, Facebook required to restructure its approach to privacy and accountability.

The June 2023 Newsletter

Greetings!

Summer is almost here. School is out, and vacation time is upon us.

We wish you a happy, relaxing, and fun summer - stay cool!

Our June newsletter focuses on the following topics:

Fiduciary Duties
Facebook and Minors
Updated requirements for diversity visa applicants

Read more in the newsletter below!

Best wishes.

Reinhard von Hennigs &

Your Team at BridgehouseLaw LLP

image by Time

Morning Musings

As you may know, Reinhard von Hennigs has been musing about current events and topics for over three years. The second book is ready to be published.

In the meantime, do check out the Morning Musing library on YouTube.

Fiduciary Duties:

Best Practices for Directors Overseeing Corporations and LLCs

When operating within the director role for a private corporation or LLC, it is essential that you be careful about your fiduciary duties to the other directors and your entity. Future Supreme Court Justice Benjamin N. Cardozo underlined the importance of fiduciary duties in the groundbreaking 1928 case Meinhard v. Salmon:

Joint adventurers, like copartners, owe one another while the enterprise continues the duty of the finest loyalty. Many forms of conduct are permissible in a workaday world, for those acting at arm’s length are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive; it is then the standard of behavior. As to this, there has developed an unbending and inveterate tradition. Uncompromising rigidity has been the attitude of the courts of equity when petitioned to undermine the rule of undivided loyalty by the ‘disintegrating erosion’ of particular exceptions.

This very high standard laid out by Justice Cardozo prevents director behaviors that may lead to dangerous outcomes, including corporate implosion, bankruptcy, or international scandals. For example, FTX founder Sam Bankman-Fried was recently charged with conspiracy and fraud for stealing customer funds to cover losses at his hedge fund and conspiring to bribe Chinese officials to violate campaign finance laws.

Directors have fiduciary duties of loyalty and care to the company they serve and its stockholders. Under the duty of loyalty, directors must put the company's best interests over their own personal interests when making decisions for the Company and evaluating opportunities. Under the duty of care, directors must exercise care when making decisions as a director based on sufficient information and a good faith belief that their choices are in the company's and its stockholders' best interest.

So, what are the best practices for fulfilling your fiduciary duties as directors?

· Adhere to the due diligence standard. Practice due diligence in evaluating significant negotiations, deals, contracts, hiring, investors, and business partners.

· Keep Track of Accountability Standards. Gino Wickman, the author of Get a Grip On Your Business, recommends knowing the numbers your entity needs to hit per quarter or fiscal year to create clarity and commitment amongst the leadership.

· Regular and Accurate Reporting. The company should hold regular board meetings where management provides information regarding the company’s business. An accurate description of board meeting minutes will determine how the company needs to succeed in the present and future.

· Regular Board Meetings. Gino Wickman discusses the benefits of holding regular board meetings. Regular board meetings are essential for non-employee directors who are not as close to the company’s daily operations. Even if the board consists of company employees, many decision-making issues arise in board meetings that don’t typically occur during day-to-day business.

· Speak Up and Disclose Conflicts. Good governance, according to Jim Collins, author of How the Mighty Fall: And Why Some Companies Never Give In, emphasizes that good rule requires a director’s ability to speak up when acting on behalf of the company’s best interest. Board members should pay special attention to matters in conflict to ensure the corporation’s success.

Notes

This refers to “Traction: Get a Grip on Your Business,” Gino Wickman (Gino Wickman 2007).

This is also a reference to “How the Mighty Fall: And Why Some Companies Never Give In,” Jim Collins (Jim Collins 2009) and Meinhard v. Salmon, 249 N.Y. 458, 463, 164 N.E. 545, 546 (1928).

Michelle Aguilar, Law Clerk, BridgehouseLaw Charlotte

FTC Proposes Ban Preventing Facebook from Misleading Users About Children’s Communications

The Federal Trade Commission proposed new sanctions on Facebook’s parent company Meta for breaching the terms of a $5 billion privacy settlement by misleading parents about their ability to control who their children could communicate with on the platform. The order imposes new mechanisms that require Facebook to restructure its approach to privacy and accountability.

The agency proposed new sanctions on Meta, including a blanket ban on the company to restrict profiting from the data of its users under eighteen (18) on any of its platforms. Meta would also be subject to expanded requirements, including monitoring facial recognition technology and additional user protections.

“Facebook has repeatedly violated its privacy promises,” Samuel Levine, director of the FTC’s Bureau of Consumer Protection, said in a statement. “The company’s recklessness has put young users at risk, and Facebook needs to answer for its failures.”

The first complaint filed against Facebook was secured in 2012 and barred the company from misrepresenting its privacy practices. In 2020, a second privacy order against Facebook forced the company to pay a $5 billion civil penalty. It also expanded the required privacy program and the independent third-party assessor’s role in evaluating the effectiveness of Facebook’s program. Additionally, the order required Facebook to implement greater security for its users’ personal information and imposed restrictions on using facial recognition and telephone numbers obtained for account security.

The independent, third-party assessor was tasked with reviewing whether Facebook’s privacy program satisfied the 2020 order’s requirements. The assessor identified several gaps and weaknesses in Facebook’s privacy program. According to the Order to Show Cause, the breadth and significance of these deficiencies pose substantial risks to the public. The Order to Show Cause alleges that Facebook violated its first two orders (2012 and 2020) by giving app developers access to users’ private information after promising to restrict access if they had not used the app in the previous ninety (90) days.

The FTC has also asked Facebook to respond to allegations that they misrepresented the extent to which parents could control whom their children communicated with through its Messenger Kids product. The FTC contends that these misrepresentations violated the 2012 order, the FTC Act, and the COPPA Rule. Under the COPPA Rule, operators of websites or online services directed at children under thirteen (13) must notify parents and obtain their verifiable parental consent before collecting personal information from children.

In an unsigned blog post response titled “Upholding Our Commitment to Protecting Your Privacy: What the FTC Gets Wrong,” Meta asserts that none of these issues warrants the “drastic changes the FTC is seeking just three years into our decades-long agreement and that the FTC lacks unilateral authority to impose. We have not violated the agreement and operate an industry-leading privacy program.”

Meta has vowed to “vigorously” fight the FTC’s action and has until June to respond to the FTC’s motion. The tech superpower could also bring a lawsuit in district court seeking to stop the FTC from progressing with the proposal.

Notes

If you have any more questions or concerns about this article, please don't hesitate to contact us at Bridgehouse Law.

This is a reference to FTC Proposes Blanket Prohibition Preventing Facebook from Monetizing Youth Data, available at https://www.ftc.gov/news-events/news/press-releases/2023/05/ftc-proposes-blanket-prohibition-preventing-facebook-monetizing-youth-data (last modified May 3, 2023).

Michelle Aguilar, Law Clerk, BridgehouseLaw Charlotte

Document Submission Requirement Suspended for the DV2024 Program

In 2024, diversity visa applicants will no longer need to submit supporting documentation to the Kentucky Consular Center (KCC). The U.S. State Department suspended the requirement that diversity visa applicants supply the KCC with supporting documents and their DS-260 Form. Instead, the applicant must only submit the DS-260 form to the KCC for themselves and accompanying family members after being selected. During the interview at the consulate where the diversity application was made, the applicant will provide the required supporting documents.

The following documents are required:

(1) an original copy of each applicant’s birth certificate;

(2) court and prison records (if the applicant has been convicted of a crime);

(3) military records (if the applicant served in the military forces of any country);

(4) police certificates for each applicant aged 16 and older; and

(5) a photocopy of a currently valid passport biographic data page. Failure to provide all required supporting documents at this interview may result in denying the applicant’s visa application.

The State Department elected to waive this requirement to improve the time it takes to review each DS-260 form and enable KCC to schedule Diversity Visa appointments earlier in the year.

For more information regarding the diversity visa program, check the Department of State’s website here: https://travel.state.gov/content/travel/en/us-visas/immigrate/diversity-visa-program-entry/diversity-visa-submit-entry1.html.

Tristen Erickson-Cales, Law Clerk, BridgehouseLaw Charlotte

E-2 Visa Guidance

The E-2 nonimmigrant classification allows a national of a treaty country (a country with which the United States maintains a treaty of commerce and navigation, or with which the United States maintains a qualifying international agreement, or which has been deemed a qualifying country by legislation) to be admitted to the United States when investing a substantial amount of capital in a U.S. business.

General Qualifications of a Treaty Investor

To qualify for E-2 Classification, the treaty investor must:

· Be a national of a country with which the United States maintains a treaty of commerce and navigation;

· Have invested, or be actively in the process of investing, a substantial amount of capital in a bona fide enterprise in the United States; and

· Be seeking to enter the United States solely to develop and direct the investment enterprise. This is established by showing at least 50% ownership of the enterprise or possession of operational control through a managerial position or another corporate device.

What is a “Substantial Amount of Capital?”

· Substantial in relationship to the total cost of either purchasing an established enterprise or establishing a new one

· Sufficient to ensure the treaty investor’s financial commitment to the successful operation of the enterprise

· Of a magnitude to support the likelihood that the treaty investor will successfully develop and direct the enterprise. The lower cost to the enterprise, the proportionately higher the investment must be considered substantial.

Note for Clients

· Investment is the treaty investor’s placing of capital, including funds and/or other assets, at risk—in the commercial sense—to generate a profit.

· The capital must be subject to partial or total loss if the investment fails.

· The treaty investor must show that the funds have not been directly or indirectly obtained from criminal activity. See 8 CFR 214.2(e)(12) for more information.

Resources

This refers to the E-2 Treaty Investor guidance from the U.S. Citizenship and Immigration Services webpage.

Michelle Aguilar, Law Clerk, BridgehouseLaw Charlotte