Archive for the ‘Product Safety’ Category

Johnson & Johnson’s Self-Inflicted Wounds

Thursday, May 5th, 2016

Baby powder, the product along with Band-Aids that for decades gave Johnson & Johnson a benign image, is now the latest symbol of its deterioration into one of the most unreliable of large corporations. Juries have recently awarded a total of $127 million to women with ovarian cancer who charge that their disease was caused by the talc in the company’s powder.

J&J, which disputes the allegations and is appealing the verdicts, faces some 1,400 additional similar lawsuits brought by plaintiffs’ lawyers armed with company documents they say show that J&J was concerned about a link between talcum powder and ovarian cancer as early as the 1970s. It is unclear what will happen with the litigation, but the lawsuits are part of a long string of scandals that have plagued the giant medical products firm during the past decade and forced it to pay out vast sums in civil settlements and criminal fines.

The most serious of those cases involved allegations that several of its subsidiaries marketed prescription drugs for purposes not approved as safe by the Food and Drug Administration, thus creating potentially life-threatening risks for patients.

In 2010 J&J subsidiaries Ortho-McNeil Pharmaceutical and Ortho-McNeil-Janssen had to pay $81 million to settle charges that they promoted their epilepsy drug Topamax for uses not approved as safe. The following year, J&J subsidiary Scios Inc. had to pay $85 million to settle similar charges relating to its heart failure drug Natrecor.

In 2013 the Justice Department announced that J&J and several of its subsidiaries would pay more than $2.2 billion in criminal fines and civil settlements to resolve allegations that the company had marketed it anti-psychotic medication Risperdal and other drugs for unapproved uses as well as allegations that they had paid kickbacks to physicians and pharmacists to encourage off-label usage. The amount included $485 million in criminal fines and forfeiture and $1.72 billion in civil settlements with both the federal government and 45 states that had also sued the company.

At a press conference announcing the resolution of the case, U.S. Attorney General Eric Holder said the company’s practices ”recklessly put at risk the health of some of the most vulnerable members of our society — including young children, the elderly and the disabled.”

Other J&J problems resulted from faulty production practices. During 2009 and 2010 the company had to announce around a dozen recalls of medications, contact lenses and hip implants. The most serious of these was the massive recall of liquid Tylenol and Motrin for infants and children after batches of the medication were found to be contaminated with metal particles.

The company’s handling of the matter was so poor that J&J subsidiary McNeil-PPC became the subject of a criminal investigation and later entered a guilty plea and paid a criminal fine of $20 million and forfeited $5 million.

J&J also faced criminal charges in an investigation of questionable foreign transactions. In 2011 it agreed to pay a $21.4 million criminal penalty as part of a deferred prosecution agreement with the Justice Department resolving allegations of improper payments by J&J subsidiaries to government officials in Greece, Poland and Romania in violation of the Foreign Corrupt Practices Act. The settlement also covered kickbacks paid to the former government of Iraq under the United Nations Oil for Food Program.

All of this has been a humiliating comedown for a company that was once regarded as a model of corporate social responsibility and which set the standard for crisis management in its handling of the 1980s episode in which a madman laced packages of Tylenol with cyanide. While the company was then being victimized, the more recent crises have been largely of its own making.


Note: This piece is drawn from my new Corporate Rap Sheet on Johnson & Johnson, which can be found here.

Trump’s Corporate Rap Sheet

Thursday, April 7th, 2016

For more than 30 years, Donald Trump has been almost continuously in the public eye, portraying himself as the epitome of business success and shrewd dealmaking.

He took a business founded by his father to build modest middle-class housing in the outer boroughs of New York City and transformed it into a high-profile operation focused on glitzy luxury condominiums, hotels, casinos and golf courses around the world. Operating through the Trump Organization, his family holding company, Trump also capitalized on his reality-TV-enhanced name recognition in a wide range of licensing deals.

Trump’s decision to enter the race for the Republican presidential nomination in 2015 has brought a great deal of new attention to his wide range of business activities and the controversies associated with many of them.  Those controversies — involving issues such as alleged racial discrimination, lobbying violations, investor and consumer deception, tax abatements, workplace safety violations, union avoidance and environmental harm — are summarized in my new Corporate Rap Sheet on the Trump Organization. Here are some highlights:

  • In 1973 the Justice Department filed a suit in federal court accusing Donald Trump and his father Fred Trump of discriminating against African-Americans in apartment rentals, mostly in Brooklyn and Queens. Donald Trump vigorously disputed the charges and filed a $100 million countersuit while complaining that the government was trying to pressure him to rent to “welfare clients.” Trump claimed that doing so would be unfair to other tenants and warned that it would result in “massive fleeing.” In 1975 the Trumps signed an agreement with the Justice Department in which they did not admit to past discrimination but promised not to discriminate against African-Americans and other minorities in the future.
  • In 1991 the New Jersey Division of Gaming Enforcement announced that the Trump Castle Casino Resort, then owned by Donald Trump, would pay $30,000 as part of a settlement of a case in which Trump’s father was found to have improperly lent $3.5 million to the Atlantic City casino by purchasing gambling chips not intended to be used for bets. The transaction, designed to help the casino’s cash-flow problems, was allowed to proceed when Fred Trump agreed to apply for a license allowing him to lend money to the business.
  • In 1998 the Trump Taj Mahal, then still controlled by Trump, was fined $477,000 for currency transaction reporting violations. The Taj Mahal subsequently received numerous warnings about such issues, and in 2015, by which time it was controlled by Carl Icahn, the Atlantic City casino was fined $10 million for “willful and repeated violations of the Bank Secrecy Act.”
  • In 2000 Trump and some of his associates had to pay $250,000 and issue a public apology to resolve a case brought by the New York Temporary State Commission on Lobbying over the failure to disclose that they had secretly financed newspaper advertisements opposing casino gambling in the Catskills. Trump was said to have been concerned that Catskills casinos would siphon business from the Atlantic City casinos he owned at the time.
  • In 2002 the Securities and Exchange Commission announced that Trump Hotels and Casino Resorts had “recklessly” misled investors in a 1999 earnings release that used pro forma figures to tout the company’s purportedly positive results but failed to disclose that they were primarily attributable to an unusual one-time gain rather than ongoing operations. No penalty was imposed on the company, which consented to the SEC’s cease-and-desist order.
  • In 2013 New York Attorney General Eric Schneiderman filed a civil lawsuit against the Trump Entrepreneur Initiative (formerly known as Trump University), its former president and Donald Trump personally “for engaging in persistent fraudulent, illegal and deceptive conduct.” Schneiderman alleged that the business “misled consumers into paying for a series of expensive courses that did not deliver on their promises.” The suit asked for “full restitution for the more than 5,000 consumers nationwide who were defrauded of over $40 million in the scheme, disgorgement of profits, as well as costs and penalties and injunctive relief prohibiting these types of illegal practices going forward.” The case is pending.
  • In 2006 Donald Trump and the Los Angeles developer Irongate announced plans for a luxury condominium  and hotel project in North Baja, Mexico, south of San Diego. Two years later, the San Diego Union-Tribune reported that the project still had not received all of its required permits and was falling behind schedule. In 2009, as the delayed continued, Trump removed his name from the project, which soon failed. Purchasers sued Trump, saying they were misled into thinking they were buying into a Trump development rather than one that simply licensed his name. In 2013 Trump reached a settlement with the plaintiffs; the details were not disclosed.
  • After dealers at the Trump Plaza voted overwhelmingly to join the United Auto Workers union in 2007, the management of the casino filed a challenge with the National Labor Relations Board. The UAW called the move an effort to delay collective bargaining. The stance of Trump management may have been a factor in the UAW’s narrow loss in a subsequent representation election at the Trump Marina. The vote at Trump Plaza was certified, but the UAW had difficulty negotiating a contract, even after the NLRB ordered the company to bargain in good faith. It appears that Trump managers dragged out the legal dispute until the Trump Plaza closed in 2014. In December 2015 the management of the non-casino Trump International Hotel Las Vegas challenged a vote by workers to be represented by the Culinary Workers Union Local 226 and the Bartenders Union Local 165 (photo). A hearing officer for the NLRB rejected the challenge, and the unions were certified in April 2016.
  • In April 2016 the U.S. Consumer Product Safety Commission announced that about 20,000 Ivanka Trump-branded women’s scarves made in China were being recalled because they did not meet federal flammability standards for clothing textiles, thus posing a burn risk. The importer of the scarves, GBG Accessories, has a licensing arrangement with Ivanka Trump, daughter of Donald Trump and an executive at the Trump Organization.

The full Corporate Rap Sheet on the Trump Organization can be found here.

The 2015 Corporate Rap Sheet

Thursday, December 17th, 2015

gotojailThe ongoing corporate crime wave showed no signs of abating in 2015. BP paid a record $20 billion to settle the remaining civil charges relating to the Deepwater Horizon disaster (on top of the $4 billion in previous criminal penalties), and Volkswagen is facing perhaps even greater liability in connection with its scheme to evade emission standards.

Other automakers and suppliers were hit with large penalties for safety violations, including a $900 million fine (and deferred criminal prosecution) for General Motors, a record civil penalty of $200 million for Japanese airbag maker Takata, penalties of $105 million and $70 million for Fiat Chrysler, and $70 million for Honda.

Major banks continued to pay large penalties to resolve a variety of legal entanglements. Five banks (Citigroup, JPMorgan Chase, Barclays, Royal Bank of Scotland and UBS) had to pay a total of $2.5 billion to the Justice Department and $1.8 billion to the Federal Reserve in connection with charges that they conspired to manipulate foreign exchange markets. The DOJ case was unusual in that the banks had to enter guilty pleas, but it is unclear that this hampered their ability to conduct business as usual.

