With the ever-increasing importance of climate change to consumers, more and more companies are touting their beneficial environmental impact as a form of marketing. The Federal Trade Commission (FTC) does its part to regulate these claims under the framework of their so-called Green Guides, which provide guidelines for marketing “green” claims about eco-friendly, sustainable, ethical, recycled, and all other similar terms to the US consumer.
This article will review the Green Guides as they stand and where they might be going, both generally and from the perspective of the world of jewelry. Jewelry has outperformed all other luxury verticals and most other retail verticals over the past three years ascending in relevance and bottom-line importance to many companies. But jewelry can be a complex trade and there are special considerations to take into account before advising clients who have significant jewelry activity in their company.
What are the Green Guides?
First issued in 1992 to help companies avoid making misleading environmental claims in their marketing materials, Guides for the Use of Environmental Marketing Claims (Green Guides) were subsequently revised in 1996, 1998, and 2012.1 In December 2022, the FTC sought public comments on potential updates with new Guides being issued likely in 2024.2
The Green Guides cover a wide range of industries and are intended to help marketers and advertisers avoid making environmental claims that could mislead consumers. Although the Green Guides are just that—guidelines—they draw their authority from Section 5 of the Federal Trade Commission Act (FTCA) which prohibits ‘’unfair or deceptive acts or practices in or affecting commerce.”3 Violation of the Green Guides can (and does) result in all manner of penalty and enforcement by the FTC.
In general, an advertisement is deceptive if it contains a representation or omission of fact that is likely to mislead a reasonable consumer and was material to a consumer’s purchasing decision. Advertising claims must provide adequate disclosures that must be conspicuous and obvious to the average American. This disclosure must be made on all digital platforms and in print or in person in a plainly obvious and easy to understand manner.
For example, The Green Guides advise that marketers should not make “unqualified” or unsubstantiated general environmental benefit claims (e.g., the brand name “Eco-friendly”).4 Qualified claims (e.g., “greener than our previous packaging”) should be substantiated and accompanied with specific language (e.g., “We’ve reduced the weight of our packing by 15 percent”). The Green Guides also provide guidance on environmental terms, such as “compostable,” “non-toxic,” and “recyclable”5 as well as claims about carbon offsets.6
The FTC has initiated enforcement actions—from warning letters to federal lawsuits—against companies for deceptive practices, resulting in monetary penalties and other equitable relief, such as prohibitions on making deceptive green claims or using other misleading advertising. Recent examples of FTC enforcement actions include:
In 2022, the FTC sued Kohl’s, Inc. and Walmart, Inc. for: (i) falsely marketing rayon products as bamboo; and (ii) making deceptive environmental claims that the bamboo textiles were ecofriendly, while in reality converting bamboo into rayon involved toxic chemicals and hazardous pollutants. The settlements prohibited the companies from making deceptive green claims or using other misleading advertising and required them to pay penalties of $2.5 million and $3 million, respectively.7
In 2019, a judge ordered Lights of America to pay $21 million to the FTC for making false claims about the energy efficiency of its LED lightbulbs.8
In 2018, Truly Organic Inc. and its CEO, Maxx Harley Appelman, agreed to pay $1.76 million to settle an FTC complaint alleging that their nationally-marketed bath and beauty products were neither “100% organic” nor “certified organic” by the US Department of Agriculture (USDA).9
CLICK HERE to read the full article, which was originally published in ALI CLE’s The Practical Lawyer.
This article is part of the continuing series of interviews between, published in The Practical Lawyer, Rajiv S. Khanna, principal of The Law Offices of Rajiv Khanna, and leading practitioners across the country, designed to provide personal and professional insights into various areas of the law.
Rajiv: Let’s begin with an introduction of who you are, what you do, how you got here.
Robert: My name is Robert Thomas and I’m a lawyer with the Pacific Legal Foundation, a public interest law firm that represents people for free in court. But I also spend a lot of my time as a law professor. During the fall, I teach property law at the William and Mary Law School in Williamsburg, Virginia.
