JPMorgan in Talks to Settle Energy Manipulation Case for $500 Million
By BEN PROTESS and JESSICA SILVER-GREENBERG
NYT
July 17, 2013
It is unclear whether FERC will pursue a separate action against Blythe Masters, a senior JPMorgan executive.
JPMorgan Chase, the Wall Street giant whose reputation in Washington has eroded in a matter of months, is now moving to avert a showdown over accusations that it manipulated energy prices.
The nation’s largest bank, which has previously clashed with its regulators, is seeking to settle with the federal agency that oversees the energy markets, according to people briefed on the matter. The regulator, the Federal Energy Regulatory Commission, found that JPMorgan devised “manipulative schemes” that transformed “money-losing power plants into powerful profit centers,” a commission document said.
The potential deal, the people said, is expected to cost the bank about $500 million, a record for the commission, which has adopted a harder line with Wall Street over the last year. For JPMorgan, which reported a record $6.5 billion quarterly profit last week, the fine will hardly dent the bottom line.
The accusations against JPMorgan surfaced this spring in the confidential commission document, reviewed by The New York Times, that outlined a pattern of illegal trading in the California and Michigan electric markets. The document, a warning that investigators would recommend that the agency pursue civil charges, also claimed that a senior JPMorgan executive, Blythe Masters, gave “false and misleading statements” under oath.
It is unclear whether Ms. Masters would be included in the potential settlement, but people close to her said that the regulator was unlikely to file a separate action against her. Initially, investigators planned to recommend that the agency hold Ms. Masters and three of her employees “individually liable,” a move that would have cast a shadow over her long career on Wall Street, where she is known for developing complex financial instruments.
While the bank still disputes the accusations, the recent settlement talks signal a shift in strategy for JPMorgan, which previously declared its intention “to vigorously defend” itself. Other banks, including Barclays, are fighting the commission in similar cases, casting the agency as overly aggressive. A settlement with JPMorgan could undermine Wall Street’s counterattacks and pave the way for more settlements.
With the recent overture, JPMorgan appears to have taken a more conciliatory approach to Washington broadly, as it works to mend relationships with regulatory agencies. Its new tack, advocated by top JPMorgan lawyers, underscores the bank’s realization that it was swiftly losing credibility in Washington.
Within regulatory circles, JPMorgan had become known as something of a bully, a bank quick to strike a combative tone with regulators. In a Congressional report examining a $6 billion trading loss the bank sustained last year, investigators faulted it for briefly withholding documents from regulators. The energy markets regulator also accused the bank of stonewalling investigators.
A settlement with the commission would enable JPMorgan to resolve the embarrassing accusations without fighting a lengthy legal battle. It also would allow the bank to focus on its other legal woes as it remains caught in the cross hairs of at least eight other federal offices. In addition to inquiries stemming from the trading loss, banking regulators are weighing enforcement actions against the bank for the way it collected credit card debt.
Jamie Dimon, JPMorgan’s chief executive who was once known as Washington’s favorite banker, acknowledged in his annual letter to shareholders that “unfortunately, we expect we will have more” enforcement actions in “the coming months.” He apologized for letting “our regulators down” and vowed to “do all the work necessary to complete the needed improvements.”
To reinforce the conciliatory approach, the bank has more readily dispatched executives to Washington. It also committed resources to bolster internal controls, a measure that could appease regulators.
The people briefed on the matter, who spoke on the condition that they not be named, cautioned that JPMorgan and the energy regulator were still negotiating a potential fine. The terms are subject to change. Any action recommended by investigators — settlement or otherwise — requires approval by a majority of the five-member energy commission.
The prospect of a deal with JPMorgan Chase was reported earlier by The Wall Street Journal.
A spokeswoman for the bank declined to comment. The commission also declined to comment.
JPMorgan’s run-in with the energy regulator escalated in March, when investigators sent the document outlining the findings of their inquiry. In response, the bank issued a lengthy response to the accusations in mid-May, the people briefed on the matter said, ultimately spurring settlement talks in recent weeks.
For the energy regulator, a settlement would be the latest in a string of actions against big banks. On Tuesday, the commission ordered Barclays to pay a $470 million penalty for suspected manipulation of energy markets in California and other Western states by some of its traders. The bank is fighting the charges.
Like Barclays, JPMorgan faces accusations stemming from its rights to sell electricity from power plants. The rights come from assets the bank accumulated in the 2008 takeover of Bear Stearns.
But soon after the acquisition, the plants became a losing business that relied on “inefficient” and outdated technology. Under “pressure to generate large profits,” investigators said in the March document, traders in Houston devised a solution. Adopting eight different “schemes” between September 2010 and June 2011, the traders offered the energy at prices “calculated to falsely appear attractive” to state energy authorities. The effort prompted authorities in California and Michigan to pay about $83 million in “excessive” payments to JPMorgan, the investigators said.
In a 2012 filing in federal court, the energy regulator took aim at JPMorgan for attempting to thwart the investigation. The bank, the regulator said, refused to comply with a subpoena seeking e-mails that JPMorgan claimed were confidential because they contained private conversations between the bank and its lawyers.
In the March document, the investigators elaborated on the bank’s pushback. The 70-page document said that the bank “planned and executed a systematic cover-up” of documents that exposed the trading strategy, including profit and loss statements.
The investigators also traced some of the obfuscating to Ms. Masters. After California authorities began to object to the bank’s trading strategy, Ms. Masters “personally participated in JPMorgan’s efforts to block” the state authorities “from understanding the reasons behind JPMorgan’s bidding schemes,” the regulator, known as FERC, said.
The investigators also cited an April 2011 e-mail in which Ms. Masters ordered a “rewrite” of an internal document that questioned whether the bank had skirted the law. The new wording: “JPMorgan does not believe that it violated FERC’s policies.”