Anadarko Petroleum agreed to pay more than $5 billion to resolve charges relating to toxic dumping by Kerr-McGee, which was acquired by Anadarko in 2006. In another major environmental case, fertilizer company Mosaic agreed to resolve hazardous waste allegations at eight facilities by creating a $630 million trust fund and spending $170 million on mitigation projects.

These examples and the additional ones below were assembled with the help of Violation Tracker, the new database of corporate misconduct my colleagues and I at the Corporate Research Project of Good Jobs First introduced this year. The database currently covers environmental, health and safety cases from 13 federal agencies, but we will be adding other violation categories in 2016.

Deceptive financial practices. The Consumer Financial Protection Bureau fined Citibank $700 million for the deceptive marketing of credit card add-on products.

Cheating depositors. Citizens Bank was fined $18.5 million by the CFPB for pocketing the difference when customers mistakenly filled out deposit slips for amounts lower than the sums actually transferred.

Overcharging customers. An investigation by officials in New York City found that pre-packaged products at Whole Foods had mislabeled weights, resulting in grossly inflated unit prices.

Food contamination. In a rare financial penalty in a food safety case, a subsidiary of ConAgra was fined $11.2 million for distributing salmonella-tainted peanut butter.

Adulterated medication. Johnson & Johnson subsidiary McNeill-PPC entered a guilty plea and paid $25 million in fines and forfeiture in connection with charges that it sold adulterated children’s over-the-counter medications.

Illegal marketing. Sanofi subsidiary Genzyme Corporation entered into a deferred prosecution agreement and paid a penalty of $32.6 million in connection with charges that it promoted its Seprafilm devices for uses not approved as safe by the Food and Drug Administration.

Failure to report safety defects. Among the companies hit this year with civil penalties by the Consumer Product Safety Commission for failing to promptly report safety hazards were: General Electric ($3.5 million fine), Office Depot ($3.4 million) and LG Electronics ($1.8 million).

Workplace hazards. Tuna producer Bumble Bee agreed to pay $6 million to settle state charges that it willfully violated worker safety rules in connection with the death of an employee who was trapped in an industrial oven at the company’s plant in Southern California.

Sanctions violations. Deutsche Bank was fined $258 million for violations in connection with transactions on behalf of countries (such as Iran and Syria) and entities subject to U.S. economic sanctions.

Air pollution. Glass manufacturer Guardian Industries settled Clean Air Act violations brought by the EPA by agreeing to spend $70 million on new emission controls.

Ocean dumping. An Italian company called Carbofin was hit with a $2.75 million criminal fine for falsifying its records to hide the fact that it was using a device known as a “magic hose” to dispose of sludge, waste oil and oil-contaminated bilge water directly into the sea rather than using required pollution prevention equipment.

Climate denial. The New York Attorney General is investigating whether Exxon Mobil deliberately deceived shareholders and the public about the risks of climate change.

False claims. Millennium Health agreed to pay $256 million to resolve allegations that it billed Medicare, Medicaid and other federal health programs for unnecessary tests.

Illegal lobbying. Lockheed Martin paid $4.7 million to settle charges that it illegally used government money to lobby federal officials for an extension of its contract to run the Sandia nuclear weapons lab.

Price-fixing. German auto parts maker Robert Bosch was fined $57.8 million after pleading guilty to Justice Department charges of conspiring to fix prices and rig bids for spark plugs, oxygen sensors and starter motors sold to automakers in the United States and elsewhere.

Foreign bribery. Goodyear Tire & Rubber paid $16 million to resolve Securities and Exchange Commission allegations that company subsidiaries paid bribes to obtain sales in Kenya and Angola.

Wage theft. Oilfield services company Halliburton paid $18 million to resolve Labor Department allegations that it improperly categorized more than 1,000 workers to deny them overtime pay.

Violation Tracker and Toy Safety

Thursday, November 19th, 2015

The holidays are nearly upon us, and that means that millions of parents are facing the annual ordeal of shopping for toys. Along with designating children as naughty or nice, shoppers may want to pay attention to the track record of the companies producing and selling the items that show up on wish lists.

Violation Tracker, the new database of corporate misconduct, can help identify which companies have the worst safety records when it comes to toys and other items for children. Among the agencies from which the database has collected environmental, health and safety enforcement data is the Consumer Product Safety Commission, which pays close attention to hazards in items used by young people.

The CPSC maintains a database of voluntary recalls and sends letters to companies asking for corrective action, but it also imposes civil penalties in cases of egregious violations. The following list, taken from Violation Tracker, shows the companies with the largest CPSC penalties since the beginning of 2010.

Techtronic Industries, headquartered in Hong Kong, was, via its subsidiary One World Technologies, fined $4.3 million for violating CPSC reporting rules in connection with its Baja Motorsports mini-bikes and go-carts. The CPSC said that gas caps on the vehicle could leak or detach from the fuel tank, posing fire and burn hazards, and that sticky throttles could result in sudden acceleration.