What is the trajectory of your legal career? Where did you think you were going to go and how did you end up where you are?
In a completely different place than I would have imagined if you’d asked me during law school. I attended the University of Hawaii Law School and got my JD there in the late 1980s. And, yes, attending the University of Hawaii Law School is about as pleasant as a law school can be. When I was going through law school, I imagined that I would be a courtroom lawyer practicing criminal law, but I had the good fortune, during the summer between my second and third years, to clerk for a private law firm in downtown Honolulu where one of the first cases I handled happened to be a property case. I was sure that property was not of interest to me before that, based upon, among other things, my grade in my Real Property class, but also because being a courtroom lawyer doing criminal law seemed really appealing. I had no idea that the practice of property law was so different than the study of it, especially your first-year basic property class. And I was just hooked. So the roadmap suddenly veered off in a 90-degree direction. A majority of my practice ended up being in property, eminent domain, inverse condemnation, land use law, and the related topics. Because I was practicing in a mid-to-small market where it is very tough to specialize in a particular area, I had to do a lot of other things. I was doing appeals, occasional criminal law, voting rights, and election law, but the main focus always remained property. I have a completely unplanned career that somehow seems to be working out pretty well.
What do you like about the practice of property law as opposed to other areas of law that you’ve been exposed to? What makes this special for you?
What’s really nice is when you’re dealing with the property law in the areas I deal with—the question or the relationship between property owners, their neighbors, and the government—there’s a lot of what I would call “running room,” a lot of room to be creative. Modern land-use law only really started coming around about 100 years ago. And while it’s a pretty substantial body of law, there still are a lot of unresolved questions where creative thinking, as well as the constitutional requirements you overlay on top of that, becomes necessary. And so that’s what I appreciate the most out of it. I had a partner early on in my career, a mentor, who told me that if you’re practicing in a place like Hawaii where land is probably the scarcest commodity, you’ll never be out of work. From a very practical matter, that really helped guide me. And he was absolutely right. Despite cycles in the economy in a place like Hawaii, very tied to the tourist economy, the one thing that we were never short of were cases and disputes involving property, land, how land is used, how those resources are allocated, how it interacts with environmental concerns, maybe population and antidevelopment concerns. And yet there are people who need to live in a place where the median home price is hovering just over a million dollars.
That’s a function, of course, of the physical size of the islands. But it’s also due to the difficulty in building a home. The impacts of the regulations that one has to go through in order to build something like a single-family home is something like $200,000, last I checked, which is pretty significant. And that is also accurate for a national practice in land use, as regulation of the private uses of property becomes more stringent.
So to answer your question, it just was an area that was metaphysically kind of fascinating. What does it mean to “own” something is something that I think it doesn‘t take a law degree to understand and yet, at the same time, the layers of what that means are just fascinating to me. To get to put that into practice and to do it every day just makes for very interesting work.
I take it that you are one of the very few at the bar who do not wake up screaming about the rule against perpetuities?
No. I found out as a law professor, when I asked my students who are all 2Ls or 3Ls, if they still study the rule against perpetuities. Surprisingly, a couple of them told me no. And I laughed and asked why not. And they said, “Well, our professor said it was an archaic thing, never used, you’ll never do a case.” One, I understand from some of them who recently took the latest bar exam, that in one jurisdiction at least it was a bar exam question, which is unbelievably cruel on the part of the bar examiners of that state. And then two, that same mentor that I mentioned earlier? He actually argued in the Hawaii Supreme Court a rule against perpetuities case. And he said, “They told me as a student this was completely useless information, but here I am actually arguing what that rule means.” And so I tell people to be careful if you don’t study something like that. It’s going to come up. But yes, thankfully I have avoided that question. I tell the students who are taking wills and trust that they should know it, because that’s where it actually comes into play.
