made unambiguous by the almighty Andrew Cuomo.
Judge Fuentes, dissenting from his Third Circuit colleagues’ decision to send the case back to the lower court, said in his opinion that Mr. Aleynikov was entitled to the legal payments. In deciding between competing interpretations of an ambiguous term, he wrote, Delaware law clearly states that courts should rule against the drafter of such terms, in this case Goldman. Judge Fuentes supported such a ruling, noting that it would have the benefit of encouraging the firm to rewrite its bylaws and state clearly which employees are entitled to advancement of legal fees.
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Home > LI
Confidential > Stop
scratching on holidays
Stop scratching on holidays
Published: June 1, 2012
Off Track Betting in New York State has been racing into a crisis called shrinking revenue. Some people have spitballed a solution: Don’t close on holidays.
New York State Racing Law bars racing on Christmas, Easter and Palm Sunday, and the state has ruled OTBs can’t handle action on those days, even though they could easily broadcast races from out of state.
“You should be able to bet whenever you want,” said Jackson Leeds, a Nassau OTB employee who makes an occasional bet. He added some irrefutable logic: “How is the business going to make money if you’re not open to take people’s bets?”
Elias Tsekerides, president of the Federation of Hellenic Societies of Greater New York, said OTB is open on Greek Orthodox Easter and Palm Sunday.
“I don’t want discrimination,” Tsekerides said. “They close for the Catholics, but open for the Greek Orthodox? It’s either open for all or not open.”
OTB officials have said they lose millions by closing on Palm Sunday alone, with tracks such as Gulfstream, Santa Anita, Turf Paradise and Hawthorne running.
One option: OTBs could just stay open and face the consequences. New York City OTB did just that back in 2003. The handle was about $1.5 million – and OTB was fined $5,000.
Easy money.
Goldman Sachs
has the reputation of being a breed apart on Wall Street. Its employees
are smarter, hungrier and quicker to the draw than those at rival
firms. Thanks to these differences, Goldman sits at the apex of the
nation’s investment banking hierarchy.
Whether
or not you buy into that narrative, there is one way in which Goldman
clearly does set itself apart from its competitors: It has more leeway
to pick and choose which executives’ legal bills it will pay if they
become entangled in an investigation or legal proceeding. While the
corporate bylaws of other banks definitively state which employees will
have legal fees covered in the course of their duties, Goldman’s bylaws
are ambiguous on the matter of one group of people — its so-called
officers — whose legal bills it is supposed to cover. This has the
effect of letting the firm decide whose bills among this group it will
pay and whose it won’t.
The vagueness in Goldman’s bylaws surfaced last week in a dissenting opinion written by Judge Julio M. Fuentes
of the United States Court of Appeals for the Third Circuit in
Philadelphia. A member of a three-person panel hearing a case involving
Goldman’s refusal to pay a former vice president’s fees, Judge Fuentes
contended that the effect of the firm’s policy was inconsistent with the
law in Delaware, the state in which Goldman is incorporated.
Judge
Fuentes also noted that the ambiguity in Goldman’s bylaws would lead
many of its employees to believe they were entitled to advancement of
legal fees even though the firm was “reserving the right to make
unpredictable post hoc determinations about which former employees
should be advanced attorney’s fees and which shouldn’t.” Goldman
declined to comment on Judge Fuentes’s opinion.
These
ambiguous bylaws set up an intriguing dynamic among Goldman employees.
Put simply, being able to choose which of its officers will receive
advance payments for legal bills gives the firm significant leverage
over those who become ensnared in an investigation or lawsuit. Indeed,
the flexible nature of Goldman’s policy could easily discourage those
involved in such proceedings from implicating superiors who may have
been involved in wrongdoing. Who would take such a chance, knowing that
Goldman could cut off the legal fee spigot at any time?
The
bylaws of JPMorgan Chase, Bank of America and Morgan Stanley, by
contrast, are unambiguous on whose legal fees will be covered. (Usually,
but not always, employees found liable for wrongdoing have to repay the
legal advances they received.)
