Business Briefs

• The Supreme Court gave a win to vendors looking to avoid lawsuits brought by the shareholders of the companies with which they do business. In a 5-3 decision in Stoneridge Investment Partners LLC v. Scientific-Atlanta, Inc., the court held that vendors who indirectly help a company defraud its shareholders can’t be sued by those shareholders. The case arose when a cable company was accused of using the suppliers of its cable boxes to artificially increase its revenue through a complicated system of refunds. The shareholders of the cable company sued the vendors saying they were part of the “scheme” to defraud. The court found this one step too far and warned that lawsuits like these have the potential to get out of hand. But “scheming” businesses beware: The Securities and Exchange Commission still has the right to go after rogue vendors.
• After a near revolt last year at the U.S. National Hurricane Center, the agency responsible for tracking and forecasting storms has selected a new director to replace Bill Proenza. Bill Read, who has been the acting chief since his predecessor was forced out of the job in July over friction with his staff and comments he made about an aging satellite, has been named director. Twenty-three of the center’s employees signed a letter urging the U.S. Department of Commerce to fire Proenza for dragging the center into the “political arena.” In comments to the press, Read has tried to distance himself from the actions of Proenza. He told the Miami Herald that “We’re going to get our morale — teamwork is important here — in very good shape over the next year.”
• Overall, unintentional, injury-related deaths were up 2 percent in the United States in 2006 compared with 2005, but deaths in the workplace were virtually unchanged, according to recently released numbers from the nonprofit National Safety Council. In 2006, there were 4,988 fatal workplace injuries, just four more than were counted in 2005. But because more people had entered the workforce, the rate of worker deaths was actually down from 3.5 deaths per 100,000 workers to 3.4 deaths per 100,000. The overall cost of these deaths was calculated at $164.7 billion by the group. According to the latest data, unintentional injuries continued to be the fifth leading cause of death, exceeded only by heart disease, cancer, stroke and chronic lower respiratory diseases.
• A judge in Manhattan has thrown out a $1 million lawsuit brought by a former student at New York University who injured his hip during a Jell-O wrestling dorm party. The student was an organizer of a “Beach Bash,” which also included a DJ and a “moon-bounce.” He had tried to argue that the school was negligent for allowing the event and pointed out that the school provided the Jell-O in question. But the judge wasn’t buying it. She ruled that the student should have know the risks, saying he voluntarily participated and showed he knew the dangers by suggesting the kiddie-pool full of Jell-O be taken off the concrete. The Associated Press quoted NYU spokesman John Beckman as saying, "This case broke the mold but in the end justice was served sweetly."
• A key piece of workers compensation reform enacted by Gov. Arnold Schwarzenegger in 2004 is being challenged by opponents in the Legislature who want to make it illegal to consider race, religion, color, age, gender, sex or genetic predisposition to deny benefits. The 2004 reforms made it easier for people to be excluded if they had a pre-existing condition. But the measure being pushed through the Legislature would create exemptions for those conditions associated with certain races, age or genetic predispositions. It would keep doctors from denying benefits to people with conditions that are more common among certain races -- high blood pressure in black men, for example. Opponents say employers shouldn’t be responsible for conditions that were not in any way job related.

Doing more with 401(k) plans

As the defined benefit pension plans of the past give way more and more to the 401(k) retirement plans of the future, companies have struggled with how to encourage savings and investments while not opening themselves up to lawsuits if an employee’s investments should go south. But a recent change in the law provides for more hands-on management of employees’ 401(k) programs without the added liability risk that doing so in the past may have involved.

As companies that administer 401(k) programs have discovered, many employees simply do not sign up. And those who do sign up often aren’t saving enough or investing in plans that are appropriate for them. Many leave their money in less-than-ideal basic investment plans that offer little opportunities for growth or don‘t switch to more conservative plans when they approach retirement. That is why many financial planners prefer programs that employees must opt out of instead of those that require them to opt in. Opt-out plans have significantly higher rates of participation. But having opt-out plans and offering investment advice was often seen as a risky move for companies to make.

But a provision of the Pension Protection Act expands the liability protections under which companies can automatically enroll employees in the plans and help them manage them once they are enrolled. In order to qualify for these protections, however, a company must meet several requirements spelled out in the law. These requirements include providing a minimum matching contribution and keeping the contribution to a specified percentage of the employee’s salary. Those providing investment advice also must meet certain requirements on disclosure and potential conflict of interest. Before considering such a plan, businesses should consult a legal professional to make sure the plan meets these requirements. And using this opportunity to consult your insurance representative about your liability coverage wouldn’t be a bad idea either.

