Bernstein Shur Business and Commercial Litigation Newsletter #75
July 2017 | Issue 75
Our July recap highlights new developments regarding the SEC’s regulation of blockchain digital currencies, disclosure of sensitive customer data by Wells Fargo, and other news that will have an impact on business and litigation.
The SEC has announced that initial offerings for blockchain digital currencies will be subject to the same requirements as traditional securities.
Blockchain digital currencies refer to electronic currencies, such as Bitcoin, that have grown in popularity in recent years. This week, the SEC stated that “initial coin offerings” for such currencies would be subject to registration and full and fair disclosure requirements under the federal Securities Act of 1933 and the Securities Exchange Act of 1934 unless a valid exemption applies. This decision places blockchain digital currencies on par with regular securities offered for sale through initial public offerings. In the report issued by the SEC, the agency stated that regardless of whether an entity or virtual organization uses blockchain technology or computer code to automate functions to raise funds, such conduct is still subject U.S. federal securities laws. Analysts believe that the announcement could make it more difficult for offerors to raise money using blockchain digital currencies.
Wells Fargo is embroiled in a controversy regarding the inadvertent production of highly sensitive customer files in response to a subpoena issued to the bank.
Wells Fargo was issued a subpoena in a case concerning a dispute between two brothers regarding their jointly managed Wells Fargo brokerage account. In response to the subpoena, counsel for Wells Fargo produced electronic mail from a limited number of custodians. A third party vendor that assisted counsel for Wells Fargo produced thousands of emails to the requesting party, including confidential customer account information for tens of thousands of clients. According to media reports, the sensitive files were disclosed because of improper coding used in the vendor’s document review software. To add insult to injury, the electronic files, which included sensitive personal data, were shared in part with the New York Times, which promptly published a story highlighting the bank’s error. Wells Fargo is presently requesting courts in both New York and New Jersey to compel litigants and custodians to the return the disclosed confidential information. A New Jersey court has ordered the safeguarding of data pending a hearing in September, along with the destruction of duplicative file copies held by counsel.
The City of Chicago has agreed to pay nearly $39 million to settle a class action concerning claims that it improperly managed its red-light camera and traffic ticket system.
In the underlying case, class plaintiffs alleged that the city sent traffic tickets to drivers who were alleged to have run red lights, but failed to send a required second violation warning. In addition, class plaintiffs alleged that the city assessed violations prior to the time for response by drivers, implicating due process concerns. Chicago has more than 300 red-light cameras throughout the city, far more than New York City’s tally of less than 200. Under the settlement, Chicago will waive $12 million dollars in outstanding tickets issued between 2010 and 2015. In total, the settlement is valued at $38.75 million and it will affect more than 1 million people.
Recent data compiled by the National Center for State Courts reflects that contract cases in state courts have risen sharply, while tort cases have decreased in volume.
The center noted that in 1993, contract cases accounted for 18 percent of civil cases in state court. In 2015, the most recent year for which data was available, the figure rose to 51 percent of filings in state courts. In contrast, tort cases accounted for only 4 percent of civil filings in state court in 2015. This figure is down from 16 percent of all civil filings in 1993. The center also noted that a number of factors have led to the shift, including tort damages caps in certain states and improved automobile safety. For instance, in Kansas, where non-economic damages are subject to caps, civil tort cases fell 45 percent between 2000 and 2015.