It sits in your house, passively recording everything you say. It knows what you like. It knows what you listen to. It knows what you buy. It knows who’s in the room with you. And now, it might tell the police all about it.
“It” is the Amazon Echo, a revolution in the “internet of things.” The Echo is a smart speaker that connects directly to Amazon’s cloud-based personal assistant service, Alexa. It can play music; give you the traffic, weather, and news; handle your shopping; put things on your calendar; play games; and even respond appropriately to a wide array of cultural references, all in response to voice commands. If you have the right add-ons, Alexa can even control your entire home, dimming your lights, adjusting the thermostat, and locking the doors.
It does this by passively listening for a given activation phrase—the default is “Alexa.” Generally, Alexa does not record anything else (although it may store up to sixty seconds at a time in a buffer). Once it hears its name, Alexa will begin recording and will send what follows to Amazon for processing—both to respond to a given request, and to store to improve responsiveness later. On one hand, this means that Amazon is not actually recording everything you say, but only those specific commands directed to Alexa. On the other hand, it means that Alexa is always listening.
This became relevant in a recent murder case in Bentonville Arkansas, in which police obtained a warrant for recordings from Amazon of commands given to the suspect’s Echo. It is far from clear what police hope to gain from these recordings; they have a large amount of traditional evidence and, unless the murderer specifically asked Alexa for help, the recordings are unlikely to be incriminating. Nevertheless, an attempt by police to seek recordings from a device that is virtually always listening to us in our homes is extremely disturbing.
These efforts are made even more concerning by recent court rulings on cell phone location data. According to two federal appellate courts, because cell phones send this information to a third party (that is, to cell phone and app providers), it is not considered sufficiently private for protection from searches and seizures. That means that police can access this data—which often allows an individual to be physically tracked from moment-to-moment—without even requesting a warrant.
If this principle is upheld by the Supreme Court (which, so far, has refused to consider the issue), it would mean that police could access daily recordings from the privacy of your own home on little more than a hunch and an informal request. Though many may say they have nothing to hide, I doubt most of us would be comfortable knowing a police officer was looking over our shoulder twenty-four hours a day.
There is one barrier to that terrifying outcome, which is that Amazon has refused to comply with the Bentonville warrant and officers there have decided not to press the issue. Like Apple, Amazon has taken it upon itself to protect its customers’ privacy. But a private company cannot be expected to be the defender of its customers’ civil rights forever.
But until the law catches up to the state of technology, every one of our devices is capable of being turned into an informant against us. And though Alexa can do a lot, it has yet to learn how to invoke its Fifth Amendment right to remain silent. Until it does, you might want to think twice before inviting Alexa–and potentially the police–into your home.
The post Alexa: Play Confession appeared first on Crime In The Suites.
Just in time for the holiday season, the Supreme Court has ruled that gift-giving is truly its own reward. But far from embodying the spirit of generosity that typically goes with that saying, the Court has ruled that the warm feeling one gets from giving to others can give rise to criminal insider trading liability. This ruling will extend insider trading liability for the recipients of tips, who were previously thought to be protected where they obtained information from an insider that was not the result of a quid pro quo exchange.
The case, Salman v. United States, dealt with a defendant who had received tips second-hand from a friend, Michael Kara, whose brother Maher was a trader at Citigroup. Maher had initially turned to his brother for help understanding technical issues he encountered in his job but, eventually, began to share inside information with Maher with knowledge that Maher intended to trade on it. Unknown to Maher, Michael shared some of these tips with his own friends, including Bassam Salman. After making a significant amount of money trading on those tips, Salman was charged with insider trading and convicted following a jury trial.
Under a major 2014 ruling from a federal court in New York, Michael and Salman would have been protected from liability because they did not buy any stock tips from Maher or give him a share of their gains. That 2014 case, United States v. Newman, emphasized the legal requirement that an insider receive a “personal benefit” from the recipient of a tip before the tippee could be charged with insider trading. This requirement offered powerful protections for innocent parties who traded on tips they received without doing anything wrong.
But the Supreme Court ruled today that the personal gratification that a tipper enjoys when giving free information as a gift to a friend or relative is enough of a “personal benefit” to satisfy insider trading laws. This all but does away with the personal benefit requirement, since it presumes that an insider benefits even when he receives nothing for information that he shares with another.
At one level, this may seem to make sense on the facts of Salman’s case. One of the Court’s concerns was that a free stock tip may be no different from an insider trading on his own behalf and then giving the money away. And that concern applied with particular force to Maher and Michael, since on one occasion Maher actually offered his brother money but was asked to give him inside information instead.