So, why go through all this trouble for something that costs the company money through matching funds and that employees could be doing on their own anyway? As with any benefit offered, enhanced 401(k) programs can be used as a recruitment and retention tool. And paying more attention to the well-being of employees’ retirement can create added loyalty among workers.

D&O, E&O untouched in subprime crisis

The subprime housing crisis might be hitting the overall economy pretty hard, but so far it hasn’t had much of an effect on the availability, cost or policy conditions of directors and officers liability and errors and omissions liability policies, according to a survey of financial sector risk managers and CFOs by Advisen Ltd.

One would expect prices to go up or policies to become more difficult to buy in this climate. More than $200 billion in writedowns have been reported to date from mortgage related investments, and more than 175 lawsuits already have filed against companies involved in the subprime mortgage market. More writedowns – and more lawsuits – are anticipated in the coming months, Advisen reported.

“We launched this survey when we didn’t detect a reaction to the subprime meltdown in the D&O and E&O insurance program data we routinely compile from insurance buyers and brokers,” said Dave Bradford, Advisen's chief insurance industry analyst. “We felt there had to be more to the story, but the survey results confirm our initial observations – all is quiet on the D&O and E&O fronts.”

Fraud horror stories and how to prevent it

Insurance fraud is a $80-billion-a-year crime that has grown more violent and invasive in recent years, according to the Coalition Against Insurance Fraud, which just released its annual Insurance Fraud Hall of Shame.

This year’s list includes a teacher who faked cancer and an insurance agent who killed homeless people. Here are some of the low-lights:

• Special education teacher Candice Lambert faked cancer to collect disability money from a school system in suburban Albany, N.Y., and then moved to New Hampshire to try the scheme a second time. The ruse was exposed when the teacher’s seemingly valiant struggle made the local newspaper. A court sentenced her to one to three years in prison.
• As a Guyanese-American, life insurance agent Richard James had an in with the Guyanese community in the New York City area. But he conspired to take out fraudulent life policies on Guyanese homeless people and have them killed for the payouts. Four homeless people were killed in a scheme that netted more than $1 million. James and an accomplice are headed to prison for life.
• Three children died when Timothy Nicholls torched his Colorado Springs, Colo. home to steal insurance money so he could escape mounting debt. Nicholls received life in prison.

But most cases of fraud are not as shocking or violent, and businesses should be prepared to prevent and deal with the problem. In 2006, the Association of Certified Fraud Examiners estimated that U.S. organizations lose about 5 percent of annual revenues to fraud -- or more than $600 billion a year. And if not properly handled, fraud by employees can bring unwanted attention to your company from law enforcement and the media. Here are some things you can do to detect and prevent fraud at your company:

• Have clear policies: Employees at every level of the company should know what is permitted and what is not. They should also know what is expected of them if they suspect fraud is taking place. These policies should be explained to the employees not only when they are hired, but they should be reminded of them throughout their time of employment.
• Make everyone responsible for reporting fraud: Auditors and investigators are great, but most fraud is uncovered by ordinary employees who suspect someone is up to no good. Every employee should be required to report any suspicious behavior.
• Have good lines of communication: If an employee suspects something, they should have a way to let the company know anonymously. Companies that allow anonymous reporting of fraud have far lower losses, according to the Association of Certified Fraud Examiners. The association also reported that more than a third of all cases of fraud were discovered through anonymous tips.
• Aggressively pursue theft: When fraud is found the thief must be pursued aggressively and publicly. Those caught defrauding a company should be held up as examples to others who might consider stealing.
• Cover yourself: Even the most aggressive and careful anti-fraud programs are unlikely to stop everyone. So, it’s important to have proper coverage. An employee dishonesty insurance policy can cover your business in cases of employee fraud and theft.

Court keeps businesses out of medical pot controversy

A California Supreme Court decision will keep employers in that state from being put in the delicate position of having to decide between upholding state or federal law, but not both. The court ruled that a telecommunications company was in its rights to fire an employee who tested positive for marijuana during a drug test, even though the employee was taking the drug with a doctor’s permission.

California is one of a dozen states that allows the use of marijuana to treat a variety of illnesses. The federal government, however, maintains that the drug has no medical benefit and has cracked down harshly on those who use it for medical reasons.

The employee had argued that by firing him the company had violated state law that prohibits workplace discrimination against those with disabilities. The company countered, arguing that allowing a pot smoker to work for it could subject the company to federal raids and jeopardize federal contracts.

In its ruling, the court found that the 1996 “Compassionate Use Act,” while protecting patients and doctors from some state criminal charges, was never intended to be part of the employer, employee relationship. “Under California law, an employer may require pre-employment drug tests and take illegal drug use into consideration in making employment decisions,” the opinion read.

The case has no legal bearing outside California, but has been closely followed across the nation by states with similar laws.