Archive for the ‘Law’ Category
David Dayen reports in The Intercept:
Last week, Well Fargo CEO John Stumpf testified before the Senate Banking Committee after the bank paid fines for creating over 2 million fake customer accounts to boost their sales growth statistics. Stumpf, under fire from senators demanding that the bank claw back executive bonuses as punishment for the scandal, insisted that any such decision would be made by a committee of the board of directors that handles compensation issues.
That board is made up of five current and former CEOs and executive chairpeople who have enjoyed giant salaries throughout their careers. Pulling the trigger on clawbacks would force them to turn on the system that made them rich. They’d also have to bite the hand that feeds them a steady supply of Wells Fargo stock.
This is a common situation, and it helps explain why executive compensation has inflated in recent decades. Corporate CEOs sit on one another’s boards and approve oversized pay packages, in the expectation that they will get the same treatment from their board in return. Some, like Stumpf, serve as both the CEO and board chairperson simultaneously.
Stumpf has said that he would make no recommendations to the board on whether they should claw back any of his compensation, or that of his fellow executives.
The Human Resources Committee of the Wells Fargo board evaluates and approves executive compensation plans for the bank. Here are its five members:
- John Chen, the executive chair and CEO of Blackberry, Inc. since November 2013. In 2014, as a reward for his employment, Chen received a stock-based bonus of $84.7 million on top of $1 million in salary. The board said that the $84.7 million stock award helped “align the interests of Executive Officers with the achievement of the Company’s long-term business objectives and the interests of shareholders.” Chen’s 2015 compensation, which included even more stock, was $3.4 million, and in 2016, $3 million.
- Donald James, the retired CEO of Vulcan Materials. James served from 1997 to 2014, and in his final year, he earned $13.36 million. Of that $3.9 million came from stock awards, and another $1.3 million in options.
- Stephen Sanger, the former CEO of General Mills from 1993 to 2008. In his final two years at the company, Sanger earned $19.15 million and $18.57 million, respectively. The majority of these earnings came in the form of stock grants and options.
- Lloyd Dean, the CEO of the nonprofit Dignity Health Foundation, one of the three largest hospital systems in California. Since Dignity Health is a privately held company, it’s difficult to find executive compensation statistics, but in 2010 the Institute for Health and Socio-Economic Policyreported Dean’s pay for that year at $4.76 million. Kaiser Health Newsreported in 2013 that Dean’s compensation had increased to $5.14 million, with $2.05 million of it in “bonus and incentive pay.”
- Susan Engel, the CEO of Portero, a luxury retail sales company, from 2009-2013, and before that the CEO and chairwoman of Lenox Group Inc., a holiday gift manufacturer, from 1996-2007. Engel received $837,865 in compensation from Lenox Group in 2006, the last year for which a proxy statement can be located. Her salary as CEO of Portero is unavailable because the company is privately held.
In addition to the millions bestowed upon them by their own boards, these current and former CEOs receive a generous stipend for being on the board of Wells Fargo. According to the company’s most recent proxy statement, in 2015 Chen made $279,027; James made $293,027; Sanger made $382,027; Dean made $346,027, and Engel made $331,027. The majority of those payments came in the form of stock as well.
Top executives often receive stock instead of a base salary because of a Bill Clinton-era law exempting “performance-based” pay from a cap on corporate tax deductions for executive compensation.
Under Wells Fargo’s self-imposed “clawback” policy, the Human Resources Committee can revoke executive stock awards in the event of misconduct, including anything that causes the company reputational harm or a failure in risk management. While companies rarely enforce these provisions, as former FDIC chair Sheila Bair told CNBC when the false account scandal broke, “If you’re going to use clawbacks, this would be the situation.” . . .
The article ends with a fact that ensures corporations will continue to defraud the public:
Despite the fact that Wells Fargo was fined $190 million in the fake accounts scandal, the executives responsible for the misconduct have paid no price.
The penny stock Chris DiIorio invested in that crashed and burned was one of many stocks with similar trajectories traded by the same two giant companies. But if one was the buyer and the other the seller, how could this be in both of their interests?
It’s worth reading the entire series.
Penny stock gadfly Chris DiIorio tells the SEC about his suspicion that Knight Capital is tanking penny stocks on purpose and racking up unsustainable balance-sheet liabilities. But that leads to another mystery: Why don’t they seem to care?
The entire series so far is very much worth reading.
This is the most amazing series. Today is Part 3 of David Dayen’s series on an amazing scam, with this blurb:
Who engages in massive trades in penny stocks on the industry’s own “chill list”? And what happens when you sell a stock you don’t have? Victimized investor Chris DiIorio finds the answers in plain sight and wonders why no one else seems to care.
Earlier parts are found here. It really is a criminal enterprise.
Also in the Guardian, Brooke Harrington reports:
The Pritzker family is one of the wealthiest in the United States. Their assets, which amount to $15bn, are held in 60 companies and 2,500 trusts, using structures and strategies that Forbes magazine – normally a cheerleader for wealthy elites – describes with an unusual hint of moral distaste as “shadowy … constructed to discourage outside inquiry – and brilliantly exploitative of loopholes in the tax code.”
This complex asset-holding structure was created not by the Pritzker family itself but by its lawyers, accountants, tax specialists and investment advisers. In this respect, the Pritzkers are no different to tens of thousands of super-rich families and individuals worldwide, who use the services of wealth managers. These professionals not only shelter wealth from taxation but, in the words of one academic paper, serve to “obscure concentrations of economic power”, using vehicles that make it difficult, if not impossible, to identify the true owners of wealth.
The work of wealth managers has been described by some leading practitioners as a defence against the depredations of “confiscatory states.” Much of these professionals’ day-to-day practice occurs in an ethical grey area – a realm of activity that is formally legal but socially illegitimate. This includes the use of trusts, offshore corporations and similar tools to help clients avoid paying tax, debts to creditors or alimony to ex-spouses. Following the financial crisis and news stories such as the Panama Papers, these tactics – many of which are also used by corporations to avoid taxation and regulation – are attracting increasing public attention and condemnation.
The profession – whose main representative body is the London-based Society for Trust and Estate Practitioners (Step) – has been singled out for blame in several countries by government agencies concerned with tax evasion, money laundering, and growing worldwide wealth inequality. In its 2006 Seoul declaration, the Organisation for Economic Cooperation and Development (OECD) made special mention of the roles played by ‘‘law and accounting firms, other tax advisers and financial institutions” in helping companies and individuals find ways round international laws. In 2003, the now-retired Democrat senator Carl Levin complained to a US Senate subcommittee about the asset-holding structures created by wealth managers to obscure their clients’ assets: “Most are so complex that they are Megos – ‘My Eyes Glaze Over’ type of schemes. Those who cook up these concoctions count on their complexity to escape scrutiny and public ire.”
As world wealth has grown to record levels in recent years – to an estimated $241 trillion – inequality has also grown, with 0.7% of the global population owning 41% of the assets. Wealth managers are estimated to direct the flows of up to $21tn in private wealth, resulting in about $200bn in lost tax revenues globally each year. In effect, these professionals detach assets from the states that wish to tax and regulate them, creating a form of capital that is, like its owners, transnational and hypermobile. Doing so involves creating not just asset-holding and tax-avoidance structures but a new body of transnational institutions, which are expanding outside of any democratic process of checks and balances. In this way, the rise of the super-rich and the wealth management industry is creating an elite who are increasingly ungoverned and ungovernable.
The wealthy and powerful are notoriously difficult to study. Within this domain, wealth management presents particular challenges, as the profession depends on secrecy and is governed by a code of conduct that requires strict privacy.
As a sociologist intent on understanding the world of wealth management, I started my research by going back to school. In November 2007, I enrolled in a two-year wealth management training programme. My goal was to obtain a credential that is now the accepted global standard for practitioners: the TEP, or Trust and Estate Planning certification. To earn the credential, you need to pass five courses in key domains of technical competence: trust law, corporate law, investments, finance, and accounting.
Between 2008 and 2015, I conducted 65 interviews with wealth managers in 18 countries, including Switzerland, Hong Kong, Singapore, Mauritius, and British crown dependencies and overseas territories such as Guernsey, Jersey, the British Virgin Islands and the Cayman Islands. I also conducted interviews in the newer financial centres, particularly those serving the growing wealth of Asia, such as the Seychelles.
Only once my findings started to be published, about six years into the project, did anyone treat me with open hostility. In August 2013, I conducted a prearranged interview in the British Virgin Islands with a white British man in his 60s, who was a banker by training. He greeted me by saying that he had read my two recently published papers and found my work to be “left-leaning” and “disapproving of what the [wealth management] industry and wealthy people are doing”. He added that the islands’ wealth management community were all wondering what I was doing here. Although he graciously answered my interview questions, he was not done with the subject of my “agenda”. At the end of the interview, . . .
Continue reading. And there’s much more. In particular, the iron fist is revealed in the very next paragraph.
Lincoln Caplan writes in the New Yorker:
Next week, the Supreme Court is scheduled to consider whether it will hear an appeal of a Wisconsin Supreme Court ruling that, last year, halted a criminal investigation and ordered the destruction of all the evidence it gathered. The case is about the seemingly peripheral issue of judicial recusal. But it brings together two of the biggest disrupters of American democracy today: the surge, after the Citizens United decision struck down limits on independent spending, of private influence in elections; and the politicization of the highest courts in many states. For the past eight years, Wisconsin has been a laboratory testing the toxicity of this combination.
In 2008, conservative businesspeople in Wisconsin recruited a county trial judge named Michael Gableman to challenge Louis Butler, a liberal justice on the Wisconsin Supreme Court, who was its first African-American member. In support of Gableman, Wisconsin Manufacturers & Commerce and the Wisconsin chapter of the Club for Growth, the conservative group funded by the Koch brothers’ network, spent an estimated $2.8 million. Gableman won with fifty-one per cent of the vote, giving the conservatives what turned out to be a critical majority on the court.
Gableman’s election raised an issue of serious concern around the country: When an organization, or an individual, that supported a judge’s election is a party to a case before him, shouldn’t that judge recuse himself? In 2009, by a 5–4 vote, the U.S. Supreme Court ruled that a state judge must recuse himself when spending by a party to a case had “a significant and disproportionate influence” on the outcome of the judge’s election. The Court reasoned that, “just as no man is allowed to be a judge in his own cause, similar fears of bias can arise when—without the consent of the other parties—a man chooses the judge in his own cause.”
Shortly after that decision, the League of Women Voters of Wisconsin Education Fundproposed a change in the recusal rules of the Wisconsin Supreme Court, so that a justice would have to recuse himself if a party in a case, or the lawyer or law firm handling it, had given a thousand dollars or more within the previous two years. In response, the Wisconsin Realtors Association and Wisconsin Manufacturers & Commerce submitted two opposing rule petitions, which the justices voted to adopt, without amendment, in October, 2009. Together, the rule changes meant that a justice did not have to recuse himself just because a litigant had contributed to a justice’s campaign or made an independent expenditure on its behalf. The court’s four conservatives made up the majority that approved the changes.
In January, 2010, the conservatives again approved the changes, with some minor tweaks in the language. That same day, the U.S. Supreme Court decided Citizens United v. Federal Election Commission, striking down limits on independent spending in elections by corporations, unions, and other organizations. “The appearance of influence or access” from such spending, the Court said, “will not cause the electorate to lose faith in our democracy. By definition, an independent expenditure is political speech presented to the electorate that is not coordinated with a candidate.” The decision unleashed a torrent of spending in American elections.
In November, 2010, Scott Walker was elected governor of Wisconsin, and Republicans won majorities in both houses of the state legislature. The Wisconsin Democracy Campaign estimated that Wisconsin Manufacturers & Commerce spent about nine hundred and fifty thousand dollars, and that Wisconsin Club for Growth spent about a hundred thousand dollars. As William Finnegan reported, Walker had a strong anti-union agenda, and moved to cut the salaries of teachers and other government employees and gut the rights of public-sector unions. The legislation was enacted even as protesters occupied the state capitol, capturing national and international attention.
A few months into Walker’s tenure, David T. Prosser, Jr., a conservative justice on the Wisconsin Supreme Court, faced a serious challenge from a liberal opponent, who made the election a referendum on Walker’s anti-union agenda. An e-mail, dated March 20, 2011, circulated among Walker insiders, which said, “David Prosser is in trouble. And if we lose him, the Walker agenda is toast.” Two days earlier, a state trial judge had imposed a temporary restraining order that kept the new law from going into effect. If the case went to the State Supreme Court, and liberals had recaptured the majority, Walker’s supporters were concerned that the court would strike down the core of the law.
Walker’s right-wing circle mobilized and raised two and a half million dollars of corporate funding in support of Prosser. . .
Read the whole thing. It’s depressing, but it does reflect the gradual degradation of government and law in the US.
Apparently the FBI and DOJ operate independently of the White House, which may in fact be true: it’s not a good idea for the President to be deciding what the DoJ and FBI should do, since they should follow the law. (It’s probably also not a good idea for the President to decide on his own authority to have American citizens killed with no due process and certainly no trial.)
Jordan Smith reports in The Intercept:
Although a report released this week by the President’s Council of Advisors on Science and Technology concludes that there is scant scientific underpinning to a number of forensic practices that have been used, for years, to convict thousands of individuals in criminal cases, the U.S. Department of Justice has indicated that it will ignore the report’s recommendations while the FBI has blasted the report as “erroneous” and “overbroad.”
The report, titled “Forensic Science in Criminal Courts: Ensuring Scientific Validity of Feature-Comparison Methods,” concludes that a number of common, pattern-matching forensic disciplines – bite mark analysis, fingerprint and firearm comparison, shoe tread analysis, and complex DNA mixture analysis – need additional support to be deemed scientifically valid and reliable – a conclusion in line with that reached in the groundbreaking 2009 report on forensics issued by the National Academy of Sciences National Research Council.
In a statement reported by the Wall Street Journal, Attorney General Loretta Lynch said that the agency remains “confident that, when used properly, forensic science evidence helps juries identify the guilty and clear the innocent, and the department believes that the current legal standards regarding the admissibility of forensic evidence are based on sound science and sound legal reasoning.” As such, she said, while “we appreciate their contribution to the field of scientific inquiry, the department will not be adopting the recommendations related to the admissibility of forensic science evidence.”
The DOJ did not respond to The Intercept’s request for additional information, but based on her statement, it appears Lynch is saying there’s simply nothing to see here and that the criminal justice system is working just fine.
The Intercept first reported on the report’s conclusions earlier this month, after obtaining a draft copy. The text of the final report, released Sept. 20, appears to be nearly identical to the leaked draft.
Foundational validity and reliability are essential to shore up forensic practices, the report concludes – attributes that are largely absent in the disciplines it reviewed, which rely heavily on the subjective determinations of practitioners. Pattern-matching forensics involve an examiner determining whether a piece of crime scene evidence can be visually matched to a suspect – whether an alleged bite mark on a victim’s hand matches a suspect’s dentition, for example, or whether a partial, or smudged, fingerprint found at the scene of a crime matches a clean print obtained from a suspect – determinations currently based primarily on a subjective eyeballing of the objects at issue.
“Foundational validity requires that a method has been subjected to empiricaltesting by multiple groups under conditions appropriate to its intended use,” reads the report. Such studies must demonstrate that a practice is “repeatable and reproducible” and must provide “valid estimates of the method’s accuracy” – in other words, a meaningful error rate. “The frequency with which a particular pattern or set of features will be observed in different samples, which is an essential element in drawing conclusions, is not a matter of ‘judgment.’ It is an empirical matter for which only empirical evidence is relevant,” the report continues. “For forensic feature-comparison methods, establishing foundational validity based on empirical evidence is thus a sine qua non. Nothing can substitute for it.”
For years forensic practitioners in many of the disciplines included in the White House report (as well as in the National Academy of Sciences report) have overstated in court the validity and reliability of their results. Consider the case of Bill Richards, for example, who spent nearly 23 years in prison for murdering his wife Pamela before the California Supreme Court last May overturned his conviction, concluding that Richards had been a victim of junk science and false testimony. In his case, a renowned forensic dentist testified that a mark found on Pamela’s hand was a clear match to Richards’s supposedly unique dentition. Notable, the dentist testified, was that Richards had an under-erupted canine tooth that would account for a void in the alleged bite-mark injury to Pamela’s hand; only “one or two or less” people out of 100 would have such a feature, he testified. The dentist, Dr. Norman “Skip” Sperber, ultimately recanted that testimony, saying that it had no scientific basis. The new White House report notes that it is unlikely that bite-mark evidence will ever be scientifically supported.
In all, the report makes eight overarching recommendations for improvement— to the National Institute of Standards and Technology, to the FBI, to the attorney general, and to the judiciary — and called for “a vigorous research program” to improve forensic sciences building off “recent important” research conducted into fingerprint analysis, that the judiciary take into account actual scientific criteria when assessing whether forensic evidence and testimony should be allowed into court, and that the attorney general should “direct attorneys appearing [in court] on behalf of the [DOJ] to ensure expert testimony in court about forensic feature-comparison methods meets the scientific standards for scientific validity.”
“Where there are not adequate empirical studies and/or statistical models to provide meaningful information about the accuracy of a forensic feature-comparison method,” the report concludes, “DOJ attorneys and examiners should not offer testimony based on the method.” And in the event that testimony is necessary, the report says, the expert should “clearly acknowledge to courts” the lack of scientific evidence to support the underlying forensic practice.
Under “current legal standards,” and under the U.S. Supreme Court ruling in the 1993 case Daubert v. Merrell Dow Pharmaceuticals, federal judges are tasked with acting as gatekeepers over what expert testimony will be allowed into evidence. Where scientific – or supposedly scientific – evidence is concerned, the Supreme Court concluded that before allowing expert testimony in a case the trial judge must ensure that “any and all scientific testimony or evidence admitted is not only relevant, but reliable” which necessitates, in part, an assessment of “whether the reasoning or methodology underlying the [expert’s] testimony is scientifically valid.”
This, the new report correctly notes, is where science and the law intersect. But in practice, legal scholars note, the Daubert standard has not kept pseudoscience out of the courtroom. And when courts rely on precedent to allow certain questionable forensic practices into evidence the result is something like a feedback loop. “Bite-mark analysis has passed every Daubertchallenge that it has ever faced and [yet] there isn’t a scientist on the planet that would argue that bite-mark analysis is a valid and reliable science, aside from the few practitioners who still cling to that belief,” said Chris Fabricant, director of strategic litigation for the Innocence Project and a vocal critic of the use of junk science.
Fabricant said the DOJ’s rejection out-of-hand of the White House report is disheartening. “You would think that they would want to get it right. The idea is not that we’re going to spring open the jailhouse doors and let everybody free. The idea is that scientific evidence ought to be scientific,” he said. “To simply reject the call for more research and to say that Daubert is sufficient is ludicrous, because Daubert is obviously not sufficient,” he continued. “So, the idea that you would point to the courts and to precedent for the idea that forensic evidence is good enough for government work is a joke.”
Attorney General Lynch was not alone in her rejection of the science council’s report. The FBI also . . .
It’s important and it shows clearly how out of whack a good part of the government is.