Discount clothing retailer Ross Stores was fined $3.9 million in connection with the sale of thousands of children’s garments with neck or waist drawstrings that posed a strangulation risk. The CPSC had previously determined that such garments created a “substantial product hazard.”

Phil & Teds, a manufacturer of strollers and related baby gear, was fined $3.5 million for failing to report that its MeToo clip-on high chair could detach from a table and cause an infant to fall to the ground.  If only one side of the high chair detached, a child’s fingers could become crushed between the bar and the clamping mechanism, resulting in amputation. The company had received multiple reports of such accidents, including two amputation cases, but did not report them to the CPSC in a timely manner.

The American subsidiary of Japan’s Daiso Industries was fined $2.05 million and had to stop importing children’s products and toys into the United States. The CPSC had determined that the company was distributing and selling toys with illegal levels of lead content, lead paint and phthalates; toys intended for young children containing small parts that posed choking hazards; and products that lacked required warning labels.

Michigan-based retailer Meijer was fined $2 million for selling a dozen different recalled consumer products, most of which were for children. Among these were SlingRider Baby Slings (risk of suffocation), Refreshing Rings Infant Teethers/Rattles imported by Sassy (ingestion hazard), and the Harmony High Chair manufactured by Graco Children’s Products (fall hazard).

Burlington Coat Factory, owned by Bain Capital, was fined $1.5 million for the same violation as Ross Stores: selling children’s clothing with drawstrings deemed to be a strangulation hazard. Among the garments were hooded jackets and sweatshirts involved in a 2010 recall announced by the CPSC in cooperation with the company. Macy’s was fined $750,000 in another drawstring case.

Spin Master Inc. was fined $1.3 million for failing to reports hazards associated with its product called Aqua Dots, a children’s craft kit and toy that consisted of tiny beads of different colors that stuck together when sprayed with water. According to the CPSC, Spin Master had received reports that children (and a dog) had become ill and received emergency medical treatment after ingesting Aqua Dots, which contained a substance that could damage kidneys and the central nervous system.

Henry Gordy International, a subsidiary of Exx Inc., was fined $1.1 million for failing to report that its toy dart gun sets contained parts that could be inhaled into a child’s throat and cause suffocation. The CPSC also alleged that the company made a material misrepresentation to agency staffers during their investigation.

Violation Tracker data currently goes back only to the beginning of 2010, but toy safety problems began well before that. One perennial problem was the sale of items containing lead or lead paint, especially by the dollar store chains. In 2009 Dollar General was fined $100,00 and Family Dollar (now owned by Dollar Tree) $75,000 as part of a CPSC crackdown on the dangerous practice.

Santa Claus may put lumps of coal in some children’s stockings, but unscrupulous corporations can do a lot worse.

Hiding Hazards

Thursday, May 7th, 2015

blindersWhen Stanley Works and Black & Decker announced merger plans in late 2009, the two firms made sure to describe themselves as producers of quality tools while claiming that their marriage would produce “significant cost synergies.” More than five years later, the combined company, Stanley Black & Decker, seems to be making progress on costs (and profits), but new revelations put into question its commitment to quality.

The federal Consumer Product Safety Commission and the Justice Department recently announced that the firm’s Black & Decker unit would pay $1.575 million to settle allegations that it “knowingly violated federal reporting requirements with respect to cordless electric lawnmowers that started spontaneously and that continued to operate after consumers released the lawnmower handles and remove the safety keys.” In other words, Black & Decker has been selling products with uncontrollable spinning blades.

While CPSC press releases are normally neutral in tone, the statement on Black & Decker was unusually harsh. Agency chairman Elliott Kaye was quoted as saying: “Black & Decker’s persistent inability to follow these vital product safety reporting laws calls into question their commitment to the safety of their customers.”

What had apparently ticked off Kaye was that this was the fifth time the commission had cited Black & Decker for reporting violations. The previous case was in 2011, when the company had to pay $960,000 to settle allegations that it failed to report a defect in one of its Grasshog trimmer/edgers that could cause parts to loosen and become projectiles.

Most CPSC civil penalties are brought against companies that fail to report defects and accidents in a timely manner: “That means within 24 hours, not months or years as in Black & Decker’s case,” Kaye stated with obvious annoyance. Assistant Attorney General Benjamin Mizer was also blunt: “Not for the first time, Black & Decker held back critical information from the public about the safety of one of its products.” The company was said to have received more than 100 consumer complaints and accident reports from lawnmower customers over a period of years before it decided to share the information and recall the products.

Black & Decker is not the only large “quality” manufacturer that has been accused of essentially covering up dangerous defects in its products. Earlier this year, General Electric had to pay the CPSC $3.5 million — one of the largest civil penalties in the commission’s history — to settle allegations that it failed to report “an unreasonable risk of serious injury” relating to some of its ranges containing connectors that could overheat and cause fires.

