Selfies are now tax records as generations collide.
Local tax compliance is tricky, particularly for small firm and solo professionals.
When I was at Big Firm, I lived and worked in Dallas. I paid income tax in Georgia, New York, North Carolina and Virginia (and probably a couple of other states) as well as a few foreign countries that I have never visited. Over the course of the last several years, I spent one day in New York City and never so much as set foot in the other jurisdictions. It doesn’t matter because I was a partner at a firm that did business in those states, and therefore, I did business in those states.
Do you think New York is lenient with these rules? How do you prove it?
Jarvis would take time-stamped pictures of himself in Philly by the train station or with a newspaper in hand. This is in addition to the time honored practice of collected receipts.
In the grand tradition of older and younger generations teaching each other, Jarvis taught his daughter the value of recordkeeping and (probably) the reality of living under an oppressive tax regime, while Jarvis’ daughter taught him to post his pictures on Instagram.
Have you ever purchased something online only to find recurring credit card charges for something you don’t want, didn’t ask for and never heard of? A recent 9th circuit decision shows the limits of clickthroughs to create binding contracts and the risks for consumers who click without looking.
A plaintiff purchased an online background check from Intelius. After the purchase, the website offered $10.00 cash back for a survey, which also asked for an email address with a statement that entering the email constitutes an electronic signature and authorization to charge/debit their account. The plaintiff was not asked to reenter his credit card information. Following an additional click, which included a statement on the website for the background check, the website said that the click constitutes an agreement to “Offer Details” and authorized Intelius to pass the plaintiff’s information to “a service provider of Intelius.”
It turns out that the service provide was Adaptive Marketing, a third party, not part of Intelius and not mentioned by name on the website. The additional efforts were actually to purchase a monthly service from Adaptive.
The Court’s Reasoning
The arbitrator clearly saw the process to be a misleading set up to get purchasers of Intelius’ background checks to subscribe for Adaptive’s services. The description of the process was “designed to deceive.” However, this did not settle the matter.
It is clear that an electronic “signature” can be legally sufficient under Washington law even if it is not clear under what circumstances a “click” constitutes a signature.
However, the law reuires that the “essential elements” of a contract be set forth in writing, including the identification of the parties to the contract. Adaptive claimed that the parties need not be named and cited cases regarding companies doing business under assumed names. However, nothing on the website identified Adaptive as the party with whom the plaintiff was contracting. In addition, it was ambiguous at best that anyone other than Intelius was involved.
The arbitrator ruled that a contract had not been formed.
This case was not as consumer friendly as the holding suggests. Just adding “Adaptive Marketing” in some manner on the website may have been enough to justify enforcing the contract. If the court was looking to say “We will look closely at circumstances where there is simply no way the user is purchasing some bogus subscription,” it did not exactly make a strong statement.
Even confusing and deceptive language and formatting on a website can induce the formation of an enforceable contract. However, all of the elements of a contract must be present, not just “as suggested by.”
John Carney at CNBC posted an interesting article posing the question about whether insider trading should be a crime. In light of Michael Steinberg’s conviction for securities fraud due to his activities at SAC Capital, Carney asks who were the victims and what was the harm?
In Steinberg’s case, part of the facts involved trading on early access to Dell’s earnings. Why is this a big deal?
But it’s hard to see how Steinberg’s acquisition of Dell’s earnings a day early hurt the company in any way. His trading may or may not have moved the stock price a bit but the actual release of the earnings moved it more.
Does Dell have an intellectual property right in its earnings? We don’t really recognize all corporate secrets or corporate information as protected intellectual property, much less property whose unauthorized use gives rise to criminal sanctions. There are certain categories—trade secrets, trademarks, copyrights—that are protected. But earnings aren’t trade secrets. Dell released them the very next day.
It is important to remember that Steinberg’s trading did not involve face-to-face arm’s length transactions with the counterparties. They were nameless and faceless people who never met Steinberg, knew Steinberg was in the market to buy or sell Dell shares or placed their orders with any knowledge of Steinberg and what he may have known or not known, disclosed or not disclosed. As Carney points out, regardless of what Steinberg did, each one of them would have acted in the exact same way.
What about the people who bought the shares of Dell on the day Steinberg was selling? Again, they would have been in exactly the same position regardless of whether Steinberg traded or not. Arguably, they were able to buy at a slightly better price because Steinberg’s trades would have pushed the stock slightly in the direction the stock actually moved when the earnings became public.
You’ll sometimes hear it said that the people on the other side of Steinberg’s trades were harmed because they wouldn’t have bought the shares if they had the same information he had. But that’s precisely the wrong test. The question isn’t what would they have done if they also had inside information. It’s what would they have done if Steinberg hadn’t had his information? The answer is: exactly what they did anyway. Steinberg’s possession of inside information didn’t affect them one bit.
Carney comes to a similar conclusion that I have always believed. This type of insider trading is not about protecting people. It is about (1) punishing success and profit [Ed. This is more me than Carney], and (2) a gut reaction that this behavior is wrong and should be punished. It is about addressing moral qualms, not about stopping harm.