Thursday, July 25, 2013
SAC: Steve Cohen’s (Allegedly) Corrupt “Information Gathering Machine”
Steve Cohen’s (Allegedly) Corrupt “Information Gathering Machine”
By Charles Gasparino
Time
July 25, 2013
When I first met Steve Cohen back in 1999, we were discussing SAC’s vaunted trading strategies, the ones that made his hedge fund one of the most successful in the finance world and burnished Cohen’s rep as one of the world’s best traders.
I said that based on my reporting — I was working for the Wall Street Journal at the time — Cohen started SAC in 1992 with a technique that wasn’t that much different than a day trader: He was trading huge blocks of stock by looking for “teenies,” or small price increments, that he could magnify into massive returns because of the sheer size of his trades.
It was the only time Cohen seemed angered during our discussion, as I recall. “No,” he shot back emphatically, “we employ real trading strategies around here. We do research.” Cohen went on to explain how his firm, SAC, had transformed itself into something much more than a day-trading sweat shop — it was now, he claimed, essentially the biggest and best information gathering machine in the world.
That information machine has now been deemed by the U.S. Department of Justice to be a criminal enterprise. Today’s indictment, filed in Manhattan federal court, of the once mighty hedge fund accuses SAC a multi-year “scheme” to profit from the use of illegal tips—also known as inside information.
It’s interesting to note that, according to prosecutors, the alleged scheme began in 1999—around the time Cohen was boasting of the firm’s new information edge. It’s also interesting to note that while Cohen himself wasn’t charged in the indictment, references to him in the documents are everywhere, which means all those headlines of Cohen himself being “out of the woods” are probably wrong.
In other words, don’t be surprised if you see an indictment of Cohen in the coming weeks as well.
If you don’t believe me, read the indictment. “The SAC Owner had sole trading discretion over his portfolio and made these decisions principally based on trading recommendations from SAC [portfolio managers],” it says. “In particular, at all relevant times the SAC Owner required each [portfolio manager] to share ‘high conviction’ investment ideas–i.e., the investment recommendations in which the SAC [portfolio managers] had the greatest confidence–with the SAC Owner. In fact, providing such ideas to the SAC Owner was an express part of a SAC PM’s duties and was emphasized to SAC [portfolio managers] in the hiring process and once working at SAC.”
As my book about the Fed’s relentless pursuit of Cohen, Circle of Friends, explains, the Feds believe having a “high conviction” investment idea is code for trading on material, non-public information, a.k.a. insider trading. They also believe almost no major trade gets done inside SAC without Cohen’s blessing — and based on my sources inside the government, they believe it’s just a matter of time before they connect the dots to Cohen himself.
I should point out that Cohen maintains his innocence and that the information machine he created runs for the most part on information and research of the legal variety. His people tell me the few bad apples at SAC that have used inside information — as many as 9 former or current company executives have been implicated during the insider trading crackdown — are anomalies.
The Feds, of course, feel they have proof that SAC, under Cohen’s watch, is a dirty shop.
One thing is certain: The mounting pressure from the government probe that’s been investigating the firm since at least 2007 is taking its toll on Cohen, both professionally and personally. Money from outside investors has been fleeing the fund for months as the government’s scrutiny has intensified.
With the indictment, SAC is basically being put out of business, though Cohen could still conceivably manage his own personal fortune of around $9 billion. But the Feds are looking for a chunk of that as well. The indictment says the scheme occurred over an 11-year period and that SAC has to give back its illegal profits.
Since most of the money now in SAC in Cohen’s, that means his net worth could take the hit and that hit could amount to billions.
A friend of mine of who knows Cohen personally said he ran into him at the MLB All-Star game at Citi Field, the home of the New York Mets, in which Cohen owns a small stake. Cohen “looked terrible…and he’d gained 15 pounds” since the time the two met just a month or so earlier. More than that, my source told me, Cohen conceded that his business was basically finished and “at this point my No. 1 goal is not getting personally indicted.”
If that’s the case, he should have stuck with trading teenies.
Read more: http://business.time.com/2013/07/25/steve-cohens-allegedly-corrupt-information-gathering-machine/#ixzz2a7Q44Aqd
By Charles Gasparino
Time
July 25, 2013
When I first met Steve Cohen back in 1999, we were discussing SAC’s vaunted trading strategies, the ones that made his hedge fund one of the most successful in the finance world and burnished Cohen’s rep as one of the world’s best traders.
I said that based on my reporting — I was working for the Wall Street Journal at the time — Cohen started SAC in 1992 with a technique that wasn’t that much different than a day trader: He was trading huge blocks of stock by looking for “teenies,” or small price increments, that he could magnify into massive returns because of the sheer size of his trades.
It was the only time Cohen seemed angered during our discussion, as I recall. “No,” he shot back emphatically, “we employ real trading strategies around here. We do research.” Cohen went on to explain how his firm, SAC, had transformed itself into something much more than a day-trading sweat shop — it was now, he claimed, essentially the biggest and best information gathering machine in the world.
That information machine has now been deemed by the U.S. Department of Justice to be a criminal enterprise. Today’s indictment, filed in Manhattan federal court, of the once mighty hedge fund accuses SAC a multi-year “scheme” to profit from the use of illegal tips—also known as inside information.
It’s interesting to note that, according to prosecutors, the alleged scheme began in 1999—around the time Cohen was boasting of the firm’s new information edge. It’s also interesting to note that while Cohen himself wasn’t charged in the indictment, references to him in the documents are everywhere, which means all those headlines of Cohen himself being “out of the woods” are probably wrong.
In other words, don’t be surprised if you see an indictment of Cohen in the coming weeks as well.
If you don’t believe me, read the indictment. “The SAC Owner had sole trading discretion over his portfolio and made these decisions principally based on trading recommendations from SAC [portfolio managers],” it says. “In particular, at all relevant times the SAC Owner required each [portfolio manager] to share ‘high conviction’ investment ideas–i.e., the investment recommendations in which the SAC [portfolio managers] had the greatest confidence–with the SAC Owner. In fact, providing such ideas to the SAC Owner was an express part of a SAC PM’s duties and was emphasized to SAC [portfolio managers] in the hiring process and once working at SAC.”
As my book about the Fed’s relentless pursuit of Cohen, Circle of Friends, explains, the Feds believe having a “high conviction” investment idea is code for trading on material, non-public information, a.k.a. insider trading. They also believe almost no major trade gets done inside SAC without Cohen’s blessing — and based on my sources inside the government, they believe it’s just a matter of time before they connect the dots to Cohen himself.
I should point out that Cohen maintains his innocence and that the information machine he created runs for the most part on information and research of the legal variety. His people tell me the few bad apples at SAC that have used inside information — as many as 9 former or current company executives have been implicated during the insider trading crackdown — are anomalies.
The Feds, of course, feel they have proof that SAC, under Cohen’s watch, is a dirty shop.
One thing is certain: The mounting pressure from the government probe that’s been investigating the firm since at least 2007 is taking its toll on Cohen, both professionally and personally. Money from outside investors has been fleeing the fund for months as the government’s scrutiny has intensified.
With the indictment, SAC is basically being put out of business, though Cohen could still conceivably manage his own personal fortune of around $9 billion. But the Feds are looking for a chunk of that as well. The indictment says the scheme occurred over an 11-year period and that SAC has to give back its illegal profits.
Since most of the money now in SAC in Cohen’s, that means his net worth could take the hit and that hit could amount to billions.
A friend of mine of who knows Cohen personally said he ran into him at the MLB All-Star game at Citi Field, the home of the New York Mets, in which Cohen owns a small stake. Cohen “looked terrible…and he’d gained 15 pounds” since the time the two met just a month or so earlier. More than that, my source told me, Cohen conceded that his business was basically finished and “at this point my No. 1 goal is not getting personally indicted.”
If that’s the case, he should have stuck with trading teenies.
Read more: http://business.time.com/2013/07/25/steve-cohens-allegedly-corrupt-information-gathering-machine/#ixzz2a7Q44Aqd
Tuesday, May 28, 2013
Senator Barbara Boxer wants probe on troubled San Onofre nuclear power plant
AP Exclusive: Boxer wants probe on troubled plant
By MICHAEL R. BLOOD
Associated Press
May 28, 2013
LOS ANGELES (AP) — U.S. Sen. Barbara Boxer wants the Justice Department to investigate if California utility executives deceived federal regulators about an equipment swap at the San Onofre nuclear power plant that eventually led to a radiation leak, The Associated Press has learned.
The California Democrat obtained a 2004 internal letter written by a senior Southern California Edison executive that she said "leads me to believe that Edison intentionally misled the public and regulators" to avoid a potentially long and costly review of four replacement steam generators before they went into service.
The twin-domed plant between Los Angeles and San Diego hasn't produced electricity since January 2012, after a small radiation leak led to the discovery of unusually rapid wear inside hundreds of tubes that carry radioactive water in the nearly new generators.
The letter was written to Mitsubishi Heavy Industries, which manufactured the generators that now sit idle in a plant that once produced power for 1.4 million households.
Boxer, who chairs the Senate Environment and Public Works Committee, said in a statement Monday that she is providing the correspondence to the Justice Department and other federal and state officials to determine if Edison "engaged in willful wrongdoing."
Nuclear Regulatory Commission spokesman Eliot Brenner declined comment.
By MICHAEL R. BLOOD
Associated Press
May 28, 2013
LOS ANGELES (AP) — U.S. Sen. Barbara Boxer wants the Justice Department to investigate if California utility executives deceived federal regulators about an equipment swap at the San Onofre nuclear power plant that eventually led to a radiation leak, The Associated Press has learned.
The California Democrat obtained a 2004 internal letter written by a senior Southern California Edison executive that she said "leads me to believe that Edison intentionally misled the public and regulators" to avoid a potentially long and costly review of four replacement steam generators before they went into service.
The twin-domed plant between Los Angeles and San Diego hasn't produced electricity since January 2012, after a small radiation leak led to the discovery of unusually rapid wear inside hundreds of tubes that carry radioactive water in the nearly new generators.
The letter was written to Mitsubishi Heavy Industries, which manufactured the generators that now sit idle in a plant that once produced power for 1.4 million households.
Boxer, who chairs the Senate Environment and Public Works Committee, said in a statement Monday that she is providing the correspondence to the Justice Department and other federal and state officials to determine if Edison "engaged in willful wrongdoing."
Nuclear Regulatory Commission spokesman Eliot Brenner declined comment.
Friday, November 30, 2012
10 Corporations That Still Get New Gov't Contracts, Despite Alleged Misconduct
Exxon Mobil is too big to punish, but BP is getting a spanking.
10 Corporations That Still Get New Gov't Contracts, Despite Alleged Misconduct
By Kate Sheppard
Mother Jones
Nov. 30, 2012
The EPA surprised quite a few people on Wednesday when it announced sanctions on BP related to the 2010 Deepwater Horizon disaster...
This has been a long-time coming for BP. As a ProPublica piece from May 2010 noted, the company was already in trouble before spill:
Over the past 10 years, BP has paid tens of millions of dollars in fines and been implicated in four separate instances of criminal misconduct that could have prompted this far more serious action. Until now, the company's executives and their lawyers have fended off such a penalty by promising that BP would change its ways.
But many companies with federal contracts have been cited for misconduct. Apparently you just have to be really, really bad—like, 26-people-dead, Gulf-ecosystem-destroyed, lying-to-Congress bad—in order to get barred like BP did. The government regularly blocks companies from getting new contracts; there were 5,838 suspensions, proposed debarments, and debarments in 2011, an increase over previous years, but most of them are much smaller companies.
The Project on Government Oversight (POGO) maintains a database of contractors that have been cited for misconduct, including environmental, labor, and financial legal violations. But as POGO points out, "very few large contractors have been suspended or debarred over the years." BP tops the list with 62 instances of misconduct or alleged misconduct since 1995, but here are the ten other big companies right behind BP that are still allowed to obtain government contracts:
Exxon Mobil, 59 instances of alleged misconduct
Lockheed Martin, 58 instances
Boeing Company, 46 instances
General Electric, 44 instances
Honeywell International, 41 instances
ChevronTexaco Corporation, 37 instances
Northrop Grumman, 35 instances
Fluor Corporation, 34 instances
Royal Dutch Shell PLC, 34 instances
GlaxoSmithKline, 33 instances
10 Corporations That Still Get New Gov't Contracts, Despite Alleged Misconduct
By Kate Sheppard
Mother Jones
Nov. 30, 2012
The EPA surprised quite a few people on Wednesday when it announced sanctions on BP related to the 2010 Deepwater Horizon disaster...
This has been a long-time coming for BP. As a ProPublica piece from May 2010 noted, the company was already in trouble before spill:
Over the past 10 years, BP has paid tens of millions of dollars in fines and been implicated in four separate instances of criminal misconduct that could have prompted this far more serious action. Until now, the company's executives and their lawyers have fended off such a penalty by promising that BP would change its ways.
But many companies with federal contracts have been cited for misconduct. Apparently you just have to be really, really bad—like, 26-people-dead, Gulf-ecosystem-destroyed, lying-to-Congress bad—in order to get barred like BP did. The government regularly blocks companies from getting new contracts; there were 5,838 suspensions, proposed debarments, and debarments in 2011, an increase over previous years, but most of them are much smaller companies.
The Project on Government Oversight (POGO) maintains a database of contractors that have been cited for misconduct, including environmental, labor, and financial legal violations. But as POGO points out, "very few large contractors have been suspended or debarred over the years." BP tops the list with 62 instances of misconduct or alleged misconduct since 1995, but here are the ten other big companies right behind BP that are still allowed to obtain government contracts:
Exxon Mobil, 59 instances of alleged misconduct
Lockheed Martin, 58 instances
Boeing Company, 46 instances
General Electric, 44 instances
Honeywell International, 41 instances
ChevronTexaco Corporation, 37 instances
Northrop Grumman, 35 instances
Fluor Corporation, 34 instances
Royal Dutch Shell PLC, 34 instances
GlaxoSmithKline, 33 instances
Wednesday, July 11, 2012
Criminal Tax Penalties for ALEC? CMD's Investigation Provides Facts for Powerful New Complaint by Former IRS Official
Criminal Tax Penalties for ALEC? CMD's Investigation Provides Facts for Powerful New Complaint by Former IRS Official
by Brendan Fischer
PR Watch
July 9, 2012
This month, a former leader of the Internal Revenue Service filed a complaint that the American Legislative Exchange Council (ALEC) has violated the terms of its nonprofit status by operating primarily for the private benefit of its corporate members, based on documents and research from the Center for Media and Democracy (CMD), which manages PRWatch, ALECexposed, and SourceWatch. The complaint, which also alleges that ALEC misrepresented itself in tax filings, raises additional allegations beyond those in earlier IRS complaints filed by Common Cause.
"Astounding" Violations of IRS Law
ALEC "elevates commercial gain for a few over the well-being of society's less fortunate" through "an agenda largely crafted by the organization's corporate members," the complaint states (a pdf of the complaint is below). Marcus Owens, the former chief of the Service's nonprofit division, filed the complaint on behalf of Clergy VOICE, a group of Christian ministers in Ohio. "ALEC has deliberately and repeatedly failed to comply with some of the most fundamental federal tax requirements applicable to public charities," the complaint says. Owens is a nationally recognized expert and leader on nonprofit tax law and a member of the noted law firm Caplin & Drysdale.
ALEC is afforded a variety of benefits by virtue of its "charity" status -- not least of which is giving corporations a tax deduction for paying ALEC membership dues -- but in exchange for those benefits, ALEC is supposed to primarily serve public or charitable interests (rather than private interests) and engage in minimal lobbying.
"ALEC is doing an extraordinary amount of lobbying, but reporting to the IRS they are doing NO lobbying," Owens told CMD. "Even when North Dakota forced two of ALEC's attorneys to register as lobbyists, they still reported [on their IRS filings] they did no lobbying. That is astounding."
"I have never seen such a systematic and extensive operation . . . to sidestep disclosure and ethics rules in a way that really allows them to have an extraordinary impact," Owens said.
Corporate Control over Model Bills Give Private Benefit
In the complaint, Owens and Clergy VOICE allege that ALEC operates primarily for the benefit of its corporate members by offering "not only unprecedented access to state lawmakers -- the very individuals who introduce and support the state laws that positively impact the corporations' bottom lines -- but also the opportunity to draft those laws." The complaint references "model" bills like the asbestos liability act, which specifically shields ALEC member Crown Holdings from asbestos liability claims, and the Drug Liability Act, which benefits ALEC member pharmaceutical companies like Pfizer or Merck by protecting them from lawsuit when their products injure or kill (as CMD discussed when that model bill was introduced in Wisconsin).
ALEC is structured to give private benefit to its corporate members, the complaint states, with its operating procedures giving ALEC's "corporate donors authority to approve or veto every legislative and policy proposal developed by ALEC's Task Forces," and its bylaws giving "corporate members disproportionate authority to appoint and remove legislators from the Task Forces."
According to the complaint, "[t]his effectively ensures that the only model laws distributed to ALEC's Legislative Members and disseminated nationwide are those that have been co-drafted and subsequently blessed by ALEC's corporate donors."
"Further, the legislative proposals that clear this process appear to be motivated substantially, if not primarily, by the pecuniary interests of ALEC's corporate members."
The complaint also notes that ALEC's legislative board and most legislative members are Republicans -- and that most of ALEC's operations provide a private benefit to the Republican Party.
Scholarships Are "the Definition of a Bribe"
The site of the ALEC 2011 States & Nation Policy Summit in Scottsdale. Clergy VOICE also alleges that ALEC operates to benefit its legislative members through the "scholarship program" that allows corporations to pay for the flights, hotel rooms, meals, and entertainment of ALEC politicians. The meetings are ”held in luxury hotels, frequently in vacation-worthy destinations like San Diego, New Orleans and Scottsdale,” and scholarships fund “perks such as meals, recreational activities, and subsidized childcare for legislators and their families.” (CMD has previously described the scholarship scheme here.)
Additionally, “[m]eeting agendas include events like golf tournaments, open bar parties and baseball games — all subsidized directly or indirectly by ALEC’s corporate members,” the complaint says.
Despite this, ALEC has told the IRS that it provides no scholarships and funds no travel or entertainment expenses for elected officials...
by Brendan Fischer
PR Watch
July 9, 2012
This month, a former leader of the Internal Revenue Service filed a complaint that the American Legislative Exchange Council (ALEC) has violated the terms of its nonprofit status by operating primarily for the private benefit of its corporate members, based on documents and research from the Center for Media and Democracy (CMD), which manages PRWatch, ALECexposed, and SourceWatch. The complaint, which also alleges that ALEC misrepresented itself in tax filings, raises additional allegations beyond those in earlier IRS complaints filed by Common Cause.
"Astounding" Violations of IRS Law
ALEC "elevates commercial gain for a few over the well-being of society's less fortunate" through "an agenda largely crafted by the organization's corporate members," the complaint states (a pdf of the complaint is below). Marcus Owens, the former chief of the Service's nonprofit division, filed the complaint on behalf of Clergy VOICE, a group of Christian ministers in Ohio. "ALEC has deliberately and repeatedly failed to comply with some of the most fundamental federal tax requirements applicable to public charities," the complaint says. Owens is a nationally recognized expert and leader on nonprofit tax law and a member of the noted law firm Caplin & Drysdale.
ALEC is afforded a variety of benefits by virtue of its "charity" status -- not least of which is giving corporations a tax deduction for paying ALEC membership dues -- but in exchange for those benefits, ALEC is supposed to primarily serve public or charitable interests (rather than private interests) and engage in minimal lobbying.
"ALEC is doing an extraordinary amount of lobbying, but reporting to the IRS they are doing NO lobbying," Owens told CMD. "Even when North Dakota forced two of ALEC's attorneys to register as lobbyists, they still reported [on their IRS filings] they did no lobbying. That is astounding."
"I have never seen such a systematic and extensive operation . . . to sidestep disclosure and ethics rules in a way that really allows them to have an extraordinary impact," Owens said.
Corporate Control over Model Bills Give Private Benefit
In the complaint, Owens and Clergy VOICE allege that ALEC operates primarily for the benefit of its corporate members by offering "not only unprecedented access to state lawmakers -- the very individuals who introduce and support the state laws that positively impact the corporations' bottom lines -- but also the opportunity to draft those laws." The complaint references "model" bills like the asbestos liability act, which specifically shields ALEC member Crown Holdings from asbestos liability claims, and the Drug Liability Act, which benefits ALEC member pharmaceutical companies like Pfizer or Merck by protecting them from lawsuit when their products injure or kill (as CMD discussed when that model bill was introduced in Wisconsin).
ALEC is structured to give private benefit to its corporate members, the complaint states, with its operating procedures giving ALEC's "corporate donors authority to approve or veto every legislative and policy proposal developed by ALEC's Task Forces," and its bylaws giving "corporate members disproportionate authority to appoint and remove legislators from the Task Forces."
According to the complaint, "[t]his effectively ensures that the only model laws distributed to ALEC's Legislative Members and disseminated nationwide are those that have been co-drafted and subsequently blessed by ALEC's corporate donors."
"Further, the legislative proposals that clear this process appear to be motivated substantially, if not primarily, by the pecuniary interests of ALEC's corporate members."
The complaint also notes that ALEC's legislative board and most legislative members are Republicans -- and that most of ALEC's operations provide a private benefit to the Republican Party.
Scholarships Are "the Definition of a Bribe"
The site of the ALEC 2011 States & Nation Policy Summit in Scottsdale. Clergy VOICE also alleges that ALEC operates to benefit its legislative members through the "scholarship program" that allows corporations to pay for the flights, hotel rooms, meals, and entertainment of ALEC politicians. The meetings are ”held in luxury hotels, frequently in vacation-worthy destinations like San Diego, New Orleans and Scottsdale,” and scholarships fund “perks such as meals, recreational activities, and subsidized childcare for legislators and their families.” (CMD has previously described the scholarship scheme here.)
Additionally, “[m]eeting agendas include events like golf tournaments, open bar parties and baseball games — all subsidized directly or indirectly by ALEC’s corporate members,” the complaint says.
Despite this, ALEC has told the IRS that it provides no scholarships and funds no travel or entertainment expenses for elected officials...
Wednesday, July 4, 2012
Mystery Bermuda-based company and other undisclosed Romney assets hint at larger wealth
Mystery Bermuda-based company and other undisclosed Romney assets hint at larger wealth
For nearly 15 years, Republican presidential candidate Mitt Romney’s financial portfolio has included an offshore company that remained invisible to voters
By Associated Press
July 3, 2012
WASHINGTON — For nearly 15 years, Republican presidential candidate Mitt Romney’s financial portfolio has included an offshore company that remained invisible to voters as his political star rose.
Based in Bermuda, Sankaty High Yield Asset Investors Ltd. was not listed on any of Romney’s state or federal financial reports. The company is among several Romney holdings that have not been fully disclosed, including one that recently posted a $1.9 million earning — suggesting he could be wealthier than the nearly $250 million estimated by his campaign.
The omissions were permitted by state and federal authorities overseeing Romney’s ethics filings, and he has never been cited for failing to disclose information about his money. But Romney’s limited disclosures deprive the public of an accurate depiction of his wealth and a clear understanding of how his assets are handled and taxed, according to experts in private equity, tax and campaign finance law.
Sankaty was transferred to a trust owned by Romney’s wife, Ann, one day before he was sworn in as Massachusetts governor in 2003, according to Bermuda records obtained by The Associated Press. The Romneys’ ownership of the offshore firm did not appear on any state or federal financial reports during Romney’s two presidential campaigns. Only the Romneys’ 2010 tax records, released under political pressure earlier this year, confirmed their continuing control of the company.
The mystery surrounding Sankaty reinforces Romney’s history of keeping a tight rein on his public dealings, already documented by his use of private email and computer purges as Massachusetts governor and his refusal to disclose his top fundraisers. The Bermuda company had almost no assets, according to Romney’s 2010 tax returns. But such partnership stakes could still provide significant income for years to come, said tax experts, who added that the lack of disclosure makes it impossible to know for certain.
“We don’t know the big picture,” said Victor Fleischer, a University of Colorado law professor and private equity expert who urged corporate tax code reforms during congressional testimony last year. “Most of these disclosure rules are designed for people who have passive ownership of stocks and bonds. But in this case, he continues to own management interests that fluctuate greatly in value long after his time with the company and even the end of his separation agreement. And the public has no clear idea where the money is coming from or when it will end.”
Named for a historic Massachusetts coastal lighthouse, Sankaty was part of a cluster of similarly named hedge funds run by Bain Capital, the private equity firm Romney founded and led until 1999. The offshore company was used in Bain’s $1 billion takeover of Domino’s Pizza and other multimillion-dollar investment deals more than a decade ago.
Romney’s campaign declined to answer detailed questions from AP about Sankaty. Romney aides have said in the past that some disclosures were not required because those assets were valued by his financial advisers at less than $1,000 — below the minimum threshold under federal rules set by the U.S. Office of Government Ethics. A financial snapshot of Sankaty in Romney’s 2010 tax returns showed the holding with almost no value at the time— with $10,000 in both assets and liabilities...
The implications of Romney’s Bain profit-sharing became clear last month when his trust reported that one rarely disclosed asset had posted a $1.9 million payout. The income was described as a “true-up” payment, catch-up income that made up for unpaid earnings owed to Romney as part of his Bain separation agreement.
Such sizable earnings are possible “depending on the terms of the agreement,” said tax law expert Michael Kosnitzky, an attorney at the New York firm of Boies, Schiller & Flexner. The Romney campaign acknowledged recently that it could not rule out more large future payments.
The use of offshore companies such as Sankaty is allowed under U.S. tax laws. They are typically set up as shell corporations by private equity and hedge funds to route investments from large foreign and institutional investors, such as large pension plans, into corporate takeovers. The money is used to provide equity and buy up debt. In turn, the investors gain U.S. tax advantages by passing their funds through the offshore “blocker” corporations, avoiding a high 35 percent tax on earnings that the Internal Revenue Service describes as “unrelated business income.”
Set up in Bermuda in 1997, Sankaty served as Romney’s partnership stake in Bain’s Sankaty group, which invests in bonds, bank loans and corporate debt instruments. That first wave of Sankaty funds managed more than $100 million in investments in the late 1990s and early 2000s, according to a corporate analyst familiar with the funds. The analyst insisted on anonymity because the analyst was not authorized to discuss the funds publicly...
For nearly 15 years, Republican presidential candidate Mitt Romney’s financial portfolio has included an offshore company that remained invisible to voters
By Associated Press
July 3, 2012
WASHINGTON — For nearly 15 years, Republican presidential candidate Mitt Romney’s financial portfolio has included an offshore company that remained invisible to voters as his political star rose.
Based in Bermuda, Sankaty High Yield Asset Investors Ltd. was not listed on any of Romney’s state or federal financial reports. The company is among several Romney holdings that have not been fully disclosed, including one that recently posted a $1.9 million earning — suggesting he could be wealthier than the nearly $250 million estimated by his campaign.
The omissions were permitted by state and federal authorities overseeing Romney’s ethics filings, and he has never been cited for failing to disclose information about his money. But Romney’s limited disclosures deprive the public of an accurate depiction of his wealth and a clear understanding of how his assets are handled and taxed, according to experts in private equity, tax and campaign finance law.
Sankaty was transferred to a trust owned by Romney’s wife, Ann, one day before he was sworn in as Massachusetts governor in 2003, according to Bermuda records obtained by The Associated Press. The Romneys’ ownership of the offshore firm did not appear on any state or federal financial reports during Romney’s two presidential campaigns. Only the Romneys’ 2010 tax records, released under political pressure earlier this year, confirmed their continuing control of the company.
The mystery surrounding Sankaty reinforces Romney’s history of keeping a tight rein on his public dealings, already documented by his use of private email and computer purges as Massachusetts governor and his refusal to disclose his top fundraisers. The Bermuda company had almost no assets, according to Romney’s 2010 tax returns. But such partnership stakes could still provide significant income for years to come, said tax experts, who added that the lack of disclosure makes it impossible to know for certain.
“We don’t know the big picture,” said Victor Fleischer, a University of Colorado law professor and private equity expert who urged corporate tax code reforms during congressional testimony last year. “Most of these disclosure rules are designed for people who have passive ownership of stocks and bonds. But in this case, he continues to own management interests that fluctuate greatly in value long after his time with the company and even the end of his separation agreement. And the public has no clear idea where the money is coming from or when it will end.”
Named for a historic Massachusetts coastal lighthouse, Sankaty was part of a cluster of similarly named hedge funds run by Bain Capital, the private equity firm Romney founded and led until 1999. The offshore company was used in Bain’s $1 billion takeover of Domino’s Pizza and other multimillion-dollar investment deals more than a decade ago.
Romney’s campaign declined to answer detailed questions from AP about Sankaty. Romney aides have said in the past that some disclosures were not required because those assets were valued by his financial advisers at less than $1,000 — below the minimum threshold under federal rules set by the U.S. Office of Government Ethics. A financial snapshot of Sankaty in Romney’s 2010 tax returns showed the holding with almost no value at the time— with $10,000 in both assets and liabilities...
The implications of Romney’s Bain profit-sharing became clear last month when his trust reported that one rarely disclosed asset had posted a $1.9 million payout. The income was described as a “true-up” payment, catch-up income that made up for unpaid earnings owed to Romney as part of his Bain separation agreement.
