background Check Program excludes certain types of contractors, it covers personnel that are contracted for a role “directly related to providing services to a patient, resident, or client of the facility.”

Record Retention and Notice Requirements

The Background Check Program requires that covered organizations maintain a personnel file for each employee, which shall be available for inspection and review by “appropriate enforcement agencies,” and at a minimum must include “evidence of each employee’s satisfactory determination, registry check, and licensure check.”

Organizations must also include a conspicuous notification on an application form that a state and national background check is required as a condition of employment and comply with the notification process established for denial of employment or adverse employment action based on unsatisfactory determination during the screening, including providing individuals the right to appeal the determination.

Liability and Safe Harbors

The good news for organizations covered by the Background Check Program is that when a denial of employment or an adverse employment action is based on a good faith attempt to comply with the screening requirements, the Program offers protection from damages or a claim, demand, cause of action, or proceeding of any nature.

Compliance with the Background Check Program similarly offers organizations both a “rebuttable presumption of due care” in negligent hiring or negligent retention claims or immunity from negligent hiring claims if certain conditions are met.

However, failure to comply with the Background Check Program’s requirements not only will subject an organization to civil monetary penalties, but may also act as evidence that the organization fell below the standard of care in negligence-based claims.

Take Away

We will closely monitor this issue as DCH develops regulations implementing the Background Check Program and can help you ensure your organization is prepared for these changes in Georgia law. For those with employees outside of Georgia, the attorneys in our Labor and Employment National Practice Section are well versed in state and industry specific screening requirements and regulations, so let us know if we can assist you assess compliance or litigate claims arising in this area.

If you have any questions or would like more information, please contact Will Collins at [email protected].

Attorney-Client Privilege? FBI’s Raid of President Trump’s Personal Lawyer’s Office

Posted on: April 10th, 2018

By: Gregory T. Fayard

On April 9, 2018, federal agents raided the law office of Michael Cohen, President Trump’s personal attorney. The purpose of the raid purportedly concerned a payment made to porn actress Stormy Daniels related to an alleged 2006 affair she had with Donald Trump in exchange for her silence. The FBI’s aggressive move certainly raised eyebrows among legal ethicists. Wouldn’t the FBI be prevented from reviewing a lawyer’s files based on the sacrosanct attorney-client privilege? After all, the attorney-client privilege is intended to allow lawyers to give honest legal advice without worrying about incriminating a client.

Not necessarily. To obtain a federal search warrant of an attorney’s office, high-level approval within the Justice Department must be obtained and special DOJ guidelines must be followed when the search target is an attorney. The warrant was also reviewed and approved by a federal judge.  Further, attorney client communications may be discovered under the rarely used and hard to meet “crime-fraud” exception to the privilege. That is, a client cannot hide evidence of a crime by relying on the attorney-client shield.  The concern for the Justice Department is whether any evidence from the raid will be admissible if “tainted” by the “fruit of the poisonous tree.” To deal with spoliation through “tainted” evidence, the Justice Department has used  “taint teams”—government attorneys who are segregated from FBI agents and prosecutors involved in the investigation. (“Taint Teams and the Attorney-Client Privilege,” Loren E. Weiss, Gregory S. Osborne, December 2015) Taint teams are charged with sifting through seized files and determining what prosecutors can and can’t use. (Id.)

In rare cases, a judge could appoint an independent special master to review the files or examine seized documents him or herself.  (United States v. Taylor (D. Me. 2011) 764 F.Supp.2d 230.)  Further, prosecutors can seize evidence of criminal activity that lies beyond the scope of a warrant if it is in plain view, like drugs, guns or other contraband—not likely at issue here.

In any event, Mr. Cohen will certainly contest the FBI raid as an overreach, including why the Justice Department did not issue a subpoena instead of a search warrant. A subpoena would give Mr. Cohen time to protect client confidences and seek court guidance on the attorney-client issues. While the FBI seems to be pushing the envelope as to the bounds of the attorney-client privilege, others have critiqued the raid as going beyond the scope of Robert Mueller’s Special Counsel investigation into collusion between Russia and the Trump Campaign.

If you have any questions or would like more information, please contact Greg Fayard at [email protected].