May 31, 2018 | Shareholder & Investor Protection
The SEC’s Office of Investor Education and Advocacy and Retail Strategy Task Force Warn Investors About Red Flags that a Broker May Be Running a Side Business Offering Investments Not Approved for Sale Through the Broker’s Firm
The SEC advises investors to always check the registration status and background of anyone recommending or selling an investment. Click here to research your investment professional.
Importantly, even if you are investing with a registered broker that you have known for years, make sure that your investments are approved for sale through the broker’s firm.
Ask your broker for an explanation and follow up with the firm’s compliance department if you encounter any of these potential red flags:
Your broker asks you to make out a check, or to wire money, to any person or to a different firm;
Your broker tries to sell you an investment without any paperwork about the investment;
Investments or deposits you made through your broker do not appear on your account statement from the firm; or
You receive an account statement that does not appear to be from the firm.
Investors: Use caution if your broker asks you to sign a letter that you consent to an investment that is not purchased through the firm. If you believe a broker is offering investments that may not be approved for sale through the firm, or to report other problems with a broker, submit a complaint to the firm and to the SEC or FINRA. Anytime you invest through a broker, confirm that the broker is registered and look out for signs that may indicate your investments are not being made through the broker’s firm.
SEC Charges Investment Professional in $8 Million Scam Targeting Long-Term Brokerage Customers
According to the SEC’s complaint, Steven Pagartanis (“Pagartanis”), who was affiliated with a registered broker-dealer, told some investors – including retirees who had been Pagartanis’s customers for many years – that he would invest their funds in either a publicly-traded or private land development company. He promised that the funds would be safe and also promised guaranteed monthly interest payments on the investments. At Pagartanis’s direction, his investors wrote checks payable to a similarly-named entity that was secretly controlled by Pagartanis. In all, the customers invested approximately $8 million, which Pagartanis used to pay personal expenses and make the guaranteed “interest” payments to his customers. To conceal the scam, which unraveled earlier this year when Pagartanis stopped making the so-called interest payments to customers, Pagartanis created fictitious account statements reflecting ownership interests in the land development companies.
The Suffolk County District Attorney’s Office has filed criminal charges against Pagartanis. The SEC’s complaint, filed in United States District Court, Eastern District of New York, charges Pagartanis with violating the antifraud provisions of the federal securities laws. The SEC is seeking a judgment ordering Pagartanis to disgorge his allegedly ill-gotten gains plus prejudgment interest, and to pay financial penalties.
Marc P. Berger, Director of the SEC’s New York Regional Office, said, “Regardless of how long investors have worked with their brokers, they should always confirm that recommended investments are approved for sale by their brokerage firm before transferring funds.”
Investors: The SEC’s enforcement action is an important cautionary reminder to be aware that even if you are investing through a broker you have known for years, you should be cautious if your broker asks you to make out a check or to wire money to an individual or to a different firm.
Source: SEC.gov and Investor.gov.
May 18, 2018 | Consumer Protection, Employment & Technology Archive
Recently, a class action lawsuit was filed in United States District Court for the Western District of New York against the University of Rochester seeking to protect the retirement savings of more than 36,000 employees who are participants in the University of Rochester’s Retirement Program.
The University of Rochester, according to the class action complaint, has a fiduciary duty to ensure that the school’s federally-regulated retirement plan does not charge excessive fees. Allegedly, over the past six years, University of Rochester plan participants have paid approximately $72 million in “grossly excessive” recordkeeping, distribution, and mortality risk fees – fees which, allegedly, are “close to ten times what they should be.”
The complaint against the University of Rochester was brought by a Plaintiff who has been paying more than $500 in service fees a year to TIAA, when “a reasonable fee for administrative services is no more than $50 per year.” There is, according to the complaint, “absolutely no legitimate basis why Plaintiff should be paying TIAA more than $500 per year for its services.”
