Cypen & Cypen
JULY 23, 2009
Stephen H. Cypen, Esq., Editor
1. OFFICER’S COMPLAINT THAT SUPERVISOR IS AUTOCRATIC NOT PROTECTED BY FIRST AMENDMENT:
Police sergeant complains up the chain that his lieutenant is too autocratic, and asks that he be removed from command. Instead, the sergeant was transferred or suspended, and he brought suit under Section 1983. The court was required to decide whether police officers’ complaints about their supervisors’ conduct may give rise to a constitutional violation. Here, they did not. The reality that poor interpersonal relationships among coworkers might hamper the work of a government office does not automatically transform speech on such issues into speech on a matter of public concern. At bar, speech took the form of internal employee grievances, which were not disseminated to the public. The dissent argued that the sergeant’s complaints clearly addressed at least two matters of public concern: the misconduct itself and the distinct question of whether the investigating officers were sweeping misconduct under the rug. Desrochers v. City of San Bernardino, Case No. 07-56773 (U.S. 9th Cir., July 13, 2009). Again, thanks to Chuck Carlson for his input.
2. CalPERS SUES RATING FIRMS OVER LOSSES:
According to the Los Angeles Times, California Public Employees’ Retirement System has sued the nation’s three top bond credit rating agencies for issuing wildly inaccurate ratings on investments that may have cost the plan over $1 Billion. The firms -- Standard & Poors, Moody’s Investors Service and Fitch Ratings -- termed the allegations baseless and said they would seek an early dismissal. The suit alleges that the rating firms negligently misrepresented financial strength of three structured investment vehicles they oversaw. The firms, which were compensated by the investment funds they rated, gave the vehicles -- Cheyene Finance, Stanfield Victoria Funding and Sigma Finance Inc. -- top scores that ultimately proved to be inaccurate and unreasonably high. The ratings relied on flawed assumptions and failed to note the potential danger that the underlying assets consisted in large part of risky subprime mortgages. What is more, the firms played an important role in creation and ongoing operation of the investment funds and commanded steep fees for giving them high marks. If the lawsuit survives dismissal efforts, it could still face an uphill battle: litigants have had a poor record of avenging losses from rating firms after investments have soured. One other note, the suit was filed in state court, which may be more skeptical of the rating firms than federal courts would be. (However, there are circumstances in which defendants can remove cases from state court to federal court.) Our prediction is that suits against rating agencies will be the next wave of litigation.
3. GASB ISSUES INVITATION TO COMMENT ON PENSION ACCOUNTING AND FINANCIAL REPORTING FOR GOVERNMENTAL PLANS:
Governmental Accounting Standards Board has issued an Invitation to Comment on Pension Accounting and Financial Reporting for Governmental Plans. The ITC is intended to obtain feedback from constituents at an early stage of the Board’s reexamination of its pension accounting and financial reporting standards. Interested parties are encouraged to review and provide input on the ITC by July 31, 2009. The ITC addresses key issues related to pension accounting and financial reporting that were raised during the research phase of this project. The topics considered in the ITC include process on which pension accounting and financial reporting should focus; recognition of liabilities and expenses; measurement of unfunded pension obligations; use of actuarial methods; and reporting by government employers in cost-sharing multiple-employer pension plans and reporting by pension plans themselves. The input received in response to the ITC will help the Board determine whether modifications to current pension standards should be proposed in order better to meet financial reporting objectives and accountability and decision usefulness, including enabling users of financial reports to assess the extent to which interperiod equity has been achieved.
4. GAO SURVEYS PUBLIC PENSION FUND INVESTMENT STRATEGIES:
United States Government Accountability Office has activated its Survey of Public Pension Fund Investment Strategies. A random sample of 265 state and local pension plans across the country, the survey will focus on investment strategies of state and local pension plans, including governance structures, asset allocations and any changes to strategies that may be made in response to the current market downturn. The survey was available for completion until July 20, 2009, but recipients could have requested an extension. The 17-page survey comprises 50 questions, designed to be answered by defined benefit pension plans. One of our pension board clients received the survey, which can be downloaded through https://websurveys.gao.gov/pensionplans.
5. BOSS RESTORES $5 MILLION FUND LOST TO MADOFF:
A Boston-area philanthropist paid out $5 Million of his own money to restore the retirement savings of his employees who lost their nest eggs to admitted swindler Bernard Madoff. Robert I. Lappin made up for lost savings of the 60 employees of his company and his private charity, whose 401(k) plans were managed by Madoff. Lappin himself lost about 90% of his personal fortune to Madoff, according to boston.com. Lappin has owned his company for over 50 years, and his charity helps send Jewish teens to Israel. When you have a few moments, look up the word mensch.
