Global Social Media Handbook

I am proud to be among the 22 legal professionals, including 7 of my colleagues at Rimon, who contributed and co-authored a new book entitled Handbook on Global Social Media Law for Business Lawyers, published by ABA Publishing. This comprehensive work, sponsored by the Business Law Section of the American Bar Association, was co-edited by Valerie Surgenor, a partner in the Glasgow, Scotland, law firm MacRoberts LLP and John Isaza, my friend and partner here at Rimon, P.C.   Although principally focused on the United States, there are contributions from foreign lawyers in key regions around the world, including Canada, the European Union, Australia, Russia and Asia.

The Handbook deals with national and international law principles and emerging issues related to social media law, ethics, compliance and governance, including cybersecurity, cyber terrorism and risk management in a social media environment (e.g., hacking, corporate espionage, data loss and data breach); intellectual property issues in social media;  defamation, “fake news” and social media;  implementation of a social media crisis plan; use of social media as a tool in recruitment of employees and the privacy implications to employers;  promotional, endorsement and social media disclosure guidelines promulgated by the Federal Trade Commission in the US; and recent trends in UK and European social media legislation and regulation.  There is a separate chapter that discusses information and records management within the context of social media.

If you are interested, you can order a copy directly from the ABA (Handbook on Global Social Media Law for Business Lawyers) and of course, if you need more information or want to discuss your particular requirements with knowledgeable and experienced professionals, feel free to reach out to me, Joe Rosenbaum, or to any of the lawyers at Rimon with whom you work with regularly.

 

First Joint Consultations May Foreshadow Effectiveness of Privacy Shield

–  Stephen Díaz, Partner, Rimon, P.C. &  Claudio Palmieri, Of  Counsel Rimon, P.C. (Principal, Studio Legale Palmieri –Rimôn Italia)

On October 6, 2015, the Court of Justice of the European Union invalidated the so-called “Safe Harbor” that previously governed data transfers between the U.S. and the EU (Case C-362/14 – Maximillian Schrems v. Data Protection Commissioner, 6 October 2015).

As you already know if you read our Legal Bytes’ posting in May concerning the US-EU Data Transfer Privacy Shield, personal data cannot be transferred to from the EU to a non-European Union/European Economic Area country, unless that country can ensure “adequate levels of protection” for such personal data. While the European Commission had identified a number of countries that met the ‘adequate protection’ test, the United States was not one of them and without the Safe Harbor understandings, transatlantic exchanges of data – both for commercial and national security reasons – were at risk of being non-compliant with EU regulations!  In an attempt to temporarily address the data transfer issues, the EU and the U.S. proposed a new framework for exchanges of personal data for commercial purposes, known as the EU-U.S. Privacy Shield (“Privacy Shield”) which was formally launched on July 12, 2016.

Further complicating matters, a new EU General Data Protection Regulation (GDPR) comes into effect on May 25, 2018.    In furtherance of a formal and more permanent agreement under the Privacy Shield and in contemplation of the new regulations, representatives of the U.S. and the EU have announced they will meet in Washington, DC during the week of September 18, 2017, for the first Annual Review of the Privacy Shield.  In advance of the meeting, the EU’s official Working Group (WP 29) sent the European Commission their recommendations and consistent with previous pronouncements, they believe the meeting should focus on enforcement of rights and obligations, as well as changes in U.S. law since the adoption of the Privacy Shield.  WP29 recommended discussions focus on these issue and that any formal agreement must deal with both commercial, as well as law enforcement and national security access.

These concerns and considerations are explored in more detail in our full Client Alert: No Certainty in Future of Privacy Shield as Transatlantic Consultations Set to Begin and it is clear that the September consultations may well be an indication of whether the Privacy Shield will prove an adequate regulatory regime for the transatlantic transfer of personal data and whether meaningful progress is likely in the current environment.

If you would like more information, a better understanding or need guidance regarding compliance with these regulations, contact Stephen Díaz Gavin, a Rimon Law Partner based in Washington, DC or Claudio Palmieri is of counsel to Rimon, P.C. and the principal of Studio Legale Palmieri –Rimôn Italia in Rome, Italy. Of course you can always contact me, Joe Rosenbaum, or any of the lawyers at Rimon with whom you regularly work.

 

OFAC Targets Sports & Entertainment Figures

Jill Williamson, Partner, Rimon, P.C.

