New Supreme Court Ruling on Antifraud – Woodruff Sawyer

I am forwarding the following link to a Woodruff Sawyer post by Priya Cherian Huskins discussing Lorenzo v. Securities and Exchange Commission and the application of the securities anti-fraud law provisions to a defendant who arguably only passed along misleading information and was not the “maker” of the misleading information. This post also is somewhat of a test as I am posting it from my Samsung phone. David Tate

https://woodruffsawyer.com/do-notebook/supreme-court-ruling-antifraud-could-doom-messenger/?utm_source=newsletter&utm_medium=email&utm_campaign=blog-management-liability

Every case and situation is different. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Thank you for reading this website. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

Blogs: Trust, estate/probate, power of attorney, conservatorship, elder and dependent adult abuse, nursing home and care, disability, discrimination, personal injury, responsibilities and rights, and other related litigation, and contentious administrations http://californiaestatetrust.com; Business, D&O, board, director, audit committee, shareholder, founder, owner, and investor litigation, governance, responsibilities and rights, compliance, investigations, and risk management  http://auditcommitteeupdate.com

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I am now the new Chair of the Bar Association of San Francisco Business Law Section

Just a brief update – I am now the new Chair of the Bar Association of San Francisco Business Law Section. BASF is a very active and worthwhile organization. I am looking forward to this opportunity, helping to provide benefit to the members of the Section, and helping to grow the Section. This opportunity also fits well with my practice as an attorney.

Over the years, in the past I have been active with many organizations including as a board member of two nonprofits, and as the independent audit committee chair of another large nonprofit, and many leadership positions with the California Society of CPAs including at the statewide and local chapter levels.

Thank you for reading this website. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

Blogs: Trust, estate/probate, power of attorney, conservatorship, elder and dependent adult abuse, nursing home and care, disability, discrimination, personal injury, responsibilities and rights, and other related litigation, and contentious administrations http://californiaestatetrust.com; Business, D&O, board, director, audit committee, shareholder, founder, owner, and investor litigation, governance, responsibilities and rights, compliance, investigations, and risk management  http://auditcommitteeupdate.com

New Musk / SEC Agreement – Will It Work? – Red Flags – If I Were The Judge

At this point most reasonable people would not dispute that Mr. Musk has difficulty wording his communications (tweets) in a manner that is acceptable or more likely to be acceptable under the securities laws. Greatly summarizing the law, ask yourself if the wording and information that Mr. Musk has communicated or is proposing to communicate is or would be (1) viewed as being material to the average investor, (2) vague puffery, (3) a statement or assertion of current fact, (4) a statement or assertion of forward-looking wording and information, or (5) a mixed combination of any of (1)-(4)?

Vague puffery should not be actionable. Information that is not “material” also should not be actionable; however, whether information is material (quantitatively or qualitatively) can be a slippery slope question of fact, and you might ask why Mr. Musk would be communicating the information if he did not consider the information to be important as to Tesla? Regarding (3), well . . . is the statement or assertion of current fact true and accurate as expressed? Regarding (4), well . . . even if the statement or assertion includes forward-looking warnings or disclaimers (which it should/must), is there a reasonable factual basis for making and believing the truth and accuracy of the forward-looking statement or assertion?

The players involved at least include Mr. Musk, the SEC, the Board, the Audit Committee, the Disclosure Controls Committee, and the new experienced securities attorney who is supposed to review, fix/modify, and authorize Mr. Musk’s communications before Mr. Musk makes them. Obviously, this has been, and will be a challenge for Ms. Musk. Presumably, he views Tesla and Tesla’s further future success, or not, as his creation, and rightly so. Mr. Musk has accomplished an amazing task thus far. But public companies have rules of communication that must be followed. And it is arguable that at this point his manner of communications might be hurting Tesla as much as they help. Assertions of current fact, and assertions of forward-looking statements certainly can be made, and it is arguable that they are supposed to be or at times must be made or disclosed, but they need to be made in an appropriate manner.