CLICK HERE to read the full article, which was originally published in ALI CLE’s The Practical Real Estate Lawyer.
Join us for our upcoming program, Eminent Domain and Land Valuation Litigation 2024, either in-person or via live webcast on February 1-3! Hear more from Robert H. Thomas and more experts in the field. Learn more about this upcoming program here.
Lenders and investors alike have become progressively concerned about climate change and the effect their lending and investment decisions may have on the environment. As such, they are seeking ways to reduce their carbon footprint to achieve environmentally beneficial outcomes while also meeting their investment objectives and financial returns. To meet these concerns, green loans were introduced. A green loan is defined as “any loan instrument made available exclusively to finance or re-finance, in whole or in part, new and/or existing eligible Green Projects.”1 This includes term loans, revolving credit facilities, and working capital facilities.
The growth of green loans necessitated the establishment of specific guidelines to ensure consistency across the wholesale green loan market. In March 2018, the Loan Market Association (LMA), together with the Asia Pacific Loan Market Association (APLMA) and the Loan Syndications and Trading Association (LSTA), published the Green Loan Principles (GLP) and Guidance on Green Loan Principles (GLP Guidance). An updated version of the GLP and the GLP Guidance were published in February 2021.2
The GLP set out a framework of market standards and voluntary recommended guidelines to be applied by participants on a deal-by-deal basis. To qualify as a green loan, the loan must comply with the following four components of the GLP: (i) use of proceeds for green projects; (ii) communication of the process for project evaluation and selection; (iii) management of proceeds; and (iv) reporting of the use of proceeds. Eligible green projects for a loan’s proceeds include:
Green buildings that meet regional, national, or internationally recognized standards or certifications;
Renewable energy, including production, transmission, appliances, and products;
Pollution prevention and control, including reduction of air emissions, greenhouse gas control, soil remediation, waste prevention, waste reduction, and waste recycling;
Environmentally sustainable management of living natural resources and land use; and
Climate change adaptation, including information support systems such as climate observation and early warning systems.
It is important to note that a green loan may only be marketed or labeled as such if it complies with the GLP. The GLP provides that “[g]reen loans should not be considered interchangeable with loans that are not aligned with the four core components of the GLP.” A loan party must indicate that the loan complies with the GLP; the fact that the loan is being used to finance an environmentally friendly project does not make it a green loan.
Use of proceeds
The fundamental basis of a green loan is the utilization of the loan proceeds, which must be generally applied to an environmentally friendly purpose. All green projects should provide environmental benefits that will be assessed and, where feasible, quantified, measured, and reported by the borrower. The proceeds of a green loan may be used to finance a new green project or refinance existing debt on a green project.
Process for project evaluation and selection
In order for lenders to understand and assess the environmental attributes of a green loan, the borrower should clearly communicate: (i) its environmental sustainability objectives; (ii) the process by which the borrower determines how its project fits within an eligible green project; and (iii) the eligibility criteria it uses to identify and manage potentially material environmental and social risks associated with the proposed project.
Management of proceeds
The proceeds of a green loan should be credited to a dedicated account or tracked by the borrower in a way that maintains transparency and promotes the integrity of the loan product. In the case where a green loan takes the form of one or more tranches of a loan facility, each green tranche must be clearly designated, with proceeds of the green tranche credited to a separate account or tracked in the appropriate manner by the borrower.
Reporting
The borrower should prepare a report and keep it updated with information on the use of proceeds to be renewed annually until fully drawn and as necessary thereafter in the event of material developments. The report should include a list of green projects to which the green loan proceeds were allocated, a brief description of each project, the amounts allocated to each project, and the expected impact of each project.
CLICK HERE to read the full article, which was originally published in ALI CLE’s The Practical Real Estate Lawyer.
