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Cypen & Cypen
JULY 9, 2009

Stephen H. Cypen, Esq., Editor


Pacific Corporate Group Holdings will return $2.1 Million in management fees to New York State Common Retirement Fund, and adopt a code of conduct concerning hiring of placement agents, according to  The settlement halts an investigation by New York’s Attorney General into pay-to-play allegations.  PCG will adopt the Attorney General’s code of conduct barring it from using outside third-party marketers or placement agents when raising a fund in the United States, following others who have also acceded to the Attorney General’s demands (see C&C Newsletter for May 21, 2009, Item 15 and C&C Newsletter for June 18, 2009, Item 7). 


The Federal Reserve released welcome data in its June, 2009 report indicating that the economic situation may be stabilizing.  Disposable personal income rose by $142 Billion in the first quarter of 2009 and by $358 Billion since the first quarter of 2008, according to National Institute on Retirement Security.  The year-over-year gain is 3.4%.  Household debt is down about 0.6% from a year ago, while personal saving is way up:  $475 Billion in the first quarter of 2009 -- more than personal saving for 2005-2008 combined.  Apparently households have a little more money in their pockets because of the stimulus package pay cut.  With that money, many Americans seem to be focused on getting their financial houses in order by paying down debt and saving more.  Unfortunately, Fed data also indicate that household net worth plummeted 16% in the last year, presenting significant challenges for retirees and near-retirees, many of whom will not have time to recover losses to their retirement savings accounts and housing values.  For individuals fortunate enough to have access to a pension plan, however, the news is a bit brighter.  Despite significant losses that pension funds have endured along with all investors, such funds still have enough assets in reserve to pay promised benefits for years to come.  Further, pensions have a longer time horizon than individuals to recover losses.  A recent Standard & Poor’s analysis noted that most state and local pension plans deploy “smoothing” techniques that allow gains and losses to be smoothed in over longer periods than a single year.  This mechanism should give state and local governments “breathing room” to recover losses, rather than forcing higher contributions tied to the wild drop in the markets.  In coming years, the economy may be on the mend and state and local governments likely will be in a better fiscal position fully to fund their pension obligations.  The S&P analysis also indicates that prior to 2009 public pension funding ratios were generally strong, a finding consistent with a 2008 Government Accountability Office report, available at (although news media reports continue to mischaracterize funding levels).  A recent NIRS research report indicates that public pensions were prudent investors in the last market downturn.  This investment discipline, coupled with careful examination of the sustainable path forward, should enable plans to recover over time in a reasonable way.  The S&P’s analysts also indicate that state and local policymakers are not trending toward defined contribution accounts.  West Virginia and Nebraska actually moved back a pension system after a disappointing experience with individual accounts (see C&C Newsletter for June 11, 2009, Item 6), while Alaska legislators have been looking to reopen the pension plan they froze in 2005 (see C&C Newsletter for April 3, 2008, Item 11 and C&C Newsletter for May 28, 2009, Item 1).  NIRS Research is consistent with these findings:  switching to a DC plan can in fact increase costs, which is the last thing that struggling state and local governments need right now (see C&C Newsletter for August 21, 2008, Item 1). 


The Fair and Accurate Credit Transactions Act of 2003 directed financial regulatory agencies, including the Federal Trade Commission, to promulgate rules requiring “creditors” and “financial institutions” with covered accounts to implement programs to identify, detect and respond to patterns, practices or specific activities that could indicate identity theft.  FACTA’s definition of “creditor” applies to any entity that regularly extends or renews credit.  Hence, a pension board that has a deferred retirement option program permitting loans could be defined as a “creditor” subject to FACTA.  FTC has delayed enforcement of the new “red flags” rule from November 1, 2008 until August 1, 2009 to give creditors more time to develop and implement written identity  theft protection programs.  For entities that have a low risk of identity theft, such as businesses that know their customers personally (like pension boards), FTC has released a template to help them comply with the law.  A sample policy we have prepared for pension boards subject to the “red flags” rule is available at


Floridians have received less Federal stimulus money than any of their fellow Americans, despite an unemployment rate here that ranks among the highest in the country and a budget crisis that few states can match.  According to, Florida has received more total dollars than all but three other states from a stimulus pot of about $198 Billion for infrastructure projects and social services.  The total includes money Congress left for states to divide among themselves and other dollars that federal departments have already disbursed.  However, Florida received just $505 per person, which ranks last among the 50 states.  Florida’s unemployment rate of 10.2% remains higher than the rates of 37 other states.  Meanwhile, three of the four states with lowest percentages of people out of work -- North Dakota, South Dakota and Wyoming -- also received some of the highest per capita shares of stimulus money.  Florida’s low per capita rate is also surprising, given the political dynamics in the state, which remains a battleground  likely to be critical for President Obama in a potential 2012 reelection campaign. 