Large companies these days profess to be committed to transparency and accountability, but some are still inclined to hide their dirty (and dangerous) secrets.


New in Corporate Rap Sheets: Barrick Gold and its environmental and human rights controversies on five continents.

Real Abuses, Sham Reforms

Thursday, July 17th, 2014

bosses_900It is now a full century since the Progressive Era ended some of the worst abuses of concentrated economic power. This year is the 100th anniversary of the Clayton Act and the Federal Trade Commission Act.   It is 103 years since the dissolution of the Standard Oil trust, 108 years since the passage of the Pure Food and Drug Act.

Yet even a casual reading of the business news these days suggests that we live in an economy disturbingly similar to the age of the robber barons.

Back then, the trusts shifted their incorporation to states such as New Jersey and Delaware that were willing to rewrite their business laws to accommodate the needs of oligopolies. Today large corporations are reincorporating themselves in foreign tax havens to dodge taxes. The practice is reaching epidemic proportions in the pharmaceutical industry.

Back then, unscrupulous drug companies and meatpackers sold adulterated products that could sicken or even kill their customers. Today General Motors is caught in a growing scandal about ignition switch defects that resulted in at least 13 deaths. The news about the automaker’s recklessness grows worse by the day, with the New York Times now reporting that company withheld information from federal regulators about the cause of fatal accidents.

Back then, wheeler-dealers such as James Fisk peddled dubious securities in companies that later collapsed, impoverishing investors. Today we’re still trying to get over the impact of the toxic mortgage-backed securities that the big banks packaged and sold during the housing bubble. Just the other day, Citigroup became the latest of those banks to settle charges brought by the Justice Department. Yet the $7 billion extracted from Citi, like the amounts obtained from the other banks, will cause little pain for the mammoth institution and will thus do little to deter future misconduct. The provision in the settlement for “consumer relief” is too little, too late.

And, of course, back then, the trusts got to be trusts by eliminating their competition. Today concentration is alive and well. Recently, the second largest U.S. tobacco company, Reynolds American, proposed a takeover of Lorillard, the number three in the industry. If this deal goes through, it won’t be long before Reynolds tries to marry Altria/Philip Morris, putting virtually the entire carcinogenic industry in the hands of one player, the way it was a century ago during the reign of the American Tobacco Company, aka the Tobacco Trust.

The movement toward a Media Trust just accelerated with the revelation that Rupert Murdoch’s 21st Century Fox, already huge, is seeking to take over Time Warner. The deal would put a mind-boggling array of entertainment properties under one roof. Murdoch offered to sell off Time Warner’s CNN – a meaningless concession given that the news network has struggled to survive against Murdoch’s despicable Fox News. Murdoch’s move comes as another media octopus, Comcast, is awaiting approval for its deal to take over Time Warner’s previously spun off cable business.

While we have all too many indications of a new Gilded Age, still scarce are signs of an effective response. We’ve got a good amount of muckraking journalism and a fair number of people (and even a few elected officials) who calls themselves progressives. Yet somehow this does not add up to a movement that can take a real bite out of corporate crime.

Part of the problem is that many of those in power professing progressive values are not serious about challenging corporate power. Some historians argue that the original Progressives were, like the New Dealers who came later, mainly concerned with saving capitalism from itself rather than changing the system. Yet they still managed to impose significant restrictions on big business through antitrust and other forms of regulation.

Today’s progressive officials often seem to want nothing more than to give the appearance of reform. That’s the story at the Justice Department, which has raised settlement levels and extracted some token guilty pleas but still allows corporations to buy their way out of serious legal jeopardy. Meanwhile, antitrust enforcement is tepid, and as the GM case increasingly shows, regulation is often a joke.

A resurgence of robber-baron behavior requires real, not sham reform.

Still Unsafe At Any Speed

Thursday, March 20th, 2014

unsafeIn a resounding affirmation of the principle that the cover-up is worse than the crime, federal prosecutors emphasized Toyota’s deceptive practices in announcing that the carmaker will pay $1.2 billion to settle a criminal charge relating to the sudden acceleration controversy. The Justice Department press release uses just about every synonym for dishonesty in describing Toyota’s misdeeds.

“The company admits that it misled U.S. consumers by concealing and making deceptive statements,” the release states, adding that the company “gave inaccurate facts to Members of Congress.” Later it says that Toyota “was hiding” critical information from federal regulators and that it made public a “false timeline.” U.S. Attorney Preet Bharara alleges that the company “cared more about savings than safety and more about its own brand and bottom line than the truth.”

Such strong talk is gratifying, but Toyota, like so many other corporate miscreants, was offered a deferred prosecution agreement in place of an outright conviction. This was made somewhat more palatable by the provision in the agreement that bars the company from deducting the penalty amount from its taxes.