According to the class action complaint:
All retirement plans require administrative services. The University [of Rochester] contracted with TIAA to provide administrative services for its Plan. TIAA pockets the bulk of the excessive fees. The reason why TIAA has been able to extract such grossly excessive fees is because TIAA’s fees are tethered not to any actual services it provides to the Plan, but rather, to a percentage of assets in the Plan. As the assets in the Plan increase, so too increase the fees that TIAA pockets from the Plan and its participants. One commentator likened this fee arrangement to hiring a plumber to fix a leaky gasket, but paying the plumber not on actual work provided but based on the amount of water that flows through the pipe. (Emphasis added)
The class action complaint states that the action against the University of Rochester
. . . is similar (but narrower in scope) to 18 separate lawsuits pending in federal district courts around the country.[] In each of [the] other lawsuits . . . plaintiffs allege a university defendant breached ERISA fiduciary duties by allowing TIAA to collect excessive fees from the university’s retirement plan. It appears TIAA exploited its rich heritage of being a non-profit low-cost financial service provider and duped universities into excessive fee arrangements. But now university plan participants are fighting back and demanding TIAA reduce its fees. It appears TIAA is willing to meaningfully reduce its fees if universities will just ask. By way of example, shortly after the University of Chicago was sued, it announced to its plan participants that it renegotiated TIAA’s fees, and successfully reduced fees on an annual basis by several million dollars. (Emphasis added)
Further, rather than “leveraging the Plan’s tremendous bargaining power to benefit Plan participants,” the University of Rochester, allegedly, “failed to adequately take proper measures to understand the real cost to Plan participants for TIAA’s services, to properly inform participants of the fees they were paying to TIAA as required by law, and most importantly, to act prudently with such information. As a result, Plan participants pay excessive fees for TIAA’s services.” (Emphasis added)
401(k), 403(b), Employee Stock Ownership & Other Retirement Plan Participants
If you believe your retirement plan investments have suffered losses due to imprudent investments, breaches of fiduciary duty, misrepresentations, excessive, unreasonable or undisclosed retirement plan fees or other corporate wrongdoing by retirement plan administrators and managers, please contact Kehoe Law Firm, P.C. by completing the form above on the right or sending an e-mail to [email protected].
Apr 17, 2018 | Overtime & Wages
Fair Labor Standards Act & Higher Education Overtime Compensation
The Fair Labor Standards Act requires that a non-exempt employee receive minimum wages, as well as overtime pay whenever he or she works more than 40 hours in a workweek.
Section 13(a)(1) of the FLSA, however, exempts certain employees who perform bona fide executive, administrative, professional, and outside sales duties from minimum wage and overtime requirements. These exemptions are often called the “white collar” exemptions.
General Requirements for the “White Collar” Exemption
To qualify for a “white collar” exemption, an employee must generally satisfy three tests:
- The employee must be paid on a salary basis that is not subject to reduction based on the quality or quantity of work (the “salary basis test”), rather than, for example, on an hourly basis;
- The employee must receive a salary at a rate not less than $455 per week (the “salary level test”); and
- The employee’s primary duty must involve the kind of work associated with the exempt status sought, such as executive, administrative, or professional work (the “duties test”).
NOTE: The U.S. Department of Labor is undertaking rulemaking to revise the regulations located at 29 C.F.R. part 541, which govern the exemption of executive, administrative, and professional employees from the FLSA’s minimum wage and overtime pay requirements. Until the Department of Labor issues its final rule, it will enforce the part 541 regulations in effect on November 30, 2016, including the $455 per week standard salary level.
Various Types of Exemptions for Common Higher Education Jobs
Teacher Exemption
A teacher is exempt if his or her primary duty is teaching, tutoring, instructing, or lecturing to impart knowledge, and if he or she is performing that duty as an employee of an educational establishment. See 29 C.F.R. § 541.303.
Educational establishments include elementary school systems, secondary school systems, institutions of higher education, and other educational institutions. See 29 C.F.R. § 541.204(b).
If a bona fide teacher meets this duty requirement, the salary level and salary basis tests do not apply. See 29 C.F.R. §§541.303(d), 541.600(e). Given these standards, professors, instructors, and adjunct professors typically qualify for this exemption.
