The Corporate Observer : Washington D.C. Class Action Lawyer & Attorney : Steven Berk Law Firm : Consumer Protection, Corporate Abuse : The Corporate Observer Blog

                The people of Massachusetts have spoken.  Change.  It’s not happening fast enough.   That sentiment was strong enough to elect an obscure, and a little known State Senator whose only claim to fame is a mostly nude centerfold in Cosmopolitan magazine. Oh poor Ted Kennedy must be rolling in his grave. 

 Well … these change seekers are not going to be particularly happy with Barney Frank and his steerage of H.R. 4173, which includes the Investor Protection Act of 2009. Is this really the best he can do?  It’s the classic inside the beltway compromise.  The lobbyists for the financial services industry sure had their say. At best, any protection for main street investors is subtle and at worst pyrrhic.

 This is a horrible conclusion to a story that should have turned out much better. One glaring example of this weak compromise is a provision seeking to curtail the lock that brokerage and securities firms have over any customer dispute:

Home field advantage

We all know its potential importance.  What football team wants to travel to hostile stadium for a crucial game? Well its worse for investors trying to recover for valid claims against their brokerage firms.  Not only must they play on the enemy’s turf but the enemy also gets to select the referee.

 As it currently stands, brokerage firms require customers by standard agreements to arbitrate their disputes over broker misconduct (like putting grandma in a deferred annuity that has limited liquidity and no tax benefits while reaping an excessive commission). 

The forum is the Financial Industry Regulatory Authority (FIRNA). The arbitrators are too often sympathetic to the industry and their attorneys.  So, in this season of change what does the great champion of the common man push for?  A ban on these one sided arbitrations?  Well no not exactly.  The reform we’re seeing in this area is a “punt” at best.  The legislation grants new powers to the SEC to control, limit and even prohibit the use of mandatory arbitration agreements in brokerage contracts.  The SEC?  The same SEC that missed Madoff even when he was delivered on a silver platter by the insights of Mr. Markopoulos? The same SEC that dawdled and debated as the financial sector headed toward the abyss?

            Take it from me – from someone who spent some time at the SEC and saw how slowly it works – nothing will change for years; and by the time it does, the result will be more of the same. 

             More is needed faster. 

 Private Pursuit of Accomplices:

              On the Senate side there is more room to be optimistic. In nearly all of the Ponzi schemes and widespread frauds of the last several years, the bad guys could not do it alone.  They were all helped by the blind-eyed or negligent banker and accountant who, recklessly or with actual knowledge, placed investors in harm’s way and too many times was integral in creating or hiding a fraud. Arlen Specter to the rescue. The Pennsylvania Senator has introduced a bill which states that those individuals who knowingly or recklessly provide assistance to fraudsters whose actions are in violation of securities regulations will be held responsible as if they were committing fraud themselves.

Lawyers and accountants who may unwittingly enable fraud will still be exempt from legal pursuit, but banks, traders, and other individuals whose actions have led to the loss of billions of investors’ dollars in the past may soon be held responsible.

Significant and fervent legal action against accomplices of securities fraud will lead to reform of industry practices. The expected provisions in the Senate bill will enable trial lawyers to protect consumers by forcing the industry to regulate itself for fear of prosecution by a vigorous private bar.

The Future

After a long healthcare battle, recent struggles with terrorism, and a battle with a still fledgling economy, we hope that Congress does not lose its steam in pursuing fairness and justice for American investors. We at The Corporate Observer know that the best reform is increased involvement of investors in the financial system. If the Senate passes the reforms that we are seeking, the investors of America can look to the future of investing with increased confidence in their own ability to pursue fraud and protect themselves from unjust practices.

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“Bank of America” implies a bank that reflects the American spirit; a spirit based on cooperation and unity. America is a nation of citizens who lean on each other, lend a hand, and particularly in hard times, work together toward a common good.

Sadly, the real Bank of America fails to reflect these core values. Without remorse, it casts out loyal customers and strands Americans who suffer its exorbitant fees. How dare such an organization call itself the Bank of America.

Bank of America has repeatedly lied to its shareholders, embraced the worst practices of subprime lending, and supported Ponzi schemes that victimize innocent investors. And now this…

Bank of America fired Customer Advocate Jackie Ramos. Why was Ramos fired? She was doing her best to help others in a time of need. She was being an American.