Prosecutors used the announcement to convey a thinly veiled warning to General Motors that it too will have to pay a substantial amount to resolve its own legal entanglements on safety issues. Bharara declared: “Companies that make inherently dangerous products must be maximally transparent, not two-faced. That is why we have undertaken this landmark enforcement action. And the entire auto industry should take notice.”

GM’s announcement several weeks ago that it was recalling hundreds of thousands of its small cars because of an ignition switch problem mushroomed into a major scandal as information came to light suggesting that the company had dragged its feet in dealing with the issue, even though it was linked to 13 deaths. Federal regulators, which had received several hundred complaints relating to the problem, were also criticized for being slow to act. Both Congress and the Justice Department have launched investigations of the matter.

In recent days, GM has tried to spin the situation to its advantage, with CEO Mary Barra putting herself out front and making extravagant promises that such a safety lapse would never happen again. Living up to such a commitment will be even more difficult for GM than it was for Toyota, which used similar p.r. stratagems during earlier phases of its controversy and ultimately failed.

After all, the history of GM is filled with examples of irresponsibility on safety issues. It is now 50 years since Ralph Nader exposed the defects of GM’s Corvair, prompting the company to spy on him and thus inadvertently give a boost to the nascent corporate accountability movement.

Later, GM failed to act when presented with reports that poorly sealed panels on some of its cars could cause dangerous levels of carbon monoxide to leak into the passenger compartment. After some deaths were attributed to the problem in the late 1960s, the company finally recalled 2.5 million cars to repair the defect.

During the 1970s and 1980s the company was frequently criticized by environmentalists and consumer advocates for its efforts to weaken federal rules on emissions and for its resistance to regulations requiring passive restraints such as airbags in all automobiles. In 1990 GM finally agreed to put air bags in all of its U.S. cars starting in 1995.

In 1992 the New York Times published an investigation concluding that GM had recognized as early as 1983 that its pickup trucks with side-mounted gas tanks were highly dangerous but took no action until 1988, even then saying the change was for design rather than safety reasons. During that period, more than 300 people were killed in collisions in which the tanks exploded.

GM resisted recalling trucks with the side-mounted tanks even after the federal government asked it to do so. Instead, it launched a campaign against safety advocates and plaintiffs’ lawyers. In 1994 the company reached a settlement with the U.S. Transportation Department under which the federal government gave up on its effort to get GM to recall the trucks in exchange for which the company agreed to contribute $51 million to auto safety programs. GM still faced a series of personal injury lawsuits in connection with the exploding gas tanks, including one in which a Los Angeles jury awarded victims $4.9 billion in damages. GM appealed, and the case was later settled out of court for an undisclosed amount.

It remains to be seen how much GM has to pay in fines and settlements for its current ignition switch scandal, but it will take a lot of punishment to get a company with such a long history of safety lapses to change its ways for good.


New in CORPORATE RAP SHEETS: a profile of Yum Brands and its controversies relating to wage & hour violations, sanitation lapses and animal cruelty.

The 2013 Corporate Rap Sheet

Thursday, December 19th, 2013

Monopoly_Go_Directly_To_Jail-T-linkThe ongoing corporate crime wave showed no signs of abating in 2013. Large companies continued to break the law, violate regulations and otherwise misbehave at a high rate. Whatever lip service the business world gives to corporate social responsibility tends to be overwhelmed by bad acts.

Continuing the trend of recent years, 2013 saw an escalation of the amounts that companies have to pay, especially in the United States, to get themselves out of their legal entanglements. In November JPMorgan Chase set a record with its $13 billion settlement with the U.S. Department of Justice and other state and local agencies on charges relating to the sale of toxic mortgage-backed securities. JPMorgan’s legal problems are not over. There have recently been reports that it may face criminal charges and pay $2 billion in penalties in connection with charges that it turned a blind eye to the Ponzi scheme being run by Bernard Madoff while it was serving as his primary bank.

Other banks have also been shelling out large sums to resolve disputes over the sale of toxic securities in the run-up to the financial crisis. Much of the money has gone to settlements with mortgage agencies Fannie Mae and Freddie Mac. Bank of America alone agreed to pay out $10.3 billion ($3.6 billion in cash and $6.75 billion in mortgage repurchases) to Fannie.

Here are some of the year’s other highlights (or lowlights):

FORECLOSURE ABUSES. In January, ten mortgage servicing companies–including Bank of America, Citibank and JPMorgan Chase–agreed to an $8.5 billion settlement to resolve allegations by federal regulators relating to foreclosure abuses.

LIBOR MANIPULATION. In February, U.S. and UK regulators announced that the Royal Bank of Scotland would pay a total of $612 million to resolve allegations relating to rigging of the LIBOR interest rate index. In December, the European Union fined RBS and five other banks a total of $2.3 billion in connection with LIBOR manipulation.