Where has the Board been in all of this? We don’t know, because the Board has not said. The Board is overall responsible for risk management.

These certainly are risk management, governance, and internal controls issues.

Where has the Audit Committee been in all of this? We don’t know, because the Audit Committee has not said. The Audit Committee Charter in part states that the Audit Committee assists the Board with oversight of the Company’s compliance with legal and regulatory requirements, and also assists the Board with oversight of the Company’s risk management. The Charter further states that the Audit Committee also is involved in the oversight of internal controls and at least some of Tesla’s corporate communications.

Tesla also has a Disclosure Controls Committee. Where has the Disclosure Controls Committee been in all of this? We don’t know because the Disclosure Controls Committee has not said.

And, assuming that the Court approves the new Musk / SEC agreement, going forward where will then be the experienced securities attorney who is supposed to review, fix/modify, and authorize Mr. Musk’s communications before Mr. Musk makes them?

Thus far, oversight has not worked. And, there are red flags all over the place. Although Boards, and Board Committees (e.g., the Audit Committee), and in-house legal and compliance professionals usually are not personally liable for unlawful activities of the company or its officers, that is a changing environment, and cases also do hold that liability can attach when red flags are ignored or not remedied.

This is really easy to resolve if Mr. Musk wants to modify how he does his communications, as frustrating as that might be for him.

What will/should the Judge do? I would approve the new agreement, perhaps with a few minor changes. I would put in place a process for meet and confer between the parties, and then also quick Court involvement if there is a perceived new violation of the new agreement, and I would schedule a new status hearing in the not-to-distant future, such as 30 days.

Every case and situation is different. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Thank you for reading this website. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

Blogs: Trust, estate/probate, power of attorney, conservatorship, elder and dependent adult abuse, nursing home and care, disability, discrimination, personal injury, responsibilities and rights, and other related litigation, and contentious administrations http://californiaestatetrust.com; Business, D&O, board, director, audit committee, shareholder, founder, owner, and investor litigation, governance, responsibilities and rights, compliance, investigations, and risk management  http://auditcommitteeupdate.com

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California LLC Member and Manager Duties to the LLC and to Each Other

California LLC Member and Manager Duties to the LLC and to Each Other

David Tate, Esq. (and inactive California CPA) – practicing in California only

In a member-managed LLC, each member owes a duty of loyalty and a duty of care to the LLC and to the other members.

In a manager-managed LLC, each manager owes a duty of loyalty and a duty of care to the LLC and to the members. Members who are not managers do not owe the duty of loyalty or the duty of care.

Note however that you also must read (and understand) the operating agreement to determine if any of these duties are expanded; to determine if any of these duties are reduced or purportedly eliminated (they cannot be eliminated); and, in a member-managed LLC, to determine if any of these duties are shifted from one member to one or more other members.

Issues, questions and disputes about legal responsibilities/duties and rights pursuant to these duties usually don’t arise or usually are relatively uncomplicated while the LLC members and managers are dealing with each other honestly, openly, and fully, as in most businesses and situations. In my practice I handle situations and represent clients where legal responsibilities and rights and the actions and inactions of the people who are involved are seriously at issue. And you can see from the wording and definitions in these materials that there can be significant uncertainty and vagueness about exactly what the responsibilities and rights are and can be in different situations.

Duty of Loyalty. The duty of loyalty is limited to the following unless the operating agreement provides otherwise (again, you must read and understand the operating agreement):

Account and Accounting. An LLC member in a member-managed LLC, or a manager in a manger-managed LLC must account to the LLC and hold as a trustee any property, profit, or benefit, that the member or manager, respectively, derives in the conduct of the LLC or in the winding up of the LLC’s activities, or from the use of the LLC’s property including but not limited to the appropriation of an LLC opportunity.  Also take note whether a specific member or a specific manager is tasked with the function of accounting for the LLC.

Adverse Interest. Each member (in a member-managed LLC) and each manager (in a manager-managed LLC) must not deal with the LLC, or on behalf of a person with respect to the LLC, as an interest adverse to the LLC.

