Tag Archive for 'fraud'

Internet Anonymity and the First Amendment

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Computer typing with a bag on headFederal courts have repeatedly held, to the point that it can probably be considered settled law, that the First Amendment gives people commenting on the Internet the right, albeit a limited one, to anonymity. The reasoning is that anonymity allows a person to express views without fear of reprisals by people who disagree, and that for the government to compel an anonymous commenter would have a chilling effect on speech, thereby violating their First Amendment rights.

But what happens when an “anonymous” poster on the Internet says something that might be legally actionable, such as defamation or fraud? The issue of the constitutional right to Internet anonymity usually comes up when someone wants to sue an anonymous speaker for defamation.

Here’s how the procedure usually goes: on a website blog, or blog comment, an anonymous poster says something that might be grounds for a lawsuit – usually it’s something defamatory about someone else. The subject of that statement hears about it somehow, and decides they want to sue whoever wrote the comment. Of course, you can’t sue someone if you don’t know who they are. So, the plaintiff will file a lawsuit against the person who wrote the defamatory statement, naming the speaker as an anonymous or “Doe” defendant (the plaintiff will be identified as “John Doe” until their identity can be ascertained). Once the lawsuit is filed, they will then serve the relevant website or Internet service provider (ISP) with a subpoena, demanding that they reveal the identity of the person who made the anonymous post. At that point, the major constitutional issue is whether or not the court should enforce that subpoena.

The Electronic Frontier Foundation (via the Volokh Conspiracy) has a good analysis of the basics of this issue. Basically, if you want to sue an anonymous poster for defamation, you have a few initial hurdles you must first clear. The biggest one is convincing a court that your rights, which were allegedly violated by the speaker’s words, outweigh the speaker’s First Amendment right to speak anonymously.

However, a federal court has recently thrown something of a wrench into this doctrine, holding that the privacy protections that apply to defendants in cases brought by private litigants do not apply to lawsuits brought by the federal government. In this case, the SEC brought a lawsuit against the owner of an anonymous email address, which the government alleged was being used to promote certain stocks in an illegal “pump and dump” scheme.

While I certainly don’t condone fraudulent manipulation of stock prices, I find this ruling somewhat disturbing. Even if the result is appropriate, the means by which the court arrived at it are unsettling. In other words, I think that this person was engaging in illegal and immoral activities, and his identity should have been unmasked. However, I don’t think the court should have dispensed with the test that balances the interests of the parties.

This sets what I believe to be a dangerous precedent, in which the government can unmask an anonymous writer without more than a suspicion that their writings might be unlawful. While the guy who was fraudulently manipulating stock prices certainly deserves whatever punishment he got, the next person subject to this power might not be so clearly guilty.

For example, what if the government wants to unmask the identity of someone who writes under a pseudonym, and touts extreme and unpopular political views, which the government believes might lead to violence, even though the speaker never advocates violence? While there may certainly be a governmental interest in keeping an eye on such a person, there is no question that they have a right to express their views, no matter how strange or extreme those views may be.

If speakers know that their identity can be easily unmasked, they may well decide that they shouldn’t take the risk of expressing their views online, which definitely isn’t what free speech is about.

This story is also an object lesson to ordinary internet users, and it’s something we’ve known since Al Gore invented the Internet: anonymity online is 100% illusory. There is basically no such thing as “anonymous” speech on the Internet. I’m not praising or criticizing that fact – I’m just saying that, by the Internet’s very nature and architecture, it’s impossible to be completely anonymous online.

So, if you are about to make a “brilliant” comment on a YouTube video, here’s some advice: before you click “post” ask yourself if you would want everyone in the world knowing the name of the person behind your online handle. If not, maybe it’s best to keep your thoughts to yourself. I’m not saying you shouldn’t express opinions. All I’m saying is that, in the modern world, you should never assume that you are truly anonymous, because you probably aren’t.

