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Cypen & Cypen
AUGUST 26, 2010

Stephen H. Cypen, Esq., Editor

1.            PUBLIC PENSION FUNDS REBOUND FROM 2009:  Public pension plans report double-digit returns for the 2010 fiscal year, recovering from record losses the previous year.  The rebound was due to better market returns and increasing allocations to fixed-income and alternatives investments.  An average 13.8% return was achieved by the 17 pension funds that have reported 2009-10 fiscal data reviewed by Pensions & Investments.  At 11.4%, the nation's largest pension fund, $211.4 Billion California Public Employees' Retirement System, had the lowest return of the 17 systems reviewed by P&I.  While CalPERS had gains in most asset categories -- including 30.9% in private equity -- total returns were reduced by a -37.1% return in the system's real estate portfolio.  (The fund's benchmark return was 15.84%.)  Meanwhile,  statistics from Wilshire’s Trust Universe Comparison Service show large public pension plans continued to push away from equities in the 2010 fiscal year.  Median allocation to equities among public plans with more than $1 Billion was 52.8% as of June 30, compared with 54.34% a year earlier.  For fiscal year ended June 30, 2007, plans had 61.55% of their assets in equities.  Fixed income stood at 27.5% at the end of June, down from 29.1% for the prior 12 months, but up from the 23.73% allocation in 2007.  The biggest increase came in alternatives:  While some plans had invested in them in 2007, they were so few, that Wilshire statistics showed a 0% median allocation then.  For the 2010 fiscal year, however, alternatives made up 7.63% of total plan assets. 

2.            CREDIT REPORTING AGENCY LIABLE FOR DISSEMINATING ERRONEOUS DATA:  A dispute arose when Cortez encountered problems with a credit report that Trans Union, LLC, sent to a car dealership where she was trying to purchase a car.  It stemmed from a Trans Union product called "OFAC Advisor" that confused Cortez's identity with the identity of someone with a similar name who was on a list compiled by the Treasury Department's Office of Foreign Assets Control.  Cortez brought the action under the Fair Credit Reporting Act after Trans Union failed to correct the problems with her credit report and respond satisfactorily to her inquiries.  The jury found that Trans Union failed to follow reasonable procedures to assure maximum possible accuracy in producing Cortez’s credit report, and was negligent in so doing.  The jury concluded that Trans Union wilfully failed reasonably to reinvestigate Cortez’s disputes after she informed the company of the erroneous OFAC alert it had included on her credit report.  The jury also found that Trans Union wilfully failed to note Cortez’s dispute on subsequent reports, and that it wilfully failed to provide Cortez all of the information in her file, despite her requests.  The jury awarded her $50,000 in compensatory damages and $750,000 in punitive damages.  The district judge remitted the punitive award to $100,000, which Cortez accepted in lieu of a new trial.  The district judge also denied Trans Union's motion for judgment as a matter of law as to the compensatory damages award.  Cortez appealed the first ruling and Trans Union cross-appealed the second.  The Third U.S. Circuit Court of Appeals affirmed the order on appeal because a remittitur cannot be reviewed once plaintiff accepts the reduced award.  On a cross-appeal, the appellate court also affirmed:  The OFAC alert is part of the consumer’s “file” as defined in FCRA.  Cortez v. Trans Union, LLC, Case Nos. 08-2465 and 08-2466 (U.S. 3rd Cir., August 13, 2010). 

3.            FEDERAL APPEALS COURT REJECTS FRAUD-CREATED-THE-MARKET THEORY OF RELIANCE:  Malack and other investors directly purchased notes from American Business Financial Services, Inc.  The notes promised to pay interest well above the prime rate without involvement of underwriters or brokers, were non-transferrable, could only be cashed in after they matured and had no market for resale.  After American Business went bankrupt, Malack filed a putative securities fraud class action against BDO Seidman LLP, an accounting firm, alleging that its audits of American Business were deficient.  The district court, after a thorough analysis of possible approaches through which Malack might have obtained a presumption of reasonable reliance based on the fraud-created-the-market theory, denied class certification, concluding that the proposed class did not satisfy the predominance requirement.  The U.S. Third Circuit Court of Appeal granted permission for an interlocutory appeal.  The case turned on application vel non of the fraud-created-the-market theory of reliance. Without the presumption of reliance afforded by that theory, Malack could not receive class certification.  The theory's validity was an issue of first impression in the Third Circuit, and other Courts of Appeals were split over whether it should be recognized.  Here, the court joined the Seventh Circuit in rejecting the theory, and affirmed the District Court's denial of class certification.  Malack v. BDO Seidman LLP, Case No. 09-4475 (U.S. 3rd Cir., August 16, 2010).  (Meanwhile, a few days later, the Seventh Circuit affirmed a district court ruling that the market for a certain stock was thick enough to transmit defendants’ statements to investors by way of price.  That finding supported use of the fraud-on-the-market doctrine as replacement for individual reading and reliance on defendants’ statements.  However, the fraud-on-the-market doctrine should not be conscripted to serve some other function.  Schleicher v. Wendt, Case No. 09-2154 (U.S. 7th Cir., August 20, 2010).) 