Specifically, Ramos was fired for approving modification programs or lowering interest rates for customers who could not afford their charges. In short, for helping customers.

Bank of America must shed its name. Until it changes its mission and works for—rather than against—the American ideal, it does not deserve to tout itself as America’s bank.

Please visit our blog to select what name you think best suits Bank of America. Here are some suggestions that readers have submitted:

• Bank of Shame
• Bank of the Few
• Bank of Greed

Assisted by Jessica Begen.

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Shareholders of Goldman Sachs are flexing their muscle in response to management’s approval of record bonuses and executive compensation. The Wall Street Journal reported on Friday that investors in Goldman Sachs are expressing frustration in analyst meetings and in personal conversations with the Goldman board. Investors’ main concern is that per share earnings are down while executive compensation is up, way up! 2009 per share earnings are projected to be 22% lower than those in 2007, while employee compensation and bonuses will set a new record of at least $717,000 per employee in 2009.

Goldman attempted to allay investors’ frustration with statistics citing its strong, long-term growth. Goldman has generated a return of 159% over the past 10 years compared with negative returns for the S&P 500 average over the same time period. However, Goldman Sachs’ board members seem to forget that the company is owned by its shareholders. The decline in per share returns in the same year as record employee compensation is unacceptable. The investors ought to have proportional rewards for the company’s success.

As Nell Minow, a leading advocate for shareholders’ rights, wrote in a recent CNN op-ed, “It is time for America as investors and as citizens to be ruthless in forcing Wall Street to prove that the return on investment for every dollar spent on executive compensation provides competitive returns”

The lesson:     Shareholders expect more. Plenty of Wall Street banks continue to carry out overly risky investment schemes and engage in business with shady and criminal characters (just see many of the posts on this blog). Following the precedent of disgruntled shareholders speaking up and engaging in discussion with Goldman Sachs, we hope that other investors will heed the call to question the practices of every major financial institution. The general masses can cry foul until the cows come home, but only investors have a vote on change and the protection of sound business practices. A stable, thriving economy will only be achieved with the solid voice of investors reining in the excessive practices of Wall Street. In today’s economy, investors must demand transparency, responsibility, and respect for the shareholders.

Assisted by Zach Kady

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 The number of melanoma cases is increasing at a rate higher than any other form of cancer. And a disproportionate amount of these new cases are found in young women.

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This past July, indoor tanning joined the ranks of cigarettes and arsenic, finally earning classification as a bona fide carcinogenic. The International Agency for Research on Cancer (IARC), an expert committee of the World Health Organization, placed tanning beds in the highest risk category, declaring them “carcinogenic to humans." 

Indoor tanning in the U.S. makes up a $5 billion industry, with 25,000 professional indoor tanning facility businesses and a customer base of 30 million people. Each year, 10% of Americans visit an indoor tanning facility. 2.3 million are teenagers. 71% are women aged 16-29.

On its public website, the Indoor Tanning Association heralds the benefits of indoor tanning. ITA says tanning is natural—“what your body is designed to do.” Moderate exposure to the sun or UV light is “absolutely” good for you and in fact, indoor tanning is actually safer than outdoor tanning. Skin cancer—the elephant in the room—merits no concern, says ITA. There is no association or “connection between melanoma and UV exposure from tanning beds.”

The tanning industry markets itself as a healthy and beneficial service. “Tanning is a lifestyle. Tanning is relaxing and makes us look good and feel good. So why not celebrate it?!” asks the 2008/2009 LOOKING FIT ® Tanning Fact Book.

According to medical experts, there is little reason to celebrate. There is “convincing evidence to support a causal relationship” between indoor tanning and melanoma, says the IARC report. Moreover, the study suggests that indoor tanning is particularly dangerous for young customers, since exposure to indoor tanning before the age of 35 may increase melanoma risk by 75%. And all of this is taking place as melanoma rates continue to skyrocket.

Despite the high risk, teenagers are a prime demographic of the tanning industry. Most of the 2.3 million teen customers are girls. A 2000 survey found that 42% of teen girls had tried indoor tanning. That’s nearly half of all American teenage girls—a startling statistic.

Research suggests that these girls are influenced by an adolescent culture that worships tan skin. Although many teens are aware of the health risks associated with tanning, they continue to seek UV ray exposure. "We're so wrapped up in the instant gratification we don't really worry about it," explains one teen.