Goldman’s
unusual stance on employees’ legal fees first came to light during the
bizarre and protracted legal odyssey of Sergey Aleynikov, a former
computer programmer and Goldman vice president who was charged with
stealing some of the firm’s computer code in 2009.
The
following year, Mr. Aleynikov was found guilty in federal court of
violating both the National Stolen Property Act and the Economic
Espionage Act in the matter of the computer code. He was sentenced to
eight years in prison. But in 2012, after serving one year, an appellate
court reversed his conviction; he was acquitted.
That
didn’t end Mr. Aleynikov’s legal woes. A few months later he was again
indicted, this time in a New York State court. That case, prosecuted by
Cyrus R. Vance Jr., the Manhattan district attorney, was based on the
same conduct for which Mr. Aleynikov was acquitted in federal court.
Lawyers for Mr. Aleynikov argued that he could not be tried twice for
the same allegations, but were unsuccessful.
Still,
the case is not going well for Mr. Vance. In June, the judge overseeing
it barred state authorities from introducing into evidence materials
they had received from federal agents that were collected during the
earlier, ill-fated prosecution of Mr. Aleynikov. Lawyers for Mr. Vance
have asked the judge to reconsider that ruling, and that’s where the
matter stands.
This
mess has generated a pile of legal bills for Mr. Aleynikov. His
lawyers, Kevin H. Marino and John D. Tortorella, of Marino, Tortorella
& Boyle, have sued Goldman seeking payment of the former
programmer’s legal costs in the state case. Last December, court filings
show, those bills totaled $2.5 million. Mr. Marino declined to comment
on the litigation.
Of
course, $2.5 million isn’t even a rounding error for Goldman, which
generated earnings of $2 billion in just the most recent quarter.
Nevertheless, it objected to the payment, arguing that although Mr.
Aleynikov had been a vice president of the company, he was not
technically an officer and therefore was not among those employees
entitled to legal payments.
According
to Goldman’s bylaws, the firm will advance legal fees to certain
employees, among them officers of the company. But the bylaws do not
define the characteristics of that job title at the firm.
Kevin
McNulty, a federal judge in New Jersey, heard the Aleynikov case last
year. During the hearings, it emerged that, in a recent six-year period,
Goldman had advanced legal fees for 51 of 53 employees, some of whom it
said were vice presidents or non-officers. The two unfortunates who
received nothing were Mr. Aleynikov and another, unidentified person.
In
the proceedings, Goldman called its policy “permissive indemnification”
and said deciding whose legal costs it would pay was a matter of
“business discretion.” Asked how the firm decides these matters, Goldman
officials were instructed by their lawyer not to answer, asserting
lawyer-client privilege, court filings show.
Judge
McNulty ruled against Goldman, saying it had to pay Mr. Aleynikov’s
legal bills. Goldman appealed to the Third Circuit. Last week, that
court ruled that the firm’s bylaws were ambiguous and that the case must
go back to Judge McNulty’s courtroom to determine the definition of “an
officer” at Goldman. After that determination, the court will decide
whether the firm should pay Mr. Aleynikov’s fees.
Asked
about the ruling, a Goldman spokesman said in a statement: “Our
employees shouldn’t expect the firm to pay for their defense when they
steal from us.”
Judge
Fuentes, dissenting from his Third Circuit colleagues’ decision to send
the case back to the lower court, said in his opinion that Mr.
Aleynikov was entitled to the legal payments. In deciding between
competing interpretations of an ambiguous term, he wrote, Delaware law
clearly states that courts should rule against the drafter of such
terms, in this case Goldman. Judge Fuentes supported such a ruling,
noting that it would have the benefit of encouraging the firm to rewrite
its bylaws and state clearly which employees are entitled to
advancement of legal fees.
Instead,
the battle over Mr. Aleynikov’s legal costs is headed back to Judge
McNulty’s courtroom. It is unclear who will prevail. But the details of
this byzantine case reinforce that venerable notion on Wall Street: No
firm manages its employees’ incentives more shrewdly than Goldman.
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