Regulation is Not Dead Yet

March 23rd, 2017 by Phil Mattera

Donald Trump tries to give the impression that his crusade against business regulation is moving ahead rapidly. While several rules have been rescinded and more are threatened, it turns out that for now the enforcement systems at most agencies are functioning normally.

In preparing a forthcoming update of the Violation Tracker database, I’ve found that since the inauguration federal regulatory agencies have announced more than 160 case resolutions with fines and settlements totaling more than $1.6 billion. This two-month dollar amount does not compare to the $20 billion collected by the Obama Administration during its final tens weeks in office. Yet it does show that the so-called administrative state is not dead yet.

A large portion of the Trump collections come from enforcement actions against a single company that are in line with the new president’s views. The Chinese telecommunications company ZTE was penalized $1.2 billion for violating economic sanctions against Iran and North Korea by supplying them with prohibited items. The Commerce Department’s Bureau of Industry and Security imposed a $661 million civil penalty and the Treasury’s Office of Foreign Assets Control collected another $106 million while the Justice Department got ZTE to plead guilty and pay $430 million in fines and criminal forfeiture.

The remaining $422 million was collected in cases brought by 21 different agencies and four divisions of the Justice Department. Among the larger actions:

  • The Commodity Futures Trading Commission reached an $85 million settlement with the Royal Bank of Scotland to resolve allegations that it attempted to manipulate interest-rate benchmarks.
  • The Federal Energy Regulatory Commission reached an $81 million settlement with GDF Suez to resolve allegations that it manipulated energy markets.
  • TeamHealth Holdings agreed to pay $60 million to settle Justice Department allegations that its subsidiary IPC Healthcare Inc. violated the False Claims Act by overbilling Medicare, Medicaid, the Defense Health Agency and the Federal Employees Health Benefits Program.
  • Offshore oil driller Wood Group PSN was ordered to pay a total of $9.5 million to resolve criminal charges that it falsely reported over several years that its personnel had performed safety inspections on offshore facilities and that it negligently discharged oil into the Gulf of Mexico.
  • Keurig Green Mountain agreed to pay $5.8 million to settle allegations by the Consumer Product Safety Commission that it failed to report a defect in its Mini Plus Brewing System that had caused scores of serious burn injuries.
  • The Consumer Financial Protection Bureau imposed a $3 million penalty on Experian for deceptively marketing credit scores.

The list also includes: 14 settlements with the Equal Employment Opportunity Commission by employers in cases involving gender, pregnancy and disability discrimination; six cases in which private sponsors of Medicare Advantage plans violated consumer protection rules; two cases in which companies were charged with violating the Controlled Substances Act by failing to properly monitor opioid prescriptions; and much more.

On the other hand, the situation remains puzzling at the Labor Department, where agencies such as OSHA have not announced a single enforcement action since Trump took office.

It is likely that most of the 160 cases were initiated while the Obama Administration was in office, but it is heartening that they have gotten resolved under the new management. The career officials in the various agencies should be commended for continuing to do their job in difficult circumstances. Let’s hope they can convince their new bosses that there is a value to protecting consumers, workers and the public against corporate misconduct in its many forms.

Labor Unenforcement

March 16th, 2017 by Phil Mattera

Once upon a time, a key component of American populism was the demand for stricter controls over big business: in other words, regulation. Today, the country’s purported populist in chief is instead promoting the dubious claim that deregulation is what will benefit the masses. Through executive orders and now with his administration’s budget blueprint, Donald Trump is seeking an unprecedented rollback of workplace, environmental and consumer protections.

There are signs that at least one agency in the Trump Administration may not waiting for the legal changes to take effect before providing relief to business. In the eight weeks since the inauguration, the regulatory arms of the Labor Department appear to have been in a near state of suspended animation, at least in terms of their announced enforcement activity.

Take the case of the Occupational Safety and Health Administration. Since the inauguration it has not posted a single press release about an enforcement matter on the DOL website. This compares to more than 70 releases — about the filing of cases or the imposition of penalties — posted during the same period last year.

This can’t be explained by delays in a new administration getting up and running. During the comparable time period for the newly installed Obama Administration in 2009, OSHA made more than 30 enforcement announcements.

A similar pattern can be seen at DOL’s Wage and Hour Division, which under the Obama Administration aggressively pursued employers that violated minimum wage, overtime and other provisions of the Fair Labor Standards Act. Since January 20, the WHD has made only one case announcement. By contrast, during the same period last year WHD announced 35 cases in which an employer was being sued or had settled allegations by agreeing to pay back wages and sometimes a monetary penalty. In 2009, right after Obama took office, the WHD announced 14 cases in the same period.

Other parts of the Labor Department are also quiet. The Office of Federal Contract Compliance Programs, which makes sure government contractors comply with anti-discrimination laws, has not issued a single press release since inauguration day — on enforcement matters or anything else.

Enforcement is handled by career employees of the DOL, whose activities should not be affected by the delays in filling the Labor Secretary’s job, unless their work is being impeded by Trump’s appointed “beachhead” officials now running the department.

There are no indications that the work of DOL agencies has been suspended. Yet the almost complete disappearance of enforcement announcements may indicate that the Trump appointees have been holding up case resolutions or are choosing not to publicize those matters that have been resolved.

In any event, this enforcement lethargy may be a rehearsal for things to come. The Trump budget blueprint calls for a 21 percent reduction in DOL funding, and while the document provides limited details on what would be targeted, a cut of that size is bound to impair enforcement. How many workers who voted for Trump were seeking more dangerous conditions on the job and greater vulnerability to wage theft?

Catastrophic Plans

March 9th, 2017 by Phil Mattera

During his private-sector career Donald Trump floated many dubious business ventures, and now as president he is pushing his biggest bait-and-switch scheme yet. Having run for office on promises that he would improve healthcare and protect safety net programs such as Medicaid, he is now embracing and promoting a Republican replacement for the Affordable Care Act that would do exactly the opposite.

Throughout the campaign, Trump made it abundantly clear that he wanted to repeal the ACA, which he repeatedly described as a disaster, and with his typical hyperbole promised voters: “You’re going to have such great healthcare at a tiny fraction of the cost, and it is going to be so easy.” During the transition he said that the replacement plan would seek to provide “insurance for everybody.”

Trump exploited the real frustrations of many people with the ACA — frustrations that were largely the result of Republican intransigence that prevented the inclusion of a public option, blocked any legislative fixes and precluded Medicaid expansion in many states. He implicitly promised that a replacement plan would do more.

When Trump stated on February 27 that “nobody knew health care could be so complicated,” he was in effect signaling that the bait phase of his con was over and he was moving on to the switch. Now he has dropped the extravagant promises and has joined the House Republican rush to enact a repeal and replace plan supposedly made urgent by the imminent collapse of Obamacare.

The House legislation has not yet been officially scored by the Congressional Budget Office, but it is widely anticipated that it will result in a loss of coverage for millions of people and sharp increases in premiums for many of those who hold onto their plans.

Yet there is another issue that is receiving less attention: the quality of coverage for those who remain in the individual marketplace. For now, the Republican plan retains the ACA’s list of essential benefits (preventive care, etc.) that must be included in any individual or small group plan, but it is possible that could be bargained away to placate social conservatives who don’t like the provisions relating to reproductive health.

Trumpcare does not, however, include the ACA’s cost-sharing provisions that cap out-of-pocket expenses in plans obtained through the exchanges by persons with income below 250 percent of the federal poverty line. As a result, these people could very well be subjected to sharply higher deductibles and co-pays.

This points to the little-acknowledged aspect of the assault on the ACA: at the heart of the Republican “solution” to rising premiums is giving people the ability to purchase lower-cost but substandard coverage. In other words, they want to return to the pre-ACA situation in which insurers could sell bare-bones policies that provided little or no cost reimbursement except in cases of major illnesses or accidents — and might be skimpy in those situations as well.

It is significant that Republicans keep quoting Aetna CEO Mark Bertolini in perpetuating the bogus claim that the ACA is in a “death spiral.” Bertolini is hardly an objective observer. He used misleading negative comments about the ACA to try to deter the Obama Administration from its opposition to Aetna’s anti-competitive acquisition of its rival Humana, which was recently blocked by a federal judge who accused the company of dropping out of the ACA marketplace in several states to “improve its litigation position” in the merger dispute.

Aetna is also the company that was one of the biggest promoters of bare-bones policies in the pre-ACA period. It got into the business, also known as junk health insurance, two decades ago through the purchase of U.S. Healthcare, an HMO whose bare-knuckles practices Aetna adopted in full and thus found itself the target of a series of class-action lawsuits brought by patients as well as providers.

The substandard policies sold by Aetna made up a substantial portion of the plans that were banned by the ACA. The people who had to give up that “coverage” became symbols of the supposed oppression of Obamacare.

Although they try hard to hide the fact, Republicans — and now Trump — are setting the stage for a resurgence of the bare-bones policies under the banner of affordability. That will be catastrophic coverage in every sense of the word.

Trump’s Misguided Crusade Against the EPA

March 2nd, 2017 by Phil Mattera

Executives at Volkswagen must be cursing the bad timing. If only they had been able to keep their emissions cheating scheme quiet for a while longer, they could have avoided a lot of grief. That’s because the U.S. Environmental Protection Agency’s enforcement capacity may soon be crippled.

This is a likely consequence of the Trump Administration’s plans, just reported by the Washington Post, to cut the staff of the agency by one-fifth and eliminate dozens of programs. It’s not yet known exactly what functions are being targeted, but cuts of this magnitude will certainly make it more difficult for the EPA to pursue the kind of investigations that led to the filing of civil and criminal charges against VW.

In January, shortly before Trump took office, the company agreed to plead guilty to three federal felony counts and pay a criminal penalty of $2.8 billion along with another $1.5 billion to settle civil claims. VW previously reached a settlement with the EPA and other agencies under which it committed to spend more than $14 billion to buy back cars containing “defeat devices” and undertake projects to mitigate the extra pollution generated by those vehicles.

VW is one of the thousands of polluters whose activities have been thwarted by the EPA. As shown in Violation Tracker, since the beginning of 2010 the agency (on its own or with the Justice Department) has collected more than $43 billion in fines and settlements in more than 15,000 cases. That does not include billions more from companies such as BP in cases in which the EPA joined with other agencies in joint referrals to the DOJ. Apart from VW and BP, here are the biggest EPA penalty cases over the past seven years:

In 2015 a $5 billion settlement with the EPA and the DOJ went into effect under which Anadarko Petroleum agreed to pay for the clean-up of toxic waste sites across the country linked to Tronox Inc., a spinoff of Anadarko’s subsidiary Kerr-McGee.

In 2013 Wisconsin Power and Light Company, a subsidiary of Alliant Energy, agreed to spend over $1 billion on new equipment to substantially reduce air pollution generated by three coal-fired power plants.

In 2013 Transocean agreed to pay a $1 billion civil penalty to the EPA in connection with its role in the Deepwater Horizon disaster in the Gulf of Mexico three years earlier.

In a 2015 settlement with the EPA, fertilizer giant Mosaic agreed to establish a $630 million trust fund to pay for the future closure of and treatment of hazardous wastewater at four facilities in Florida and Louisiana. The company also agreed to spend $170 million on environmental mitigation at its operations.

In 2011 Hovensa, now owned by ArcLight Capital, agreed to spend more than $700 million on new air pollution controls at its massive petroleum refinery in the U.S. Virgin Islands.

Not all the companies are from the industrial and energy sectors. Retail behemoth Wal-Mart Stores has had to pay more than $90 million in EPA fines and settlements to resolve cases involving improper disposal of hazardous waste and other violations.

Data collected for an extension of Violation Tracker coverage back an additional ten years to 2000 includes EPA cases with total fines and settlements of more than $20 billion. Among these are a 2007 agreement by utility giant American Electric Power to spend an estimated $4.6 billion to reduce toxic air emissions at its power plants and a $50 million criminal penalty BP paid for environmental violations at its refinery in Texas City, Texas (now owned by Marathon Petroleum) where 15 workers were killed in an explosion in 2005.

These various examples do not include the many Superfund cases brought by EPA against multiple parties in connection with long-term toxic dumping or cases brought against government entities; nor do they include all the work EPA does apart from enforcement.

Trump’s assault on the EPA is based on the once common but now widely debunked notion that there is an inherent conflict between jobs and environmental protection. Today there is greater recognition that workers also need to breathe clean air and drink clean water, and that there are many business and employment opportunities associated with environmental clean-up and sustainable practices.

Decimating the EPA will serve only to empower rogue corporations such as Volkswagen. There is nothing to be gained from making polluters great again.

Documenting the Last Hurrah of Regulatory Enforcement

February 21st, 2017 by Phil Mattera

Since the beginning of 2010 the Equal Employment Opportunity Commission has resolved more than 200 cases of workplace discrimination based on race, religion or national origin and imposed penalties of more than $116 million on the employers involved.

During that same period, the Department of Housing and Urban Development — now in the hands of Ben Carson — settled more than two dozen discrimination cases against banks and mortgage companies, collecting more than $200 million in penalties.

The Occupational Safety and Health Administration has handled more than 50 cases of whistleblower retaliation since 2010. These have involved both cases in which workers complained about physically unsafe conditions as well as ones involving complaints about corporate financial misconduct. The latter, stemming from authority given to OSHA under the Sarbanes-Oxley Act, include cases brought against banks such as JPMorgan Chase and Bank of America.

Eight large pharmacy chains and drug distributors have been penalized more than $400 million by the Drug Enforcement Administration during the past seven years for various violations of the Controlled Substances Act.

These are examples of the kind of information that can be found in latest expansion of Violation Tracker, which adds case data from nine additional federal regulatory agencies, bringing the total to 39 agencies and the Justice Department.

In addition to the new agencies, the expansion includes updated information for the existing ones. That includes the final burst of cases seen during the closing weeks of the Obama Administration. Between election day and the inauguration, the Justice Department and agencies such as the Consumer Financial Protection Bureau announced several dozen case resolutions with total fines and settlements in excess of $20 billion.

These include 16 cases with penalties of $100 million or more; four in excess of $1 billion: Deutsche Bank ($7.2 billion), Credit Suisse ($5.3 billion), Volkswagen ($4.3 billion) and Takata ($1 billion).

Banks and other financial services companies account for the largest portion by far of the recent cases, racking up nearly $15 billion in fines and settlements with DOJ, the CFPB, the SEC and banking regulators. Automotive companies like Volkswagen and Takata are second with about $5.5 billion, while pharmaceutical and healthcare firms account for about $1.2 billion.

Given the Trump Administration’s focus on deregulation rather than enforcement, the Obama Administration’s final wave of settlements may represent Uncle Sam’s last hurrah against business misconduct for some time. The data in Violation Tracker, which show widespread misconduct and high levels of recidivism, should give pause to those pushing for less oversight.

With the update and coverage expansion, Violation Tracker now contains more than 120,000 entries with total penalties of more than $320 billion, most of that connected to some 2,300 large parent companies whose disparate individual entries are linked together in the database. Coverage currently begins in 2010 but will be extended back to 2000 later this year.

Individual entries include links to official online information sources. The new version of Violation Tracker supplements those with links to archival copies of those sources preserved on our server.

Having completed the update, the expansion and the creation of the archive, we will return to our effort to collect comprehensive data on wage theft cases — both those brought by the Labor Department’s Wage and Hour Division and related private litigation. We expect that to be ready later this year.

We can only wonder what will be left of the regulatory system by that point.

Trump’s Commerce Nominee Also Has Suspicious Russian Ties

February 16th, 2017 by Phil Mattera

While the spotlight is on Michael Flynn’s discussions with Russia about sanctions, little attention is being paid to the Russian connections of Trump’s Commerce Secretary nominee Wilbur Ross, who if confirmed would oversee an agency involved with enforcing those sanctions.

The 79-year-old Ross, who was an advisor to Trump’s presidential campaign, is best known as a vulture capitalist who made a fortune restructuring troubled steel, coal and textile companies and then selling them off. Yet he continues to have associations with a wide range of companies. Among those is the Bank of Cyprus, where Ross has served as vice chairman of the board of directors since leading a financial rescue of the institution in 2014.

According to reporting in late 2016 by McClatchy and Mother Jones, the Cypriot bank has close ties to wealthy Russian businessmen linked to Vladimir Putin. One of those is Viktor Vekselberg, whose Renova Group became the second largest shareholder in the bank. One of Renova’s executives, Maksim Goldman, was named to the bank’s board of directors and is now a vice chairman alongside Ross.

McClatchy also pointed out that the Bank of Cyprus was mentioned thousands of times in the Panama Papers in connection with the offshore activities of Putin’s cronies. And then there’s the fact that the chair of the bank Ross helped to install is Josef Ackermann, the retired chief executive of Deutsche Bank, which last month agreed to pay $425 million to resolve allegations by the New York State Department of Financial Services that it helped Russian clients engage in what amounted to money laundering through an international mirror-trading scheme.

What makes all of this more significant is that among the agencies Ross would oversee as Commerce Secretary is the Bureau of Industry and Security (BIS), which along with the Treasury Department’s Office of Foreign Assets Control, administers the sanctions against Russia imposed by the Obama Administration and which, for the moment, are still in effect.

The BIS portion of those sanctions includes restrictions on the ability of U.S. companies to export certain military and energy products to Russian parties whose names are on what is known as the Entity List. The latest Russian additions to the list were made in the final weeks of the Obama Administration in the wake of new sanctions imposed in response to Russian interference in the U.S. presidential election.

In his confirmation hearing last month, Ross was not interrogated about his views on Russian sanctions or how he might adjust the role of BIS. And Ross has defused much of the opposition to his nomination by vowing to divest from most (though not all) of his holdings.

Yet in light of the ongoing controversy over the Russian links of other figures in Trump’s campaign and his administration, Ross’s ties to the Putin network deserve a lot more scrutiny (as do his China connections).

Note: The Bureau of Industry and Security and the Office of Foreign Assets Control, along with the State Department’s Directorate of Defense Trade Controls, are among the agencies whose cases will be included in an update of Violation Tracker that will be posted next week.

Companies Fighting the Travel Ban Should Also Oppose the Labor Department Nominee

February 9th, 2017 by Phil Mattera

Trump’s scandal-ridden choice for Labor Secretary, Andrew Puzder, is yet another of this administration’s nominees who don’t believe in the mission of the agency they intend to lead.

The website through which he is promoting his nomination is headlined: “Job creation is what I stand for.” That’s fine but it has little to do with the primary purpose of the Department of Labor: worker protection. The rest of that website, which has nothing to say about that purpose, instead clearly signals that Puzder will seek to weaken or dismantle the regulations DOL is supposed to enforce.

We can expect that will include rollbacks in protections relating to occupational safety and wage theft, but in light of the current debates on discrimination, it is worth remembering that DOL is also home to the Office of Federal Contract Compliance Programs (OFCCP), the agency charged with fighting racial and other forms of bias in the workplaces of companies doing business with Uncle Sam.

OFCCP has long been targeted by the regulation-bashers, and now there are reports that an effort to abolish the agency that began during the Reagan Administration may get revived. This would go along with the move to reverse the Obama Administration executive order on Fair Pay and Safe Workplaces.

I’ve been thinking about the OFCCP because it is one of the agencies (along with the Equal Employment Opportunity Commission) included in an expansion of Violation Tracker that my colleagues and I will release soon. We’ll be including entries for the more than 200 cases OFCCP has resolved since the beginning of 2010. The companies involved, which together have paid fines or settlements of about $51 million, include well-known firms such as Tyson Foods (six cases), FedEx, Cargill, Bank of America, General Electric and Comcast.

In the case with the biggest settlement amount, FedEx had to pay $3 million in 2012 to settle allegations that  it engaged in discrimination on the bases of sex, race and/or national origin against specific groups identified at 23 facilities in 15 states.

The OFCCP has been showing a growing interest in the practices of high-tech companies. Last year it got Hewlett Packard Enterprise to pay $750,000 to settle allegations of racial discrimination in hiring at a facility in Arkansas. In the closing days of the Obama Administration, the OFCCP brought suit against Oracle for discriminatory practices shortly after it filed an action against Google for refusing to provide compensation data for its Silicon Valley headquarters during what the agency called a routine compliance evaluation.

Google is among the scores of high-tech companies that have come out in opposition to Trump’s travel ban. That is laudable, but if these companies are serious about their opposition to discrimination they should also make sure they are in compliance with the OFCCP and speak out just as forcefully against any effort to undermine the agency.

Note: A state court in California just postponed until June the starting date of a trial in a case in which Puzder’s company CKE Restaurants is accused of age and disability discrimination.

Trump’s Other Ban

February 2nd, 2017 by Phil Mattera

Trump’s travel ban and his rightwing Supreme Court pick are troubling in themselves, but they are also serving to deflect attention away from the plot by the administration and its Republican allies to undermine the regulation of business.

Surprisingly little is being said about Trump’s January 30 executive order instructing federal agencies to identify two prior regulations for elimination for each new rule they seek to issue. It also dictates that the total incremental cost of new rules (minus the cost of repealed ones) should not exceed zero for the year.

While Trump’s appointees will probably not propose much in the way of significant new rules that would have to be offset, the order amounts to a ban on additional regulation.  It boosts the long-standing effort by corporate apologists to delegitimize regulation by focusing on the number of rules and their supposed cost while ignoring their social benefits.

Meanwhile, the regulation bashers are also busy on Capitol Hill. Republicans have resurrected the rarely used Congressional Review Act as a mechanism for undoing the Obama Administration’s environmental regulations as well as its Fair Pay and Safe Workplaces executive order concerning federal contractors.

Both Trump and Congressional Republicans are also targeting the Dodd-Frank law that enhanced financial regulation after the 2008 meltdown. Calling the law a “disaster,” Trump recently said “we’re going to be doing a big number on Dodd-Frank,” adding: “The American dream is back.”

If Trump was referring to the aspirations of the wolves of Wall Street, then that dream may indeed be in for a resurgence. For much of the rest of the population, the consequences would be a lot less pleasant.

To take just one example, an attack on Dodd-Frank would certainly include an assault on the Consumer Financial Protection Bureau that was created by the law and which has aggressively gone after financial predators. As Violation Tracker shows, during the past five years the agency has imposed more than $7 billion in penalties in around 100 enforcement actions against banks, payday lenders, credit card companies and others. Its $100 million fine against Wells Fargo last September brought attention to the bank’s bogus-account scheme.

The CFPB has not let the election results impede its work. Since November 8 it has announced more than a dozen enforcement actions with penalties totaling more than $80 million. The largest of those involves Citigroup, two of whose subsidiaries were fined $28.8 million for keeping borrowers in the dark about options to avoid foreclosure and burdening them with excessive paperwork demands when they applied for foreclosure relief.

Citigroup, one of the companies that has the most to gain from restrictions on the CFPB and Dodd-Frank in general, has shown up often as I have been collecting data on recent enforcement cases from various agencies for a Violation Tracker update that will be released soon.

The Securities and Exchange Commission recently announced that Citigroup Global Markets would pay $18.3 million to settle allegations that it overcharged at least 60,000 investment advisory clients with unauthorized fees. In a separate SEC case, Citi had to pay $2.96 million to settle allegations that it misled investors about a foreign exchange trading program.

Around the same time, the Commodity Futures Trading Commission filed and settled (for $25 million) allegations that Citigroup Global Markets engaged in the illicit practice of spoofing — bidding or offering with the intent to cancel the bid or offer before execution — in U.S. Treasury futures markets and that it failed to diligently supervise the activities of its employees and agents in conjunction with the spoofing orders.

Citi’s record, along with that of other rogue banks, undermines the arguments of Dodd-Frank foes and in fact makes the case for stricter oversight. Yet the reality of financial misconduct is about to be overwhelmed by a barrage of alternative facts about the magic of deregulation.

Update: After this piece was written, Congress voted to repeal another provision of Dodd-Frank known as Cardin-Lugar or Section 1504, which required publicly traded extractive companies to report on payments to foreign governments in their SEC filings. The disclosure was meant as an anti-corruption measure. 

Aetna’s Deception and the ACA Crisis

January 26th, 2017 by Phil Mattera

One of the decisive moments in the 2016 election campaign came last summer, when major insurance companies cut back their involvement in the Affordable Care Act exchanges after claiming they were losing money in the market. This was seized on by Trump and other Republicans to further denigrate the ACA and argue the need for repeal and replace.

Evidence has now emerged suggesting that the insurers’ claims were more of the lies that tainted the whole campaign and that those lies were motivated by an attempt to influence the federal government’s policy on mergers.

What was often overlooked during discussions of the health insurance industry last year was that the biggest concern of the major firms was the fate of their attempt to capture greater market share through giant acquisitions. Aetna was seeking to acquire Humana, and Anthem wanted to join forces with Cigna. The two proposed deals, worth about $85 billion, would reduce the number of major players to three (the other being UnitedHealth).

The Obama Administration and multiple states challenged the mergers, which ended up in court. Recently a federal district court judge sided with the Justice Department in the Aetna-Humana case; another judge is expected to rule soon on the Anthem-Cigna deal.

In his 158-page ruling on the Aetna matter, U.S. District Judge John D. Bates cited evidence indicating that the company’s decision to leave ACA exchanges in 17 counties in three states (Florida, Georgia and Missouri) was designed to “improve its litigation position.” In other words, its main reason for dropping out was not the profitability of  those markets but rather the attempt to make it more likely that the Humana acquisition would be approved.

