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December, 1998

Stephen H. Cypen, Esq., Editor

1. A PRIMER ON AMERICAN DEPOSITARY RECEIPTS: First developed in 1927, an American Depositary Receipt (ADR) is a negotiable certificate representing ownership of shares in a non-U.S. company. The certificate is quoted and traded in U.S. Dollars and includes a ratio which correlates receipts to the amount of underlying shares, which are logically called American Depositary Shares. There are three levels of Depositary Receipts. A Level-1 ADR is a rather simple and efficient means of raising capital with minimal regulatory and reporting requirements. These ADRs are traded over-the-counter ("Pink Sheets") and on some exchanges outside the U.S. (See C&C Newsletter for September, 1996, Page 8 for a piece on Russia's ADR activities.) A Level-2 ADR is traded on an exchange, in compliance with the registration and reporting requirements of the Securities Exchange Act of 1934. However, the issuer did not file a registration statement at the time of listing. Companies issuing Level-2 ADRs must reconcile according to U.S. generally accepted accounting principles and meet listing requirements of the U.S. exchange on which the ADRs are listed. Unlike a Level-2 ADR, a Level-3 ADR is offered to the public at the time of listing. Therefore, in addition to meeting requirements of the Securities Exchange Act of 1934 and exchange's listing requirements, these companies must comply with the Securities Act of 1933 (meaning there will be even greater disclosure). Our readers know that for purposes of Chapters 175 and 185, Florida Statutes, ADRs are considered "foreign securities." Now that Chapter 98-134 (S.B. 1462) has amended Sections 175.071 and 185.06, Florida Statutes (1998), to allow trustees to invest up to 10% of plan assets in foreign securities (see Special Supplement to C&C Newsletter dated May 28, 1998, Pages 5-6), trustees should learn about ADRs.

"A shortcut is the longest distance between two points."

2. CLARIFICATION ON MICHIGAN DC/DB SITUATION: We previously reported that a Michigan defined contribution plan for public school employees was de-authorized late last year (see C&C Newsletter for January, 1998, Page 10). While that report was accurate, we failed to clarify that the new defined contribution plan is in place for other state employees (who represent only about one-quarter of all state retirement system assets). The new plan is mandatory for non-public school employees hired on or after March 31, 1997 and optional for such employees hired before that date. Few states are likely to follow Michigan's lead because only 6% of employees so eligible switched, including less than 4% who were non-vested (and almost always benefit from a defined contribution plan, which is front-end loaded). And the ultimate irony: the Republican Governor (who pushed through the legislation weeks before Democrats were scheduled to take over the legislature), the State Treasurer (who is sole trustee of state pension funds) and a powerful state representative (who shepherded the bill through the legislature) all opted to keep their sizeable defined benefit pensions!

3. POLICE OFFICERS MAY BE DISCHARGED FOR REASONS UNRELATED TO PROTECTED ACTIVITY: Two police officers supported a police benevolent association-sponsored survey concerning a municipality's police department. When they were later discharged, they filed an unfair labor practices charge alleging they were discharged for protected activities under Sections 447.501(1)(a) and (b), Florida Statutes. Those statutes generally prohibit public employers from discouraging membership in any employee organization. The Public Employees Relations Commission found against the officers, and they appealed to the Third District Court of Appeal. In affirming PERC's order, the appellate court found that the officers were discharged for reasons unrelated to the alleged protected activity: the discharged officers had coerced and intimidated other officers; improperly interfered with the internal investigation of them; and given untruthful statements to investigators. Once plaintiff establishes a prima facie retaliation case, a defendant may rebut the presumption by producing legitimate, non-retaliatory reasons for the adverse employment action. Dade County Police Benevolent Association v. Town of Surfside, 23 Fla. L. Weekly D2454 (Fla. 3d DCA, November 4, 1998).

"I know I'm paranoid. But am I paranoid enough?"

4. CLINTON PENSION COULD BE WORTH OVER SIX MILLION DOLLARS: Unless he is impeached by the House of Representatives and convicted by a two-thirds vote of the Senate, President Clinton is eligible to receive an annual pension of almost $152,000.00 after he leaves office. Presidential retirement compensation is not based on credited service or compensation. Instead, former Presidents receive an annual allowance based on cabinet salary levels, payable immediately upon termination of office regardless of age. Plan Sponsor reports that the present value of President Clinton's pension is over $6 Million. Remember that, at 52, President Clinton has a life expectancy of about 30 years. A former President's pension does not include office/staff allowances, mailing privileges and Secret Service protection (which can run as high as $650,000.00 per year).

5. SAN FRANCISCO ENDS TWO-TIER POLICE PENSION SYSTEM: A City Charter change adopted by referendum in November will end San Francisco's two-tier police officer retirement system in effect since 1977. Before the change, disability retirement benefits for police officers hired in 1977 and after were limited to 50%. New disability benefits, based on degree of disability (a concept foreign to Florida funds), can range as high as 90%. A separate change to the Charter permits police officers hired in 1977 and after to receive 75% of final salary rather than 70%, according to BNA.

6. CHANGE IN ILLINOIS LAW MAY HAVE COME AT BAD TIME: Pensions & Investments reports that after years of lobbying the Illinois legislature, local funds finally won a change in the state law that allowed them to boost their investments in equities from 10% to 45% as of January 1, 1998. And just when many local pension funds as-much-as quadrupled their equity commitment, the market began its third-quarter dive. From January to mid-July the Dow Jones Industrial Average rose about 15%. But from then until the end of September the DJIA declined 16%. Fortunately, most funds kept a majority of their money in government securities, which, with the flight to quality, boomed, generally offsetting equity losses.