The American Law Institute CLE’s recent Accountants’ Liability Conference featured a panel discussion on substantive defense strategies in SEC and PCAOB proceedings starring representatives from both sides of the table. The panelists went over a number of recent enforcement proceedings brought by the SEC and PCAOB and offered tips about engaging with the agencies, including how to cooperate with enforcement to substantially reduce possible sanctions.
Trends. Scott B. Schreiber of Arnold & Porter kicked off the discussion with a rundown of trends and the types of enforcement proceedings the SEC and PCAOB are pursuing. In the past year, there is still a focus on auditor independence as well as on compliance with engagement quality reviews under AS 7. There has been an increased number of cases brought based on the failure to respond or to cooperate fully with investigations and a surprising number of cases relating to the inappropriate alteration of audit documentation, Schreiber said.
Schreiber pointed to the PCAOB’s action against Grant Thornton as an example to contemplate whether the PCAOB will decide to take action against firms as opposed to individuals. In that proceeding, the Board found that Grant Thornton’s Philadelphia office violated quality control standards in connection with its assignment, support, and monitoring of two engagement partners. Grant Thornton settled the matter for $1.5 million and agreed to take “tremendous remedial actions” at the Philadelphia office.
Also notable, according to Schreiber, was the PCAOB’s action against Melissa Koeppel, due to the length of the proceeding. This action concerned audits from 2006, 2007, and 2008. The PCAOB instituted proceedings in 2011, and a hearing was held in 2012. There was finally a decision December 2017. Schreiber said that the PCAOB is making an effort to move these kinds of proceedings along more quickly.
Schreiber also discussed the SEC’s recent administrative proceeding against three individuals working on an audit at BDO. The senior manager on the audit, feeling pressure to finish the job, directed the audit team to “predate” audit documentation. The engagement partner and the engagement quality review partner signed off on the audit. The three individuals were suspended from practicing before the SEC as accountants, but BDO
itself was not penalized, which is an example of where enforcement staff will pursue individuals, but not the firm, Schreiber noted.
SEC enforcement. Senior Associate Chief Accountant in the SEC’s Office of the Chief Accountant (OCA) Ryan Wolfe outlined a number of cases and administrative proceedings the Commission has brought against accountants and auditors in the recently-ended fiscal year. The SEC has continued to pursue actions against issuers and preparers for violations of accounting standards, he advised. Wolfe also drew attention to SEC v. ITT Educational Services, where the CEO and CFO agreed to pay civil penalties for concealing the poor performance and looming financial impact of two student loan programs that ITT financially guaranteed.
The SEC has also brought charges against network firms that played a substantial role in issuer audits without registering with the PCAOB, Wolfe advised. He noted that the SEC also brought charges against the principal auditors that were relying on the work of the unregistered firm. The message is that it is critical for the principal auditor to understand that they are relying on these firms to assist in their engagements, he observed.
Wolfe also highlighted the SEC’s efforts to enforce orders against accountants, citing as an example the Medifirst case in which an auditor had been suspended by the PCAOB, barring him from working in an accountancy or financial management capacity. Despite this, the company and its founder allowed the auditor to do so, including preparing the company’s draft financial statements. The founder agreed to pay a $22,500 civil penalty to settle the charges. However, Wolfe advised that the current Commission does believe in rehabilitation and outlined the steps for reinstatement after a suspension. He did warn, however, that the SEC will take all correspondence into account in evaluating a request for reinstatement, which a party seeking reinstatement should consider when they feel like discussing how unfair the Commission was in its proceedings.
PCAOB enforcement. William Ryan, PCAOB Deputy Director of Enforcement, gave the view from his Division. Ryan outlined five ways in which the Board is seeking to improve the efficiency of the investigative process. First, Enforcement staff is inviting firms to participate earlier in the investigation than in the past. Ryan advised that when the investigation involves serious misconduct, firms should be “open and fulsome” in their cooperation with the staff to receive credit for that cooperation.