Such sizable earnings are possible “depending on the terms of the agreement,” said tax law expert Michael Kosnitzky, an attorney at the New York firm of Boies, Schiller & Flexner. The Romney campaign acknowledged recently that it could not rule out more large future payments.
The use of offshore companies such as Sankaty is allowed under U.S. tax laws. They are typically set up as shell corporations by private equity and hedge funds to route investments from large foreign and institutional investors, such as large pension plans, into corporate takeovers. The money is used to provide equity and buy up debt. In turn, the investors gain U.S. tax advantages by passing their funds through the offshore “blocker” corporations, avoiding a high 35 percent tax on earnings that the Internal Revenue Service describes as “unrelated business income.”
Set up in Bermuda in 1997, Sankaty served as Romney’s partnership stake in Bain’s Sankaty group, which invests in bonds, bank loans and corporate debt instruments. That first wave of Sankaty funds managed more than $100 million in investments in the late 1990s and early 2000s, according to a corporate analyst familiar with the funds. The analyst insisted on anonymity because the analyst was not authorized to discuss the funds publicly...
Saturday, June 16, 2012
Go tell it on the mountain: The Edge doesn't need five homes here
The U2 guitarist is lining up political muscle and environmentalist star power to support constructing his eco-friendly castles on a pristine ridge near Malibu. What's greener? Not building at all.
Go tell it on the mountain: The Edge doesn't need five homes here
By Steve Lopez
LA Times
December 23, 2009
Just so you know, it's not easy for me to refer to U2 guitarist David Evans as "The Edge." Sure, there was a time when I referred to myself as S. Lo. But I quickly realized that once you've gone gray, it's hard to get away with anything other than what's on the birth certificate.
And I can't keep a straight face when I tell you that the five eco-friendly castles Mr. Edge wants to carve into the top of a pristine ridge near Malibu already have names. There's "Clouds Rest" and "Panorama," "Shell House" and "Blue Clouds." And my personal favorite, "Leaves in the Wind."
The latter is also the name of a website (www.leavesinthewind.com) promoting the controversial project, which would sit high above the Malibu pier, with a sweeping, miles-long view of spectacular coastline. You'd think a guy from one of the greatest bands in history could come up with a name that was a bit, shall we say, edgier, for a rock 'n' roll compound.
The Malibu area has been buzzing since a video was added to The Edge's website in the last several weeks, perhaps in anticipation of an upcoming California Coastal Commission hearing on the proposal. Against a gag-inducing track of New Age music, with birds tweeting in the background, fawning proponents of The Edge's plans praise the project. His supporters include Bonny Reiss, Gov. Schwarzenegger's former senior advisor, and, more surprisingly, Mark Massara, head of the Sierra Club's Great Coastal Places Campaign.
"It's going to take those visionary leaders being associated with projects like these, that are going to show how to make the California coastline a model of sustainability," Massara says on the video, in which he all but encourages the Coastal Commission to embrace the proposal.
Clearly The Edge is lining up all the political muscle and environmentalist star power he possibly can. He's even got a well-connected PR and lobbying firm -- California Strategies -- backing him up.
And that combination of clout and slick marketing is part of what riles Malibu City Councilman Jefferson Wagner. Although the compound would be outside Malibu city limits, it would require major expansion of a road within the city. Wagner is not inclined to vote in favor, and he's not a fan of the website testimonial, which makes no mention of all the dust in the wind there'd be once the bulldozers take the mountain...
Lobbyists who worked on the Edge's project are urging legislators to approve a measure that could clear the way for his development, which the Coastal Commission rejected.
U2 guitarist may get a second chance at Malibu mansions
By Michael J. Mishak
Los Angeles Times
June 16, 2012
SACRAMENTO — The California Coastal Commission rejected a controversial proposal last year by U2 guitarist the Edge to build five mansions on a scenic bluff above Malibu, saying that it would scar a rugged ridgeline and harm sensitive habitat.
Now, some of the same powerful lobbyists and lawyers behind the musician's quashed development are working the halls of the Capitol to push a bill that could give the rock star another chance at his dream compound.
Environmentalists and state agencies say that if the legislation becomes law, it will undermine the commission's position on his project and also extend to the character and development of the entire California coast and to state public lands.
At issue is how government agencies determine property ownership and how they use the findings in deciding whether to approve development.
Currently, the Coastal Commission has discretion to approve projects in environmentally sensitive areas — and the size and nature of those developments depend on ownership. The agency is more inclined, for example, to turn down a developer seeking approval for a multi-home project than a property owner trying to build a single-family house.
Developers at times try to skirt the issue by claiming each homesite has a different owner. They shield the identities through formation of limited liability corporations.
In the case of the Edge, whose real name is David Evans, the agency denied his plans because it said he was attempting to bypass environmental rules and maximize development by submitting five separate applications, each under a different corporate name.
Under the bill, state agencies would have to accept as fact that the person holding the deed is the property owner. If the state sought to challenge true ownership, it would be held to the same evidentiary standards that apply in the court system. The Coastal Commission and others argue that the standard would hamstring public agencies because they have none of the court system's tools of discovery: subpoenas, depositions and sworn testimony.
Sarah Christie, legislative director for the Coastal Commission, said the result would be a chilling effect on public agencies' abilities to carry out their missions, giving any developers who game the system more clout and potentially leading to "more fragmented, inappropriate development" along the coast.
Environmentalists cast the bill as a power grab by developers and special interests, including Evans.
"The forces who want to maximize their profit above all else are seeking to rewrite the rules in such a way that ensures the state government has limited ability to oversee and to take care of our public trust resources," said Adam Keats, an attorney with the Center for Biological Diversity.
The bill's author, Assemblyman Ben Hueso (D-Logan Heights), said he introduced the bill to rein in what he sees as an overzealous bureaucracy that uses arbitrary standards to block development, a notion shared by the California Chamber of Commerce and other business groups. Its purpose is not to advance the interests of the U2 guitarist, Hueso said.
Hueso, a former coastal commissioner, said the measure would end the commission's "very abusive strategy to prevent someone from developing even an environmentally friendly project." He said public agencies would still have the resources to investigate ownership.