7. FLORIDA COUNTY SETTLES AFFIRMATIVE ACTION CASE: We learned from an article in Local Government Law Weekly that Orange County, Florida agreed to pay $500,000.00 in damages and $1,000,000.00 in attorneys' fees and costs to settle a class action brought by 32 white male firefighters. The firefighters claimed that the County had an unwritten affirmative action policy that discriminated against them on the basis of race and gender. Apparently Orange County saw the handwriting on the wall: several recent cases have questioned affirmative action plans, including even ones actually developed under court authority.

8. BUCK SURVEY SHOWS DROP IN MUTUAL FUND EXECUTIVE COMPENSATION: A Buck Survey of the mutual fund industry reveals that the total compensation of mutual fund executives declined over 10% in 1998. But don't cry for me Argentina until you hear the specifics. Mutual fund chief executive officers declined 10.6% -- from $1,027,000.00 to $918,000.00. Total compensation for fixed income chiefs dropped 13.4% (to $565,500.00), while those in charge of equities suffered a decline of 11% (to $423,200.00). Is America a great country, or what?

"Money is the root of all evil, and man needs roots."

9. ARIZONA MEASURE WILL PROTECT PUBLIC PENSION SYSTEMS: Last month Arizona voters approved an amendment to the state constitution that will protect the state's four public retirement systems. The measure makes retirement systems' assets off limits to other uses, including as collateral for state borrowing. The systems cover virtually all state employees. As reported by BNA, the measure also requires funds to be subject to generally accepted accounting principles (a current practice) and prohibits benefits from being "impaired or reduced" -- meaning that while retirees' benefits can be increased they cannot be cut. We believe it's time to resurrect a similar measure that was proposed in Florida a few years back.

10. SUPREME COURT OF FLORIDA WILL DECIDE "GORT ACT" CONSTITUTIONALITY: We previously reported that the Florida Second District Court of Appeal held unconstitutional the "Officer Evelyn Gort And All Fallen Officers Career Criminal Act of 1995" (see C&C Newsletter for April, 1998, Pages 1-2). At the time we noted that the Second District's decision was in conflict with a decision of the Third District Court of Appeal. (The Second District covers the West Coast of Florida; the Third District covers Miami-Dade and Monroe Counties.) On May 25, 1998 the Supreme Court of Florida agreed to review the Second District's decision. Now, in another case, the Third District has followed its prior decision upholding constitutionality of the Gort Act and certified conflict with the Second District decision. Spann v. The State of Florida, 23 Fla. L. Weekly D2439 (Fla. 3d DCA, November 4, 1998).

11. STATE SENATOR DODGES "SUNSHINE AMENDMENT" BULLET: Acting on a question certified to it by Third District Court of Appeal (see C&C Newsletter for August, 1997, Page 10), the Supreme Court of Florida has held that the "Sunshine Amendment" is not self-executing. The Sunshine Amendment provides that a public office is a public trust and any public officer or employee who breaches the public trust for private gain shall be liable to the state for all financial benefits obtained by such actions. The amendment also provides that "the manner of recovery and additional damages may be provided by law." Because the Florida Legislature did not implement the amendment by legislative enactment, the Florida Supreme Court was obligated to affirm dismissal of the complaint against State Senator Alberto Gutman, who allegedly misused his position by receiving an inappropriate $500,000.00 fee. St. John Medical Plans, Inc. v. Gutman, 23 Fla. L. Weekly S595 (Fla., November 19, 1998).

"Kickbacks must always exceed bribes."

12. DEPUTY COURT CLERK NOT "PUBLIC EMPLOYEE": We have advised our readers that a deputy sheriff is not a public employee (see C&C Newsletter for June, 1997, Page 5). This conclusion stems from the statutory provision that sheriffs appoint rather than employ their deputies and that deputies have the same power as sheriffs. Similarly, the clerk of court is authorized by statute to appoint rather than employ deputy clerks, who have the powers of the clerk. Thus, a Florida District Court of Appeal affirmed dismissal of a deputy court clerk's claim that she was unlawfully terminated. However, because of the obvious distinctions between deputy sheriffs and deputy court clerks -- not the least of which involve the former's exercise of independent discretion in life or death situations -- the court certified to the Supreme Court of Florida the following question as one of great public importance: Are deputy court clerks, unlike deputy sheriffs, public employees within the contemplation of Section 447.203(3), Florida Statutes? Service Employees International Union v. Public Employees Relations Commission, 23 Fla. L. Weekly D2464 (Fla. 5th DCA, November 6, 1998).

13. WHISTLE-BLOWER MUST EXHAUST ADMINISTRATIVE REMEDIES: The City of Miami appealed a final judgment finding it liable to a police officer under Sections 112.3187-112.31895, Florida Statutes (the "Whistle-blower's Act"). Section 112.3187(8)(b), Florida Statutes, requires that any local public employee protected by the Act may file a complaint with the appropriate local governmental authority if that authority has established by ordinance an administrative procedure for handling such complaints. The City had established a Civil Service Board meeting those requirements. However, because the employee abandoned his petition filed with the Civil Service Board, the appellate court found his action for judicial relief was premature, reversed the judgment and remanded the cause for further proceedings. City of Miami v. Del Rio, 23 Fla. L. Weekly D2412 (Fla. 3d DCA, October 28, 1998).

"They say ignorance is bliss, but it's really not."

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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