Author: Liam Mennitt

Are RIAs Eligible for PPP?

Posted on by Liam Mennitt

Is a Registered Investment Advisor (“RIA”) eligible to participate in the Payment Protection Program (the “PPP”) administered by the Small Business Administration (“SBA”)? The short answer is “yes.”

The PPP was promulgated as part of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which in part set aside hundreds of billions of dollars to help small businesses retain their employees during the COVID-19 crisis and the resultant work from home orders set forth by governors across the country.

Background

We understand that many RIAs applied for and were granted a loan under the CARES act, and that some of these RIAs may be unsure of whether they were granted the loan in error, how they may spend the loan funds or if they can spend the loan funds. The guidance below will hopefully answer some of these questions because applying for and receiving a PPP loan in a knowingly false fashion is a criminal offense, and we strongly encourage any RIA unsure of its PPP eligibility to seek particular legal advice.

The guidance below hinges on whether an RIA engages in speculative operations, holds any securities or other speculative assets, or is simply engaged in financial advisory services.

SBA Guidance

The SBA published an Interim Final Rule on April 2, 2020 (the “Interim Final Rule”). Specifically, the Interim Final Rule provides that “Businesses that are not eligible for PPP loans are identified in 13 CFR 120.110 and described further in SBA’s Standard Operating Procedure (SOP) 50 10, Subpart B, Chapter 2….” (the “SOP”).

Some of the ineligible financial markets and funds businesses listed in the SOP include, without limitation:

  • Banks;
  • Life insurance companies (but not independent agents);
  • Finance companies;
  • Investment companies;
  • Certain passive businesses owned by developers and landlords, which do not actively use or occupy the assets acquired or improved with the loan proceeds, and/or which are primarily engaged in owning or purchasing real estate and leasing it for any purpose; and
  • Speculative businesses that primarily “purchas[e] and hold[ ] an item until the market price increases” or “engag[e] in a risky business for the chance of an unusually large profit.”

On April 24, 2020, the SBA issued its Fourth Interim Final Rule on the PPP (the “Fourth Interim Final Rule”). The Fourth Interim Final Rule explicitly states that hedge funds and private equity firms are not eligible for a PPP loan.

Discussion

Ineligible Companies.

If the RIA is also a hedge fund or a private equity firm, then it may not be eligible to receive a PPP loan. If, however, the RIA is legally distanced from those entities through appropriate corporate structures, and the loan is only used for the RIA business, then the RIA should be eligible to receive the PPP funds.

Because most RIAs are not also banks or life insurance companies, the exclusions should not apply. However, as some RIAs also sell life insurance products, such individual situations may require more research.

Finance companies are also ineligible under the SBA guidelines to receive PPP funds. The SBA guidelines define a finance company as one “primarily engaged in the business of lending, such as banks, finance companies, and factors.” (Sec. 120.110(b) of the SBA’s Business Loans regulations). Thus, this exclusion should not apply. Similarly, an RIA may not be deemed an investment company, which is a company organized under the Investment Company Act of 1940, unless the RIA was in fact incorporated under that Act.

An RIA also may not meet the definition of a “speculative business” as defined above in the Interim Final Rule. If an RIA does not purchase or hold assets until the market price increases or engage in a risky business for the chance of an unusually large profit, then it will not meet this definition. Speculative businesses may also include: (i) wildcatting in oil, (ii) dealing in stocks, bonds, commodity futures, and other financial instruments, (iii) mining gold or silver in other than established fields, and (iv) building homes for future sale, (v) a shopping center developer, and (vi) research and development. (Sec 120.110(s) of the SBA’s Business Loans regulations, SBA Eligibility Questionnaire for Standard 7(a) Guaranty and SOP Subpart B D (Ineligible Businesses).  It is our understanding that an RIA that merely provides portfolio management services would not be deemed to be involved in a “speculative” business based on the examples of such businesses provided by the SBA. If the SBA had taken the position that financial advisory services are speculative, it could easily have so indicated by including such services in its lists of speculative services.

Financial Advisory Services.

Consistent with this view, the SBA has provided clear guidance that financial advisory services are eligible for SBA loans, including loans under the PPP. In the SBA’s SOP, the SBA provides the following: “A business engaged in providing the services of a financial advisor on a fee basis is eligible provided they do not use loan proceeds to invest in their own portfolio of investments.” (SOP Sec III(A)(2)(b)(v) pp.104-105) (emphasis added).

This guidance is clear that the focus of ineligibility is at the portfolio company level, not the advisory level, and this is consistent with the guidance noted above making hedge funds and private equity firms ineligible. Hedge funds and private equity firms make money based upon speculative investments and/or appreciation of the markets. An investment advisor operates at the consulting or services level. In other words, the SBA has distinguished between true speculative operations such as wildcatting, speculative real estate development and investing in securities, and service-based operations such as the investment advisory business. Assuming that an eligible RIA did not use any proceeds of the PPP loan at any investment level, such RIA should not be deemed a speculative business and is eligible for a PPP loan.

SEC Guidance

SEC guidance affirms that RIAs are eligible for PPP loans. While the SEC imparts certain burdens on RIAs that accept PPP loans, the fact that the SEC even acknowledges such burdens should give most RIAs confidence that a PPP loan is available to them.

For RIAs who are eligible to receive PPP funds under the SBA guidance set forth above, the SEC instructs that they must comply with their fiduciary duty under federal law and make a full and fair disclosure to their clients of all material facts relating to the advisory relationship. The SEC further posits that “If the circumstances leading you to seek a PPP loan or other type of financial assistance constitute material facts relating to your advisory relationship with clients, it is the staff’s view that your firm should provide disclosure of, for example, the nature, amounts and effects of such assistance.” An example of a situation the SEC would require such disclosures would be an RIA requiring PPP funds to pay the salaries of RIA employees who are primarily responsible for performing advisory functions for clients of the RIA. In this case the SEC would require disclosure as this may materially affect the financial well-being of an RIA’s clients.

The SEC additionally provides that “if your firm is experiencing conditions that are reasonably likely to impair its ability to meet contractual commitments to its clients, you may be required to disclose this financial condition in response to Item 18 (Financial Information) of Part 2A of Form ADV (brochure), or as part of Part 2A, Appendix 1 of Form ADV (wrap fee program brochure). (SEC Division of Investment Management Coronavirus (COVID-19) Response FAQs).

Summary

While the Cares Act and PPP are recently enacted, and there is some confusion surrounding the eligibility requirements for the PPP, the SBA had a clear opportunity to deem financial advisors ineligible in the Interim Final Rule and Fourth Interim Final Rule, but specifically chose not to do so. Instead, the SBA followed the direction of its historical eligibility requirements, holding to ineligibility at the fund and portfolio company level, but continuing to permit loans to firms operating at the advisory level.

While it is possible that the SBA could interpret its own rules and regulations inconsistently with the specific guidance provided in the Interim Final Rule and Fourth Interim Final Rule, the weight of the evidence strongly suggests that an investment advisor is eligible for a PPP loan as long as it does not use the proceeds for fund or portfolio company purposes.

 

Managing Documentation of Your PPP Loan

Posted on by Liam Mennitt

To date, nearly 18.5 thousand Connecticut businesses have received forgivable loans under the Paycheck Protection Program. This note will briefly review some of the recordkeeping requirements of the program you should keep in mind if you anticipate being able to qualify for loan forgiveness.

The program requires that borrowers meet two tests for loan forgiveness:

  • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
  • Employee and compensation levels are maintained

The loan proceeds may only be used for four categories of business expenses:

  • Payroll costs, including benefits. Payroll costs include –
    • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
    • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
    • State and local taxes assessed on compensation; and
    • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee
  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020

Payroll costs also include employee benefits such as parental leave, family leave, medical leave, and sick leave.  Note, however, that the CARES Act, P.L. 116-136, excludes qualified sick and family leave wages for which a credit is allowed under section 7001 and 7003 of the FFCRA, P.L. 116-127. You can read an IRS summary of this credit here.

The CARES Act also excludes from payroll costs the following:

  • Any compensation of an employee whose principal place of residence is outside of the United States; and
  • Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employer’s share of FICA and Railroad Retirement Act taxes

Mortgage prepayments and principal payments are not permitted uses of PPP loan proceeds. Borrowers will need to request loan forgiveness from their lenders. The request must include:

  • Verification of the number of employees and pay rates
  • Payments made on eligible mortgage, lease and utilities
  • Documentation that you used the forgiven amount to keep employees and make the eligible mortgage, lease, and utility payments

This documentation will generally take the form of:

  • Payroll reports from your payroll provider
  • Payroll tax filings, including Form 941
  • State income, payroll, and unemployment insurance filings
  • Documentation of retirement and health insurance contributions
  • Documentation of payment of eligible expenses. This documentation should meet the same standards as your documentation of business expenses on your tax return. Invoices matched with cancelled checks, payment receipts, and account information
  • Documentation that you used at least 75% of your loan for payroll costs

Lenders are expected to require forgiveness documentation to be provided in digital form, so borrowers should get scanning done in advance.

Lenders must rule on forgiveness within 60 days of the borrower’s request. In some cases, borrowers may be asked to provide additional documentation.

If you are not approved for loan forgiveness, your loan balance will continue to accrue interest at the rate of 1% annually for the remainder of the two-year loan period.

These notes review general principles only and are not intended as tax or legal advice.  Readers are cautioned to discuss their specific circumstances with a qualified practitioner before taking any action.

Are RIAs Eligible for PPP?

Posted on by Liam Mennitt

Is a Registered Investment Advisor (“RIA”) eligible to participate in the Payment Protection Program (the “PPP”) administered by the Small Business Administration (“SBA”)? The short answer is “yes.”

The PPP was promulgated as part of the recently enacted Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) which in part set aside hundreds of billions of dollars to help small businesses retain their employees during the COVID-19 crisis and the resultant work from home orders set forth by governors across the country.

Background

We understand that many RIAs applied for and were granted a loan under the CARES act, and that some of these RIAs may be unsure of whether they were granted the loan in error, how they may spend the loan funds or if they can spend the loan funds. The guidance below will hopefully answer some of these questions because applying for and receiving a PPP loan in a knowingly false fashion is a criminal offense, and we strongly encourage any RIA unsure of its PPP eligibility to seek particular legal advice.

The guidance below hinges on whether an RIA engages in speculative operations, holds any securities or other speculative assets, or is simply engaged in financial advisory services.

SBA Guidance

The SBA published an Interim Final Rule on April 2, 2020 (the “Interim Final Rule”). Specifically, the Interim Final Rule provides that “Businesses that are not eligible for PPP loans are identified in 13 CFR 120.110 and described further in SBA’s Standard Operating Procedure (SOP) 50 10, Subpart B, Chapter 2….” (the “SOP”).

Some of the ineligible financial markets and funds businesses listed in the SOP include, without limitation:

  • Banks;
  • Life insurance companies (but not independent agents);
  • Finance companies;
  • Investment companies;
  • Certain passive businesses owned by developers and landlords, which do not actively use or occupy the assets acquired or improved with the loan proceeds, and/or which are primarily engaged in owning or purchasing real estate and leasing it for any purpose; and
  • Speculative businesses that primarily “purchas[e] and hold[ ] an item until the market price increases” or “engag[e] in a risky business for the chance of an unusually large profit.”

On April 24, 2020, the SBA issued its Fourth Interim Final Rule on the PPP (the “Fourth Interim Final Rule”). The Fourth Interim Final Rule explicitly states that hedge funds and private equity firms are not eligible for a PPP loan.

Discussion

Ineligible Companies.

If the RIA is also a hedge fund or a private equity firm, then it may not be eligible to receive a PPP loan. If, however, the RIA is legally distanced from those entities through appropriate corporate structures, and the loan is only used for the RIA business, then the RIA should be eligible to receive the PPP funds.

Because most RIAs are not also banks or life insurance companies, the exclusions should not apply. However, as some RIAs also sell life insurance products, such individual situations may require more research.

Finance companies are also ineligible under the SBA guidelines to receive PPP funds. The SBA guidelines define a finance company as one “primarily engaged in the business of lending, such as banks, finance companies, and factors.” (Sec. 120.110(b) of the SBA’s Business Loans regulations). Thus, this exclusion should not apply. Similarly, an RIA may not be deemed an investment company, which is a company organized under the Investment Company Act of 1940, unless the RIA was in fact incorporated under that Act.

An RIA also may not meet the definition of a “speculative business” as defined above in the Interim Final Rule. If an RIA does not purchase or hold assets until the market price increases or engage in a risky business for the chance of an unusually large profit, then it will not meet this definition. Speculative businesses may also include: (i) wildcatting in oil, (ii) dealing in stocks, bonds, commodity futures, and other financial instruments, (iii) mining gold or silver in other than established fields, and (iv) building homes for future sale, (v) a shopping center developer, and (vi) research and development. (Sec 120.110(s) of the SBA’s Business Loans regulations, SBA Eligibility Questionnaire for Standard 7(a) Guaranty and SOP Subpart B D (Ineligible Businesses).  It is our understanding that an RIA that merely provides portfolio management services would not be deemed to be involved in a “speculative” business based on the examples of such businesses provided by the SBA. If the SBA had taken the position that financial advisory services are speculative, it could easily have so indicated by including such services in its lists of speculative services.

Financial Advisory Services.

Consistent with this view, the SBA has provided clear guidance that financial advisory services are eligible for SBA loans, including loans under the PPP. In the SBA’s SOP, the SBA provides the following: “A business engaged in providing the services of a financial advisor on a fee basis is eligible provided they do not use loan proceeds to invest in their own portfolio of investments.” (SOP Sec III(A)(2)(b)(v) pp.104-105) (emphasis added).

This guidance is clear that the focus of ineligibility is at the portfolio company level, not the advisory level, and this is consistent with the guidance noted above making hedge funds and private equity firms ineligible. Hedge funds and private equity firms make money based upon speculative investments and/or appreciation of the markets. An investment advisor operates at the consulting or services level. In other words, the SBA has distinguished between true speculative operations such as wildcatting, speculative real estate development and investing in securities, and service-based operations such as the investment advisory business. Assuming that an eligible RIA did not use any proceeds of the PPP loan at any investment level, such RIA should not be deemed a speculative business and is eligible for a PPP loan.

SEC Guidance

SEC guidance affirms that RIAs are eligible for PPP loans. While the SEC imparts certain burdens on RIAs that accept PPP loans, the fact that the SEC even acknowledges such burdens should give most RIAs confidence that a PPP loan is available to them.

For RIAs who are eligible to receive PPP funds under the SBA guidance set forth above, the SEC instructs that they must comply with their fiduciary duty under federal law and make a full and fair disclosure to their clients of all material facts relating to the advisory relationship. The SEC further posits that “If the circumstances leading you to seek a PPP loan or other type of financial assistance constitute material facts relating to your advisory relationship with clients, it is the staff’s view that your firm should provide disclosure of, for example, the nature, amounts and effects of such assistance.” An example of a situation the SEC would require such disclosures would be an RIA requiring PPP funds to pay the salaries of RIA employees who are primarily responsible for performing advisory functions for clients of the RIA. In this case the SEC would require disclosure as this may materially affect the financial well-being of an RIA’s clients.

The SEC additionally provides that “if your firm is experiencing conditions that are reasonably likely to impair its ability to meet contractual commitments to its clients, you may be required to disclose this financial condition in response to Item 18 (Financial Information) of Part 2A of Form ADV (brochure), or as part of Part 2A, Appendix 1 of Form ADV (wrap fee program brochure). (SEC Division of Investment Management Coronavirus (COVID-19) Response FAQs).

Summary

While the Cares Act and PPP are recently enacted, and there is some confusion surrounding the eligibility requirements for the PPP, the SBA had a clear opportunity to deem financial advisors ineligible in the Interim Final Rule and Fourth Interim Final Rule, but specifically chose not to do so. Instead, the SBA followed the direction of its historical eligibility requirements, holding to ineligibility at the fund and portfolio company level, but continuing to permit loans to firms operating at the advisory level.

While it is possible that the SBA could interpret its own rules and regulations inconsistently with the specific guidance provided in the Interim Final Rule and Fourth Interim Final Rule, the weight of the evidence strongly suggests that an investment advisor is eligible for a PPP loan as long as it does not use the proceeds for fund or portfolio company purposes.

Working Remote Without Privacy Violations

Posted on by Liam Mennitt

COVID-19 revolutionized the need for remote work by employees.  And the trend toward working remote likely will continue after the outbreak is a distant memory. However, the privacy and cybersecurity implications surrounding these remote workers are often either unknown and/or ignored.  So now what?  With more of your employees working off-site, how do you protect your company against privacy violations of state, federal and international law?

The first step is to review your privacy policy.  Is it too lax?  Is it too strict?  Either extreme creates its own issues such as inefficiency for remote workers or potential data breaches.  The policy must contain clear penalties for violations.  Violations must be tracked and the penalties enforced for the privacy policy to fulfill its purpose.

The second step is to make sure that every employee, vendor and client, is aware of the privacy policy and where appropriate, commits to the privacy policy with either a physical or digital signature.  These acknowledgements must be stored and organized by privacy policy version. As the privacy policy is amended from time to time, it is important to determine whether an additional acknowledgement is required from your employees, vendors and clients.

The third step is to train employees on how to abide by the privacy policy.  A policy is useless if no one understands it or is unsure how to apply it to their employment duties. With remote workers, this becomes even more critical as data that may permissibly be left on a desk or sent in an email on a secure network, may not be appropriate in a remote working environment.  Remote workers need to use Virtual Private Networks (VPN) to access company systems.  Companies should verify that each remote worker is using a VPN while working remotely.

The final step requires taking a second look at your data, the processing of the data and specific business sector regulations such as the Graham-Leahy Bliley Act in the financial sector.  During this review it is important to identify new risks posed by remote workers.  One way of achieving this review is to either assign or hire a Chief Information Officer (CIO) to coordinate and stay abreast of the latest trends and developments.

Another aspect of cybersecurity and privacy that must be evaluated and implemented wherever possible is Privacy Enhancing Technology (PET).  These various technologies (there are five) allow for a greater use of data while removing all identifiable information and resisting attempts to reconstruct personal information by combining an anonymous data set with a data set that “decodes” the first set, such as Census data or voter registration databases.  More information on PET can be found here.

P&D attorneys can assist with all these recommendations with a cost effective and pragmatic approach.  Our attorneys routinely handle the most challenging privacy and cybersecurity issues and are ready and eager to help your company during these uncertain times.

When It Rains, It Pours: The Psychology that Makes Us More Vulnerable During a Crisis

Posted on by Liam Mennitt

I received the following email alert from a cybersecurity client of mine:

“6x increase in cyber attacks over the last 4 weeks.”

“Information about COVID-19 should only come from a legitamate source. Don’t trust unsolocited emails or open unknown links”

“Really?,” I thought to myself; “We’re on lock-down, stressed about family and friends, not to mention business and jobs, and I’m getting cybersecurity alerts?” Frankly, I usually ignore them when I’m not distracted, but who has time for this now? 

However, the more I thought about it, the more I realized that’s exactly what cybercriminals are thinking too and why people need to stay alert and resist the temptation to click on those compelling links.

The truth is, despite the fancy hardware and software solutions available, most cybersecurity breaches occur due to human error or phishing attacks. Unless you have relatively sophisticated automated solutions, the people IN your organization may represent your greatest internal threat.

While companies see high risks from external threat actors, such as unsophisticated hackers (59%), cyber criminals (57%), and social engineers (44%), the greatest danger, cited by 9 out of 10 firms, lies with untrained general (non-IT) staff. In addition, more than half see data sharing with partners and vendors as their main IT vulnerability. Nonetheless, less than a fifth of firms have made significant progress in training staff and partners on cybersecurity awareness (ESI ThoughtLab/WSJ Pro Cybersecurity, 2018).

And this was before COVID hit us between the eyes. Let’s take a quick look at the psychology at play that makes us even more vulnerable during a crisis.
The Neuroscience of Crisis

As humans, we are prewired for crisis. 

Whether you think of this brain system as the “reptilian brain,” attributed to Paul MacLean and his Triune Theory (Sagan, 1977), or the fight-flight reaction of the sympathetic nervous system (System 1) which is our immediate, emotional reaction (Kahneman, 2011), it is clear that our brain protects us in times of danger. 

This system, which is buried deep in the interior of the human brain, is both evolutionarily older and more immediate than simple cognitive thought; it is pre-cognitive. When the danger is ambiguous, System 2 thinking (which, in contrast with System 1 is slower, more deliberative and more logical) is nice; go through your options, take your time, don’t rush. 

But when there is a perception of crisis, the need to ACT is immediate. 

The fight-flight response makes us want to DO something, and now! From an evolutionary point of view, in times of danger, those who acted first were often safer than those who took their time.

The COVID-19 pandemic is, of course, a crisis. 

Have people noticed how much more tired they are these days, even though we aren’t even leaving the house? It’s because crisis mode requires more energy. During a crisis, the thoughtful, reflective parts of our brain shut down. In other circumstances, we might hover over a suspicious link, while we process whether it seems risky or not. 

But that requires fully functional frontal lobes, or executive functioning, which need time and undivided attention to work properly. In crisis mode, frontal lobe functioning is significantly diminished, or may go offline altogether, in favor of a quick (albeit less considered) action or reaction. 

To make matters worse, cybercriminals know this: They know what emotional buttons to push to make you afraid (just click the link) or try to help (just click the link), or maybe even register your opinion (just click the link). 

But if you do click that unfamiliar or disguised link, you may have just let criminals into your personal computer and, by default, into your company’s IT system. 

Wait, consider, relax. Let System 2 kick in before you commit yourself, your computer, and your company to whatever those “black hat” cybercriminals have in mind.

Motivation During a Crisis

After the fear comes a desire to help. 

This is one of the ways that cybercriminals trick well-meaning people. Whether it’s a donation, or a message of support, or some other activity to help, we are again motivated in ways that leave us open to online criminal behavior. 

McClelland’s Social Motive Theory suggests there are three primary social motives: Achievement, Affiliation, and Power (McClelland, 1987). 

We all have the capacity for all three, and genetics and socialization as well as cognitive choice determine which motive wins the day in a given situation. In times of individual crisis, needs for achievement (e.g., successful social distancing) or needs for power (e.g., controlling the situation) may come to the fore. 

But in a social crisis, many of us are “hard-wired” to help, triggering a need for affiliation. 

That desire to help may cause people to act impulsively in what they believe is a pro-social, affiliative manner. Just click the link to make your donation, just click the link to show your support, and on and on, the cybercriminals never stop trying. Like the very best advertisers, they are clever about pushing your emotional (non-cognitive, pre-cognitive) buttons to get you to act in ways that benefit them.

I am assuming everyone reading this has the best of motives. Those very motives make you susceptible to the manipulation of cybercriminals. 

If your current impulse is to put this away, turn to something else, then you have experienced exactly what cybercriminals are counting on. 

Information fatigue, too much bad news, or just a desire to put some positive energy back out into the world, may all leave you vulnerable. 

Don’t click suspicious links, or even links that look well-meaning, without doing some simple checks and reviews first. 

  • Hover over a link and see if the URL is the same as whom the email purports to be from. 
  • Don’t provide any information, on any social media, whether at work or elsewhere, that can be used against you. 
  • Hackers are clever and unscrupulous so check and double-check links that looks suspicious in any way. 
  • Do a bit of research before you agree to anything and certainly before sending money or private information.
What’s Your Story?

Narrative is the final pillar in this little tripartite approach to cybercrime. I have come to believe that personality is a story we tell ourselves (and the world) about ourselves (Bruner, 1985). 

This story comprises our identity, it is who we think we are and often these beliefs about who we are dictate how we behave in the world and how we process information. 

For example, as a psychologist (not to mention a human being), I think of myself as a helpful person. I try to be kind and considerate. I don’t like to walk past beggars without giving them something (yes, yes, I know that would cause me to lose points on the WAIS IQ test but there you go, despite my cognition telling me this could be a trick, he or she will just buy cigarettes and beer, I often give in anyway). 

Cybercriminals will use these ideal images we have of ourselves to manipulate our thoughts, emotions, and purse-strings. 

  • I am good, so I give to the sick and needy. 
  • I love children, so I’ll give to those orphaned by COVID. 
  • I support healthy behaviors, so I’ll do most anything to protect my health. 
  • I’m a good parent, so I will click the link that shows me 10 ways to protect my family from infection. 

Your personal narrative is the core of your personal identity. We sometimes value it more than life itself (think of martyrs). 

If a clever cybercriminal hacks your social media, understands what makes you “tick,” that information can be used against you in a cybercrime.