The opinion reveals (on p.125) that when Aetna met with officials at the Justice Department and the Department of Health and Human Services prior to the filing of the government’s complaint it “connected this lawsuit with its future participation in the exchanges” and threatened (p.126) to withdraw from those exchanges if the merger were not approved.

Also included in the opinion is an excerpt (p.127) from an e-mail in which Aetna CEO Mark Bertolini stated that “the administration has a very short memory, absolutely no loyalty and a very thin skin.” Asked in a deposition what he meant by that, Bertolini expressed resentment that the administration was opposing the merger despite Aetna’s role in supporting the ACA during the battle over its enactment.

The judge went on to cite (p.129) internal company e-mails in which, in the words of the opinion, “Aetna executives tried to conceal from discovery in this litigation the reasoning behind their recommendation to withdraw from the 17 complaint counties.” That effort was unsuccessful.

Overall, the court found that the exchange counties from which Aetna was withdrawing were a mix of profitable and unprofitable ones, thus undermining the claim that the move was purely a business decision.

While Aetna’s deception failed to sway the government or the lawsuit, it had a significant political impact amid a heated campaign. Now that the campaign is over and the ACA opponents prevailed, Aetna and the other insurance giants are staying silent as Republicans move to gut the law.

It’s unclear whether the firms expect the exchanges to survive in some form or they are rooting for a return to the old days of minimal regulation. In either event, it’s clear that companies like Aetna and Anthem are putting their desire for oligopolistic control above all else.

Obama’s Final Blows Against Corporate Crime

January 19th, 2017 by Phil Mattera

$335 billion: that’s what has been paid by companies in fines or settlements in cases brought by federal agencies and the Justice Department during the Obama Administration. The estimate comes from the amounts associated with entries already in Violation Tracker and an update that is in the works.

Preparing that update has proven to be a challenge because of the remarkable flurry of cases that the Obama Administration has resolved in the waning days of its existence. Since the election the penalty tally has risen by more than $30 billion, much of that coming this month alone. The past ten days have seen four ten-figure settlements: Deutsche Bank’s $7.2 billion toxic securities case; Credit Suisse’s $5.3 billion case in the same category; Volkswagen’s $4.3 billion case relating to emissions fraud; and Takata’s $1 billion case relating to defective airbag inflators.

Here are some of the next-tier cases that would normally get significant coverage but may have gotten lost in the stream of announcements:

  • Moody’s agreed to pay $864 million to resolve allegations relating to flawed credit ratings provided for mortgage-backed securities during the run-up to the financial crisis.
  • Western Union agreed to pay $586 million to settle charges that it failed to guard against the use of its system for money laundering.
  • Shire Pharmaceuticals agreed to pay $350 million to settle allegations that one of its subsidiaries violated the False Claims Act by paying kickbacks to healthcare providers.
  • Rolls-Royce agreed to pay $170 million to resolve foreign bribery criminal charges; the military contractor was offered a deferred prosecution agreement.
  • McKesson, a large pharmaceutical distribution, was fined $150 million by the Drug Enforcement Administration for failing to report suspicious bulk purchases of opioids.

Although a few of these cases — including Volkswagen, Takata and Western Union– have involved criminal charges, for the most part the Obama Justice Department has kept its focus on extracting substantial monetary penalties from corporate wrongdoers.

While this approach has served the purpose of highlighting the magnitude of business misconduct, it remains unclear whether it has done much to deter such behavior. One of the aims of Violation Tracker is to document the problem of ongoing recidivism among corporate offenders by listing their repeated transgressions. JPMorgan Chase, for example, has racked up $28 billion in penalties in more than 40 cases resolved since the beginning of 2010. The list is likely to continue growing.

The steady stream of big-ticket cases has provided a constant source of new content for Violation Tracker, but it would have been preferable if federal prosecutors and regulators had figured out a way to get the bank and others like it to behave properly.

The Obama Justice Department’s rush to complete the recent settlements seems to be based in part on uncertainty as to whether the Trump Administration will continue to give priority to the prosecution of corporate crime. Attorney General nominee Jeff Sessions has not said much on the subject, while the President-elect has been uncharacteristically silent — both during his campaign and since the election — about corporate scandals such as the Wells Fargo bogus-account case while being outspoken in his critique of regulation.

We may soon look back fondly at the Obama approach as the new administration takes an even weaker posture toward the ongoing corporate crime wave.