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Cypen & Cypen
November 29, 2012

Stephen H. Cypen, Esq., Editor

1.  FLORIDA APPELLATE COURT EXTENDS “CATCH-ALL” PROVISION OF PENSION FORFEITURE LAW:  Bollone sought review of a final order of the Department of Management Services forfeiting all of his retirement system rights and benefits, except for return of his accumulated contributions, as of date of termination, because Bollone was a public employee convicted of a specified offense committed prior to retirement pursuant to section 112.3173, Florida Statutes. A Florida District Court of Appeal has affirmed.  Bollone was employed as an instructor with Tallahassee Community College, a Florida Retirement System-participating employer. Bollone was assigned a computer that belonged to TCC to assist him in the performance of his job duties, such as to create curriculum, and communicate with students and faculty. He did not share his faculty office with anyone, and he kept his faculty office locked when he was not there. Although computer technicians, custodial workers, TCC police, and the Mathematics and Science Division Office all had keys to Bollone’s office, they were not authorized to use Bollone’s computer.  As part of an ongoing criminal investigation, Leon County Sheriffs’ Office, discovered three images of child pornography on Bollone’s computer’s hard drive. The child pornography was associated with a program that was not part of the software installed by TCC, and could not be installed accidentally, but must be downloaded with the user's consent. Bollone did not contest his termination as an employee, but was subsequently charged with three counts of possession of child pornography, which are third-degree felonies, in violation of Section 827.071(5), Florida Statutes.  Bollone pled no contest to the three counts.  Bollone did, however, contest the Division of Retirement’s decision to forfeit his rights and benefits under FRS, pursuant to section 112.3173, Florida Statutes.  The Administrative Law Judge conducted a formal hearing, and recommended an order finding that Bollone not only possessed child pornography using the TCC computer that had been assigned to him; that his possession of child pornography was done willfully and with intent to defraud the public and TCC of the right to receive the faithful performance of his public duties as a professor at TCC; that Bollone was aware that use of his TCC computer to acquire or view child pornography was a violation of TCC policies; that the use of the TCC computer for possession of child pornography was contrary to the faithful performance of his duty as an employee, and was a breach of the public trust; that Bollone realized or obtained, or attempted to realize or obtain, a profit or gain, or advantage to himself through the use or attempted use of the power, rights, privileges, duties, or position of his TCC employment; that Bollone possessed child pornography for his personal gratification; and that he pled no contest to three counts of possession of child pornography, which are third-degree felonies. The ALJ recommended that the Department of Management Services issue a final order finding that Bollone was a public employee convicted of a specified offense committed prior to retirement pursuant to Section 112.3173, Florida Statutes, and directing forfeiture of his FRS rights and benefits, except for the return of his accumulated contributions as of the date of termination. Bollone filed no exceptions to the recommended order, and the Department entered a final order adopting the recommended order in its entirety. Section 112.3173(3), Florida Statutes, provides that 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 admitted commission, aid, or abetment of a specified offenseshall forfeit all rights and benefits under any public retirement system of which he or she is a member, except for the return of his or her accumulated contributions as of the date of termination.  A plea of no contest satisfied requirement of conviction.  The ALJ properly determined that the specified offenses proscribed in Sections 112.3173(2)(e)1.-5. did not apply.  However, Section 112.3173(2)(e)6, the "catch-all" provision, also defines a specified offense as the committing of any felony by a public officer or employee who, willfully and with intent to defraud the public or the public agency for which the public officer or employee acts or by which he is employed of the right to receive the faithful performance of his duty as a public officer or employee, realizes or obtains, or attempts to realize or obtain, a profit, gain, or advantage for himself or herself or for some other person through the use or attempted use of the power, rights, privileges, duties, or position of his or her public office or employment position.  Whether the crime for which former public officer was convicted qualifies as a specified offense depends on the way the crime was committed.  Thus, any felony can qualify as a specified offense, so long as the remaining conditions in the statute have been met. For example, the crime of conspiracy to commit mail fraud might not meet the definition of a specified offense if the public officer were to use the mail unlawfully in a private venture without disclosing the office held and without obtaining a benefit by virtue of the office. In contrast, this crime could meet the definition if the public officer had used the mail to solicit a bribe in return for a favor performed at the expense of the public.  The felony counts of possession of child pornography to which Bollone pled no contest do not in and of themselves necessarily constitute a specified offense. Rather, the statutory conditions of the "catch-all" category set forth above must be examined and applied to the conduct of the official or the employee in making this determination. Thus, in order to constitute a specified offense under section 112.3173(2)(e)6, Florida Statutes,  the criminal acts must be