As an example, he cited PCAOB proceedings brought against Deloitte Turkey, which were settled in December 2017. In that proceeding, senior partners at Deloitte Turkey devised an elaborate plan to improperly alter audit documentation relating to engagements that had been selected for PCAOB review. Ryan noted that, while the Deloitte Turkey case involved significant misconduct, the firm had provided extraordinary cooperation with PCAOB staff in its investigation, including voluntarily self-reporting the misconduct, implementing enhancements to its internal control policies, and providing substantial assistance to the PCAOB investigation. As a result, the Board imposed a $750,000 civil penalty on the firm, which would have been substantially larger absent cooperation with the PCAOB staff, Ryan explained.
Second, the PCAOB has made changes to its testimony-taking process. Traditionally, the staff would start taking testimony from junior employees and work its way up, but in some cases the staff is now starting with more senior members of the firm, Ryan said. While this is not always the most efficient way to take testimony, it can help the staff scope the testimony better, according to Ryan. Third, the staff is taking a step back and asking itself at the outset of an investigation what kind of evidence it has and what kind of evidence it needs to proceed, including the kind of resources required for the investigation.
Fourth, Ryan said that the staff is trying to expedite investigations by sending out written interrogatories in advance, such as requesting work papers that were relied on so the parties are not flipping through them during the interview itself. Finally, Ryan said that since the staff is doing everything they can to expedite testimony, they appreciate similar cooperation from the firms, individuals, and counsel. For example, don’t send documentation to the staff the day before testimony is given, Ryan advised.
The firm perspective. David L. Sorgen, Associate General Counsel in Deloitte’s New York’s office, recounted recurring themes from the perspective of accounting firms. He noted that both the SEC and the PCAOB have experienced changes over the past year, including new commissioners at the SEC and a brand-new Board with new senior staff at the PCAOB. The SEC has refocused its enforcement approach to concentrate on Main Street investors. It has also taken a more centralized approach, he said, noting recent 2017 policy of requiring the approval of one of the co-directors of the Enforcement Division to issue formal orders of investigation and subpoenas.
Sorgen also gave some practice pointers from the view of the defense counsel. He emphasized the importance of early case assessment. He also recommended that firms engage in voluntary reporting, conduct internal investigations and report the result of the investigation to regulators, implement enhancements to internal controls and procedures, and take action against personnel responsible for the misconduct.
Amanda Maine, J.D. of Wolters Kluwers wrote this article as a result of attending ALI CLE’s Accountants Liability 2018 conference. For more information and to purchase the webcast please visit here: https://www.ali-cle.org/course/ca006
Estate planners eager to help their clients make the most of the temporarily doubled estate and gift tax exemption have a daunting array of planning techniques to pick from with no one-size-fits-all solutions.
“We’ve got a whole bunch of options and it’s not possible to say, ‘Oh, this is the best estate plan, this is clearly what you want to do,’ because there are pros and cons to all of these options,” Beth Shapiro Kaufman of Caplin & Drysdale Chtd. said June 25.
One of the most pressing questions for estate planners is how to ensure their clients can benefit from the doubled exemption before it expires. But all except the ultra-wealthy would have to relinquish everything they own to exceed the $11.2 million cap for individuals and $22.4 million cap for couples, Kaufman said at the American Law Institute Continuing Legal Education estate planning conference in Madison, Wisconsin. “They don’t want to impoverish themselves just because Congress gave them bonus exclusion,” she said.
Kaufman’s first recommendation was to create spousal lifetime access trusts (SLATs), which enables the taxpayer to “give the money away without really giving it away” by making the surviving spouse one of the beneficiaries of the SLAT.
Another way donors can use up the estate and gift tax exemption amount without fully relinquishing access to assets is through a qualified terminable interest property (QTIP) trust. Under section 2519, a gift of any part of a QTIP trust triggers a gift tax on the entire trust, Kaufman explained, and while that’s usually an outcome that estate planners want to avoid, when used this way, it allows the client to make a gift equal to the full value of the trust, so that the bonus exemption amount is locked in. Then, because the actual gift consisted of only a small percentage of the trust’s assets to the donor’s children, the rest of the trust’s assets remain in place and the surviving spouse still receives all the income from the trust.