ILLEGAL MARKETING. In November, the Justice Department announced that Johnson & Johnson would pay more than $2.2 billion to settle criminal and civil allegations that it improperly marketed the anti-psychotic drug Risperdal for unapproved use by older adults, children and people with development disabilities.

SALE OF DEFECTIVE MEDICAL IMPLANTS. Also in November, Johnson & Johnson agreed to pay more than $2 billion to settle thousands of lawsuits charging that the company sold defective hip implants, causing many individuals to suffer severe pain and injury from metallic debris generated by the faulty devices.

INSIDER TRADING. In March, the SEC announced that an affiliate of hedge fund giant SAC Capital Advisors had agreed to pay $602 million to settle SEC charges that it participated in an insider trading scheme involving a clinical trial for an Alzheimer’s drug being jointly developed by two pharmaceutical companies. At the same time, a second SAC affiliate agreed to pay $14 million to settle another insider trading case. Later, SAC agreed to pay $1.2 billion to settle related criminal and civil insider trading charges.

PRICE-FIXING. In July, German officials fined steelmaker ThyssenKrupp the equivalent of about $115 million for its role in a price-fixing cartel. In September, the U.S. Justice Department announced that nine Japanese automotive suppliers had agreed to plead guilty to price-fixing conspiracy charges and pay more than $740 million in criminal fines, with the largest amount ($195 million) to be paid by Hitachi Automotive Systems.

MANIPULATION OF ENERGY PRICES. In July, the Federal Energy Regulatory Commission ordered Barclays and four of its traders to pay $453 million in civil penalties for manipulating electricity prices in California and other western U.S. markets during a two-year period beginning in late 2006.

BRIBERY. In May, the Justice Department announced that the French oil company Total had agreed to pay $398 million to settle charges that it violated the Foreign Corrupt Practices Act by paying bribes to officials in Iran.

VIOLATION OF DRUG SAFETY RULES. In May, DOJ announced that generic drug maker Ranbaxy USA Inc., a subsidiary of the Indian company Ranbaxy Laboratories, had pleaded guilty to felony charges relating to the manufacture and distribution of adulterated drugs and would pay $500 million in fines.

VIOLATION OF RULES ON THE SALE OF NARCOTICS. In June, the U.S. Drug Enforcement Administration announced that the giant Walgreen pharmacy chain would pay a record $80 million in civil penalties to resolve charges that it failed to properly control the sales of narcotic painkillers at some of its stores.

DEALINGS WITH ENTITIES SUBJECT TO SANCTIONS. In June, New York officials announced that Bank of Tokyo Mitsubishi-UFJ had agreed to pay $250 million to settle allegations that it violated state banking laws by engaging in transactions with entities from countries such as Iran subject to sanctions.

LABOR LAW VIOLATIONS. In November, the National Labor Relations Board found that Wal-Mart had illegally disciplined and fired workers involved in protests over the company’s labor practices. A Wal-Mart spokesperson was found to have unlawfully threatened employees who were considering taking part in the actions.

CLEAN WATER ACT VIOLATIONS. In May, the Environmental Protection Agency announced that Wal-Mart had pleaded guilty to charges that it illegally disposed of hazardous materials at its stores across the country. The company had to pay $81.6 million in civil and criminal fines.

HEALTH AND SAFETY CODE VIOLATIONS. In August, Chevron pleaded no contest and agreed to pay $2 million to settle charges that it violated state health and safety regulations in connection with a fire at its refinery in Richmond, California that sent thousands of people to hospital for treatment of respiratory problems.

DELAYS IN RECALLING UNSAFE VEHICLES. In August, Ford Motor was fined $17.4 million by the National Highway Traffic Safety Administration for taking too long to recall unsafe sport utility vehicles.

PRIVACY VIOLATIONS. In November, Google agreed to pay $17 million to 37 states and the District of Columbia to settle allegations that the company violated privacy laws by tracking online activity of individuals without their knowledge.

Note: For fuller dossiers on many of the companies listed here, see my Corporate Rap Sheets.

Auto Safety Lapses Evoke the Bad Old Days

Thursday, August 22nd, 2013

Ford_pays__17_4_million_to_settle_recall_801160000_20130801222604_640_480The Big Three carmakers, once considered the epitome of corporate irresponsibility, have been viewed in a more favorable light in recent years.

After their near-death experience of a few years back—during which two of them, General Motors and Chrysler, went bankrupt and had to be rescued by the federal government—the consensus seems to be that they have cleaned up their act. They are also being rewarded in the marketplace, where Detroit’s sales have been booming.

It is true that the Big Three are no longer exclusively focused on gas-guzzling SUVs or death traps such as the Pinto. GM is promoting its electric Volt rather than dodging Michael Moore. Yet there have been some indications recently that the giant automakers may be slipping back into old habits.

Recently, the National Highway Traffic Safety Administration fined Ford Motor $17.35 million for taking too long to recall more than 400,000 SUVs that were susceptible to sudden acceleration, a problem that was linked to at least one death and nine injuries in crashes.