After months of fiscal manipulations to increase its worsening cash flow and ultimately unsuccessful negotiations with its labor unions, the City of Vallejo filed a Chapter 9 bankruptcy petition (see C&C Newsletter for September 11, 2008, Item 13 and C&C Newsletter for March 19, 2009, Item 1).  The City asserted it was insolvent and otherwise met the eligibility requirements under Chapter 9 of the Bankruptcy Code.  The International Association of Firefighters and the International Brotherhood of Electrical Workers appealed the bankruptcy court’s order that the City was eligible to file under Chapter 9.  (The Vallejo Police Officers’ Association reached an agreement with the City, and withdrew from the appeal.)  The United States Bankruptcy Appellate Panel of the 9th Circuit concluded that, based on admissible evidence, the bankruptcy court correctly found that the City was insolvent.  In addition, the Appellate Panel held that the record supported the bankruptcy court’s finding that the City desired to effectuate a plan under Chapter 9.  It also determined that the bankruptcy court erred in concluding that the City satisfied Chapter 9, by employing an incorrect legal standard.  The error, however, was harmless because the bankruptcy court’s finding that provisions of Chapter 9 were met was correct, and the alternative findings satisfied the statutory eligibility requirements.  The City filed its petition not to buy time, but because it ran out of time.  It negotiated with the unions regarding collective bargaining agreements from December, 2007 until days before its filing in May, 2008.  Negotiations with creditors were impractical, which may be demonstrated by the sheer number of creditors, the need to file a petition quickly to preserve assets or the need to act quickly to protect the public from harm.  Finally, any claim banks may have had against the City were not foreclosed or impaired by the court’s entry of the order for relief in the case.  Thus they lacked standing to appeal, and to hold otherwise would open the door for  possibility that all creditors have the right to participate in an appeal when the only question at issue is the debtor’s eligibility to file its petition.  In Re:  The City of Vallejo, Case No. EC-08-1244 (9th Cir., BAP June 26, 2009). 


The U.S. Government Accountability Office, the investigative arm of Congress, has established a presence on YouTube and Twitter to help users of such sites stay informed about GAO’s work.  GAO has previously posted videos on the YouTube channel, a free online video sharing service increasingly used by federal agencies as a communication tool.  To find GAO’s YouTube channel visit  Through its Twitter account, GAO will alert individuals when a GAO product is issued.  The agency has created two Twitter feeds, one for reports and testimony ( and another for legal products (  To follow GAO work, users can go to one of these links, set up their own Twitter account and then automatically receive notices whenever GAO releases a product.  More than 50 federal agencies and several members of Congress now use Twitter, a free social networking and micro-blogging service that allows users to send and read each others’ updates, as part of their public outreach efforts.  Tweet.  Tweet. 


Notes on office style: 

  • No casual Fridays, not ever. 
  • Always keep two clean shirts and a navy blazer in your closet at work.
  • Actuaries are the worst-dressed professionals, followed by IT guys and orthodontists.  [We did not insert this one ourselves.]
  • Don’t abuse the khakis. 
  • The only thing that belongs on the back of your chair is your back.
  • Never outdress your boss -- unless you expect to have his job shortly. 
  • Jackets go on hangers. 
  • Nothing starts the week better than a good shoe shine.  Except a promotion.
  • Exposed suspenders:  no. 

Anything else exposed:  definitely not.


Once an idiot, always an idiot?  Usually, which is both a good thing and a bad thing.  The bad thing is that you cannot fix these people.  If you understand this factor early in the process, you can save yourself a huge amount of time, agony and energy.  The good thing is that idiots are predictable.  You know in advance how they are going to react and respond to most situations, so make allowances for it.  People do change -- but not often.  People change when they want to, not when you want them to.  Most idiots are oblivious to their faults, and therefore never see the need to change.  This idiocy comes from It’s Called Work for a Reason


Here are the next 5 out of 50 lessons on life from the columnist: 

11. Make peace with your past so it won't screw up the present.
12. It's OK to let your children see you cry.
13. Don't compare your life to others. You have no idea what their journey is all about.
14. If a relationship has to be a secret, you shouldn't be in it.
15. Everything can change in the blink of an eye. But don't worry; God never blinks.


ATTORNEY: What gear were you in at the moment of the impact?
WITNESS: Gucci sweats and Reeboks. 


Time flies like an arrow.  Fruit flies like a banana. 


“If you could kick the person in the pants responsible for most of your trouble, you wouldn’t sit for a month.”  Theodore Roosevelt


Copyright, 1996-2009, all rights reserved.

Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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