But the Court easily could have ruled narrowly on that basis; it did not. Instead, by ruling that “the benefit one would obtain from simply making a gift of confidential information to a trading relative” is sufficient to satisfy insider trading laws, it has essentially removed one of the key limitations to the scope of insider trading laws, allowing for even an unthinking tip to a friend or relative to be the basis for criminal prosecution. And although the Court left open the possibility that some gifts may not be meaningful enough to give rise to criminal liability, the breadth of today’s ruling suggests that exception is likely to be both small and difficult to prove.
That means that we should all be particularly careful as we get together with our families this December, particularly if a relative in the finance industry—or, indeed, in the corporate sector at all—offers up a stock tip at a family gathering. Because the joy of giving can now lead to criminal exposure for the whole family.
The post ‘Tis the Season of Giving: Supreme Court Expands Insider Trading Liability to Recipients of “Gift” Stock Tips appeared first on Crime In The Suites.
As Halloween has people thinking of ghosts and ghouls, creative plaintiffs’ attorneys have turned an arcane New Jersey law into a true source of fright for virtually anybody who offers services that are even potentially available within the Garden State.
The law at issue is the New Jersey Truth in Consumer Contract, Warranty, and Notice Act (“TCCWNA”), which was enacted in 1981 with good intentions: to prevent businesses from advertising terms that violate state law in order to cow consumers into doing business under those terms even though they were unenforceable. For example, a storage space rental company might violate the law by requiring a consumer to release it from liability for personal injuries on company property, even though such a waiver is unenforceable under New Jersey Law. The statute provides seemingly modest damages of $100 per violation.
But the TCCWNA does not require a consumer to actually have been hurt by any illegal term or provision and, in fact, it allows for a cause of action to be brought even by a mere “prospective consumer.” In 1981, this likely made little difference to brick-and-mortar businesses, for whom the only individuals who may have seen a violative contract or term would be those who sought it out. But in the age of the Internet, everybody is a potential consumer, and one may shop for dozens of products from the comfort of one’s own desk in a single afternoon. Each time that one of these individuals views the website and, even theoretically, considers purchasing a product or service, that individual becomes a potential plaintiff under the TCCWNA.
This has opened the door to suits against virtually any retailer that has a website that can be accessed in New Jersey—unless the terms offered by such retailers are fully compliant with New Jersey law or clearly indicate what provisions would be invalid in New Jersey, there is a chance that those retailers could be found to violate the TCCWNA. And although statutory damages of $100 may not seem scary, those damages are awarded on a per-violation—that is, per-consumer—basis. And plaintiffs’ attorneys have begun to bring class actions alleging that every single New Jerseyan who has accessed a given website is a “potential consumer” under the statute, opening the door to potentially massive liability.
The news is not all bleak: a federal judge in New Jersey recently dismissed a TCCWNA case against the car rental company Hertz relying on a recent Supreme Court case that bars lawsuits by plaintiffs who have suffered no more than a “bare procedural harm” without any real injury. But it is not yet clear if other judges will follow suit, and even if they do, that ruling will not help defendants who may find themselves stuck in state court. Until the courts or the New Jersey legislature provide clearer and more meaningful protection, businesses may find themselves being forced to comply with New Jersey law no matter where they may be located.
Rather than confront accusations of baseless zeal and prosecutorial overreach, New York federal prosecutor Preet Bharara would rather spend his energy dodging accountability.
In 2010, Bharara launched a crusade against Wall Street, prosecuting several hedge funds he suspected of insider trading. Highly publicized raids followed. In the wake of the financial meltdown, Bharara was hailed as a hero. A Time cover story proclaimed, “This Man Is Busting Wall St.”
But many of those prosecutions went nowhere. A federal appellate court rejected the legal theory that the prosecutions were built on, and many cases were simply dropped. The SEC even agreed to return some of the money it had seized from several hedge funds.
This was cold comfort to people like David Ganek, the manager of Level Global—one of several hedge funds shut down by Bharara’s inquisition. Even while the case was pending, Bharara all but acknowledged that he meant to shutter Level Global, without regard for the presumption of innocence.
Sadly, even when defendants are harmed by prosecutorial overreach, broad immunity doctrines make it nearly impossible for the wrongly prosecuted to get justice.
But Ganek’s case involved more than just excessive zeal: the warrant used to raid Level Global depended on a false statement. A former employee of Level Global had told federal agents that Ganek did not know he was using information from corporate insiders, but the warrant application falsely said that Ganek did know. That gave Ganek a rare opportunity: federal agents can be shielded for overreaching, but there is no protection for lying.
Ganek sued officials from both the U.S. Attorney’s Office and the FBI (Ganek v. Leibowitz), claiming that the use of the false statement to prosecute him had violated his constitutional right against unreasonable searches and his due process rights. In March, a federal judge ruled that Ganek’s claim could go forward, rejecting claims of governmental immunity.