On August 9, 2017, the Office of Foreign Assets Control (OFAC) at the U.S. Treasury Department, issued a Press  Release and identified Mexican national Raul Flores Hernandez and the Flores Drug Trafficking Organization (Flores DTO) as Significant Foreign Narcotics Traffickers pursuant to the Foreign Narcotics Kingpin Designation Act, also known as the Kingpin Act. OFAC also designated a large number of individuals and 42 entities for involvement with, and acting as fronts for, Raul Flores Hernandez.

Many of these individual and entities are in the sports and entertainment industries, including  professional soccer player, Rafael Marquez Alvarez (Rafa Marquez), Mexican singer Julio Cesar Alvarez Montelongo (Julion Alvarez), Mexican Soccer Club Club Deportivo Morumbi and the Grand Casino Guadalajara.

As of the issuance date of these designations, no U.S. persons, companies, nor any individuals in the US, are allowed to conduct transactions with these individuals or entities.  Penalties under the Kingpin Act can run as high as $10MM per violation, with individual violators subject to imprisonment for up to 30 years.  Even civil penalties for inadvertent violations can run over $1M per violation.  It is worth noting that OFAC violations are based on strict liability.

If you would like more information, a better understanding or need guidance regarding compliance with these regulations, contact Jill M. Williamson, a Rimon Law Partner based in Washington, DC. Of course you can always contact me, Joe Rosenbaum, or any of the lawyers at Rimon with whom you regularly work.

A Cryptocurrency by Any Other Name May Still Smell Like a Security

Dror Futter, Partner, Rimon, P.C.

Although the U.S. Securities and Exchange Commission (SEC) has been studying blockchain and cryptocurrencies since 2013, until its recent pronouncement, the SEC had been silent with respect with respect to its regulatory authority with respect to Initial Coin Offerings. An Initial Coin Offering (“ICO”) is a company’s release of its own cryptocurrency in exchange for tokens of a pre-existing cryptocurrency (e.g., bitcoins and in rare instances, a fiat currency – currency backed by the issuing government such as Dollars or Euro). The ICO issuing company effectively ‘sells’ a pre-defined number of coins or crypto-tokens to purchasers.

The surge in ICO’s has been so dramatic, that in 2017 ICO’s surpassed venture capital as the primary source for funding blockchain ventures and recent news reports suggest that funds raised through an ICO were “crowding out” venture investors. Most ICO’s in the United States have been conducted without registration under U.S. securities laws. Typically, the issuer simply provides potential investors with a “White Paper” outlining how they intend to use the money raised by the ICO.  To put it charitably, the quality and detail of these White Papers varies widely.

The similarity between the term “Initial Coin Offering” and “Initial Public Offering” or IPO is more than coincidental and these similarities have now prompted the SEC to issue its first pronouncements on the subject of ICO regulation under the securities laws and on July 25, 2017, the SEC did just that and issued the following three documents:
• An SEC Report of Investigation;
• A Press Release about the report; and
Guidance to Purchasers of Digital Tokens

The issue the SEC has been grappling with is the application of the definition of a “security” to the tokens being issued in an ICO.  In a 1946 Supreme Court case Securities and Exchange Commission v. Howey Co., the U.S. Supreme Court identified four criteria (which have evolved a bit since that decision) that need to be present for an investment contract, within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, to be a security.  They are: (1) the investment of money or other consideration, (2) In a common enterprise (although there is a split over how “commonality” should defined), (3) where investors expect a profit, and (4) any returns to the investors are derived solely from efforts of the promoters (issuers) or other third parties. The Court noted that the facts and circumstances of each case will determine whether an instrument is a security, even if it does not technically fall within the narrow criteria of their specific decision.

In short, the SEC press release stated:
• Tokens offered and sold by “The DAO” (the case that had been investigated) were securities, subject to the federal securities laws;
• Issuers of blockchain technology-based securities must register offers and sales unless a valid exemption applies;
• Those participating in unregistered offerings may be liable for securities law violations; and
• Securities exchanges enabling trading in these securities must register unless an exemption applies.