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Suing For Wrongful Termination And Stopping Corporate Fraud Under The Sarbanes-Oxley Act

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It’s always nice to see when a universal scumbag finally gets his comeuppance.  It’s especially cathartic when that scumbag is Tom DeLay, or as he’s known to anyone in America who’s not in the top 10 percent income bracket, the reason why it seems harder and harder to trust the government these days.  Not only is Delay the reason why I thought these Onion articles could be real, but he also unfortunately epitomizes what’s wrong with Washington DC politics, the legislative process, and most of all the corporate entity.

Though the fallout of DeLay’s mess isn’t all bad.  Thanks to all his money laundering and various other frauds finally being brought to light, his and his fellow corrupt contemporaries’ horrible acts of criminal deceit laid the way for some sanity and fairness to finally come to pass.

The Sarbanes-Oxley Act is the first in what I hope will be many more legislative acts of its kind.  Though passed in 2002, three years prior to DeLay’s indictment, thanks to DeLay and the continually parade of newly-outted others of his ilk, the legal challenges that followed the Act’s passage were made all the easier to strike down.

The Act imposes a number of new requirements on corporations that are designed to prevent fraud and protect employees and investors, while also holding those who commit the violations criminally and civilly liable.  Essentially, the Act requires corporations to fully report their finances to the Securities and Exchange Commission.  This includes so-called “off-balance sheets” which is a fancy accounting term meaning the part of a corporation’s income report where they’re hiding their massive losses.  This is to help ensure the kind of financial disasters our country’s economy has been taking suffering through lately won’t happen again.

However more importantly, the Sarbanes-Oxley Act not only allows whistleblowers to report financial fraud to the SEC, but also requires it.  Prior to the enactment of the Act, corporate insiders were under no duty to report fraud as they possessed a fiduciary duty to their employer.  Sarbanes-Oxley created an exception to this fiduciary duty that allows employees who discover fraud to report it to an outside agency like the SEC.  Employees are supposed to do this after they first bring the fraud to the attention of their superiors, reporting up the chain of command until someone within the company finally acts to correct it.  If no one does, then the employee must report the fraud to the SEC.

As you can probably tell, this Act isn’t all too appreciated by the corporations out there, who’ll probably be pretty angry at the employees who rat them out.  Fortunately for the employees, Sarbanes-Oxley not only protects employees by preventing corporate employers from firing whistleblowers acting in compliance with the Act, but also allows these employees to sue for wrongful termination if they are terminated in retaliation.

In a sense, Sarbanes-Oxley has created a new class of protected employee: the corporate whistleblower.

So, for all you corporate employees out there who know your bosses are cheating Uncle Sam, remember you have a duty to make sure they stop doing it.  And if they don’t, report them.  It’s not only the right thing to do because it will protect your and the public’s livelihood in the long run, but also because you won’t have to worry about them canning you.  And if they do, well, then they just threw themselves in a pretty expensive wrongful termination lawsuit.  Just remember to take the proper steps before you act though, and if you’re still not sure on how to proceed, ask an attorney – that’s what they’re for after all.

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Condominium and Apartment Buyers Using Old Law to Get Out of Mortgage

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The housing market crash has left many buyers deeply regretting their “pre-Apartment Photosmarket-crash” decision to purchase real estate. Not only that, but because of the ensuing tightening of the credit market, many buyers have no longer been able to make their mortgage payments. Spurred on by these conditions, buyers are now relying on an obscure 1968 federal law to get out of their contracts and undo these real estate transactions.

The federal law the buyers are relying on is the Interstate Land Sales Full Disclosure Act (or ILSA). This statute was originally enacted to protect buyers of out-of-state land from unscrupulous developers. Often times, these out-of-state buyers didn’t have a chance to inspect the land before purchasing it. When they did manage to venture out on the land after buying it, the property would turn out to be relatively cheap or worthless for any development.

However, the buyers relying on this statute today have been adequately informed about their property. The reason this statute still works for them though, is because courts have been increasingly stretching the anti-fraud provisions of this statute to include almost any omission by the seller. Many courts have now been holding that simple omissions in the contract or other paperwork constitute fraud. These include simple omissions that were often overlooked by real estate professionals in the real estate boom, such as failing to include a legal description of the property in the contract.