Competing with the LLC. Each member (in a member-managed LLC) and each manager (in a manager-managed LLC) must not compete with the LLC in the conduct of the LLC or in the winding up of the LLC’s activities.

Duty of Care. The duty of care in the conduct of the LLC or in the winding up of the LLC’s activities is limited to not committing gross negligence or reckless conduct, intentional misconduct, or a knowing violation of law. However, you must read and understand the operating agreement as it is permissible for the agreement to expand the standard of culpability to ordinary or simple negligence.

Duty of Good Faith and Fair Dealing. In both a member-managed and in a manager-managed LLC, members and managers have a duty of good faith and fair dealing to the LLC and to the other members – for example, to not obtain an advantage or benefit by any misrepresentation or concealment or other means. And this is true whether the duties arise under the California Revised Uniform Limited Liability Company Act (CRULLCA) or the LLC’s operating agreement. A duty of good faith and fair dealing is a duty of care; however, you can also see that it is a duty of care that is separate from the culpability standards.

Thank you for reading this post. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly. And please also subscribe to this blog and my other blog (see below), and connect with me on LinkedIn and Twitter.

Every case and situation is different. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

Blogs: California trust, estate, and elder abuse litigation and contentious administrations http://californiaestatetrust.com; D&O, audit committee, governance, litigation, investigations, liability, and risk management http://auditcommitteeupdate.com

17 Questions to Facilitate Dispute Resolution

I have provided below a link to my 17 questions to facilitate dispute resolution. The perspective is litigation but the questions are useful for pre-litigation, and also for disputes and resolution regardless of litigation. Use it and pass it to other people who would be interested. I believe that you will find the questions useful to focus on the strengths and weakness of the dispute and options for resolution.

Here is the link to the 17 Questions to Facilitate Dispute Resolution: 17 Questions to Facilitate Dispute Resolution, David Tate, Esq. 03282019

Thank you for reading this post. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly. And please also subscribe to this blog and my other blog (see below), and connect with me on LinkedIn and Twitter.

Every case situation is different. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

Blogs: California trust, estate, and elder abuse litigation and contentious administrations http://californiaestatetrust.com; D&O, audit committee, governance, litigation, investigations, liability, and risk management http://auditcommitteeupdate.com

 

 

 

 

Society of Professional Journalists – Code of Ethics – Good Standards for Media and Social Media

I have pasted below the Society of Professional Journalists Code of Ethics, which I found at https://www.spj.org/ethicscode.asp. The Code was news to me. The SPJ should publicly promote its Code offers some good guidance for media, and social media.

The Code is divided into four primary headings: Seek Trust and Report It; Minimize Harm; Act Independently; and Be Accountable and Transparent.”

I do have a few comments. The SPJ states that the Code is not a set of rules, but is a guide. Generally I tend to view a code of ethics as rules or standards that are to be followed, not simply guidance. I assume the response would not be favorable if a business defended questionable actions by taking the position that its code of ethics was just a guide.

One theme that the Code presents, with which I agree, is that the public is entitled to as much reliable, identified, source materials as possible so as to allow the members of the public the ability to determine for themselves:  “The public is entitled to as much information as possible to judge the reliability and motives of sources.” “Use original sources whenever possible.” “Provide access to source material when it is relevant and appropriate.” “Consider sources’ motives before promising anonymity. Reserve anonymity for sources who may face danger, retribution or other harm, and have information that cannot be obtained elsewhere. Explain why anonymity was granted.” I would add: as a general rule don’t use, cite or quote anonymous sources, and if you do use, cite or quote an anonymous source, provide as much information about that source as possible. For example, if you cannot provide the person’s name, provide how they obtained the information that they provided, and, as relevant, with what organization, party, group, or employer do they associate?