4.            ACLU CHALLENGES ILLINOIS EAVESDROPPING LAW:  The American Civil Liberties Union has filed a lawsuit against the Illinois's eavesdropping law.  According to, the organization says the law has been used to charge people who have made audio recordings of public conversations with police officers.  ACLU alleges that the law violates citizens' first amendment rights.  Under Illinois law, like Florida, all parties present must agree before a public conversation can be recorded. 

5.            NEW YORK RETIREMENT FUND WILL CUT ASSUMED RATE:  New York State Common Retirement Fund will reduce the assumed rate of return on its investments to less than the 8% rate it has used for 10 years.  A reduction to 7.5% or 7.75% is likely, according to  The move will increase required contributions from the state and local governments, but will keep the $133 Billion fund as strong as it is now.  The fund had assets equal to about 107% of its future liabilities, being one of only a handful of states with fully funded pension systems (see C&C Newsletter for August 19, 2010, Item 8). 

6.            PENSION BENEFIT GUARANTY CORPORATION RELEASES ITS 2009 PENSION INSURANCE DATA BOOK:  Pension Benefit Guaranty Corporation was established by the Employee Retirement Income Security Act of 1974 to ensure that participants in defined benefit pension plans receive their pensions if their plans terminate without sufficient assets to pay promised benefits.  PBGC administers separate insurance programs to protect participants in single-employer and multiemployer plans.  PBGC has published the Pension Insurance Data Book annually since 1996 to present detailed statistics on PBGC program operations and benefit protections.  Here is a chart depicting PBGC data at a glance: 

Fiscal Year                        Single-Employer                        Multiemployer                        Combined
2009                                    Program                                    Program                                    Programs
(Dollars in millions)                        (Dollars in millions)                        (Dollars in millions)

Net Financial
Position                        -$21,077                                                -$869                        -$21,946

  Total Assets            $68,736                                                $1,459                        $70,195

  Total Liabilities            $89,813                                                $2,328                        $92,141

Revenue                          $1,822                                                     $95                           $1,917

Number of
Insured Plans            27,647                                                1,495                                    29,142

Number of
Participants                        33.6 million                                                10.4 million                        44.0 million

Number of
Payees                        753,861                                                134                                    753,995

Total Benefits
Paid                                    $4,478                                                >$.5                                    $4,478

Under its more-significant single-employer program, PBGC insures pension benefits of participants in most private-sector, single-employer, defined benefit pension plans.  (A single-employer plan is a plan that was not established pursuant to a collective bargaining agreement between the plan's participants and two or more unrelated employers.)  A defined benefit plan is a pension plan other than an individual account plan.  In a typical single-employer defined benefit plan, benefits are based on a formula that generally includes as inputs years of service and either a flat-dollar amount or the participant's average compensation.  If a plan terminates with insufficient assets to pay all promised benefits, PBGC will usually become statutory trustee of the plan and become responsible for paying benefits to the plan's participants and their beneficiaries.  PBGC pays benefits according to provisions of each individual pension plan, subject to legal limits.  The vast majority of participants in PBGC-trusteed plans receive all benefits they were promised by their plan.  PBGC does not index benefit payments (that is, once payments start, they are not increased).  However, the maximum guarantee limit is indexed to reflect increase in national wages.  For a plan with a termination date in 2010, the limit is $4,500.00 per month or $54,000.00 per year for a single-life annuity beginning at age 65.  The limit on maximum guarantee is adjusted for retirement ages other than 65.  The age-adjusted limit that will apply to a given participant is the limit for his age at plan termination if he has already retired, or the limit for the age at which he actually retires.  The limit is reduced if the benefit is not paid as a straight-life annuity.  (For example, the limit is reduced if the benefit is paid as a joint-and-survivor annuity.)  One very interesting bit of trivia:  the top ten firms presenting claims between 1975 and 2009, led by United Airlines’ $7.5 Billion, compose over 63% of all claims ever filed!  Bigger is better? 