Kaufman said the theory behind this technique is that the QTIP trust’s assets are included in the surviving spouse’s estate under section 2036, and that section 2036 has an offsetting provision that allows any gift tax paid on the assets to be subtracted. “You get to exclude what you already made a gift of during life, thereby locking down use of your bonus exclusion in 2018, even though you’re dying after 2026, and the only part that you actually pay tax on after 2026 is the appreciation on the property,” she explained.
This method is “a little iffier” than the SLAT approach, according to Kaufman. She also said that it’s “not terribly efficient” because it fails to get appreciation on assets out of the estate. But because it can be used by a surviving spouse who is already the beneficiary of a QTIP trust, it’s “nice to have a technique in our quiver for that person.”
Portability Planning
Some taxpayers may prefer to go the simple route and rely on portability of the deceased spouse’s unused exclusion amount to give everything to the spouse when planning around death.
“From a tax perspective, it works,” Kaufman said, explaining that this allows for a step-up in basis on the transferred assets. But she added that planning with portability alone wastes the generation-skipping transfer tax exemption because that exemption is not portable, misses the opportunity to get some creditor protection on those assets, and sacrifices future control of them—factors that can become messy if the surviving spouse remarries.
Kaufman suggested combining the portability approach with a QTIP, which keeps the same benefits of using portability alone and adds both creditor protection for the surviving spouse and protection of the inheritance for the children of the deceased spouse, “because in the QTIP, the first to die controls the ultimate disposition of those assets.”
Estate planners may also want to consider a “Clayton QTIP” — named after the 1992 Fifth Circuit Court case Estate of Clayton v. Commissioner, 876 F.2d 1486 (1992) Kaufman said. That case “established the concept that you could have different provisions apply, depending on whether the QTIP election is actually made or not,” she said, which means that the decision over which assets to put into a credit shelter trust and which to put into a QTIP trust can be delayed up to 15 months after the person has died. That allows a substantial amount of time to determine which technique works better depending on the law in effect at the time of death.
“So it’s a very flexible technique, and flexibility is key under the current law, because we don’t know what’s going to happen,” Kaufman said.
Another flexible approach is to follow the disclaimer method, in which the surviving spouse disclaims some assets being passed on, and can make arrangements so that anything disclaimed goes into a credit shelter trust, Kaufman said. Unlike a QTIP, in which the deceased spouse was able to direct where assets would go after her death, the disclaimer method allows the surviving spouse to proactively disclaim the assets from the marital bequest.
“You’re relying on somebody actually doing something that they may not be willing to do when the time comes, or they may not be competent when the time comes,” Kaufman said.
One such technique involves intentionally triggering the “Delaware tax trap” under section 2041. That has always been something to watch out for and avoid, but “now because everything has been turned on its head, the Delaware tax trap is a planning opportunity,” Kaufman said.
She explained that what’s needed is a trust that’s subject to the rule against perpetuities, and then the elder recipient can exercise general power “in a way that blows that rule against perpetuities,” which would make the trust’s assets includable in their estate.
Kaufman cautioned that this may not work in states that have passed laws specifically to protect taxpayers from falling into the Delaware tax trap, and many practitioners have designed trusts with language preventing that from happening. But she said her firm has now started drafting language to keep that option in their trusts.
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This article was written by Jonathan Curry and originally published by Tax Analysts. To learn more about the author and Tax Analysts, please visit http://www.taxanalysts.org . You can also follow Jonathan Curry on Twitter for real-time updates.
Jonathan Curry wrote this article as a result from his attendance at ALI CLE’s Estate Planning in Depth 2018 annual program. More information about this program can be found here:
