Congratulations Heather Peters. You took on one of the largest automobile companies in the country and won! The facts are simple. Honda promises its Civic Hybrid will get 50 miles per gallon. Ms. Peters (and 200,000 others) believe them. But they don’t get 50 miles per gallon. In fact, they don’t get anything near 50 miles per gallon. It seems Honda’s numbers come from a very controlled government-performed test that is run on an empty race track, with the wind, running down hill, cool temperatures, driving an empty car (or something like that). Suffice it to say, the numbers advertised don’t come from that day you were stuck in rush hour on a hot afternoon with your family of four (and Bernese Mountain Dog) while returning from the grocery store before heading off (ooops need to slam on the brakes) to soccer practice. Add to that: The hybrid system began deteriorating shortly after the car was purchased, further diminishing gas mileage.
Ms. Peters, a former attorney, was awarded $9,867 for Honda’s misrepresentation of the Civic Hybrid’s gas mileage. Not bad, considering a proposed class action settlement would have only paid her $100-$200 and a $1,000 coupon to be used towards a new Honda (that may or may not have accurate mileage figures).
Consumers are the engine of our economy. They can make or break a company. Ask Kodak or Living Social or Netflix. But at the end of the day, they wield very little power when things go wrong. Corporations are more organized, sophisticated and—in the end—better at defining and limiting the rights of consumers. My guess is Honda is hard at work—no, not improving its mileage figures—but on a sales contract that forbids consumers from filing claims in small claims court.
But Heather Peters’ victory should not only ring loudly in the halls of Honda’s Torrance, California headquarters, but also in every class action law firm in the country. You guys (including yours truly) must do better for consumers—or we will be replaced by the scrappy, take-no-prisoners, make-no-promises "Heather Peters" of the world.
File this one under “no good greed goes unpunished.”
Well, at least this greed won’t. Today, the Department of Justice will file a series of criminal complaints against former Credit Suisse traders. The traders are accused of exaggerating the value of asset-backed securities in the days leading up to the financial crisis. (In fact, some are already planning to plead guilty—there must be some smoking-gun evidence.)
I’m not sure which is more revolting, the amount of the traders’ exaggeration (a cool $2,850,000,000) or the motive behind it. You see, at Credit Suisse and other Wall Street banks, bonuses are calculated based on the investments attracted by a trader—his “portfolio.” The bank receives commission on the investment; the trader receives a bonus in some proportion to his portfolio. These brilliant traders realized that by overstating the value of securities, they could dupe investors into sinking money and reap the benefits come annual bonus time. “It's genius, Freddy. Here comes Ferrari number three.”
Pessimistic about human nature yet? Let’s not go that far—these were just a few bad apples—but could there be a clearer rallying cry for regulation of Wall Street bonuses? Heck, John Dillinger only robbed banks of a few hundred thousand dollars over the course of his “career,” and they created the FBI to catch him. I’m no economist, but I’m pretty sure $3 billion today is worth a bit more than $300,000 in the ‘20s.
Look, I’m not proposing we create a new bureau. In fact, we already have. Elizabeth Warren proposed it, Richard Cordray leads it, you know… The Consumer Financial Protection Bureau. That’s right, who is more suited to regulate and oversee corporate bonuses than the bureau founded to protect consumers? President Obama was adamant about his commitment to consumer protection during his State of the Union, and an example like these Credit Suisse morons—er, traders—shows how negatively the incentive for bonuses can impact Main Street.
Hopefully Cordray and the CFPB will see the writing on the wall here, but in the meantime, kudos to the DOJ for their diligence.
With great fanfare, the President announced during his State of the Union the formation of the Residential Mortgage-Backed Securities Working Group. The mission: “To expand our investigations into the abusive lending and packaging of risky mortgages that led to the housing crisis.” It’s headed up by an all-star cast of law enforcement elites: Robert Khuzami, Shaun Donovan, Eric Schneiderman, John Walsh, Tony West, and Lanny Breuer. But here’s the problem:
First, did someone check the calendar? This is 2012. The mortgage crisis occurred in 2008! Taxpayers have already footed the bill to the tune of hundreds of billions of dollars. Remember that little thing called the TARP? So what now? Memories have faded, defenses have been constructed, people have moved on.
My former boss at the Department of Justice, Eric Holder, knows how to fight crime. He sat for a time as a Superior Court Judge in the District of Columbia and later as US Attorney for the District of Columbia. He’s gotta know this isn’t how it’s done. You don’t send the police out four years after the crime. If you are serious about law enforcement, you make sure your agents are pounding the pavement, picking up evidence, getting people to talk—that day. At worst, you get the cops out the next day—but four years later? I don’t think so.
Second, 55 people to investigate and prosecute a crisis that pales in comparison to the Savings & Loan crisis of the 1980s?! It’s a crime that stretched across the country, involved huge and sophisticated entities: banks, mortgage brokers, securities dealers, and investment bankers. The list goes on. And the government has put together a staff of 55? Please. It’s as if the New York Giants traveled to the Super Bowl with only a quarterback, center, and one receiver. Even with Eli Manning at the helm, it wouldn’t be close. Finally, this gang of 55 has 25 million documents to review. Let’s assume they split them up equally: that’s 500,000 documents per person.
It ain’t happening. This is window dressing for an election year sound bite—nothing more.
Richard Cordray is wasting no time at the Consumer Financial Protection Bureau. Forget Senate confirmation, Director Cordray has consumers to protect. With him at the helm, the CFPB finalized its amendment to the rules governing remittances from the United States.
For years, Americans wishing to send money to relatives living abroad have been victimized by predatory and under-regulated companies that charged an arm and a leg—often without disclosing the true rates. No more.
The Dodd-Frank Bill allowed for the CFPB to establish renewed rules on remittances, and (a few years later) the rules have arrived. This is no fledgling industry—over $400 billion dollars in remittances are sent each year. Following the rule changes, on every remittance of more than $15.00 companies will be required to disclose:
Exchange Rate;
Fees Charged; and
Net Money to be Delivered.
The rules also enhance company liability for remittance errors and mandate a 30 minute window for a customer to cancel their remittance at no charge. Before the rule changes (which do not go into effect until January 2013), many money senders had no idea how much money truly arrived in their relatives' hands in South America, or Asia. Banks and other remittance-sending companies charged exorbitant rates and devalued the dollar, shortchanging the oft-unwitting customer. Talk about the American Dream—emigrate to the United States, make enough of a living to send some money back home to your spouse and parents, and have 40% of it stolen by the greedy banks. What could be more American?
Though we are disappointed that we have to wait a year until the rule changes go into effect—how long does it take to draft a disclosure and retrain a few employees?—this is the result of no small effort. Organizations like Appleseed, a group dedicated to seeking social justice, have worked hard in support of this rule and are to be commended for the result.
We look forward to additional efforts by the CFPB in furtherance of consumer protection and fairness. The Bureau continues to seek comments on the final rules at its website.
Imagine this: a credit card company advertises its services to low income families and individuals offering a $300 upfront credit line. Okay, not a pot of gold at the end of the rainbow, but it’s something that may help ends meet at the end of the week. Ahha! Gotcha! But when the consumer accepts the card, smack, “You owe us $257 in fees,” leaving only $43 in available credit. A scam to be sure, perpetrated on those most vulnerable. But this is America, we have the best legal system in the world, surely someone can take my case and put an end to this exploitation and evil. Right?
Nope. The courthouse doors are locked shut. Sorry folks but those wealthy guys on the Supreme Court do not feel your pain. As we’ve blogged before, the Supreme Court held in ATT v. Concepcion that “take it or leave it” contracts mandating arbitration and prohibiting class actions – even where damages are small and only remedied by class actions – are acceptable despite years of contradictory state practice. As a result, arbitration clauses have been added to innumerable consumer contracts.
The Court’s January 10th opinion in CompuCredit Corp. v. Greenwood reinforced the Court’s deference to the whims of corporate desires. Eight justices agreed (only Justice Ginsburg dissented) that the Credit Repair Organizations Act, because its clause providing a “right to sue” is silent on arbitration, allows corporations like CompuCredit to mandate arbitration. This firmly establishes the preference for arbitration even in the face of glaring injustice.
So, ladies and gentlemen, that means the low income families targeted by this venal practice have no right to go to court to seek judicial redress for the fraud foisted on them by CompuCredit. According to the Supreme Court, the “right to sue” means only the right to submit to binding arbitration (which not only often favors corporations but is just a non-starter for working and poor people alike). But, as a practical matter, the only way these low income families or just about anyone can move forward and protect their rights is by joining a class and proceeding in court. And that road is closed until further notice. For another reading, Michelle Singletary’s piece in WAPO summarizes the current state of affairs quite nicely.
Simply put, change is needed. Without congressional or judicial action, consumers will soon find themselves without recourse for a majority of corporate grifting. Rulings like Concepcion and CompuCredit are unacceptable for the low income family tricked into $257 of fees and just $43 of credit. It will be nearly impossible to fight a major corporation for just $257 without the help of an attorney or the cost sharing of a class suit. When class actions are stymied, consumers lose and corporations win – big – or so they think. Eventually everyone loses when the system is devoid of fairness.
I guess he got sick of eating lunch alone. I can see it now, he walks into the SEC’s cafeteria (actually I don’t think they have a cafeteria) and says,”You guys mind if I join you?”
“Sure,” says Head of Enforcement Robert Khuzami, hoping not to offend the respected yet independent-minded and powerful Inspector General, H. David Kotz. “But actually we were—hmmmm—just leaving.” And so it goes, another lunch alone.
Next time, he figures, he’ll just work through lunch. Since 2007, Kotz has produced some stinging and thoughtful reports on the failure of his agency to do its job. He will be best known for his thoughtful, take-no-prisoners critique of the Commission’s failure to ferret out the Madoff and Stanford schemes earlier. He also highlighted problems at Bear Stearns before its collapse and drew attention to insider trading and conflicts of interest among SEC employees.
We should all commend his tireless service. The role of the Inspector General is a unique one. The French Army had an IG as early as the mid-17th Century, assigned to report to King Philip (or was it Louis?) regarding the state of the army. The United States adopted the position during the Revolutionary War: An Army Inspector General was assigned to training the Continental Army (which was really just an assembly of militias) and ensuring uniformity of tactics. In the three-plus centuries since, the role has expanded in the United States to just about every major governmental department. Mr. Kotz filled the role admirably at the SEC, and at a difficult time. We wish him well.
We now look forward to seeing Chair Mary Schapiro’s obvious choice for his replacement. “Drum roll please...”
To many, the Supreme Court's recent decisions in AT&T vs. Concepcion and Wal-Mart v. Dukes suggest the bell has tolled for the class action mechanism as a tool for consumer protection. This comes at a time when consumers already feel beleaguered by the growing ascent of corporate America and the rise of Wall Street. My new article takes a hopeful view of the future viability of the consumer class action practice. To support my confidence I draw from the practice's long and rich history dating back to medieval England, and encourages class action practitioners to learn from the Qui Tam bar, which has enjoyed growing success as an increasing number of statutes provide whistleblowers with legal protections and financial rewards.
Please read the full article here. Feel free to download and share, and comments are welcomed, as always.
Let’s say the lowest-paid employee at Apple makes $38,700. Mr. Cook makes 10,000 times that amount in total compensation. It is too much to sustain.
Okay, first a disclaimer: I am all Apple, all the time. I’m currently typing on my MacBook Pro; I will be talking later on my iPhone. Later still I will be listening to music from my iTunes account on my iPod. I am now the proud owner of an Apple TV gizmo and if they sold cars, I’d be driving an icar.
So $378 million for the CEO. What’s the big deal? A-Rod makes $250 million and he just plays for a baseball team (oh, that's over ten years, you say?). Worse yet, 7 out of 10 times at bat he’s unsuccessful. And there are lunch bucket executives aplenty making… gulp… tens of millions or more. UnitedHealth Group CEO Stephen Hemsley took in a nice $102 million in 2011; Robert Iger of Walt Disney only made $53 million. Poor guy. So why fuss about Tim Cook? He should be on top of the heap.
First, is it really $378 million? Indeed it is. Not salary (which is a cool $900k), but mostly in the form of a package of restricted stock. He receives half of the stock in 2016; the other $188 million vests in 2021. But believe me, if he went over to the local branch of any bank and said, “I’d like a loan against my Apple compensation,” he could certainly borrow $378 million. More likely he could borrow a billion and buy the bank.
Yep, he’s made bank. The pursuit of bank. The oil that lubricates the capitalist system. I’m all in, but—and here it comes, from the protector of consumers and the 99%—we need to recalibrate.
No, not socialism. But we need a system where the CEO makes 100 times the lowest-paid employee, or maybe close to 1,000 times. But not 10,000 times. Let’s say the lowest-paid employee at Apple makes $38,700. Mr. Cook makes 10,000 times that amount in total compensation. It is too much to sustain. It creates the disparity of the robber baron era; we need to move on to a society that values all contributors.
My love for Apple products goes beyond Mr. Cook’s leadership in the boardroom. It involves the great designers, software engineers, and the guy in the warehouse shipping the product to my door. Don’t pay them all the same, but incentivize them all and save some for a rainy day.
The American consumer could not have asked for a better holiday gift to begin the New Year.
As the election nears, President Obama is flexing his muscles.
The campaign slogan way back when of “hope and bipartisanship” could not have been more inspiring—or more idealistic, but governing has been tough, particularly given a Republican attitude of “no compromises, no backing down, no deals.” While the President has not fared well at hardball—a game he was not born to play—he has signaled a renewed and reinvigorated willingness—fueled by the upcoming election no doubt—to step up from his game of compromise and conciliation. Knowing Republicans would block the nomination, the President has named named Richard Cordray, a 2011 Corporate Observer All-American, head of the Consumer Financial Protection Board during Congress’ recess.
Thank goodness. The CFPB has been crippled without a head. It is a centerpiece of the much-needed Dodd-Frank legislation. Appointing Mr. Cordray will allow the CFPB to begin the work of regulating a fast moving and dynamic sector that to date has remained one step ahead of regulators. Mr. Cordray is surely qualified—he clerked for Supreme Court Justices White and Kennedy, served as Attorney General of Ohio, and even won Jeopardy five times. One of his main initiatives will be to deploy the Volcker Rule, in spirit if not name. Mr. Cordray has promised to expand the Board’s regulatory activities to the non-bank realm. Many of these under- or unregulated firms are the root of the greedy risk-taking that helped cause the financial crisis.
There is a long checklist waiting on Mr. Cordray’s desk, but for now, it's about time Mr. President and good luck Director Cordray. The American consumer could not have asked for a better holiday gift to begin the New Year.
Prosecutors are empowered to defend the rule of law. Sometimes that takes on the form of a civil prosecution. In such cases, the government is out to impose a penalty or fine and often restitution for the wronged party. In more egregious violations of the law, the prosecutor can resort to the criminal code and seek to not only take a wrongdoer’s money (a fine or penalty) but also their liberty (the ultimate sanction).
Of course if you are an alleged wrongdoer, being investigated by the government, you sure hope they are seeking civil charges. It's only money as they say. How much would Raj Rajaratnam have paid to stay out jail for eleven years? $100 million, $500 million? What about a billion? You bet. Ask him while he finishes doing dishes in the prison cafeteria, folding others’ laundry or sleeping in a government-issued cot, in a communal dormitory-style room, a far cry from his Sutton Place penthouse he enjoyed until last week. Eleven years in prison while he misses his children growing up and the last years of his life are spent in shame – That’s quite a sanction.
So Kerry Killinger, Stephen Rotella, and David Schneider must have been thrilled to learn they were only being investigated for civil violations. “Party at my house!” No jail – pheww. The last few years waiting to see must have been tense, but I will bet the champagne (the good stuff) will be flowing New Year’s eve at the Killinger house.
Not only did he and his running buddies at WAMU avoid prosecution but they avoided any sort of fine or penalty. You’re the masterminds of the largest failure of a savings & loan institution in history (which cost the taxpayers plenty) and you think – holy Columbus – this is going to cost me every penny I have or worse yet, a nice chunk of time in jail. Wrong.
Mr. Rotella, this way to the traffic court, sir. All you need to pay is a parking ticket-sized fine (relatively speaking) and you are on your way to Disney World. Keep the $77 million as a parting gift from us – the taxpayers and U.S. Government.
Wow. What just happened? To avoid the next debacle, prosecutors must put the fear of prison and personal bankruptcy in the mix. The cases against former WAMU executives only signal full steam ahead for someone now at a bank or brokerage firm plotting a high risk, high reward, highly leveraged and barely legal scheme to make a quick fortune. That ain’t right.
This year’s team saved lives and contributed billions to our national treasury. We honor their courage, dignity and willingness to stand for justice.
1. Franz Gayl
A consensus pick. While not big on saving money, he made up for it by saving the lives and limbs of our Marines in combat. For that he is the Whistleblower of the Year and earns our number one spot. Mr. Gayl spotted unreasonable delays in the shipping of armored vehicles to protect soldiers on the ground in Iraq. Thanks to Gayl, our soldiers can now expect to receive supplies – notably protective armor – in a more timely manner.
2. Cheryl Eckard
Her courage unfortunately has been clouded by her award, $96 million for providing information about Glaxo-SmithKline’s deficient drug production standards. But she likely saved lives. Ms. Eckard lost her job and risked disdain from her colleagues all for the sake of what she knew was right.
3. Michael Winston
He wouldn’t just go with the flow. To keep his job all he had to do was “hold his nose” and say Countrywide’s corporate governance practices were appropriate. Nope. Enough was enough. Winston had already expressed concern over the corporate culture at BoA (perhaps accurately portrayed by this sign from our friends at Occupy DC) and its prioritization of profits over quality portfolios for customers. Winston was fired following his refusal to lie. His story is a classic David vs. Goliath tale – a lesson to Bank of America and an incentive for future potential whistleblowers to step forward.
4. Bunny Greenhouse
Bunny Greenhouse was awarded $970,000 in restitution, lost wages, compensatory damages, and attorney's fees by the US District Court for the District of Columbia in July of this year. Ms. Greenhouse had suffered poor performance reviews and demotion in retaliation for her speaking up about contract abuse during the Iraq War. Specifically, Ms. Greenhouse pointed out abusive, secret, no-bid contracts awarded to Halliburton subsidiaries. For her courage to speak up and tenacity in defending herself against unlawful retaliation, we commend Ms. Greenhouse’s service as a whistleblower. Though this ordeal began nearly a decade ago, we are happy that 2011 brought Ms. Greenhouse some closure and relief.
5. Harry Markopolos and Friends
This guy is everywhere. He is an independent wicked smart analyst. Mr. Markopolos was well known before 2011 for attempting – in vain – to warn the SEC of Bernie Madoff’s massive fraud. Recently, in August 2011, two whistleblower suits were filed in California and Virginia accusing State Street and Bank of New York Mellon of defrauding pension funds by charging higher fees than they should have. Read our original blog on the story here. It has since become clear that Markopolos spearheaded the investigation, which has also resulted in at least two actions by the Attorneys General of Virginia and New York against the banks. Our hats are off to Mr. Markopolos for his diligent and tenacious work on behalf of the American public. He is surely a future hall of famer.
Think we left someone out? Are others more deserving? Comments on our "selections" are welcomed.
The CFPB is taking important first steps towards its mandate of helping consumers wade the murky waters of personal finance. Click Here
Proof Positive. Sixty Percent of his evaluation was focused on selling risky subprime mortgages. Read this and more in Nicholas Kristoff’s captivating interview with a banker/salesman from Citigroup who seems to have realized the error of his ways. Click Here
Finally, for an interesting spin on the value of regulation as well as the general wisdom of banking and corporate practices, I’d direct you to the scintillating and informative work of Steve Denning. Click Here
Barney Frank, a unique politician and extraordinary American, announced his “early” retirement yesterday. He took on the mightiest among us with aplomb and good humor. As they say in New England, he was “wicked smaht.” Thank you, Barney, for never shying away from protecting consumers.
A member of Congress since 1981, Frank has a long list of accomplishments. In 2008 Frank supported the passage of the American Housing Rescue & Foreclosure Prevention Act, which sought to protect thousands of homeowners from foreclosure. He contended that underregulation of markets led to the subprime situation. Frank also drew admiration from consumer advocates for his instrumental role in the passage of the Credit Cardholders’ Bill of Rights Act of 2008, which establishes fair and transparent practices relating to the extension of credit. A champion of equal rights, Frank is known particularly for his LGBT platform, “the right to marry the individual of our choice; the right to serve in the military to defend our country; and the right to a job based solely on our own qualifications.”
The Corporate Observer has applauded Barney Frank in the past for his efforts to build confidence in American companies and limit fraudulent schemes before they metastasize. The whistleblower provision of the Dodd-Frank financial reform bill encourages individuals to stand up against corporate, securities, or government misconduct by offering protection and monetary incentive. As mentioned in previous posts, the whistleblower incentives will help solve an immense problem plaguing our economy today: unchecked, gambling financial executives that helped bring our economy to the brink of collapse. Today, consumers are paying the price for corporate America’s greed. Tomorrow, the SEC, side-by-side with Dodd-Frank whistleblowers, will ensure that we do not make the same mistake twice.
Barney Frank leaves us at a time when Washington needs him more than ever; but power partisan politics finally got the best of him. He's run an ultra-marathon for consumers and it is time to take a victory lap. We will miss his quick wit, outspoken courage, unconventional speaking style, and most importantly, his legacy for speaking from the heart—something we don't get enough of in our nation's capitol.
More than one third of U.S. states allow borrowers who can’t or won’t pay to be jailed.
Yes, jailed. Think Shawshank Redemption, the Birdman of Alcatraz. Jail, a 6' x 8' cell with an open toilet, a sink, two cots, and cellmate (and new best friend) Max, who is nothing short of 6’5”, 300 pounds.
The burgeoning debt collection industry appears to employ a tricky strategy, one which is either deceiving judges or convincing them. The FTC oversees and enforces the Federal Debt Collection Practices Act, which imposes strict rules. No leg breaking or finger bending, no death threats, no threat of jail. That’s right, collectors can’t even threaten jail, but judges in states such as Illinois are making threats unnecessary. Collectors have been successfully seeking criminal contempt of court judgments against debtors for failure to pay adjudged debts or failure to show up for court (sometimes without ever knowing they are due in court). When these judges issue arrest warrants, the debtors—often just regular Joes with an outstanding credit card bill—end up in prison. In the end, debt collectors and judges circumvent rules against jailing in civil matters by making the issue out to be a criminal one. Clever.
In a survey of only nine counties, judges had signed off on more than 5,000 such arrest warrants since 2010 alone. If a warrant is issued in your name—rightly or wrongly—you can be cuffed at any moment. You might be stopped for speeding or making an illegal left turn. They run your driver’s license and boom, the next thing you know you are handcuffed and in the back of police cruiser, wondering what hit you.
My first concern: How the hell can you lose your liberty for failing to pay a private debt? I thought that practice was abolished almost 200 years ago.
Second, how—after all the abuse we’ve seen in the sub-prime mortgage market, with robo-signing and other shady practices—can debt collectors be trusted to get it right? To not abuse a statutory process? To actually follow a procedure and afford debtors all their due process rights? Much more likely, collectors will abuse the added leverage in prying money from struggling Main Street-ers.
Finally, where is the outrage??? I found this issue buried on Page C3 of today’s Wall Street Journal. Instead its eradication should be a primary focus of the Occupy Wall Street movement and a priority of the new Consumer Finance Protection Board. Fortunately, Illinois Attorney General Lisa Madigan has taken up the cause. Debtor's prison should have disappeared with the buggy whip, over 100 years ago.
Yesterday’s effort by 1,000 riot police officers to clear protestors from Frank Ogawa Plaza in Oakland—and today's follow-up in New York's Zuccotti Park—will do little to diminish the movement. In fact, it may instead strengthen forces on the ground, and those safely participating in their homes and offices by emailing and blogging away.
Occupy Wall Street has been a catalyst following the financial crisis of 2008, the ascendancy of the Tea Party, and perhaps most egregiously, the bonuses and big checks retuning to Wall Street. Millions were fed up. Occupy Wall Street provides a spark, a newfound legitimacy and passion for progressive goals. 1000, 10,000, even 100,000 riot police will not diminish that spark.
It happens so fast. One day they are here (Lehman Brothers, now MF Global), the next day they are gone. Poof. How is it that these multi-billion dollar institutions, with thousands of employees, simply disappear in a day?
Ok, fine. Business is bad, lay off a few folks, reduce bonuses, no more free soda and snacks in the refrigerator, “folks we need to tighten our belts.” But all those steps are skipped. First stop, bankruptcy. Close the doors, auction off the artwork, and will the last person in the office please turn off the lights?
Is this a failure of regulation? Hardly. The problem is one word: greed. Add a little leverage and a high tolerance for risk and you are ready to destroy a company.
Take the case of Senagovenor Corzine and MF Global. After being defeated in his effort to remain Governor of New Jersey (which cost him, say, $50 million), he heads back to Wall Street mad as hell. His legacy cannot be one of a defeated-incumbent-turned-lobbyist for the Chinese Dairy Industry or some such obscure posting. Nope, he’s going to show them. He is going to transform MF Global into the most profitable and powerful firm on the Street.
How? A five year strategic plan? A new vision for a new century? Nope. Just start trading. Or rather betting, and big time.
"Let’s see, hmmmmm where could we make a few billion? Fred, you head up our equity desk, what do you think?” “Well Senagovenor, how bout Baseball cards?” "Baseball cards, you’re killing me. Besides the Honus Wagner rookie card, baseball cards are worthless until they can be securitized. Anyone else?” "How bout Ming Dynasty porcelain? The Chinese are entering the market and prices are sure to skyrocket." "Same problem. No derivative market to hide our big bets. Fellas, come on, we need something where we can make some money fast. Nancy, you’ve worked in the mailroom for six days, what do you think?" “European debt, Senagovenor, sir. Nearly a trillion or more. And no way Merkel let’s them fail.”
"Let’s hear it for Nancy in the mailroom. This is brilliant. I did this at Goldman, but now we can leverage the heck out of our bets – maybe even borrow some cash from our customers to really expose ourselves, oops I mean position ourselves for some real profits. My old friends will see I am still brilliant and at the top of my game..."
A faint voice is heard from the corner of the room, “Sir this is Louis from legal. I don’t think the regulators are going to buy this, especially borrowing from customer accounts.” "Thanks Louis, but don’t you worry, I will have those regulators eating out of my hand."
And so it goes. Wall Street profits come from trading which means risk, and in the case of MF Global it results in doubling down on a bad bet that destroyed a company. Poof.
Some links that will get you ready for the coming weekend:
Many of the biggest banks have begun to backtrack on their announced debit card fees. The banks had planned to charge between $3.00 and $5.00 to use debit cards for purchases. Wells Fargo continues to test the fee in five states, but JPMorgan and Citigroup have cancelled their plans. Be sure you know your bank's policy as they yet again try to gouge unsuspecting consumers for whatever they can take.