So how exactly does ILSA work today? The statute is rather complicated and technical, but below is a quick overview of how ILSA works today:

1. The original wording of the statute has it applying to property with subdivisions of 100 or more lots. Today, this includes condominiums in a condominium building, homes in a community, apartment units in an apartment complex, and any other subdivision of land sold pursuant to a common plan.

2. The regulations apply to both in-state and out-of-state purchases. Although the statute was originally enacted to protect buyers from out-of-state sellers, the regulations still apply if the seller used interstate commerce to market the property. This means the statute applies to sellers who mailed a letter, used a telephone for marketing purposes, or even advertised over the internet.

3. If the statute applies, then sellers are required to register the property with the U.S. Department of Housing and Urban Development. Furthermore, they must give prospective buyers a pre-approved “Property Report.” Many sellers are adamant about providing a Property Report, which is a fairly long document, so check to see that the seller has complied with these requirements.

4. In addition, sellers may not use fraud or make misrepresentations in the course of selling the property. As I mentioned earlier, courts have been increasingly lenient in interpreting what constitutes fraud. Many cases of fraud include, for the most part, simple and harmless omissions. But the consequences are enormous; if courts find that ILSA has been violated, then the penalty is usually recession of the contract.

5. There is one notable exception to these rules: if the seller agrees to build the property within two years after the buyer signs the purchase agreement, then ILSA does not apply.

In any case, the statistics show the increasing relevance of ILSA today. Traditionally, only about 10 to 20 ILSA court decisions would come out a year. However, last year there were 69 court decisions around ILSA, and for this year, at least 50 court decisions so far. Furthermore, in a recent report by a New York real estate organization, buyers of 131 New York City condominiums (with a net worth of 132 million dollars) were trying to use ILSA to get out of their contracts.

There is no doubt in my mind that courts have been influenced by the housing crisis, and have used the statute as a way to help buyers out of a financial mess. Personally, I believe if we really want to help buyers get out of their contracts, it’s the legislature job to do something about it, and not necessarily the courts. But as long as courts seem to be favoring buyers in this respect, it’s one more tool for buyers to be aware of and store away in their arsenal for future use.

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Legal Gray Area: Getting Arrested For Haggling?

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We all have that friend.  You know, the friend who’s a screw-up, yet for some reason we can never seem to leave them in their own screwed up mess.  Instead, we have to help them until we also get dragged down.  The kind of friend epitomized by Edward Norton’s character in Rounders.  The kind of friend who gets us beat up and robbed, but by some unknown miracle can seem to make it up to us by shrugging their shoulders and buying us a hot dog.

No?  Don’t know him or her?  Well, once again I guess I’m the odd man out. . .

Anyway, unlike all you lucky people, I have an old friend in my life who can easily be categorized as the type of loveable screw-up described above.  He’s a fun guy and all, but every few weeks or so, like clockwork, he’ll ask a question that’s so random and out of the blue, that I feel almost compelled by some moral code to report him to the cops.  Don’t get me wrong, he’s hasn’t done anything illegal in his life for fear of being sent to Oz, but he’s just the kind of guy who’s always looking for a quick buck.

Last week he asked me if it was against the law to buy an expensive comic book from someone for a really cheap price if you know the comic is worth a lot, but convince the owner of the comic that it’s worth very little.  After arching my eyebrows and staring at him perplexed for a moment for fear that he was planning to do something stupid, I told him that it was illegal.  He was shocked, saying it was just really smart haggling and that I was lying to him.  But indeed, though I didn’t want him doing anything stupid, the scenario he described is actually illegal.

In legalese, this is what’s called “obtaining property (or theft) by false pretenses.”  It probably all comes as a bit of a shock to you guys out there on the interwebs, too, since these sorts of interactions were almost commonplace in our collective childhood playgrounds.  When I was a kid, I once bought a whole backpack full of Matchbox cars for a dollar from another kid who had found the bag on the street.  The kid had no idea how much more the cars were worth.  And yet, if I had done that as an adult, the cops could’ve probably thrown me in the slammer.  Thank goodness for this country’s forgiveness toward juvenile indiscretions.

