Steven Berk

Professional Purgatory: Beware Brave Whistleblowers

April 17, 2012 by Steven Berk Leave a Comment

Beware, whistleblowers. Once you attempt to point out wrongdoing, your company will more than likely come back at you hard. And when they do, be careful because the retaliation will be stealth-like. Protecting whistleblowers has become a priority in the Dodd-Frank era, so they don’t berate you, or fire you, or demote you. Instead, they subtly send you home to work remotely in a professional purgatory, removed from the office workspace to which you’ve grown accustomed; they give you no projects, nothing to work on; and they turn your coworkers and friends against you.

Sound farfetched? Tell that to Jack Palmer, an Infosys employee whose tale was recently chronicled by Julia Preston at the New York Times.

Almost a year and a half ago, Mr. Palmer became aware that Infosys had been deliberately and improperly acquiring the wrong visas for their foreign employees. You’re not going to believe this, but the types of visas Infosys wrongly obtained were much cheaper. In other words, Infosys defrauded the government out of a great deal of money. Mr. Palmer filed a report through internal channels saying as much. The report was immediately leaked at Infosys, making him an instant pariah; he even received death threats from fellow employees.

Furthermore, Infosys revoked all of his projects and left him without the significant portion of his income that was commission-based. They sent him home to “work” remotely, where he has essentially gone stir-crazy. He has nothing to work on, he fears for his life, and yet he can’t quit and get another job because his professional reputation is ruined. Score one for the Infosys executives.

As for Mr. Palmer, his outlook on being a whistleblower is mixed. The court ruled in his favor in initial proceedings, but he remains stuck at home with no real job and a severely decreased income. He is committed to remedying Infosys’s transgressions, but says “it will be hard for me to advise anyone to blow the whistle” given his experience. But he doesn’t say he wouldn’t do it again. It’s hard, it’s risky, and it’s easier to sit on your hands. When Mr. Palmer or some other brave soul gets a big fat check and there is a hue and cry over the amount being excessive, remember how much risk these folks take on. Remember that what they do is not easy and while the reward is substantial, it is usually deserved and then some.

For would-be whistleblowers, be aware of the risks, be careful, but don’t be deterred from doing what is right.

Read more from attorney Steven Berk at his blog, The Corporate Observer, which focuses on current legal and consumer protection issues. He is the managing partner at Berk Law PLLC.

Shame on you Judge Rakoff: Slamming the Courthouse Door on Investors Who Were Sold “Crap” and “Pigs” by Deutsche Bank

February 8, 2012 by Steven Berk Leave a Comment

Judge Rakoff agreed with Deutsche Bank and dismissed two investor lawsuits involving the sale of residential mortgage backed securities the bank internally referred to as “crap,” “pigs,” and generally “horrible.” And “crap” they were, as we all know now (and it appears that Deutsche Bank knew before they sold them to investors). The mortgages were made to folks—did they even have jobs?—who could hardly make monthly payments on homes that were surely well overvalued (as appraisers too were willing to play in the game).

All these lies were then forgotten (or at least swept under the rug) by a AAA investment rating brought to you proudly by Standard & Poor’s. With that investment-grade rating, they were able to attract the money of pension funds, in this case the Teachers Insurance and Annuity Fund.

What is so maddening is Judge Rakoff refused to even let the suit proceed beyond the mere filing of the Complaint. “Done, over, go home, nothing to see here, thanks for playing the game.” He wrote that investors had not included allegations of “fraud” specific enough to go forward. “Ah come on now.” The Complaint ran over 100 pages long. At a minimum, the investors demonstrated in detail Deutsche Bank’s knowledge that these securities were questionable by the bank’s decision to short them; after all, the bank bet against them in the market.

What more did they need? And how can investors obtain more specifics without being allowed discovery? AAA bonds that Deutsche Bank is shorting and internally calling “crap,” and investors are not even allowed to get to first base? It’s a travesty. Allow investors to obtain documents and testimony (under oath) to see if behind the smoke there is fire. If not, so be it. But don’t slam the courthouse doors in their faces—and why? To protect Deutsche Bank?

