Business Law PaperNow that you have been exposed to some concept.docx

Business Law Paper
Now that you have been exposed to some concepts and topics
related to Business Law, you will write a paper on a topic
within "business law" that interests you.
For this paper, you must research and read a minimum of 6
articles from the Library Database. Integrate information from
all 6 articles into your paper. Find articles that expand the
topic (e.g., not simply repeating what is presented in the
textbook). Limit your search to full-text articles. Limit the
Publication Type to a Periodical or Trade Publication. Limit
the data of Publication from 2014 to 2018.
Paper Requirements:
You must use Full-Text Articles from a Periodical or Trade
Publication, published in 2014 to 2018: 40%. Your paper must
include a “Works Cited” page.
Present solid content, including paragraphs.
Convey your message using appropriate grammar, punctuation,
and spelling.
In-text citations are required. When you paraphrase information
from an article, you must use in-text citations, APA Style.
When you use a direct quote from an article, you must use in-
text citations, APA Style.
Paper Content: Exploration of the Topic. You must integrate
information from all 6 articles into your paper: 30%
Quality of Writing (e.g., grammar, punctuation, sentence
structure, etc). 30%
Use of Full-Text Articles from a Periodical or Trade
Publication, published in 2014 to 2018: 40%.
Deadline: Submit your paper in Brightspace, Activities
(Dropbox), by 10:00 pm on Sunday, November 2.
BTE 302 - Assignment 10

Jennifer Rolfes
Staying Power – Current ratio for the Home Depot is at 1.36
which is slightly down from the 2014 rate of 1.42 and slightly
up from 2013 which was 1.34. Industry average is 1.21 so
Home Depot runs above the industry standard which means
there could be only slight concern about their liquidity as
compared to others. Their debt to equity saw a spike from 2.24
in 2014 to 3.29 in 2015. 2013 was only 1.31 so it should be
noted that this ratio is steadily increasing. Industry average is
only 1.27. In reviewing the balance sheet, this increase is due
to a significant increase in long term debt over the last three
years and a decrease in stockholder’s equity, most of which is
due to treasury stock.
Earning Power – Home Depot’s gross margin has remained
steady at 34.8, 34.8, and 34.6 which is slightly lower then the
industry average of 36.17. Home Depot’s operation profit
margin and net margin have both seen a steady increase year
over year and both are above industry average. Being above the
industry average in this situation is good. 2015 operating profit
margin was 12.6% compared to the industry average of 11.59%
and the net margin was 7.6% compared to the industry average
of 6.96% so Home Depot did an excellent job in these two
categories.
Overall Efficiency Ratios – Based on Home Depot’s efficiency
ratios, they appear to be a well managed company. Their
Return on Assets has increased from 11% in 2013 to 15.9% in
2015. This is 2% higher than the industry average of 13.31.
Their return on equity far beats the industry average at 68.1% in
2015 up from 25.5% in 2013. This is 20% higher than the
industry average of 47.35%. It is because of this ratio that I
believe Home Deposit stock is rated as a buy by most analysts.
Their ROA means good news for stockholders.

Working Capital Cycle Ratios – Home Depot is at industry
average standards on inventory turnover. They have remained
steady at 5 days for three years as compared too the industry
average of 4.31. While there is no average to compare their
accounts payable turnover to, they seem to do an excellent job
of paying back their debt with an average of 5.5 days that has
remained steady over the last three years. They do run quite a
bit above industry standard on collecting their receivables
though. For year 2015 it took an average of 56 days for Home
Depot to collect as compared to an industry average of 35.99.
Home Depot seems to run consistent on this number as well.
Sheet1RATIO ANALYSIS SPREADSHEET=
Pos,Neu,NegCompanyGeneral Electric
Company201720162015IndustryAverageBALANCE SHEET
RATIOS: Stability (Staying Power)Access csimarket.com and
query by stock symbol1CurrentAbility to meet current
obligationsCurrent
Assets119,096,0001.92131,436,0001.87280,896,0002.03Current
Liabilities61,893,00070,364,000138,270,0002Debt-to-
EquityMargin of Safety to CreditorsTotal
Liabilities292,560,0004.55284,667,0003.75389,961,0003.97Equ
ity64,257,00075,822,00098,268,000INCOME STATEMENT
RATIOS: Profitability (Earning Power)3Gross MarginGross
Profit expressed as a % of SalesGross
Profit14,874,00012.3%25,655,00021.3%25,723,000-
Sales121,252,000120,273,0004Operating Profit
Margin115,834,000Operating Profit expressed as a % of
SalesOperating
Profit(225,000)10,443,0009,396,000Sales121,252,000-

0.2%120,273,0008.7%- 0-5Net MarginNet Profit expressed as a
% of SalesNet Income(5,786,000)-
4.8%8,831,0007.3%(6,126,000)-Sales121,252,000120,273,000-
0ASSET MANAGEMENT RATIOS: Overall Efficiency
Ratios6Earnings QualityMeasures cash generated from sales;
higher % the betterCash flow from Operations10,426,000-
180%(244,000)-3%19,891,000-325%Net
Income(5,786,000)8,831,000(6,126,000)n/a7Return on
AssetsMeasures the profitability of using the assetsNet
Income(5,786,000)-1.5%8,831,0002.4%(6,126,000)-1.2%Total
Assets377,945,000365,183,000493,071,0008Return on
EquityMeasures the profitability of the stockholders
investmentNet Income(5,786,000)-
9.0%8,831,00011.6%(6,126,000)-
6.2%Equity64,257,00075,822,00098,268,000ASSET
MANAGEMENT RATIOS: Working Capital Cycle
Ratios9Inventory TurnoverMeasures the efficiency of moving
the inventoryCost of Revenue/Goods
Sold106,378,000594,618,000490,111,0004Inventory21,923,000
22,354,00022,515,00010Inventory Turn-DaysAverage # of days
it takes to move
inventory36036074.1936085.0536089.95Inventory
Turnover544-11Accounts Receivable TurnoverMeasures the
efficiency of collecting Accounts
ReceivableSales121,252,0004.96120,273,0005.00- 0- 0Accounts
Receivable24,438,00024,076,00043,013,00012Accounts
Receivable Turn-DaysAverage # of days it takes to collect
Accounts Receivable3603607336072360-Accts. Rec.
Turnover55- 0-13Accounts Payable TurnoverMeasures the
efficiency of paying Accounts PayableCost of Revenue/Goods
Sold106,378,0007.0294,618,0006.5590,111,0006.59Accounts
Payable15,153,00014,435,00013,680,000n/a14Average Payment
PeriodAverage # of days it takes to pay Accounts
Payable360360513605536055Accts. Pay. Turnover777
Sheet2
Sheet3

Sheet1RATIO ANALYSIS SPREADSHEET=
Pos,Neu,NegCompanyRocky Mountain Chocolate Factory
Inc.201520162017IndustryAverageBALANCE SHEET RATIOS:
Stability (Staying Power)1CurrentAbility to meet current
obligationsCurrent
Assets17,660,0002.1315,440,0001.9315,150,0001.88Current
Liabilities8,290,0008,010,0008,060,0002Debt-to-EquityMargin
of Safety to CreditorsTotal
Liabilities14,400,0000.7313,480,0000.7312,370,0000.66Equity1
9,740,00018,480,00018,830,000INCOME STATEMENT
RATIOS: Profitability (Earning Power)3Gross MarginGross
Profit expressed as a % of SalesGross
Profit14,080,00033.9%13,170,00032.6%12,250,00032.0%Sales4
1,510,00040,460,00038,300,0004Operating Profit
MarginOperating Profit expressed as a % of SalesOperating
Profit5,960,0003,710,0005,520,000Sales41,510,00014.4%40,46
0,0009.2%38,300,00014.4%5Net MarginNet Profit expressed as
a % of SalesNet
Income3,940,0009.5%4,430,00010.9%3,450,0009.0%Sales41,51
0,00040,460,00038,300,000ASSET MANAGEMENT RATIOS:
Overall Efficiency Ratios6Earnings QualityMeasures cash
generated from sales; higher % the betterCash flow from
Operations5,870,000149%6,790,000153%5,320,000154%Net
Income3,940,0004,430,0003,450,0007Return on AssetsMeasures
the profitability of using the assetsNet Income3,940,000-
4,430,000-3,450,000-Total Assets8Return on EquityMeasures
the profitability of the stockholders investmentNet
Income3,940,00020.0%4,430,00024.0%3,450,00018.3%Equity1
9,740,00018,480,00018,830,000ASSET MANAGEMENT
RATIOS: Working Capital Cycle Ratios9Inventory
TurnoverMeasures the efficiency of moving the inventoryCost
of Revenue/Goods
Sold27,430,000627,290,000626,050,0005Inventory4,790,0004,8
40,0004,980,00010Inventory Turn-DaysAverage # of days it
takes to move

inventory36036062.8736063.8536068.82Inventory
Turnover66511Accounts Receivable TurnoverMeasures the
efficiency of collecting Accounts
ReceivableSales41,510,0008.6140,460,0009.8238,300,0009.25A
ccounts Receivable4,820,0004,120,0004,140,00012Accounts
Receivable Turn-DaysAverage # of days it takes to collect
Accounts Receivable360360423603736039Accts. Rec.
Turnover910913Accounts Payable TurnoverMeasures the
efficiency of paying Accounts PayableCost of Revenue/Goods
Sold27,430,00016.3327,290,00016.4426,050,00014.31Accounts
Payable1,680,0001,660,0001,820,00014Average Payment
PeriodAverage # of days it takes to pay Accounts
Payable360360223602236025Accts. Pay. Turnover161614
Sheet2
Sheet3
Trusted News for Credit Union Leaders
Credit UnionTimes
FEBRUARY 1, 2017 | VOL. 28 | NO. 3 | CUTIMES.COM
Loyalty in the
Digital Age
Build trust
through strategic
marketing. y12
Auto Leasing
Is leasing right for
your CU? y9
etailers and credit
unions can agree on
two things when it

comes to data security.
Data breaches are bad.
And, Congress should pass leg-
islation to deal with data security.
After that, the discussion de-
volves into a debate of the vari-
ous interests each has in the issue.
The result — nothing was accom-
plished on this issue last year.
The debate not only pits retail-
ers against financial institutions,
but congressional committee
against congressional committee
— never a good thing if you want
to see legislation signed into law.
“I think it a tough issue because
it breaks down along a lot of dif-
ferent lines,” Brad Thaler, NAF-
CU’s vice president for legislative
affairs, said.
“This is a complex issue, with
a diverse group of stake-
CUs, Retailers Fight Over Data Security
DAVID BAUMANN
[email protected]
y18
While indirect auto lending is

growing in popularity, some credit
unions have found that direct auto
lending is a better method for
gaining member trust and ultimately
boosting their bottom line. Learn
more in this Focus Report. y8
FOCUSREPORT:
AUTO LENDING
CU LEDGER
Blockchain Development
Grasping the possibilities of bit-
coin, blockchain and distributed
ledger technologies is a key com-
ponent of CU Ledger, a current
proof-of-concept project led by
CUNA and the Mountain West
Credit Union Association.
The project, initiated at last
year’s CUNA National Credit
Union Roundtable, an annual
program run by CUNA and
opened to members and non-
members, aims to create a per-
missioned, distributed, shared
ledger platform for credit unions.
The MWCUA spearheaded the
initiative after attending a block-
chain technology presentation
led by John Best, CEO of the Col-
orado Springs, Colo.-based Best

