In March 2012, Attorney General Eric T. Schneiderman released the list of the top consumer fraud complaints received by the Attorney General’s Office in New York in 2011.   During National Consumer Protection Week, the Attorney General said that consumers could fight fraud with education.

Being aware of fraud was a defense against scammers.  The Attorney General Schneiderman said in a news release:  “The crime scene of the 21st century is the Internet, and it is important for consumers to not only know their rights online, but how to seek justice. In addition to taking action against those who cheat New Yorkers, our office is always a resource to stop scams before they start. I encourage New Yorkers to mark National Consumer Protection Week by learning how to recognize, avoid and report consumer frauds wherever they exist.”

In 2011, for the second year in a row, most complaints were Internet-related fraud, followed by debt collection, credit card billing, and identity theft. Here is a list of the top five consumer complaints in 2011 and tips to combat similar scams in the future by category:

1. Internet (privacy issues; spyware; consumer frauds):   Make sure websites are secure before providing any financial information, such as a credit card or bank account number. Secure website addresses start with “https.” These secure sites use encryption to scramble consumer information as it is transmitted over the Internet to keep it secure.

2. Credit (debt collection; credit card billing; debt settlement):  A debt collector is an entity or person who regularly collects debts owed to others, not to the collector itself. For example, if a worker is owed wages and calls on someone to pay an invoice, the worker is not a debt collector.  The call is not considered harassment because the worker is calling for a legitimate purpose, and it is reasonable for someone to do work to expect to get paid.  A debt collector includes collection agencies, law firms who regularly collect consumer debts, and companies that buy delinquent debts at discount.  Debt collectors may not harass or abuse consumers.  For instance, they may not call at certain hours or at work if asked not to do so.  The collectors may not provide misleading information such as claiming to represent a government agency. Anyone with credit problems should contact credit counseling agencies licensed by the New York State Banking Department for help in avoiding collection scams.

3. Automobile (buying, leasing, repair, service contracts, rentals):  Car complaints may relate to leasing.   New Yorkers are protected by an auto-leasing law, which allows consumers to shop around for the best deal when leasing a car, set limits on early termination, and gives the Attorney General’s Office jurisdiction to resolve excess wear-and-tear disputes.

4 Consumer-Related Services (security systems; restaurant/catering services; tech repairs):  Services may include snow-removal, home repair, or party planning. The Attorney General warns consumers to ensure a written contract for all services that defines restrictions and obligations of the consumer and service-provider.

5. Landlord/Tenant (residential repairs, deposit releases, tenant-harassment):  In New York, landlords need to keep records of all notices, inspections and repair matters related to the residence.

If you have been a scam victim, contact a consumer fraud attorney.

During late night television, there are sometimes half hour shows exhibiting new exercise equipment.  Often there are interviews with celebrities endorsing and using the equipment.  The equipment seems to make people look younger and healthier.  Many people want to live long and enjoy good health.

Before buying exercise equipment, contact a local consumer protection office, state Attorney General or Better Business Bureau to find out whether they have received any complaints about the equipment manufacturer, or whether there are state laws regulating equipment. The advantages of exercise are well-documented. Unfortunately, the advertising claims for exercise equipment are not always as true.

Some advertisers claim, without proof, their exercise products offer an immediate, easy way to shape up, stay fit, and lose weight. For someone who is overweight, the consumer may be game to try anything because being overweight is ridiculed in US society.  The reality is, there’s no such thing as a no-hassle way to a healthy and muscle-toned body. Deriving the benefits of exercise requires working out consistently and eating right.

Before buying exercise equipment, read the performance claims carefully. Question advertising claims of effortless results or the ability to burn excessive calories. The claims may be true for people in top physical condition, but not for most consumers who do not exercise regularly.  In 2011, the Federal Trade Commission took legal action that led to a settlement with Reebok, which required the company to pay $25 million to resolve charges that the company made deceptive claims about its toning shoes.

See if the product comes with any warranties. If the contract says “as is,” it means there are no warranties, and the consumer is stuck with nothing if the product breaks or is of no use.  If there are written or oral warranties by a sales person, it is an express warranty.  Express warranties arise when a supplier makes affirmations of fact or promises to a buyer relating to the goods that become part of the basis of the bargain.  Liability for misrepresentation arises when a representation by the seller induces reliance by the buyer.  Unless disclaimed, all products usually come with an implied warranty that goods are (1) merchantable, meaning they are fit for their ordinary purposes, and (2) fit for particular purposes for which such goods are used, meaning the (a) seller knows of a buyer’s particular purpose, and (b) the buyer relies on the seller’s skill in purchasing the goods.