         (a) a felony;
         (b) committed by a public officer;
         (c) done willfully and with intent to defraud the public or the employee's public employer of the right to receive the faithful performance of the employee's duty;
        (d) done to obtain a profit, gain or advantage for the employee or some other person; and
        (e) done through the use or attempted use of the power, rights, privileges, duties, or position of the officer or employee.
The first two elements of the "catch-all" provision, were not an issue, so the appellate court had to determine whether there was competent, substantial evidence in the record to support the ALJ's conclusion that the other three elements of the "catch-all" provision were satisfied.  A piece of cake: the court concluded there was competent, substantial evidence in the record to support the ALJ's conclusions that Bollone committed the felony of possession of child pornography willfully and with intent to defraud the public of the right to receive the faithful performance of his duties as a professor at TCC; that his earlier downloading and accessing child pornography proved his possession was done knowingly; that his intentional possession of child pornography on his TCC computer was contrary to TCC's policies and contrary to the faithful performance of his duties; that the public and TCC had a right to expect Bollone would not use the computer entrusted to him for criminal activity; and that the public was defrauded when Bollone used that public property to further his private interest in the possession of child pornography, a crime under the laws of Florida, and a breach of the public trust.  Bollone’s two primary arguments were not availing.  First, Section 112.3173(2)(e)6 does not provide that only economic gain can be considered personal gain.   Second, Bollone’s use of the public computer was a power, right and privilege of his position that he exercised to possess child pornography. Bollone v. Department of Management Services, Division of Retirement, 37 Fla. L. Weekly D2697 (Fla. 1st DCA November 26, 2012).
2.      FINANCIAL RISK TOLERANCE OF YOUNGER HOUSEHOLDS REBOUNDED FROM CRISIS:  U.S. mutual fund –owning households headed by younger investors have returned to a level of financial risk tolerance comparable to the level seen before the financial crisis of 2008, according to a newly-updated Investment Company Institute annual survey of households. In May 2012, the fraction of mutual fund–owning households younger than 35 willing to take above average or substantial financial risk to get higher investment returns was 39 percent -- up from a low of 31 percent in May 2010 and May 2011 and slightly higher than its 37 percent level in May 2008. At the same time, risk tolerance among households in the oldest age group -- aged 65 or older -- stood at 13 percent in May 2012, compared with 14 percent in May 2008.   The survey results were presented in two separate documents: Ownership of Mutual Funds, Shareholder Sentiment, and Use of the Internet, 2012 andCharacteristics of Mutual Fund Investors, 2012.  The annual survey also reported that in 2012, an estimated 53.8 million, or 44.4 percent of U.S. households, representing more than 90 million individual investors, owned mutual funds. While mutual funds are the most commonly held type of fund, 3.4 million households reported owning exchange-traded funds and 1.9 million households reported owning closed-end funds in 2012.  Other survey findings for 2012 include:  