The SEC’s documents are silent on so-called “utility tokens” or “service tokens” – tokens that allow the purchaser to obtain a service (e.g., data storage; online games) and it is likely we will hear more from the SEC in future, since their press release contained a clear warning the securities laws and regulations apply to ICO’s. Although not all tokens sold in an ICO will automatically be considered a security, there remains significant uncertainty and most knowledgeable attorneys in this arena have already been advising their clients to avail themselves of the exemptions to the registration requirements (e.g., Reg D, Reg A+ or Crowdfunding under the JOBS Act).

This is an extremely complex and challenging (and evolving) area of the law and regulation and you can read the entire Client Alert: Casting Light Over Recent Events Concerning the SEC’s views on ICOs, Cryptocurrencies, Tokens, Securities and their Legal Repercussions.  Of course, if you want to know even more or need guidance, you should contact Dror Futter directly and you can always contact me, Joe Rosenbaum, or any of the attorneys at Rimon Law with whom you regularly work.

Marketing Hedge Funds – Why “Fiduciary” Matters

–  by  Thomas M. White

The Department of Labor (“DOL”) recently adopted a rule expanding the definition of who may be a fiduciary under ERISA.  Significant because ERISA-covered plans control enormous pools of capital and ERISA fiduciaries are prohibited from engaging in self-dealing transactions.  The new rule, which went into effect on June 9, 2017, affects how investments in hedge funds will be marketed to ERISA-covered plans and IRAs.

If a person makes a “recommendation” regarding an investment or investment management and receives a fee from a plan, a plan participant, a fiduciary, an IRA or an owner of an IRA that person will be considered a fiduciary and that definition applies even if the underlying assets are not “plan assets” within the meaning of the DOL’s Plan Asset Regulation.  If this sounds confusing, appreciate there is litigation currently pending regarding whether the DOL’s rule applies to IRAs or their owners.

Probably the most critical determination will be whether a “recommendation” has been made for purposes of this new rule.  A “recommendation” involves the purchase, holding, managing or sale of securities and is “a communication that, based on its content, context and presentation, would reasonably be viewed as a suggestion that the advice recipient engage in or refrain from taking a particular course of action.”  In fact, a series of communications may result in a “recommendation,” even if each individual communications may not rise to that level.  Although general communications are not, advice based on individual characteristics of a potential investor are likely “recommendations.”

There are a number of regulatory exemptions, such as recommendations made to a “sophisticated” adviser or investor or if an adviser offers advice to an independent plan or IRA fiduciary in an arm’s-length transaction and the adviser reasonably believes the independent fiduciary is a qualified financial institution (e.g., a bank, insurance company or a broker-dealer) or if the recipient of the information manages at least $50 million in assets regardless of whether those assets are plan assets.

Why does all this matter.  Make a presentation covering the general features of a specific hedge fund to a meeting room packed with potential investors and investment advisers.  After the formal presentation concludes, an audience member comes over to the presenter, describes himself as an IRA owner and his particular circumstances – a discussion ensues.  If the speaker isn’t careful about what is said, and a fee may be earned by the hedge fund it may be a problem.  There are other examples too numerous to describe here.

To minimize the likelihood they will be considered fiduciaries under the new rule, hedge funds should determine if they want to market to IRAs, small plans and individuals who have investment discretion over the investments in their profit sharing and 401(k) accounts.  Marketing materials should be reviewed to determine if they need to be modified to avoid a problem.  Even subscription agreements should make it clear the potential investor is not a small plan or an IRA unless it is being advised by an investment professional who fits under the exemption. Marketing professionals should be trained as to what they may and may not say and written reports describing conversations and communications with potential investors should be retained.

If you want to read more about the potential application of this new rule you can read the entire Rimon Client Alert or contact Tom White directly.  Mr. White specializes in the full scope of human resources management, such as Employee Benefits and Executive Compensation, Healthcare, and Employment Law.

US Treasury Regulation Changes Could Impact Foreign Owned Single Member LLCs

Melinda Fellner Bramwit, Partner, Rimon, P.C.

Changes to US Treasury Regulations Under Section 6038 of the Internal Revenue Code could affect filings for single member LLCs owned by non-US individuals or entities.

Many non-resident individuals and non-resident entities maintain title to real estate and other assets in single member limited liability companies incorporated under state law in the United States, for a variety of reasons.  Under Federal tax law, such an entity is disregarded for tax purposes unless the owner elects otherwise.  From a corporate perspective, these limited liability companies can be used to harness assets in an entity separate from the owner, providing a layer of corporate protection and perhaps anonymity for the ultimate owner.  These entities are also reasonably simple to form and maintain.