Understand what the exercise equipment does.  Usually, workout equipment that works the whole body or major parts of the body often assists a consumer burn more calories than machines that work one part of the body.

The more a consumer uses the device, the more calories a consumer usually burns. A consumer should select equipment that suits lifestyle. If the exercise is not comfortable, or the equipment is difficult to use, the machine will unlikely assist a consumer burn calories.

Realize weight depends on the number of calories a person eats and uses each day.  Increasing physical activity helps burn extra calories. For a person who walks to and from work every day, a person may not need many hours with a machine to look good.

Be skeptical of testimonials especially written anonymous postings on websites.  A consumer cannot investigate if the testimonials are real or written up by the manufacturers themselves.

If you have complaints about exercise equipment, contact an experienced consumer fraud attorney.

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Many social networking companies have recently undergone IPOs or are about to go public.  With social media so popular, and everyone setting up platforms to share personal information and opinions, people need to be aware of consumer fraud when using the Internet.

While a social networking site may terminate a fraudster’s account in its absolute discretion at any time, without notice, and for any reason, including, but are not limited to: (a) lack of account activity for an extended period of time, (b) violation of the terms of use; (c) attempt to gain unauthorized entry to the social network; (d) use of the social network in a manner inconsistent with the purpose; (e) or as required by law, regulation, court or governing agency order, most social networking sites do not take on obligations to monitor behavior by users on the site.  It is up to consumers to lookout for themselves to make sure they do not get defrauded.

Upon termination, a social network company may immediately deactivate or delete a fraudster’s account and/or bar any further access to the account. However, a company may not make any promises or warranties on the use of the website, or its products or services.  Consumers usually have to agree to using the network “as is” or “as available.”  The company may not guarantee that the network will be free of viruses, contamination or destructive features. The company may not guarantee any results or identification or correction of problems.  The company may disclaim any liability related thereto, including any warranties of accuracy, non-infringement, merchantability and fitness for a particular purpose. The company may disclaim any and all liability for the acts, omissions and conduct of any third parties in connection with or related to use of the network.

The company may even ask the user to release to the maximum extent permitted by applicable law, all claims against the company from any and all liability for claims, damages (actual and/or consequential), costs and expenses (including litigation costs and attorneys’ fees) of every kind and nature, arising from or in any way related to use of the social network. The consumer needs to understand that any fact relating to any matter covered by this release may be found to be other than now believed to be true and if the consumer goes ahead with the release, the consumer accepts and assumes the risk of such possible differences in fact.

When using social networks, be aware of consumer fraud.  Consult an experienced consumer fraud attorney if you become the victim of financial or other consumer fraud.

With so many software companies going into the cloud and transforming to Software as a Service licensing models, developer networks are cropping up everywhere.  Developer networks are an area for fraud when companies provide access to websites to give users access to (a) certain proprietary content or materials including, but limited to, video presentations, audio recordings, developer tools, software and computer code, code snippets, sample code, software, data, files, and documents, (b) pre-release software and/or hardware including related documentation and materials, or (c) an online web forum to allow people to (i) design, develop, and test your software, products, or services, and (ii) exchange ideas, concepts, techniques, or suggestions about the development of solutions for a company’s products or services

Developer networks are a place for fraudsters to use a company’s content, pre-release materials, or forums for unlawful purposes, such as  (a) burdening network capacity; (b) committing illegal or tortuous activity; (c) spamming; (d) infringing intellectual property; (e) interfering with security features or encryption codes; (f) collecting information about others without permission; (g) advertising or offering to sell or buy any goods or services for any commercial purpose; (h) attempting to impersonate another user or creating a false identity to mislead others; (i) misrepresenting affiliation with an entity; (j) using the user account of another person; (k) uploading files that contain viruses, Trojan horses, worms, time bombs, cancelbots, corrupted files, or any other similar software or programs that may damage the operation of another’s computer or property; or (l) otherwise using the developer network other than to fulfill the company’s purpose.

When offering a developer network, companies try to prevent consumer fraudsters by requiring people to: (a) personally provide true, accurate, current and complete information on the registration form and (b) maintain and promptly update the registration data as necessary to keep it true, accurate, current and complete. Users usually receive passwords and account designations upon completing registration processes and are responsible for maintaining the confidentiality thereof and liable for all activities occurring thereunder. To guard against consumer fraud, do not share, or transfer, any user ID or password, or other benefits received from a company in connection with being a registered user.

When on a public forum, look out for fraudsters who violate any privacy rights, publicity rights, contract rights, intellectual property rights, or any other rights, of any person or entity.

If you have been the victim of consumer fraud, consult with an experienced consumer fraud attorney.

These days, people are so into their electronic devices that some people want to learn how to code, launch websites, and create apps on their own.  Everywhere, on the bus, on the train, on the streets, people have their heads down on their mobile phones, have their ears plugged into music, and have their eyes on their e-books.

With electronic devices taking over, people need to learn not to be victims of fraud when downloading products from the Internet, or using open source code.  One bad move could put a person’s electronic devices at risk of malware, such as viruses that take over personal information or cause a computer to stop working.

Some low risk open source products out there are those licensed under the following software license agreements:

ANTLR:  Free software, published under a three-clause Berkeley Software Distribution License. Prior versions were released as public domain software.  While ANTLR itself is free, the documentation necessary to use it is not. The ANTLR manual is a commercial book, “The Definitive ANTLR Reference.” Free documentation is limited to tutorials, code examples, and basic API listings.

Apache Software Foundation (Apache 1.0, Apache 1.1, Apache 2.0):  The Apache Software Foundation uses various licenses to distribute software and documentation, to accept contributions from individuals and business entities, and to accept grants of existing software products.

Artistic License:  Software license used for certain free and open source software packages, most notably the standard Perl implementation and most CPAN modules, which are dual-licensed under the Artistic License and the GNU General Public License (“GPL”).

Boost Software License:  Open source license used by the Boost C++ Libraries, and other open source C++ projects. It is a permissive license in the style of the BSD license and the MIT license.  According to the Free Software Foundation, it qualifies as a free software license, and is compatible with the GNU General Public License.

BouncyCastle:  Collection of APIs used in cryptography, including APIs for the Java and the C# programming languages.  Uses Massachusetts Institute of Technology (“MIT”) License.

Berkeley Software Distribution (“BSD”) License:  Permissive free software license.

MIT License:  Permissive free software license.

If you are a victim of fraud when using electronic devices, consult an experienced consumer fraud attorney.

Whether a consumer fraud case can be heard in either state or federal court, may depend on a forum selection clause in a contract between the parties.

If a plaintiff files a consumer fraud case in state court, whether actions are removable to federal court by a defendant is detailed in 28 USC § 1441. Generally, a federal court has jurisdiction when a federal question is at issue, or there is diversity of citizenship between the parties.

However, sometimes forum selection clauses control over civil procedures. Following the U.S. Supreme Court’s decision in The Bremen v. Zapata Off-Shore Co., 407 U.S. 1, 10, 32 L. Ed. 2d 513, 92 S. Ct. 1907 (1972) (holding that forum selection clauses in international contracts are prima facie valid), some states have adopted the view that forum selection clauses are enforceable “unless the party challenging the enforcement establishes that such provisions are unfair or unreasonable, or are affected by fraud or unequal bargaining power.” Paul Bus. Sys., Inc. v. Canon U.S.A., Inc., 240 Va. 337, 397 S.E.2d 804, 807 (Va. 1990).

In Scherk v. Alberto-Culver Co., 417 U.S. 506, 519, n. 14, 41 L. Ed. 2d 270, 281, 94 S. Ct. 2449 (1974), the U.S. Supreme Court clarified the fraud exception to the enforceability of forum selection clauses: In The Bremen we noted that forum selection clauses “should be given full effect” when “a freely negotiated private . . . agreement [is] unaffected by fraud. . . .” This qualification does not mean that any time a dispute arising out of a transaction is based upon an allegation of fraud . . . the agreement is unenforceable. Rather, it means that a . . . forum selection clause in a contract is not enforceable if the inclusion of that clause in the contract was the product of fraud or coercion.

Once the contract containing the forum selection provision is proven, the burden shifts to the “party challenging enforcement” to establish that “such provisions are . . . affected by fraud.” Id. at 342.

In a consumer fraud case relating to a written contract, according to case law, the forum selection clause controls over civil procedures.

If you suffer losses from consumer fraud, consult with an attorney who knows civil procedures.

On January 3, 2012, the US Securities and Exchange Commission (SEC) charged Nasdaq-listed Life Partners Holding Inc., based in Texas, and three of its executives for allegedly fraudulent disclosure and accounting scheme involving life settlements. The SEC alleged Life Partners was systematically and materially underestimating the life expectancy (LE) estimates it used to price deals, leading to misleading public filings with the SEC from January 2007 through November 2011.

The SEC alleged the Life Partners and three executives, CEO Brian Pardo, president and general counsel Scott Peden, and chief financial officer David Martin were overvaluing assets held on the Life Partners’ books “by employing an unqualified doctor to assign baseless life expectancy estimates to underlying insurance policies.”

The short LE estimates impacted the company’s revenues and profit margin. There was an understatement of millions of dollars in impairment expense. In a restatement of its financial statements in November 2011, the company acknowledged it materially misstated net income from fiscal year 2007 through the third quarter of fiscal year 2011 by recognizing revenues not according to GAAP. The company inappropriately accelerated revenue recognition from the closing date of a life settlement transaction to the earlier date on which it got a non-binding agreement with the policy owner to sell a life settlement.

Most companies properly recognize revenue when the revenues are realizable and earned, such as when goods or services are transferred or provided, no matter when cash is received. There must be a written agreement, and no side agreements.

Allegedly, beginning in 1999, Life Partners used LE estimates provided exclusively by a Reno, Nevada-based doctor with no actuarial training or experience rendering LE estimates. The three executives were charged with awareness that the doctor’s LE estimates were systematically and materially short 88 percent to 91 percent the time. The three executive defendants failed to disclose the actual experience. Approximately 2,900 insureds outlived their calculated LE in 2007 and 2008. The three executives did not let the company’s auditors know all material information on LE estimates and revenue recognition.

If you are victim of financial or other consumer fraud, consult with an experienced consumer fraud attorney.

The SEC’s Office of Investor Education and Advocacy issued an Investor Alert to assist investors be aware of fraudulent investment schemes involving social media. Though social media can benefit investors, it presents chances for criminal activity and fraud.

Social media lets fraudsters have an easy, low-cost method to create a site, account, email, direct message, or web page that looks and feels real. The legitimate feel gives criminals a better chance to convince a consumer to send the fraudster money.

One way to check on the legitimacy of a company is to use Google search to look up a phone number to see who it really belongs to. For instance, some people may think they can hide behind cell phones, but if they advertise with their cell phones, the cell phone numbers can be plugged into Google search to find out where else the phone number appears. Another way to search on the real identity of a person is to upload any photos found on a person’s social network site to Google image to see where else the image appears. If it is discovered the photo is of a famous person or unlikely the person on the social media site, there is flag the account is not legitimate.

Once the social media fraud is perpetrated, it is hard to track down the true account holders because of the anonymity that social networking allows to criminals. Investors need to use caution when using social media when investing. The key to avoiding investment fraud on the is to be an educated investor. Sometimes it is better to make less money and keep it in the bank than to lose it all. The SEC provided tips to assist investors avoid investment fraud on social media sites:

• Be aware of unsolicited offers to invest.
• If something sounds too good to be true, such as the promise of “guaranteed” returns, it may not be good at all.
• Do not succumb to pressures to buy RIGHT NOW.
• Do not make an investment based solely on the recommendation of a member of an organization to which you belong. There may be affinity fraud if the sales pitch is made online. Even if you know the individual making the investment offer, check out the person’s background. Sometimes the person may not know the investment is a fraud.
• Guard privacy and make sure to read security settings. A person who does not guard personal information, may leave it available not only for friends, but for anyone with access to the fraudsters who access the information through the Internet.

If you are a victim of financial or other consumer fraud, consult with an experienced consumer fraud attorney.

Recently, people searching on Google, craigslist, or popular social sites may have come across a day of protest against a controversial bill introduced in the United States House of Representatives entitled the Stop Online Piracy Act.

The bill’s objective is to impose obligations on third parties who deal with websites who sell or distribute pirated American products or works. It indirectly targets foreign websites outside the reach of American jurisdiction.

