When At Fault... Countersue!

Schoolyard bullies can often get their way simply with the threat of violence. If you've been punched once, you may just surrender your lunch money the second time without fist ever having to connect with nose.

Apparently, this lesson has been learned in the corporate boardroom as well.

Susan Antilla, in a DealBook article in today's New York Times, reports the case of an unhappy investor who is being countersued by the brokers whom he is suing.

The investing group had sent Reef Securities of Richardson, TX, a total of $90,000 to be placed in the energy industry. An initial payment was received, and then distributions slowly dropped to nothing. The investors sued. And then Reef countersued.

"They said we’d be liable for their legal expenses," which could have been $400,000 or more, Mr. Vaerewyck [one of the investors] said. "That’s a pretty significant piece of change for a group of retired individuals."

This is apparently the new way to deal with an unhappy customer.

Like Mr. Vaerewyck and the other Reef customers, investors who lose money in private placements face a new obstacle when they take their cases to arbitration before the Financial Industry Regulatory Authority, or Finra, as they are required to do in any dispute. The brokers they have sued are suing them back, accusing them of reneging on indemnification agreements.

Thankfully, this response is "not widespread". But the most depressing quote in Ms. Antilla's article came from a lawyer representing the unhappy Reef investors: "Every brokerage firm out there would do it if they thought they could get away with it."

Really? Sigh. 

In private placements, "investors must sign documents that say they indemnify the issuer and its agents for any losses, lawyer fees and case costs in the event the investor makes a misrepresentation. Investors also agree in writing that they are sophisticated and understand the risks of the investment." Which is why they make such appealing targets for countersuits. But isn't the indemnification for the issuer, not the broker? Don't you, as an investor, rely on the broker to steer you towards a good deal?

Finra, of course, insists that intimidating unhappy customers "would violate Finra conduct rules". Ya think? The Finra representative goes on to say that in such circumstances they would certainly "investigate". I feel much better now, don't you?

Wouldn't You Like to Know What Ed-Tech Companies Know About Your Kids?

We all know that companies collect an amazing amount of information about us from our online wanderings, although it's possible that many of us aren't aware of just how much is being gathered.

And there's no question that the power of this Big Data is only beginning to be exploited.

Since it's early days yet, there are some laughable errors that occur, that serve as useful reminders that you are being tracked. For example, I recently booked a mini-vacation through one of the online price-comparison sites, and now I'm seeing ads everywhere for vacations spots. A little late, don't you think? After all, I've already booked a non-refundable trip: A better offer is not going to get me to change plans, so why even bother?

But others are harder to laugh off, and that's especially true when it comes to children.

Today's New York Times has a thought-provoking piece by Natasha Singer about how much information schools are collecting about your kids.We already know that kids, while stunningly sophisticated about how to use the latest technology, aren't necessarily as sophisticated about understanding how long that digital footprint may last, and how it may come back to haunt them later. But at least that's stuff they post themselves.

What about the stuff that's collected that they don't know about? As Singer reports:

At a New York state elementary school, teachers can use a behavior-monitoring app to compile information on which children have positive attitudes and which act out. In Georgia, some high school cafeterias are using a biometric identification system to let students pay for lunch by scanning the palms of their hands at the checkout line. And across the country, school sports teams are using social media sites for athletes to exchange contact information and game locations.

Take a moment to think how such information, in someone else's hands, might be used.

While some 30 states have recently passed regulations limiting student data collection, or requiring greater transparency about such data collection and use, there are still a lot of holes that need to be filled. 

There is a federal law that "limits the disclosures of student education records by schools that receive public funding. But critics have long complained that the 40-year-old law, written for the file-cabinet era when student records were kept on paper, has not kept pace with digital data-mining." (More info on that law, here)

Many schools don't regulate "the kinds of information their education technology vendors collected from students or how the companies used those details."

Singer reports that California has now passed (although Gov. Jerry Brown has not yet signed) a wide-ranging bill, that

prohibits companies from selling, disclosing or using for marketing purposes students’ online searches, text messages, photos, voice recordings, biometric data, location information, food purchases, political or religious information, digital documents or any kind of student identification code. The idea is to prevent companies from using information about students for any activity not intended by schools.

Most adults don't read the "privacy policies" published by the websites they visit, and children are even less likely to do so, or to have the foresight to understand how the information trail they leave behind might be used. Let's put a little protective shield around them.