A faculty member who teaches online or remotely also may qualify for this exemption. The regulations do not restrict where bona fide teaching may take place, to whom the knowledge can be imparted, or how many hours a teacher must work per week to qualify for the exemption. The exemption, therefore, would ordinarily apply, for example, to a part-time faculty member of an educational establishment whose primary duty is to provide instruction through online courses to remote non-credit learners. The exemption could likewise apply, for example, to an agricultural extension agent who is employed by an educational establishment to travel and provide instruction to farmers, if the agent’s primary duty is teaching, instructing, or lecturing to impart knowledge. To determine a teacher’s primary duty, the relevant inquiry in all cases is the teacher’s actual job duties. Job titles or full/part-time status alone do not determine exempt status.
A teacher does not become non-exempt, merely because he or she spends a considerable amount of time in extracurricular activities (such as coaching athletic teams or supervising student clubs), provided the teacher’s primary duty is teaching.
Athletic Coaches
Athletic coaches employed by higher education institutions may qualify for the teacher exemption. After all, teaching may include instructing student-athletes in how to perform their sport. But a coach will not qualify for the exemption if his or her primary duties are recruiting students to play sports or visiting high schools and athletic camps to conduct student interviews. The amount of time the coach spends instructing student-athletes in a team sport is relevant, but not the exclusive factor, in determining the coach’s exempt status.
Professional Employees
The FLSA provides for several kinds of exempt professional employees—such as learned professionals, creative professionals, teachers, and employees practicing law or medicine. In higher education, employees eligible for the professional exemption are often either teachers (as previously discussed) or learned professionals (as discussed below).
To qualify as a learned professional, the employee must satisfy three requirements:
- The employee’s primary duty must be the performance of work requiring advanced knowledge;
- The advanced knowledge must be in a field of science or learning; and
- The advanced knowledge must be customarily acquired by a prolonged course of specialized intellectual instruction.
See 29 C.F.R. § 541.301. Unless the employee is a teacher or practicing law or medicine, he or she must also satisfy the above-referenced salary basis and salary level tests to be an exempt professional.
In higher education, examples of exempt non-teacher learned professionals generally include certified public accountants, psychologists, certified athletic trainers, and librarians. Postdoctoral fellows, who conduct research at a higher education institution after completing their doctoral studies, likewise generally meet the duties requirements of the learned professional exemption, and they may additionally qualify for the teacher exemption if teaching is their primary duty. Of course, an employee’s qualification for the exemption depends on his or her actual job duties and education. Job titles alone are not sufficient for determining whether an employee satisfies the duties test.
Administrative Employees
Various employees at higher educational institutions may qualify as exempt administrative employees. The administrative exemption applies when the following requirements are met:
- The employee’s compensation must satisfy the above-referenced salary basis and salary level tests;
- The employee’s primary duty must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
- The employee’s primary duty must include the exercise of discretion and independent judgment with respect to matters of significance.
See 29 C.F.R. § 541.200. Such administrative employees in higher education might include, for example, admissions counselors or student financial aid officers. An employee’s qualification for the exemption depends on his or her actual job duties; job titles alone are not sufficient for determining whether an employee satisfies the duties test.
Notably, there are specific regulatory provisions for certain administrative employees—known as “academic administrative employees”—whose primary duty is performing administrative functions directly related to academic instruction or training in an educational establishment.
To be exempt as an academic administrative professional:
- The employee must satisfy the above-referenced salary basis and salary level tests or receive a salary of at least the entrance salary for teachers in the same educational establishment; and
- The employee’s primary duty must be to perform administrative functions directly related to academic instruction or training in an educational establishment.
See 29 C.F.R. § 541.204. Employees who work in higher education but whose work does not relate to the educational field (such as work in general business operations) do not qualify as exempt academic administrative employees. See id.
In higher education institutions, exempt academic administrative personnel generally include department heads, intervention specialists who are available to respond to student academic issues, and other employees with similar responsibilities. Exempt administrative personnel would likewise generally include academic counselors who administer school testing programs, assist students with academic problems, and advise students concerning degree requirements. Again, whether an employee satisfies the duties test for these exemptions depends on the employee’s actual job duties, not just the employee’s job title.
Executive Employees
To qualify for the executive exemption, an employee must satisfy the following tests:
- The employee must receive compensation that satisfies the above-referenced salary basis and salary level tests;
- The employee’s primary duty must be managing the enterprise or a customarily recognized department or subdivision thereof;
- The employee must customarily and regularly direct the work of at least two or more other full-time employees or their equivalent (for example, one full-time and two half-time employees); and
- The employee must have the authority to hire or fire other employees, or in the alternative, the employee’s suggestions and recommendations as to the hiring, firing, advancement, promotion, or any other change of status of other employees must be given particular weight.