The Stop Online Piracy Act Section 103 provides intellectual property owners with a tool to enforce rights against sites “dedicated to theft of U.S. property.” An intellectual property rights-holder can notify a payment network provider or company that provides internet advertising services such as Google of intellectual property infringement by a particular site. A payment network provider is an entity that directly or indirectly provides the proprietary services, infrastructure, and software to effect or facilitate a debit, credit, or other payment transaction.

Upon receiving notification, the recipient must respond with “technically feasible and reasonable measures” within 5 days to cut off the infringing site from its services. For payment network providers such as PayPal this would mean preventing the completion of transactions involving US customers and the infringing website, and for advertisers it would mean not advertising the website.

The bill appears similar to the DMCA which allows the owner of the allegedly infringing site to respond a takedown with a “counter-notification.” The bill, known as SOPA, requires the site accept the jurisdiction of American courts. This lets the intellectual property owner to file a claim directly against the infringing site. It is no wonder companies such as Google and craigslist protested against the bill. The bill appears to create an administrative burden advertising companies and payment network providers. Once the site provides a counter notification, the payment networks and advertisers can go back to dealing with the site.

The bill gives the US Attorney General the ability to get a court-ordered injunction, to impose obligations on payment network providers and advertisers dealing with a foreign infringing site, and to require Internet Service Providers (ISPs) and search engines to take measures to prevent access to the site. For example, with ISPs who are search engines, they need to prevent search results from linking to the site.

If you are a victim of financial, intellectual property, or other consumer fraud, consult with an experienced consumer fraud attorney.

With the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) giving whistleblowers incentive to report wrongdoing, whistleblower litigation will likely be on the rise.   In 2011, these were well talked about whistleblower cases:

1. Hendersonv. Masco FramingCorp., No. 11-cv-00088, 2011 U.S.Dist. LEXIS 80494 (D. Nev.July 22, 2011)

In this case, before July 2010, the plaintiff entered into a pre-dispute arbitration agreement with his employer.  The agreement governed all claims under federal law, including Sarbanes- Oxley (SOX) whistleblower claims.  Plaintiff filed a lawsuit under SOX Section 806, alleging he was discharged in retaliation for complaining the company improperly withheld FICA Medicare taxes from his retention bonuses.  He filed a motion to compel arbitration, and the court granted the employee’s motion to compel arbitration.

2. Schroeder v. Greater New OrleansFed. Credit Union, No. 10-cv-31169, 2011 WL 6307889 (5th Cir. Dec. 19, 2011)

The Fifth Circuit reversed a whistleblower retaliation claim dismissal under Federal Credit Union Act (12 U.S.C. § 1790b(a)(1)) (Act).   The court saw lack of timely and complete documentation on a whistleblower’s performance issues.  Plaintiff was a manger in a lending department and call center.  Around December 2007, the plaintiff let the CEO know she thought potentially fraudulent conduct was happening with lending practices.  In March 2008, the plaintiff made the same reports to the Board of Directors (Board).  On May 30, 2008, the plaintiff brought claims of fraud to the chair of the company’s Supervisory Committee (Committee).  According to the plaintiff, on June 19 and 20, 2008, she telephoned seven times to the National Credit Union Administration (NCUA).  The NCUA had no record of the calls, and she did not tell any supervisors about the calls.  Two co-workers claimed she expressed her plans to contact the NCUA in June 2008.  A week after the alleged calls to the NCUA, plaintiff complained to the Committee, and the company engaged an auditor to investigate.  The investigation confirmed some loans violated internal policies, but no criminal fraud.  In mid-July 2008, co-workers informed the CEO plaintiff contacted the NCUA.  On August 8, 2008, the CEO lowered plaintiff’s salary.  Plaintiff complained to the Board and Committee this was retaliatory.  The company added complaints about her performance in her personnel file.  On October 8, 2008, the Board terminated plaintiff.  Plaintiff filed a whistleblower retaliation suit under the Act.  The Act bars a credit union from retaliating against an employee if that individual provided information to the NCUA or the U.S. Attorney General about any violation of any law or regulation.  The district court granted the company summary judgment.  The Fifth Circuit affirmed the finding that plaintiff’s demotion, preceded by internal complaints, was not actionable.  However, it found there was a genuine issue of material fact as to whether the company knew she complained to the NCUA.  There was little evidence of disciplinary problems in her personnel record, and her performance issues were recorded in her personnel file after her complaints to the NCUA and a week before her termination.