If Judge Rakoff is so concerned about the burden of this suit on Deutsche Bank, or more generally about investor suits claiming fraud, then significantly limit discovery. Allow investors just one or two depositions and documents on a narrow issue they have failed to include in their Complaint. But slamming the door on investors not only denies them a remedy; worse, it allows the Deutsche Banks of the world to avoid scrutiny, and you know where that ends. They will try it again and again knowing the courts have their back.

Read more from attorney Steven Berk at his blog, The Corporate Observer, which focuses on current legal and consumer protection issues. He is the managing partner at Berk Law PLLC.

Tim Cook, $378 Million Dollar Man: Is he worth it?

January 11, 2012 by Steven Berk Leave a Comment

Okay, first a disclaimer: I am all Apple, all the time. I’m currently typing on my MacBook Pro; I will be talking later on my iPhone. Later still I will be listening to music from my iTunes account on my iPod. I am now the proud owner of an Apple TV gizmo and if they sold cars, I’d be driving an icar.

So $378 million for the CEO. What’s the big deal? A-Rod makes $250 million and he just plays for a baseball team (oh, that’s over ten years, you say?). Worse yet, 7 out of 10 times at bat he’s unsuccessful. And there are lunch bucket executives aplenty making… gulp… tens of millions or more. UnitedHealth Group CEO Stephen Hemsley took in a nice $102 million in 2011; Robert Iger of Walt Disney “only” made $53 million. Poor guy. So why fuss about Tim Cook? He should be on top of the heap.

First, is it really $378 million? Indeed it is. Not salary (which is a cool $900k), but mostly in the form of a package of restricted stock. He receives half of the stock in 2016; the other $188 million vests in 2021. What a wait, huh? But believe me, if he went over to the local branch of any bank and said, “I’d like a loan against my Apple compensation,” he could certainly borrow $378 million. More likely he could borrow a billion and buy the bank.

Yep, he’s made bank. The pursuit of bank. The oil that lubricates the capitalist system. I’m all in, but—and here it comes, from the protector of consumers and the 99%—we need to recalibrate.

No, not socialism. But we need a system where the CEO makes 100 times the lowest-paid employee, or maybe close to 1,000 times. But not 10,000 times. Let’s say the lowest-paid employee at Apple makes $38,700. Mr. Cook makes 10,000 times that amount in total compensation. It is too much to sustain. It creates the disparity of the robber baron era; we need to move on to a society that values all contributors.

My love for Apple products goes beyond Mr. Cook’s leadership in the boardroom. It involves the great designers, software engineers, and the guy in the warehouse shipping the product to my door. Don’t pay them all the same, but incentivize them all and save some for a rainy day.

Read more from attorney Steven Berk at his blog, The Corporate Observer, which focuses on current legal and consumer protection issues.

The Corporate Observer Endorses Newt Gingrich for President (of North Korea)

December 20, 2011 by Steven Berk Leave a Comment

We are a country built upon the rule of law. It may not be perfect. With every case there is a winner and a loser, and sometimes the losers have the better argument. But it works in the main. And it works in large amount because we have an independent judiciary. Judges—yes they are human—bringing their personal opinions and biases to deliberations. Remember, that’s why they were chosen or elected. But they mostly get it right. (That’s hard for me to swallow because my practice and larger sense of jurisprudence resides on the other side of “mostly,” but I must concede the point.) Say Judges are “wrong” (a subjective term of course) 30% of the time. The system works fine. No worries.

So why does Mr. Gingrich wants to topple the whole thing. Why? Well for political expediency mostly. He needs to excite a few thousand Christian Evangelical voters in Iowa and elsewhere to get on buses and go to caucuses and support his candidacy for President of a 200-plus year-old democracy. Indeed, a thriving democracy with an independent judiciary.

His message: we need to destroy that independence. Haul them up for hearings before Congress, fire them, (how bout “tar and feather them,” sure that works and if need be throw them in their own secular jails). This makes Roosevelt’s court-packing plan seem almost pedestrian in contrast. And if Congress won’t play ball, well… throw them in jail too.

Can a serious candidate for President be willing to suggest the end of democracy as we know it in order to pander for a few thousand votes? Yikes.

I say the best solution is ship Mr. Gingrich over to North Korea. They need a new dictator and he’s got the perfect message.

Read more from attorney Steven Berk at his blog, The Corporate Observer, which focuses on current legal and consumer protection issues.