July 2010

Do you know how to spot online scams?

To educate consumers about online scams, the Federal Trade Commission (FTC) set up a Web site for Esteemed Lending Services, an online company that looks reliable and reputable, and promises easy advance-fee loans to anyone. But the company and the site are fictitious, designed to tip you off to the signs of loan scams. The FTC also has other “phony sites” for scam awareness for products such as diet aids (FatFoe) and made-up diabetes treatment (Glucobate.) Remember that as part of our investigation strategies for business transactions, SI includes Web site reviews to detect incredulities, too-good-to-be-true statements, boasts of unrealistic investment returns, and even wording that is unfitting for the particular industry.

|Educational Series, Fraud|

Can a person be denied a job or be terminated because of a bankruptcy filing?

Section 525 of the Bankruptcy Code provides two slightly different standards for government applicants and employees, and for private employers. The bankruptcy discrimination statute for government employees

[s.525(a)] states that:

[The government] may not…deny employment to, terminate the employment of, or discriminate with respect to employment against, a person that is or has been a debtor under this title or a bankrupt or a debtor under the Bankruptcy Act, or another person with whom such bankrupt or debtor has been associated, solely because such bankrupt or debtor is or has been a debtor under this title or a bankrupt or debtor under the Bankruptcy Act, has been insolvent before the commencement of the case under this title, or during the case but before the debtor is granted or denied a discharge, or has not paid a debt that is dischargeable in the case under this title or that was discharged under the Bankruptcy Act.

Section [s.525(b)] applies to private employers, and states that:

No private employer may terminate the employment of, or discriminate with respect to employment against, an individual who is or has been a debtor under this title, a debtor or bankrupt under the Bankruptcy Act, or an individual associated with such debtor or bankrupt, solely because such debtor or bankrupt (1) is or has been a debtor under this title or a debtor or bankrupt under the Bankruptcy Act; (2) has been insolvent before the commencement of a case under this title or during the case but before the grant or denial of a discharge; or (3) has not paid a debt that is dischargeable in a case under this title or that was discharged under the Bankruptcy Act.

|Bankruptcy, Educational Series, Legislation|

What is a qui tam lawsuit?

A qui tam is a provision of the Federal False Claims Act that allows private citizens, also known as whistleblowers or relators, to bring a lawsuit in the name of the U.S. Government against entities or persons suspected of fraud in the use of government funds. The qui tam plaintiff, if successful in the suit, is entitled to a percentage of the funds recouped by the government, which generally is between 15 to 30% of the recovered amount. Qui tam verdicts and settlements can reach into billions of dollars. In the fiscal year ending September 30, 2009, the Justice Department recovered $2.4 billion in false claims cases, and posted total recoveries of more than $24 billion since 1986.

|Educational Series, Legislation|

What is pretexting and can it be used in background investigations?

Pretexting is the practice of obtaining someone’s personal information under false pretenses, and it is against federal law. In addition to the Federal Trade Commission Act which generally prohibits pretexting for sensitive personal information, under the Gramm-Leach-Bliley Act passed in 1999, it is illegal for anyone to:

use false, fictitious or fraudulent statements to obtain customer information from a financial institution or directly from a customer of a financial institution;
use false, fictitious, fraudulent, forged, counterfeit, lost, or stolen documents to obtain customer information from a financial institution or directly from a customer of a financial institution;
ask another person to obtain someone’s customer information using false, fictitious or fraudulent statements or using false, fictitious, fraudulent, forged, counterfeit, lost, or stolen documents.

|Educational Series, Employment Decisions|

Why is it important to search criminal records under the company’s name along with its principals?

Under the doctrine of respondeat superior, a corporation may be held criminally liable for the illegal acts of its directors, officers, employees, and agents. The most common criminal cases are filed for regulatory causes, but other charges also may be brought depending on the severity of the crime and the adequacy of the civil and administrative enforcement actions, among many considerations.

On a related note, several months ago, we posted a case study from our files about one of the biggest payroll-tax frauds in U.S. history. The $200 million fraud led to the subject company’s Chapter 11 bankruptcy filing and its subsequent federal indictment. The company’s former CEO, who was considered the mastermind of the fraud, was sentenced to 22 years in prison in 2008. Prosecutors in the case argued that a guilty plea from the company itself also was needed to deter similar crimes by other companies. However, the court ruled that, among other regards, this would lead to unnecessary costs of a trial and damage the legal claims contained in the bankruptcy.

|Bankruptcy, Educational Series|

What’s wrong with using information from Facebook, MySpace, Friendster or personal Web sites for hiring decisions?

Some companies believe this is a cheap way to obtain information about an applicant. Unfortunately for the applicant, this type of background check is not covered by the Fair Credit Reporting Act (FCRA) if it is performed by the employer. And since the sites are not mandated to investigate and correct errors, the employer may miss out on hiring a qualified candidate. Additionally, much of the information posted on these sites cannot be discussed in an interview, and if not handled properly, the employer may be sued for claims under various anti-discrimination statutes, ADA, privacy laws, and state “off-duty” conduct statutes. Employers who use third-parties to conduct background investigations by searching social Web sites and Internet postings must comply with the FCRA, and thus explicitly state in the background check authorization that social networking and/or other such sites will be accessed. The FCRA does not prohibit employers from obtaining consumer reports that contain information compiled from Internet sites; however, employers are required to disclose to the applicant that the information was the basis of an adverse employment decision (Id. § 1681b(b)(3)(B)(i)(I).

Despite the liability exposure and unreliability of the information, various surveys show that employers do use information from social networking sites and blogs to support their decision to hire or disqualify an applicant. The most common causes for disqualification include:

Information or photographs about drinking or using drugs
Provocative or inappropriate photographs or information
Poor communication skills evident in postings
Bad-mouthing previous employer or fellow employee
Misrepresentation of qualifications
Discriminatory remarks related to race, gender, religion, etc.
Unprofessional or provocative screen name
Indications of criminal behavior
Posted confidential information from previous employers

|Educational Series, Employment Decisions|

Update on Senate Bill 1045 (OL 2010. Ch. 102) which amends Oregon Revised Statute 659A.885 that restricts employer’s use of credit history in employment decisions

The Oregon Bureau of Labor and Industries published its final administrative rules regarding Senate Bill 1045 (OL 2010. Ch. 102). The regulations go into effect July 1, 2010. The Oregon Revised Statute 659A.885 specifically prohibits an employer from obtaining or using credit history for employment purposes of an applicant or employee unless that credit history information is “substantially job-related, and the employer’s reasons for the use of such information are disclosed to the employee or prospective employee in writing.” The state of Oregon set up a hotline (at 971-673-0824) to explain the new regulations. The regulations can also be viewed online at http://www.oregon.gov/BOLI/LEGAL/docs/RulesSoS0052010.pdf

|Educational Series, Employment Decisions, Legislation|