  • More U.S. households owned mutual funds through tax-deferred accounts than owned mutual funds outside such accounts. In fact, more than twice as many U.S. households (49.3 million) owned mutual funds through employer-sponsored retirement plans, IRAs, and variable annuities, as owned mutual funds outside tax-deferred accounts (17.9 million).  
  • Most U.S. mutual fund owners had moderate household incomes and were in their peak earning and saving years. More than half of all households owning mutual funds had incomes between $25,000 and $99,999, and about two-thirds were headed by individuals between the ages of 35 and 64.  
  • A fund’s investment performance continues to be the most influential of the many factors that shaped shareholders’ opinions of the fund industry. About two-thirds of mutual fund shareholders indicated that fund performance was a very important factor influencing their views of the industry, and 40 percent cited fund performance as the most important factor.  
  • Mutual fund companies’ favorability rating tends to move with stock market performance. Mutual funds’ favorability among shareholders edged down from 69 percent in 2011 to 65 percent in 2012 as the stock market moved down over April and May 2012 to be relatively flat compared with a year earlier. In 2012, older mutual fund investors’ favorability ratings were higher than those reported by younger investors and more recent investors.  
  • Mutual fund owning households often used the Internet for financial purposes. More than nine-in-ten households owning mutual funds had Internet access. Among that group, more than eight-in-ten used the Internet for financial purposes.

The Investment Company Institute is a national association of U.S. investment companies, including mutual funds, closed-end funds, exchange-traded funds and unit investment trusts. ICI seeks to encourage adherence to high ethical standards, promote public understanding, and otherwise advance the interests of funds, their shareholders, directors, and advisers. Members of ICI manage total assets of $13.8 trillion, and serve more than 90 million shareholders.
3.      2013 STANDARD MILEAGE RATES UP 1 CENT PER MILE FOR BUSINESS, MEDICAL AND MOVING:  The Internal Revenue Service has issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.  Beginning on January 1, 2013 the standard mileage rates for the use of a car (vans, pickups or panel trucks) will be 

  • 56.5 cents per mile for business miles driven 
  • 24 cents per mile driven for medical or moving purposes 
  • 14 cents per mile driven in service of charitable organizations

The rate for business miles driven during 2013 increases 1 cent from the 2012 rate.  The medical and moving rate is also up 1 cent per mile from last year.  The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on variable costs.  Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.  IR-2012-95 (November 21, 2012) 
4.      FORMER SEC ASSISTANT INSPECTOR GENERAL MAKES LURID ALLEGATIONS IN COMPLAINT AGAINST SEC:  David Weber is an attorney with a law firm that specializes in fraud and forensic investigation, litigation, federal consumer protection, whistle-blowing, federal false claims act reporting, and financial regulatory compliance. Previously, Mr. Weber was the Assistant Inspector General for Investigations for the Office of Inspector General of the United States Securities and Exchange Commission.  As Assistant Inspector General for Investigations it was Mr. Weber’s duty to direct and supervise all criminal, civil, and administrative investigations into fraud, waste, or abuse concerning SEC programs and operations.  Weber has brought an action against the SEC and its chairperson after SEC officers and employees made malicious and defamatory statements against him in the news media, leaking personal information about him in violation of the Privacy Act, in response to his disclosures of SEC employee misconduct to the Commissioners of the SEC, and to members of Congress through meetings with Congressional Staff of SEC’s Oversight Committee.  Mr. Weber disclosed to the Commissioners and Congress that the acting Inspector General had engaged in misconduct, which compromised the integrity of several OIG investigations, including inquiries into the SEC’s mishandling of the Bernard L. Madoff and R. Allen Stanford Ponzi schemes.  Mr. Weber also disclosed to the Commissioners and Congress the existence of severe breaches of SEC and national stock market computer security.   To this day, SEC has still not adequately and fully disclosed and warned the stock exchanges of the breadth, severity, and nature of the information subject to compromise by misconduct of SEC employees and management.  Instead of immediately taking action to remedy these significant failures, including full notification of the breach to the exchanges, SEC officers and employees tried to cover-up and white wash these public relations disasters by discrediting Mr. Weber, and, ultimately wrongfully terminating his employment based on meritless allegations.  Remember, now, these are merely allegations, which have yet to be substantiated.  However, if even a small fraction of the alleged misconduct is confirmed, this country is in big trouble.  Weber demands declaratory and injunctive relief reversing his termination and suspension, reinstating him, awarding him back pay, raises, bonuses, benefits, overtime, reinstatement of seniority/tenure and other orders necessary to make him whole, as well as attorney’s fees and the costs, and finding that both his suspension and his termination were unlawful and in violations of his constitutional rights. Of course, Mr. Weber has demanded a jury trial.  Weber v. United States Securities and Exchange Commission, Case No.1:12-CV-01850 (U.S. D DC November 15, 2012).  Soap Opera fans can read the entire 75-page script at
5.       HIGH-YIELD STRATEGIES HAVE BORDERED ON SPECTACULAR -- SO FAR:  Considering the degree of uncertainty about economic growth over the last five years, returns in the high-yield corner of the market have been remarkable, according to  The sector outpaced both investment-grade bonds and equities for the 5 and 10 years ended in June, and came in just shy of stocks for three years. High yield also delivered better risk-adjusted performance than equities, as measured by the Sharpe ratio. Pushing high yield to such highs was a “virtuous” circle of macroeconomic and market factors. The Federal Reserve’s zero interest rate policies provided a favorable background.  Yields peaked at near 21% in early 2009 but glided down to about 9% in early 2010, and were 6.5% by the end of this September. Low rates enabled high-yield issuers to refund outstanding issues at reduced costs, improving their liquidity and credit outlook.  In turn, the generous coupons and solid financial health got the attention of investors, further supporting high-yield returns. Accordingly, assets in institutional high-yield strategies rose 71% between December 2007 and June 2012, to $347 billion.  About $34 billion of the $144 billion increase was new capital from investors. 
6.      SEC CHAIRMAN TO LEAVE:  Securities and Exchange Commission Chairman Mary L. Schapiro has announced she will leave her position as of December 14, 2012.  We wonder if it was before or after she was served with the complaint filed by David Weber (See Item 4 above).   
7.      KAISER COMMISSION ON MEDICAID AND THE UNINSURED ISSUES REPORT:  Kaiser Commission on Medicaid and the Uninsured has issued “The Cost and Coverage Implications of the ACA Medicaid Expansion: National and State-by-State Analysis.”  The central goal of the Patient Protection and Affordable Care Act is significantly to reduce the number of uninsured, primarily by expanding coverage through Medicaid and new Health Insurance Exchanges. The June 2012 Supreme Court decision effectively allows states to decide whether to adopt the Medicaid expansion. State policy makers will evaluate the health coverage, new costs, potential savings, and political/economic implications of the decision to implement the Medicaid expansion. This analysis provides national and state-by-state information about cost and coverage effects. The findings suggest that, by implementing the Medicaid expansion with other provisions of the ACA, states could significantly reduce the number of uninsured. Overall state costs of implementing the Medicaid expansion would be modest compared to non-ACA Medicaid spending and relative to increases in federal funds, and many states are likely to see small net budget gains. One table shows a comparison between the expenditure of no ACA and expenditure under ACA with all states expanding Medicaid.  For Florida it looks like the following:
          Expenditure Under no ACA baseline:              
          Federal   $146,971 million   
          State       $111,964 million   
          Total       $258,935 million
          Expenditure Under ACA with All States Expanding Medicaid
          Federal   $220,266 million   
          State       $120,849 million
          Total       $341,114 million   
9.      A BAD DAY AT HALLMARK:  We have been friends for a very long time.  Let's say we stop?
10.    DEFINITIONS:  FATHER:  A banker provided by nature.

11.    QUOTE OF THE WEEK:  Household tasks are easier and quicker when they are done by somebody else.   James Thorpe
12.    ON THIS DAY IN HISTORY:   In 1957, NY Mayor Robert Wagner forms a committee to replace Dodgers & Giants.
13.    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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