6. MISSOURI SECRETARY OF STATE MOVES AGAINST BROKER FOR PREYING ON SENIORS:
The Missouri Secretary of State has issued a cease and desist order against a broker for allegedly engaging in dishonest and unethical activities, making unsuitable recommendations to clients and failing to disclose required information. The broker urged individuals to “free up cash” or retirement savings by refinancing their fixed-rate mortgages and stopping contributions to 401(k) plans. The broker also advised investors to use those savings to purchase money market funds and variable universal life policies through his company. In addition to the cease and desist order, the Missouri Commissioner of Securities has initiated a separate proceeding to revoke the broker’s securities registration. Now there’s a real mensch -- not (see item 5 above).
7. IRS REMINDS TAXPAYERS TO TAKE ADVANTAGE OF RECOVERY ACT BENEFITS:
With 2009 now half over, Internal Revenue Service reminds taxpayers to take advantage of the numerous tax breaks made available earlier this year in the American Recovery and Reinvestment Act. The recovery law provides tax incentives for first-time home buyers, people purchasing new cars, those interested in making their homes more energy efficient and parents/students paying for college. But all of these incentives have expiration dates, so taxpayers should take advantage of them while they can:
IR-2009-067 (July 20, 2009).
8. SECURITIES CLASS ACTION FILINGS NOSEDIVE IN SECOND QUARTER:
New securities class action filings have dropped precipitously, according to The American Lawyer. A recent report identifies 87 federal securities class actions filed in the first half of 2009, a 22.3% decline from the 112 filings in the first half of 2008 (there were also 112 filings in the second half of last year). Only 35 filings occurred in the second quarter, the lowest quarterly number since the first quarter of 2007. The value of alleged losses due to stock drop following disclosure of negative information also fell. This year’s report put that number at a total of $48 Billion, well below the semi-annual average of $69 Billion. The decline may be because (1) most of the financial service industry’s biggest players were sued in 2007 and 2008, during the global financial crisis and (2) typically, class action filings are triggered by major stock drops, but the current market has been mostly on the rebound. Ponzi schemes account for 15 of the 87 filings so far this year, 11 of which were actions on behalf of investors and feeder funds or other intermediaries that invested with Bernard Madoff.
9. PLAINTIFF WHO VOLUNTARILY CASHED OUT OF ERISA PLAN HAS STANDING TO SUE FOR FIDUCIARY BREACH:
Harris sued Amgen, alleging that Amgen breached its fiduciary duties under Employee Retirement Income Security Act in operation of two ERISA retirement plans. The district court dismissed Harris’s claims on the ground that he lacked standing as an ERISA plan “participant” because he had withdrawn all of his assets from the plan. On appeal, the court reversed, holding that Harris had standing as an ERISA plan participant to seek relief under ERISA, despite having withdrawn all of its assets from his plan. Joining at least one other circuit (see C&C Newsletter for June 21, 2007, Item 2), the court held that when employees withdraw their funds from a benefit plan, but claim that they would have had more to withdraw absent breach of fiduciary duty by those managing the plan, it is not difficult to see a common sense loss of benefits in their plan caused by the alleged fiduciary breach. The employees who cash out of a defined contribution ERISA plan are still participants in that plan, regardless of whether they withdrew their assets voluntarily. Harris v. Amgen, Inc., Case No. 08-55389 (U.S. 9th Cir., July 14, 2009).
10. CalPERS REPORTS PRELIMINARY PERFORMANCE:
The California Public Employees’ Retirement System has released its preliminary 2008-2009 Investment Performance, noting a decline in market value of its assets 23.4% for the one-year period ending June 30, 2009. It was the most severe single year decline, but even so, CalPERS’ long-term 20-year investment return remained positive at 7.75%. In comparison, world equity prices declined 29.3% during the same one-year period. The drop in market value of assets is due primarily to impact of historic unprecedented declines in global financial markets and the liquidity crisis that followed worldwide, generating a global economic recession. As of June 30, 2009, market value of assets stood at $180.9 Billion. A year before, CalPERS’ market value of assets was $237.1 Billion, dipped to $160 Billion in March of 2009 and rebounded by $20 Billion in the last three months. (Yes, folks, mighty CalPERS was down almost one-third just a few months ago.) The System’s efforts to position the portfolio include:
CalPERS has recognized the need for eventual employer contribution increases out into the future, and recently adopted a special methodology to schedule employer contributions as a result of this single-year market decline of assets.
11. FIVE MORE LESSONS ON LIFE BY REGINA BRETT:
Here are the next 5 out of 50 lessons on life from the columnist:
12. DISORDER IN THE AMERICAN COURTS:
13. CREATIVE PUNS FOR “EDUCATED MINDS”:
Don't join dangerous cults: Practice safe sects!
14. QUOTE OF THE WEEK:
“I’m a great believer in luck, and I find the harder I work, the more I have of it.” Thomas Jefferson
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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.