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Cypen & Cypen
SEPTEMBER 15, 2004

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


In a 2-1 decision, the Florida Third District Court of Appeal has affirmed an administrative order directing forfeiture of former Chief of Police Donald Warshaw’s city retirement benefits. The forfeiture came about because of Warshaw’s conviction of one count of mail fraud in violation of Title 18, United States Code, §1341. The federal conviction led to the Board’s application of Section 112.3173(3), Florida Statutes, which reads:

Any public officer or employee who is convicted of a specified offense committed prior to retirement, or whose office or employment is terminated by reason of his or her admitted commission, aid or abetment of a specified offense, shall forfeit all rights and benefits under any public retirement system of which he or she is a member...

“Specified offense” is defined in Section 112.3173(2)(e), Florida Statutes, to include embezzlement of public funds or any theft by a public employee or officer from his orher employer. As required by the statute, the Board held a hearing to determine whether Warshaw’s pension rights and privileges should be forfeited. Concluding that Warshaw had been convicted of specified offense, the forfeiture was ordered. Testimony before the Board revealed that Do the Right Thing (DTRT) is a nonprofit corporation formed to assist the city in recognizing and rewarding young adults and children for their contributions to the community. DTRT is financed principally by the city. Then-Police Chief Warshaw used the powers of his public office to arrange through the Miami City Commission for city funds to be transferred to DTRT bank accounts, for use by DTRT for city purposes. Warshaw, however, used part of those transferred funds to pay for personal, unauthorized matters over a period of years. Warshaw argued that he did not embezzle or commit a theft of public funds (thus there was no “specified offense”), as he embezzled or committed a theft only of DTRT funds. The court rejected the argument as thoroughly disingenuous:

Warshaw, as city police chief, arranged through the city commission for public city funds to be transferred to DTRT, which was mandated to use these city funds to carry out city functions, effectively as an alter ego of the city, and certainly as its agent. The funds never lost their character as public funds. Warshaw simply took two steps in order to have access to the public funds by (1) arranging to have the city funds transferred to DTRT, and (2) arranging for the city funds to be transferred from DTRT to him. Whether the funds remained with the city’s law enforcement trust fund or were transferred to DTRT, the funds were always slotted for public uses.

The court found it unnecessary to discuss the Board’s separate finding that Warshaw had also violated Section 112.3173(2)(e)(6), Florida Statutes, the so-called “catchall” provision. Warshaw v. The City of Miami Firefighters’ and Police Officers’ Retirement Trust, Case No. 3D03-2719 (Fla. 3d DCA, September 15, 2004).


On September 9, 2004, the Securities and Exchange Commission adopted amendments to rule 12b-1 under the Investment Company Act of 1940 that governs use of assets of open-end management investment companies (“funds”) to distribute their shares. The amended rule prohibits funds from paying for the distribution of their shares with brokerage commissions. The amendments are designed to end a practice that poses significant conflicts of interest and may be harmful to funds and fund shareholders. By way of background, funds buy and sell large amounts of securities each year for their portfolios -- in 2003 alone, mutual fund securities transactions totaled over $8 Trillion! Fund advisers choose which broker or dealer will effect transactions and can use commissions to reward brokers or dealers for promoting the sale of fund shares. Brokers are prohibited from conditioning the promotion of fund shares on receipt of brokerage commissions from the fund. However, since 1981, fund advisers have been permitted to follow a disclosed policy “of considering sale of shares that the fund issues as a factor in the selection of broker-dealers to execute portfolio transactions, subject to best execution.” No more, as of December 13, 2004 (the compliance date). The NASD has proposed a corresponding change to its rules, which is currently under review by the SEC.


The United States Government Accountability Office has issued a report entitled “Additional Transparency and Other Actions Needed in Connection with Proxy Voting.” In 1998, about 100 million Americans were covered in private pension plans having total assets of about $4 Trillion. Retirement security of plan participants can be affected by how certain issues are voted on during company stockholders meetings. Fiduciaries, having responsibility for voting on such issues on behalf of plan participants (proxy voting), must act solely in the interest of participants. Recent corporate scandals reveal that fiduciaries can be faced with conflicts of interest that could lead them to breach this duty. Because of the potential adverse effects such breach may have on retirement plan assets, GAO was asked to describe (1) conflicts of interest in the proxy voting system, (2) actions taken to manage them and (3) the Department of Labor’s enforcement of proxy voting requirements. As a result, GAO recommends that Congress consider amending ERISA (covering private-sector plans) to require fiduciaries to (a) develop proxy-voting guidelines, (b) disclose guidelines and votes annually and (c) appoint an independent fiduciary to vote the company’s own stock in its pension plan in certain instances. GAO recommends that DOL conduct another proxy enforcement study, and enhance coordination of enforcement strategies with the Securities and Exchange Commission. Although the Department of Labor generally disagreed with GAO’s recommendations, GAO still believes additional transparency and enhanced enforcement are needed. The complete 45-page report can be viewed at


Retired employees of the Rockwood Area School District sued the District and others after the District changed their health plan coverage pursuant to a new collective bargaining agreement it had negotiated with the union. Plaintiffs sought recovery under 42 U.S.C. §1983, arguing that the change violated their Fifth Amendment right to procedural due process. On appeal from dismissal of plaintiffs’ claims, the federal appellate court affirmed. The court found that plaintiffs’ constitutional challenge rested upon provisions in a collective bargaining agreement, and the only reasonable conclusion is that they should have known their health care benefits as retirees were subject to change pursuant to subsequent collective bargaining agreements. The agreement they relied upon for the source of a protected property interest in continued inclusion in a specific plan stated that different health care insurance could be substituted as long as it was equivalent. Thus, plaintiffs were clearly aware of the possibility of different, though equivalent, health care coverage in the future. Boyd v. Rockwood Area School District, Case No. 03-4124 (U.S. 3rd Cir., July 22, 2004). Note: Decision is captioned “Not precedential.”


In what sounds like a ‘croc to us, a man who swung an alligator at his girlfriend during an argument has been sentenced to six months in jail. According to an Associated Press report, David Havenner, of Port Orange, Florida, pleaded no contest to misdemeanor charges of battery and possession of an alligator. He changed his earlier plea of not guilty. According to Sheriff’s officials, Havenner had been keeping the 3-foot gator in his bathtub, before swinging it at his girlfriend during an argument. The girlfriend said that Havenner first beat her with his fists, then hit her with the gator as she tried to escape and then threw beer bottles at her as she fled their mobile home. Havenner told investigators that his girlfriend bit his hand because they had run out of alcohol. (Did she think his thumb was a tap?) Meanwhile, the alligator was released into the St. Johns River, where his fellow reptiles now call him “Swinger.”

Copyright, 1996-2004, 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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