The heading “Act Independently” states in part that “Journalists should: – Avoid conflicts of interest, real or perceived. Disclose unavoidable conflicts.” I would add under that heading – Journalists should avoid journalist or reporter bias. And I would add, disclose bias, although I suspect that having to disclose bias would be viewed as difficult.

I like “Gather, update and correct information throughout the life of the news story,” and “Label advocacy and commentary.” I would add, report the evidence, and avoid journalist editorializing, opinions, viewpoints, conclusions, elaboration, adjectives, adverbs, and added “facts,”  unless it is labeled as such. Or the writer or speaker can say “I believe that . . . ” or “In my opinion . . . ” or “In my view . . . ” or “I have a different view . . . ” or “I don’t believe that . . . ” or something along those lines. I would also add, include a summary of relevant evidence, sources and information that are currently unknown, and, thus, not included.

I recommend most of the Code’s standards. Whether the standards are followed or not is a different question and different issue. You might want to keep the Code in mind as you read, evaluate, engage in, and comment about media and social media.

Here is a screenshot of the SPJ Code of Ethics:

Thank you for reading this post. I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly. And please also subscribe to this blog and my other blog (see below), and connect with me on LinkedIn and Twitter.

Every case situation is different. You do need to consult with an attorney and other professionals about your particular situation. This post is not a solicitation for legal or other services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation or as legal or other professional advice or representation.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only.

Blogs: California trust, estate, and elder abuse litigation and contentious administrations http://californiaestatetrust.com; D&O, audit committee, governance, litigation, investigations, liability, and risk management http://auditcommitteeupdate.com

 

 

Nonprofit Risks 2019 – From Protiviti Top Risks 2019

Below I have inserted a nonprofit and governmental organization focused chart from a Protiviti paper – Executive Perspectives on Top Risks 2019.

Of course every entity is different and has different risks. And I would list and evaluate nonprofit entities separate from governmental entities, but it is not a purpose of this post to question or criticize the chart format.

Instead, from a nonprofit perspective I found the first and fifth listed risks interesting, and the second through fourth listed risks not surprising. For example, I would expect privacy, security, and top talent retention risks to be listed.

But the first and fifth listed risks identify broad and important organization culture and governance wide risks which would really concern me if I was a nonprofit board member, including: that resistance to change may restrict the organization from making necessary adjustments to the business model and core operations; and that the organization’s culture may not sufficiently encourage the timely identification of risk issues that have the potential to significantly affect core operations and achieve strategic objectives. If I’m sitting on a board and I don’t feel comfortable that the entity can timely identify risks that have the potential to significantly affect core operations, or that the organization’s culture and governance will allow it to make necessary changes to the business model and core operations, I would be feeling pretty exposed to criticism that board efforts, including my efforts, to oversee the governance and risk management of the organization are lacking or are ineffective.

Two additional comments: (1) as the chart also applies to governmental entities, I have to add that my above-stated concerns in the context of a nonprofit definitely also apply equally for governmental entities, and (2) I was surprised to not see on the list for nonprofits the risk that the organization might not have, or be able to maintain, or be able to develop sufficient funding sources to meet operational needs or for sustainability, and that important current funding sources might be reduced or lost in the future.

Immediately below you will find the chart from Protiviti, and below the Protiviti chart you will find a summary risk management framework chart that I prepared and which you might find useful.

Thank you for reading this post. If you have found value in this post, I ask that you also pass it along to other people who would be interested as it is through collaboration that great things and success occur more quickly. And please also subscribe to this blog and my other blog (see below), and connect with me on LinkedIn and Twitter.

Every case situation is different. You do need to consult with professionals about your particular situation. This post is not a solicitation for services inside of or outside of California, and, of course, this post only is a summary of information that changes from time to time, and does not apply to any particular situation or to your specific situation. So . . . you cannot rely on this post for your situation.

Best to you, David Tate, Esq. (and inactive California CPA) – practicing in California only

Blogs: California trust, estate, and elder abuse litigation and contentious administrations http://californiaestatetrust.com; D&O, audit committee, governance and risk management http://auditcommitteeupdate.com