But that instant gratification has consequences, above all for young tanners. Professor of Public Health at San Diego State University, Joni Mayer, says that tanning is dangerous for all, but especially for teens because they “are very interested in looking tan and don't often think about the consequences of any of their behaviors."

Mayer’s solution is simple: "Our data and other data indicate that those under age 17 need to be banned from tanning beds."

Assisted by Jess Begen.

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New authoritative studies continue to confirm the significant link between indoor tanning and cancer. Despite these reports, teens and young adults continue to visit tanning salons in record numbers.

Surprisingly, the public remains largely silent as this public health risk progresses. The strongest voice in this debate comes from the indoor tanning industry, which continues to extol the false virtues and health benefits of indoor tanning. Where is the public outrage?

Our law firm has a keen interest in halting the availability of indoor tanning to minors and strengthening the disclosure of risks to young adults. This is an important public health issue. We are devoting a three-part series to: 1) explain the cancer risks of indoor tanning; 2) explain the results of indoor tanning; and 3) analyze the responses to indoor tanning.

We hope this series generates a response from teens that are at risk of indoor tanning and their families. It is time to engage in a meaningful conversation on how we can move forward to protect youth from the significant and real cancer risk associated with indoor tanning. 

Assisted by Jess Begen. 

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WAMU’s complicity in the scheme resulted in the defrauding of millions of dollars from thousands of investors.

Berk Law, the Law Offices of Keith L. Miller, in tandem with Cotchett Pitre & McCarthy filed an action in the United States District Court for the Northern District of California on behalf of victims of a $150 million Ponzi scheme involving thousands of defrauded investors and the promise of safe, high yield CDs. The scheme, centered in Napa, California, was the brainchild of William Wise, who has a long a record of securities violations. The defendant in the case is Washington Mutual Bank, which Wise used to facilitate the operation of his scheme[1].

Specifically, Wise used two branches of WAMU located in Napa California to deposit, transfer and wire throughout the world the money earned from his illicit activities. Eventually, as Wise’s account grew, WAMU’s branch manager in Napa suggested he obtain a remote deposit facility (often referred to as a reverse ATM). Before that device was provided, WAMU was required to audit Wise. WAMU also suggested Wise obtain software offered to the bank’s larger clients to direct and manage a high volume of wire transfers. This tool again required a WAMU audit. This second audit was run from WAMU’s treasury department in Seattle, Washington. By providing these special services, WAMU knowingly provided Wise with his own private “bank within a bank”.

As the complaint alleges, WAMU learned of Wise’s illicit scheme thorough two audits by two different managing departments, but nevertheless allowed Wise’s activities to remain unchecked. WAMU’s complicity in the scheme resulted in the defrauding of millions of dollars from thousands of investors.

During this time period, WAMU had been operating under a Consent Decree issued by the US Office of Thrift Supervision in 2007. The decree was in direct response to WAMU’s previous failures to comply with numerous federal anti-money laundering statutes including the International Money Laundering Abatement and financial Anti-Terrorism Act of 2001, the Money Laundering Control Act of 1986, and the Bank Secrecy Act of 1970. The Consent Decree, among other things, ordered strict compliance with bank secrecy and money laundering requirements, and called for new and improved policies for maintaining compliance with federal banks secrecy and money laundering laws.

Steven N. Berk, Counsel for the plaintiffs remarked, “WAMU’s history of putting profits above compliance to capitalize on the mortgage bubble is well documented, but only now are we seeing that same corporate culture spilling over into taking risks in other areas such as the support of illegal and shady investment schemes.”

Assisted by Zach Kady

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The New York Times reported yesterday that the Federal Reserve will move to restrict banks’ abilities to charge overdraft fees.

The Fed’s new rules will have multiple impacts on consumers’ relationships with banks:

1.      Most importantly, all consumers will be notified of debit card policies and fees in clear, easily comprehendible language.

2.      Starting July 1, 2010, banks will no longer have the ability to charge exorbitant overdraft fees on most common purchases.

3.      Customers will have to opt-in to overdraft protection policies in order to be subject to them.

4.      If a consumer does not opt-in to overdraft protection, he or she will simply be denied at the register for purchases over their available balance.