In this respect, Carney compares this type of insider trading to blue laws.
In other words, our ban on insider trading isn’t really about protecting investors or making markets function better. It’s about expressing a moral view, much like we do with Blue Laws that ban the sale of alcohol on Sundays.
There’s nothing necessarily wrong with encoding morality into securities laws.
Yes, there is. We see it everyday in garbage like the ridiculous executive compensation disclosure now imposed on companies. We see it in required environmental disclosure, cybersecurity disclosure and blood minerals disclosure that probably don’t apply to most companies.
We see it every time some activist jumps up to demand that the SEC impose disclosure requirements on all companies that comport with the activists’ agenda, regardless of whether it furthers the mission of the disclosure regime for SEC reporting companies: Do investors have the information they need to make an informed investment decision? End of story.
If those issues are material to the disclosing company, they will have to be discussed. If not, this is nothing more than an extra tax (by way of time and money spent to assess and produce this nonsense) on reporting companies to pay for the whims of some vocal activists, be they outside agitators or Congressmen (who were (and probably still are) able to trade on inside information illegally in a way that would send you or I to prison).
A Young Socialist-backed proposal to limit executive pay to twelve times the pay of junior employees was voted down by Swiss voters by a vote of 65 percent. The executive pay limits far exceed the disclosure-based limitations of Dodd-Frank and SEC regulations.
According to the Bloomberg article, at least five of Europe’s highest paid execs are in Switzerland.
The leader of the Young Socialist party vowed to continue the fight to:
Send Swiss companies fleeing to other jurisdictions
Severely water down the talent pool willing to work in Switzerland or for a Swiss business
Turn the pool of executives working for Swiss companies into easy prey for headhunters in competing companies in other countries
Make Switzerland toxic to anyone who wants to start a business and hire employees
There may be constraints on UBS leaving Switzerland, but you can bet its CEO (or those talented enough to be in line for executive positions) has plenty of means of escape from this sort of income restriction. However, do you think Glencore (giant international commodities trading firm) can’t structure its business away from these restrictions?
These are the types of consequences that result from navel gazing over “income equality” and generally looking to more successful people with envy and anger rather than looking to more successful people and trying to learn about how to become successful.
The Recorder recently ran an article discussing Fenwick & West’s corporate governance study. I believe F&W produces these annually, and they are excellent resources for anyone interested in the up-to-date information about corporate governance practices, particularly for Silicon Valley companies.
However, there was an interesting statement at the beginning of the article:
“When companies are seeking to establish appropriate corporate governance policies, they often look to model themselves after those titans of industry in the Standard & Poor’s 100.”
Well . . . sometimes.
More often, companies will look to the companies that:
they deem somewhat comparable to the themselves; and
they aspire to be.
Typically, that will include prominent companies in their industry, which may or may not include companies in the S&P 100, 500, Pick-A-Number. They also account for size and complexity and other factors.
For many companies, the governance practices of the S&P 100 will be far too complex and have far too many processes and procedures to have any value. There will often be fewer people in the decision-making process, fewer layers of bureaucracy and the fewer issue-specific policies for smaller companies.
That said, the F&W studies tend to be extremely valuable, and I plan to spend a good part of the weekend reading the new one. I hope your weekend is better than that.
On Thursday, November 7, 2013, the Financial Industry Regulatory Authority, Inc. (“FINRA”) halted trading in all OTC Equity Securities pursuant to FINRA Rule 6440(a)(3). FINRA determined to impose a temporary halt because of a lack of current quotation information. Therefore, FINRA has determined that halting quoting and trading in all OTC Equity Securities is appropriate to protect investors and ensure a fair and orderly marketplace. The trading and quotation halt began on Thursday, November 7, 2013, at 11:25:00 a.m. E.T. FINRA will notify the market when trading may resume.
Like many states, Illinois desperately wants to collect an Internet sales tax when its citizens buy stuff over the Internet. Generally, a state cannot impose duties to collect taxes on out of state retailers and must rely on people to report their own purchases and pay the sales taxes directly to the state. Good luck with that.
In order to get to the Internet sales, Illinois changed its sales tax law to change the definition of “maintaining a place of business in this state” to include:
“a retailer having a contract with a person located in this State under which the person, for a commission or other consideration based upon the sale of tangible personal property by the retailer, directly or indirectly refers potential customers to the retailer by a link of the person’s Internet website.”
In other words, Illinois can get to Amazon and its sales if someone in Illinois signs up for their affiliate program and includes an Amazon ad on their website.
The performance marketing industry has been fighting these laws across the United States and made it to the Illinois Supreme Court.
The court noted that the statute does not require tax collection by out-of-state retailers who enter into performance marketing contracts with offline and over-the-air broadcasters. As a result, the amended statute is targeted solely at “online” performance marketing.
The plaintiffs argued that the federal Internet Tax Freedom Act (the “ITFA”) preempts the Illinois statute and that the Illinois statute violates the commerce clause of the U.S. Constitution. The ITFA prohibits a state from imposing discriminating taxes on e-commerce. This includes revenue raising measures and the imposition of obligations to collect sales taxes.
The court concluded that the statute uses performance marketing over the Internet as the basis for imposing a use tax collection obligation on an out-of-state retailer. However, national, or international, performance marketing by an out-of-state retailer which appears in print or on over-the-air broadcasting in Illinois will not trigger an Illinois use tax collection obligation. As a result, the statute imposes a discriminatory tax on electronic commerce within the meaning of the ITFA. Accordingly, it is expressly preempted by the ITFA and is therefore void and unenforceable.
Because the court made its decision based on preemption, it did not make a decision based on the alternative argument that the statute violates the commerce clause of the Constitution.
I have been getting my share of Bitcoin-related inquiries lately. Here are some thoughts regarding the risk of engaging in Bitcoin-denominated transactions.
In my view, the biggest risk of Bitcoins is the regulatory issue. This risk exist whether you conduct Bitcoin-denominated business or trade Bitcoins like you would with any other currency.
There has been a lot of news lately about the efforts of a variety of U.S. regulators to understand Bitcoin, and these regulators are not in the business of exempting financial products that compete with government issued currencies or act outside of the established financial regulatory environment.
Governments in general, the U.S. government in particular and state governments particularly are wary of alternative financial vehicles. The U.S. government does not have a particularly good track record even where the law would seem to be on the side of the financing vehicle. For example, the U.S. and state governments went after Paypal while it was in its IPO process. In addition, there have been several “e-gold” currencies in the past that have failed for a number of reasons, from criminal behavior on the part of the principals to allegations of the currencies being used for fraud or money laundering. There has also been a crackdown on activities of banks and financial institutions that attempt to evade U.S. laws by locating offshore or on Indian reservations.
In addition, there are the governmental concerns with tracking financial transactions for purposes of combating money laundering, drug trafficking and terrorism, and I cannot imagine that the government would exempt Bitcoin from these extensive regulatory obligations. However, I am not sure Bitcoin would be in a position to comply with them. This would make Bitcoin difficult to use in the U.S. or by U.S. persons and subject the creator(s) of Bitcoin to substantial risk, even as secretive as they are, as the head of founders of PokerStars, Full Tilt Poker and Absolute Poker could tell you.
As a result of all of the above, there is substantial expense and risk in using and accepting Bitcoins, as there should be a risk premium attached due to the very real possibility that the U.S. and other governments could shut them down.
SEC to focus on financial reporting, microcap companies and new analytical tools to detect fraud.
The SEC recently announced new initiatives that will “build on the Division’s unmatched record of achievement and signal our increasingly proactive approach to identifying fraud.”(1)
First up is the Financial Reporting and Audit Task Force, which will concentrate on efforts to identify securities-law violations relating to financial statements, which we thought was a large part of what the SEC did before this release.
Next up is the Microcap Fraud Task Force, which will “investigate fraud in the issuance, marketing, and trading of microcap securities.” Considering the types of operators who often work in this area, this is probably a good use of SEC resources as long as they recognize that people can operate in this space with integrity. Being small is not an indication of being dishonest. However, the hallmarks of microcap fraud should give a good indication of which players to target.
Finally, we have the Center for Risk and Quantitative Analytics. The CRQA, as the SEC calls it, “will support and coordinate the Division’s risk identification, risk assessment and data analytic activities by identifying risks and threats that could harm investors, and assist staff nationwide in conducting risk-based investigations and developing methods of monitoring for signs of possible wrongdoing.”
Much like the Dodd-Frank provisions for identifying systemic risk, there is little to suggest that the government has the capabilities to address these issues in this manner. If the SEC could not recognize the wisdom for investigating Bernie Madoff after being handed the quantitative analysis demonstrating that Madoff’s claims were impossible, what is there to suggest they can do it on a market-wide scale?
Expect fishing expeditions on innocent firms and excuses relating to “concealment” and “lack of cooperation” for guilty ones. However, we applaud the SEC for focusing on areas where attention is needed.
(1)Umm, none of Enron, Worldcom, Madoff, Fannie/Freddie or the rest of the mortgage-related misconduct were in the plus column of “the Division’s unmatched record of achievement.” But, we digress . . .
However, lost in the shuffle to punish people who made more money than other people in the stock market is the recent news about federal employees engaging in conduct that is far worse.
The Washington Post (who hasn’t objected to the behavior of federal employees since January 20, 2009) today noted that hundreds of federal employees were told of important Medicare decisions weeks in advance of public release, which was also just before trading of shares in firms impacted by the decision spiked. The public shouldn’t be alarmed because “agency officials said they take care to safeguard information and carefully vet which employees have access to it. Employees are educated regularly about he need for confidentiality and CMS documents are often stamped with warnings about early disclosure.”
Sen. Charles Grassley said that this should sound an alarm and should result in better controls to avoid unfair access to information.
Great. More rules that won’t be followed by people who will not be punished for engaging in behavior that will cause the government to destroy the lives of non-public sector employees. So the answer is to talk about more rules for making illegal behavior super-illegal. That should solve everything.