See 29 C.F.R. § 541.100. Various positions in higher education institutions might qualify for the executive exemption, including deans, department heads, directors, and any other manager or supervisor whose job duties and compensation satisfy the above criteria.
Student-Employees
As a general matter, most students who work for their college or university are hourly non-exempt workers and do not work more than 40 hours per week. The following, however, are examples of students who often receive a salary or other non-hourly compensation:
- Graduate Teaching Assistants. Graduate teaching assistants whose primary duty is teaching are exempt. Because they qualify for the teacher exemption, they are not subject to the salary basis and salary level tests.
- Research Assistants. Generally, an educational relationship exists when a graduate or undergraduate student performs research under a faculty member’s supervision while obtaining a degree. Under these circumstances, the Department would not assert that an employment relationship exists with either the school or any grantor funding the student’s research. This is true even though the student may receive a stipend for performing the research.
- Student Residential Assistants. Students enrolled in bona fide educational programs who are residential assistants and receive reduced room or board charges or tuition credits are not generally considered employees under the FLSA. They therefore are not entitled to minimum wages and overtime under the FLSA.
An employment relationship will generally exist when a student receives compensation and his or her duties are not part of an overall education program. For example, students who work at food service counters, sell programs or usher at events, or wash dishes in dining halls and anticipate some compensation (for example, money or meals) are generally considered employees entitled to minimum wage and overtime compensation.
Compensatory Time at Public Universities
Public universities or colleges that qualify as a “public agency” under the FLSA may compensate non-exempt employees with compensatory time off (or “comp time”) in lieu of overtime pay. A college or university is a public agency under the FLSA if it is a political subdivision of a State. When determining whether a college or university is a “political subdivision,” the Department considers whether (1) the State directly created the entity, or (2) individuals administering the entity are responsible to public officials or the general electorate.
If the public university or college qualifies as a public agency, non-exempt employees generally may not accrue more than 240 hours of comp time. However, employees engaged to work in a public safety activity, an emergency response activity, or a seasonal activity may accrue as much as 480 hours of comp time. See 29 U.S.C. 207(o)(3)(A). Private higher education institutions may not pay employees comp time in lieu of overtime pay.
Source: U.S. Department of Labor, Wage and Hour Division, Fact Sheet #17S: “Higher Education Institutions and Overtime Pay Under the Fair Labor Standards Act (FLSA),” March 2018.
Apr 11, 2018 | Blog
Is it Illegal to Condition Warranty Coverage on the Use of Specified Parts or Services?
On April 10, 2018, the Federal Trade Commission announced that it sent warning letters to six major companies that market and sell automobiles, cellular devices, and video gaming systems in the United States.
The letters warn about the FTC’s concerns about the statements of the companies that consumers must use specified parts or service providers to keep their warranties intact. Unless warrantors provide the parts or services for free or receive a waiver from the FTC, such statements, generally, are prohibited by the Magnuson-Moss Warranty Act, a law that governs consumer product warranties. Similarly, such statements may be deceptive under the FTC Act.
FTC staff recently took a closer look at the warranties and promotional materials of the various companies and saw language that raised concerns that some businesses were telling consumers that their warranty would be void if they used unauthorized parts or service. The following are examples of the language of the questionable warranty provisions:
The use of [the company’s parts] is required to keep your . . . manufacturer’s warranties and any extended warranties intact.
This warranty shall not apply if this product . . . is used with products not sold or licensed by [company name].
This warranty does not apply if this product . . . had had the warranty seal on the [product] altered, defaced, or removed.
FTC staff suggested that the companies review the Magnuson-Moss Warranty Act and, if necessary, revise their practices accordingly. The letters put the companies on notice that after 30 days, the FTC will be taking another look at their written warranties and promotional materials. FTC staff has requested that each company review its promotional and warranty materials to ensure that such materials do not state or imply that warranty coverage is conditioned on the use of specific parts of services.