Overdraft fees will still be charged for purchases made by check and on recurring debit card payments (i.e. auto-pay monthly bills). However, purchases at retail stores will not be subject to overdraft and withdrawals at ATMs will trigger a warning that a customer is about to overdraft. Only if the customer chooses to continue with their withdrawal will they be charged an overdraft fee at an ATM. According to the NY Times, the distinction between types of payments was made in response to consumer satisfaction surveys. These surveys concluded that consumers are less aggravated by fees on checks and recurring payments than by fees on retail purchases and ATM withdrawals.

Currently, consumers can be charged overdraft fees upwards of $30 for purchases far less than the fee. Under these current conditions, a $3 cup of coffee that pushes an account below zero could cost a customer 10 times that amount in fees. As we described in earlier blogs, overdraft fees are essentially high interest loans made without the consent of the consumer. The Fed’s realization of this injustice and action to remedy it, however dilatory, is highly praised.

This recent move is a step in the right direction, and one The Corporate Observer has advocated for in the past (see: “Big Banks Strike Again: High Interest Loans Disguised as Protection”). Consumers’ rights to full disclosure in the banking world are of paramount importance and the Fed deserves congratulations for its responsible action.

Assisted by Zach Kady

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Is an extra profit really worth jeopardizing the health of thousands of American consumers?

Generally, this blog focuses on the greed of the financial sector, but today I would like to shed light on the misconduct of a major pharmaceutical company. Companies like Pfizer have been putting profits over compliance to the detriment of society for years.

Pfizer was recently fined $1.19 billion in criminal penalties for the off-label marketing of Bextra. After rigorous testing, the FDA approved this drug for the sole purpose of easing arthritis pain and menstrual cramps. However, Pfizer employees, hungry for an extra profit, illegally marketed Bextra to doctors as a cure for all types of pain. This is referred to as “off-label marketing” and is illegal in most countries. In the United States, Federal Law prohibits pharmaceutical companies to market a drug to doctors or consumers for purposes other than those approved by the FDA and delineated on the drug’s label. According to Bloomberg, Pfizer also paid $1 billion in civil penalties relating to Bextra and two other drugs on the same day.

OVER $2 BILLION IN ONE DAY!   WHY SO MUCH?

Simply: Marketing off-label uses of drugs is almost always illegal.

I’m sure many of you are thinking, “I’ve had my doctor prescribe a drug meant for one illness in order to cure the symptoms of another.” Don’t worry; this is a common and legal practice under the Food, Drug, and Cosmetic Act. It can be a tricky legal matter, but the law permits doctors to prescribe a drug for any purpose that they deem safe and reasonable. Off-label prescription is particularly common in pediatric medicine. In fact, in an October 22^nd interview on NPR, Dr. Sydney Spiesel claimed that between 50% and 70% of all medications used by pediatricians are off-label but useful. Doctors learn about the off-label uses of drugs through medical journals and independent lab testing. Most drugs that are prescribed off-label are older and have been proven for other uses through extensive research and use.

So, why $2 billion in one day? Pfizer’s crime was marketing  Bextra and other drugs to physicians without solicitation and for uses other than those approved by the FDA. In short, off-label prescription by doctors is fine, but off-label marketing by pharmaceutical companies is expressly forbidden.  Prohibition of off-label marketing was upheld by the Supreme Court in USA v. Z Cosmetica U.S.C. 21 §§301-97. Any reasonable reader can see that overzealous marketing of off-label uses of pharmaceuticals would lead to a country flooded with “wonder drugs” – not a safe place if you ask me.

In its “Who We Are” portion of its website, Pfizer claims that it “believes that patients benefit from information about diseases and medical treatment options” and that “In order for patients to make good decisions about their health, they need access to health information.” This is an excellent policy, but while it recognizes the importance of access to information, Pfizer has shamefully ignored FDA regulations in attempts to supply its own version of the pertinent facts to doctors and consumers.

Pfizer and other companies need profits as incentives to work quickly and efficiently, but putting profits over compliance and ethics should be strongly discouraged.  Compliance in the world of pharmaceuticals translates to public health and safety. Is an extra profit really worth jeopardizing the health of thousands of American consumers? Hopefully the pain of the most recent fines will steer Pfizer’s shareholders and board members toward the right answer.

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