Innovation Group, and a CUNA
consulting partner.
A blockchain is a public and
distributed ledger of all executed
bitcoin transactions. A distribut-
ed ledger is a digital record of
ownership that does not include
a central administrator or central
location for stored data. Accord-
ing to the CU Ledger group, the
original intention of bitcoins was
for them to be decentralized and
relatively anonymous. Propo-
nents of blockchain technology
believe it could introduce trust
and transparency to any online
transaction.
What the CU Ledger group
found particularly attractive last
year is that a distributed ledger
keeps track of the same informa-
tion on a large number of differ-
ent servers, Bill Hampel, y17
Fraud Case
Unsolved 3
Yrs. Later
PETER STROZNIAK
[email protected]
fter fraud is uncovered
at a credit union, it
typically takes several
months for the FBI to

conduct an investigation and file
charges.
However, in one suspected $10
million credit union embezzle-
ment case, three years have gone
by without an indictment.
At least one former board mem-
ber is puzzled over why the case
has not been prosecuted, though
some experts say this case may
never be. Nevertheless, an FBI
spokesperson said the investiga-
tion is ongoing, but she declined
to comment whether an indict-
ment was imminent.
On Jan. 24, 2014, the Kansas De-
partment of Credit Unions placed
the $13.3 million Parson Pittsburg
Credit Union into conservator-
ship because of the cooperative’s
unsafe and unsound practices.
An FBI investigation revealed $10
million in non-member depos-
its were missing and the majority
of those funds were diverted into
accounts controlled by its for-
mer president/CEO Nita Nirschl.
What’s more, Nirschl also was a
high-stakes gambler who wagered
millions of dollars in Oklahoma
and Missouri casinos, according
to a 20-page affidavit detailing the
FBI’s investigation filed in

EMBEZZLEMENT
y19
Must Reads
CONGRESS
Key Takeaways
y Credit unions and retailers attempt to find
common ground on data security legislation.
y Data breach reporting obligations should be
the same for everyone.
y Both sides are optimistic they can get a new
law passed this year.
CUT_2-1-17.indd 1 1/26/17 12:37 PM
cutimes.com | Credit Union Times | February 1, 2017 | 19
U.S. District Court in Kansas City
three years ago.
Nirschl did not respond to a CU
Times interview request.
After the credit union was
placed into conservatorship, it
was merged into the $584 million
Golden Plains Credit Union in

Garden City, Kan. According to a
local media report, Nirschl moved
out of her home in Parsons, a
small town of about 10,000 that
was abuzz three years ago with
rumors about the failed credit
union.
Even though a lot of that small-
town talk has died down, what
hasn’t been forgotten is whether
anyone will be brought to justice
for the missing $10 million that
led to the closing of the credit
union and the loss of its six jobs.
“I don’t hear much talk about
it,” Marty Mendicki said, who
served on the Par-
sons Pittsburg
board for 11 years
and was its secre-
tary. “But I get a few
questions about it
now and then. I’m
frankly shocked
we haven’t seen
this resolved a long
time ago. We’ve had other em-
bezzlement cases in the area and
it seemed they were all handled
within six months to a year while
this has gone on for three years.”

Joseph Campbell, who worked
at the FBI for more than 25 years,
including as an assistant director
of the criminal investigative divi-
sion, said there are multiple fac-
tors that could delay charges or
lead to them not being pursued.
Investigators could still be gath-
ering evidence, the case could be
connected to a wider compre-
hensive investigation, or the evi-
dence is not available to justify an
indictment now, Campbell said,
who is director of the global inves-
tigations and compliance prac-
tices at Navigant Consulting in
Washington.
Branden Perry, a white-collar
criminal defense attorney in Kan-
sas City, Mo., who specializes in
federal inquires and investiga-
tions, particularly in enforcement
matters involving novel financial
issues, noted the complexity of
the case might have slowed down
the investigation.
“In the FBI affidavit, multiple
transactions (both in and out) of
multiple bank accounts occurred
and a tracing of funds may be
complicated as well,” Perry ex-

plained. “The forensic accounting
investigators at the FBI have a dif-
ficult job, but they are very good
at it.”
One of the factors federal inves-
tigators use to prioritize cases, he
noted, is whether there is a “con-
tinuing harm” being done to the
public, organizations or custom-
ers. Since the credit union was
closed and member accounts
were NCUA-insured, there was
no continuing harm to the public.
Because of this, federal investiga-
tors could be doing a thorough,
systematic and time intensive in-
vestigation to ensure their case is
sound, Perry said.
“The government, especially
the federal government, brings
criminal cases when there is little
risk of losing at trial,” Perry said.
“Any complications from any ele-
ments of the crimes could delay or
hamper the timing or the bringing
of any action at all.”
Insufficient resources may be
another reason the Parsons Pitts-
burg case has not been prosecut-
ed yet.
“Since the terrorist attacks in
2001, the FBI has shifted focus

and agents from domestic issues,
including white collar crime, to
foreign-based terrorism preven-
tion,” he said. “That is confirmed
through a lengthy and steady de-
cline in traditional cases being
brought by the United States At-
torney Offices.”
Whatever the reasons why the
Parsons Pittsburg case has not
been prosecuted, Mendicki re-
called he and the board of direc-
tors were shocked when they were
told of the findings of an examina-
tion conducted by state regulators
and the NCUA.
“In this case, nothing should be
unsolved,” he said. “Everything
was cut and dry as it was present-
ed to us.”
Other board members did not
respond to CU Times’ requests for
comment.
On April 9, 2014, an FBI inves-
tigator filed a 20-page affidavit
in U.S. District Court to convince
a federal judge to issue a search
warrant for Nirschl’s house and
her safe deposit box at a local
bank.
The FBI investigation was

launched sometime after the
NCUA made an unannounced
examination of the Parsons Pitts-
burg on Jan. 14, 2014. On that
day, Nirschl was questioned by an
NCUA examiner about her gam-
bling activities. She told the ex-
aminer that during 2012, she and
her husband had winnings and
losses of $16 million. The FBI affi-
davit shows that during the month
of September 2013, Nirschl made
more than $500,000 in ATM trans-
actions, electronic check transac-
tions, ATM point of sale transac-
tions and cash withdrawals at two
casinos.
What’s more, during the NCUA
interview, she had a bag that was
filled with 500 IRS forms that doc-
umented her gambling winnings,
which totaled $4 million in De-
cember and November of 2013.
It was not explained why Nirschl
had the bag with her during the
interview.
Although Nirschl told the NCUA
examiner that she and her hus-
band usually “break even” when
they gambled, they kept $40,000
to $50,000 in cash at their home
to draw on to cover their losing
streaks. The source of this cash

was from their gambling win-
nings and her and her husband’s
salaries.
Her husband, Jerry, was a re-
tired postmaster of the U.S. Postal
Service and worked as a handy-
man at a local school. His annual
salary was not specified in court
documents. However, accord-
ing to the credit union’s IRS 990
forms, Nirschl earned $61,801 in
2013. In 2014, however, she re-
ceived only $3,846 in compensa-
tion, according to Parsons Pitts-
burg’s IRS 990 form.
“The examiner asked Nirschl if
she ever used credit union money
to gamble with, and she replied
‘no,’” the FBI investigator wrote in
the affidavit. “The examiner then
asked if there were any depos-
its that had been made into the
credit union that were not record-
ed properly on the credit union
books, and Nirschl again replied
‘no.’”
During the interview, Nirschl
told the examiner that she could
produce copies of her tax returns
showing that she and her husband
broke even from their gambling.

But the examiner informed
Nirschl she was being placed on
temporary paid leave until after
the examination was completed.
But even when the examina-
tion was under way and Nirschl’s
job was on the line, she continued
to gamble. Currency transaction
reports filed by casinos revealed
that Nirschl inserted $192,269
into gaming devices from Jan. 20,
2014 to March 13, 2014. The CTRs
also showed that Nirschl received
$57,500 in cash payouts.
When examiners from the
NCUA and the Kansas Depart-
ment of Credit Unions completed
their audit, they found $10 million
in non-member deposits missing.
These deposits were made by oth-
er credit unions and banks into
the Parsons Pittsburg account at
Kansas Corporate Credit Union,
which Nirschl had access to.
According to the affidavit, ex-
aminers determined most of the
$10 million was diverted from
credit union accounts to accounts
Nirschl controlled or an account
associated with her husband.

Additionally, federal agents
seized one bag of documents
showing purchases of U.S. Savings
Bonds, two boxes of tax records
and financial statements, and two
bags of IRS W-2G forms for gam-
bling earnings. n
Mystery
CONT. FROM PAGE 1
Key Takeaways
y In January 2014, Parsons Pittsburg CU was
placed into conservatorship and later merged.
y Examiners determined $10 million was
missing, triggering an FBI investigation that
implicated a suspect.
y A board member is puzzled over why no one
has been prosecuted after three years.
‘I’m frankly shocked
we haven’t seen this
resolved a long time
ago.’
‘Any complications from any elements of the crimes
could delay or hamper the timing or the bringing of
any action at all.’
Mendicki
CUT_2-1-17.indd 19 1/26/17 12:37 PM

Copyright of Credit Union Times is the property of ALM
Media, LLC and its content may not
be copied or emailed to multiple sites or posted to a listserv
without the copyright holder's
express written permission. However, users may print,
download, or email articles for
individual use.
Reverberations Continue in Donadio Embezzlement Scandal
Listen
Section:
NEWS
A lawyer for a handful of authors is interested in putting
together a class action after the agency's bookkeeper pled guilty
to stealing $3.3 million
When Darrin Webb, a bookkeeper for Donadio & Olson, pled
guilty to embezzling over $3.3 million from the literary agency
late last month, it seemed like a bizarre episode in the industry
was reaching a close. Webb's theft, which leaves a storied
agency facing the possibility of bankruptcy and a cadre of
authors with holes in their bank accounts, was, by all industry
accounts, an aberration. The tale, though, may not be over, as a
lawyer is considering taking action against the firm and could
file a class-action lawsuit on behalf of the authors affected.
News of the situation at D&O broke in late May, when the New
York Post reported that the firm, which represents estates
including those of Mario Puzo and Edward Gorey, had been
swindled out of millions of dollars. Around that time, Chuck
Palahniuk, who was represented by Edward Kastenmeier at
D&O, went public with the news that he was in dire financial
straits. Palahniuk, who declined to talk with PW for this article,
blogged that he had been complaining to his publisher for years
about being stiffed on royalties and seeing his sales adversely

affected by piracy, and that he was unknowingly a victim of
Webb's theft. Palahniuk said he "can't even guess" how much
money was taken from him.
Other authors affected by Webb's crime are in similar
situations. Like most professional writers, they receive their
royalty statements and payments from their literary agency.
Publishers send royalty statements directly to agencies, who
usually look them over, deduct their commissions from the
monies received, then cut checks to the authors and send them
along with the statements. The problem, many industry members
acknowledged, is that most authors don't know how to read
royalty statements.
That authors rely on their agents to make sure they're getting
paid in full is not surprising. An agent's first responsibility is a
fiduciary one. Though most people assume that an agent's
primary role is to act as a champion of their authors' work and
as a conduit between artists and publishers, their first
responsibility is to look out for the financial well-being of their
clients.
That this system broke down in such dramatic fashion at D&O
is something many insiders, most of whom spoke to PW on the
condition of anonymity, conceded is rare. Some also lay the
responsibility for authors losing out on their royalties at the feet
of the agents at the firm who weren't paying enough attention to
its finances.
Neil Olson, the current principal at D&O, declined to comment
when contacted by PW. His lawyer offered a public statement
that the firm has stood by since the embezzlement became
public; it said that "the agency's singular focus at this time is
ensuring that all of its impacted clients are mode whole to the
greatest extent possible."
But the question lingers: how could a well-respected agency be
bilked out of millions of dollars over a span of seven years?
One insider said it was an example of "management not paying
very close attention." Though all sources spoke highly of Olson
and his colleagues, many said that they might not be the best

businessmen.
Gail Hochman, head of the Agency of Author Representatives
(AAR), said the situation at D&O is "very rare." She added, "I
do think here and there [in the history of the industry] a
bookkeeper has made off with some money, but most of the
agents in the AAR are incredibly scrupulous about their
bookkeeping. This situation is very unusual and obviously very
upsetting."
Donald N. David, a partner at Manhattan-based law firm
Akerman LLP, is currently looking into the situation at D&O on
a pro bono basis. He said that at present, he is working with
three authors who have been affected by the embezzlement. He
noted that his current focus is not on securing lost funds but on
working to gather accurate information about what money the
authors are owed.
David confirmed that Laura Albert (who wrote under the
pseudonym of JT LeRoy) is one of the authors he's currently
working with and said he believes Webb swindled money from
authors in three different ways: by neglecting to send royalty
statements and checks altogether; by sending royalty statements
but no royalty checks; and by sending altered royalty statements
(with royalties remitted) and accordingly altered royalty checks.
David said he is open to working with more authors and putting
together a class for a potential lawsuit, but the problem is that
the authors affected "don't know how much money they've lost."
Pointing to the agency's vow to make its authors whole again,
he noted that this cannot be done until "their authors get their
royalty statements, and they're accurate."
Another question swirling around the D&O case is how many
authors have been significantly affected. Palahniuk admitted
that he doesn't know how much he lost; some insiders guessed it
could be in the high-hundred-thousand-dollar range. David was
coy about answering this question but did say that "there are
undoubtedly authors who got stiffed of a very large sum of
money."
James Curtis, who was represented by Olson for a number of

years and sold four books with the agent (including the
Pantheon-published 2015 title William Cameron Menzies), said
his initial interaction with Webb led him to believe he was
dealing with a case of negligence. Theft, Curtis said, was not on
his radar. He noted that after contacting Webb repeatedly about
a check for a "piddly sum of money" that had gone missing, he
just assumed "Darren was incompetent." Adding that he "always
had problems dealing with Webb," Curtis said he "brought Neil
in" but that "Neil had a hands-off" policy in dealing with his
bookkeeper.
Ultimately, Curtis said, he thinks he didn't lose too much
money, because he "kept on Darren's tail." He said he thinks
Webb "didn't try to screw with me, because I was paying
attention."
The Authors Guild, which has encouraged D&O clients who
believe they've been affected by Webb's actions to contact it,
said there are ways authors can better protect themselves
against the kind of financial malfeasance on display in this case.
One option, according to Guild president Mary Rasenberger, is
for authors to request that their publishers send them their
royalty statements directly. While this is not often practiced, all
publishers are required to comply with such a request, and it
allows authors to see firsthand what (according to their
publishers) they are earning.
The Guild also encourages its authors to strike representation
agreements with their agents. Though rarely employed (or
spoken about), these agreements, Rasenberger said, can make
presumed aspects of the author-agent relationship more clear
and put them in writing—such as what happens if an author and
agent part ways after the agent sells an author's book and what
happens if an author's book is not sold. Presumably, such
agreements could also address theft and financial loss. The
Guild said these agreements, which it can draft as part of its
services to members, "help manage expectations" in the
relationship between authors and agents so no
"misunderstandings" occur. Rasenberger added that they are

valuable tools in a world where "sometimes there are bad actors,
and sometimes bad things happen to good actors." —Rachel
Deahl
PHOTO (COLOR)
Plutus Payroll director arrested in $165M tax fraudcase
Listen
Further arrests in what is considered to be Australia's biggest
white-collar fraudcase
The Australian Federal Police (AFP) has arrested the director of
Plutus Payroll, the company named at the centre of a $165
million tax fraud investigation.
The outsourced payroll management service company left
hundreds of IT contractors around the country without wages
for weeks after its accounts were frozen by the Australian
Taxation Office (ATO) in late April.
The AFP revealed on 19 May that a 33-year-old Lavender Bay
man had been arrested and charged in relation to the alleged
conspiracy to defraud the Federal Government.
The AFP allege that the man was a former director of the
payroll company, which focused heavily on the IT sector, who
continued to manage it during the alleged conspiracy to defraud
the Government.
Plutus Payroll's director, Simon Anquetil, was arrested
following his return to Australia 18 May, and is the 10th person
to be arrested in what is being named as Australia's biggest ever
white-collar fraudcase.
Anquetil has been charged by the AFP with conspiracy to
defraud. The maximum penalty for this offence is 10 years
imprisonment.
The latest arrest in the comes just two days after the AFP
arrested and charged nine people for their association with a
syndicate allegedly responsible for the $165 million tax fraud.
Six people were charged with conspiracy to defraud the

Commonwealth for their alleged role in the syndicate, while two
men were charged with money laundering offences.
The AFP has alleged that the fraud involved a company
established by the syndicate, Plutus Payroll - which it stresses
is a legitimate business - to provide payroll services to its
legitimate clients.
Read more Plutus Payroll named in $165M tax fraudcase
The money received from these companies was allegedly
transferred to subcontracted companies - alleged to be
controlled by syndicate members - to process payroll.
While processing these payments, funds paid by legitimate
clients to service tax obligations were allegedly diverted by the
syndicate for their own personal gain.
According to the AFP, ATO investigators estimate the amount
of tax obligations not paid to Australia's tax collector to be
approximately $165 million.
Plutus Payroll suspended operations on 27 April after the ATO
froze its accounts. The move saw the company launch legal
action in the Federal Court to access funds with which to pay IT
contractors on its books.
Read more IT contractor wages from Plutus Payroll could arrive
within days
The company subsequently told its clients on 10 May that the
ATO had agreed to allow the release of the wages owed to its
contractors.
It remains to be seen, however, whether contractors on Plutus
Payroll's books will receive all of their entitlements, even if
they do receive the wages owed to them.
"Contributions for the more recent pay periods are presently
held in the Plutus bank account and it is our intention to
continue to discuss this issue with the ATO and have these
amounts paid within the statutory deadlines," the company said
on 10 May.

References
Rudewicz, F. E., Zayas, R., & Giardina, N. J. (2016).
Calculation of Losses and Required Sentences in White-Collar
Crimes-Are You Considering All Factors? Business Law Today,
1–4. Retrieved from
http://search.ebscohost.com/login.aspx?direct=true&db=bth&A
N=117464198&site=ehost-live
References
Gordon, L. A. (2016). Courts decline to extend bankruptcy laws
to marijuana businesses. ABA Journal, 8. Retrieved from
References
Armstrong Files for Bankruptcy. (2017). Coal Age, 122(8), 4–5.
Retrieved from
References
Deahl, R. (2018). Reverberations Continue in Donadio
Embezzlement Scandal. Publishers Weekly, 265(33), 4–5.
Retrieved from
References
Former Michigan CEO Admits Embezzlement. (2018). Credit
Union Times, 29(7), 14. Retrieved from
References
Former Shakopee school chief charged with embezzlement.
(2018). HR Specialist: Minnesota Employment Law, 11(1), 5.
Retrieved from
References
Spencer, T. (2017). Eye Doctor Tied to Bob Menendez Case

Convicted in $100 Million Fraud Scheme. Time.Com, 1.
Retrieved from
References
Spencer, L. (2017). Plutus Payroll director arrested in $165M
tax fraud case. CIO (13284045), 1. Retrieved from
References
Strozniak, P. (2017). Fraud Case Unsolved 3 Yrs. Later. Credit
Union Times, 28(3), 1–19. Retrieved from
References
Klees, E. H. (2016). The “Fandation” of Risk: Does a Banking
Client Get Its Money Back after Cyber Theft? Business Law
Today, 1–6. Retrieved from
References
Burkitt-Gray, A. (2017). Telia pays nearly $1bn in fines for
bribery. Global Telecoms Business, 1. Retrieved from
4 www.coalage.com October/November 2017
news
MEC, Bowie Partner to Create Canyon
Consolidated Resources
Murray Energy Corp. (MEC), Bowie Resource Partners, Javelin
Global Commodities, and Grupo CLISA have agreed to form a

stra-
tegic partnership called Canyon Consolidated Resources (CCR),
which will produce approximately 13 million tons per year (tpy)
and own 214.8 million tons of coal reserves.
CCR will combine the assets of Bowie, the marketing and lo-
gistics platform developed by Bowie, MEC’s management and
op-
erational expertise and coal from MEC’s Lila Canyon mine, and
the coal marketing expertise of Javelin and CLISA to create a
west-
ern U.S. bituminous coal producer and marketer.
The partnership will operate three underground coal mines in
Utah — the Sufco mine, which produced 5.4 million tons in
2016,
the Skyline mine (4.5 million tons) and the Dugout Canyon
mine
(650,000 tons in 2016). The Lila Canyon mine produced 1.6
million
tons in 2016 and currently has 42.3 million tons of coal
reserves.
MEC will hold a 30.5% stake in CCR. Chairman of Bowie John

Siegel will also control 30.5%, and 28.5 % will be held by
second
lien lenders via warrants. Javelin and CLISA will control 7.25%
and 2.25%, respectively. Javelin is headquartered in the U.K.
and
CLISA is a trading and investment group based in Mexico with
a
focus on the energy industry.
CCR will purchase and market coal produced from Lila
Canyon. Through a services agreement, MEC will provide
certain
operational, procurement and administrative services for CCR.
The CCR investors expect to finance a portion of the
partnership,
and pay related fees and expenses, with the proceeds of debt
financing. A portion of these proceeds will be used to
recapitalize
Bowie’s existing capital structure. Jefferies is acting as sole
finan-
cial advisor on the transaction.
In connection with the transaction, Bowie will refinance its
existing senior secured credit facilities with new debt financing.

Specifically, Bowie Resource Holdings LLC and Canyon
Finance
Corp. intend to offer up to $375 million of senior secured notes
due 2022 through a private placement. Bowie intends to use the
proceeds to refinance its existing senior secured credit facilities
and finance the acquisition of Bowie by CCR. In addition,
Javelin
and CLISA will contribute cash to CCR in exchange for equity
in
CCR and certain exclusive export marketing rights. Jefferies is
act-
ing as sole initial purchaser and book-runner for the notes.
Armstrong Files for Bankruptcy
Illinois Basin coal producer Armstrong Energy Inc. filed
petitions
for reorganization under chapter 11 of the Bankruptcy Code in
the
Bankruptcy Court for the Eastern District of Missouri on
Novem-
ber 1. The company took this action in order to transfer all of
its
b r e a k i n g n e w s

Alpha Completes Transfer of Idle Assets to Lexington Coal
Alpha Natural Resources (ANR) has closed the deal with
Lexington
Coal Co. (LCC) to convey real and personal properties located
in Ken-
tucky, Tennessee and West Virginia. While transferring mostly
idle and
non-active assets, substantial reclamation equipment and
ongoing
royalty payments associated with the properties, the conveyance
also
eliminates self-bonding in West Virginia nine years early.
New Lexington Coal CEO Steven Poe said the conveyance
includes
approximately 250 permits and bonding representing $192
million.
“Having five mines that are currently in coal production,
substantial
infrastructure and capital, and an experienced, talented
workforce will
enable LCC to accelerate reclamation on a five-year timetable
with less
contingent exposure for the states in which we operate,” Poe
said.
Poe says LCC will mine to reclaim, which will lower the cost of
reclamation and will bring in revenue while the company
continues to
divest isolated assets as markets warrant. “Our management
team
knows the properties and permits, and has a demonstrated track
re-
cord of success,” said Poe. “Having 100 million tons of reserves
will

ensure a long runway for the assets, providing job security and
contin-
ued opportunities where we operate.”
Specific economic terms were not disclosed, but LCC will
receive
approximately $199 million in cash and $126 million in
installment
payments to assist in the fulfillment of bonding, reclamation,
water
treatment and other obligations.
Alpha Natural Resources CEO David Stetson called the
conveyance
a win-win for the regulatory agencies and the communities in
which
the assets are located. According to Stetson, “LCC is well-
capitalized
to meet its responsibilities to those local communities and to do
so
years earlier than originally planned. The transaction also
eliminates
the risks associated with self-bonding, making this a
transformational
deal for West Virginia.”
Funding for the transaction provided by key shareholders under
a
$150 million credit facility. “The deal with Lexington Coal
represents
a major step forward for Alpha,” Stetson said. “The transaction
is
immediately accretive to Alpha’s business through the
elimination
of more than $70 million of annual cash costs and will allow

Al-
pha to improve its operations and balance sheet to the benefit of
all
stakeholders. The financing facilitating the transaction was
provid-
ed by certain of our key shareholders, who were willing to offer
very
competitive terms and, in doing so, make a further commitment
to
Alpha’s future.”
Alpha will continue to operate 20 mines and nine prep plants in
West Virginia, and the company still expects to produce 14
million tons
of metallurgical and thermal coal in 2017.
The now-closed Bowie portal in Colorado, the namesake for
Bowie
Resource Partners, will be folded into CCR.
http://www.coalage.com
October/November 2017 www.coalage.com 5
news continued
assets to a new entity to be jointly owned by Knight Hawk
Hold-
ings LLC (Knight Hawk) and the company’s secured
noteholders.
Armstrong expects its mining operations and customer ship-

ments to continue throughout the chapter 11 process.
“We remain firmly committed to serving our customers and to
being a good employer by maintaining safe, productive
operations
as we undertake this process,” said Armstrong Executive
Chairman
J. Hord Armstrong III. “We are confident that this court-
supervised
process is the best way to close the transaction expeditiously.”
Upon the close of the transaction, Knight Hawk will take con-
trol of Armstrong’s ongoing operations.
The company filed various motions with the Bankruptcy
Court requesting authorization to continue paying employee
wages and providing health care and other benefits. Armstrong
has also asked for authority to continue existing customer pro-
grams and intends to pay suppliers in full under normal terms
for
goods and services provided after the filing date of November 1.
As of June 30, Armstrong controlled more than 445 million
tons of proven and probable coal reserves in western Kentucky

and currently operates five mines. Armstrong also owns and
oper-
ates three coal processing plants and river dock coal handling
and
rail loadout facilities, which support its mining operations.
In August, Armstrong Energy Inc. mentioned it was facing
possible bankruptcy because it continued to experience
operating
losses and the inability to repay an interest payment. The
compa-
ny’s net loss for the first six months of 2017 was $32.6 million,
high-
er than a net loss of $28.4 million in the second quarter of 2016.
Pruitt Proposes Repeal of Clean Power Plan
U.S. Environmental Protection Agency (EPA) Administrator
Scott
Pruitt issued a Notice of Proposed Rulemaking (NPRM)
proposing
to repeal the so-called Clean Power Plan (CPP). After reviewing
the CPP, the EPA determined that the President Barack Obama-
era
regulation exceeds the agency’s statutory authority. Repealing
the

CPP will also facilitate the development of U.S. energy
resources
and reduce unnecessary regulatory burdens associated with the
development of those resources, keeping with the principles es-
tablished in President Donald Trump’s Executive Order on
Energy
Independence, the EPA said.
w o r l d n e w s
Exxaro Signs Long-term Agreement With Transnet
Exxaro Resource Ltd. signed a coal export transportation agree-
ment with Transnet, which will increase coal volumes from
Water-
berg to Richards Bay Coal Terminal (RBCT). The 10-year
agreement
between Exxaro and Transnet will allow for the transportation
of
a total of 7.8 million metric tons (mt) of export coal, of which 3
million mt will come from the Waterberg once all the projects
are
ramped up.
“Exxaro is proud to be developing the Waterberg area in collab-
oration with Transnet,” said Mxolisi Mgojo, CEO of Exxaro.
“This is
an exciting milestone for Exxaro and is a realization of our
vision to
contributing to the unlocking of the Waterberg, thus creating
jobs
and powering economic development in South Africa. As such,

we
will be investing 50% of our R20 billion ($1.5 billion) coal
capex
program over the next five years in coal in the Waterberg area.”
This agreement, which supersedes the old agreement, will
enable Transnet to increase rail infrastructure capacity to
service
both domestic and export markets from the Waterberg area,
Mgojo
explained.
The new agreement comes at the time when Transnet’s Water-
berg program is in full swing with plans to complete the second
phase of the project in March 2019. The Waterberg upgrade
Phase
2 will grow export rail capacity to 6 million mt through
incremental
upgrades of the existing rail networks and yards using
additional
loops, while maintaining the existing axle load, electrical
upgrades
and improved train control systems.
CEZ Cuts Power Plant Emissions in Czech Republic
The largest Czech energy utility, the CEZ Group, has invested
100 billion crowns ($4.6 billion) in the second wave of greening
of North Bohemia’s brown coal power plants, Ota Schnepp, the
CEZ spokesman for North and Central Bohemia, told Czech
News
Agency CTK.
“Power plants will always rate at the top positions among air
pollution sources, as even after they decrease emissions to an
ab-
solute minimum, they will still be the biggest production

giants,”
Schnepp said.
Compared to the early 1990s, emissions have been decreased
by 92% for sulfur dioxide (SO
2
), by 95% for particulate matter, by
50% for nitrogen oxides (NOx) and by 77% for carbon
monoxide
(CO), Schnepp said.
In the next years, all measurable emissions will drop by an-
other 50% thanks to the investments within the second stage of
greening, owing to the completely restored Tusimice and
Prunerov
2 plants and the newly built plant in Ledvice, among other
invest-
ments, he said.
The long-term strategy of CEZ is to achieve a carbon neutral
energy production by 2050. In the past decade, CEZ has
invested
more than 5 billion euros in low carbon technologies. Some
coal-
fired blocs will be shut down by 2020 due to the end of their
life
cycle and stricter emission limits, Schnepp said.
The modernized Tusimice and Prunerov plants depend on coal
from the Tusimice coal mines, therefore they will operate for as
long as the mines are operating, with 25 years being the guaran-
teed operation span, he added.
The life cycle of the new, environmentally friendly plant in

Ledvice is about 40 years, which covers the whole estimated re-
maining life of the Bilina mine supplying coal to it, Schnepp
said.
Schnepp said the life cycle of the Pocerady plant cannot be
antici-
Continued on p. 7...
top 10 coal-producing states
(in Thousand Short Tons)
Week Ending (10/21/17)
YTD ‘17 YTD ‘16 % Change
Wyoming 260,821 232,011 12.4
West Virginia 75,454 63,626 18.6
Pennsylvania 41,807 36,027 16.0
Illinois 39,307 35,095 12.0
Kentucky 35,583 34,300 3.7
Texas 30,027 31,269 -4.0
Montana 26,047 25,121 3.7
Indiana 25,723 23,166 11.0
North Dakota 23,261 22,398 3.9
Colorado 12,859 9,554 34.6
U.S. Total 635,561 575,457 10.4

http://www.coalage.com
Copyright of Coal Age is the property of Mining Media Inc. and
its content may not be copied
or emailed to multiple sites or posted to a listserv without the
copyright holder's express
written permission. However, users may print, download, or
email articles for individual use.
www.theHRSpecialist.com January 2018 • Minnesota
Employment Law 5
Essentia Healthcare fires
50 staff for refusing flu shots
Over the objections of three unions,
Duluth’s Essentia Healthcare fired 50
employees in November when they
refused to get influenza vaccinations.
Citing the risk to patients at its
15 hospitals and 75 clinics, Essentia
required employees to get vaccinated
or provide documentation substan-
tiating medical or religious objec-
tions to the inoculations. Employees
suffering from documented vaccine
allergies or a history of Guillain-
Barre Syndrome could opt out of the
vaccine.
The United Steelworkers, which

represents some Essentia employees,
unsuccessfully sought an injunction
against the firings in federal court. The
Minnesota Nurses Association and the
American Federation of State County
and Municipal Employees Council 65
filed unfair labor practice charges with
the National Labor Relations Board.
Those complaints are still pending.
Essentia’s patient safety officer, Dr.
Rajesh Prabhu, stated that flu vaccines
lower the risk of illness 40% to 60%. He
dismissed claims that the inactive virus in
the vaccine can sicken those who get the
shot and that a vaccine that is only par-
tially effective should not be mandatory.
Note: When implementing a
mandatory vaccination policy, an
employer must show a compelling
reason for the policy and allow legiti-
mate medical and religious objec-
tions. Time—and the NLRB—will tell
whether Essentia met those standards.
Is Green & White Taxi biased
against people of color?
Twin Cities-based Green & White
Taxi must defend against allegations
by current and former drivers that
the company only sends white drivers
on its most lucrative jobs.
According to a complaint filed

with the Minnesota Human Rights
Commission, the company’s most
lucrative paying fares are corporate
accounts with the Canadian Pacific
Railroad and the Red Cross. Green
& White transports railroad crews to
worksites, rides that are longer and
pay more than typical taxi rides. The
Red Cross contracts with Green &
White to transport blood and tissue
samples to hospitals, runs that also
pay more than normal taxi fares.
The complaint alleges those fares
go exclusively to white drivers, even
though most Green & White drivers
are not white.
Note: Both state and federal law bars
employers from basing work assign-
ments on race. Base prize assignments
on ability and availability, not race.
Former Shakopee school chief
charged with embezzlement
The former superintendent of the
Shakopee Public Schools faces felony
charges that he paid for more than
$73,600 in personal expenses using
the school district’s credit card.
A joint investigation by the
Shakopee Police Department and the
FBI allegedly found evidence that he
used public funds to purchase sports
memorabilia, first-class airfare, concert

tickets and a video game system. In
all, the former superintendent faces 20
felony charges, including six counts
of theft by swindle, 13 counts of em -
bezzlement of public funds and one
count of possession of stolen property,
plus one misdemeanor count of receiv-
ing stolen property. In November, he
turned himself into authorities in Scott
County ahead of his arraignment.
Under fire for a $4.5 million budget
shortfall he blamed on “human error,”
the superintendent resigned last June.
In the News ...
Some of those employees might
work for you!
Individuals can submit initial inqui-
ries to the EEOC and request intake
interviews by visiting the EEOC Public
Portal at publicportal.eeoc.gov/portal/ .
Once the charge is filed, individuals
can use the portal to provide contact
information, agree to mediate the
charge, upload documents to a charge
file, receive documents and messages
related to the charge from the EEOC
and check on the status of a charge .
The new system does not permit
employees to directly file discrimina-
tion charges . That’s still up to the

EEOC . However, all new charges
(and those filed since Jan . 1, 2016)
may be updated through the portal .
Note: Here’s more evidence that,
despite the Trump administration’s
pro-business reputation, the EEOC is
continuing to advocate for employees .
EEOC’s new charge portal
(Cont. from page 1)
DOL rule would allow widespread tip-pooling
The U .S . Department of Labor has proposed a controversial
new rule that it says
would give employers more options for sharing tips among more
employees . Under
the proposed rule, employers would be allowed to collect tips
earned by front-of-
house staff such as waiters and bartenders and redistribute them
as they see fit .
According to a DOL statement, the rule is designed to facilitate
sharing tips
with employees who do not traditionally receive direct tips,
such as restaurant
cooks and dishwashers . The statement said the rule would help
decrease wage
disparities between tipped and nontipped workers .
It would nullify a 2011 rule that banned tip pools . Enacted by
the Obama
administration, that rule has been repeatedly challenged in court
.
The DOL’s proposal would only apply where employers pay a

full minimum wage
and do not take a tip credit . The proposal would not affect
current rules appli-
cable to employers that claim a tip credit under the Fair Labor
Standards Act .
Critics immediately blasted the proposed rule, saying it would
allow employers to
confiscate tips with no guarantee they would be passed along to
other workers .
Online resource Learn more about the proposed rule at
www.dol.gov/WHD/
flsa/tipcreditnprm.htm . Public comments are being accepted
through Jan . 3,
2018 .
Copyright of HR Specialist: Minnesota Employment Law is the
property of Business
Management Daily (a division of Capitol Information Group)
and its content may not be
copied or emailed to multiple sites or posted to a listserv
individual use.
14
ow important is digi-
tal banking to credit

unions? Three an-
nouncements, which
focus on enhancing member ex-
perience and knowledge, include
chronicling a digital transforma-
tion journey, chatbot integra-
tion and interactive mobile video
banking.
The $1.65 billion, Burbank,
Calif.-based Partners Federal
Credit Union, which serves Walt
Disney Company cast members,
employees and their families,
embarked on a new digital trans-
formation journey. Partners is
opening up about its digital trans-
formation journey and chroni-
cling the good, the bad and
the ugly via documentary-style
videos.
Faced with the challenge of co-
ordinating its community branch-
es with services of a digital credit
union to compete with big banks
like Bank of America and Chase,
Partners partnered with the Aus-
tin, Texas-based digital apps com-
pany Kony and Boston Consulting
Group to completely overhaul its
technologies, processes, systems
and services to better address the
needs of its employees and mem-

bers including:
• Enhancing its app offerings in
real-time while making addi-
tional enhancements along the
way.
• Accelerating digital innova-
tion and solution rollouts from
releasing app updates once ev-
ery six months to releasing up-
dates every other week.
The $2.2 billion, Orlando, Fla.-
based FAIRWINDS Credit Union
launched its FAIRWINDS Virtual
Advisor in partnership with Abe
AI, an Orlando-based artificial
intelligence software company
specializing in digital consum-
er financial technology. FAIR-
WINDS said it is the first finan-
cial institution headquartered
in Florida to offer this service to
members.
The FAIRWINDS Virtual Ad-
visor utilizes conversational AI
to offer virtual assistance using
voice and messaging platforms,
including Facebook Messen-
ger, Google Home and Amazon
Alexa. In response to a simple
question, the FAIRWINDS Vir-
tual Advisor can provide FAIR-

WINDS members with a wealth
of information to help them
along their path to achieving fi-
nancial freedom.
The $63 million, Torrance,
Calif.-based CalCom Federal
Credit Union aimed to enhance
its digital services and create
more personal connections with
members with the installation of
POPin Video Banking Collabora-
tion, billed as the world’s first in-
teractive mobile video banking
solution.
The Salt Lake City-based POPin
Video Banking Collaboration en-
ables face-to-face video chat
and simultaneously collaborates
between financial institutions
and customers across all digital
channels. Through this patented
technology, members can access
branch services and complete
nearly all banking needs via the
web, personal devices or branch-
based video, removing the need
for either party to be in a physical
branch or office. n
s indirect lending
continued to add vol-
ume to credit union
auto loan portfolios in

2017, those affected included the
1,117 credit unions affiliated with
CU Direct, an auto lending CUSO
based near Los Angeles.
The CUSO, which has grown
from nine shareholders in 1998
to more than 100 last year, an-
nounced it has approved a 3%
cash shareholder dividend, its
13th consecutive dividend.
“We are pleased to once again
provide a strong return on invest-
ment to our shareholders,” Presi-
dent/CEO Tony Boutelle said.
“Credit unions continue to dem-
onstrate their ability to compete
with banks and win in the auto
lending marketplace; we remain
focused on delivering innovative
lending technology that helps our
credit union partners make more
loans and create a better member
experience.”
Indirect lenders represent three
quarters of the credit union move-
ment’s assets and members. As of
Sept. 30, these 1,935 credit unions
had $1 trillion in assets and 83.5
million members.
Out of that group, CU Direct’s
92 credit union shareholders had

$203.8 billion in assets and 14.1
million members on Sept. 30.
CU Direct signed new agree-
ments with 71 credit unions in
2017. At year’s end, its agreements
covered 1,117 credit unions serv-
ing 47.8 million members for its
technology products, including
CUDL, Lending 360, Lending In-
sights, AutoSMART and OnSpot
Financing.
Credit unions funded 1.8 mil-
lion loans through CU Direct’s
Lending 360 and CUDL lend-
ing platform, generating a record
$39 billion in credit union auto
loans in 2017, up from $32 billion
in 2016.
CU Direct credit union part-
ners, as an aggregate, became the
largest auto lender in the nation
in 2017, experiencing 16.2% loan
growth, the second-highest loan
origination growth rate among the
top 10 lenders in the nation ac-
cording to data from AutoCount.
CU Direct said its credit unions
have doubled their auto loans
since 2013. n
Video, AI Helps Credit Unions Step
Up Digital Banking

CU Direct Continues Auto Loan
Expansion
redit union rob-
beries are not un-
usual. Occasionally,
however, the way in
which credit unions are robbed is
unusual, which occurred Feb. 20
in a small North Carolina city.
Police in Reidsville reported
that a man holding a large stick
walked into a branch of the $50.6
million American Partners Feder-
al Credit Union just before 4 p.m.
and yelled, “This is a robbery!”
The stick robber jumped over
the teller counter and grabbed an
undisclosed amount of cash.
Reidsville police did not say
whether the robber wielded the
big stick in a threatening way at
anyone in the branch.
American Partners President/
CEO Brian Bone said no one in
the branch was injured during
the incident. He declined further
comment.
After stealing the money,

the suspect left the branch and
walked east.
About 10 minutes later, Rock-
ingham County Sheriff Sgt. Adam
Mosqueda spotted the suspect
who matched a description of the
stick robber at a convenient store
parking lot.
As Mosqueda approached the
suspect, he noticed the robber
was winded, and he was holding
a wad of cash in one of his hands.
The suspect was identified as
Kendrick Alezander Hart, 29, of
Reidsville, who will face an armed
robbery charge.
Police did not say whether the
big stick was retrieved. n
tanley Hayes, former
president/CEO of the
liquidated Valley State
Credit Union, is sched-
uled to be sentenced in April af-
ter he admitted to embezzling
$710,000 from the Saginaw, Mich.,
cooperative.
Michigan Attorney General
Bill Schuette said Hayes pleaded
guilty in a state court in February

to 13 felonies, which included em-
bezzlement, computer crime and
racketeering.
Hayes, 45, was CEO of VSCU
from 2005 until he was fired in 2016.
In order to make the financial
position of VSCU appear better
than it was to auditors, Hayes em-
bezzled funds to pay loans, includ-
ing loans held by dead persons.
He also used the money he stole
to pay for his insurance, property
taxes, travel and other personal
expenses.
Most of the money was siphoned
from the credit union via computer
transactions, but nearly $200,000
in cash was taken from Hayes’
teller drawer over several years, ac-
cording to state prosecutors.
In addition to stealing from
the small credit union with only
$19.8 million in assets, the former
CEO was paid $142,864 in 2015,
according to the credit union’s
990 financial documents filed
with the IRS.
The fraud was uncovered after
an investigation by the Michigan

Department of Insurance and Fi-
nancial Services found financial
irregularities, including overly
high risks in its loan portfolio, lack
of internal controls, inaccurate re-
porting, and the failures of man-
agement and the board of direc-
tors to address these problems.
In April 2017, the state regulator
liquidated the credit union after
determining it was insolvent.
The $568 million ELGA Credit
Union in Burton, Mich., assumed
Valley State’s assets, shares and
loans, and continued to serve its
2,715 members. n
Police Arrest Credit
Union ‘Stick Robber’
Former Michigan CEO
Admits Embezzlement
In Brief
CUT 3-7-18.indd 14 3/1/18 11:20 AM
http://www.cutimes.com/2017/03/31/keeping-up-with-the-
digital-power-couple

http://www.cutimes.com/2017/02/24/new-levels-of-self-service-
banking
http://www.cutimes.com/2017/02/24/new-levels-of-self-service-
banking
http://www.cutimes.com/2017/10/11/software-company-cu-
direct-form-auto-inventory-pa
http://www.cutimes.com/2017/07/14/13-credit-unions-that-
tripled-auto-loans-since-201
http://www.cutimes.com/2017/07/14/13-credit-unions-that-
tripled-auto-loans-since-201
Copyright of Credit Union Times is the property of ALM
Media, LLC and its content may not
be copied or emailed to multiple sites or posted to a listserv
individual use.
The "Fandation" of Risk: Does a Banking Client Get Its Money
Back after Cyber Theft?
Contents
1. Summary
2. Legal Principles
3. Recommendations
4. ADDITIONAL RESOURCES
Listen
On March 12, 2016, the Washington Post reported that a nearly
$1 billion cyber theft was blocked at the last minute by a bank

employee who noticed a typo in the wire instructions at a
foreign bank. According to the Post, but for the crooks
misspelling the name of the purported recipient, a charitable
foundation, as a "fandation," the Federal Reserve Bank of New
York would have sent approximately $870 million of assets to a
phony account after already transmitting $80 million. Link here
As my aunt would have said, "We should all be so lucky." Since
March this story has evolved to be part of a hack involving the
SWIFT international bank messaging network. Michael Corkery,
Once Again, Thieves Enter Swift Financial Network and Steal,
N.Y. TIMES, May 12, 2016, link here. As news comes in,
discomfort grows for both banks and their corporate and
institutional clients.
I have published research (How Safe Are Institutional Assets in
a Custodial Bank's Insolvency?, 68 BUS. LAW. 103 (2013)
("Bank Custody") on whether a client can recover its assets
after a custodial bank's insolvency. Although one hopes the risk
of bank insolvency is relatively remote, hacking attacks are a
fact of life. As hacking techniques evolve, antihacking vendors
release new software to overcome them, and the game of cat and
mouse continues.
Where does this leave corporate banking clients? Who bears the
loss if a hacker raids their accounts?
This article summarizes the relevant law and the practical
challenges for commercial and institutional clients and
concludes with items the client might consider in order to
improve the likelihood of recovery. Although the law seeks a
balance between the competing interests of bank and client, the
client may face an uphill road to recovery.
This article does not address rights of consumers, which is
covered under different law (the Electronic Fund Transfer Act,
15 U.S.C. § 1693 et seq.).
Summary
This area of law is relatively new and is intended to evolve with
technology. What this means is that there are guiding principles
but not absolute clarity.

A first principle is that, as noted, the law seeks a level playing
field between the bank and the commercial or institutional
client. The bank has the burden to prove that its security
procedure was "commercially reasonable" and that it acted in
"good faith," or that the client overruled a commercially
reasonable procedure of the bank's for one of its own. If the
bank meets this burden, then the client may still shift the risk of
loss to the bank if the client can prove it had nothing to do with
the hack.
Thus, the law does not impose liability simply on who was
hacked--the bank or the client. If the bank can show it acted
reasonably and in good faith, however, then the client will be
liable unless it can show lack of culpability. This presents the
very real question of whether current technology always is
capable of "proving a negative"--that is, that the client was not
hacked.
Second, the courts seem inconsistent in their "commercial
reasonableness" analysis, nor is there a national standard of
commercial reasonableness. Courts are permitted to be more
forgiving of a local bank's procedures than those of a major
financial institution, even though the local bank may have less
sophisticated tools. This may draw more clients to big banks,
especially clients who do not have internal teams to monitor
cash movements in real time.
Third, although the law's focus is on electronic transfers, it also
covers oral instructions. In my experience, banks continue to
require broad authority to accept oral instructions regardless of
client objections. The risk of loss from phony phone orders is a
ticking time bomb and, in this case, the law seems to place the
risk of liability on the bank.
The Recommendations section that follows offers ideas to
corporate and institutional clients and their counsel looking for
ways to increase the likelihood that the bank will bear the risk
of loss from a cyber theft. Ultimately, though, the question is
whether technology exists--and is readily available to not just
the wealthiest companies--to enable a client to prove it was not

responsible for the hack.
I note that this article does not address the state of law covering
liability for cyber attacks at nonbanks, fintech, and other new
financial intermediation platforms. This may soon become an
even bigger subject than the focus here, and indeed blockchain
or other developing technologies may eventually circumvent the
risks discussed here.
Legal Principles
Article 4A of the Uniform Commercial Code (UCC), first
adopted in 1989, seeks to balance the rights and obligations of
banks and commercial clients (referred to in the law as
"customers") arising from "payment orders," which include oral,
written, and electronic transfers. U.C.C. §§ 4A-103(a) (1), 4A-
105(b)(3). It is considered the exclusive source of rights and
remedies, although parties may agree to supplement the terms so
long as they are not inconsistent with underlying principles.
U.C.C. § 4A-202(f); Patco Const. Co. v. People's United Bank,
684 F.3d 197, 214 (1st Cir. 2012). The UCC or its federal
analog governs payment orders at all U.S. banks.
Although the law seeks to balance competing
interests, article 4A initially imposes risk of loss on the bank
unless: (a) the bank's security procedure was "commercially
reasonable" or the client rejected a commercially reasonable
procedure; and (b) the bank accepted the payment order in
"good faith" and in compliance with the security procedure and
any written agreement or instruction of the client restricting
acceptance of payment orders issued in the client's name. If a
bank has been commercially reasonable and acted in good faith,
or even if the client directed the bank to run a faulty security
procedure, article 4A nonetheless relieves the client of
responsibility if it can show that the instruction came neither
from an authorized representative, nor by way of a source
controlled by the client. U.C.C. § 4A-202(b) and (c).
Thus, client culpability is irrelevant as a direct matter.
Ultimately, however, the burden will fall back on the client and
liability will ensue if, for example, an employee accepted a

phishing attack that led to the hack, or the client cannot prove
otherwise.
In sum, absent proof of the client's innocence, the key questions
under article 4A will be the commercial reasonableness of the
bank's security procedure, its good faith in processing the
fraudulent payment orders, and whether the client demanded
weaker protocols.
Commercial Reasonableness
Under section 4A-202(c), "commercial reasonableness" is a
question of law to be determined by considering the customer's
wishes and its circumstances, including the standard size, type,
and frequency of its banking transactions. As recognized in the
leading Patco case, commercial reasonableness is an evolving
standard that should reflect market conditions and standard
practices, including consideration of industry guidance, such as
that published in 2005 by the Federal Financial Institutions
Examination Counsel
(FFIEC). http://www.ffiec.gov/pdf/authentication%5Fguidance.
pdf. The FFEIC guidelines recommend consideration of one or
more of the following three factors:
1. something the user knows, like a password or PIN;
2. something the user has, like an ATM card or smart card; and
3. something the user is, like a person with a unique fingerprint
or biometric characteristic.
The FFEIC guidelines endorse periodic adjustment of bank
security procedures in light of technological advances, the
sensitivity of customer information, and known threats. "Out-of-
band" protocols, such as callback verification, are also
encouraged.
The case law frequently cites the FFEIC guidelines.
Article 4A does not impose a best practice or even one set of
standards on all banks. As stated in Patco, the "commercially
reasonable" analysis does not ask whether the bank has in place
the best procedure, but whether the procedure is "reasonable for
the particular customer and the particular bank" or whether it
satisfies "prevailing standards of good banking practice

applicable to the particular bank." In this context, Patco and the
other leading cases cite section 4A-202(c) to recognize that
practices found deficient at a large financial institution could be
deemed reasonable at a local bank.
The facts-and-circumstances nature of the commercial
reasonableness test is shown by the disparate outcomes in the
two leading cases.
In Patco, the First Circuit held that a community bank's security
procedure was not commercially reasonable because the bank
had the capacity but failed to monitor or report the fraudulent
transactions as high risks based on the bank's risk-scoring
metric. The court remanded for further consideration. Here, the
client was a small business in property development and
construction that used the bank's web-based platform mainly for
weekly payroll.
Two years later in Choice Escrow & Land Title, LLC v.
BancorpSouth Bank, 754 F.3d 611 (8th Cir. 2014), the Eighth
Circuit upheld the commercial reasonableness of the security
procedure of a regional bank despite the bank lacking any of the
risk measures cited in Patco and having no means to monitor or
report offshore wires. In that case, the bank wired $440,000 to
an account in Cyprus. Ironically, the client earlier had asked the
bank to block all offshore transfers. The client was a real estate
escrow company and, unlike the Patco client, routinely wired
funds.
So a small bank in Patco had insufficient procedures, whereas
those of a regional bank in Choice were fine despite lacking not
only the procedures of the Patco bank but even the ability to put
a control on offshore transfers, which would seem to be a
simple and obvious measure to have in place. Clearly, then, the
Choice decision is hard to mesh with Patco. What led to the
opposite result regarding "commercial reasonableness"?
Client Rejection of Bank Security Procedure
Here is where Choice can teach a lesson to all companies and
institutions. To reach the legal issue of whether a client rejected
the bank's procedure, a court must first determine that the

bank's procedure was commercially reasonable. If it is not
commercially reasonable, then the law looks no further; the
client's decision to take a less safe option is irrelevant, as is the
client's responsibility, if any, for the hack.
Rejection by bank clients of a commercially reasonable
procedure can be unforgiving under article 4A. The client's
desire to save costs or simplify usage may be irrelevant. In
Choice, the court dismissed the client's argument that it was so
small that a dual-control procedure would be a hardship. The
Choice court not only questioned the client's election to keep a
single approval procedure, but also noted that an employee of
the client had accepted a rather obvious phishing request that
probably led to the hack.
Can the fact that the client was foolhardy or foolish rebalance
the equities toward the bank outside the four corners of the
written law? The Choice court clearly seemed unhappy with the
client, noting that the wire should not have "raised eyebrows"
(even though it was intended for an account in Cyprus) and, in
dictum, without citation, that phishing scams are successful
only in "one of out every few thousand recipients." Perhaps the
lesson here is simply that, putting aside client blame, the bank
offered a customer a commercially reasonable procedure and the
customer rejected it. However, the disparity remains between
the stronger procedure rejected by Patco and the weaker one
approved in Choice. It is also true that a real estate escrow
company, as in Choice, is expected to send out wires of large
amounts to sellers who may be located anywhere, even though
the customer specifically asked not to remit offshore wires. In
addition, perhaps the claims made by Choice Escrow on appeal
were poorly pled, as it may appear.
There is enough in Choice to call attention to all clients of the
potential risk if they reject the bank's proposed procedure. Even
if it means leaving the bank to find more palatable terms
elsewhere, the client accepts all risk of staying at its current
bank if something goes wrong later.
Good Faith

If the bank's procedure is commercially reasonable under
section 4-202(b), the bank still must act in good faith in order
to shift the risk of loss back to the client. Case law defines
"good faith" as: (i) honesty in fact (what has been called a "pure
heart and empty head" standard, see Experi-Metal, Inc. v.
Comerica Bank, 2011 WL 2433383, slip op. at 11 (E.D. Mich.
2011)), which requires a fairly straightforward factual review;
and (ii) "reasonable commercial standards of fair dealing,"
which not only is more subjective but, as noted in Choice,
seems similar to the commercial reasonableness standard.
It has followed that courts have evaluated fair dealing
consistently with their finding of commercial reasonableness.
This was so in Choice, and in Experi-Metal, after concluding
that the bank's security procedure was not commercially
reasonable, the court found that the bank failed to show it had
acted in good faith by carrying out the fraudulent payment
order. The court cited several factors, including the client's
limited prior wire activity, the volume and frequency of the
false payment orders, the destinations of the orders, and the
bank's awareness of then-current phishing attempts. Again, the
good-faith analysis was consistent with the commercial
reasonableness analysis.
Unless there is a question of actual honesty on the part of the
bank, the good-faith test may simply be a reiteration of a
"commercial reasonableness" analysis.
Client Exculpation
Even if the bank can show its procedure was commercially
reasonable and it had acted in good faith, or even if it shows the
client demanded a weaker procedure, the client can escape
liability if it can prove that the payment order was not caused
directly or indirectly by someone either: (i) with authority to act
on behalf of the client with respect to payment orders or the
security procedure; or (ii) who obtained access to the client's
facilities or otherwise obtained access without authority of the
bank, regardless of how and whether the client was at fault.
U.C.C. §§ 4A-105(a)(7), 4A-203(a).

Although article 4A is intended to keep current with the
technology, the official comments to article 4A-203 seem to
assume that a client's lack of fault will be fairly easy to
establish because each cyber attack on a bank will lead to
internal and criminal investigations, the results of which the
client can use if they prove the bank was responsible.
I do not know whether the official comments are correct that
every cyber-originated bank theft will prompt an investigation,
or that each investigation will be fair and thorough. However,
based on my discussions with computer scientists, I am not
certain that today's more sophisticated hacks will leave a
"fingerprint" proving where they originated; if they do, whether
current technology can adduce it; and if it can, whether that
technology is generally available, inexpensive, and easily
usable. Even if there is free and simple technology that does
this, however, which again is unclear, what happens if the
client's forensics show up with nothing? Does the absence of
evidence of a hack prove it did not happen? What if the bank
and the company each run the most cutting-edge tests and each
shows nothing?
In this respect, article 4A may not account for the increasing
sophistication of hackers or the technological and evidentiary
challenges facing a client who was not at fault. At the very
least, a company or institution is prudent if it can significantly
limit employees who may initiate a payment order to a small
and responsible group who will be credible witnesses and
impose callbacks and other additional controls.
Other Questions
In addition to the tests above, there are other factors for
banking clients to consider, especially in terms of
documentation, oral instructions, and to the extent article 4A
extinguishes other claims against the bank.
What is the parties' "written agreement"? Do client instructions
matter? What about bank updates? As part of the article 4A
analysis, under section 4A-202(b), the relevant "security
procedure" encompasses the parties' "written agreement," which

includes any "written instruction of the customer restricting
acceptance of payment orders issued in the name of the
customer" so long as the bank has received and has reasonable
opportunity to act on it. The law does not similarly embrace a
unilateral amendment or announcement by the bank, and so
courts have found them not to be binding without client
acceptance in writing or by course of conduct. See Chavez v.
Mercantil Commercebank, 701 F.3d 896, 903 (11th Cir. 2012).
The official comments explain that the written-agreement
requirement is there not to give the bank the means to restrict
culpability or customize an acceptable security procedure, but
rather to allow the customer to impose additional restrictions.
U.C.C. Art. 4A-203, Cmt. 3. Hence the different treatment for
unilateral action by the client versus that by the bank.
However, to date the courts have seemed uncomfortable with
the asymmetry here. So in Choice, the client had explicitly
asked the bank to bar foreign wires, yet the court found that that
was an "inquiry" and not an instruction or direction. Given that
a key element of commercial reasonableness under article 4A is
addressing "the wishes of the customer," the court's parsing of
the request as an "inquiry" suggests that other courts may
interpret the law narrowly.
This underscores that the case law is still evolving and that
clients may have a difficult time convincing a court that a bank
is bound by a client instruction that the bank did not accept or
cannot follow. In fairness, this may be a hard position for a
bank to find itself. In this situation, I would advise a client to
go to a new bank that can accommodate its needs rather than
rely on the rule finding that a client's unilateral instruction or
other action is binding on the bank under article 4A.
What is the "written agreement" specifically? In my experience,
a commercial or institutional client's overall agreement with a
bank has many parts. In addition to the main agreement, often
called the custody agreement, typically there are various
addenda that include the website access agreement; the form of
client authorization list; possibly a securities lending agreement

(although less common after 2008); an FX rider; and perhaps
other documents, along with updates the bank may circulate
from time to time. In addition, the bank's draft of the overall
agreement typically will include a number of terms to be
negotiated, including exculpatory provisions to benefit the
bank, such as ones excluding recovery of punitive damages or
damages in excess of, for example, one year of fees, and
indemnification provisions requiring the client to pay the banks
costs of litigating suits relating to the client's account,
including possibly lawsuits brought against the bank by the
client itself. Note that sometimes one document may contain
language restricting or expanding rights or duties from another
document.
As noted above, courts will not incorporate updates or riders
issued from time to time by the bank as part of the client's
written agreement unless the client accepted them. The common
practice of automated group mailings of amendments likely will
be valid if the bank can show the client received the information
and failed to object or terminate the contract. The cases are
replete with clients disputing receipt of updates. This raises a
question of fact whether the updated terms are part of the
"written agreement." See Patco, 684 F.3d at 214.
Here the client is at a disadvantage. Given that federal
regulators encourage banks to adopt uniform agreements, as
noted in Bank Custody, the bank should be accustomed to mass
mailings, whereas clients may not be attuned to them. In
addition, although the bank would certainly keep a record of
sending the notice to the client's e-mail address, will the client's
hard drive or other storage facilities be robust enough to later
recover evidence to show the client failed to open the e-mail, or
that it got trapped in a spam filter? As with the question
whether technology can prove a client's blamelessness for the
hack, the client may be hard-pressed to "prove a negative,"
namely, that it never opened or read the communication. Given
that there can be no evidence to prove a nonevent, the issue
likely would be one of credibility for the trier of fact. Chelan

County, Wash. v. Bank of America Corp., 2015 WL 4129937
(E.D. Wash. 2015), slip op. at 16.
To address this risk and others, I have advised clients to
confirm periodically with the bank the full set of documents
that the bank has on record for the client. The client should not
only review all updates but ask the bank to fill in missing
exhibits, delete outdated documents (which sometimes can still
be there), and ensure that the bank has the client's current list of
authorized representatives and the client's standing instructions
and requisites for approvals, especially of money transfers.
Oral instructions. Recently, a leading custodial bank told my
client, a billion-dollar institution, that it could not accept
language banning acceptance of oral instructions. The bank
explained that there are times it must track down someone by
phone to approve proxy instructions if no one had responded by
the deadline. Although this seemed a reasonable request for
proxies or even all non-cash transactions, the bank required
broader language to accept oral instructions in all instances and
be exculpated if it failed to validate the oral instructions in
writing. The bank said that this was in all its institutional
agreements.
Naturally this language is alarming to any banking client. As
risky as written instructions may be, the risks of oral
instructions are manifestly greater. This is magnified further by
the fact that many bank custody agreements impose low
standards (or in this example, no standards) on the bank for
adducing the genuine identity of the people purporting to
represent the client by phone.
What is the outcome of a bank's broad authority to accept oral
instructions? Assuming it is clear that the authority was sought
by the bank and not the client, the key questions will be whether
this is a "security procedure" and whether it is commercially
reasonable. Under section 4A-201 and the attendant case law, a
"security procedure" must be identified as such, and if the
overall agreement is silent, then section 4A-204 deems the risk
of loss to reside with the bank. So unless the bank can show the

existence of a valid security procedure and that this practice is
reasonable, the client should be protected here.
My concern is the reasonableness peg. If many large banks still
insist on accepting oral instructions, could doing so be
"commercially reasonable"? I urge my clients to ban oral
instructions. If a bank insists, however, I seek to ring-fence the
authority as narrowly as possible to require at least dual
approvals by written or electronic action prior to any movement
of cash or assets.
As noted, the bank in my client's situation sought exculpation
for its transfers under oral instructions. Does exculpation
survive under article 4A?
Do contractual claims survive an article 4A litigation? As
explained in Bank Custody, the custody agreement must have
certain provisions to adequately protect the client. Among them
is a fiduciary level of duty. On the other hand, as noted, banks
typically insert provisions to limit their liability and cover their
indemnification.
Given that article 4A is deemed the "exclusive" source of rights
and remedies in a cyber theft, several cases have addressed
whether article 4A supervenes client claims for breach of
contract or of fiduciary duty, or bank exculpation or
indemnification claims.
As stated in Patco and confirmed in Choice and Wright v.
Citizen's Bank of East Tennessee,_F.3d_, 2016 WL 97673 (6th
Cir. 2016), article 4A precludes other claims only to the extent
that they "create rights, duties, and liabilities inconsistent
with Article 4A." Therefore, claims may be made under
contractual duties that impose a higher standard than article 4A
or from common law remedies for injuries or misconduct not
addressed in article 4A. As such, Patco reversed the district
court's dismissal of the client's claims for breach of contract
and breach of fiduciary duty. Although it admitted it was a
"closer question," the court affirmed dismissal of negligence
claims based on the jurisprudence of negligence. The Sixth
Circuit drew a similar conclusion in Wright.

Thus, case law would support claims that a bank is in breach of
an obligation to prevent fraud or of the requisite fiduciary duty.
On the other hand, bank exculpation and limits on recovery
would seem to be blocked. Patco did not address the bank's
argument to this effect or its disclaimer of liability under the
bank's website access agreement. In remaining silent on this
question while approving the client's prosecution of the breach
claims, however, Patco can be read to hold contractual
exculpation to be inconsistent with article 4A.
Similarly, Choice held that bank indemnification claims were
barred by article 4A. The court ordered the client to pay the
bank's attorney fees, however, even though the right to recover
fees came from the contract's indemnity provision. The
provision stated that the client will "indemnify and hold [the
bank] harmless from any and all … costs and expenses,
including reasonable attorney's fees." As I read it, the award of
fees here seems closer to that of an indemnity award than the
court acknowledged.
Although I think it unlikely that a court will honor a bank's
exculpatory provisions in a cyber theft case, the case law may
not yet be so strong as to mandate this outcome, especially if a
court believes that the client was more at fault than the bank.
Note that banks have not pressed force majeure as a contractual
defense. It will be interesting to see whether this happens and
how a court responds. Force majeure does not seem to be
consistent with the principles of article 4A.
Conclusions from the case law. There does not yet seem to be a
clear principle for evaluating the central question
under article 4A: the commercial reasonableness of a bank's
security procedure. The security procedure in Choice seemed
significantly less robust than those in Patco and Experi-Metal,
for example, yet Choice is the only one that found them to be
commercially reasonable. As the newest case, the Choice court
clearly had the capacity to contrast those controls with those
described in the earlier cases. Client culpability is not a factor
under article 4A, but I suspect it played a part in the decision in

Choice and, thus, cannot be ignored when a client contemplates
action against the bank for losses arising from a hack.
Recommendations
Following the recommendations in Bank Custody, commercial
and institutional clients can take positions to protect against
risk of loss from cyber theft, including the following:
First, article 4A's client protections fly out the window if the
client insists on a separate security procedure if the one offered
by the bank is "commercially reasonable." If the client cannot
afford the bank's procedure, or otherwise wants to lower the
standards, it should stop and find a bank whose plan comports
with its needs. Otherwise, if something goes wrong, the bank,
seeing it is not at risk, may be uninterested in discussing a
settlement to avoid litigation.
Second, on the flip side, a client should leave a bank that cannot
offer the protection it requires. Choice Escrow stayed with its
bank even though the bank could do nothing to address the
client's request to block wires to offshore accounts. If a bank
cannot address the client's needs, the client should seek another
bank.
Third, although available technology may not help prove a
client's lack of responsibility, it makes sense to permit only a
small group of highly professional employees to have wire
authority. Likewise, using dual or triple controls with out-of-
band controls and imposing other fortifications is appropriate,
both as a business matter and to help the effort to prove lack of
responsibility for the hack. These practices should defray any
effort by the bank to paint the client as a negligent or
improvident partner. Clients should also have an effective
compliance manual and engage in regular internal training. For
more ideas, see Patco Owner on Fraud Settlement, (Nov. 29,
2012), http://www.bankinfosecurity.com/interviews/patco-i-
1726/op-1. Given that IT forensics may never be manageable,
the client should at least be able to show that old-fashioned
means of theft--an office break-in or a crooked employee--are
not a factor.

Next, clients should resist the bank's insistence on accepting
oral instructions of any kind. If any are permitted, they should
be limited to noncash activities such as proxy voting. In
addition, as discussed in Bank Custody, the client should ensure
that the contract satisfies legal requirements for validity and
enforceability, and knows what its "agreement" consists of. The
client should go back periodically to ratify all relevant
documents and exhibits and update and confirm current
authorizations. In sum, the contract process can aid a bank's
defense of liability. A client should make sure there are no
surprises that could limit article 4A remedies or enforceability.
Last, insurance can ease risk of loss and experts can assist in
selecting and negotiating cyber security coverage. Many plans
have exceptions that can obliterate coverage for mistakes made
by employees or offer less protection than meets the eye. In
addition, policy limits on cyber insurance for institutional
accounts may come nowhere near the total loss suffered in an
attack on the company's bank account. Bank insurance should be
examined too.
When I first studied the question of bank custody law a few
years ago, I was disturbed to discover that many bank custody
contracts failed to address legal requirements enabling
institutional investors to protect their assets in the event of the
bank's insolvency. This remains an important issue and must be
addressed in contract negotiation. Even more urgently, however,
clients should review their cyber security rights and their
security procedures to increase their chances of recovery of
losses from bank cyber theft.
ADDITIONAL RESOURCES
For other materials related to this topic, please refer to the
following.
BusinessLaw Section Program Library
Cyber Criminals: What They Do, How They Do It, and How It
Effects Your Company (PDF)
Presented by: White-Collar Crime, Cyberspace Law Location:
2015 Annual Meeting

BusinessLaw Today
What Banks Should Know About the Eighth Circuit's Decision
in Choice Escrow & Land Title, LLC v. BancorpSouth Bank
~~~~~~~~
By Lori A. Desjardins and Katie Hawkins
Vol. 24, No. 2 October 2014
Courts decline to extend bankruptcy laws to marijuana
businesses
Listen
Opening Statements
Recent decisions holding that state-compliant medical marijuana
growers and dispensaries can't reorganize in bankruptcy are
highlighting the sticky problems that result when federal and
state marijuana laws conflict.
Most recently, a bankruptcy appellate panel of the 10th U.S.
Circuit Court of Appeals at Denver held in August that
marijuana businesses can't get relief in the bankruptcy system
even if they're legal under Colorado state law. The debtors in In
re Arenas, licensed marijuana growers and distributors,
sought bankruptcy protection after losing a lawsuit against their
tenants. But the court held that because their business violated
federal law, they couldn't fund bankruptcy repayment plans with
marijuana sales. Similarly, in 2012, a bankruptcy court in
California dismissed the Chapter 11 petition of Mother Earth's
Alternative Healing Cooperative, a medical marijuana
dispensary, because the group violated the federal Controlled
Substances Act.
"If a marijuana business fails, they can't turn to bankruptcy for
a fresh start," says Jared Ellias, a bankruptcy professor at the
University of California's Hastings College of the Law in San
Francisco. "Normally, judges go to enormous lengths to help
businesses to do as much as they can within the law to give
relief to debtors. Judges constantly innovate within the confines

of the law--such as recharacterizing sales transactions as
secured loans--to give relief to debtors. There's no reason to
think that bankruptcy judges in the aggregate wouldn't want to
do this with a marijuana business, but there's a brick wall
judges run into with these cases--there's nothing they can do."
The Arenas court stated that the decision not to allow a
reorganization plan "funded from the fruits of federal crimes"
was "relatively straightforward," but at the same time
acknowledged the result "is devastating for the debtors."
Conflicts between federal and state laws are extremely difficult
for bankruptcy judges to navigate, and this is just another
example of a broader trend, according to Ellias. "When
governments decide not to enforce a law, what matters is what's
on the books. This will increasingly intersect
with bankruptcy law and continue to be murky."
So what's a state-legitimate pot business to do? Depending on
the state, there may be avenues for relief in state receivership or
insolvency proceedings, Ellias says. Also, lenders that fund
these businesses should be aware that such companies cannot go
into bankruptcy and then structure deals around that, similar to
how some casino, media and airline companies are funded.
Lenders could also seek collateral such as homes or cars from
dispensary owners or require guarantees from people
uninvolved in the business.
But marijuana businesses shouldn't expect different outcomes
from bankruptcy judges. "It's the right result based on federal
law; the Supreme Court would come to the same conclusion,"
Ellias says. And Congress is unlikely to amend
the bankruptcy code to make an exception to the bad-faith
requirement. "That would be a step towards legalization of
marijuana, and I think that's unlikely."
Image from Shutterstock.
This article originally appeared in the February 2016 issue of
the ABA Journal with this headline: "No Relief: Courts decline
to extend bankruptcy laws to marijuana businesses."
~~~~~~~~

By Leslie A. Gordon
American Accent
Eye Doctor Tied to Bob Menendez Case Convicted in $100
Million Fraud Scheme
Listen
U.S.
(WEST PALM BEACH, Fla.) -- A federal judge heard wildly
conflicting stories Tuesday about a prominent Florida eye
doctor convicted in a $100 million Medicare fraud scheme.
Some former patients said Dr. Salomon Melgen restored their
sight for free, while others described painful and unnecessary
treatments that left them blind.
Melgen, 63, is facing a possible life sentence after being found
guilty of 67 counts, including health care fraud, submitting
false claims and falsifying records in patients' files. Evidence
presented during his trial earlier this year showed he subjected
patients to unnecessary procedures, including sticking needles
in their eyes and burning their retinas with lasers.
Melgen also stands accused in a separate federal case of bribing
Democratic U.S. Sen. Bob Menendez of New Jersey in exchange
for favors including visas for his foreign mistresses.
As Melgen's three-day sentencing hearing began, some patients
and former employees told U.S. District Judge Kenneth A.
Marra that the Dominican-born, Harvard-trained doctor was an
exceptional and giving doctor who often restored sight when
the case seemed hopeless. Melgen listened quietly at the
defense table, wearing a blue prison uniform, his legs shackled.
Bonnie Illsley, his former office manager, told the judge she
never saw any evidence of fraud. Instead, she said she saw "a
kind, generous man who would give you the shirt off his back."
She said he would often meet emergency patients at his office at
night or on weekends rather than send them to the emergency
room, because he could provide better treatment.

Business Law PaperNow that you have been exposed to some concept.docx

Business Law PaperNow that you have been exposed to some concept.docx

Recommended

Recommended

More Related Content

Similar to Business Law PaperNow that you have been exposed to some concept.docx

Similar to Business Law PaperNow that you have been exposed to some concept.docx (19)

More from felicidaddinwoodie

More from felicidaddinwoodie (20)

Recently uploaded

Recently uploaded (20)

Business Law PaperNow that you have been exposed to some concept.docx