Changes to U.S. Treasury Regulations effective December 13, 2016, throw a wrinkle into the use of this malleable entity in some circumstances, which can be managed with some planning.

These changes require that a non-resident owning 100% of a United States limited liability company (“LLC”) file a Form 5472, an information return, when certain transactions occur between certain parties (“related” parties) and the LLC.

The following example from the regulations illustrates a scenario where this filing would be triggered:

In year 1, F, a foreign corporation forms and contributes assets to US-LLC, a U.S. limited liability company that is a disregarded entity for US Federal tax purposes.  In year 2, F contributes funds to US-LLC, and in year 3, US-LLC makes a payment to F.

Under the modified regulations, F’s payment to US-LLC as well as US-LLC’s payment back to F are both reportable transactions for which a Form 5472 would be required with respect to US-LLC.

This is a simple, yet common situation which triggers the filing requirement. It is important to note that this requirement is applicable to tax years of entities beginning on or after January 1, 2017 and ending on or after December 13, 2017 (Note: This is not a typo. The date is the 13th, not the 31st).  As such, there is a window of opportunity for tax planning to avoid the requirement of this form and if you want to know more or need help, don’t hesitate to contact me, Melinda Fellner Bramwit, a partner here at Rimon, P.C.

Of course, if you need assistance, you may always contact me, Joe Rosenbaum, or any of the lawyers with whom you routinely work at Rimon Law.

Taking Wagers on Sports Betting & Online Gambling

– Joe Rosenbaum

The Professional and Amateur Sports Protection Act of 1992 prohibits most states from authorizing sports betting (the law grandfathered a few states, such as Nevada) and New Jersey has been fighting to convince the Federal government to allow the State to legalize and license sports betting.  The latest attempt to circumvent the Act was the repeal of New Jersey’s own sports betting prohibitions at racetracks and casinos.  That effort was derailed by a series of court decisions, culminating in a 9-3 en banc decision of the Third Circuit Court of Appeals, which then led to the State of New Jersey petitioning the Supreme Court of the United States.

Last month, the Supreme Court refused to deny New Jersey’s challenge to the Federal ban (see, Christopher J. Christie, Governor of New Jersey, et al, Petitioners v. National Collegiate Athletic Association, et al; and New Jersey Thoroughbred Horsemen’s Association, Inc., Petitioner v. National Collegiate Athletic Association, et al) and left the door open to grant certiorari in the case if the Office of the Solicitor General (which is part of the U.S. Department of Justice) argues the case raises serious issues and questions of Federal law. They could, if they so choose, seek to revisit the long-standing position of the DOJ holding sports betting illegal.  To some extent, with the new administration of President Trump in place, many see this as an opportunity to do just that, since many of you may remember that as owner of casinos in Atlantic City, New Jersey, then businessman Donald Trump was a proponent of the legalization of sports betting.

Clearly, as States look to generate other sources of tax revenue, many view this as an opportunity to increase revenues and regulate an activity that has long been associated with organized crime. Indeed, the American Gaming Association estimated well over $4 billion in bets were placed on the Super Bowl last Sunday, virtually all of it, illegally. President Trump has consistently said he is in favor of eliminating or reducing legislation and regulation that restricts what States may or may not do and that encumber businesses needlessly beyond necessary Federal oversight. This may well fit right into that category, although there have been no comments as yet from the Administration.

Former Alabama Senator Jeff Sessions, just confirmed last night as Attorney General of the United States, has voiced opposition to any expansion of online gambling in the past, although when questioned during Senate hearings, did indicate he was willing to take another look at how and to what extent online gaming is being enforced by the Federal government.  There is also the possibility that in deciding to allow sports betting and an expansion of online gaming generally, the Federal government may choose to adopt some form of federally regulated or licensed betting and gambling scheme. While the path ahead is far from certain and opposition remains, some things do seem clear: attitudes are changing, the present administration is not averse to controversial new ideas, is favorably disposed to the elimination of any unnecessary Federal regulation that stands in the way of creating jobs and stimulating the economy and, notably, is likely to welcome finding an opportunity to enable States to find ways to increase tax revenue – and taxing so-called ‘sin’ industries may not be such an objectionable idea.

Stay tuned and, of course, if you have any questions, want further information or need help, don’t hesitate to contact me, Joe Rosenbaum, or any of the attorneys you regularly work with at Rimon.

A Brief History of the U.S. Income Tax

Although income taxes were imposed for a brief time during the Civil War and again in the 1890s, it was not until 1913, upon passage of the 16th Amendment to the Constitution of the United States, that federal income tax became a permanent fixture for U.S. citizens and residents. Since Congress then was invested with Constitutional authority, they acted quickly to legally formalize taxes imposed on the income of individuals and corporations.

If you are a U.S. citizen or resident (indeed, if you reside anywhere income taxes are collected), consider what it takes to comply and make the necessary filings today.

Now take a look at the form that individuals were required by the Internal Revenue Service to file in 1913, the year permanent taxation started: 1913 Form 1040.

Do we really need to say anything more? Happy April 15!!

If you need advice or guidance about income taxes, in the United States or anywhere, please don’t contact me, Joe Rosenbaum.

Operation Full Disclosure – The FTC Targets Advertising

Earlier today, the Federal Trade Commission issued a press release indicating that after a review of many national television and print advertisements, warning letters have been sent to a number of companies – including some of the largest advertisers in the United States – noting that they had failed to make adequate disclosures in at least some of their advertising. The initiative, entitled Operation Full Disclosure, is intended to enforce regulations that prohibit advertising that misleads consumers.

The FTC’s targets in this operation are disclosures in fine print, those that were hard to read – even though they contained important information for the consumer. The letters warned advertisers they need to make sure disclosures are clear and conspicuous, and reminded advertisers the disclosures should be close to the claims that are being made. They must not be obscure or disguised with font sizes or colors that make it difficult to read, and on television, they should appear for a long-enough period of time and in a manner that will allow them to actually be read and understood. Consumers should not have to search for them!

Included within each of the FTC letters was a request that each of the advertisers respond back to the FTC with specific actions they individually intended to take regarding their particular advertising, in order to remedy any deficiencies.

You can read the full FTC Press Release and, as always, if you have questions, need help, want guidance, or want to know how best to ensure your advertising and marketing is in compliance with legal and regulatory requirements, just contact me, Joe Rosenbaum, any lawyer in our Advertising, Technology & Media law practice group, or the lawyer with whom you regularly work at Rimon.

Bond Meets Bond Street: Mannequins are Watching You Shop

An Italian company, Almax S.p.A., is selling a mannequin (price tag about $5,000) in a development that is being closely watched – literally – by retailers, consumers and, of course, regulators and privacy gurus. The new product, marketed as the EyeSee Mannequin, contains a camera embedded in the mannequins eyes, and according to the company’s website: “This product will do much more; it would make it possible to ‘observe’ who is attracted by your windows and reveal important details about your customers: age range; gender; race; number of people and time spent.”

In Europe and the United States, the mannequins are making sporadic appearances – perhaps in showrooms and even in street-side display windows, gathering data as people saunter by the store gazing into the windows. According to reports, Almax may also be testing auditory capabilities that would allow a mannequin to not only see, but to hear what customers are saying as well. Hey, did you just call that mannequin a dummy?

 


(Image from Almax Website)

 

The EyeSee Mannequin has a camera placed as an “eye” that includes facial recognition technology that records information about passersby, such as their gender and race, and the software guesstimates the approximate age of each person scanned by the camera. Typically, cameras can be used in retail stores for security, but in many jurisdictions the shop owners are required to post signs alerting consumers browsing the aisles that they are subject to being recorded. Now, the EyeSee Mannequin gives retailers the ability to collect and store information for marketing purposes – a commercial purpose that may put the technology squarely under a microscope (these vision puns really must stop), since it collects personal data about individuals without their consent. That said, the current product is only supposed to record information, not any actual photographs or image scans, but . . . it could, couldn’t it?

Need to know more about the legal implications of technology in advertising and marketing? Concerned about your rights (and wrongs) in deploying surveillance equipment and gathering data and information about customers and consumers? Are you up-to-date on the latest privacy and compliance requirements? Not sure? Need to see these issues more clearly? OK, don’t be a dummy (I mean mannequin) and consult your lawyer. Don’t hesitate to contact me, Joseph I. Rosenbaum, or the Rimon lawyer with whom you regularly work. We would be happy to see you, hear you and help you.