In related news, Smart Money reports on increased incentives to switch banks. While Bank of America and Wells Fargo levy debit card fees (really, guys?), and other large banks charge for checking accounts, banks -- especially smaller banks -- are sensing a window of opportunity. Maybe Adam Smith's invisible hand will lead depositors to the straightforward, honest banks, forcing the larger banks to follow suit.
The United States isn't the only country where executive compensation continues to rise at an absurd rate. Great Britain has similar national statistics -- executive compensation is growing at a rate three times the growth rate of companies' share prices -- and their economy is doing no better than the United States'. (Maybe a hint for the "Occupy" protesters, who have been criticized for "lacking direction"?)
America’s economy is not the only one in trouble. Europe is hoping to reach an agreement before this Wednesday on how to resolve their current debt crisis, but not much optimism surrounds the upcoming decision. TIME explains that, based on the EU’s past history of putting narrow political interests in front of the greater good of the union, the new agreement may be DOA—Dead on Arrival.
WikiLeaks founder Julian Assange reveals the secret-exposing site’s financial troubles to the public today. WikiLeaks has halted its publication in the meantime, following the recent blockade enforced by financial companies such as Visa and Mastercard.
The Home Affordable Refinance Program (HARP) throws troubled homeowners a bone—something many can use nowadays. Nearly 1,000,000 financially troubled Americans have capitalized already, and President Obama has announced changes to simplify the process. CNN explains the new set of rules that will allow homeowners to get new loans.
Groupon’s I.P.O. promises to be one of the biggest Wall Street events of the year. Initially pegged at a $30 billion valuation, it may float (okay sink) to as low as $10 billion. A $20 billion swing? That’s real money. Was it a simple misreading of the market that led to this error? What about a typographical or clerical error?
Nope, it was old school accounting shenanigans; namely deceptive and misleading accounting practices. “Hey cut them some slack, they are new and inexperienced and too busy creating a new market.” Yeah, well their underwriters, grown-ups you've heard of like Goldman Sachs, Morgan Stanley, and Credit Suisse— they should know better.
Wrong. They overlooked glaring and large-scale improprieties in Groupon’s methodology. Specifically, Andrew Sorkin writes that Groupon used a made up accounting gimmick called Consolidated Segment Operating Income that allowed the company to account for income without accounting for several expenses. Hmmmm…. The underwriters let that one slide too. Fortunately, however, the SEC (the post-Madoff SEC) picked up on the move and Groupon has since amended its accounting procedures.
What’s really going on here? “There’s a ton of money to be had,” according to Lynn Turner, a former chief accountant at the S.E.C. Forget Groupon for a moment; the underwriters, who used to play an important role in only financing companies whose books were in line and whose financial stability was credible, have turned into “just a sales and marketing agent” (to quote Mr. Turner again). And you can be sure, regardless of Groupon’s final valuation, all of the underwriters stand to add quite a substantial sum to their bottom lines.
Groupon is great. And they may still revolutionize the interaction between online and brick-and-mortar businesses, but do it the right way. No need to rely on what are nothing more than cheap carnival tricks.
I am all in for Elizabeth Warren. Even before the flop. I may not even look at the cards in my hand. Why? One word. She is formidable. Yes, there are many to choose from: smart, (the oft-cited Harvard Law Professor sure is smart), tenacious, straightforward, tireless, charming, persuasive, possessing of the common touch, and possessing the skill sets to scare the heck out of any foe – large or small, hence formidable.
“There is nobody in this country who got rich on his own. Nobody.”
What has become a proclamation; part of a ripple that may become a wave—the OWA (Occupy Wall Street protesters) could do a lot worse. Warren touched on something: the desire to find a cogent response to a powerful conservative message. A message that often controls the agenda of public life.
Adding to the texture of her formadibility is a wonderfully homespun back story, such as waiting tables at her aunt’s Mexican restaurant. And she has also shown a feistyness that one needs in any high-powered election battle. By now it's nearly famous how she took a little jab at my classmate Scott Brown (BC Law) and her opponent. Pretending to seem as offhanded and casual as possible, Warren poked fun at opponent Scott Brown’s nude pictures in GQ, which he took in law school and claims it was all and only about the money. Be fine with me, if he had a record—something, anything. A pickup truck is not a record of service. Professor Warren went on to make clear her own college experience. “I kept my clothes on,” replied Warren when asked how she paid her way through Houston University and Rutgers Law (that is to say: student loans and a part-time job). Told that Warren “kept her clothes on,” Brown commented, “Thank God.”
The Corporate Observer has covered Elizabeth Warren and her CFPB for the last several years. The below posts are a small sampling of the Warren coverage TCO has had:
Entering the workforce, as a young lawyer, women were -- as they always had been -- my colleagues and competitors. But for the first time, I started seeing a distinction between men and women in the workplace.
I was attending a conference at no less than the United States Chamber of Commerce in Washington, DC, just across Lafayette Park from the White House. I was there to see and hear Professor Elizabeth Warren. Since 2008, she hasbeen a powerful voice for consumers; no, she has been the most powerful voice for consumers. And now as she races to get the new Consumer Finance Protection Board (CFPB) up and running, she faces the full court press of corporate, banking and Wall Street interests attempting to derail her.
Professor Warren is straightforward, persuasive and charming. And this was no friendly audience.
My attendance at today’s event at the Chamber reminded me of the harsh reality that we have two teams in Washington. Two sides, Democrat and Republican; left and right; conservative and liberal. Call it what you like. Despite her best efforts atfinding common ground, between those two sides even the mighty Elizabeth Warren will not so easily succeed.
With her brains, charm and experience, Elizabeth Warren will be an advocate for the middle class and consumers. Not just for Massachusetts but for our entire nation. When its time, as they say in my hometown of Chicago, “vote early and often” for Elizabeth Warren. For now send her a check, send her two, at www.ElizabethWarren.com. The country needs her more than ever. Scott Brown, her opponent, is a nice guy and nice looking, but he hardly has the brains, gravitas and devotion to the needs of consumers embraced by Professor Warren.
Apple’s new iPhone 4s will hit the market on Friday. Sure we’d like it to look even slicker and have some features that blow us away, but alas, just some pedestrian changes to what is already the smartest of the smart phones. For example, the already great camera is improved. You can edit pictures directly from your phone, the shutter speed is better-suited for low-light situations, and photo sharpness is increased by 30 percent. The phone also includes a “genie”-like voice activation system that is rather elegant and a relief for many of us who have trouble texting like a 16 year old rock star.
But the 4s won’t help one iota to reduce all those dropped calls, particularly on AT&T. Current reports indicate the AT&T iPhone drops calls at almost three times the rate of the Verizon iPhone. Come on Tim Cook. Consistent service is what we need, not “retina display”—a higher resolution screen. Enough with the gimmicks (though always impressive) and provide iPhone users with better quality phone service. Sometimes it’s necessary to go back to the basics.
Enough is enough. It’s time to tell Apple (and AT&T) we won’t put up with it! If you agree, please contactThe Corporate Observer. We want know. We can help if enough people send us their experiences.
At least once a week a new report comes out detailing inadequacies or improprieties by one or more of the companies involved in the housing bubble and financial crisis... While we read the reports and follow the news, the foreclosures continue, along with the unregulated credit ratings, robo-signings, and predatory lending. Nothing material about our current practices has changed.
If you listen to candidates for President, regulation is the greatest threat to our democracy. (Actually it's never just regulation it's overregulation.) The Chinese owning our debt and growing at five times our rate… nahhh; Al Qaeda gaining nuclear weapons? Nope. Okay… steadily declining scores in math and science for high school students? No, sorry. It’s regulation. We need less regulation, more democracy, and more prosperity. Or maybe just no regulation, absolute democracy, and absolute prosperity. Hmmmmm... Can it be that easy?
No. It's time to look at the facts. At least once a week a new report comes out detailing inadequacies or improprieties by one or more of the companies involved in the housing bubble and financial crisis. On Monday we learn Standard and Poor’s refused to downgrade AAA-rated companies despite damning evidence. By Friday, we’ve forgotten S&P because news surfaces that banks had robo-signers executing their foreclosure agreements. And early the following week, the focus shifts back to S&P as U.S. credit is downgraded and the DOJ brings suit against the credit rating agency. Yesterday, as TCO hero Gretchen Morgenson reports, the FHFA released a report detailing the timeline of Fannie Mae’s discovery of abuses by the teams of law firms assigned to oversee foreclosures.
The takeaway: Fannie was aware early of its lawyers improprieties. Shocking.
While we read the reports and follow the news, the foreclosures continue, along with the unregulated credit ratings, robo-signings, and predatory lending. Nothing material about our current practices has changed. Dodd-Frank hit an impenetrable political wall and credit rating agencies have indemnified themselves by declaring their ratings “mere opinions”. The Boston Globe reporting that “Alex Rodriguez is an overrated ball player” is afforded the same protection as credit agencies saying “U.S. credit is no longer the safest investment you can make.”
So while it is important to assess our past failures, at this point we must take the next step. We need substantially more oversight.
Here are a few modest proposals:
Call the CRAs what they are—oligopolistic pseudo-government agencies—and establish straightforward accountability standards for the ratings they produce.
Separate investment banking and “plain old banking”, as the venerable Paul Volcker has called for. This limits the risk to which regular banks are exposed and allows them to engage in simple money storage and loans.
Limit corporate compensation at institutions that have required infusions of taxpayer money, and require better disclosures to the public as to the risks taken and compensation awarded.
Most importantly: Actually empower the agencies charged with regulating the industries with the authority and resources to do so.
Last night the New York Mets lost their third straight on the diamond, dropping them to 25 games back of rival Philadelphia. This afternoon their ignominious season comes to a merciful end; it will be the third straight season they’ve failed to win half of their games and the fifth straight in which they’ve missed the playoffs. Nevertheless, the Mets higher-ups are no doubt rejoicing.
Why? Yesterday, Judge Jed Rakoff hit a three run homer for the Mets. Not quite a walk off grand slam, but close. Mets owners Fred Wilpon and Saul Katz, all-around nice guys, were facing a lawsuit filed by Madoff trustee Irving Picard. This suit alleges... a string of bad free agent signings. Okay, not really. Rather, the suit claimed they willfully ignored the fraudulent source of “dividends” coming from their investments with Bernie Madoff. Rakoff would have none of it and dismissed nine counts; with the remaining two claims, he imposed a standard of “actual fraud”, making it virtually impossible for Picard to prevail.
“The Bankruptcy Code precludes the Trustee from bringing any action to recover from any of Madoff's customers any of the monies paid by Madoff Securities to those customers except in the case of actual fraud," concluded Judge Rakoff.
Rakoff decided to allow the case to proceed on the two remaining counts of actual fraud. But instead of being on the hook for almost $300 million, the ruling limits Wilpon and Katz’s potential exposure to $83 million. That’s a $200 million plus decision. And that remaining "exposure"? That's potential exposure. They haven’t paid a nickel yet and likely will not. The fraud claims will be nearly impossible to establish absent an insider. Picard must prove Wilpon and Katz had knowledge of the fraudulent activity, and decided to capitalize on the Ponzi scheme at the expense of other investors. Good luck. Judge Rakoff has already called Picard’s evidence “less than convincing in this regard.” After all, Wilpon invested with Madoff because their sons played baseball together, and because he heard of the lucrative returns Madoff promised and, for all appearances, achieved…
They may not be popping champagne in the Mets’ clubhouse this afternoon, another non-playoff season (five in a row??), but they almost certainly are in the owner’s box.
What is the Inspector General of the SEC thinking? Recommending David Becker be investigated by the DOJ for fraud?
Not only is the recommendation absurd under the publicly disclosed facts, but it sends a deep chilling effect across Washington and among those who might consider pursuing a position in public service. I don't know David Becker well, but I have friends who have worked closely with him. I understand him to be a person of the highest integrity. In this particular situation he seems to have acted in a manner that is exemplary, hardly meriting investigation and the expenditure of limited government resources.
The facts. David’s parents were Madoff investors, earning $1.5 million. They were not fund managers or insiders, they made money as unwittingly as the scheme’s victims lost it; there is no allegation they had any idea they were invested in a multi-billion dollar Ponzi scheme. They did not recruit others to the scheme. When they recently died, David and his brother stood to inherit the funds. But as General Counsel to the SEC he was right smack in the middle of the Madoff inquiry. Immediately aware of the potential conflict and an appearance of impropriety, he did the right thing. David alerted not one, not five, but seven officials at the SEC, including Chairwoman Shapiro. They cleared him to continue his work for the Commission, where he worked for no more than 10% of what he received in his work in private practice.
Notwithstanding his decision to immediately come clean, David is being investigated and it will cost him thousands to defend himself, not to mention the significant aggravation he and his family must endure. Can't Inspector General Kotz find something better to do? The role of the Inspector General is to ensure compliance and ferret out impropriety, but here something is missing. Someone is abusing the process. My concern is not just for David Becker but for the thousands of high quality professionals who may pass on public service because it just ain't worth it.
Berk Law is pleased to announce a nationwide class action settlement on behalf of over 2 million Honda Civic and Honda Civic Hybrid owners and lessees. Working with co-counsel from Terrell Marshall Daudt & Willie PLLC, we quickly and efficiently resolved claims that sun visors on many Honda Civics and Honda Civic Hybrids were defective, peeling apart, and impairing both the visor’s functionality as well as the driver’s ability to drive safely.
The settlement applies to all 2006-2008 Honda Civics and Honda Civic Hybrids. The following vehicles are also covered:
2009 Civic 2-Door:
From VIN 2HGFG1…9H500001 thru 2HGFG1…9H523805
2009 Civic 4-Door:
From VIN 19XFA1…9E000061 thru 19XFA1…9E007094
From VIN 2HGFA16…9H300001 thru 2HGFA16… 9H339069
From VIN 2HGFA16…9H500001 thru 2HGFA16…9H511509
From VIN 1HGFA1… 9L000008 thru 1HGFA1… 9L025282
From VIN JHMFA1…9S200024 thru JHMFA1…9S200060
2009 Civic Si 2-Door:
From VIN 2HGFG2…9H700001 thru 2HGFG2…9H702924
2009 Civic Si 4-Door:
From VIN 2HGFA5…9H700001 thru 2HGFA5…9H704687
2009 Civic GX:
From VIN 1HGFA4…9L00000l thru 1HGFA4…9H001442
2009 Civic Hybrid:
From VIN JHMFA3…9S000002 thru JHMFA3…9S009285
Judge William F. Highberger in Cooper v. American Honda Motor Co., Inc. No. BC448670 granted final approval of the settlement at a fairness hearing on Friday September 16, 2011 in California Superior Court in Los Angeles.
As a result of the litigation, class members will receive a warranty extension on the sun visors up to seven years from the date of purchase of the vehicle or 100,000 miles – whichever occurs first. The warranty provides for free replacement of defective sun visors at any registered Honda dealer. In addition, class members are eligible to submit claims for reimbursement from Honda for costs of past repairs to the defective visors.
To date, over 2.1 million notices of settlement have been mailed and the settlement has been met with resounding support. Only 0.0005% of class members opted out of the settlement and only 0.00002% objected to its terms. These figures were considered when Judge Highberger made his ruling approving the settlement at a September 16, 2011 fairness hearing.
To make a claim, or to find out more information about the settlement, visit www.visorsettlement.com.
Additionally, if you are the owner of a defective product or feel that you have been a victim of misrepresentation or fraud, please feel free to contact us either by phone or e-mail. Our contact information is listed below.
We are eager to help all consumers through zealous and effective advocacy.
Today, TCO brings back Quick Links, which keeps our readers updated in the world of consumers.
UBS, one of the largest banks in the world, had one of its employees arrested for allegedly losing over $2 billion, which would essentially eliminate the company’s quarterly profits. The New York TImes' DealBook asks the question we all should: Why are standard banks still allowed to double as investment banks? As TCO has called for, let’s heed the brilliant Paul Volcker and get banks back to doing what they do best—banking.
The New York Times also reports that the British and Swiss crackdowns on the financial and banking industries have been the harshest. Which is as it should be, since four of the world’s eight largest banks—Royal Bank of Scotland (#1, UK); Barclays (#4, UK); HSBC (#5, UK); and UBC (#8, Switzerland)—are located in one or the other. Now if only the United States—Citigroup (#7); Bank of America (#10); and JPMorgan (#12)—would follow suit.
Last but not least, Champion of the Consumer, Elizabeth Warren is running for Senate. She already has the Corporate Observer’s endorsement. Lest I take anything away from her eloquent message, I’ll leave it to Professor Warren to explain her platform here.
Two weeks ago, TCO warned about what appears to be rampant waste in the land of medical supplements (see Part I here). Today we focus on how providers use fear to sell product.
For $28 billion, what do Americans really receive when they buy one dietary supplement or another? In most cases the results are negligible and potentially harmful. So why do so many people buy into this craze of taking a myriad of supplements that too often have replaced eating well and exercising often? Many would respond: “Well what’s the harm in trying?” It is a medical, modern version of Pascal’s Wager. (Pascal reasoned, “Why not believe in God, just to be safe? There is nothing to lose for an incorrect believer and everything to lose for an incorrect nonbeliever.”) Applying Pascal to supplements, the argument goes: Well, why not take these supplements to be safe? It could prevent ailments X, Y and Z.
Why not? What if? It’s all just based on a house of fear. Spending $8.00 on a bottle of garlic tablets in hopes that it may lower cholesterol levels condones lousy scientific research, wastes money and potentially harms the user. And wait until you see how quickly the price adds up. The National Institute of Health (NIH), the U.S. Government’s national medical research agency, published a study definitively declaring garlic in any form does not reduce blood cholesterol in patients with moderately high baseline cholesterol levels, and yet it is still a $77 million industry.
The truth is many of the manufacturers hire their own team of scientists. I repeat: they hire the scientists. Of course these “researchers” aren’t going to bite the hand that feeds them by publishing honest results, results that are inconclusive at best. Instead they use tiny sample sizes and no placebo control group—whatever it takes to skew the results in favor of their clients. It’s like having Greg Anderson, Barry Bonds’ personal trainer and close friend, administer his steroid tests. Guess what, Barry, you tested clean again. Go hit a few more into McCovey Cove.
Are you a victim of this industry capitalizing on your hopes of good health and preventive efforts? Supplements are not regulated by the FDA and thus they are not being held accountable for false advertising and dubious research. While it is unlikely that many supplements do physical harm to the body, much better to devote time and money to healthy eating and maintaining an active lifestyle.
John Cloud, writer for TIME Magazine, took 3,000 supplements over five months, all while undergoing frequent medical checkups. He spent a whopping $1,200 and ended up with negligible health effects at best (see article here). What irked him the most was that his doctor could not even explain one of his positive changes: a 46% increase of high-density lipoprotein (HDL) cholesterol. The doctor hypothesized a couple reasons why it could have increased—one of which was not even related to taking the supplements—but with the supplements containing so many ingredients, it is impossible to pinpoint which causes what. And that’s just how the supplement producers and sellers want it: “We can’t say for sure what caused what… so why not buy a few, just in case?”
While Pascal’s Wager may justify why one should attend weekly services (no harm done; evade eternal damnation), this does not apply to supplement use. I would rather spend my money where I can see definite results—supporting a healthy lifestyle—rather than an industry based on spotty scientific research and questionable advertising.
Are you the victim of supplements? Have you been harmed by using them, or fallen prey to online misrepresentations of their benefits? Contact us at info@berklawdc.com or (202) 232-7550 and we would be happy to discuss potential recourses.
Americans spent just over $28 billion last year on medical supplements. That’s more than the video game industry (just about $20 billion) and about 28 times the education budget here in our nation’s capital. But what are they really getting? Yesterday’s New York Times (click here) exposes some of the shocking dangers of supplements and also highlights the lack of benefits from other non-FDA regulated drugs.
From dangerous chemicals, illegal drugs, and controlled substances, to plainly ineffective leaves ground together in capsules, consumers are tricked every day into purchasing useless or dangerous supplements. These products are available online at amazon.com, ebay.com and plenty of less reputable sites. But that’s not all – you can pick up any number of questionably effective “supplements” at your local GNC or Vitamin Shoppe. So, with unprecedented convenience, we’ve forked over $28 billion, much of it wasted.
This thirst for a cure, any cure to what ails us is hardly new. Recall the snake oil salesmen who by popular legend followed settlers west with potions claiming to be a cure all. And so the tradition continues. Millions of Americans take supplements every day. Some see no results and assume “I’m just not noticing it” or “I’m sure it works for others.” But what if – and this may be harder to swallow than a candy coated supplement capsule – you were duped? What can you do? Are you in danger?
Some of the more questionable supplements seem to be:
Pai You Guo
Glucosamine
Chondroitin
JaDera
This post is the first in a coming series that will attempt to answer the following questions:
What are we buying?
What are the harms and dangers?
Who is being hurt?
What are the warning signs – how can I protect myself?
The FDA and FTC have proven ineffective – what can I do to help?
In the meantime, please feel free to submit your complaints or suggestions for supplements we should keep an eye on to info@berklawdc.com.
Don’t get me wrong, I don’t blame folks for this innovative way to hedge exchange rate dependency, but they are lambs to the slaughter for the bevy of shady dealers out there.
As the economy becomes more global, it’s not just Fortune 500 companies that have a presence or connection with overseas markets and currencies, but it’s businesses as small as a local travel agency specializing in Australian travel or an online retailer selling products made in France that are vulnerable to swings in the value of the U.S. dollar. These mom and pop shops (and I use that phrase with the utmost respect) have increasingly taken on a dangerous new business venture: Forex trading.
Increasingly, and particularly since 2008, these businesses have been hit hard by the decline in the value of the U.S. dollar. In an attempt to soften the fluctuations in the market and counteract their dependency on the dollar, they have followed the lead of behemoths (such as Google) into the Forex markets. By buying foreign currency using U.S. dollars, these entities can profit when the dollar’s value drops relative to the other currency. Sounds simple enough, right?
Hear me please: it is not worth it.
The Wall Street Journalreported this trend among small businesses but they forgot to mention that you can lose every penny. One small-business-owner-tuned-Forex-trader warns to “make sure you don’t take a bath” when the U.S. dollar drops, not realizing your other option (Forex trading) may be drowning in the ocean.
Don’t get me wrong, I don’t blame folks for this innovative way to hedge exchange rate dependency, but they are lambs to the slaughter for the bevy of shady dealers out there. Even for an experienced Forex investor it can be difficult to identify the wolves among the sheep. A company like Google, which has its own department devoted to Forex trading, can afford to take the risk (and has famously made over $700 million in Forex trading since 2008).
Hoping to make a few thousand dollars in the event of a drop in the dollar isn’t worth the risk of running into a shady broker, and trust me there are plenty.
What’s more, if the Journal has caught on, you can bet that the sharks are circling in the Forex pond. I’m no criminal mastermind, but if I’m seeking out naïve investors to scam, there is no more appealing group than small business owners just entering the world of Forex. They have little time to devote, little experience, and there are millions of them.
Small business owners, especially those dependent on the international value of the U.S. dollar, I can see the allure of Forex trading. But I assure you, the drastic risks outweigh the modest rewards.
It looked like consumers might finally be getting a break this summer. Not from the record heat, but rather from some of those mysterious fees, taxes and surcharges that are added to every airline ticket. Last week, Congress failed to pass a bill that would continue an array of taxes tacked on to every airfare. Yes, taxes can go away. The:
7.5% excise tax on all domestic tickets;
$3.70 tax on each flight segment; and
$16.30 tax on international flights
-- all are history for now. How much money is that? The New York Timesreports that the total tax per ticket averaged about $61, or a total of $25 million per day. So, are consumers the big winners following Congressional inaction? Nope.
First they took away meals on most flights, next it was those peanuts and pretzels in tiny foil packets. Now it’s the tax savings. Rather than cutting prices, the airlines simply added a like amount to everyone’s fare. Scoundrels aren’t they? Cynically, airline industry spokeswoman Jean Medina claims consumers’ costs have not increased. She cleverly avoids the fact (as most spokesmen do) that the airlines have manipulated for themselves a windfall. Same plane, same crew, same can of soda, just pay me $61 more. Its outrageous and at a minimum the Department of Justice’s antitrust division should issue some subpoenas to investigate how so many airlines acted in concert to raise prices. (“Ms. Medina, you are under oath…”)
Our hats are off to the few airlines doing the right thing and passing savings along to consumers: Spirit Airlines, Alaska Airlines, and Hawaiian Airlines (yes, that’s all of them). But shame on all the other airlines; at a minimum they should throw us some peanuts. And let’s hope those hard-working civil servants at the Department of Justice have some time to investigate the conduct of an industry that seems to perpetually place consumers at the back of the line.
Is this former 5-time "Jeopardy!" champion ready to follow rock star Elizabeth Warren as the first director of the Consumer Financial Protection Bureau? Consumers can only wait and hope for the best.
I could spend my few hundred words lamenting what could have been; indeed, what should have been: the nomination and battle to confirm Elizabeth Warren as director. But it was not meant to be. She scared the living daylights out of the banks and financial services industry. They cried a river to their Republican friends (OK, they paid for those friends) who vowed to defeat her nomination, and they were likely to prevail. Given the circumstances, I think I would have favored a recess appointment of Professor Warren, but I have faith in the President and his team, and hope they are doing right by the American consumer, the true backbone of our economic system.
We wish Mr. Cordray great success. First, he must kneel to the loyal opposition to assure his nomination, but assuming he does so with enough sincerity to be confirmed, he must be prepared to be bold and decisive from day one. Sadly, the momentum for reform and the protection of consumers has long since passed in Washington. Let’s hope Mr. Cordray can reverse that slide and begin his tenure with strong action and a thoughtful plan for being the consumer’s top cop.
Finally, let’s not say goodbye to Elizabeth Warren as she rides off to her ivory tower. Instead, au revoire. Until we see you again, as... hmmmmm... Treasury Secretary? Or Associate Justice of the U.S. Supreme Court?
A big shout out to the CEO and great protector of Corporate America — oops, I mean Chief Justice of the United States — John Roberts. Yep. Along with his floor mates, these fellas have crushed the rights of consumers this season (or term as they call it) going undefeated. At Roberts side is Antonin “Call me Nino” Scalia; Clarence “I never ask a question during oral argument” Thomas; the kid out of Hamilton Township, New Jersey, “I love big business more than Roberts and Scalia ever will,” swinging Sam Alito; and finally, Anthony “I play away from the basket because I’m afraid I’ll get smacked in the face” Kennedy.
In a huge blow out of consumer rights, the 2010 Supreme Court term saw these guys take away any meaningful right you have to file a lawsuit against your cell phone provider no matter how many drop calls you pay for or simply endure. It is gone. Poof. April 27, 2011, was the last day. It’s now open season, “Pillage me, oh Goddess of Verizon. Make me Sprint through a trail of hot coals and burning embers. You’re AT&T out of luck."
Here’s how this sinister game plan was put up on the chalkboard. It starts with the cell phone providers. We all get those little envelopes from our carriers, it’s now often in an email too. Most of the time, it’s a bill with about a dozen mysterious taxes, fees and charges that add up to real money every month. And sometimes, it’s not even a bill. It’s just four or five single-spaced pages of indecipherable small print, known euphemistically as a “disclosure.” It starts out friendly and all — “Dear Valued Customer,” or something — then deep in the fine print, they’ve added some new provisions to your agreement.
“Wait, don’t I have to sign something?” Nope, Justice Scalia and his boys took care of that several seasons ago. By using your phone, in fact, often by merely unwrapping the package it comes in, you’ve agreed to just about anything they add to your contract. (“Say it ain’t so, Catherine Zeta-Jones!”)
What has been added? Well it’s actually something that's been taken away: your right to file a dispute in court. ("Cell phone owners, take the courthouse key off your key ring. You won’t be needing it any longer"). Like many employers and security broker-dealers, the cell phone companies now require that you bring your claims in a private arbitration proceeding.
So what? So what? Lawsuits are the great equalizer. In a court of law, consumers have a chance to identify, scrutinize and if skilled eliminate and curb bad corporate practices. Time and again over the past one hundred years, aided by the courts, consumers and employees have protected and strengthened their rights by availing themselves to the judiciary and the promise of justice.
Relegated to the more narrow constraints of a private (often confidential) arbitration proceeding, consumers rights are limited and getting more limited. Two critical concerns come to light. First, forcing arbitration eliminates a threat of a lawsuit, which is often more powerful than a suit itself. Main Streeters need all the help they can get against the multi-billion dollar conglomerates. Guess what? The threat is gone. Heck the next thing you know they will force you to stay in your contract despite awful service based on a termination fee that equals a month’s salary. (Oh, they already do that.)
Second, in April the Supreme Court, put on a full court press. In a case called AT&T vs. Concepcion, the Roberts 5 ruled that even within this limited forum of private arbitration you cannot bring your claim as part of class. In other words, trying to leverage the power of millions of consumers (indeed anymore than 2) is gone, history.
Is that a fair fight? In this corner we have AT&T, multi-billion dollar telecommunications giant; in the other corner, we have Natasha, one lone cell phone owner. Well, the Supreme Court has said it is fair; it is the law.
So back to those dropped calls. Those more than annoying daily occurrences. What can consumers do when the promises of Catherine Zeta Jones, the Verizon network, and AT&T's slick new spinning globe don't pan out? Instead you can't get through a business call or birthday wishes with your Mom without a shut down.
First, a disclaimer: we are spoiled. We have more technology at our fingertips than ever in history, than ever imaginable. Do we recognize that cell phones do not perform perfectly? Of course they don’t. We do not expect Jack Bauer-esque smart phone service, downloading the bomb diffusing key in the baggage compartment of a jet at 30,000 feet. Of course not. As consumers, we expect to receive what has been promised and what is reasonable service. A dropped call here or there, no problem. A bad day, OK it happens. But to have every call you make “drop” once, twice, maybe even three times, is unacceptable.
A hypothetical: Let’s assume that AT&T has lousy, and I mean lousy, service in the Washington DC area (think every call you are on drops). Your neighbor, a former AT&T engineer, tells you this poor service is a result of AT&T lacking the network infrastructure to provide the service. And significantly, they know they have the confidential engineering and network studies in-hand. The report says it will take five more years to build out an adequate network. Do they disclose this inadequacy? Do they issue rebates? Hardly. They bury this information (a material omission) and to the contrary they keep on selling and keep on lying.
Try to file a lawsuit? Nope, remember, you agreed you would not. Not only will your lawsuit be dismissed; AT&T might seek sanctions against you. “Fine, I will file for arbitration, I can still do that right?” Well yes, but only individually. No class actions. Good luck getting a lawyer. AT&T owes you a couple hundred dollars for months where your service beyond awful, but you can’t find a lawyer to take on one of the world’s largest corporations for a $100 fee, particularly when the AT&T will be spending hundreds of thousands of dollars to defend itself.
And I'm here to report, we ain't seen nothing yet. Get ready for a wave of new arbitration provisions blocking the courthouse steps for a wide array of consumer claims. This subtle yet often dispositive form of power will keep corporate profits and CEO salaries high at the cost of who else -- the average consumer. It's is just the way it was drawn up on the chalkboard.
Today the Supreme Court denied the 70 percent of Americans who take generic prescription drugs the right to sue those drug companies for failing to adequately warn of possible side effects.
The Supreme Court denying consumers a day in court? Never, never in a million years. Sadly, it seems to be happening on just about a daily basis. In yet another anti-consumer 5-to-4 decision, the conservative majority, led by Justice Clarence Thomas, sided with generic drug companies, shielding them from liability for failing to update their labels even in response to overwhelming evidence of side effects.
In this latest installment of “Strip Consumers,” Gladys Mensing’s prescription for heartburn medicine caused her to develop a severe and irreversible neurological disorder that causes uncontrollable physical movements. If Ms. Mensing had been prescribed brand-name Reglan, she would have had grounds to sue the company for failure to warn. But because she took a generic version of the drug, manufactured by PLIVA, her case cannot be heard in state court, according the opinion written by Justice Thomas.
Abusing (oops, I mean using) the Supremacy Clause (or “preemption”), the Court decided that Congress meant to create two different sets of laws for the same drug when it passed the Hatch-Waxman Act. The act requires generic drug labels to be identical to the labels on corresponding brand-name drugs. So if Reglan doesn’t warn consumers of possible serious side effects, PLIVA doesn’t have to either — and unlike Reglan, PLIVA can’t be sued for ignoring evidence of side effects.
Does Ms. Mensing, along with all other Americans who take generic prescription drugs, deserve less access to the courts simply because she spent less money on her prescriptions?
Clarence Thomas, once again jettisoning his longstanding principles to reach an expedient result, broadly interpreted federal preemption to cover a wider swath of claims. By doing so, he turned the statute on its head, transforming a federal law meant to increase the safety of prescription drugs into one that does the opposite. The same Clarence Thomas who made a career as a darling of the Republican Party, championing the rights of the states over the federal government.
Get used to it folks. Give this Court another five years and consumers may just take to the streets since the doors to the courthouse will be nailed shut.
Today the Corporate Observer welcomes guest co-author David Martin, Office Manager at Berk Law and Director of TCO. Please enjoy.
"Insanity: doing the same thing over and over again and expecting different results."
- Albert Einstein
You reap what you sow. Lazy farming yields poor crops. Lax practices train an undisciplined basketball team. A poor diet leads to health issues. The failure to regulate will inevitably lead to even more dangerous market disruptions and crises.
That’s “crises,” plural, because we’re headed for another one if the Commodity Futures Trading Commission continues to delay regulations on over-the-counter derivatives trading. Though the Commission’s ability to meet the July 16th Dodd-Frank rules deadline has long been doubted, yesterday the CFTC officially announced it will not meet the statutory deadline. Merely a year after the passage of Dodd-Frank, the lobbyists have retaken the highest hill on the battlefield and the regulators are pinned down, unable to protect Main Street. Main Street is left with nothing in its collective cookie jars to save a financial sector wired on greed and designed to maximize risk and profit over long term growth and stability.
Michael Lewis’ The Big Shortsuperbly chronicles the role played by unregulated credit default swaps in fueling risk to a degree never contemplated by the regulators or markets and spurring a financial crisis that brought our economy to its knees. Investor faith collapsed, financial institutions went from unassailable to insoluble in weeks; in some cases overnight. Some of the most venerable names on Wall Street disappeared, others became irrelevant, and we saw exactly how quickly in the age of the Internet and instantaneous trading that not just a market, but an entire economy could be crippled.
As devastating as the crisis was—nationwide unemployment is still at 9.1 percent—we survived, barely, and had the opportunity to return from the brink stronger and smarter. The proverbial “fool me once, shame on you” situation; instead, we are headed towards “fool me twice, shame on me” territory. The lobbyists and future private-sector employers of the regulators have efficiently forced the CFTC to push back its estimated date of rule finalization. Meanwhile, if I’m heading up a bank or financial institution today, my takeaway is, “Don’t take the regulators seriously.”
A year ago, the regulators had all the momentum and political capital in the world. On the heels of a financial crisis that pitted every average American against the financial institutions that created the mess, rules were necessary and urgent. Sadly, that momentum has evaporated quicker than the Miami Heat’s, and it continues to dissipate—pun intended. Those creators of “synthetic derivatives” and other newfangled instruments that leverage the level of risk to extraordinary heights are back, and with this delay they will surely lap the field, leaving regulators in the dust.
The mission of the regulator is not to please the industry it regulates (that’s called a trade association). It is to regulate, to be an irritant, to ask tough questions, to be obstinate at times, to trust in some cases, but to always verify.
It may already be too late, but the CFTC must tighten their chin straps and take the field.
They will frack. They will frack during the day, they will frack at night, they will frack when it is hot and they will frack when it is not…
But what is fracking? Fracking is a short-hand term for a method of natural gas drilling, short for hydraulic fracturing. “Sounds painful.” It is, and more than likely harmful to the environment as well. The process requires the injection of millions of gallons of water laced with chemicals (such as carbon dioxide and nitrogen) into the ground to crack open gas-bearing shale rock.
Would you like to live next door to a fracking operation or share a well?
Even Rex Tillerson, CEO of Exxon Mobil concedes there is cause for concern. "There are risks" to the environment when the industry drills for natural gas in shale deposits, Mr. Tillerson said at a press conference following the oil company's annual shareholder meeting. "We're not trying to characterize this as an activity that does not have risk." Hmmm? Maybe Mr. Tillerson has a 5,000 acre horse farm in Fracking County, Pennsylvania.
But what is even more extraordinary than Mr. Tillerson acknowledging the risk of fracking? The large number of his shareholders (nearly 30%) who demanded—by corporate resolution—enhanced disclosures of the environmental, legal and financial risks of natural-gas production, particularly in connection with fracking. And that percentage is well below the 41% of rival Chevron shareholders voting for a similar resolution.
Garnering that level of shareholder support is something that deserves to be taken seriously and examined more closely. Management can often keep resolutions it does not embrace off the agenda. It’s called “agenda control” and it’s one of the most sophisticated, subtle and effective ways to use corporate power. For some reason, however, this issue made it to the shareholders, who in defeat, gained the attention of management on this important issue.
This story is hardly over. The promise of huge reserves of natural gas being tapped right here in Pennsylvania, New York and Maryland is tantalizing on many levels. But environmental concerns are real, serious and must be respected.
When a member of a Senate or House Committee has the floor at a hearing, picture a large television monitor (think the size of the screen in the Dallas Cowboys’ new stadium) airing commercials of the member’s top 5 political contributors. Big HD screen with stereo sound. It’s a win-win. The political contributors get some nice promotional placements and watchdog groups get a quick view of what might be a motivating factor in the member’s questioning and at times (too often) grandstanding for the cameras. In sum, everyone’s allegiances are in the open for all to see.
An example. The Honorable Congressman Patrick McHenry (R-NC) yesterday accused Professor Elizabeth Warren of lying about an agreement to be available for questioning only in the morning. Surely his rant was merely a proxy for his pent-up anger about Professor Warren’s claimed “unfettered” power at the new Consumer Finance Protection Board. But nonetheless, it was pretty uncivil and unbecoming of anyone—let alone a member of the United States Congress. To believe the Congressman, Professor Warren was responsible for the Great Depression, the Chicago Cubs failing to win the World Series in over a century of trying and if left to her own devices as head of the CFPB, we will see her single handedly destroy American Capitalism.
As the Congressman blathers on, the public (who pays his salary) should be allowed, in living color, to learn more about the Congressman’s two largest, and most reliable contributors: Wells Fargo and Bank of America. Yep. Two banks with combined assets of $3,521,084,250,000[1] (that’s over $10,000 per American).
While he is blasting away at Elizabeth Warren we might as well get a visual of his patrons. Add to those behemoths a list of insurance companies, credit and finance companies, and accountants and you get a good idea of where Mr. McHenry is coming from and where he wants to take us. Can he really be taken seriously when he is beholden to the industry Professor Warren hopes to reform?
Coming next: Handsome golf shirts and hats for members of Congress emblazoned with corporate logos.
New York’s Attorney General is investigating large banks in connection with their role in the financial crisis. Can you say “déjà vu”? (Or since it’s New York, the Yogi Berra version: “déjà vu all over again.”)
Perhaps Eric Schneiderman is the new Elliot Spitzer (well, hopefully not completely) or the ever-ambitious Andrew Cuomo, but if past is pattern, this latest effort at “cleaning up” Wall Street will not amount to much. A mere two years after the second-worst financial crisis in U.S. history, speculation is back, lobbying efforts by the financial services industry are in full swing, and money is still flowing to CEOs and other executives. Citigroup CEO Vikram Pandit recently received a $16.5 million retention bonus; this despite the company’s plummeting stock, which reached such lows ($4.00/share) that earlier this month the company “reverse-split” its stock. Essentially this entails combining every ten shares into one, changing nothing for the stockholder but artificially inflating the stock price tenfold. Just another day on Wall Street.
Gretchen Morgenson—a friend of the blog—highlighted Schneiderman’s efforts earlier this week. But even from her powerful pulpit, the industry is not likely to take notice or even care. They will simply cook up some newfangled synthetic toxic derivative 2.0 hedging the risk of global climate change (otherwise known as: hot air).
Hopefully, Schneiderman can prove me and probably countless other doubters wrong. Good luck, but Main Street, don’t hold your breath.
Assisted by David Martin
Berk Law is currently litigating multiple cases alleging certain banks aided and abetted Ponzi scheme operators. Read more about those and other current cases at www.berklawdc.com.
Waiting for the jury to come back with a verdict is in many ways harder than trying the case. There is just nothing you can do. So you worry, and you scrutinize just about every strategic and tactical decision made before and during the trial.
As the jury enters its second week of deliberation, each such decision is seen in the worst light possible. A lot of: "Why did we do that? Why did we introduce that witness?" You replay your closing argument... over and over again: in the shower, in the subway, on a bus. You think of all the clever phrases you should have used... "oh that would have been a winner," but alas your only audience this time is your faithful dog who must listen while you finally have the time to take her for a walk.
Two weeks is not unusual for the jury to deliberate in a case of this complexity. But with each passing day, Raj and his team's spirits rise, while the prosecutors ask themselves what is going on? "The case was so strong. Is it just one holdout or did we lose the jury."
The smart bet remains on conviction, but you never know.
[T]he judiciary is beyond comparison the weakest of the three departments of power; that it can never attack with success either of the other two; and [ ] all possible care is requisite to enable it to defend itself against their attacks.
Although referred to as the “weakest branch” by Hamilton (as well as Montesquieu years earlier), the Supreme Court has flexed some muscle over the last decade. They elected a President (Bush v. Gore), infused corporations with full First Amendment rights akin to every American human being (Citizens United), and earlier this week denied consumers practical redress for corporate misconduct (AT&T v. Concepcion). And the Roberts Court is just getting started.
At the heart of every conservative jurist's philosophy is the belief that the federal judiciary, based on the Constitution (and specifically the language of Article III), must remain a court of limited jurisdiction. It is state courts and legislatures that are to be protected from the reach of the federal government and allowed, unfettered for the most part, to make the rules that guide our daily lives. No jurist has been more articulate, consistent and of late, more successful in making this very point than Antonin Scalia, the author of the Concepcion decision.
But in the Court's latest smack in the face to millions of consumers who—for crying out loud—just bailed out the entire financial industry, the Court abandoned this bedrock philosophy to reach a result that (surprise, surprise) was lobbied for in amicus briefs by one leading corporation after another. It's a veritable who's who of businesses and pro-business groups: the Chamber of Commerce; DirecTV, Comcast and Dell; the American Bankers Association, American Financial Services Association and Financial Services Roundtable. Even Verizon wrote in to support their archrival's cause—because they too stood to gain by a ruling favoring AT&T.
To accomplish its work, the Court blithely explained away a recent decision of the California Supreme Court in favor of an 80-year-old law called the Federal Arbitration Act—which has nothing to do with the contract signed by the Concepcions. Joined by his conservative "running buddies" (Justices Alito, Thomas, Kennedy and Chief Justice Roberts), Justice Scalia made life just a bit tougher on hardworking Americans by finding that a practice deemed "unconscionable" by the California Supreme Court was just fine.
While often claiming to follow the "framers' intent" and railing derisively against so-called "legislating from the bench," the Court is doing just that as they aggressively pursue a political agenda that would make even the U.S. Chamber of Commerce blush. Led by the "Umpire in Chief" Justice Roberts (who claimed with "a wink and a nod" in his confirmation hearings to be seeking a position where he would merely be "calling balls and strikes"), the Court, no matter the precedent or facts, and with no shame, finds a way to rule in favor of big business. It was precisely what then-Junior Senator from Illinois Barack Obama feared when he voted against Chief Justice Roberts' nomination, presciently noting:
It is my personal estimation that he has far more often used his formidable skills on behalf of the strong in opposition of the weak.
Although subtle to most, the impact and consequences of Concepcion in particular could grow virally to impact a range of corporate conduct, causing consumers—rich and poor alike—to cry unfair. The following example is hardly fanciful regarding the magnitude of the decision:
Let’s take an average American family: the Madisons. They make $45,000 per year and the last two years have been… well… a struggle. Despite losing a job (Mr. Madison was laid off from his state job as a Deputy Principal of the local high school because of budget cuts) they—like most American families—have a few cell phone accounts. (How can they not, what with the 24/7 multimedia blitz targeting 12 year olds?) Their account is coincidentally with AT&T. Let’s say, for argument’s sake, they pay $150/month. Last month, Mrs. Madison opens her bill online and the total is $200. She immediately feels that familiar wave of anxiety rising from her abdomen. An extra $50 is a lot of money, and what if it’s every month? Her immediate thought is that Son Madison has downloaded more pricey ringtones or the latest version of “Angry Birds” despite being warned not to.
She doesn’t see any such downloads, but she does notice at the bottom of her bill a notation: “SPC Data SCharge: $50.00”. Having no idea what that means, she immediately calls AT&T and after spelling her name seven times, listening to several ads and options to pay her bill, she is routed to a “customer care consultant”. He advises her that the surcharge is based on increased advertising costs associated with sponsorships of hip hop sensation Wale. “Wait, can you do that? That’s not in the contract.” Oh, we sent you something in the mail telling you… well… you have no contract. We can do whatever we want. Mrs. Madison, frustrated by the hours she spent to hear this callous explanation, yells: “I’m going to sue you, this is so unfair. You can’t do this.”
Oh yes they can; in fact Mrs. Madison can’t sue AT&T because “she agreed to arbitration.” Arbitration, what’s that?
In the weeks that follow, the Madisons learn that proceeding with an arbitration, even by phone, will cost them at least $250 in fees (for filing and administrative costs) and no lawyer will take the case because they cannot bring a “class” claim and will be limited to a judgment of $50 representing the Madisons. If the Madisons win without an attorney, their victory (+$50) is actually a loss (-$250), so it’s a classic no-win situation for consumers.
Thanks to Justice Roberts and his crew, AT&T can earn—or steal—$50 from every one of its 100 million customers, and not one of them will have a practical redress. That’s $5 billion ($50 X 100 million customers) out of the pockets of hardworking Americans. No wonder AT&T can pay their CEO, Mr. Stephenson, his $20 million salary. Perhaps the SPC Data SCharge is valid, but there is no recourse to even scrutinize.
And folks, this is not just cell phones. Beleaguered consumers will be without recourse in connection with the purchase of a range of products: automobiles perhaps, computers and televisions, just to name a few. And services too: banking, moving, home improvements. No ability for your day in court. No ability to have a lawyer. Good luck and have a nice day.
While on its face the Supreme Court’s decision in Concepcion may look like just another welcome effort to bash lawyers and, better yet, class action lawyers (the sharks to the sharks), it must instead be viewed for what it really means for consumers now and for a generation to come.
If the Rottweiler guarding your property is anything like the SEC, I hope you set your house alarm.
As the WSJ Law Blog pointed out today, the SEC’s deadline to finalize Dodd-Frank Whistleblower rules has come and gone without a peep from the Commission. So much for its bite being worse than its bark. If the Rottweiler guarding your property is anything like the SEC, I hope you set your house alarm.
The SEC’s website has subtly shifted its schedule to allow an extra three months for rulemaking—and there is no reason to trust that adjustment either. Commission defenders will point to the extensive rulemaking required and the tight government budget; I would point to the nine months originally allotted and immense importance of the rule finalization.
The Journal quotes SEC spokesman John Nester, who defends the Commission’s desire to emphasize “getting the rules right.” Thanks, John. “Right” entails “on time”; otherwise even more doubt as to the Commission’s commitment to the rules will arise. Main Street has seen decades of supposed third-party regulators bow at the feet of well-paid lobbyists and executives. The SEC was supposed to champion a major step forward this week; instead, they have amplified the doubt many have in their ability to effectively regulate and enforce.
I may be the only one, but I believe the SEC will get things together soon and finalize a robust and clear set of rules for Dodd-Frank’s whistleblower provisions. However, delays like this undermine the bill and allow the Wall Street-centric status quo to continue. As each day passes, Americans forget the reasons for the economic catastrophe—some of which were corporate corruption and lack of business oversight. Dodd-Frank’s whistleblowers have a chance to cheaply and efficiently remedy this problem from the inside.
As is true of too many government regulations, the conclusion is yet to be written on this one. Let’s just hope the humid DC summer doesn’t pass without seeing these rules finalized.
I like Ford. I like Mustangs. I like that in the dark days of the “Great Recession” Ford alone eschewed federal bailout money and survived -- indeed thrived -- on its own war chest.
But paying nearly $200 million in stock benefits to its savvy, and needless to say, talented CEO, Alan Mulally? Are the days of a billion-dollar CEO just around the corner? Something ain’t right. For $200 million Ford could buy a new plant, fund R&D into solar automobiles, bring back some of the tens of thousands jobs lost over the last decade. And call me crazy, but why not issue a dividend to its millions of shareholders. Sure Mr. Mulally is doing a nice job, but it’s not as if he donned a Lions helmet and won the Superbowl. (If he did that the people of Detroit -- as beleaguered as they are -- would probably pass the hat around.)
I can hear Ford’s defense. This is deferred money. It arises from an executive compensation policy that rewards profit and an increase in the stock price. "It aligns the interests of management with shareholders." But something is wrong when the CEO's income is 1,000 times (or likely much more) the guy on the shop floor's -- he who must house, feed, clothe and educate a family of four or more.
Why not a salary cap? We have them in professional sports. Would Mr. Mulally work any less if his salary was topped out at say $100 million per year?
If we can’t have Elizabeth Warren, we must have Paul Volcker. At 6’7” he towers physically over just about everyone in the room. I can just see him summoning the relatively diminutive Jamie Dimon of JPMorgan Chase (5’10" on a good day) to his office and giving him a good tongue lashing about any number of questionable offers and practices that the banking behemoth foists on consumers. (For good measure, he can bring in Brian Moynihan of Bank of America and grill him on why his bank quietly knew of and supported a score of Ponzi scheme operators popularly known as mini-Madoffs, but who were not so “mini” to the consumers who lost their life savings to a bank culture that put profits ahead of compliance.)
Beyond his physical stature, he has the intellect and experience that places him at a level above the current Warren wannabes. For starters he can trot out his rule -- the Volker rule (prohibiting banks from speculative and proprietary trading) and impose it by force of will and administrative rule or something. Heck, just the threat of Volker thinking about imposing that rule will keep the banks and mortgage lenders on the straight and narrow (or at least closer to the straight and narrow).
Finally, at the heart of his wisdom is a moral compass that cannot be bought or compromised. Eighty three years young, he is not looking for a job in “industry” or to be feted by Wall Street chiefs at black tie dinners. He will not suffer fools lightly or be bamboozled by high-priced consultants and convoluted explanations about how failures to disclose financial risks to consumers is somehow a good thing. He will take his position seriously and no doubt be an important thorn in the side of an industry (financial services) that has put profit and gain above all else. And lastly, he will be quick to remind that industry that it was the consumer (and the government) that saved their behinds.
Reports over the weekend claim Professor Warren went to the Hill (as in Capitol Hill) to find the votes she needed for her nomination to be the first head of the Consumer Finance Protection Board ("CFPB"). She came up well short of the mark. Wall Street fears her more than inflation and will easily have the votes to block her nomination from ever reaching the Senate floor for a vote. (Sad, but the subject of another story.)
So now speculation begins on her “replacement”. Reports over the past week claim the White House has discussed—or has in fact offered—the position to the following government officials: former Michigan Governor Jennifer Granholm, Illinois Attorney General Lisa Madigan, Massachussetts Attorney General Martha Coakley, Chairwoman of the FDIC Sheila Bair and Federal Reserve Governor Sarah Raskin. Notice anything? Hmmm. Yep. They are all women. To be fair, I left out a few names but there is no doubt the short list is dominated by women.
The interesting question is why? A few attempts at an answer:
First try. For all intents and purposes a woman heads the CFPB now, and so in the strange ways of Washington a woman must be her replacement. Think Supreme Court. When Sandra Day O’Connor retired, her “replacement” from the beginning was presumptively going to be a woman. And so began the ill-fated effort to confirm Harriet Miers. Why Harriet Miers? Well she was no Sandra Day O’Connor, but she was a woman.
Second try. Although in its infancy—heck it’s not even out of the womb—the CFPB will be known as an agency suitable for a woman to hold the reigns. Yes, it is the most important new government agency since the Securities and Exchange Commission’s birth in the wake of the stock market’s crash of 1929 and the Great Depression. But by design, or implicit discrimination, this one can be handled by a “lady”. It’s not Treasury or Defense, neither or which has ever been led by a woman. Those positions are reserved for those macho men who understand high finance and bombs and tanks. (I know little Tim Geithner is no Anderson Silva but you get the picture). It’s on par instead with HHS and Education, where women seem to be slotted regularly in both Democratic and Republican Administrations (Kathleen Sebelius (Obama), Margaret Spellings (Bush), Donna Shalala (Clinton)... you get the point).
Protecting consumers—what a quaint notion. Sort of like baking cookies and balancing the family check book. This implicit relegation to second-tier status must be nipped in the bud. Whether a man or more likely a woman “replaces” Elizabeth Warren, the attitude must be there is a new sheriff in town (think Javier Bardem and No Country for Old Men) and those macho men like Jamie Dimon, Brian Moynihan and Lloyd Blankfein better take notice.
This is Part II of the Corporate Observer's Special Reports on Executive Compensation (Part I can be found here). Please enjoy this second installment, on the gradual but substantial shift of wealth towards the executive class.
Our interest in executive compensation grows out of being hit in the face with the startling data illustrating a massive redistribution of wealth over the past decade away from the middle class and into the pockets of senior executives. Noted executive pay scholar Albert Meyer had this to say in the WSJ:
Middle-class America experienced a lost decade in their retirement accounts, whereas executives enjoyed record compensation packages through the subterfuge of stock option programs… There has been a massive wealth transfer from middle-class America’s retirement accounts to the bank accounts of the privileged few. The social consequences of this wealth transfer bear scrutiny.
Such a profound change takes more than a few executives getting a raise here and there. It takes the efforts of an army. First, a cottage industry of consultants devoted to devising new and innovative ways to compensate CEOs; second, a willing and too often a greedy executive class; and third, the almost blind consent of the Board of Directors and those “specialists” on the compensation committees. Where is the army on the other side? Who devises plans so shareholders (like pension funds and college accounts representing millions of average folks) can benefit from increases in corporate value?
Stock options have become an increasingly important component of executive compensation. Seems like a good idea on its face. Executives receive more value for increasing the stock price; it would seem to align the priorities of stockholders and execs. A higher stock price benefits all, right?
Sadly, in practice corporate gaming and greed take over. Too many managers have been caught manipulating the short term earnings to get a bump in the stock price. Or at a higher level, they were managing for the market – being slaves to analysts and making the quarterly numbers. Often that meant reporting soft earnings or camouflaging toxic liabilities for the next guy or the guy after that to swallow. “Call in the consultants” stock options alone won’t work.
Next, restrictive stock grants became a popular tool. “Mr. CEO, we want you to stay and make us a stronger company; long term value is what we are all about. Here is a million shares of stock, but you’re going to have to wait 5 years to “begin” cashing in.” This is better—it hedges against some of the short term greed—but still far from perfect. CEOs have been known to use those restrictive shares as a hedge or collateral for larger cash positions. In fact, senior management can promote corporate stock repurchase programs that, given the rules of supply and demand, will increase the price of the stock and thereby increase the value of their restrictive stock.
Indeed dividends, a shareholder’s reliable old friend, provide another arrow in the executive’s quiver of pay options; this despite being issued more grudgingly to shareholders over the past quarter century. Yep. When the company issues a dividend those top corporate executives are paid just like everyone else. But unlike most of us they have amassed millions of shares. A 5% dividend becomes a huge chunk of change and is often heaped on top of a seven- or eight-figure salary, stock options, etc.
Determining the right mix of executive compensation is a tough balance to be sure and it is not black and white. But the numbers don’t lie. The pendulum has swung over to the executives and remains there. Shareholders must devise ways to create some momentum in the other direction.
The OCC’s decision to protect the banks and their burgeoning sub-prime mortgage portfolios from scrutiny was a major cause – yes cause – of the 2008 meltdown and Great Recession that followed.
The Corporate Observer has not named a person of the week award for several months so this is kind of special… Drum roll please. New York Times columnist Joe Nocera is our Person of the Week. He joins an illustrious crew including early Madoff reporter Harry Markopolos, Supreme Court Justice Elena Kagan, pharmaceutical whistleblower Cheryl Eckard, and numerous others. Mr. Nocera is the new op ed columnist at the Times, ostensibly replacing the venerable Frank Rich. He comes to the column from the business pages where he distilled complicated stories into readable and at times compelling theater.
Mr. Nocera snags the award this week because his column on the continued failure of the Office of the Comptroller of the Currency to objectively regulate the banking industry exposes new levels of absurdity. Yes absurdity. Save the rating agencies (and of course good old greed on Wall Street), the OCC’s decision to protect the banks and their burgeoning sub-prime mortgage portfolios from scrutiny was a major cause – yes cause – of the 2008 meltdown and Great Recession that followed.
Based on his street smarts and years of experience, Mr. Nocera does not mince words in his appraisal of the OCC. The following quote alone earns him the Person of the Week award:
“Calling the Office of the Comptroller of the Currency a “regulator” is almost laughable. The Environmental Protection Agency is a regulator. The O.C.C. is a coddler, a protector, an outright enabler of the institutions it oversees.”
Go Joe. He continues to call out the OCC for brandishing legal preemption ("federal law trumps state law") like King Arthur’s Excalibur, in an effort to defeat hard-working, earnest state attorney generals from designing reforms and bringing fairness to foreclosures. He reminds his Times readers that the OCC remains steadfast in its defense of “sloppy, callous and often illegal practices” of an unapologetic banking industry.
The CO can’t get enough of his hard-hitting, take-no-prisoners approach. Charge on Joe. Keep using that prestigious column to challenge conventional wisdom.
For your efforts to date, we name you our Person of the Week.
In today’s “Heard it On the Street” Column of the Wall Street Journal, it was leaked (most likely by a disgruntled employee) that an e-mail to all employees proudly announced “bonuses” to 50 “stars” of Live Nation. The bonus was... brace yourself... a whopping $250 per star. No, I didn't leave out any digits. That's a whopping total of $12,500 in bonuses. Wow. How generous (read dripping sarcasm) of CEO Michael Rapino and Chairman Irving Azoff. These guys take in a cool twenty million or so apiece and give a lucky 50 employees an extra $250.
Sadly it’s a sign of the times. The guys at the top get richer -- a lot richer -- while everyone else struggles on the crumbs (in this case $250). $20 million versus $250, a ratio of 80,000:1. Just about what you’d expect.
If I were a shareholder, I would l be plenty angry. Where is the Board of Directors? Are they independent enough to stand up to senior management? Obviously not. Like most corporations, the Board is captive and beholden to management. That must change before executive compensation will be addressed objectively and fairly.
The dream job for many would be CEO of mega-entertainment firm Live Nation. Front row seats at just about any sporting event in the world. Concerts too – you name it. From Vegas to Bonnaroo these guys represent just about everyone. What a life.
And that dream job just got better. A whole lot better. In addition to taking the Yankees game in on Monday and a Kings of Leon concert on Tuesday, you can also enjoy the salary of a king for those incidental expenses not covered by your expense account. As reported by the Wall Street Journal today, Chief Executive Michael Rapino’s compensation was worth $15.9 million in 2010 -- more than double his 2009 level. (That’s a lot of popcorn.) It’s even better for Chairman Irving Azoff, whose 2010 salary neared $23 million. Best of all you don’t even have to make any money for the company. Nope, not a dime. Indeed it appears the more you lose, the more you make. Though stock prices ended up a small amount, Live Nation’s net losses widened to $220 million in 2010 while revenue fell 9%. Heck next year if losses reach $500 million, who knows how high executive compensation will soar?
One wonders what the Board of Directors and specifically the compensation committee is thinking (or not thinking). While the committee is governed by specific values and fancy criteria for determining executive compensation, it’s hard to imagine that verbiage is followed. Shareholders of Live Nation should demand answers.
(And if anyone out there needs a job, I’d send a resume to Live Nation. I heard they pay well.)
Today the Corporate Observer welcomes Gouri Bhat, a Partner in Berk Law's Austin, TX office, whoaddresses corporate tax avoidance – a discussion notably missing from our mainstream media. Please enjoy.
The chasm between the individual and the corporation is never bigger than during tax season. As millions of average, procrastinating Americans like me – individuals, households, small business owners – put the final touches on their income tax returns, thrilled to discover that they may be getting a small refund ($500 this year!) or at least don’t owe any money, it’s always shocking to be reminded that the largest, most profitable U.S. corporations somehow manage to completely avoid paying taxes. Their refunds are a lot bigger than mine, too. How do they do it?
Just a few examples: In 2009, after receiving almost $1 trillion in bailout money from taxpayers , Bank of America made $4.4 billion in profits, and then received a $1.9 billion tax refund. Exxon Mobil made $19 billion in profits, and then took home a $156 million rebate from the IRS. And most notoriously, General Electric – the nation’s largest corporation and most aggressively creative tax-avoider – reported $14.2 billion in profits in 2009 ($5.1 billion from its U.S. operations), but still claimed a $3.2 billion tax benefit. And the list goes on.
With all the furor over the Bush tax cuts on the wealthiest households (“to renew or not to renew”), corporate tax reform is much less discussed in mainstream media. Some estimates are that by simplifying the maze of tax loopholes and ending the abusive use of offshore tax shelters, the federal government could raise more than $400 billion in the next decade. That would make for a pretty good start on deficit reduction.
The next few days will feature a series of Corporate Observer Special Reports on Executive Compensation. Please enjoy Part I, on why Americans put up with staggering executive pay numbers year in and year out.
The Bureau of Labor Statistics concluded that in 2009, income among workers (defined as everyone who is not a CEO) grew by a mere 2.1% while CEO income grew at the robust rate of 27% -- over 10 times that amount.
Let’s begin the story with the the numbers:
First, a macro view: The Bureau of Labor Statistics concluded that in 2009, income among workers (defined as everyone who is not a CEO) grew by a mere 2.1% while CEO income grew at the robust rate of 27% -- over 10 times that amount.
This continues a disturbing trend where CEOs of United States-based companies continue to distance themselves from worker pay. The CEO-to-worker compensation ratio is about 300 to 1 and growing. Think about collecting 300 paychecks every week.
In Europe and Asia, the ratio is far smaller, often less than 100 to 1. For example Albert Meyer, an expert on Executive Pay, invests in Statoil, which pays its top nine executives combined less than half as much as ExxonMobil pays its CEO Rex Tillerson ($8.2m and $21.7m, respectively). Yet since it went public in 2001 Statoil's stock has performed nearly twice as well as that of ExxonMobil.
What’s the impact of all that pay going to the executive suites? Simply put, it results in “the rich get richer and the poor get..." Well, you know.
“Middle-class America experienced a lost decade in their retirement accounts, whereas executives enjoyed record compensation packages through the subterfuge of stock option programs… There has been a massive wealth transfer from middle-class America’s retirement accounts to the bank accounts of the privileged few. The social consequences of this wealth transfer bear scrutiny.”
Illustrating this pay disparity on an individual company basis drives home the point that a crisis could well be brewing.
In a recent CEO pay survey published by the Wall Street Journal, Phillipe Dauman of Viacom headed the list with a 2009 compensation package of $84.5 million for a mere nine months. On an annual basis that level of compensation would top $100 million.
But my favorite example of trouble brewing is the “mere” $20.2m awarded to AT&T CEO Randall Stephenson. Despite AT&T’s poor performance during that period, Mr. Stephenson remained high on the charts for CEO pay. Specifically, while the S&P 500 (of which AT&T is a part of) rose over 26%; AT&T’s stock value dropped roughly $2.00.
The question is why? Why are we so generous to the point of irrationality with our payment to CEOs? I don’t have all the answers, but shareholder groups -- the folks that own AT&T and Viacom -- have to step up and scrutinize these salaries. The Dodd-Frank Act's Accountability and Executive Compensation section explicitly bestows this power upon shareholders.
We must reward those who actually add value to the enterprise and its stock price, not just those sitting in the biggest offices. Common sense tells me this staggering disparity between CEO and worker pay is not a good thing for an economy that must compete in a highly competitive global marketplace.
Real reform wont 't come about until the banks are slapped as well.
Loan Servicing: It looks like a deal is near between the servicing companies and state attorney generals. Let's hope it cuts out the outrageous (excuse the hyperbole) abuses in this area. Forged signatures and phony documents have become commonplace. This is the soft underbelly of the securitization market. But real reform wont 't come about until the banks are slapped as well. They turned a blind eye to rampant abuse. They should have demanded better.
Insider Trading: An attorney with a top drawer resume (Cravath, Skadden and Wilson Sonsini — it doesn't get much fancier than that) has been accused of insider trading. According to the indictment he got himself into the firm's computer system in order to gather information on upcoming mergers. He then passed that information on to a confederate who purchased millions of shares. What are these people thinking? An attorney with that resume is good for a salary in hugh six-figures. Greed, greed, greed.
Shutting Down the Government: Why does this have to happen? Why does the Congress have to take us to the brink, year in and year out? All it does is reduce our faith in the government. Folks figure it out.
It is not Alex Rodriguez’s annual salary (amazingly he makes a bit more), or the population of New York. Nope. But I’d say it’s plenty large. It represents the total bonuses paid at Fannie Mae and Freddie Mac last year, according to Gretchen Morgenson’s most recent New York Times article. A drop in the bucket to the days when Franklin Raines was running the show and he alone pulled in nearly $100 million in just 5 years of quasi-government work as the CEO of Fannie Mae.
Okay. Another number, this one is a bit bigger:
153 billion
The GDP of New Zealand? Close. Albert Haynesworth’s annual salary? Nope. $153 billion is the amount taxpayers have “invested” in the solvency of Fannie and Freddie.
Main Street, here we go again. You’re asked to pay $153,000,000,000 under the threat that if you don’t the economy will really tank. Okay. You do it. But the next time the “ask” is going to be $500 billion. And the bonuses maybe $50 million.
One might respond, “We have to maintain the talent and experience base and the current executives aren’t the ones that ran up the massive debt.” That is partially true, and Freddie Mac’s CEO did not join the company until 2009; however, many of the companies’ high-ranking officers have remained throughout the crisis. For instance, Ms. Morgenson notes that Michael Williams, the head of Fannie Mae, has remained with the company since 1991.
When the public has the equivalent of a small nation's GDP invested in a single company or two, executives cannot be allowed to receive bonus packages. I hate to flog a dead horse—and I feel like I’ve addressed this subject ad nauseam—but this constitutes a breach of the public trust, plain and simple.
These days much of my hope for consumer protection has rested with Elizabeth Warren and her Consumer Financial Protection Bureau, but this one is outside of her domain. Executive compensation is generally an internal issue, but the game changes when public finances are the only thing ensuring the solvency of the operation. Where is the outrage?
Professor Warren is straightforward, persuasive and charming. And this was no friendly audience.
I had the good fortune of hearing Elizabeth Warren speak this morning in Washington, DC at the US Chamber of Commerce’s Center for Capital Markets Competitiveness. The Center’s byline is “Ensuring Competiveness in a Post-Regulatory Reform Environment”. I had never seen Professor Warren before in person. First impression: She was smaller than I thought. Heck, with all that publicity that has been swirling around her for the past two years, I thought she’d be ten feet tall -- or at least as tall as six foot, eight inch Baylor basketball star Brittney Griner. Nope, she’s rather slight and academic. Second impression: She is really good; straightforward, persuasive and... well… charming.
And this was no friendly audience. Professor Warren followed Congressman Spencer Bachus of Alabama to the lectern. He is the Chairman of the House Financial Services Committee. The Congressman rather derisively referred to Professor Warren as “a nice lady”. He then went on to suggest she and her agency -- the CFPB -- were omnipotent and would destroy competitive markets, while imposing a Maoist (that’s no typo) style of “total regulation” on the capital markets.
Professor Warren did not take the bait. Instead she decided to stake out a place on the high road, a place she seemed both familiar and comfortable traveling. To that end, she simply ignored Congressman Bachus’s efforts to mischaracterize her position and attack her character and gender. She emphasized instead that her decision to reach out to the Chamber and speak at this particular conference was in furtherance of finding “common ground”. Nice.
That common ground began with the notion that all sides favored one thing: Competition. Everything is done to promote competition. To make sure competition is robust and fair, Professor Warren explained that a strong, consistent set of rules were essential. No one benefits from market chaos where some participants are able to break the law. As an example, she said, “let’s take the perspective of a baseball player who chooses not to take steroids.” Regulation is simply that -- a set of rules that all market participants must follow.
Professor Warren’s remarks were grounded in common sense and we wish her luck. Her main objective for the CFPB, which we applaud, is achieving some level of fairness and transparency for consumers in the purchase of financial products, from credit cards to home mortgages. But the room was filled with skeptics who wanted none of it. They believe all regulation is evil and only harms business.
My attendance at today’s event at the Chamber reminded me of the harsh reality that we have two teams in Washington. Two sides, Democrat and Republican; left and right; conservative and liberal. Call it what you like. Despite her best efforts at finding common ground, between those two sides even the mighty Elizabeth Warren will not so easily succeed.
Today I am pleased to welcome Attorney Chris Nidel and Public Health Professional Daniel Stockin. Their guest piece is about the potential danger associated with fluorite and the direction litigation is taking. Please enjoy.
You have probably heard the recent news in the media about fluoride risks; a growing “Fluoridegate” scandal; cities dropping their longstanding policy of water fluoridation; and concerns about fluoride harm to kidneys, bones, thyroid glands, and teeth. For decades, Americans have heard of a long-simmering controversy over the whole-body safety of ingested fluorides. Now government agencies and private sector groups are admitting concerns about the impact to the body from fluorides in numerous consumer products, including water, beverages, foods made with fluoridated water or containing fluoride fumigant residues, and oral care products.
Of particular interest is news that infants, diabetics, kidney patients, and seniors are “susceptible subpopulations” that are particularly vulnerable to harm from fluorides. The number of potential plaintiffs in these and other groups foreshadows decades of fluoride-related court cases and investigations. As a result, scientists, health care professionals, businesses, and influential leaders are voicing concerns about fluorides. The Gerber baby products company is now selling an unfluoridated water to be used for making milk formula so that parents and others caring for infants will not use fluoridated water when mixing formula for babies.
A signature condition of excessive fluoride intake is “dental fluorosis,” a permanent and often disfiguring staining of teeth. A staggering number of Americans have the white, yellow, or brown staining or pitting of teeth caused by fluorides. Most never know what caused the staining. According to the National Center for Health Statistics, approximately 23 percent of people ages 6– 49 have fluorosis, as do 41 percent of adolescents agres 12–15 years old.
Public and private sector groups as well as individuals are potentially responsible for the financial and health impacts of fluorides provided to consumers without full disclosure of the risks. A partial list of defendants includes manufacturers of fluoridation chemicals, oral care product manufacturers, retailers, water utilities, medical and dental practitioners, and professional associations. Given the complexity of potential litigation, plaintiffs may choose to utilize market-share and other legal theories providing liability to a group of defendants for a single, indivisible injury.
Causes of action may include personal injury, failure to warn, negligent misrepresentation, medical or dental malpractice, and consumer fraud. Because African-Americans and other minority groups are disproportionately harmed by fluorides, there may be civil rights and environmental justice avenues for legal cases.
The curtain is lifting, exposing the degree of deception at the root of the Fluoridegate scandal and highlighting the liability of both municipal water providers and private companies.
As a consumer advocate, I should be against this one. Concentration of economic power corrupts. Having only one phone company (or two) means higher prices, less choice, onerous contract terms and stifled innovation. Didn't we break up the "old" AT&T for this precise reason? (Harold Greene, the Federal Judge in Washington who presided for over a decade over the breakup, must be rolling in his grave.)
But this might be different: maybe I buy the efficiencies of having one better infrastructure — for all those PDF files and full-length movies, not to mention tens of thousands of mobile apps — flying through the wireless sky. And maybe it means less television commercials and massive media campaigns, encouraging us to switch our service. Finally, I do believe in the power of technology. Five years from now, who knows how we will be communicating? So give AT&T the market power it seeks to buy for a cool $39 billion. Because there is some kid in some dorm room somewhere in the Midwest, or more likely India, cooking up something that will change the telecommunications paradigm. (Who had ever heard of "Skyping" 5 years ago?)
So my early thoughts are in favor of the merger with some protections. No arbitration clauses, no early termination fees and plenty of consideration for rural communities.
In government, as in life, it is always easy to take the path of least resistance. “Keep your head down, let someone else make a decision and do what makes everyone around you happy.” But leadership takes courage. It takes a willingness to stick your neck out for what you believe. Over the weekend, I thought of these three very different, yet courageous leaders and wondered who would be viewed as the most courageous:
First, my hero, Elizabeth Warren; she continues to battle Congress – often single handedly – in the name of consumers. Members of the House Banking Committee, having obtained an earful from those omnipresent lobbyists for the financial services industry, blasted away at Ms. Warren last week during a recent Congressional hearing. The congressmen claimed Warren and the nascent Consumer Protection Finance Board were improperly meddling in settlement discussions between state attorney generals and the mortgage servicing industry.Click here for a look at Paul Krugman’s take on the hearing. To what end fellas? To find a new bad guy? Tell you right now, it ain’t gonna work.
Professor Warren and the new CPFB are not the problem. They are not the full solution either but hopefully on behalf of consumers who will ultimately pay the tab, the Board can slow the greed and risk-taking of the financial sector. With courage and grace, Elizabeth Warren soldiers on. She stands down Congressional committee members like a matador viewing the most feared bull
Second, is the outgoing Inspector General of the TARP, Neil Barofsky. Many come every year to Washington to climb the ladder, perhaps to a Cabinet Post, an Ambassadorship, or a lifetime appointment as a Judge. It would have seemed that Mr. Barofsky was cut from the same mold. He had the credentials (Assistant US Attorney for the Southern District of New York). But you have to play the game. It appears Mr. Barofsky would have none of it. He worked incredibly hard racking up convictions and recovering nearly $1 billion dollars. But he did his work without fear or favor. In the process, he made some enemies at Treasury (see Gretchen Morgenson’s Sunday column) and his effectiveness was increasingly compromised. So he did what the brave and selfless do, he stepped aside so another candidate, without his baggage, can grab the reins – tight.
Third, is Senator Tom Coburn, Republican of Oklahoma. Dr. Coburn, a fierce critic of abortion, is no one issue guy. In fact he also cares deeply about eliminating the deficit. Indeed, he is so passionate on the issue, he is willing to accept some tax increases. Yep. That’s courage. Proposing taxes is the new “third rail” of American politics. But Senator Coburn, despite tremendous pressure from his own caucus, is moving forward with a bi-partisan tax plan that would require new and higher taxes. Now that’s courage.
Intrinsic in the financial markets are the seeds of its destruction and, thank goodness, re-birth.
We have one hope and one hope only for forestalling, not eliminating, but merely delaying another financial meltdown. That hope is Elizabeth Warren and a robust Consumer Financial Protection Board ("CFPB"). At bottom, such an agency can at best "level the playing field" between tens of millions of consumers -- main streeters -- and the financial institutions, large and small, who prey upon them. The great economist Hyman Minsky explained nearly a generation ago how meltdowns like the one in 2008 was inevitable. Capitalism just gets overheated; incentives, greed, and innovation in financial markets will carry us away again. Intrinsic in the financial markets are the seeds of its destruction and, thank goodness, re-birth.
As we are just recovering from the last near brink disaster, I attended a conference of $1000/hr. lawyers debating how they can design the next financial instrument to decouple risk from lending: "synthetic derivatives". Yep. Buying "air" really to hedge risks. No doubt billions if not trillions will be created over the next few years -- destabilizing indeed, little economic molotov cocktails if you will. And why do you need $1,000 lawyers? Simple, so you can design financial instruments in a way that avoids the regulation of the CFTC.
So Congress, let's not bemoan Professor Warren's appropriate role in discussions regarding mortgage servicing reform. Answer to your constituents on main street and let Professor Warren do her job.
Please take a moment to visit the Consumer Law and Policy Blog run by our friends at Public Citizen. The group is a leading figure in the world of consumer advocacy. The Consumer Law and Policy Blog keeps readers abreast of the issues of the day in consumer law. Today’s post features an article I wrote about American Express’ ability to control thousands of merchants with just one simple contract provision. Click here for the story.
Best I can tell, it sells its seal of approval and helps businesses bury potentially valid complaints.
I was intrigued by David Segal’s Sunday piece in the New York Times Business Section, entitled “Complaint Resolved? Well Not Exactly”. It critiques the work of the “Better Business Bureau” (or “BBB”). Like most people, I’ve heard the name, but really haven’t focused on who these guys are and what they do. But after reading Mr. Segal’s piece, I was incensed. This multimillion-dollar nationwide operation claims to promote ethics and trust in the marketplace when in fact it is merely a public relations arm of corporate America. It does not fairly call “balls and strikes.” Best I can tell, it sells its seal of approval and helps businesses bury potentially valid complaints.
Consider the example of Empire Today, a company that installs custom flooring in 35 states. Since a consumer may not buy new flooring on a regular basis, an “independent rating” from an organization with a strong brand like the “Better Business Bureau” is important. Sure enough, Empire received an A+ rating from the BBB. Pretty darn good. Can’t do better than an A+. The problem is Empire received complaints from 1,166 consumers. Think about that: in just one reporting period, that many customers bothered to lodge a written complaint. My intuition tells me that the total number of dissatisfied customers is easily ten times that amount. How can they be an A+ company; how many complaints would it take to get a B or B-, one hundred thousand?
It seems that BBB is hardly an objective third party rating agency. Instead, for $550 a year they clean up those complaints. They are “resolved” according to the BBB, but as Mr. Segal points out in his article, “well not exactly”. Resolved would suggest the consumer received some due process and perhaps, if appropriate, a concession from Empire Today. Nope, resolved should be viewed from the perspective of the company. The BBB makes them go away – while keeping the company’s rating in the deceptive range of A +.
No doubt consumers may rely on those BBB ratings and spend hard-earned money on a product or service that not only doesn’t deserve an A+, but one that they wouldn’t purchase if they knew the truth. How does that foster trust in the marketplace? Finally, what’s the incentive of Empire Flooring to do a better job when they can get an A + without even going to class?
Because trading in derivatives was at the heart of the 2008 financial meltdown, the Dodd-Frank financial reform bill drastically expanded the powers of the CFTC to oversee and regulate this trillion dollar market. However, congress’ budget hawks threaten to leave investors and the markets largely unprotected. The Wall Street Journal reported today that the CFTC may have to forego both improvements to a technological overhaul and a potential increase in staff. With less technology and fewer bodies, how can the CFTC adequately regulate these burgeoning markets?
Hmmmm. Budget hawks, tea party surrogates for the most part, now find themselves in bed with billionaire investors and millionaire hedge fund managers. Was that why they came to Washington? The CFTC needs more money, a lot more money to fulfill its responsibilities. A little bit of regulation can go a long way toward safer markets and stability for main street.
The confluence of budget cuts to regulators like the SEC and CFTC, which were no Batman and Robin even at full strength, coupled with a likely skeleton staff at the new consumer finance protection agency spells disaster sooner rather than later.
Sadly Mr. Ferguson's prediction, made during an interview with Andrew Ross Sorkin of the New York Times, that another financial meltdown is ten years away is overly optimistic. I fear the confluence of budget cuts to regulators like the SEC and CFTC, which were no Batman and Robin even at full strength, coupled with a likely skeleton staff at the new consumer finance protection agency -- thanks to the tea party's misguided efforts to demand budget cuts no matter the harm to Main Street -- spells disaster sooner rather than later.
Moreover, on Wall Street the beat goes on, with new "synthetic derivatives" being created on a daily basis. These instruments merely line the pockets of lawyers and bankers and traders -- while substantively increasing one thing and one thing only: volatility and risk.
Finally, world events will no doubt add to market turbulence. Even if every government in the Middle East miraculously survives this latest wave of popular uprising, tensions will remain high. All that is needed is a nuclear scare in Iran or Pakistan and US markets could be thrown into a another tailspin.
With all due respect to Mr. Ferguson, my prediction is 3-5 years.
A light-hearted, but pertinent clip to start this latest entry:
The New York Times reportedearlier this week that scores of high level executives on Wall Street are once again circumventing the spirit of the law in search of a quick buck.
As Mr. Deeds so pointedly asked, “When you were kids, did you dream about becoming a savvy investor one day; who would think with his wallet instead of his heart?” A central tenet of the financial reform of the past few years was to put executives’ interests closer in line with investor interests to encourage a profitable, but safe, investment climate.
Hedging is a common and financially wise move when betting on the fluctuation of the markets. However, Goldman executives, as reported in the Times, have been hedging against their own company, placing bets on the stock’s stagnation, limiting risk associated with plunges in stock value, and even betting against quick growth.While this is a wise move for these executives’ personal portfolios, it does not instill confidence in the investor who would like to think those working at an investment bank trust in that bank’s ability to succeed.
For heaven’s sake, Pete Rose received a lifetime ban for betting for his own team, shouldn’t there be some repercussions for some of the most influential investors in the world betting against – or at least only extremely cautiously for – their own firm?
We call on the SEC today to tighten up these rules.Close up the loophole allowing financial executives to hedge their deferred compensation.No doubt they will find another way – but government must stand vigilant in its effort to protect the general investing public and that means proceed by all deliberate measures to ferret out and cease efforts that challenge both the spirit and letter of the law.
All those Ivy League graduates working on trading formulas that yes, will yield some short-term profits, but in the end merely rachet up volatility and risk in the market – that will no doubt find Wall Streeters back in the halls of Congress looking for a handout.
Just when we thought maybe, just maybe, greed would take a back seat to long term value and prudent compensation that incentivizes sound risk taking, the WSJ reports that pay at public companies on Wall Street will reach a new record: $135 billion. Wow.
What’s up with that? The same Wall Street that brought us to the brink of a worldwide catastrophic depression; just ask Federal Reserve Board Chairman Ben Bernanke and Former Treasury Secretary Hank “I’m vomiting in public from all the stress” Paulson how close we were. The same Wall Street that came hat in hand to Uncle Sam and the American Public, seeking oh, “about a trillion dollars” should do it.
Ok. So some of that money was paid back. But from my vantage point, the driver there was Wall Street’s singular desire to be out from under additional regulation imposed on them by the TARP and other federal bailout programs.
I would not be so outraged if the American public were getting something for these record-breaking salaries. Hey how 'bout the creation of some jobs fellas? Last time I checked unemployment remained dangerously close to 10%. What about some innovative financial product to reduce the deficit or some effort to stem the tide of home foreclosures? Nope. Instead it’s the same story. Trading on exotic financial instruments, arbitrage, shorting markets, stocks and commodities. That’s where the money is and that’s what we’ll get. All those Ivy League graduates working on trading formulas that yes, will yield some short-term profits, but in the end merely rachet up volatility and risk in the market – that will no doubt find Wall Streeters back in the halls of Congress looking for a handout.
I hope when that happens – and it will – policy makers have the guts to stand up to the Street and impose limitations and sanity to future compensation.
If they say it’s not about the money, it’s about the money.
Match the profession with the corresponding average salary1:
Job: Salary:
A. Clinical Lab Scientist 1. $40,754
B. Firefighter 2. $39,570
C. Paramedic 3. $58,876
D. Average Goldman Sachs employee 4. $45,638
E. Social Worker (w/ Masters Degree) 5. $43,564
F. College Professor 6. $498,246
G. High School Teacher 7. $55,135
H. Nurse 8. $56,268
What’s the only match you can be sure of? Yep. The Goldman employee. Over ten times the salary of a social worker, firefighter, and even a college professor. An average Goldman employee makes more than the seven other cited professions combined.
The magnitude of this disparity is telling and chilling. It tells us what we value and who holds the power in our society. And thanks to the hard-working folks on Main Street who bailed out Wall Street including Goldman (ok indirectly – but bailed out nonetheless) to the tune of $700 billion “the beat goes on”.
High School teachers and nurses will never claim top salaries, but they deserve some recompense for funding the current pay scale on Wall Street. Why not base pay on job creation instead of gambling (oops I mean “trading”). How ‘bout a little shame fellas?
Eliminate over-complex financial instruments and temper the inherent cronyism that governs its hiring policies. As long as connections trump merit and massive salaries eliminate accountability, financial institutions will be ruled by greed and greed alone. Isn’t it time for a little fairness to creep into the equation?
Regular readers of this blog know that a good chunk of my legal practice these days focuses on representing victims of Ponzi Schemes. It is tough work because often the Ponzi schemer is in, or near jail, and the stolen monies are hidden in some off shore account or long frittered away on leases for private jets and the finest of wines. So we must do the hard work of finding out who helped the scheme succeed. Who was the getaway driver, who provided services that while seemingly benign were instrumental to the success of the scheme?
When discussing these cases with colleagues and friends, they often will say, “how could these victims be so stupid?" Why didn’t they check things out more carefully? Often victims themselves are embarrassed and beat themselves up over their gullible behavior. Indeed, their shame often silences them from coming forward at all.
After a solicitation I received last week, I better understand the mindset of the victim. My experience does not involve a Ponzi Scheme per se, but a different kind of scam; one that played on my hubris.
One morning, my legal assistant excitedly advised me that I had been contacted by a television producer seeking to interview me. I would later learn it was not just to interview me, but to feature me in a series that would run on PBS as well as various cable networks (big ones, TNT, Biography A&E, are just a few examples I remember and news websites including Time, Inc.) I spoke to the producer, who identified himself as Victor Peters, and I tried my best to be “matter of fact” (Sure, I get requests like these all the time) and knowledgeable. I spouted on about my background and what a fine lawyer I was and what a grand interview I would provide to none other than Joan Lunden.
Victor called back the next day. I had him hooked. Or maybe he had me hooked. He began by reviewing the great benefits of the interview (should have been a warning right there) and then he made his move.
“Steve it is customary for you to pay $22,500 for the out of pocket expenses”. I quickly realized something was amiss. I was not yet angry – crestfallen yes – my anger would come later when I realized all along he was just trying to steal my money. I pulled myself together and replied, “That’s a non-starter." He quickly replied, well how much can you pay? I said I needed to sleep on it. Admittedly, I wanted to be on TV and featured on the web. So my initial reaction was not this is a scam but rather what I could afford.
That’s when I figured out it was all a scam. Mr. Peters represented his company as World Progress Report. Internet research one night revealed that the same entity was very recently called Vision Media Television. The internet was filled with warnings about the company. In fact, PBS explicitly included a long disclaimer of any affiliation with the entity on its website.
PBS “does not endorse, distribute programming for, review underwriting, or otherwise have any business relationship” with Vision Media Television, World Progress Report [or a host of other imposters].
In addition, the New York Times and NPR have each run stories to get the word out on World Progress Report/Vision Media and the scandalous nature of its business model. The articles chronicle stories just like mine – a young business eager to get some attention convinced it will enjoy the spotlight in front of millions of Americans when all that’s really available is overpriced advertising. Each time the request is upwards of $20,000. It begs the question: how many people are actually being scammed – and for how much?
Folks, I was ready to pay these guys something. Being featured on all those media outlets was, yes, too good to be true because they were promising me something I wanted. No different than Madoff or Sanford or Cosmo. They offered huge returns on investment. Mr. Peters was offering me a new level of public exposure.
In the end “you want to believe”. For potential victims in the future, don’t forget what your mother told you: If it sounds too good to be true, it probably is. I deal with fraud, scams, and suspicious schemes every day in my practice and I nearly fell victim. Remain vigilant, do your homework. Don’t let flattery or claims of easy money distract you from the obvious signs of a fraud and the need to always perform a dispassionate analysis of the facts.
First and foremost, happy new year to our Corporate Observer readers. Here’s to a great 2011. We have some quick links to kick off the year.
Elizabeth Warren has apparently begun the hunt for a head of the Consumer Financial Protection Bureau. While it is unfortunate that Ms. Warren herself will apparently not lead the CFPB, hopefully she will find someone that shares her vision and eagerness. She has conferred with “business and consumer groups,” but ultimately the decision must be hers.
The Washington Post reported on a disturbing wave of public sector employees heading to greener pastures in the private sector. The White House, the SEC, and Federal Reserve Board Members, to name a few, have seen employees flee to financial and legal firms; there they can expect higher pay and benefit from contacts in the public sector. This is a concerning trend for a government that has recently emphasized regulation and consumer protection – if they lose their best employees, how to they expect to live up to the high standards set for the coming years?
Lastly, we have updated our current cases at Berk Law, and if you feel inclined to take a look you can see them here.
Yesterday we discussed Andrew Cuomo’s investigation into Ernst and Young’s role in approving the fraudulent practices that helped disguise Lehman Brothers financial condition for years before itscollapse. Click here for yesterday’s blog. Today Mr. Cuomo filed a suit for civil fraud against Ernst and Young.Click here for the Wall Street Journal article. This suit may be the tip of the iceberg.
At least three other Wall Street banks have admitted to using similar tactics known as “window dressing” their books before the end of financial quarters. The Wall Street Journal’s “Deal Journal” claims that Citigroup, Bank of America, and Bank of New York Mellon admitted to similar practices. Like Lehman Brothers, these banks conveniently sold risky investments prior to earnings reports only to repurchase the investment following the company’s report. The banks termed these tactics, “repo purchases”. These tricks are nothing more than sham transactions. They are designed to deceive investors into thinking financial institutions are healthier than they really are. The risky investments remain the responsibility of the cheating bank.
Bank of America admitted to $10.7 billion in repo purchases. Citigroup admitted on May 7 that its repo transactions alone were as high as $13 billion. That’s right, $10.7 billion and $13 billion in lies respectively. Though this number pales in comparison to Lehman Brothers’ habitually hiding up to $50 billion of its riskier investments using repo transactions, the widespread deception on Wall Street is staggering.
What’s worse? All of this was technically in sync with banking regulations and guidelines. Banks could remove an investment from their balance sheets if they did not repurchase the same investment for 98%-102% of its sale value. So what did they do? Simply buy the investment back for 105% of the value. Wall Street Greed at its finest. Elude a rule and spit in the face of its obvious purpose.
Fortunately, the rules are changing. Under the new system currently being phased in, a financial institution may only remove an investment from its balance sheet if it truly transfers the risk and reward. (Duh – what took so long). Will this change the game? It’s hard to say. One thing’s for sure though, when Auditors are handsomely paid by the very companies they’re supposed to audit with independence and objectivity, there’s bound to be trouble afoot sooner or later.
Toyota was slapped with two new fines totaling $32.4 million (the statutory maximum) for its failure to disclose known safety defects. That’s serious stuff. Toyota chose silence over required disclosure. The government has now fined Toyota a total of $48.8 million dollars – the largest penalty ever dealt to an automaker. The defects include the gas pedal which may cause what is known as “sudden acceleration” and relay rods in the steering system.
Why didn’t Toyota disclose these defects? At risk was their reputation for quality and value. A reputation that has allowed them in a relatively short time (30 years or so) to surpass GM and Ford in the sale of several vehicle categories. The government must continue digging and Toyota executives must take a deep breath and do the right thing. Disclose, disclose, disclose. Toyota must put integrity and safety before profits.
We commend the federal government and Transportation Secretary Ray Lahood for their work on this issue. Manufacturers must be held responsible for defects they create, but even more strictly responsible for defects they willingly ignore at the peril of their customers.
Law firms are often as integral to the commercial world as businesses themselves. So, should they be able to advertise like businesses? Not quite and not everywhere, but the tide is turning. The second circuit recently ruled that some advertising is protected under first amendment rights. To help solidify the ruling, the Supreme Court denied cert. on the issue.Check out the Law Blog’s take.
McDonald’s sued for “baiting” kids into demanding Happy Meals? The suit is brought by the Center for Science in the Public Interest (CSPI) and the class representative is a mother from northern California. The plaintiffs are not seeking money damages. What do you think; is this just a frivolous suit in search of a quick buck or a good faith effort to correct a true problem with the fast food provider’s practices? Read more about the suit here
An interesting article on classactioncountermeasures.com addresses the Third Circuit’s recent ruling that a class settlement may become binding even before final approval. The circumstances of the particular case in question are peculiar to be sure, but the legal issue is nevertheless quite interesting. Click here for the article.
In 2010, we had plenty of opportunities to come to the keyboard in hopes of shining a light on hypocrisy, pleading for fairness, particularly on behalf of consumers and investors and just plain venting about our corporate culture that has too often lost its way. As 2011 nears, we thought a wish list for the coming year would be fun.
1.Elizabeth Warren Officially Named Head of the CFPB
There’s no hiding it, we have a crush on Elizabeth Warren (click here and here for past blogs). Her leadership and influence were essential to the creation of what we hope will be an engaged and powerful consumer finance protection agency. While we were delighted when President Obama chose Professor Warren to lead the formation of this new agency, we hope in 2011 he shows the courage to name her the Director. Will there be a battle in the Senate over her nomination? You bet. But we say bring it on; she is uniquely qualified for the post. Professor Warren has the knowledge, intelligence, creativity and passion to get the job done. That scares corporate America. But a tough fight, played out on the evening news and on You Tube will be good for the nation.
2.The SEC Gets the Money it Was Promised and Opens Its Whistleblower Office
The passage of the Dodd-Frank bill was merely the strategy for restoring confidence in the American financial system. Implementation requires funding. Hard working, honest citizens have the right and deserve an opportunity to report corporate fraud without fear of retaliation. To be meaningful, this right must be backed up by resources ready to investigate and provide a response up or down. Unfortunately, congress’ recently imposed budget freeze has temporarily stalled funding for a new, independent whistleblower office at the SEC. For now, whistleblower claims will be handled by the enforcement division, the same division that missed Madoff. That same enforcement staff is unlikely to effectively handle the many complaints the office is likely to receive. (click here) Hopefully in 2011, congress and the SEC can work together to give whistleblowers an effective means to spot, prosecute, and curtail corporate fraud.
3.A Stronger, More Active CFTC Enforcement Division
Dodd-Frank greatly expanded the powers of the CFTC enforcement division. The change turned what was once a poor man’s SEC, into a regulatory power house. Several trillion dollars are under management and supervision of this agency. As a threshold matter they must write thousand of rules and regulations. We hope that process steams along at a good pace. We also hope that the hiring of David Meister as new head of the enforcement division (click here) will help continue this trend through 2011.
4.Banks like JP Morgan Chase and Bank of America are Held Accountable for their Roles in Massive Ponzi Schemes and Other Fraud
We’ve mentioned it time and again, some of the largest banks have played surprisingly important roles in support of massive Ponzi schemes. Investors lost billions. (Click here, here, here for our blogs). Our firm, Berk Law (www.berklawdc.com) is currently litigating four cases against both Bank of America and JP Morgan Chase for their roles in fraudulent investment schemes across the country. (Click here, here, here, and here for blogs on JP Morgan Chase) We hope 2011 will bring justice for thousands of investors who have lost much of their life’s savings.
5.A Favorable Ruling for Consumers in AT&T v. Concepcion
Just a few weeks ago, the Supreme Court heard oral arguments to determine the enforceability of mandatory arbitration clauses, which ban class actions completely (“whether brought in court or before the arbitrator”). This ban is not only unfair to a consumer holding a valid claim but it also a fast one on consumers. We hope for a ruling upholding the California court’s decision invalidating such contracts under the doctrine of unconscionability. Click here for our blog on the case and here for the scotusblog entry.
6.Wall Street Makes Billions of Dollars
Seriously. Prosperity on Wall Street should be encouraged. What should be discouraged are the risky, unfair, and myopic practices of the past decade. Investing in sound businesses and long-term plans will help lift the American economy, stabilize the investment world, and restore confidence to investors who will invest more comfortably in sustainable portfolios. Click here for a blog about responsible investing.
7.An Active SEC Enforcement Unit to Stomp Out Fraud Before It Hurts Investors
The SEC must bring more cases. While the new whistleblower office (if it ever gets funding) will be critical, a hungry first rate staff must be priority one.
8.The Risks of Indoor Tanning Get the Attention They Deserve
Enough is enough. Teens, mostly girls, should not continue to tan and essentially fry themselves with reckless abandon. They dramatically increase their risk of cancer. Tanning, like cigarettes and alcohol, is a personal choice, but at present the risks are largely ignored or downplayed by the industry. We’ve said it before and we’ll say it again, indoor tanning causes cancer (click here and here). In moderation, maybe, but we ask simply that the risks are published so that consumers can make an informed decision. Click here for our series on indoor tanning.
9.Foreclosure Proceedings Gain an Air of Legitimacy and Homeowners are Treated Fairly
The gap between risk and lending simply grew too large. In many cases it just didn’t exist. What incentive did a bank have to ensure the reliability of its loan if it was simply going to sell the loan the next day as part of a massive securitization? Click here. The still-ongoing mortgage crisis is a microcosm of the irresponsibility, greed, disorganization, and shoddy oversight pervasive in the banking world. Hopefully 2011 will put back the link between risk and lending. (because if we don’t, I fear more bad paper and a huge risk.)
10.A Political Climate that Puts the True Needs of Main Street First
With a decidedly angry republican opposition taking power in the House in January, the potential for political stagnation is as high as ever. Sure, deliberation and substantive arguments are what the founders intended for Congress. We simply hope that the interests of Main Street don’t take a backseat to partisan rivalries and that we can continue to move towards respectable reform.
11.Last, But Certainly Not Least, a Washington Capitals Stanley Cup Victory
Hey, we’ve got to have some local pride. Life’s good inside the beltway, unless of course you’re a sports fan. McNabb and the ‘skins just didn’t pan out, John Wall’s not going to win a title alone, and it’s not looking like anyone in the NL East has a shot besides Philly. So, put on your Ovechkin jersey because DC’s going to have to be a hockey town. We’re in first place as of today – let’s keep it that way. Maybe you’ll catch me downtown at the Verizon center for a game. I’ll be the guy making sure the refs, the owners, and the league play by the rules – after all, this is The Corporate Observer.
JP Morgan Chase (“Chase”) is not the largest bank in the land (that moniker belongs to Bank of America) but it just might be the luckiest. As readers of this blog know (click here and here for examples of past stories), Chase negotiated a sweetheart deal with the FDIC for the purchase Washington Mutual (“WAMU”). The price was right ($1.8 billion). Why? Because the FDIC didn’t let any other banks bid. Better yet, the FDIC agreed to accept responsibility for all future liabilities of WAMU. Wow! Yes, it’s called indemnification. Media darling and Chase CEO, Jamie Dimon pulled off the banking coup of the decade.
Chase now faces a new hurdle, fending off the pesky Irving Picard, receiver for the bankrupt Madoff enterprise. After two years, Picard has finally figured out that Madoff could not have run a $50 billion dollar Ponzi scheme without a credible banking facility. How would it look if investors were getting their returns from the (Turks and Caicos International) or another paragon of the banking world (Nigeria International Bank)? Beyond the loss in credibility, surely Chase had to have seen over those many years that not one penny was ever sent by mail, by wire, by messenger, or by carrier pigeon to an entity for the purchase of securities of any kind. Instead, money flowed from new investors to pay off old investors (with a healthy chunk going to Mr. Madoff and Company).
“JP Morgan was willfully blind to the fraud, even after learning about numerous red flags surrounding Madoff,” said David J. Sheehan, a lawyer for Picard, in a statement. “While many financial institutions enabled Madoff’s fraud, (JP Morgan Chase) was at the very center of that fraud, and thoroughly complicit in it.”
But be careful Mr. Sheehan. It’s going to take more than “red flags” and “willful blindness”. Those clever folks at Chase know all too well that for Picard to prevail he must establish Chase had “actual knowledge” of the fraud. Mere suspicions just ain’t gonna cut it. I’m rooting for the victims of the Madoff fraud, but I fear Mr. Dimon may have the winning hand. I will hold my final judgment until the Complaint is unsealed and we see Mr. Picard’s hand.
(Berk Law, my firm, is currently counsel to investors of several Ponzi Schemes who have filed claims against Bank of America and JP Morgan Chase).
The only way to end the cycle is to bite the bullet and fund the necessary office at the SEC. Until we break the cycle, tens of thousands and the integrity of the markets remain at risk to predatory schemes like the one Mr. Madoff ran for years and years, right under the Commission’s nose.
The Dodd-Frank financial reform bill has taken its share of hits over the past few months. This week’s might be the biggest. The Wall Street Journal reported Friday that a lack of funding will force the SEC to delay opening an independent whistleblower office. In the meantime, the SEC’s enforcement division will handle the anticipated 30,000 whistleblower claims per year. Surely you’re not serious; the same SEC that missed Madoff and scores of smaller ponzi schemes?
This delay, just a month after the SEC released its proposed rule governing whistleblowers for public comment. The bill required that the SEC finalize and adopt the rules by April 12, 2011, but what good are rules without a department to enforce them? The incentives provided to whistleblowers under Dodd-Frank are an enormous step forward for investor protection in post-economic-crisis America. Informed citizens alerting the government of fraud and corporate has a proven track record.
Instead, there is a bit of a vicious cycle: poor whistleblower system helps cause crisis, which helps cause budget shortfall, which results in underfunding the SEC, which leads to poor whistleblower intake, and so on. But the only way to end the cycle is to bite the bullet and fund the necessary office at the SEC. Until we break the cycle, tens of thousands and the integrity of the markets remain at risk to predatory schemes like the one Mr. Madoff ran for years and years, right under the Commission’s nose.
Two years after Bernie Madoff’s arrest, the United States Attorney for the Southern District of New York announced the indictment of two key back-office employees. The first question is, “What took them so long?” (A question for another day.) More interesting to me is who these people are and how the largest Ponzi scheme in recorded history operated for so long undetected?
I should say at the outset, I was surprised by the backgrounds of the indicted employees. In my representation of Madoff victims, I have seen the elaborate and very detailed statements sent out each month by Madoff’s crew of thieves to thousands of investors, including many “sophisticated” fund managers. These statements were written under the name Bernard L. Madoff Securities of Wall Street and London. They identified specific securities owned and explained a complex trading methodology that, like magic, paid returns exceeding 10% every year.
I would have thought this grand multi-billion dollar ruse was the work of some computer programming genius. Think Mark Zuckerberg of Facebook or his friend Sean Parker, the inventor of Napster. Or perhaps some super nerdy, M.I.T. Ph.D. student who hacks into the Department of Defense’s operational control system for weekend fun.
Nope, it was two Italian grandmothers from New Jersey (I’m actually guessing they are grandmothers – but they could be): Jo Ann Crupi and Annette Borgiorno. Both from working class backgrounds hired by Madoff back in the 1980s as key punch operators.
The indictment explains that to fool regulators, they merely set up a phony (second) set of books. (How clever!) Continuing on the low-tech theme, Madoff's crew kept records of investments on handwritten note cards – I’m guessing those three by five cards we used in grade school for our class speeches.
If true, what does this say about the SEC and other regulators – fooled by the oldest trick in the book – two sets of books? Maybe down the road we’ll find that Madoff had a super-computer and the world’s greatest programmers money (a lot of money) could buy. But for now, these latest indictments merely throw more mud in the eye of those who should have dug deeper. Not only the regulators, but those “sophisticated” investors (fund managers) who looked the other way while taking their huge monthly fees.
I don’t know where I stand on investors bankrolling lawsuits. On one hand, it provides a path to justice for those without the means to use our court system, which can be very expensive. On the other hand, they frequently exploit those very people by taking advantage of their situation to charge exorbitant interest. One thing is for sure: it is an industry that begs for regulation to ensure fair play.
No surprise here, but Bank of America is once again involved in shady dealings, this time surrounding the Lehman Brothers bankruptcy. The Bank seized $500 million just after Lehman filed for Chapter 11, but Judge James Peck ruled that seizure was unauthorized and impermissible. Creditors to the failed institution can thank Judge Peck for adding $500 million to the pot of attainable funds after the collapse.
A major case involving the rights of consumers was argued in the Supreme Court this morning. Consumers were represented by Deepak Gupta of Public Citizen. You would never have known it was his first dance with the justices. Despite his youth and rookie status, he was no less than brilliant—brilliant in a clear, plainspoken manner. Winning by his thorough preparation and fearless yet respectful demeanor, he faced a cavalcade of hostile questions, particularly from Justice Alito, whose sneer shifted between disdain and anger, and did not crumble; instead like pitching ace Cliff Lee, he only got stronger as the argument progressed. AT&T was represented by Andrew Pincus, an old hand at the Supreme Court. We expected more from someone who appears before the Court on a regular basis. Not only was he not smooth or flashy, that’s fine, but his arguments were largely convoluted and hardly persuasive; time and again he returned to “his example” – which was in a word: indecipherable.
What is this case (AT&T v. Concepcion) all about? Specifically speaking it is about arbitration provisions in contracts between consumers and large institutions like your bank or cable company. Did you know that most contracts with telephone and credit card companies include an arbitration provision, which in effect shields the company from liability for fraud, product defects and a host of wrongful conduct. They force the consumer to forego any rights they have to file their grievance in court and instead relegate them to proceed before an arbitrator. (OK no big deal – so what? An arbitrator, a judge—isn’t it all the same?). No; in fact, in this and many other contracts a provision within the arbitration clause bans you from filing a class action either in court or before an arbitrator. And the big deal about that is?
The problem is best illuminated with an example: let’s say AT&T has 10 million customers. One day last summer, in an effort to beef up profits before earnings are announced, an AT&T team started adding a bogus “surcharge” to all bills. It amounted to $10/customer X 10 million customers, or 100,000,000 bucks. One hundred million dollars. Nice work. Well let’s say Nancy Jones, who is a very careful and diligent AT&T customer, reads the fifth updated AT&T agreement before recycling it and discovers the $100 million is an illegitimate charge.
What can she do? If AT&T has its way in the Supreme Court she would be limited to filing a claim for her loss and her loss alone. So let’s say she wins – and let’s say she tells her friends and they win. Perhaps a couple hundred subscribers find out. What about the millions of other consumers who for whatever reason are not so smart or diligent? Bottom line: the company gains $99.9 million; consumers get next-to-none of their rightful money back.
But if there is no arbitration provision in place – and class actions are not banned – Nancy can file a case on behalf of all subscribers for the entire $100 million.
Which way is preferable? Under California State law, a ban on class arbitration in a contract (as AT&T seeks) is deemed unconscionable and unenforceable.
The United Supreme Court will decide in this case what law applies. Do they side with the consumers and allow states to prohibit class action bans within arbitration provisions? Or do they once again subjugate consumer fairness to the interests of big business by overturning the lower courts’ judgments and allowing the bans? My sense tells me that the anti-consumer, anti-class action bias will win this one. Not so much on the merits, but because of the politics.
David Meister, a former prosecutor from the United States Attorney’s Office for the Southern District of New York will head the CFTC’s enforcement division. Five years ago this would not even be worthy of a news blip. But today, CFTC’s enforcement powers have greatly expanded thanks to the Dodd-Frank financial reform bill. The CFTC is in a prime position to effect positive change. They are counting on Meister and his strong enforcement background to secure a sense of integrity and stability in our sophisticated commodities markets which have evolved well beyond pork belly and soybean futures, but too often have a reputation of functioning more like a poker saloon in the Wild West.
Significantly, the Dodd-Frank financial reform bill increased the types of claims the CFTC can pursue and also broadened the agency’s jurisdictional reach. Perhaps most importantly, the expanded CFTC will have increased powers to govern the multi-trillion dollar derivatives market. A market that almost single handedly pushed us into a second great depression.
Oh how times change. The brave Brooksley Born, former head of the CFTC, tried regulating derivatives (long before the financial meltdown of 2008) and was literally strong armed by Hank Paulsen and Alan Greenspan to keep her mouth shut. The CFTC will now monitor derivatives in the same way that the SEC monitors securities – a major step forward from the old, nearly-deregulated system. Dodd-Frank gives the CFTC broader authority to pursue manipulation in the markets by broadening the definition of “manipulative conduct” and by including swaps in the CFTC’s purview. Finally, the CFTC will have added control over insider trading enforcement, and will set “business conduct requirements” to ensure a minimum level of accountability.
David Meister has commendable experience making tough decisions, investigating complex corporate fraud, and – most importantly – winning at trial. Meister, 47 years old, has over 20 years of white collar litigation experience. He spent time as a prosecutor in the Southern District of New York as a member of the Securities and Commodities Fraud Task Force. Meister further enhanced his credentials working for one of the world’s largest law firms – Skadden, Arps, Slate, Meagher, & Flom (aka “Skadden”). At Skadden, Meister represented numerous individuals and corporations in matters involving securities litigation, insider trading, and complex accounting. Let’s hope though, in that rarified world of top Wall Street law firms, he hasn’t forgotten the investors on main street. Because as we all know, they are the ones who need protection. The little guys are often left to fend for themselves, Institutions can afford to hire – well – Skadden Arps.
Verizon has agreed to pay $58 million in rebates and $25 million in penalty fees for incorrectly charging fees to customers. The $25 million dollars is the largest amount ever paid to the FCC under a consent decree.
Elizabeth Warren blogged about her plans to make the Consumer Financial Protection Bureau as effective as possible. Her focus is on using technology to make for more effective, timely discoveries of lapses like the mortgage robo-signing fiasco that was recently uncovered.
The Washington Post has an in-depth look on Ms. Warren’s efforts on the technology front. It allows insight into Ms. Warren’s priorities via quotes from her Thursday speech at the University of Cal Berkeley.
At long last, the SEC has taken measures to electronically streamline the tips and complaints it receives. Information, no matter how it is received by the SEC, will now enter a searchable and cross-referenced database that is to be ready for use by the end of the year. Sadly, this constitutes a major change from standard operating procedure. Notably, the SEC received multiple tips regarding Bernard Madoff’s scheme. The commission launched two different investigations at separate SEC offices which were mutually unaware of each others’ efforts—the NEXT Madoff will not be so lucky.
Enforcement director Robert Khuzami has taken his title seriously, although as with every bureaucratic process it has taken some time. Streamlining the SEC complaint process and the Dodd-Frank Bill’s whistleblower incentives allow for effective self-policing, which is essential in a field where (as previous experience shows) the SEC can’t possibly oversee every company and transaction effectively.
This shift in focus to efficiency and incentivizing self-regulation are a major step forward. But the Commission must continue to vigilently maintain its commitment to a more practical, nimble and effective form of regulation.
Recently, we reported on Facebook’s information sharing agreement with Microsoft and the major privacy issues it may cause. The Wall Street Journalvalidated our concerns with a study that shows large amounts of personal data being shared by Facebook with third parties; often, this sharing occurs despite an explicit agreement to keep web browsing information private. Facebook is working to restrict its applications from illegally sharing information but so far the money-hungry profiteers have prevailed.
Banks like JPMorgan have devised a new “heads we win, tails you lose” strategy for profiting at the expense of its investors. If Times reporters have uncovered it, investigators should not be far behind. A scheme where banks risk only investor money seeking profit for itself? Sounds eerily familiar to what caused the financial crisis, doesn’t it?
Lehman Brothers continues to shell out big money to its bankruptcy advisors. The judge in the case has stated he will cut into some of those fees should he deem them too large, but competition among courts to hear major bankruptcy cases means many judges are reluctant to do so. The result is unchallenged, exorbitant fees paid to advisors with no alternative for firms needing their help.
It worries me that Bing can so readily access my information, and display it on my friends’ searches. What if I don’t want that information shared or displayed?
Seeking more users of its Bing search engine, Microsoft teamed up with Facebook to allow a more “personalized” search. Bing now has access to any public information on your Facebook profile, and when you search using the engine it will use that information to fine-tune the results and display your friends’ opinions. There are two sides to this coin: the added convenience and the concern of privacy violation.
I think the added convenience will prove negligible to the vast majority of people. I don’t know about you, but most of the things I use search engines for are unrelated to my favorite movie or my best friend. How is it going to help that I like the Chicago Cubs when I search for a casserole recipe? Or that I enjoy alternative rock when I’m looking for the closest Bank of America?
Meanwhile, privacy concerns are much more real. Microsoft chose to make the deal with Facebook—a deal Google has resisted—in an effort to enhance its user experience and gain market share. Currently, only one in nine searches goes through Bing, whereas roughly two of every three go through Google (not surprising in a world where “Google” has become a recognized verb). By tapping in to Facebook’s limitless supply of user information, Bing hopes to take some of Google’s loyal customers. But it worries me that Bing can so readily access my information, and display it on my friends’ searches. What if I don’t want that information shared or displayed?
Can I Turn It Off?
This “instant personalization” feature is not difficult to turn off, which is a relief. On your Facebook page, click the privacy settings in the top right section. On the bottom of this page you will find a link to change application and websites settings. On that page, you can deselect the feature and Facebook will not be linked to sites like Bing.
However, I am concerned for the millions of people who do not realize that their information is now shared by Bing and other linked sites. Bing claims the information will not be used to select targeted ads, but they should have to disclose more and issue a warning to every Facebook user regarding the details of the feature before it takes effect. Otherwise it steals private information and sends it along to sources the subject is unaware of. And that is a major violation of privacy.
What is Goldman up to nowadays? Oh, just raising compensation by 3.5% despite a projected 13.5% decrease in revenue. Do they call that a lack-of-performance-based raise?
For years the public mostly turned a blind eye to Wall Street’s corporate practices, including the lucrative (and ludicrous) bonuses and salaries paid to top executives, largely for speculative trading. Wall Street produces no products. But so long as their companies made enough to pay out such exorbitant amounts, we rationalized, what was the problem? The financial collapse should have served as ice water poured on our snoozing faces. Incentivized by a pay structure that valued risk, we were all led to the brink of disaster. It was only the infusion of $450 billion in taxpayer money that saved us from The Great Depression, Part II. So why on earth are Wall Street’s top companies set to pay a record $144 billion in compensation this year?
I feel like a broken record. Yes, the majority of TARP loans have been repaid and we are on the slow road to recovery, but we cannot become complacent. The next step must change the paradigm. It must tighten regulation and oversight of corporate compensation. And that applies to all companies—even the unassailable Goldman Sachs, which was saved by the rescue of AIG, its principal insurer. What is Goldman up to nowadays? Oh, just raising compensation by 3.5% despite a projected 13.5% decrease in revenue. Do they call that a lack-of-performance-based raise?
This is why we need regulations sooner rather than later. SEC Chair Mary Schapiro (no stranger to compensation issues) at last has detailed a timeline for the regulations that will soon govern the entire industry.
Most of the Commission’s timeline occurs before the New Year, but that is not soon enough. We propose a more immediate solution to the compensation problem: redirect any salary or bonus that is based on purely speculative trading towards public infrastructure. Instead of paying millions of dollars to each executive that nearly ran our economy into the ground, let’s use the excess to modernize transportation systems, fix bridges and pay teachers.
It won’t happen but it should. Let’s hope the SEC gets in gear and moves quickly to enact effective rules to protect the public from another crisis.
Elizabeth Warren claims that the Consumer Financial Protection Bureau will be “The first real agency of the 21st century”. Warren is optimistic about the agency’s potential to help improve the Amrican investing climate. Click Here For the Story
Three cheers for Obama for his pocket veto of the Notarizations act. The bill was originally intended to help promote interstate commerce by mandating the recognition of notary publics between states. The bill wasn’t drafted in bad faith, but some of its more obscure provisions could help make it easier for banks to foreclose on homes. Click here to read about President Obama’s veto.
Citizens United is certainly rearing its head in the 2010 midterm election. Funding is up, but is political justice taking a hit? Read the New York Times article here.
Read the New York Time’s article about President Obama’s calls to outspend private interests Here.
William Goldman at the New York Timeswrites that the Elizabeth Warren’s brainchild, the Consumer Financial Protection Bureau, is based on the ill-founded belief that consumers are not at fault for their poor investments. I agree that consumers must be more diligent, but to place the blame for sleazy contract terms and other fraudulent behavior solely on the backs of consumers is ludicrous and unfair. The CFPB is essential to our sustained recovery from the financial crisis, which occurred in large part due to under-regulation.
Jim Puzzanghera of the LA Timesreports on the concern that the CFPB has much work to do. Without a Senate-confirmed director many fear its efforts will begin to stall. Certainly the Bureau needs a director, but isn’t it enough for now to let Elizabeth Warren run the preliminary operations? It was her idea, after all.
The Supreme Court’s term begins today, as it does on the first Monday in October each year. Let us hope the recent infusion of youth among the Justices will help lead the Court to more forward-thinking decisions.
Over 15 million Verizon customers have been charged fees for data access they in fact never requested and could not even use.
Consumers $0. Verizon $90 million.
Individually the charges amount to less than $10 per customer, but the windfall for Verizon was nearly one hundred million. Not bad for ignoring a glitch and providing no service at all. The New York Times and Wall Street Journalreported today that Verizon Wireless will repay its customers up to $90 million to compensate for these wrongful charges. The refund will be one of the largest consumer refunds by a telecommunications company in history.
According to the Times and other news sources (click here for the information week article) Verizon’s misconduct has been ongoing for years. Since at least 2007, customers were charged data access fees relating to data delivered to mobile devices. Verizon claims to have fixed the problem.
Tom Allibone, former advisor to the FCC’s Consumer Advisory Committee and current Director of Audits for Teletruth, a consumer advocacy group based in New York City, claims that phone companies can rarely explain all of the charges on a bill. Most of the time, if a customer calls with a concern about a small fee or charge, the service representative will simply defer to a default answer: “That is a regulatory fee, something the regulators make us charge.” Many times this explanation is simply untrue. For this reason: always check your phone bill and ask questions!
Hopefully this refund will serve as a reminder to both consumers and telecom companies.
To Consumers: Though we wish the world were different, we have a responsibility to check our bills for accuracy, and when problematic, dispute or question any strange charges. Whether intentionally or by an honest mistake, consumers are regularly overcharged for services they do not use. In this Verizon case, no individual consumer has lost more than a few dollars, but the diminutive nature of the damages does not diminish Verizon’s culpability and lack of candor with its own customers.
To Companies: This type of conduct is unacceptable and consumers are on the watch. Thanks to new whistleblower provisions greatly increasing a consumer’s ability to monitor big corporations, misconduct both large and small will be reported and penalties enforced. Your duties to honestly provide service and bill customers are becoming less of an option day by day. And don’t wait till you are caught. Act swiftly and preemptively.
The FCC is Taking Action
We applaud FCC for its action seeking to impose penalties on Verizon for allowing these charges to continue, even after Verizon first detected the problem as early as 2007. In order to protect consumers from corporate misconduct, the FCC must punish all violations, especially when the effect on consumers is so small in comparison to the potential benefit for the companies like Verizon. Severe punishment is the only way to ensure that this does not become a regular problem for consumers.
Rahm Emanuel is retiring to run for Mayor of Chicago. Who will fill his Shoes? Pete Rouse. Click here to read the Washington Post’s primer on President Obama’s new chief of staff, Pete “the fixer” Rouse.
Hey, we can’t all agree all the time, right? Here’s an interesting op-ed in today’s New York Times expressing concern over Elizabeth Warren and the new Consumer Financial Protection Bureau. We’re inclined to disagree with the author, but if the practice of law has taught us anything, it’s always a good exercise to look at both sides of an argument.
More on the Consumer Financial Protection Bureau:
Overhauling the most complex financial system in the history of man is no easy task. Today’s New York Times outlines some of the difficulties that lie ahead and the patience that is required in the effort for true, effective reform. Click Here for the article.
Two brothers are walking across America to express their discontent with SCOTUS’ landmark Citizens United ruling last year. The ruling allows companies to contribute to political campaigns as if they were private individuals. The ruling is grounded in first amendment freedom of speech protections, but does it go a bit too far? The Monahan brothers certainly think so:
Uncharacteristically, FINRA plans to propose a rule that makes it easier and fairer for securities disputes to be decided. Arbitration, currently presided over by a group least one member of the securities industry, would shift to a committee of only members of the public.
The SEC continues to crack down on phone investment scams that target innocent investors. For a complete list of press releases regarding their cases, see the Commission’s press releases.
Some large banks have fully repaid their TARP loans, but we must not forget the billions loaned out to smaller banks, many of which are struggling to repay. Less than 20% of the banks that accepted loans have repaid fully, and over $60 billion was still due to the Treasury as of August, Reuters reports.
Score one, two, three… I count eight for the everyday American, and this summary doesn’t cover all of the changes you will see.
For millions of Americans, six long months of waiting come to an end today as the health care bill finally takes effect (as reported by the New York Timeshere and the Washington Posthere). In the past, the health care sector (much like the financial sector) has victimized innocent, unknowing citizens through unexpected fees, unfair fine print and severe lack of consumer recourse. The health care legislation will bring an end to the most nefarious of these practices.
For your convenience, I have compiled a list of the basic changes you can expect in the health care realm:
Your child can now stay on your coverageuntil he or she reaches age 26;
Your child may not be denied treatment for a preexisting condition;
In an emergency, you may visit the closest emergency room regardless of your coverage (appalling that was not the standard already, huh?);
You may now choose your own doctor (again, how was this not already status quo?);
Your insurance provider’s ability to retroactively cancel your policy due to so-called “fraud” on your application is far more difficult due to a fortified policy cancellation standard;
You may now appeal a denial of coverage by your insurance company to an independent arbiter for review;
Insurance companies may not place a lifetime limit on coverage; and
Over the next three years, the annual limit will be phased out of all health plans and eventually disallowed entirely.
Score one, two, three… I count eight for the everyday American, and this summary doesn’t cover all of the changes you will see. It is certainly a day to celebrate, but we must also ensure that the parts of the plan needing oversight – denial of preexisting conditions, retroactive cancellation, and the appeals process – are truly governed and enforced. The next step is to give the bill teeth, but for today let us raise our glasses, this time without fear of throwing out a shoulder.
Yesterday SEC Inspector General David Kotz called the timing of the SEC’s recent lawsuit against the infamous Goldman Sachs “suspicious,” but this statement should be viewed in context (see WSJ story). Yes, it coincided with the release of Kotz’s “scathing” report about the Commission’s handling of the Stanford Ponzi scheme. And yes, I have been critical of my former colleagues at the Commission in the past. From my recent experience they can be plodding and overstaff even the smallest of matters (it’s not hard to see how they missed Madoff and Stanford). But this most recent claim of “suspicion” is really rather petty and belies the facts.
First, the case against Goldman was bold and creative. Perhaps it was akin to a makeup call by a sports referee. (Missing Goldman’s more flagrant fouls over years, they frustratingly called a foul for a rather convoluted deal that touched on Goldman’s often duplicitous conduct that has made it the most powerful player on Wall Street). But the result was swift and decisive. Goldman quickly agreed to pay $550 million. Over a half a billion dollars – even by Goldman standards that is nothing to sneeze at. So I say: so what that the case was brought on the eve of another “scathing” report by Mr. Kotz?
Second, the new enforcement chief, Robert Khuzami, is a tough former federal prosecutor who needs more time to assemble his team and begin changing the culture of the enforcement staff.
Third, and most importantly, the SEC alone cannot both police and set the ethical tone for the entire financial sector. Let’s not forget the role of the banks (who provided safe havens and substantial assistance for Ponzi schemes), accountants (signing off on the value of worthless assets to the tune of many, many billions), and the rating agencies (AAA ratings for Subprime Debt – how wrong were they?).
So Mr. Jonathan Kotz, Inspector General, let’s not issue reports merely to conclude conduct was “suspicious,” which simply undermines the progress of the Commission. If you have something bring it on, otherwise let your colleagues focus on the hard work ahead.
I am debuting a new feature at The Corporate Observer: articles and blog posts that may be of interest to readers. I hope you enjoy.
Elizabeth Warren wrote a short piece at the White House Blog saying that she’s ready to “pull up [her] socks and get to work.” Consumers should be as enthusiastic about her appointment as she seems to be.
Speaking of Ms. Warren, here is an article that she wrote back in 2007 declaring the need for what she termed a “Financial Product Safety Commission.” This manifest of sorts was a driving force in her selection for her role with the Consumer Financial Protection Bureau.
The SEC set up a website for comments regarding the regulations they will soon establish with regard to the Dodd-Frank Bill. Chime in and take advantage of the opportunity to voice any concerns or suggestions you may have with new provisions and their enforcement mechanism.
Updating Wednesday’s post, the Wall Street Journalreports that Elizabeth Warren has been named “assistant to the president and special advisor to Treasury Secretary Timothy Geithner.” This does not make her head of the Consumer Financial Protection Bureau – that position is still unfilled – but it gives her authority to appoint officials and direct some of the operations of the Bureau. Consumers can celebrate this moment, when the CFPB can finally move towards strategic enforcement. Eventually, Congress will confirm a director, but in the meantime Ms. Warren will give the Bureau much-needed and immediate direction.
Charlie Rose recently interviewedNew York Times financial writer Andrew Sorkin on a PBS special that I highly recommend. Sorkin discusses the true causes of the financial crisis, current causes for concern, Basel III, Elizabeth Warren and more. Enjoy the link.
The time is now. [Warren's] immediate appointment would allow the CFPB to begin planning and doing its important job of policing on behalf of consumers, while also serving as a referendum on Warren’s ability to lead the bureau. What is lost in that scenario?
Let Elizabeth Warren do her (future) job now.
It has been widely reported that Harvard law professor Elizabeth Warren is considered the frontrunner to head the important new Consumer Financial Protection Bureau. Given the climate of hyper-partisanship in our nation’s capitol, hearings on her confirmation are, as they say, “likely to be bitter and drawn out.” That's exactly what the White House may fear. The American Bankerreported yesterday that the White House is considering naming Elizabeth Warren interim head of the Consumer Financial Protection Bureau. Giving her the ‘interim’ title would eliminate the requirement for a nomination/confirmation process, which could then be performed at a later date.
Naming Warren the interim head is a no-lose scenario. The time is now. Her immediate appointment would allow the CFPB to begin planning and doing its important job of policing on behalf of consumers, while also serving as a referendum on Warren’s ability to lead the bureau. What is lost in that scenario?
The Wall Street Journal reports the White House’s decision could be as soon as the end of the week. The sooner the better. Consumers need Elizabeth Warren.
Rumors abound (click here for WaPo, click here for BostonGlobe, here for Politico) concerning the possibility of Elizabeth Warren’s appointment to head the new Consumer Financial Protection Bureau. Warren, a professor of law at Harvard University, was a major proponent of the most recent financial reform bill and is particularly popular with supporters of financial reform.
Warren has made a career studying and advocating for the common consumer. She has published multiple books and scores of scholarly articles on the topic of middle class economics and is widely regarded as a leading voice in the field. Time magazine named Warren to its top 100 most influential people in the world list in both 2009 and 2010.
Why All the Hullabaloo?
Last Thursday, first year students in section 3 at Harvard Law were informed that Warren would not be teaching their contracts course. Though the Harvard Crimson reports that Warren will still be co-teaching a seminar on the empirical analysis of law, the freedom from a post as contracts professor could be a strong sign that Warren is headed to Washington.
Here at the Corporate Observer we think it’s clear that Warren is an excellent choice for the first head of the new consumer watchdog bureau created under the Dodd-Frank financial reform bill. A champion of the consumer, and influential policy adviser, and an educated decision maker – Warren seems perfectly fit for the job. We commend Warren for her commitment to change and oversight. We agree with her statements in an interview with Tom Ashbrook that "it’s about reining in an incredibly powerful industry. It’s about reining in a group that gives money and knows how to exercise power in Washington."
Elizabeth Warren is not related to Chief Justice Earl Warren. Nevertheless, should Warren head up the new agency, her potential to effect change in America could rival that of the celebrated Chief Justice. Though today’s post is merely speculation – the formulation of the leadership of this new important watchdog bureau is important news and we will keep you informed on updates as they come.
Are you thinking, Wait a second, isn’t that simply making the car less of a hybrid and more of a standard gasoline-powered car?Yep.That’s exactly what the “upgrades” do.
Recently, Ken Bensinger of the Los Angeles Times reported on what appears to be a fundamental defect in the hybrid system that Honda used in its Civic model beginning in 2006.
In 2006, Honda altered the Integrated Motor Assist (“IMA”) system in its Civic Hybrid.The IMA dictates when the battery power runs instead of or in conjunction with the gas engine—it manages the “hybrid” aspect of the car.Early reviews of the new Civic Hybrid were positive, but after a year or so of driving the car, owners began to experience constant low battery levels, especially in hot weather.
The problem seems to be that the IMA system directs the battery to remain off when its power is low, and the Civic “Hybrid” runs exclusively on gas as it tries to recharge the battery.In other words, it ceases to function as a hybrid.
Owners brought their 2006 and 2007 Civic Hybrids to dealerships en masse.When Honda categorically refused to fix the problem free of charge (a new hybrid battery costs up to $3000 all told), owners rightfully objected.Backlash became strong enough that this month, Honda issued a letter to owners containing an “explanation” and a “solution.”The explanation: “frequent stop-and-go driving during warm weather” (as if Honda’s marketing of the Civic Hybrids was limited to a traffic-free, moderate-weather environment – say a small part of Eastern Tennessee in the spring).The solution:an IMA software “upgrade” for the Civic Hybrid, free of charge.
Problem solved, right?Do not be fooled.Close reading of the letter shows that the software will not fix the problem; it will merely decrease the car’s battery use. The new software will:
Cause the engine to restart sooner when the vehicle is stopped;
Stop the car from shutting off the engine when stopped in some instances; and
Reduce the electric assist to the gas engine at higher speeds.
Are you thinking, Wait a second, isn’t that simply making the car less of a hybrid and more of a standard gasoline-powered car?Yep.That’s exactly what the “upgrades” do.Civic Hybrid drivers report a precipitous drop in gas mileage after the upgrades.And after paying thousands of dollars more to purchase a hybrid?Honda should be embarrassed.
With a loyal and large customer base and plenty of goodwill, why offer such a transparently inadequate solution?You guessed it.$$$. The hybrid batteries have warranties of at least eight years.Replacing tens of thousands of defective hybrid batteries (and potentially the systems that ruined them too) would be extremely expensive for Honda. Hundreds of millions at a minimum. Instead the software strings along the batteries by transferring much of the burden to the gas engines (and the owners who pay for the additional gas use).That’s not the quality and care Honda owners have come to expect.
If you have had such an experience with the Civic Hybrid’s battery problems, we would appreciate hearing your story.Post a comment below or visit www.berklawdc.com for contact information.
The Johnson City Press reports that the NIH’s grant is intended to facilitate Professor Hillhouse and ETSU’s efforts to get the word out to teenage girls about the risks and dangers of indoor tanning. Hillhouse’s messages will highlight the physical appearance-related risks associated with indoor tanning. Chief among these risks: sunspots and skin wrinkling.
As discussed here on many occasions, the World Health Organization has added indoor tanning to its top carcinogen risk group, joining poisons like tobacco, arsenic, and formaldehyde. Despite all of this, young women are still not heeding the warnings – even though they grow louder and clearer.
Perhaps grants like this one can serve as a grass roots model for starting to change attitudes towards indoor tanning. Maybe the best way to go at this health risk is to appeal to vanity (the same reason many people tan). “Indoor tanning can be ugly”. Our hats are off to the NIH, to professor Hillhouse, and to ETSU for their creative efforts.
Today, consumers are paying the price for corporate America’s greed. Tomorrow, with some help from the SEC, whistleblowers will ensure that we do not make the same mistake twice.
On Wednesday I detailed for our readers what you need to know about the Dodd-Frank Wall Street Reform and Consumer Protection Act. An important question has arisen regarding the effectiveness of the whistleblower provisions within the Bill. Sources like Daily Finance are concerned that the Bill will generate little more than unsubstantiated claims from people grasping at straws in an attempt to take advantage of the enhanced benefits afforded to whistleblowers.
To supporters of the bill: these concerns cannot be dismissed out of hand. For example, employees with a poor performance record may abuse the whistleblower provision by wrapping themselves around the protections afforded legitimate whistleblowers by filing a frivolous claim. Once that claim is filed they have, at a minimum, made it more difficult to be fired based on their poor employment record. Similarly, people seeing dollar signs will inevitably submit unsupported or frivolous allegations of fraud in an attempt to collect on the enhanced whistleblower’s reward.
Despite this potential for mischief and abuse, my support for the whistleblower provisions remains unchecked:
First: I firmly believe that 99.9% of Americans are honest people who will not exploit this Bill.
Second: The SEC must step in and create rules for those bringing baseless claims under the whistleblower statute. This will weed out the dishonest whistleblowers but allow those with legitimate information to rightfully benefit from the Dodd-Frank Bill’s provisions.
Third, and most importantly: On balance, the whistleblower incentives will help solve a far bigger problem than they will create. Unchecked, gambling financial executives helped bring our economy to the brink of collapse. As former Treasury Secretary Hank Paulson re-tells in his recent memoir On the Brink, this titan of the financial world vomited under the stress of the crisis after addressing the press and Congress. And what better watchdogs to dissuade corporate corruption than the employees that work with the executives on a daily basis?
The Sarbanes Oxley Act of 2002 was the initial attempt at protecting and promoting whistleblowers; the toothless Act has yielded hundreds of fruitless complaints from whistleblowers. One after another they have been withdrawn or dismissed. Dodd-Frank enhances Sarbanes-Oxley in the following key ways:
Extending whistleblower protection to employees of privately owned companies;
Steepening fines for non-compliant companies;
Offering contingent cash rewards; and
Allowing complaints to be immediately filed in court.
In sum, the Bill rewards those who are diligent and more importantly, serves as a real deterrent to would-be-transgressors. This is the ultimate goal of any regulation—not to punish those who are out of line but to prevent future wrongdoing.
The categorical condemnation of the Bill’s whistleblower provisions is the equivalent of emptying out a bottle of wine to retrieve the broken cork. The Bill is not a flawless solution, but it will drastically diminish the unchecked corporate malfeasance that brought our economy to the brink of collapse; with a little regulation it can do this at a minimal public cost. Today, consumers are paying the price for corporate America’s greed. Tomorrow, with some help from the SEC, whistleblowers will ensure that we do not make the same mistake twice.
If you have suggestions for how the SEC should effectively regulate the whistleblower provisions, or if you oppose the regulation entirely, we are interested in carrying potential rules to the SEC as well as hearing other solutions.
The American economy will be strengthened by the new whistleblower provision in the Dodd-Frank financial reform bill. Reporting securities violations and other corporate misconduct will both strengthen the world’s confidence in American companies and limit fraudulent schemes before they metastasize. Whistleblowers – ranging from high-powered executives to entry level employees to average citizens can be among our most useful tools in combating fraud. For this reason, The Corporate Observer applauds the Dodd-Frank bill.
Under the new bill, whistleblowers will be eligible to receive:
(1)10% to 30% of any monetary penalty in excess of $1 million imposed as a direct result of their assistance, cooperation, and knowledge; and
(2)Statutory protection from employment discrimination.
Who are whistleblowers?
Conscientious and ethical citizens who become aware of corporate misconduct; and have the courage to stick their necks out to report that conduct to the appropriate governmental authority. A Whistleblower is not a snitch or a tattle tale. Rather they are vigilant citizens who speak up to protect others from becoming victims of corporate misconduct and securities fraud.
What is a whistleblower claim?
A whistleblower claim is a formal notice to the government, in this case the SEC, of wrongdoing. For example, if you become aware of illegal conduct such as:
(1)Maintaining improper accounting practices;
(2)Systematically misappropriating investor monies; or
(3)Violating any other securities law;
you should consider submitting a whistleblower claim. Claims will be reviewed by the SEC and delegated to the appropriate regulatory department. From this point, the SEC will investigate the validity of the claim, the value in pursuing the accused party, and the proper penalty to assess.
To be clear, the Dodd-Frank Financial Reform bill allows whistleblowers to report any violation of securities laws to the SEC. Specific rules will be issued by the SEC in approximately 250 days.
Why file a whistleblower claim?
Individuals across America and across the globe invest in American businesses based on their reliability and integrity. Specifically, foreign governments purchase U.S. treasury bonds because they believe in the soundness of the American system. Violators of securities laws threaten the credibility and reliability of the American economy.
Those who invest in securities deserve your vigilance. Most securities are not held by wealthy individuals, but rather by average American investors who have 401K retirement accounts, college savings funds, and pension assets in stocks of public companies. Millions of American investors – thousands of people’s futures – depend on the credibility of the securities market for financial planning.
Acting as a whistleblower for securities fraud violations is every citizen’s opportunity to right corporate wrongs and protect consumers by limiting fraud.
How?
The Dodd-Frank Financial Reform Bill allows the SEC up to 270 days from July 21, 2010 to formulate rules and regulations for submitting a whistleblower claim to the SEC. Until these rules are finalized, the SEC has requested that complaints be submitted through its online forum (http://www.sec.gov/complaint.shtml) or by mail to the SEC’s complaint center at
SEC Complaint Center.
100 F Street NE
Washington, DC
20549-0213
Check back here for updates to the SEC’s claim submission guidelines and policies.
Legal Representation
Whistleblowers submitting claims anonymously are required to retain legal representation before submitting a claim. All other whistleblowers have the option to retain an attorney, but are not required to do so. At Berk Law we are experienced in whistleblower actions. Steven Berk has served in the General Counsel’s Office of the SEC and as an Assistant United States Attorney. If you’re interested in filing, or have any questions about a whistleblower claim please contact us at info@berklawdc.com or visit our website, www.berklawdc.com for more information.
Here is a Federal Agency willing to walk the walk. The FTC recently announced that Countrywide, one of the nation’s largest mortgage lenders and now a member of the Bank of America family was fined $108 million for improperly pursuing foreclosures and charging excessive and unfair fees to lenders being thrown out on the street. Where is the pity? How bout showing a little humanity. Nope. Instead, Countrywide took advantage of folks that who had no resources to fight back. As just an example or two, Countrywide’s egregious action included fees for a $300 lawn mowing and the approval of a trustee’s fee that exceeded the going rate by more than 400%. Shocking ... Not.
But no need to dwell on Countrywide’s disgraceful, dishonest, shameful (insert your own sentiment here) behavior. There is a bright side. The fighting and fit FTC; going to bat for the American public. As Gretchen Morgenson rightly pointed out in her column on Monday, the wheels of justice have been turning painfully slowly but we at Berk Law are delighted to see justice any time – even when it shows up late to the party.
So, three cheers for the FTC for reaching this settlement. No doubt thousands of aggrieved homeowners will be made whole. The United States Trustee, the investigative arm of the Department of Justice that assisted the FTC in this matter plans to look into similar predatory practices committed by other now-defunct mortgage-lending banks.
There are undoubtedly scores of lenders whose predatory actions, despite harming thousands of citizens, have gone undetected and unpunished. We hope that investigations and results such as this recent settlement with Countrywide scare some sense into banks and other financial institutions who are in a position to make mischief for homeowners while lining their own pockets.
According to a June 7th Businsessweek article, one hedge fund group has spent $1.4 million lobbying congress in the first quarter of 2010. That’s a lot of lobbying.
They are not alone. Managed Funds Association, an industry trade association, whose members include Bank of America Merill Lynch, Bank of New York, Barclays Capital, Citi, Goldman Sachs & Co., JP Morgan Chase & Co., and many more have increased its spending by over half a million dollars from the same quarter last year. Why?
Surely not to protect consumers; nor to put more strident controls and oversight on a financial services industry that brought us within an eyelash of a worldwide depression.
No. Their singular goal is to stop reform that Main Street so desperately needs. The newly passed Senate and House financial reform bills, presently in reconciliation proceedings, signal the beginning of a material shift towards proper regulation of the casino, Wall Street has become. These reforms include a new Consumer Financial protection Agency, increased rewards for whistleblowers, and the end of predatory lending practices like zero-down sub-prime mortgages. Wall Street wants none of that reform.
As we’ve reported before, Wall Street doesn’t get it – or perhaps more correctly – they do get it. They realize memories are short and lobbying dollars can make a difference. A big difference; so they are playing the game. And playing it well.
The only way Main Street can complete must be through their role as the collective customers and shareholders of Citibank, Bank of America and Goldman Sachs. They must vote with their feet and demand that management of these firms limit spending on lobbying and finally recognize the need for regulation and stability in the financial markets. Proxy battles, sharp attention to management spending and accountability can be a very
And the government must step up enforcement under current regulations and rules. They can no longer take a laissez faire approach to the Captain’s of Wall Street. It’s time for Eric Holder, Mary Shapiro and Sheila Baird (check FDIC) to roll up their sleeves and go after every single violation. Zero tolerance. That’s what Wall Street might understand. That’s what will begin to foster change, stability and growth.
What Can We Learn From Tobacco and the Smoking Industry?
Tobacco Master Settlement Agreement (MSA)
The Tobacco Master Settlement Agreement (MSA) is a 1998 agreement between the four major US tobacco companies and the Attorneys General for 46 states. The case settled the tobacco companies’ Medicaid suits and exempted them from private tort liability caused by tobacco use. In exchange, the companies agreed to modify marketing and advertising techniques and to pay states for medical costs that resulted from smoking-related illnesses. Money also funded anti-smoking groups, like the American Legacy Foundation, which funded the aforementioned The Truth campaign. Lastly, the settlement broke up tobacco groups like the Tobacco Institute, the Center for Indoor Air Research, and the Council for Tobacco Research. In total, the tobacco companies agreed to pay at least $206 billion over 25 years.
There is lots of criticism of the MSA. In 2004 in The New England Journal of Medicine, Dr. Stephen A. Schroeder wrote: "Although U.S. smoking rates are slowly declining, progress toward that end [decreasing smoking] would be faster if federal policymaking matched both the rigor of the scientific evidence against tobacco use and the resolve of antitobacco advocates."[1] The National Cancer Institute said the MSA was an "opportunity lost to curb cigarette use."[2]
So is a settlement like the MSA enough? While there are some positive components of the settlement, there are also some areas where much room is left to be desired. One of the desired outcomes of the litigation against the tobacco companies was to reduce the power of the industry and its influence and grip over current and potential smokers. However, the settlement does not fully achieve this. In order to truly enact meaningful change and to make tobacco companies change policies, the settlement should have not let those companies off the hook in terms of Medicaid lawsuits and private tort liability.
Perhaps this is where tobacco litigation went wrong. Indoor tanning is often compared to tobacco. As Representatives Maloney and Dent said, indoor tanning is the cigarette of our time. Last time, tobacco litigation was incomplete and deficient. This time, it doesn’t have to be.
Assisted by Jessica Began
[1] Steven A. Schroeder, M.D., Tobacco Control in the Wake of the 1998 Master Settlement Agreement, New England Journal of Medicine, January 15, 2004.
[2] Renee Twombly, Journal of the National Cancer Institute, Vol. 96, No. 10, 730-732, May 19, 2004 DOI: 10.1093/jnci/96.10.730 [2]
Societal and cultural pressures have constructed strict standards and ideals of physical appearance and beauty. Idealized images of women construct unrealistic norms about how a woman should appear and be. Pop culture is the greatest source of these idealized images, from movies to magazine covers to models. In pop culture, the ideals are expressed visually and are distributed on a mass level—thus, their impact is profound.
Pop culture ideals of beauty have disproportionate implications for women and girls.[1] For women, more so than men, physical appearance is a major component of personal identity. Thus there is greater pressure for women to fit the physical ideals they see celebrated in pop culture and American society.
Young women are the most vulnerable group to services like indoor tanning, which are largely used in order to achieve certain beauty ideals. Young women are the highest percentage of indoor tanning customers[2], in part, because they are the most deeply affected by cultural standards of physical appearance.[3] As a result, indoor tanning can and should be viewed specifically as a gendered and generational problem.
Cultural Messaging
There needs to be a greater amount of what I would call “cultural messaging” that denounces indoor tanning as dangerous and undesirable. The American public is familiar with anti-smoking and anti-drinking campaigns. The TRUTH campaign[4] and organizations like MADD (Mothers against Drunk Driving) are well known.
There are some examples of pop culture movements that seek to resist the tanning phenomenon. Cosmopolitan Magazine has been involved with indoor tanning regulation. Editor-in-Chief, Kate White, joined Representatives Maloney and Dent when they introduced the Tanning Bed Cancer Control Act. In 2006, Cosmo launched a “Practice Safe Sun’ campaign and partnered with ABC to do an undercover investigation of tanning salons. In 2008, fashion designer Marc Jacobs joined with celebrity friends to launch an anti-tanning campaign called “Protect the Skin You’re In.” The Skin Cancer Foundation has a campaign called “Go With Your Own Glow.” Unfortunately, these groups are too few in number, and are not very far-reaching.
[1] For academic scholarship on Western standards of beauty and their implications for women in a patriarchal society, see: Naomi Wolff, Susan Bordo, and Joan Jacobs Brumberg.
[2] Of the 30 million patrons who use indoor tanning salons each year, 71% of them are young girls and women ages 16-29.
[3] A useful analogy here might be eating disorders and the cultural demand for thinness. It is estimated that 7 million women in America have an eating disorder (compared to 1 million men). And of those, 95% are between the ages of 12 and 25.
[4] Interestingly, much of the funding for TRUTH comes from the 1998 Tobacco Master Settlement Agreement (MSA), which is discussed in Part IV of this memorandum.
There are a variety of educational programs aimed to shape youth behavior around drugs and alcohol. DARE (Drug Abuse Resistance Education) is an international education program that teaches students about the risks associated with drug abuse, including tobacco and alcohol products. In 1994, the Centers for Disease Control and Prevention (CDC) published a widely used report, “Guidelines for School Health Programs to Prevent Tobacco Use and Addiction.” We do not see similar programs that target indoor tanning. Young kids do not grow up to inherently understanding that indoor tanning is dangerous. They do not receive foundational education about the risks and consequences. Instead, they are left to navigate the benefits and costs among voices that come from pop culture, the indoor tanning industry, and their peers. In addition, one of the greatest problems facing successful public education and awareness of the risks of indoor tanning is the messaging in publications that come from the tanning industry. The ITA denies the claim that there is a proven link between indoor tanning devices and melanoma rates. Moreover, it insists that indoor tanning can actually be healthy, because: 1) UV rays emit Vitamin D, which is good for you; and 2) indoor tanning devices allow exposure to UV rays to be regulated in a safe and controlled environment.
When these conflicting messages pervade public discourse on indoor tanning, the message is muddled. Those individuals who are not well informed on the issues may believe the messages coming from sources like the ITA. At the very least, they may justify their own decisions to indoor tan partially based on the potential that the ITA is the right side. Somehow, the American public needs to be educated that there are no “sides” in this debate. There is one hard-line version of the truth: indoor tanning causes cancer.
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.[1]
The ITA and other pro-tanning companies cannot get away with such misrepresentative marketing and advertizing. The FDA must crack down on its regulation of the indoor tanning industry, and one important area for regulation is marketing and advertising. No one can or should assume that the American public knows indoor tanning is dangerous. Moreover, no one can or should assume that the American public will brush off assertions that tanning is relaxing and makes us feel good. Words have power. They must be strictly regulated and in the case of indoor tanning, they must be regulated to accurately represent and reflect the risks and consequences associated with indoor tanning.
[1] 2008/2009 LOOKING FIT ® Tanning Fact Book, http://www.lookingfit.com/articles/fb08a1.html
In the 2010 health care legislation, a 10% tax on indoor tanning was put into place. The question becomes: Will it work? Some argue that the impact will be minimal: “There is also a 10% tax on indoor tanning services included in the new health care reform bill. A tax won't make a dent in an addict's habit, Rigel says.[1] A 10% tax on a $20 indoor tanning session, for example, is just $2. Still, "it can't hurt, but we have to get people to not think that tanning is wonderful," he says.”[2] As Rigel says, it can’t hurt. It might dissuade some individuals, perhaps teenagers who have limited access to money, from engaging in the practice.
[1] Darrell S. Rigel, MD, is a clinical professor of dermatology at New York University Medical Center.
Over the coming days we will be posting a new series on the indoor tanning world. The series, penned by Jessica Began will cover:
Regulation
Education
Cultural Messaging associated with tanning
Lessons from tobacco
Today we will start with our first of two segments on regulation:
Why Are We Wary to Regulate?
Independence, the exercise of free will, and emphasis on the individual are all values that characterize American society. As a result, American government and individuals are wary to interfere in behavior that we view as a personal choice. If does not harm others, then why should we care? Perhaps we care for the health of the individual engaging in the behavior. But if that behavior is a personal choice, then most agree that the responsibility falls on the individual, and not the greater public.
Despite our uneasiness with regulation, American government seems to regulate everything. Regulation of products and services is readily accepted and legitimized, especially when it polices the behavior and choices of minors. We prohibit behavior (marijuana, drugs); regulate behavior by age (alcohol, tobacco products); or financially discourage behavior (taxes).
Regulation of Use of Indoor Tanning
The indoor tanning industry is regulated by the Food and Drug Administration (FDA). However, current regulation is shockingly limited. The only requirement is that UV ray devices carry a warning label with specific information. And even this regulation needs improvement. As the FDA publishes on its website: “FDA is considering amending the warning label requirements to
strengthen the warnings about skin cancer and irreversible eye damage
make the warning easier for consumers to read and understand”
In 2009, the Archives of Dermatology published a report on youth access to artificial UV radiation. The report clearly concluded that the indoor tanning industry should be regulated, if not banned: “We recommend that additional states pass youth access legislation, preferably in the form of bans.”[1] In July 2009, the International Agency for Research on Cancer (IARC), an expert committee of the World Health Organization (WHO), classified indoor tanning as “carcinogenic to humans.” Indoor tanning joined the ranks of cigarettes and arsenic.
Recently, in January of this year, U.S. Representatives Carolyn Maloney (D-NY) and Charlie Dent (R-PA) introduced a Congressional bill to help regulate indoor tanning. The “Tanning Bed Cancer Control Act” would expand regulation of indoor tanning by limiting the amount of UV rays that tanning beds emit and limiting the amount of time consumers may be exposed to those rays. Maloney and Dent referred to tanning beds as the “cigarettes of our time.”
A variety of states have also proposed indoor tanning legislation.[2] Some examples of the restrictions these bills would establish are: banning of indoor tanning for patrons under age 14, 16, or 18; tightening of parental consent requirements; and increased regulation of visible warnings. In some cases, indoor tanning is only permitted if accompanied by a letter from a medical doctor. In my opinion, this is an excellent part of the legislation. When “permission” to use indoor tanning devices comes from a parent, it is understood to be a question of leniency or morality. However, when permission must come from a doctor, the issue of indoor tanning is reframed as a human health issue, rather than an individual preference. New Hampshire, Maryland, Ohio, New York, Rhode Island, South Dakota, Vermont, Washington all have proposed legislation that would ban tanning for minors (under 18), with some allowing it only with a doctor’s note. All states should follow suit.
[1] “Youth Access to Artificial UV Radiation Exposure,” Archives of Dermatology. Vol. 145, No. 9, September 2009.
The dangers of indoor tanning have been undeniably proven.
A recent study at the University of Minnesota adds to the ever growing wealth of research connecting indoor tanning to skin cancer. According to a CNN article published today, the Minnesota study found that using a tanning bed just once increases the risk of contracting melanoma by 75%. One time, just one time. Those who regularly use tanning beds run the risk of doubling, or even tripling their risk of developing melanoma.
·1 time = 75% greater risk of skin cancer
·Regular use = 200%-300% greater risk of skin cancer
The CNN article claims these new studies recently presented to the FDA are likely to bolster efforts to regulate indoor tanning. We have written on this subject numerous times in the past. We sure sure hope they are right.
Click here for a link to our post on the status of indoor tanning with the FDA. Click here for a link to all of our past posts on indoor tanning.
This growing body of evidence linking tanning to cancer cannot be ignored. The dangers of indoor tanning have been undeniably proven. It is no longer debatable whether or not indoor tanning causes cancer – it does. Important issues like this do not come around every day. If you would like to help us pursue this matter please contact us at info@berklawdc.com.
First, the FDA is considering changing its stance on indoor tanning. An FDA expert panel recommended last Thursday that the FDA reclassify indoor tanning equipment.
Sun lamps and U-V lights are currently classified as “low-risk devices”, in the same category as tongue depressors and nail clippers.
Last time I checked my nail clipper did not emit cancer-causing levels of radiation.
MSNBC reported that increasing the classification level to Class II would allow the FDA to monitor and control the levels of radiation emitted from these dangerous products.
Second, the FTC recently entered into litigation with the Indoor tanning Agency (ITA) in a dispute over the agency’s health claims in advertisements. The ITA’s ads included the following false, misleading and plain old outrageous claims:
Indoor tanning is approved by the government;
Indoor tanning is safer than outdoor tanning because the UV light in indoor tanning can be monitored and controlled;
Research shows that vitamin D supplements may harm the body’s ability to fight disease;
A National Academy of Sciences study determined that “the risks of not getting enough ultraviolet light far outweigh the hypothetical risk of skin cancer”
The two parties agreed to a settlement wherein the ITA agreed to retract many of its ads that praise the false benefits of indoor tanning. All future ads must contain the following notice: “NOTICE: Exposure to ultraviolet radiation may increase the likelihood of developing skin cancer and can cause serious eye injury.”
At Berk Law we’ve been sounding the alarm for months about the dangers of indoor tanning. Millions of American consumers are subjecting themselves to unnecessary cancer risks, generally at an age – under 30 – when they are most at risk to develop skin cancers. We certainly agree that indoor tanning should be absolutely barred for those under 18. We also support the view of the FDA’s panel of experts that the equipment used in indoor tanning should be reclassified to reflect the true danger that it represents. Come on folks, tongue depressors and nail clippers.
So we say charge on! It is refreshing to see the FDA and Congress heeding national and international concern over this insidious and dangerous practice.
The recently passed health care reform bill includes a 10% excise tax on indoor tanning.
Finally a little recognition. Indoor tanning is dangerous, it increases the cost of healthcare and should be in the same league as cigarette smoking. INDOOR TANNING CAUSES CANCER. Let me say it again: INDOOR TANNING CAUSES CANCER.
Why the tax?
Discourage use: Excise taxes are levied on specific goods in order to discourage use of that good – e. g. taxes on gambling, alcohol, and cigarettes.
Compensate for costs: Excise taxes are also used to generate money to cover public costs incurred as a result of the use of a specific good – trucks are charged more at highway toll booths than small cars to cover their disproportionate affect on the conditions of the road.
Sadly, the indoor tanning excise tax was added to the healthcare reform bill to generate extra revenue, not to discourage use. In total, the tax is expected to generate $2 billion over the next ten years. But we hope it also puts indoor tanning in its proper place. According to the World Health Organization’s International Agency for Research on Cancer, the FDA, and the American Academy of Dermatology, tanning beds cause cancer – specifically melanoma. Accepting the results of these studies, it is clear that discouraging indoor tanning will help save lives and help Americans avoid preventable cancers.
The potential to avoid risk while also generating money to cover the medical costs of those who still tan renders this excise tax more than ethical, but essential to proper healthcare reform. The federal government has realized (finally) the dangers of indoor tanning and the cost to Americans. Hopefully the states will follow.
Consumers’ deadline -- this summer -- for opting-in to overdraft programs on their debit accounts is rapidly approaching. Not surprisingly, banks are doing all they can to maintain this important revenue stream – and by whatever means necessary.
In an article published Monday February 22nd, The New York Times reported that banks are focusing on “FEAR” as the key motivating factor for convincing consumers to retain overdraft protection. The advertisements and notices using fear are slick at best, but more often they are just downright deceitful.
According to the Federal Reserve rule changes passed last November, Banks are required to inform customers exactly what “overdraft protection” means and obtain written consent in order to legitimize these charges. The new rules take effect July 1, 2010. Needless to say, these rules do not continence scaring consumers into overdraft protection.
The banking industry made $24 billion from overdraft fees in 2008 and about $27 billion in 2009. What’s more? The banks aren’t the only ones on the hunt. The same Times article reported that a cottage industry of consulting firms like Raddon Financial Group and Strunk and Associates are moving fast to sell banks multiple solutions for retaining overdraft protection customers and its important revenue stream. Cynical examples of those solutions target users who frequently fall below their checking account threshold and pay overdraft fees 5 times or more per year. (See the Raddon Report).
To be fair, we should not be surprised that the banks are fighting to keep every dollar possible, but is it too much to ask for honesty instead of trickery, and information instead of fear tactics? It is simply unacceptable that, in response to federal action to protect consumers, banks are running campaigns to push consumers into blindly agreeing to overdraft protection rather than publishing honest, non-biased, information and allowing them to make their own decisions.
Transparency is a critical starting point. Consumers need information to make the right decision for their own financial needs. There is not enough time before July 1 to change bank practices and it would be unwise to expect these scare tactics to cease. Instead, consumers are on their own. Wall Street has made its intentions clear. It is now up to the informed public to ignore fear tactics and use all available resources to make the best possible decision about overdraft fees.
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.
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.
Since 1980, the incidence of melanoma in younger women has jumped 50%, while rates among younger men remain unchanged. Melanoma has become the most prevalent cancer among women ages 25-29, and the second most prevalent cancer (behind breast cancer) among women ages 30-34.
Many researchers say the gender and age-specific nature of aggressive melanoma rates is a result of the burgeoning indoor tanning industry. And the numbers seem to add up. Of the 30 million patrons who use indoor tanning salons each year, 71% of them are young girls and women ages 16-29.
Two cancer survivors and spokeswomen for the American Association of Dermatology (AAD), Brittany Lietz and Meghan Rothschild, have no doubt that their own bouts with skin cancer arose from their use of tanning beds as teens.
"There's no doubt in my mind that my indoor tanning caused my skin cancer,” says Rothschild. “I wasn't a beach baby. I knew indoor tanning was bad for me. I knew what I was doing to my body, but I always thought it wouldn't happen to me." Lietz agrees that her addiction to indoor tanning is what landed her in the hospital three years later, fighting the deadliest form of skin cancer.
Both young women stress the severity and brutality of skin cancer.
"I want people to understand how serious skin cancer is," Rothschild says in her AAD patient profile. "I had drainage tubes in me. I couldn't lift anything over 20 pounds for six months. I'm fortunate my skin cancer was diagnosed before it was too late.”
"I was in a lot of pain," describes Lietz. “My pictures after surgery are so graphic that some people have become physically ill looking at them."
Lietz, winner of the 2006 Miss Maryland title, tries to convey the dangers of indoor tanning to the youth groups she speaks to. "I tell the students that if indoor tanning is such a risk, why would they take it?" And she issues the ultimate warning: “I don't want anyone to go through what I have. I keep reminding people that skin cancer can happen to you. You're not immune to this.”
Despite increased publicity and awareness, made possible by advocates like Lietz and Rothschild, many girls remain unaware or unresponsive to the dangers associated with tanning beds. At a time when more and more girls are entering tanning salons at younger and younger ages, the future is nothing short of frightening.
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."
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.
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.
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 22nd 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.
If you receive a gift card, USE IT as soon as possible.
As the holidays approach, with it comes the consternation and head scratching about what to get for your family and friends. For many, the answer to that question will be a gift card, but before putting down your money for a piece of plastic, consider whether your good intentions will actually result in something that the receiver can use. For those receiving a gift card, take heed of these dangers and use your gift card right away.
There are three main concerns that every consumer should have when purchasing a gift card:
1.The gift card merchant may go out of business or declare bankruptcy
2.A chain retailer may close the branches near to you
3.Fine print: i.e. expiration dates and monthly fees.
1) If the gift card merchant goes out of business or files for bankruptcy, your gift card is probably worthless. That's right, even if the merchant doesn't actually shutter its doors and manages to restructure its debt through bankruptcy to continue operating, gift cards may still not be honored. In bankruptcy proceedings, unused gift cards are treated as a form of debt, and holders of gift cards are unsecured creditors. Even if a store wants to continue to honor gift cards, if they have filed for bankruptcy, it's up to the bankruptcy judge as to whether or not the store will accept them. If the judge says no, gift card holders are out of luck unless they file a claim with the bankruptcy court, and even then, there are no guarantees of success.
(Important note: Store credit, say, for items returned with a receipt and the like, are the same as gift cards. The credit is considered a debt and you are an unsecured creditor. If the merchant declares bankruptcy, you are, once again, out of luck.)
2) Merchants may close the store or stores near the gift card recipient. Gift cards are a heck of a lot less useful when the nearest store is 50 or 500 miles away instead of 5. In an age of overexpansion and some big companies cutting back their number of stores, this is a real danger.
3) Some gift cards may have fine print, such as an expiration date, a monthly fee for every month after X months, etc. Several states have outlawed these practices, but if your state allows it, the value of a gift card can be quickly eaten up in fees. Check the terms and don't let this happen to you.
The bottom line is that while gift cards are convenient, they carry a danger that the recipient won't be able to get the full value out of them. If you receive a gift card, USE IT as soon as possible. If you hold on to it until a later date, you run the risk that you will be unable to use the card.
Con artists love money transfers because they enable them to receive their marks' money before their victims even know that they have been swindled.
On October 20, 2009, the Federal Trade Commission ("FTC") announced that MoneyGram will pay $18 million to settle FTC charges that MoneyGram knew or intentionally looked the other way as some of its agents participated in fraud. The FTC alleged that between 2004 and 2008, MoneyGram agents aided con artists who tricked US consumers into wiring more than $84 million within the US and to Canada, and because the $84 million is based on consumer complaints to MoneyGram, the actual consumer losses is likely much higher.
According to the FTC, MoneyGram knew, or should have known, that 131 agents out of MoneyGram's more than 1,200 agents, were responsible for over 95% fraud complaints MoneyGram received in 2008 regarding money transfers to Canada. A similar small percent was responsible for over 96% of overall fraud complaints in 2006.
Be wary of money transfers–they are essentially the same as sending cash. Con artists love money transfers because they enable them to receive their marks' money before their victims even know that they have been swindled. Usually, you cannot reverse a money transfer or trace a money transfer. The con artist can pickup the money from multiple locations making them hard to track, and it gets even harder to track the con artists if they have accomplices within the money transfer company.
The FTC's consumer alert "Money Transfers Can Be Risky Business," available online at: http://www.ftc.gov/bcp/edu/pubs/consumer/alerts/alt034.shtm , lists several types of common scams involving money transfers. Here are some of the common schemes.
The Counterfeit Check Scheme: You receive a check with instructions to deposit it and wire some or all of the money back. Banks make the money available within days, before the check clears. Uncovering a fake check can take weeks. When it is discovered that a fake check turns out to be fraudulent, you still owe the bank for the money you withdrew.
Variations of the counterfeit check scheme includes: phony lotteries and sweepstakes where you receive a check in the mail for winning some sort of lottery or sweepstake. You just need to deposit the cashier's check and wire back money to pay for taxes and fees. The scammers like this one because by calling it a foreign lottery or sweepstake, they can convince people to wire money to people they don't know. Of course, when the cashier's check eventually bounces, you are responsible for the money you withdrew. Another variant is the overpayment scam, especially common on online classified ads like Craigslist: someone responds to your post and offers to use a cashier's, corporate, or personal check to pay for the item. Somehow, they write a check for more than the item price and ask you to wire back the difference. Once again, when the check is eventually found to be fake, you owe the bank for the amount you wired. One last variant of the counterfeit check scheme is the mystery shopper scam, where you are hired to be a mystery shopper and evaluate the services of a wire transfer company. You're given a check to deposit in your personal bank account, withdraw cash, and wire the money using a certain money transfer service. Once again, the check is eventually determined to be fake and you're on the hook for the amount you wired.
Online Purchase Scams: When online shopping, a seller insisting on a money transfer as the only payment method should be a red flag. If this is the only option you're given for paying, odds are good it's a scam.
Advance Fee Loans: Some scammers advertise for loans or credit cards regardless of your credit, and then require you pay a fee via a money order to apply. Once again, if you have to wire money for applying to receive a loan or credit card, odds are good it's a scam.
Family Emergency Scam: Some scammers call and pretend to be a relative in an emergency and say they need you to wire them money. Check with your actual family before wiring anyone money under these circumstances!
If you have already fallen for a money transfer scheme, here is what the FTC says to do: "call the money transfer company immediately to report the fraud and file a complaint. You can reach the complaint department of MoneyGram at 1-800-MONEYGRAM (1-800-666-3947) or Western Union at 1-800-448-1492. Ask for the money transfer to be reversed. It’s unlikely to happen, but it’s important to ask. Then, file a complaint with the FTC. Visit ftc.gov or call toll-free, 1-877-FTC-HELP (1-877-382-4357); TTY: 1-866-653-4261."
Generally, you are NOT responsible for the debts of the deceased
Jed Sorokin-Altmann is an Associate at Berklaw who specializes in consumer protection. He provides insightful and helpful tips to vulnerable consumers who are too often preyed upon by professional con artists and even reputable corporations. Jed's message is thoughtful and concrete. We welcome his new voice.
Let's say the phone rings, and it's a debt collector saying that you aren't the debtor, you are not responsible for the debt, but because they can't collect from the debtor, would you mind being a sport and paying off the debt for them? Unless you're the softest touch around, you'd say no, if not issuing a few choice four letter words at the audacity of the request before slamming down the phone. And yet there is a segment of the debt collection market that specializes in just this sort of behavior by preying on the grieving relatives of those who have died.
Now, these debt collectors don't tell the families that they are not responsible for the debt, although they claim that if asked, they don't lie about it. According to David Streitfeld's New York Times article "You're Dead? That Won't Stop the Debt Collector" from March 3, 2009, collecting from the dead involves training in "empathic active listening," mixing "the comforting air of a funeral director with the nonjudgmental tones of a friend."
Here's what you need to know: the law on this varies from state to state, so, if you are in this sort of situation, you should consult with an attorney licensed in your state, but generally speaking, relatives are not required to pay a deceased relatives' debts from their own personal funds. Property and money inherited from the deceased is theoretically fair game, but beyond that, generally, you are NOT responsible for the debts of the deceased.
Even though you are not responsible for the debt, some collection agencies specialize in getting you to pay anyway. According to Streitfeld's article, "Some relatives are loyal to the credit card or bank in question. Some feel a strong sense of morality, that all debts should be paid. Most of all, people feel they are honoring the wishes of their loved ones." Collection agencies train their employees to play on all of these sentiments to try convincing people to pay debts that they have no obligation to pay. Some even hire grief counselors to work the phones.
The bottom line: when a loved one passes away, be wary of creditors asking you to pay for their debts. Instead of giving money to those who prey upon the bereaved, perhaps a donation to your loved one's favorite charity is a better way to honor their memory.
All consumers, not just those who bank at the largest banks, deserve protection from irresponsible practices of banks. Yesterday, the House Financial Services Committee took a giant step away from that critical goal when it passed an amendment excluding over 97% of banks from the statutory reporting requirements to be performed by the soon-to-be-created Consumer Financial Protection Agency (“CFPA”).
The excluded banks are small banks and most credit unions. Small banks are classified as those with assets less than $10 billion or credit unions with assets less than $1.5 billion. To be sure, there are some valid arguments for imposing additional regulation on only the larger banks and financial institutions. Notably, they control about 80% of the assets.
But every financial institution must take some portion of the blame for the runaway greed, exotic financial instruments, and poor practices rampant in the financial sector over the past decade. Congress must not allow high-priced lobbyists to cabin this issue on the doorsteps of a few money centered banks. While the near collapse of the financial world’s banking industry may have been the result of the extreme conduct of a few large banks, excusing smaller banks and labeling their investment practices “less risky”, runs a foul of Congress’ duty to protect all consumers.
The Miller-Moore amendment and those who support it cite small banks’ inabilities to cope with costs related to annual examinations as reason for exemption. Isn’t this the same argument that big banks have been making for decades? The banking industry has always claimed that oversight will hurt business and decrease profits. Look where that argument got us!
Forgoing examination of 97% of our banks is not the answer, but rather the seeds of a new problem. Instead of giving these smaller institutions a free pass, the new regulator should tailor exams to each specific type of bank. For example, Citigroup and Bank of America should be subject to a very rigorous exam. Local community banks or credit unions should not get a pass, but simply be subject to a less onerous testing. Has Congress forgotten that all banks need tougher regulations in order for all consumers to be protected?
Frustrated by Bank of America’s failure to come clean, Rakoff issued a bitter ruling condemning the bank for its dishonesty and immorality. “It is not fair, first and foremost because it does not comport with the most elementary notions ofjustice and morality…”
Today we applaud the Honorable Jed Rakoff – our former “Person of the Week” – once again, for standing up against both Wall Street greed and immorality and one of the nation’s most important regulators. Not a bad day’s work.
On Monday, Rakoff stridently refused to approve a $33 million settlement deal between the Securities and Exchange Commission (SEC) and the Bank of America.
Rakoff’s decision protects the rights of Main Street and fulfills the judiciary’s historic role as the conscience of America. As Alexander Hamilton writes in Federalist Paper No. 78,
“The judiciary…has no influence over either the sword or the purse; no direction either of the strength or of the wealth of the society; and can take no active resolution whatever. It may truly be said to have neither FORCE nor WILL, but merely judgment.” Jed Rakoff’s actions demonstrate great judgment in the face of force and will.
The $33 million penalty—which would ultimately be borne by shareholders on Main Street—would have settled an SEC lawsuit filed against Bank of America, following its merger with Merrill Lynch & Co. The lawsuit accused Bank of America of lying to its Main Street shareholders, publicly promising that Merrill executives would not be rewarded year-end bonuses, while privately allotting upwards of $5.8 billion for bonus compensation.
Frustrated by Bank of America’s failure to come clean, Rakoff issued a bitter ruling condemning the bank for its dishonesty and immorality. He argued that the settlement was not only inadequate—$33 million from shareholders for a $5.8 billion lie?—but also unjust and absurd in that it doubly punishes Main Street victims, who would ultimately pay the costs of the $33 million penalty. “It is not fair, first and foremost,” wrote Rakoff, “because it does not comport with the most elementary notions ofjustice and morality, in that it proposes that the shareholders who were the victims of the Bank’s alleged misconduct now pay the penalty for that misconduct.”
Rakoff’s harsh language surely expresses the frustration shared by many Americans and perhaps suggests that business as usual on Wall Street will no longer be tolerated, at least by Jed Rakoff. And for that, we salute him as Main Street’s Player of the Month.
Stay tuned: Rakoff has scheduled the case for trial on February 1, 2010.
Fluoride is accepted as a significant dental public health achievement of the past century. It has been sold to the American public decade after decade as an essential tool in fighting tooth decay and cavities. While historically, the efficacy of fluoride in preventing tooth decay and cavities is well documented, recent scholarship is showing that there may be more to this chemical than we’ve been taught to believe.
More and more credible claims are suggesting that fluoride is a dangerous chemical in our water supply. In fact, the fluoride we use to fluoridate our water systems is a hazardous by-product of the phosphate fertilizer industry which consistently supports water fluoridation. These factories are earning a profit from their waste by feeding the American population a chemical that would otherwise be a pollutant. In addition, fluorosis – a condition caused by ingesting too much fluoride – is beginning to be seen as more serious condition than previously thought. The time is right for honest, open debate among all stockholders.
To begin the debate, I’ve found numerous reports on fluoride’s toxicity and shocking reports that the EPA and other government agencies have turned a blind eye to studies from the National Toxicology Program and the National Research Council. These studies have determined that fluoride could be cancerous. Other research, specifically from the University of Michigan’s School of Dentistry has found that fluoride ingestion is significantly higher among African Americans than among other ethnic groups.
Now I find myself asking, “Is this true, is Fluoride, the supposed dental miracle, contaminating our water supply and causing noticeable fluorosis and possibly cancer? Could the pressure of the phosphate fertilizer industry push policy makers to ignore the warnings? And what’s more, is fluoride causing these problems more commonly in the African American community than in other communities?"
What are your opinions on fluoride? How serious is this issue, and does the orthodoxy of water fluoridation need to be reexamined? If there are negative effects to water fluoridation, what can we do to mitigate them in the near future?
Securitization of life settlements is yet another dangerous development for Main Street. Is this really what we need right now?
It just doesn't stop. Despite repeated lessons and tales from the brink (the collapse and near collapse of Lehman Brothers and Bear Stearns to name just a few), Wall Street is at it again. What now, you ask? Wall Street is securitizing life insurance policies. What the heck is that?
A recent New York Times article details "life settlements"--which have Wall Street executives' mouths watering. The premise is this--elderly people sell their life insurance policies for fractions of what they are worth to banks. Wall Street then repackages these policies into bonds, grabs fees and sells them, netting dealers even more fees--and creating another speculative industry. This time betting on when grandma will die. And what's next derivatives on these bonds.
Securitization of life settlements is yet another dangerous development for Main Street. Industry sources explain that insurance companies are able to maintain premium rates based on the profit they make from policy lapses. If life settlements are securitized and traded, Wall Street will pay the premiums and the insurance companies will be out the easy profits from the millions of policies a year that lapse. Ultimately they will be forced to raise premiums to continue earning profits. Who, then, will suffer the true consequences? Main Street, once again.
Is this really what we need right now? In a time when the economy is inching towards a recovery from a crisis caused by precisely what is presented here: the opportunity for a new overaggressive and under-regulated speculative market? And who is going to be able to regulate these new instruments of greed so that Main Street does not become the victim?
We have a better idea for Wall Street.
Go back to basics. Finance renewable energy products, figure out an innovative way to finance new infrastructure--so sorely needed. Maybe even come up with a new micro-loan product that works for hard working Americans who want to start small businesses.
Let's let the securitization of life insurance policies die a peaceful death.
Finally, a Federal regulatory commission out front (not after the fact) protecting main street from predatory, unsound fiscal practices.
Yesterday I responded to Gretchen Morgenson’s New York Times piece, which calls for scrutiny of soaring banking stocks; because the banks’ actual performance (lackluster) hardly match the robust share value manufactured on Wall Street. Differing a bit from Ms. Morgenson, I am not ready to panic; I believe heightened enforcement and regulation will hold greed and rampant speculation to a minimum. In the 8/22 Wall Street Journal, Brian Baskin calls attention to such an instance.
Mr. Baskin describes the effort by the Commodity Futures Trading Commission (CFTC) to curb a new $50 - $100 billion dollar market for paper: derivatives again, this time on commodities. These securities are called exchange-traded funds (ETFs) and they are all the rage. The promoters of this newfangled investment vehicle (read Wall Street fees, broker fees, and no actual product being produced) claim these funds are the only way for small investors to access commodities futures markets. Please. The market is for professional speculators, who don’t need to hedge the price of a commodity like natural gas, but rather see an opportunity to make some serious money taking positions contrary to the market.
Not so fast, says the CFTC’s enforcement staff. They have been placing new and formidable regulatory curbs on ETFs – enough so that operators of ETFs are getting in trouble with their own investors. Lawsuits have been filed alleging the ETF operators are failing to abide by the disclosures they made to their investors. (But that’s a subject for another day).
As Mr. Baskin details, the CFTC is concerned that rampant speculation causes price inflation. That means higher prices for end consumers. The CFTC’s goal is not to eliminate ETFs. Its goal is to protect main street consumers, and for that reason it is to be applauded. Finally, a Federal regulatory commission out front (not after the fact) protecting main street from predatory, unsound fiscal practices and another bubble that when it bursts—and it will burst—main street pays the freight.
About time.
(Post was prepared with the assistance of David Martin, University of North Carolina 2010)
With subpoena power and the threat of jail time (how many hundreds of years did Madoff get?), stepped up enforcement can moderate the rampant speculation and greed to function efficiently as a lubricant to the markets like oil in a car and not sparks in a dry forest.
Well… judges? The envelope please… (Imagine whispers and hushed speaking voices.) It’s of course Gretchen Morgenson herself; brilliant, insightful New York Times Columnist and all around contributor to humanity. She is always honest, informed and on-target (she would have won last year but she was too busy scaling K2 in Nepal). Ms. Morgenson, who likes to be called Ms. Morgenson, said she was “thrilled” to even be considered and would put this award right up there with her Pulitzer Prize (not).
Why all this *ahem* praise for Ms. Morgenson? This Sunday she reported on the next impending financial crash, this time involving overinflated bank stocks. Gosh. Didn’t we just get off that ledge, abyss? Or was it a precipice?
(Fill in your word – this blog is interactive).
Ms. Morgenson’s piece succinctly reports that despite unpromising data coming from the banks, the numbers are just not there: bank stocks are soaring – soaring on air and not cash and profits. The analysis Ms. Morgenson highlights in her column of smaller, non-money-center banks (which excludes Citigroup, Bank of America, etcetera) illustrates that “the number of financially sound banks is declining.” Coupling these two facts together, Ms. Morgenson concludes that it is time to “determine whether fundamentals in the industry support this rocket-fueled surge in bank shares.”
Thanks Gretchen, good column as always – but I sense an undertone of panic and fear; a siren signaling a second crisis in the financial sector. With all due respect to Ms. Morgenson, it’s not time to panic just yet. To be sure, it is difficult not to doubt everything financial, from soaring bank stocks to the dollar bill with which I buy my Snickers (yes a Snickers). But we’re seeing plenty of signs of stability and the markets (all of them) seem to be better patrolled by the Feds. Greed and profit taking will always be there it just needs to be maintained at a moderate level – and not get silly. To ensure that doesn’t happen, we have the regulators and enforcers. With subpoena power and the threat of jail time (how many hundreds of years did Madoff get?), stepped up enforcement can moderate the rampant speculation and greed to function efficiently as a lubricant to the markets like oil in a car and not sparks in a dry forest. So let those bank stocks soar for awhile on greed and speculation. They will come back down to earth. In the meantime, a little speculation is good for the sector.
(Post was prepared with the assistance of David Martin, University of North Carolina 2010)
We can thank Krugman and Schapiro for directing attention to these practices, and the next step is to intervene. Main street has borne enough of the burden caused by the me-first, profit-seeking attitudes of these companies.
In Monday’s New York Times, noted economist Paul Krugman’s Op Ed piece draws attention to the proliferation of high-speed trading by the elite on Wall Street, notably Goldman Sachs. Using high-speed trading, Goldman Sachs has already made millions trading stocks. Yes, trading stocks. Not financing infrastructure or lending to startups developing new or better technologies. Just trading. In a related story, SEC Chairwoman Mary Schapiro got it right when she recently called for elimination of the practice of ‘flash’ trading. While the two concepts are subtly different, the net effect is the same for main street: the short end of the stick. For every dollar made on Wall Street, main street more often than not loses a dollar.
Disturbingly, the same financial institutions we spent billions of dollars to save from bankruptcy mere months ago are victimizing taxpayers yet again. We can thank Krugman and Schapiro for directing attention to these practices, and the next step is to intervene. Main street has borne enough of the burden caused by the me-first, profit-seeking attitudes of these companies. Identifying and eliminating unfair stock market practices is an essential step toward fairness.
(Post was prepared with the assistance of David Martin, University of North Carolina 2010)
“My role is not to tell you what the risk is. My role is to give you the other side of the story about the benefits of UV exposure.”
-Dan Humiston, President of the ITA
The above quote from a recent Time article is the Indoor Tanning Association’s response to new research that once and for all condemns indoor tanning as perilously carcinogenic. Just as Joe the Camel’s role is to depict the “cool” side of cigarettes, Mr. Humiston and his Association have but one goal—defending the practice of indoor tanning. Refuting sound science and willfully deceiving and endangering consumers, especially teen girls—these present no obstacle to the ITA.
However, this quotation represents an uncharacteristically candid thought from the Association. In essence, the quote reads: “the ITA has a stated agenda of advocating under any circumstances for the indoor tanning industry.” They stand to gain nothing by telling the truth about the risks of UV radiation. Instead they focus on the relatively insignificant benefits, such as curing Vitamin D deficiency. Although Vitamin D deficiency is not a trivial health risk, it is eminently curable. Is it worth subjecting one’s skin to unnatural, intensified and carcinogenic UV radiation when there are numerous safer ways to avoid the problem?
With this logic, if the Association represented surgeons, they would have us amputating arms to fix broken fingers. The ITA “give[s] you the other side of the story” all right. Rather than merely spending more time outside in mild sunlight or taking Vitamin D supplements, the ITA would have you risk melanoma, the deadliest form of skin cancer. If that’s the other side of the story, I think I’ll stick to this side.
(Post was prepared with the assistance of David Martin, University of North Carolina 2010)
At best, I fear a muddled effort—this after main street spent trillions to bail out those interests. At worst, we may see reforms that actually subtly favor these industries.
I was taught not to write using clichés. But I couldn’t resist. As the July 29, 2009 New York Times editorial, entitled TheFinancial Truth Commission cautioned: the important Financial Crisis Inquiry Commission set up by Congress to investigate last year’s near-complete meltdown of the financial system is being led by two veteran politicians who have received significant campaign contributions and have longstanding ties with – you guessed it – the “financial, insurance and real estate interests”.
Those are the interests that main street had to bail out in the first place. They will now have considerable influence on everything the Commission decides. At best, I fear a muddled effort—this after main street spent trillions to bail out those interests. At worst, we may see reforms that actually subtly favor these industries. There is definitely cause for concern and like the NYT, we will be watching.
Let’s hope that as with the Watergate Commission and the Church committee hearings of the 1970’s, this Commission can rise above politics and act professionally and diligently to create reforms that put our financial and banking system on firm ground. Only then can folks on main street thrive again.
The risk of cutaneous melanoma is increased by 75% when use of tanning devices starts before 30 years of age [emphasis added].
For months, we have been warning parents and teens about the risks of indoor tanning and the shameless conduct of the Indoor Tanning Association. Contrary to mounting evidence, the Association has consistently turned the truth on its head making unabashed claims that indoor tanning is not only safe but has health benefits.
If evidence already available to the public was not enough, the online release today of The Lancet Oncology should end any debate.
INDOOR TANNING CAUSES CANCER
The report stems from a conference of 20 leading scientists from nine different countries, who met at the International Agency for Research on Cancer. The report, based on recent research, raises the classification of UV-emitting tanning devices into Group 1 – “carcinogenic to humans” – the most severe level of risk. This should come as no surprise. The report cites a 75% increase in melanoma risk for those who use tanning beds before the age of 30. The scientists also reference the correlation between use of tanning beds and ocular melanoma, or melanoma of the eye.
It is time to put an end to the lies of the Indoor Tanning Association and the conduct of an industry that blithely ignores the health and safety of teens, particularly young women. If the state and federal government attorneys are too busy, or do not have the resources, private attorneys must once again fill the breach. Litigation can:
- Seek an end to indoor tanning for teens;
- Force better disclosure of risk for all, particularly those under 30;
- Pursue damages for those directly harmed; and
- Open up salons and their supporters to the public glare of scrutiny.
All of these outcomes are necessary in order to protect the American public from the money-over-morals attitude of the Association and the tanning industry.
(Post was prepared with the assistance of David Martin, University of North Carolina 2010)
Let’s hope this effort will embolden groups across the country with similar ambitions—namely limiting future victims of the ruthless tanning business.
Kudos to the Melanoma Foundation of New England: a dedicated, thoughtful organization advocating for the innocent (mostly teen) victims of the indoor tanning industry. The Foundation hosts an informative and supportive website. I recommend the informational summary of a recent study on melanoma awareness and indoor tanning.
On the legislative front: the Foundation has paired with the Massachussetts Academy of Dermatology in support of Senate Bill 903. The Bill would strengthen permit requirements, oversight and most importantly, age restrictions on tanning bed usage in Massachussetts. The Committee on Public Health heard testimony on the legislation on Tuesday, July 21st. A vote is expected soon. Let’s hope this effort will embolden groups across the country with similar ambitions—namely limiting future victims of the ruthless tanning business. Heightened disclosure is critical in that battle.
(Post was prepared with the assistance of David Martin, University of North Carolina 2010)
By all means let’s rethink our attitude towards UV radiation, but not by succumbing to the out of context, manipulated half-truths promulgated by [the ITA].
The Indoor Tanning Association (ITA) once again finds itself reaching into its shameful bag of tricks to defend the indefensible, the safety of indoor tanning. This time, the ITA twists and spins the findings of a recent research paper published in the British Journal of Dermatology to conclude… big surprise… indoor tanning is safer than ever. To convince minors and unsuspecting consumers that UV radiation isn’t so dangerous after all, the ITA takes hold of and distorts a recent British study of melanoma patients from 1991 to 2004.
To be fair, the study does conclude that reports of escalating rates of melanoma may be overstated, but it hardly endorses indoor tanning, particularly for minors. The researchers find a stark contrast between: (1) a 48% increase in melanoma diagnosis and (2) a 17.5% increase in mortality rate due to melanoma. Instead of focusing on the significant rise in mortality, the researchers’ main conclusion is that much of the purported increase in melanomas is actually due to overcautious misdiagnosis of benign lesions.
What catches my eye – and is ignored by the ITA – is the rise in mortality. The study finds a 17.5% increase in mortality rate over a mere fourteen years. A frightening result to be sure. How can that be when the research indicates doctors and patients are becoming far more cautious with regard to melanoma treatment and diagnosis? Common sense tells us this dual vigilance ought to lower melanoma mortality rate, right? And yet it has still risen 17.5% (through 2004), not to mention the five years of growth since 2004?! But does the ITA share this concern? Hardly, because it wouldn’t make business sense; the ITA has nothing to gain by providing consumers honest information about the danger of UV rays. Its consistent goal for decades consists of persuading mostly women and teens, through any means necessary, to expose themselves to dangerous – cancer causing – UV rays.
Taking the study’s conclusions out of context, the Executive Director of the ITA John Overstreet shamelessly declares:
This information should make people rethink their fear of UV light.
John, you’re right for once, but not in the ‘forget everything dermatologists say and sacrifice health for a tan’ way you intend. People should rethink their fear of UV light. They should question whether we consider the risks enough. Alarm bells should ring when overall melanoma mortality rate increases significantly despite enhanced doctor and patient diligence. By all means let’s rethink our attitude towards UV radiation, but not by succumbing to the out of context, manipulated half-truths promulgated by your association.
(Post was prepared with the assistance of David Martin, University of North Carolina 2010)
"We must do better to protect our teenagers from Cancer"
In a culture that worships everything beautiful, from pencil thin models to starlets strolling down the red carpet, it is no surprise that many teenage girls across the country are drawn to indoor tanning.
This $5 billion dollar a year industry draws them in with sophisticated and targeted advertising. Once in the door, they are barraged by insidious package deals (incentivizing them to bake everyday). Are they warned of the risk of skin cancer, including its deadliest form: melanoma?
Not a chance.
“The Indoor Tanning Association (ITA) has turned the truth on its head”.
They accuse the American Academy of Dermatologists (AAD) and its members of being liars and grossly overstating the risk of cancer to scare patients to their offices. The ITA prepares and distributes literature directed at teens extolling the health benefits of indoor tanning. (Why care about cancer when you can get a little Vitamin D). That position is completely contrary to decades of peer reviewed and respected medical studies linking indoor tanning to skin cancer. Indeed, the World Health Organization has called for a complete prohibition against minors engaging in indoor tanning.
Diana Schafer, 24 was one of those targeted teens. She started indoor tanning at age 14. She was told it was safe as long as she wore protective glasses and waited 24 hours between visits. She soon began going everyday, despite warnings from her mother to stop. “I always thought I was not tan enough”. After eight years of using tanning beds Diana was diagnosed with melanoma.
Where is the government? Who is going to protect the hundreds of thousands, perhaps millions of Dianas across the country? The United States Food and Drug Administration (FDA), the Federal Trade Commission (FTC) and state attorneys general have been silenced and outmaneuvered by the powerful and politically savvy ITA.
Enough is enough. We are talking about the health of our teens. Protection requires that victims and potential victims come forward and with experienced counsel file lawsuits to put an end to the shameless practices of this industry.
Steven N. Berk has over twenty years of litigation experience spanning both the private and public sectors. His practice ranges from representing Fortune 500 Companies, to consumers. Steven is based in Washington, D.C. and founded Berk Law in May 2009....More...
Steven N. Berk has over twenty years of litigation experience spanning both the private and public sectors. His practice ranges from representing Fortune 500 Companies, to consumers. Steven is based in Washington, D.C. and founded Berk Law in May 2009....