"If we have every agency in California cherry picking projects they don't like, it's going to create an enormous problem in our ability to do business in California," he said.
The legislator said he got the idea for the bill from Paul Bauer, one of the lobbyists Evans hired last year to help him before the Coastal Commission.
Former Assembly Speaker Fabian Nuñez, who also worked as a consultant on Evans' development, has lobbied the agency to support the legislation. In an email to the chairwoman of the commission last month, Nuñez said he was sharing his own view, not that of a client. "This bill would prohibit local agencies from discriminating against some by inserting their own interpretation of property ownership," he wrote...
Go tell it on the mountain: The Edge doesn't need five homes here
By Steve Lopez
LA Times
December 23, 2009
Just so you know, it's not easy for me to refer to U2 guitarist David Evans as "The Edge." Sure, there was a time when I referred to myself as S. Lo. But I quickly realized that once you've gone gray, it's hard to get away with anything other than what's on the birth certificate.
And I can't keep a straight face when I tell you that the five eco-friendly castles Mr. Edge wants to carve into the top of a pristine ridge near Malibu already have names. There's "Clouds Rest" and "Panorama," "Shell House" and "Blue Clouds." And my personal favorite, "Leaves in the Wind."
The latter is also the name of a website (www.leavesinthewind.com) promoting the controversial project, which would sit high above the Malibu pier, with a sweeping, miles-long view of spectacular coastline. You'd think a guy from one of the greatest bands in history could come up with a name that was a bit, shall we say, edgier, for a rock 'n' roll compound.
The Malibu area has been buzzing since a video was added to The Edge's website in the last several weeks, perhaps in anticipation of an upcoming California Coastal Commission hearing on the proposal. Against a gag-inducing track of New Age music, with birds tweeting in the background, fawning proponents of The Edge's plans praise the project. His supporters include Bonny Reiss, Gov. Schwarzenegger's former senior advisor, and, more surprisingly, Mark Massara, head of the Sierra Club's Great Coastal Places Campaign.
"It's going to take those visionary leaders being associated with projects like these, that are going to show how to make the California coastline a model of sustainability," Massara says on the video, in which he all but encourages the Coastal Commission to embrace the proposal.
Clearly The Edge is lining up all the political muscle and environmentalist star power he possibly can. He's even got a well-connected PR and lobbying firm -- California Strategies -- backing him up.
And that combination of clout and slick marketing is part of what riles Malibu City Councilman Jefferson Wagner. Although the compound would be outside Malibu city limits, it would require major expansion of a road within the city. Wagner is not inclined to vote in favor, and he's not a fan of the website testimonial, which makes no mention of all the dust in the wind there'd be once the bulldozers take the mountain...
Lobbyists who worked on the Edge's project are urging legislators to approve a measure that could clear the way for his development, which the Coastal Commission rejected.
U2 guitarist may get a second chance at Malibu mansions
By Michael J. Mishak
Los Angeles Times
June 16, 2012
SACRAMENTO — The California Coastal Commission rejected a controversial proposal last year by U2 guitarist the Edge to build five mansions on a scenic bluff above Malibu, saying that it would scar a rugged ridgeline and harm sensitive habitat.
Now, some of the same powerful lobbyists and lawyers behind the musician's quashed development are working the halls of the Capitol to push a bill that could give the rock star another chance at his dream compound.
Environmentalists and state agencies say that if the legislation becomes law, it will undermine the commission's position on his project and also extend to the character and development of the entire California coast and to state public lands.
At issue is how government agencies determine property ownership and how they use the findings in deciding whether to approve development.
Currently, the Coastal Commission has discretion to approve projects in environmentally sensitive areas — and the size and nature of those developments depend on ownership. The agency is more inclined, for example, to turn down a developer seeking approval for a multi-home project than a property owner trying to build a single-family house.
Developers at times try to skirt the issue by claiming each homesite has a different owner. They shield the identities through formation of limited liability corporations.
In the case of the Edge, whose real name is David Evans, the agency denied his plans because it said he was attempting to bypass environmental rules and maximize development by submitting five separate applications, each under a different corporate name.
Under the bill, state agencies would have to accept as fact that the person holding the deed is the property owner. If the state sought to challenge true ownership, it would be held to the same evidentiary standards that apply in the court system. The Coastal Commission and others argue that the standard would hamstring public agencies because they have none of the court system's tools of discovery: subpoenas, depositions and sworn testimony.
Sarah Christie, legislative director for the Coastal Commission, said the result would be a chilling effect on public agencies' abilities to carry out their missions, giving any developers who game the system more clout and potentially leading to "more fragmented, inappropriate development" along the coast.
Environmentalists cast the bill as a power grab by developers and special interests, including Evans.
"The forces who want to maximize their profit above all else are seeking to rewrite the rules in such a way that ensures the state government has limited ability to oversee and to take care of our public trust resources," said Adam Keats, an attorney with the Center for Biological Diversity.
The bill's author, Assemblyman Ben Hueso (D-Logan Heights), said he introduced the bill to rein in what he sees as an overzealous bureaucracy that uses arbitrary standards to block development, a notion shared by the California Chamber of Commerce and other business groups. Its purpose is not to advance the interests of the U2 guitarist, Hueso said.
Hueso, a former coastal commissioner, said the measure would end the commission's "very abusive strategy to prevent someone from developing even an environmentally friendly project." He said public agencies would still have the resources to investigate ownership.
"If we have every agency in California cherry picking projects they don't like, it's going to create an enormous problem in our ability to do business in California," he said.
The legislator said he got the idea for the bill from Paul Bauer, one of the lobbyists Evans hired last year to help him before the Coastal Commission.
Former Assembly Speaker Fabian Nuñez, who also worked as a consultant on Evans' development, has lobbied the agency to support the legislation. In an email to the chairwoman of the commission last month, Nuñez said he was sharing his own view, not that of a client. "This bill would prohibit local agencies from discriminating against some by inserting their own interpretation of property ownership," he wrote...
Subscribe to:
Posts (Atom)