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Cybersecurity Due Diligence in Mergers and Acquisitions

Posted: September 26th, 2017

By Christine Malafi

There is no doubt that effective due diligence is essential in any merger or acquisition of businesses.  Conducting a complete and through investigation of a target company is critical to a potential buyer’s decision to purchase a company, at what price, and subject to what terms, conditions, representations, and warranties. Proper due diligence will cover the target company’s strategic position, financial data, operational assets, and legal matters.  Too many companies, however, overlook cybersecurity matters as a key component of their assets (or liabilities) and of a comprehensive due diligence program, especially on smaller acquisitions.

The importance of cybersecurity due diligence can affect not only the purchase price (for example, Yahoo’s breaches in 2013 and 2014, when discovered in 2016, caused a substantial discount in Verizon’s purchase price—reportedly a $350 million-dollar reduction), but can also affect a company going forward. An acquiring company does not want to import cybersecurity breaches into its own secured system.

Cybersecurity incidents cause tremendous financial, legal, and reputational risk. Possible target companies must have detailed privacy and data security policies, programs, and procedures in writing and enforced regularly to maintain the highest company value. Possible acquirers must conduct specifically targeted cybersecurity due diligence to determine whether a transaction should proceed and at what cost. Cybersecurity issues or security breaches can undermine the value of a target, delay investment return, or even kill a deal. The potential costs of remediating cybersecurity vulnerabilities, infections, breaches, lax controls, and insurance coverage at the target company may not only lower the value of the target, but may also make the potential buyer walk away from the deal. If the deal proceeds in the face of such issues, the due diligence process can provide the acquirer with an estimate as to the costs and expenses needed to remediate, as well as the timeline to integrate the target company’s IT and cybersecurity infrastructure, which can cause significant expenses and delays if not properly handled.

Due diligence can vary from deal to deal, but any preliminary inquiry will include the breaches, losses of data, or other cybersecurity incidents the target company previously suffered. In conducting due diligence, the buyer of a company will want to uncover any systemic security failings, determine how the company has responded to cybersecurity incidents, and look to see whether the target company remains vulnerable to attack.

The next area of inquiry is whether the company is a high-risk target. The due diligence team will need to determine the scope of client or customer data on the target company’s servers, bank account records, or other sensitive information often targeted by hackers. You will also want to assess a target company’s governance—what is the current state of the target company’s cybersecurity program, policy, procedures, compliance, and enforcement? How does the target company manage its IT security?  Does the company have written cybersecurity policies and are employees trained to recognize cybersecurity threats?  Does the target company have mobile device use or password policies, and if so are they enforced?  Does the target even have a data security team? Are there audit records for review? Is the target proactive in preventing breaches, detecting malware, updating security certificates, storing information, and protecting its assets, or does it merely react to attacks?

Next, the acquiring company must research the target company’s regulatory and compliance obligations. The type of business being acquired is important. Banking, financial, and healthcare institutions are highly regulated with respect to security and safeguarding information. Additionally, companies regulated by the New York Department of Financial Services are subject to the agency’s new cybersecurity regulations and reporting obligations, which can be both time-consuming and costly. Defense subcontractors are also subject to rigorous reporting standards. An acquirer should gain a complete picture of the additional regulatory and compliance burdens it is assuming in the deal.

Finally, due diligence should look at the security of the computing infrastructure, vendor or third-party relationships, identification of critical and sensitive data, employee training, employee access to systems, thefts, and the social media presence and policies of the target. Looking at these areas can help to determine whether the target company is at greater cybersecurity risk than normal. A company’s network is only as secure as its weakest link, and any outsourcing of security or IT services can open a back-door into systems if the third party is not chosen wisely or if a disgruntled employee can get into confidential system areas.

In a world where cybersecurity incidents are ubiquitous and do not discriminate among sectors, cybersecurity due diligence must be part of any good M&A checklist.  Companies should integrate specialized cybersecurity teams, including counsel, into their due diligence process to ensure that they are asking the correct questions and reacting to discoveries properly. Carefully reviewing a target company’s cybersecurity posture not only identifies potential risks, but can also justify specialized representations and warranties to be included into purchase agreements to protect the value of an investment.

Malafi Recognized by Peers for Inclusion in The Best Lawyers in America

Posted: August 29th, 2017

Christine Malafi partnerRonkonkoma, NY – Campolo, Middleton & McCormick, LLP, a premier law firm with offices in Ronkonkoma and Bridgehampton, proudly announces that partner Christine Malafi has been recognized by her peers to be featured in the 24th edition of The Best Lawyers in America© 2017 in the category of Employment Law – Management.  With this distinction, Malafi ranks among the top five percent of private practice attorneys nationwide as determined by a rigorous peer-review process.

For over three decades, the legal profession and the public have turned to Best Lawyers® as one of the most credible measures of legal integrity and distinction in the United States.  Inclusion in Best Lawyers is based on more than 7.4 million confidential evaluations by top attorneys.  The Best Lawyers’ founding principle forms the basis of this transparent methodology: the best lawyers know who the best lawyers are.  No fee or payment to participate is permitted.

Recognition by Best Lawyers symbolizes excellence, which Malafi embodies in her professional and personal pursuits.  Malafi chairs the Corporate department at CMM, where she focuses on mergers and acquisitions, corporate governance, and complex transactions, and also maintains a busy Labor & Employment practice, serving in a general counsel role for many of the firm’s internationally based clients.  Prior to joining CMM, Malafi earned the distinction of being the first woman and youngest person ever to serve as Suffolk County Attorney, where for eight years she focused on obtaining jury verdicts in favor of the County, enforcing anti-discrimination laws, and protecting children from harm.

In addition to her legal work, Malafi focuses on advancing the interests of women and girls.  She serves on the Boards of Directors of the Girl Scouts of Suffolk County and Natasha’s Justice Project, and is also a longtime Girls Inc. volunteer.  A resident of North Babylon, Malafi also serves on the Board of Governors of Touro Law School and the New York State Pro Bono Scholars Task Force.

About CMM
Campolo, Middleton & McCormick, LLP is a premier law firm with offices in Ronkonkoma and Bridgehampton, New York. Over the past generation, CMM attorneys have played a central role in the most critical legal issues and transactions affecting Long Island. The firm has earned the prestigious HIA-LI Business Achievement Award and LIBN Corporate Citizenship Award, a spot on the U.S. News & World Report list of Best Law Firms, and the coveted title of Best Law Firm on Long Island. Learn more at www.cmmllp.com.

“Etiquette 101” Article Spotlights CMM’s Innovative Training Programs for Attorneys and Staff

Posted: August 29th, 2017

By Adina Genn

Keep cell phones and keys off the table. Limit yourself to one alcoholic drink. And dress appropriately.

Attorneys meeting with clients must know proper form for not only the courtroom but also the dining room. And while much of this is common sense, it never hurts to brush up on etiquette.

That was the thinking behind a recent Campolo, Middleton & McCormick event. The law firm, with headquarters in Ronkonkoma, recently invited its 35 attorneys to a three-course dinner at St. George’s Golf & Country Club in East Setauket. The theme? Basic manners and etiquette tips for business and formal events.

Although the interactive evening was lighthearted and fun, it did fit in the firm’s mission of training and investing in its employees.

And when it comes to best practices, understanding etiquette is “equally important” as other training, said Joe Campolo, the firm’s managing partner.

It’s the kind of training Campolo went through as a student at Fordham Law School, but when speaking with CMM attorneys, it turned out that no one had gone through similar training. But the coaching, he said, would go a long way.

“We’re probably not going to ever win a client over because we have great manners, but we certainly could lose a client if we’re a bunch of slobs,” he said.

Certainly, if breaking bread is the opportunity to build business, good etiquette only furthers the cause.

The training comes at a time that Campolo calls “the casualization of society” where diners sometimes show up to fine restaurants in shorts and flip-flops. And while he wasn’t aiming to “re-create Downton Abbey,” the event provided the opportunity for the firm’s colleagues to bond, laugh and get a refresher on the basics of decent manners.

For example, when it comes to hosting a meal out, consider your guest’s tastes and travel time, and avoid places that are cramped, crowded and known for their slow service, said Joan Jerkens, the owner of Melville-based Act As If Etiquette & Protocol, the evening’s etiquette expert. If you’re the guest, respond to the invitation and consider scoping out the location in advance.

And, she cautioned, be on time.

Diners who aren’t sure about table settings are not alone.

“As I attend business lunches, there’s a lot of confusion,” Campolo said. “People drink water from a glass someone already drank out of, or eat bread that’s already been eaten – it gets awkward.”

Jerkens recommended an acronym: BMW (bread plate on the left, main-course plate in the center, water glass to the right). The breadbasket should get passed clockwise. And when finished with utensils, rest them on the plate, never on the linens.

As for talking shop? Wait at least until after the order has been placed, if not until the main course. Focus instead on small talk, Jerkens said. Not surprisingly, ordering non-messy food is recommended.

And when it comes to drinks, less is more, she noted, recommending no more than one drink.

But that doesn’t mean no alcohol. And it never hurts to know which kinds of wines go with which dishes. Samantha Macleod, the evening’s wine expert, shared some helpful tips. For example, if you’re having a dish with mushrooms and truffles, consider a Pinot Noir. For fatty fish, or fish in a rich sauce, Chardonnay is a good go-to, while light fish dishes pair well with Pinot Grigio.

Champagne goes with anything salty, while Cabernet Sauvignon works well with steaks or chops. And Malbec and spicy barbecue sauces are a recommended combination.

And there’s no need to order a $200 bottle of wine. Rather than try to impress with a hefty price tag, look to make your guest comfortable, with enjoyment being the main focus.

When it comes to struggling over who is going to foot the bill, as host, you can make that challenge a nonstarter by giving your credit card in advance to the maître-d’ to pay the bill, Jerkens said. That way the restaurant settles up with you, and the bill never arrives at the table prompting an awkward moment. But if you intend to split the bill, make it clear when first making plans to get together.

And if you’re the guest, order in the middle price range, Jerkens said.

While cell phones should be off the table, if you do get an urgent call, leave the table and area, Jerkens said. But that triggers the dilemma: what to do with the napkin on your lap? Fold it (covering any soiled spots) and put it on the left of your plate – never on the plate itself.

As for making introductions – for instance, if dining with a client, and the firm’s managing partner stops by the table to say hello – introduce the person you want to honor first, which in this instance is the client. And while standing up during an introduction shows good manners, those at the table should “at the very least, put the utensils down,” Jerkens said.

Choosing the proper attire can also create challenges, which is where Janine Giorgenti, the owner of Giorgenti New York, a custom clothing shop in Garden City, offered tips. Dress for the size you are now, rather than waiting until losing that extra 10 pounds. If it’s a day where you have multiple events on your calendar, consider which requires the most formal attire and dress for that occasion. And remember, even if you aren’t seeing clients that day, dress as though you are: Clients may still be coming into the office, and it’s key to look professional.

Keeping with the evening’s interactive theme, the attorneys had the chance to set the table, so they could garner a better understanding of place settings. They also had an opportunity to ask questions. And there were contests and prizes, which included etiquette books.

“There was huge team building, and the feedback showed how much they learned,” Campolo said.

Jerkens agreed, noting, “Everyone walked out with a little more knowledge.”

Read it on LIBN.

View photos from the event here!

Malafi quoted in Newsday Q&A column “An Employee Transfers, and Spouse Seeks Jobless Benefits”

Posted: August 14th, 2017

By Carrie Mason-Draffen

Mason-Draffen, a business reporter, writes a column about workplace issues.

DEAR CARRIE: I have gotten conflicting information regarding a corporate transfer out of state and unemployment benefits for a “trailing spouse, ” or an employee who quits a job to relocate with a transferred spouse. Does it matter whether the transferred spouse requested the move or if the company required it?

— Leaving New York

DEAR LEAVING: It shouldn’t make a difference who made the request if the trailing spouse is otherwise eligible for jobless benefits, a local employment attorney said.

“Based on the question presented, whether the transferring spouse was forced or volunteered to be transferred out of state makes no difference,” said Christine Malafi, a partner at Campolo, Middleton & McCormick in Ronkonkoma. “And the trailing spouse who immediately follows will likely qualify for NYS unemployment benefits.”

Under New York law, a trailing spouse may even qualify for benefits if he or she quits a job to move with an unemployed spouse who found work in a different locality, Malafi said.

But a trailing spouse doesn’t always qualify for unemployment benefits, she said. For example, if a spouse waits too long to follow, or if he or she quits a job to follow a spouse to college or to move with a retired spouse, he or she may not qualify for unemployment benefits, Malafi said.

When a transfer requires a move out of New York State, the trailing spouse must make a claim for unemployment benefits in the new state, she said.

The new state will most likely be entitled to reimbursement from New York State for any unemployment benefits paid, Malafi said.

Read it on Newsday.

Middleton quoted in “Stevens Drops Lawsuit Against the Village of Poquott”

Posted: August 8th, 2017

by Rita J. Egan, Times Beacon Record

Poquott’s village hall is finally back in business a month after the June 20 election for two board trustees.

Debbie Stevens, one of the five candidates for the position, dropped a lawsuit against the village before a July 19 hearing. Stevens came in third with 178 votes, while New York City firefighter John Richardson won one seat with 195 votes and incumbent Jeff Koppelson the other with 180 votes.

Attorney Scott Middleton of Campolo, Middleton & McCormick, LLP represented the village in the case. He said before the election Poquott’s village attorney called the New York State Conference of Mayors and Municipal Officials and asked about residents who registered less than 10 days before the election and was under the impression that if a person was generally qualified to vote, taking into consideration that they were a U.S. citizen and met the age requirements, they could vote.Stevens had disputed the discarding of the rule that voters must be registered 10 days before an election. She also had an issue with voters with dual residency being able to vote, and Mayor Dee Parrish’s son being an election inspector. Due to her challenging the election results, the Suffolk County Board of Election recanvassed ballots June 29.

“It’s a village election,” Middleton said. “People aren’t thinking about an election in June, everybody thinks about November. Village elections are held in March or June. By the time [residents] are starting to think about it, and they want to exercise their right, if they just moved into the village, it may not be within that 10-day window. That’s why I think that the advisory opinion of NYCOM is that they can be permitted to vote as long as they qualify.”

Middleton said an elementary error in the lawsuit was that Stevens only named the village even though she was required to name all four candidates in it to proceed. Stevens said this was something she didn’t want to do, especially when it came to Richardson, who she ran with on the Peace Party ticket. If she won the lawsuit, a new election would need to take place.

“The corruption continues and that was really why I did this,” Stevens said. “It wasn’t to overturn the election.

I didn’t want that.”

Another factor in her decision to drop the case was the village cancelling meetings since the lawsuit was filed. The owner of Smoothe Laser Center and Medi Spa in East Setauket said she felt dropping the lawsuit was what’s best for the village.

“I’d rather opt for peace than justice,” Stevens said.

Richardson was sworn in as trustee July 12, while Koppelson took his oath July 19 after the lawsuit was dismissed. In an email, Koppelson said the board members accomplished a good amount at their July 20 meeting after not assembling for a few weeks.

“I have to say that the best thing about this meeting was that there seemed to be a desire among everyone to cooperate and stay task-oriented,” Koppelson said. “There were few if any contentious issues. I am optimistic that we can all work together, and if that happens, there will be little blowback from the residents who have been consistently oppositional, angry and disruptive.”

Stevens said she plans to continue attending village hall meetings, and hopes she can play her part in creating better communication between residents and the board members. For the last three years she feels residents have been extremely divided in Poquott.

Stevens said she has been thinking about next year’s election for two trustees and mayor.

“I’m not even sure of that answer,” she said when asked about running again. “I’m doing a lot of thinking. I know in my heart of hearts that I want what’s best for the village.”

Stevens drops lawsuit against the Village of Poquott

Middleton quoted in Newsday article “Attorney: Smithtown Animal Shelter Director Fired After Hearing”

Posted: July 28th, 2017

By Nicholas Spangler  nicholas.spangler@newsday.com

Smithtown’s animal shelter director, who was suspended earlier this year over accusations that the facility had become chaotic and filthy, was fired this week, an attorney for the town said.

The Town Board voted 5-0 on Tuesday to terminate an unnamed employee, and Town Supervisor Patrick Vecchio would not comment on the matter this week. But Scott Middleton of Campolo, Middleton & McCormick, the attorney who represented the town in a disciplinary hearing this spring for former director Sue Hansen, confirmed Thursday that the board had terminated Hansen.

The independent hearing officer who had presided over that four-day hearing, James Clark, had recommended in a July 18 report that Hansen be fired, calling her a “dedicated animal activist” who was nevertheless “not suited for the role of Director.”

He recommended that the Town Board find her guilty of five of seven charges of incompetence and mismanagement, faulting her for waiting months to fix inoperable fire alarms, storing official records in outdoor dog kennels and allowing conditions to deteriorate to the point where town employees visiting the shelter complained of fleas and rodent droppings and an eye-watering stench.

Hansen did not respond to requests for comment this week. Paul Dashefsky, her union-appointed attorney, also did not respond to requests for comment. At the hearing, Dashefsky had portrayed Hansen as an innovative, driven leader brought in to turn around the troubled shelter but hamstrung by an indifferent town bureaucracy and senior officials who had given her little assistance or training.

Clark largely dismissed those claims. “She cannot avoid responsibility for the problems that her decisions ultimately created,” he wrote in his report.

Hansen, 61, of Rocky Point, started her job in August 2015 and was paid a salary of about $84,138. A town public safety employee with a background in animal care has been running the shelter since her February suspension.

In March, Hansen was charged with misdemeanor trespass after allegedly entering the shelter to attend a volunteer orientation, even though town officials told her to stay away during her suspension. She was released on her own recognizance with a desk appearance ticket and is due back in court Aug. 16, according to records.

Hansen since has filed a notice of claim announcing her intention to sue the town and several town employees and officials, including Councilwoman Lisa Inzerillo, for $500,000 over her arrest.

According to the claim, which does not address Hansen’s suspension, Inzerillo was at the center of a plan to ensure her removal from the shelter supervisor’s job. Inzerillo did not immediately respond to a request for comment.

“We find the allegations and the notice of claim to have absolutely no merit,” said Middleton, who is representing the town in the matter.

But Matthew Weinick, the lawyer representing Hansen in her civil case, said the intent behind her arrest “was malicious.”

“Why should there be any reason to arrest a peaceful 61-year-old woman who just wanted to volunteer at the animal shelter?” Weinick said. “It’s just bizarre.”

 

Read it on Newsday.

September 27 – Malafi to Present at “Law School for Insurance Professionals”

Posted: July 21st, 2017

CMM partner Christine Malafi will present at “Law School for Insurance Professionals” on the topic of “Legal Procedures and Nuances that Impact a Claim.”  Her presentation will help insurance professionals understand how procedural hurdles such as collateral source, contribution, offset and pre/post judgment interest affect claims in comparison to substantive steps faced in litigation such as IME results, appealing judgments, and a bankrupt insured.  The program promises insights and updates on current legal issues that the savvy insurance professional won’t want to miss!

Program co-sponsored by the Insurance Federation of New York, Inc., the New York Insurance Association, and the New York State Bar Association.

Program Details:

September 27, 2017, 8:30 a.m.

Inn at Fox Hollow, 7755 Jericho Turnpike, Woodbury, NY

Learn more and register here.

 

Summer Repairs Mean a Better LIRR Is on Its Way

Posted: July 20th, 2017

By Mitchell H. Pally

Published in Long Island Business News, July 17, 2017

Mitchell H. Pally is an MTA board member representing Suffolk County.

As the Long Island Rail Road enters a summer of 2017 with significant challenges from a variety of issues, including the extensive repairs being undertaken by Amtrak at Penn Station, it may be difficult to envision a much more efficient and safer system, unimpeded by various infrastructure impediments.  However, if we can all get though the current short-term frustrations, the longer term will provide such a system.  There are significant improvements on the way which will lead to a much more constructive relationship with our customers.

As many may be aware, but cannot see, the new east side access connection to allow the LIRR to move trains directly to Grand Central continues on its path to completion.  Deep under the current Grand Central Terminal, the LIRR is building a brand new station which will increase the capacity by 40 percent and allow our customers to go directly into Midtown Manhattan rather than the current trip to Penn Station and then to Midtown.  The new rail line is now being built through Sunnyside Yard in Queens to allow the current LIRR service to connect to the rail tunnel at 63rd St. and then travel underground to the new station.

In addition to this new station and service, two major track programs are either under construction of just about ready to go.  First, for those of us who use the Ronkonkoma line, a new second track is being built between Farmingdale and Ronkonkoma to allow for increased and more flexible service on this branch.  In addition to the tracks themselves, the entire signal system in this corridor is being upgraded and a new station is being developed at East Farmingdale to be incorporated into a new transit oriented development being designed by the Town of Babylon.  When fully completed in 2019, the new second track will allow half hour off-peak service on the Ronkonkoma line, a service already provided by the LIRR on other lines in the system.

Second, the decision to build a third track between Floral Park and Hicksville, one of the most congested areas of the system where four lines congregate, is currently in the hands of the MTA capital program review board, having already been approved as part of the 2015-19 MTA capital plan by the MTA board.  As a result of state funding and bonding requirements, the Capital Program Review Board was created to ensure that all MTA priorities were in line with the needs of the entire state.

Currently the review board has before it a comprehensive amendment to the 2015-19 plan which not only includes funds for the third track but also for significant rail and subway improvements throughout the region, improvements which will also be allowed to proceed or not to proceed by the vote of the review board.

The board can only vote up or down on the entire amendment, it cannot pick and choose individual projects to vote up or down on.  Hopefully, the third track will be allowed to continue, for it includes not only the new track but a complete overhaul of the signal and track systems in the area.

From a safety perspective, numerous smaller track and signal projects are being undertaken by the LIRR to coincide with the major signal work being performed by Amtrak in and around Penn Station and Sunnyside Yards.  In addition, the LIRR is well on its way to meeting the 2019 deadline for installation of positive train control on all of our lines to ensure that the most up-to-date safety features are incorporated in our entire system.

I have had the honor and privilege of being a member of the MTA board representing Suffolk County for the past 12 and have seen times of both great service to our riders as well impediments which have negatively impacted the LIRR’s ability to provide safe and efficient service.  I strongly believe that Long Islanders are both resilient and patient during these very frustrating times and will understand the long-term gains which will occur for the current short-term frustrations.

All of us want to provide the best and most efficient and safest system possible and I firmly believe that we are on our way to accomplishing these goals.  We only ask for your understanding during these difficult times.

Read it on LIBN.