Crime by false pretense is one of the first hypos that are thrown at first-year law students to try and rock their foundation on what they think is legal and not.  To most people, it’s just considered good haggling, but in reality, it’s actually a crime.  Essentially, false pretense can be broken down into three elements: (1) You know the actual value of the property owned by the other party, (2) you intentionally defraud the other party by way of false statements into believing their property is worth significantly less, (3) you take ownership of the property.

Now it would seem under the test described above, any haggling could be considered theft by false pretense.  However, that’s not actually the case.  People haggle all the time and negotiating for a better deal is fine and perfectly legal.  The reason is because generally in most haggling situations, both parties are usually considered to be somewhat sophisticated in that they are aware both aware of the actual value of the disputed property, but are willing to either buy it for more or settle for less based on their own needs.

The key to recognizing when a situation may be considered sale by false pretense is identifying the circumstances surrounding the false statement, and if the sale was for significantly less.  If you try to get the seller to lower his price a few bucks by attacking the quality of the product, then it’s probably fine.  However, if the seller has no idea what he has is worth hundreds of dollar and you get him to sell it to you for pennies, then you’ve probably committed a false pretense offense.

A person can still be liable even in more extreme examples. For instance, getting the seller to transfer title to his house to you in exchange for a fair payment, but never paying him once you get title.

This all might sound confusing to the average non-legal professional, and with good reason.  In law, everything comes down to the fine distinctions.  And like always, sometimes the best thing to do is consult with an attorney if you somehow find yourself in one of these iffy situations.

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Loser-in-Love Drops Fraud Class Action Lawsuit

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broken-heart-robotFor anyone who likes weird news like I do, you’ll be tickled to know that Sean McGinn, the loser at love who made a lawsuit out of his unfortunate nickname (which I just gave him), has dropped his lawsuit against Match.com.  Why did he drop it?  Because he’s a sensitive boy and can’t take all the meanie-weenies leaving ridiculing (and hilarious) comments about him on the internet.

For any of you unfamiliar with the site, Match.com is a dating website that purports to get over 86 million searches a month from its members looking for a love connection.  McGinn originally claimed in his class action suit that the website defrauded him because it didn’t tell him that most of its members have either cancelled their membership or have never become full members.  McGinn claims this deceptive practice led to many of his emails going unanswered which caused him emotional distress (and I’m sure many sleepless night pulling petals from roses).

Now to be fair to the crybaby…er… I mean McGinn, yeah, definitely meant McGinn, this was a class action suit with 15 other people joining McGinn on his crusade against loneliness (which also means there were 15 other equally sad and pathetic people).  Okay, I’ll stop now.

But this story got me thinking about whether McGinn actually had a leg to stand on.  I mean to most people this sounds like a funny, albeit frivolous lawsuit.  But he did state a claim that he was able to plead validly enough to be accepted to be heard before the court.  Though that’s still not saying much since we all know how easy it is in America to sue anyone for literally anything.

So this case would’ve come down to the evidence he had against Match.com and whether it showed his claim had enough of a legal basis to warrant awarding him his request for $5 million.  From not knowing anything else about the case other than what’s been released in the news, I’d say the answer is no.

Why?  Well, as much as we would all love to sue every company that advertises how great their product is, that’s just not possible.  Anyone familiar with basic contract law knows that the mere puffery (basically an advertising opinion designed to get people interest in a product, e.g. a car company that says their cars are the best) is not a valid claim for a lawsuit.  Though McGinn was suing on what appears to be a tort claim and not a breach of contract, I think the court would probably side with my assessment since allowing him to prevail would have open the floodgates to all kinds of other crazy lawsuits, especially class actions since they can be litigated for years on end.  Recent LegalMatch statistics show that most class actions involve more important matters, such as defective products and exposure to toxic substances, and not being lovelorn.

Courts want people to utilize the legal system to correct wrongs, but they don’t want to clog it with a lot of pointless claims; which sucks because I really thought I had a good false advertising lawsuit against these people.  I’m still waiting for my money back…

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