Warranties Under the Magnuson-Moss Warranty Act and Its Two Exceptions
According to the Magnuson-Moss Warranty Act:
No warrantor of a consumer product may condition his written or implied warranty of such product on the consumer’s using, in connection with such product, any article or service (other than article or service provided without charge under the terms of the warranty) which is identified by brand, trade, or corporate name.
Thus, according to the FTC, a company cannot void a consumer’s warranty or deny warranty coverage solely because the consumer uses a part made by someone else or gets someone not authorized by the company to perform service on the product.
There are only two exceptions:
1) If the company provides the article or service to consumers for free; or
2) If the company gets a waiver from the FTC. Under 15 U.S.C. § 2302(c), the FTC may grant a waiver only if the company proves that “the warranted product will function properly only if the article or service so identified is used in connection with the warranted product, and the waiver is in the public interest.” Companies, according to the FTC, may, however, disclaim warranty coverage for defects or damage caused by the use of unauthorized parts or service.
Section 5 of the FTC Act’s Prohibition on Deception Applies to Misleading Warranty Claims
A violation of the Magnuson-Moss Warranty Act, according to the FTC, is a violation of Section 5 of the FTC Act. But separate and apart from Magnuson-Moss, a claim that creates a false impression that a warranty would be void due to the use of unauthorized parts or service may be a stand-alone deceptive practice under the FTC Act.
Source: FTC.gov
Apr 9, 2018 | Shareholder & Investor Protection
Important Things to Know About Ponzi Schemes Which Target Seniors
The SEC’s Office of Investor Education and Advocacy and Retail Strategy Task Force issued a warning to senior investors, many of whom have spent many years saving and investing, about fraudulent Ponzi schemes. In a Ponzi scheme, fraudsters use money they collect from new investors to pay existing investors. And what appears to be a return on your investment is actually money from another investor who has been swindled.
Ponzi Scheme Warning Signs
Promises of High Returns with Little or No Risk.
Guaranteed, high-investment returns are the hallmark of a Ponzi scheme. Every investment has risk, and the potential for high returns usually comes with high risk. If it sounds too good to be true, it probably is.
Unlicensed and Unregistered Sellers.
Most Ponzi schemes involve individuals or firms that are not licensed or registered. Even if an investment professional comes across as likeable or trustworthy, research the individual here to determine whether he or she is licensed and registered.
Overly Consistent Returns & Aggressive Sales Ploys
Investment values tend to fluctuate over time. Be skeptical of an investment that generates steady positive returns regardless of market conditions.
Be wary of aggressive sales ploys, such as pressure to buy immediately and persuasion tactics such as offering investment seminars with a free meal. Take your time deciding whether an investment is right for you and don’t give any money until you have confirmed for yourself that the seller is licensed and registered.
For investments that you already have, be suspicious if you have problems getting paid or if you are pressured to rollover your investments. Ponzi scheme promoters sometimes try to prevent investors from cashing out by offering even higher returns for staying invested.
SEC Ponzi Scheme Enforcement Actions
The SEC has brought enforcement actions involving Ponzi schemes aimed at seniors, including:
In the Lifepay Group, LLC matter, two defendants conducted an alleged Ponzi scheme that targeted seniors and their retirement savings. The SEC alleged that the defendants offered investors unregistered promissory notes, telling them that their money would be used for real estate investments that would generate high returns. To keep the Lifepay scam going, the defendants, allegedly, used the money of new investors to pay earlier investors and convinced investors to rollover their investments into new promissory notes for larger amounts. According to the SEC’s complaint, the defendants only invested a small portion of investor money in real estate and stole roughly $1.3 million to pay for personal expenses.
In the Woodbridge matter, the defendants, allegedly, conducted a $1.2 billion Ponzi scheme in which thousands of people invested their retirement savings. The SEC alleged that the defendants employed hundreds of sales agents to advertise through television, radio, newspaper, cold calls, social media, websites, seminars, and in-person presentations. According to the SEC’s complaint, although the defendants claimed that investors would get paid revenue from high-interest loans to third parties, the defendants really used money from new investors to pay returns owed to existing investors. One defendant allegedly used $21 million of investor money for his own extravagant personal expenditures.
Source: Investor.gov