7.            INVESTIGATION OF FIREFIGHTERS’ MYSTERIOUS:  Two years ago, the U.S. Department of Justice opened an investigation into possible flaws in prosecution of five people convicted in the 1988 deaths of six Kansas City firefighters.  But the department has yet to release a report, and advocates for defendants in the case are starting to question the extent of the effort so far, according to  Justice Department officials continue to decline comment on where the investigation stands, when it might be completed or even that it is, or was,  under way.  The inquiry involves investigation of five people who were convicted in the 1988 explosion-related deaths of the firefighters.  The trial occurred in 1997, nine years after the crime, and all five, one of whom recently died in prison, were sentenced to life with no possibility of parole.  The firefighters were killed in a blast while attempting to put out a fire in a trailer containing explosives.  The Justice Department’s current inquiry was sparked by a July 2008 story in The Kansas City Star, in which 15 witnesses alleged that a federal investigator pressured them to lie.  Prosecutors had no physical evidence linking defendants to the crime, and no eyewitnesses came forward for the trial.  Most of the government’s evidence was based on testimony from numerous witnesses who claimed that one or more of defendants admitted involvement in the crime. 

8.            ARM-WRESTLING LOSS SETS OFF FLORIDA MAN:  The Associated Press reports that a 25-year-old South Florida man went into a violent rage after losing an arm-wrestling match.  Erick Lee Blanton drove his pickup truck across a lawn, over a mailbox and at several people after losing the contest.  Witnesses told Fort Pierce police he also drew a rifle and pressed the barrel against the forehead of the man who beat him.  Police arrested Blanton shortly afterward, charging him with four counts of aggravated assault with a vehicle and one count of aggravated assault with a deadly weapon.  We wonder if this Bozo ever read Shaw’s Arms and the Man

9.            LIVING WITHOUT E-MAIL:   Here’s a short tale about living without e-mail.  Go to  We hope you enjoy it. 

10.            WORKPLACE FATALITIES REACH HISTORIC LOW:  Far fewer Americans died from on-the-job injuries last year, largely because fewer people were working -- especially in hazardous fields like construction.  Workplace fatalities due to injuries dropped to 4,340 in 2009, dowjonesnewswires reports, down 17% from 5,214 deaths the year before.  Last year's total was the lowest since tracking began 18 years ago.  In general, U.S. workplaces have grown steadily safer over time, with fewer deaths.  But the bulk of last year's drop in work-related fatalities likely came because the U.S. lost 4.7 million jobs that year.  There were 3.3 fatal work injuries per 100,000 full-time equivalent workers last year, down from 3.7 in 2008.  One reason is that the brunt of job losses last year occurred in some of the most dangerous industries.  The number of murders, another leading cause of workplace fatalities (really?), dropped only slightly, falling to 521 from 526 in 2008.  Among those killed were the 13 shot dead last November at Ford Hood in Texas.  The number of workplace suicides, which hit an all-time high of 263 in 2008, dropped to 237 last year. 

11.            ABA URGES APPELLATE COURT TO REJECT FTC “RED FLAG” POSITION:  The Federal Trade Commission has no authority to lump lawyers in with creditors in enforcement of regulations that govern prevention of identity theft, attorneys for the American Bar Association said in court papers filed in a federal appeals court in Washington, D.C.  According to, the ABA brief, filed in the U.S. Court of Appeals for the D.C. Circuit, responds to FTC papers that argue lawyers should be held to comply with so-called red flag rules that require financial institutions and creditors to develop identity theft prevention programs (see C&C Newsletter for September 3, 2009, Item 3).  FTC maintains that lawyers act as creditors when they provide legal services without immediately taking payment.  The ABA sued the FTC last year, winning a favorable ruling, which FTC is challenging on appeal.  The ABA contends that the FTC is attempting to foist a regulatory scheme on lawyers without the slightest indication that Congress intended or desired such a result. 

12.            ALL PUNS INTENDED: A man woke up in a hospital after a serious accident. He shouted, "Doctor, doctor, I can't feel my legs!" The doctor replied, "I know, I amputated your arms!"

13.            OXYMORON: If love is blind, why is lingerie so popular?

14.            AGING JOKES: Remember: You don't stop laughing because you grow old, You grow old because you stop laughing.

15.            FABULOUS RANDOM THOUGHTS:  Obituaries would be a lot more interesting if they told you how the person died.

16.            QUOTE OF THE WEEK: “Fishing is a delusion entirely surrounded by liars in old clothes.”  Don Marquis

17.            KEEP THOSE CARDS AND LETTERS COMING:  Several readers regularly supply us with suggestions or tips for newsletter items.  Please feel free to send us or point us to matters you think would be of interest to our readers.  Subject to editorial discretion, we may print them.  Rest assured that we will not publish any names as referring sources. 

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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.

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