In most civil cases, overcoming this initial step is a big deal. It would allow Ganek to conduct discovery—that is, to investigate the facts behind his case by methods that can include obtaining documents from prosecutors and the FBI and depositions of federal officials under oath. This process can be extremely onerous—the cost of document production and the risks of laying bare a defendant’s inner workings to a hostile adversary have forced many defendants into settling dubious lawsuits. In addition to uncovering misrepresentations tied to his own case, Ganek also could investigate the conduct of federal officials more generally and, perhaps, even the supervisory practices of prosecutors and the FBI.
In a typical case, there would be no way to avoid this except by an expensive settlement—likely including a premium for avoiding discovery. But this is no typical case, and Preet Bharara is no typical litigant. Although most of us in Bharara’s position would have to wait until the end of a federal case before filing a single, final appeal, Bharara has relied on a narrow legal doctrine that allows him to appeal the court’s decision immediately, based on his claims of immunity. As a result, the court has delayed discovery and other proceedings indefinitely. Instead of accepting the need for transparency and letting Ganek be made whole for his wrongful prosecution, Bharara’s office will get a second bite at the apple by rearguing the issue of immunity in front of the U.S. Court of Appeals for the Second Circuit.
It is hard to imagine that Bharara will prevail on appeal—immunity does not cover outright lies by federal agents. Yet by belaboring a weak immunity argument, Bharara can postpone having to answer for the actions of his office for months, if not longer, while creating additional costs and burdens for Ganek.
This case goes beyond Ganek’s personal quest for justice. Civil suits like this are important for holding public officials accountable and can provide a window into how they operate. Bharara’s resistance sends a discomforting message: however merciless he may be towards his suspects, he should bear no consequences for his actions.
We’ll see if Ganek can prove him wrong.
The post This Man Is Dodging Wall St. appeared first on Crime In The Suites.
The New York Attorney General, FanDuel, and Draft Kings announced yesterday that a settlement had been reached in the litigation over the future of daily fantasy sports (“DFS”) in New York. Effective immediately, FanDuel and DraftKings will discontinue operations in New York and pay out existing balances to New Yorkers. This sounds like a major victory for the AG, and a surprising capitulation by the DFS sites after an appellate court allowed them to keep operating in New York while the court cases were in progress. But a closer study of the DraftKings and FanDuel agreements plainly shows that this is far from a definitive settlement.
The agreement would be better described as an armistice. No claims will be dismissed and no resolution has been agreed upon. Everyone has agreed to postpone action on the pending appeals until at least this summer, when the filings will be due for the Appellate Division’s September session, and suspend all litigation in the trial court until the appeals are resolved.
The DFS sites, in other words, have agreed to suspend operations in New York, and now appear to be turning their attention to the New York State legislature as the agreements revolve entirely on whether there is a change in state law expressly legalizing DFS before June 30, 2016. If so, all parties agree not to proceed further and neither DFS site would incur any penalties or pay restitution on the majority of the AG’s claims. This would be a big win for DFS in New York—not only would it be able to operate legally in the state, but DraftKings and FanDuel would be off the hook for any claims about its previously questionable status.
But there’s plenty in this agreement that is unfavorable to the sites. First, the matter of false advertising—central to the AG’s prosecution—is almost entirely unaffected, although it bears little relevance to the permissibility of DFS in general. More interestingly, if the legislature does not expressly legalize DFS, the sites have agreed not to appeal a loss to the New York Court of Appeals, the state’s highest court. This is a curious concession that leaves the sites vulnerable to an adverse decision from an intermediate appellate court in Manhattan. For its part, the AG has made no such concessions. If the Appellate Division rules in the sites’ favor, it would send the case back to the trial court for further proceedings without committing either the AG or the sites to any specific course of action.
Because nothing has changed about the DFS litigation itself, there is good reason to wonder why this “settlement” happened at all. The best-case scenario for the DFS sites would be that the AG, faced with conflicting signals from state courts and New Yorkers alike, has agreed to collaborate on finding a legislative solution that would allow DFS to exist in New York subject to state approval and a method of oversight that allays some of his concerns. A less encouraging possibility is that DraftKings and FanDuel are losing the stomach for a protracted fight in their biggest market and that, if it is not possible to restore DFS to New York quickly, the sites have decided it would be more prudent to cut their losses and focus on other markets.
In the meantime, New Yorkers likely will be without DFS through this summer. If they don’t want it to stay that way indefinitely, they should do as we will and turn their attention to the New York State legislature—where S 6793 in the State Senate is the most promising bill—and where we can expect to see a strong push to finalize a legislative solution before the end of June. So serious a deadline has potent ramifications on the future of DFS in New York and perhaps the nation. As such, we hope it will encourage action even from those who have viewed DFS as a low-priority issue until now.