The threats are real and so are the psychological levers cybercriminals pull to manipulate your fear. 

We are all overwhelmed, trying our best to hang in there, and help each other where we can. Don’t let your best intentions, and fatigue, allow you to be manipulated to behave unsafely online. COVID is real, and so is cybercrime. We must be alert to both.

Written by: Dr. Mark Sirkin, CEO at Sirkin Advisors

References

Bruner, J. (1986). Actual minds, possible worlds. Cambridge, MA: Harvard University Press.

ESI ThoughtLabs/WSJ Pro Cybersecurity (2018). The cybersecurity imperative: Managing cyber risks in a world of rapid digital change. New York: Author.

Kahneman, D. (2011). Thinking, fast and slow. New York: Farrar, Straus and Giroux.

McClelland, D. (1987). Human motivation. New York: University of Cambridge.

Sagan, C. (1977). The dragons of Eden. New York: Penguin Random House.

 

Can Broker-Dealers and Funds Claim Trading Losses Due to the COVID-19 Governmental Shutdowns Under Business Interruption Policies or Contingent Business Interruption Policies?

Posted on by Liam Mennitt

Business interruption insurance, also known as business income insurance, is commercial property insurance designed to cover loss of income incurred by an organization due to a slowdown or suspension of its operations at its premises, under certain circumstances.  Business interruption insurance may include coverage for a suspension of operations due to a civil authority or order, pursuant to which access to the policyholder’s premises is prohibited by a governmental authority. Business interruption insurance is often paired with extra expense insurance, designed to provide coverage for additional costs in excess of normal operating expenses an organization incurs in order to continue operations following a covered loss. Contingent business interruption insurance is a related product and is designed to provide coverage for lost profits resulting from an interruption of business at the premises of a customer or supplier. The contingent property may be explicitly named, or the coverage may apply to all customers and suppliers.

Business interruption coverage is generally triggered when the policyholder sustains physical loss or damage to insured property by a covered loss as defined in the policy. In the event of a claim for a business interruption related to COVID-19, insurance carriers and policyholders will dispute whether the physical loss requirement has been satisfied. In the aftermath of previous viral outbreaks early this century (e.g., SARS, rotavirus, etc.), the insurance industry responded by adding exclusions designed to preclude coverage for such losses. The insurance coverage arguments are many, and those arguments will be the subject of litigation over the coming years.

Most business first-party property insurance policies include coverage not only for the property damage but also for loss in profits resulting from that damage.

The coverage for profits often covers loss resulting from:

  • Damage to the policyholder’s own property (business interruption)
  • Damage to the property of a customer or supplier or a supplier’s supplier (contingent business interruption)
  • Government action such as evacuation orders (order of civil authority)
  • Damage to properties that attract customers to the policyholder’s business (leader property)

The event that triggers any of these coverages is property damage — without which there will be no coverage for lost profits under a first-party property policy.

In Gregory Packing, Inc. v. Travelers Property Cas. Co. of America, a federal court in New Jersey found in 2014 that covered property damage had occurred when ammonia was accidentally released into a facility, rendering the building unsafe until it could be aired out and cleaned.

In reaching its decision, the court stated that “property can sustain physical damage without experiencing structural alteration.” Similar subsequent decisions in Oregon and New Hampshire have found property damage in the absence of structural damage.

Thus, many may argue that property damage has occurred in places where the virus is present.

Closures of public gathering places and all nonessential business activity in major cities worldwide may trigger coverage for “order of civil or military authority” — that is, for loss due to the prohibition of access to a business’s premises if caused by property damage within a specified distance of the insured property, such as one or five miles. Arguably, these closures have caused economic collapse and significant losses, particularly for companies that make their money trading securities.

That poses the question as to whether securities firms can use business interruption insurance to claim losses from the collapse of markets. Certainly, a more direct correlation arises from losses suffered because the trading firm physically shut down. While of course insurance companies will defend such claims on multiple grounds, these claims are much more direct.

But, what about trading losses or lost banking deals caused by the market meltdown arising from the pandemic, and related governmental shutdowns? While less direct, an answer could lie in the banks of the Mississippi River.

In the summer of 1993, the Mississippi and its tributaries experienced unprecedented flooding that affected nine Midwestern states. Twenty million acres of farmland were damaged, resulting in $6.5 billion in crop damage (See Doc. 35, Tab 28 at A172) (The Great Flood of 1993 Post-Flood Report U.S. Army Corps of Engineers September 1994). Total damage from the flood is estimated to be between $15 and $20 billion. Id. River, road, and rail transportation systems were disrupted on a large scale. Id.

Archer Daniels Midland Company and its subsidiaries (collectively, “ADM”) process farm products for domestic and international consumption. As a result of the Great Flood of 1993, ADM incurred substantial extra expenses and losses of income because of increases in both transportation costs and the cost of raw materials. ADM submitted claims to its insurance providers, who paid ADM approximately $11 million for losses sustained from the flooding. (See Compl., Doc. 1, Exhs). The insurance companies denied approximately $44 million in additional claims submitted by ADM. ADM brought suit, under multiple policies in the Southern District of Illinois, and the insurance companies defended.

According to the Southern District of Illinois, business interruption insurance is insurance under which the insured is protected in the “earnings which insured would have enjoyed had there been no interruption of business.” Archer-Daniels-Midland Co. v. Phoenix Assurance Co. 975 F. Supp. 1124 (S.D. Ill. 1997). In other words, business interruption insurance protects earnings that are lost or diminished because of a business interruption. ADM prevailed at the District Court.

On a related appeal, the 8th Circuit took up the issue. Archer-Daniels-Midland Co. v. Aon Risk Services. 356 F.3d 850 (8th Cir. 2004). The insurance companies argued that ADM could not recover because it did not suffer any business interruptions as a result of the flood. The insurance companies argued that Archer had actually continued production at its plants.

The 8th Circuit stated that “interruption of business” did not require ADM to show that its corn processing plants stopped or slowed down. “An interruption of business means some harm to the insured’s business” but the damage could have been caused to the property of a supplier. Most hedge funds, broker-dealers, and RIAs continued to trade during the governmental shutdowns, but the interruption to their business through the market meltdown, other than those hedged on short, was significant.

Under the ADM decision, coverage may be available, even where the policyholder incurred lost income or losses unrelated to the shutdown of its premises. While these issues are complicated, the flood of the Mississippi may provide securities trading firms with arguments that the shutdown of the economy is damage done to a supplier, above and beyond losses incurred from the physical closing of any offices. Thus, the trading losses caused by the government shutdown arising from COVID-19 could be seen as “harm to the insured’s business.” Of course, these issues will develop once the crisis subsides, but a battle looms on the scope of the insurance and the economic losses covered, including trading and securities losses.

 

Can Broker-Dealers and Funds Claim Trading Losses Due to the COVID-19 Governmental Shutdowns Under Business Interruption Policies or Contingent Business Interruption Policies?

Posted on by Liam Mennitt

Business interruption insurance, also known as business income insurance, is commercial property insurance designed to cover loss of income incurred by an organization due to a slowdown or suspension of its operations at its premises, under certain circumstances.  Business interruption insurance may include coverage for a suspension of operations due to a civil authority or order, pursuant to which access to the policyholder’s premises is prohibited by a governmental authority. Business interruption insurance is often paired with extra expense insurance, designed to provide coverage for additional costs in excess of normal operating expenses an organization incurs in order to continue operations following a covered loss. Contingent business interruption insurance is a related product and is designed to provide coverage for lost profits resulting from an interruption of business at the premises of a customer or supplier. The contingent property may be explicitly named, or the coverage may apply to all customers and suppliers.

Business interruption coverage is generally triggered when the policyholder sustains physical loss or damage to insured property by a covered loss as defined in the policy. In the event of a claim for a business interruption related to COVID-19, insurance carriers and policyholders will dispute whether the physical loss requirement has been satisfied. In the aftermath of previous viral outbreaks early this century (e.g., SARS, rotavirus, etc.), the insurance industry responded by adding exclusions designed to preclude coverage for such losses. The insurance coverage arguments are many, and those arguments will be the subject of litigation over the coming years.

Most business first-party property insurance policies include coverage not only for the property damage but also for loss in profits resulting from that damage.

The coverage for profits often covers loss resulting from:

  • Damage to the policyholder’s own property (business interruption)
  • Damage to the property of a customer or supplier or a supplier’s supplier (contingent business interruption)
  • Government action such as evacuation orders (order of civil authority)
  • Damage to properties that attract customers to the policyholder’s business (leader property)
  • The event that triggers any of these coverages is property damage — without which there will be no coverage for lost profits under a first-party property policy.

In Gregory Packing, Inc. v. Travelers Property Cas. Co. of America, a federal court in New Jersey found in 2014 that covered property damage had occurred when ammonia was accidentally released into a facility, rendering the building unsafe until it could be aired out and cleaned.

In reaching its decision, the court stated that “property can sustain physical damage without experiencing structural alteration.” Similar subsequent decisions in Oregon and New Hampshire have found property damage in the absence of structural damage.

Thus, many may argue that property damage has occurred in places where the virus is present.

Closures of public gathering places and all nonessential business activity in major cities worldwide may trigger coverage for “order of civil or military authority” — that is, for loss due to the prohibition of access to a business’s premises if caused by property damage within a specified distance of the insured property, such as one or five miles. Arguably, these closures have caused economic collapse and significant losses, particularly for companies that make their money trading securities.

That poses the question as to whether securities firms can use business interruption insurance to claim losses from the collapse of markets. Certainly, a more direct correlation arises from losses suffered because the trading firm physically shut down. While of course insurance companies will defend such claims on multiple grounds, these claims are much more direct.

But, what about trading losses or lost banking deals caused by the market meltdown arising from the pandemic, and related governmental shutdowns? While less direct, an answer could lie in the banks of the Mississippi River.

In the summer of 1993, the Mississippi and its tributaries experienced unprecedented flooding that affected nine Midwestern states. Twenty million acres of farmland were damaged, resulting in $6.5 billion in crop damage (See Doc. 35, Tab 28 at A172) (The Great Flood of 1993 Post-Flood Report U.S. Army Corps of Engineers September 1994). Total damage from the flood is estimated to be between $15 and $20 billion. Id. River, road, and rail transportation systems were disrupted on a large scale. Id.

Archer Daniels Midland Company and its subsidiaries (collectively, “ADM”) process farm products for domestic and international consumption. As a result of the Great Flood of 1993, ADM incurred substantial extra expenses and losses of income because of increases in both transportation costs and the cost of raw materials. ADM submitted claims to its insurance providers, who paid ADM approximately $11 million for losses sustained from the flooding. (See Compl., Doc. 1, Exhs). The insurance companies denied approximately $44 million in additional claims submitted by ADM. ADM brought suit, under multiple policies in the Southern District of Illinois, and the insurance companies defended.

According to the Southern District of Illinois, business interruption insurance is insurance under which the insured is protected in the “earnings which insured would have enjoyed had there been no interruption of business.” Archer-Daniels-Midland Co. v. Phoenix Assurance Co. 975 F. Supp. 1124 (S.D. Ill. 1997). In other words, business interruption insurance protects earnings that are lost or diminished because of a business interruption. ADM prevailed at the District Court.

On a related appeal, the 8th Circuit took up the issue. Archer-Daniels-Midland Co. v. Aon Risk Services. 356 F.3d 850 (8th Cir. 2004). The insurance companies argued that ADM could not recover because it did not suffer any business interruptions as a result of the flood. The insurance companies argued that Archer had actually continued production at its plants.

The 8th Circuit stated that “interruption of business” did not require ADM to show that its corn processing plants stopped or slowed down. “An interruption of business means some harm to the insured’s business” but the damage could have been caused to the property of a supplier. Most hedge funds, broker-dealers, and RIAs continued to trade during the governmental shutdowns, but the interruption to their business through the market meltdown, other than those hedged on short, was significant.

Under the ADM decision, coverage may be available, even where the policyholder incurred lost income or losses unrelated to the shutdown of its premises. While these issues are complicated, the flood of the Mississippi may provide securities trading firms with arguments that the shutdown of the economy is damage done to a supplier, above and beyond losses incurred from the physical closing of any offices. Thus, the trading losses caused by the government shutdown arising from COVID-19 could be seen as “harm to the insured’s business.” Of course, these issues will develop once the crisis subsides, but a battle looms on the scope of the insurance and the economic losses covered, including trading and securities losses.

Updates to Business Interruption Insurance

Posted on by Liam Mennitt

Here is an update on Business Interruption Insurance claims related to COVID-19 as of April 15, 2020.  First, some businesses are now looking at cancellation coverage as a means to recover COVID-19 related losses. For example, organizers of the Wimbledon Championship expect to receive a large insurance payment as COVID-19 resulted in the cancellation of the tennis tournament. The pandemic insurance policy will pay out an estimated $141 million following the decision to cancel Wimbledon.  

     Second, several businesses have already filed lawsuits seeking declarations that they are entitled to recover business losses resulting from the COVID-19 pandemic. The lawsuits allege that a civil authority, either a county or state official, ordered the business to cease normal operations to contain the spread of COVID-19 and that potential COVID-19 contamination constitutes physical damage or loss, which is either expressly covered by the policy or is not expressly excluded by the policy.

  In some cases, the plaintiffs rely on policy language that, they claim, specifically covers loss or damage caused by a virus. For example, the owner of the French Laundry and the Bouchon Bistro in the Napa Valley community of Yountville filed an action on April 15, 2020 that asserts a claim for civil authority coverage and alleges that the insurance policy “specifically extends coverage to direct physical loss or damage caused by a virus.” The lawsuit states the policy with The Hartford Fire Insurance Co. not only does not have an exclusion for a viral pandemic but, in fact, a “Property Choice Deluxe Form” in the policy extends coverage for a loss or damage due to virus. The suit says the restaurants had to furlough 300 employees after shutting down because of an order issued by the Napa County public health officer on March 18 allowing take-out and delivery only. The suit asks the Napa County Superior Court to declare that the order constitutes a prohibition of access to the restaurants and that it triggers coverage under the insurance policy.

The California lawsuit follows a similar suit by the Oceana Grill in New Orleans against a Lloyd’s of London insurer. In addition, a complaint filed in the Southern District of Texas seeks coverage under a “Pandemic Event Endorsement,” which expressly covered, among other diseases, “Severe Acute Respiratory Syndrome-associated Coronavirus (SARs-CoV) disease” and its mutations and variants, but alleges that the insurer denied coverage because it concluded that COVID-19 is not a mutation or variant of (SARs-CoV) disease. 

         On the other side of the spectrum, restaurants and movie theaters in the Northern District of Illinois allege that the businesses are entitled to insurance coverage because the Illinois Governor ordered their businesses to close and their insurance policies do not expressly exclude losses “caused by a virus.”  The Northern District of Illinois suit alleges that if the insurer wished to exclude pandemic-related losses, it could have done so, as many insurers have.

 

A Brief Summary of Portions of the New CARES Act and What It Could Offer in Financial Relief to Churches and Other Tax-Exempt Organizations

Posted on by Liam Mennitt

It may be worth considering that many non-profits, including churches, might utilize provisions in the new Coronavirus Aid, Relief, and Economic Security Act or CARES Act (P.L. 116-136) to provide some economic relief. Potential applicants should review the new law in detail and discuss its requirements with their attorneys.

The new law sets aside about $349 billion for loans to various nonprofit organizations, including churches. The bridge period is from February 15, 2020 to June 30, 2020. It also includes a provision that can make the loans forgivable.  Employers with up to 500 employees are eligible.   Availability is first come, first served, so prompt application is recommended.

How the Loan May Be Used

Loan proceeds may be used for:

  • Payroll
  • Group health insurance, paid sick leave, medical and insurance premiums
  • Mortgage or rent payments
  • Utilities
  • Salary and wages
  • Vacation, parental leave, sick leave
  • Health benefits

Payroll includes:

  • Salary or wages, payments of a cash tip
  • Vacation, parental, family, medical, and sick leave
  • Health benefits
  • Retirement benefits
  • State and local taxes (excludes Federal Taxes)

 

Limited up to $100K annual salary or wages for each employee

The application to Pastoral housing allowances is presently unclear, so I suggest that this be included in payroll costs.

The lenders will likely include the organization’s current banker, as funding will be routed through the SBA. The term of the loan is two years (unless forgiven) and it has a .5% interest rate.

Maximum loan amount is limited to:

  • Total average monthly payroll costs for the preceding 12 months (April 2019 to March 2020) multiplied by 2.5 or
  • $10,000,000 if you are a new church plant church or organization, use average payroll costs for January and February 2020 multiplied by 2.5.

No loan payments are due under this program for 6 months. No loan fees apply. No collateral or personal guarantees will be required.

Good Faith Certificate

Applicant organizations will need to provide a Good Faith Certification at Application and after coverage period – post July 2020.

  • Organization needs the loan to support ongoing operations during COVID19.
  • Support ongoing operations
  • Funds used to retain workers and maintain payroll or make mortgage, lease, and utility payments.
  • Have not and will not receive another loan under this program.
  • Provide lender documentation verifying information of funds used
  • Everything is true and accurate.
  • Submit tax documents and that they are the same submitted to IRS. Legal counsel should be involved here.
  • Lender will share information with the SBA and its agents and representatives.

Loan Forgiveness

The entire loan amount loan can be forgiven, if the borrower qualifies. In general, the loan is forgivable if the borrower employed the same number of people during the loan period as it did last year.

  • Full-Time Equivalent Employee (FTE) (as defined in section 45R(d)(2) of 11 the Internal Revenue Code of 1986)
  • The goal of this loan is for your 2020 FTEs to be equal to or greater than your 2019 FTEs. Essentially, the law provides that you must have equal to or more employees from February. 15, 2020, to June 30, 2020, as you did last year from February 15, 2019, to June 30, 2019.
  • If you will have fewer employees in 2020 than in 2019, then you need to complete a calculation:

Average FTEs per month in 2020 from February 15, 2020-June 30, 2020 / (divided by)

Average monthly FTEs from February 15, 2019-June 30, 2019 or Average monthly FTEs from January 1, 2020 to February 29, 2020.

Limitations on Forgiveness

  • Only so much of the loan as is used for the payroll costs, benefits, mortgage, rent, or interest on other debt obligations can be forgiven.
  • Not more than 25% of the forgiven amount may be for non-payroll costs.
  • Loan forgiveness will be reduced if the borrower decreases its full-time employee headcount.
  • Loan forgiveness will also be reduced if the borrower decreases salaries by more than 25% for any employee that made less than $100,000 in 2019.
  • Borrower has until June 30, 2020 to restore its full-time employment and salary levels for any changes between Feb. 15 to April 26, 2020

No collateral or personal guarantees will be required.

This note is intended only as an illustration of general legal principles and is not legal or tax advice. The reader is directed to discuss his or her specific circumstances with a qualified practitioner before taking any action.

Can Broker Dealers and Funds Claim Trading Losses Due to the COVID-19 Governmental Shutdowns Under Business Interruption Policies or Contingent Business Interruption Policies

Posted on by Liam Mennitt

Business interruption insurance, also known as business income insurance, is commercial property insurance designed to cover loss of income incurred by an organization due to a slowdown or suspension of its operations at its premises, under certain circumstances.  Business interruption insurance may include coverage for a suspension of operations due to a civil authority or order, pursuant to which access to the policyholder’s premises is prohibited by a governmental authority. Business interruption insurance is often paired with extra expense insurance, designed to provide coverage for additional costs in excess of normal operating expenses an organization incurs in order to continue operations following a covered loss. Contingent business interruption insurance is a related product and is designed to provide coverage for lost profits resulting from an interruption of business at the premises of a customer or supplier. The contingent property may be explicitly named, or the coverage may apply to all customers and suppliers.

Business interruption coverage is generally triggered when the policyholder sustains physical loss or damage to insured property by a covered loss as defined in the policy. In the event of a claim for a business interruption related to COVID-19, insurance carriers and policyholders will dispute whether the physical loss requirement has been satisfied. In the aftermath of previous viral outbreaks early this century (e.g., SARS, rotavirus, etc.), the insurance industry responded by adding exclusions designed to preclude coverage for such losses. The insurance coverage arguments are many, and those arguments will be the subject of litigation over the coming years.

Most business first-party property insurance policies include coverage not only for the property damage but also for loss in profits resulting from that damage.

The coverage for profits often covers loss resulting from:

  • Damage to the policyholder’s own property (business interruption)
  • Damage to the property of a customer or supplier or a supplier’s supplier (contingent business interruption)
  • Government action such as evacuation orders (order of civil authority)
  • Damage to properties that attract customers to the policyholder’s business (leader property)

The event that triggers any of these coverages is property damage — without which there will be no coverage for lost profits under a first-party property policy.

In Gregory Packing, Inc. v. Travelers Property Cas. Co. of America, a federal court in New Jersey found in 2014 that covered property damage had occurred when ammonia was accidentally released into a facility, rendering the building unsafe until it could be aired out and cleaned.

In reaching its decision, the court stated that “property can sustain physical damage without experiencing structural alteration.” Similar subsequent decisions in Oregon and New Hampshire have found property damage in the absence of structural damage.

Thus, many may argue that property damage has occurred in places where the virus is present.

Closures of public gathering places and all nonessential business activity in major cities worldwide may trigger coverage for “order of civil or military authority” — that is, for loss due to the prohibition of access to a business’s premises if caused by property damage within a specified distance of the insured property, such as one or five miles. Arguably, these closures have caused economic collapse and significant losses, particularly for companies that make their money trading securities.

That poses the question as to whether securities firms can use business interruption insurance to claim losses from the collapse of markets. Certainly, a more direct correlation arises from losses suffered because the trading firm physically shut down. While of course insurance companies will defend such claims on multiple grounds, these claims are much more direct.

But, what about trading losses or lost banking deals caused by the market meltdown arising from the pandemic, and related governmental shutdowns? While less direct, an answer could lie in the banks of the Mississippi River.

In the summer of 1993, the Mississippi and its tributaries experienced unprecedented flooding that affected nine Midwestern states. Twenty million acres of farmland were damaged, resulting in $6.5 billion in crop damage (See Doc. 35, Tab 28 at A172) (The Great Flood of 1993 Post-Flood Report U.S. Army Corps of Engineers September 1994). Total damage from the flood is estimated to be between $15 and $20 billion. Id. River, road, and rail transportation systems were disrupted on a large scale. Id.

Archer Daniels Midland Company and its subsidiaries (collectively, “ADM”) process farm products for domestic and international consumption. As a result of the Great Flood of 1993, ADM incurred substantial extra expenses and losses of income because of increases in both transportation costs and the cost of raw materials. ADM submitted claims to its insurance providers, who paid ADM approximately $11 million for losses sustained from the flooding. (See Compl., Doc. 1, Exhs). The insurance companies denied approximately $44 million in additional claims submitted by ADM. ADM brought suit, under multiple policies in the Southern District of Illinois, and the insurance companies defended.

According to the Southern District of Illinois, business interruption insurance is insurance under which the insured is protected in the “earnings which insured would have enjoyed had there been no interruption of business.” Archer-Daniels-Midland Co. v. Phoenix Assurance Co. 975 F. Supp. 1124 (S.D. Ill. 1997). In other words, business interruption insurance protects earnings that are lost or diminished because of a business interruption. ADM prevailed at the District Court.

On a related appeal, the 8th Circuit took up the issue. Archer-Daniels-Midland Co. v. Aon Risk Services. 356 F.3d 850 (8th Cir. 2004). The insurance companies argued that ADM could not recover because it did not suffer any business interruptions as a result of the flood. The insurance companies argued that Archer had actually continued production at its plants.

The 8th Circuit stated that “interruption of business” did not require ADM to show that its corn processing plants stopped or slowed down. “An interruption of business means some harm to the insured’s business” but the damage could have been caused to the property of a supplier. Most hedge funds, broker-dealers, and RIAs continued to trade during the governmental shutdowns, but the interruption to their business through the market meltdown, other than those hedged on short, was significant.

Under the ADM decision,  coverage may be available, even where the policyholder incurred lost income or losses unrelated to the shutdown of its premises. While these issues are complicated, the flood of the Mississippi may provide securities trading firms with arguments that the shutdown of the economy is damage done to a supplier, above and beyond losses incurred from the physical closing of any offices. Thus, the trading losses caused by the government shutdown arising from COVID-19 could be seen as “harm to the insured’s business.” Of course, these issues will develop once the crisis subsides, but a battle looms on the scope of the insurance and the economic losses covered, including trading and securities losses.