If you hadn’t heard about this case, it may have been because NHTSA decided not to issue a press release about the penalty. Word got out and the matter received modest coverage in a few newspapers. It was only the Corporate Crime Reporter that gave the story the prominence it deserved: front-page treatment.

The Ford penalty came a couple of months after Chrysler took the unusual step of refusing to acquiesce to NHTSA’s request that it recall 2.7 million Jeeps the agency contends are defective and prone to fires in the event of rear-impact collisions. Chrysler, now controlled by Italy’s Fiat, later relented but applied the recall to only 1.6 million vehicles. Moreover, its fix for the problem—installing trailer hitches on the vehicles—was dismissed as inadequate by the watchdog Center for Auto Safety, had been responsible for bringing the defect to light.

One would think that Ford, in particular, would be more diligent on safety issues, given the hard lessons of its past. This was the company, after all, that produced those ill-fated Pintos, whose unshielded fuel tanks near the back of the fragile compacts caused horrific explosions in rear-end collisions. Evidence later emerged that Ford was aware of the vulnerability of the gas tank, but went ahead with production of the car. In one civil case a jury awarded $125 million in damages (reduced by the judge to $3.5 million).

Ford was also embarrassed by reports that many of its cars with automatic transmissions produced during the 1970s had a tendency to slip from park into reverse. In 1981 federal regulators forced the company to send warning notices to purchasers of some 23 million vehicles about the problem. Ford may not have been happy about this, but it was a lot less onerous than the massive recall of the cars that had been urged by public interest groups.

In 1996 Ford gave in to public pressure and agreed to pay for replacing ignition switches on more than 8 million cars and trucks that were prone to short circuits that could cause fires. In 1998 State Farm, the largest auto insurer in the United States, sued Ford, charging that the company withheld information about the potential fire hazard from federal regulators and the public.

In 1999 NHTSA hit Ford with a $425,000 fine in the matter. An investigation later revealed evidence that Ford knew about ignition defects, which also sometimes caused vehicles to stall out while making turns, but remained silent. A California judge then ordered the recall of an additional two million vehicles—the first time a U.S. court had ever taken such an action against automaker.

In 2000 Bridgestone/Firestone announced a massive recall of tires, most of which had been installed on Ford sport-utility vehicles and light trucks. Ford alleged that the tire company had known of the defects for several years. Information later came out suggesting that Ford, as well as Bridgestone/Firestone, had known of the tire defects long before the recalls were announced.

An  investigation by the New York Times found that in the 1980s Ford had taken a number of design shortcuts that raised the risk of rollover accidents in what would become its wildly popular Explorer SUV.

What a track record. Let’s hope we are not returning to those bad old days of automaker recklessness.


Note: The latest addition to my CORPORATE RAP SHEETS is a dossier on Monsanto, the bully of agricultural biotechnology. Read it here.

Does the Debt Deal Make You Sick?

Thursday, August 4th, 2011

Sinking stock markets are not the only sign that the eleventh-hour debt ceiling deal was the wrong solution to the wrong problem.

The announcement by Cargill that it is recalling an astounding 36 million pounds of salmonella-tainted ground turkey products is a perfect symbol of the hazards of shrinking government.

During the debt ceiling debate, Democrats frequently portrayed themselves as defenders of social insurance programs such as Medicare and Social Security. That’s all well and good, but their willingness to go along with substantial cuts to the budgets of federal agencies can also have serious consequences.

Among those agencies are the Food and Drug Administration, and the Food Safety and Inspection Service (FSIS) of the Department of Agriculture. FSIS is responsible for protecting the public from illness caused by tainted meat, poultry and egg products. FDA oversees safety issues for other food groups.

These agencies should be sacred cows, so to speak, but many of the anti-government yahoos now in Congress seem to view food safety regulations as an encroachment on the free market and personal liberty. Even before the new debt deal, this function was being targeted.

Last year, in the wake of incidents involving widespread contamination of eggs, peanut butter and spinach, Congress tightened food safety regulation and gave more authority to the FDA. The agency was finally given the power to issue mandatory recalls rather than depending on producers to withdraw dangerous products voluntarily. As soon as the law passed, rightwingers were moving to undermine it.

In December, Rep. Jack Kingston of Georgia, then the ranking member and now the chair of the appropriations committee overseeing the FDA, said that the number of food-borne illnesses in the country did not justify the cost of the new law. Kingston, whose website bio brags that he has “fought to lower taxes, balance the budget, and reduce government interference in our lives,” criticized the legislation as “overreach” and vowed to cut food safety spending to make it difficult to implement the new rules.

Kingston and his colleagues made good on that threat in June, when the Republican majority in the House voted to cut $87 million from the FDA budget and $35 million from FSIS.

The rightwing effort to eviscerate federal food regulation is justified with the assumption that corporate food producers are willing and able to monitor themselves. This assumption perseveres despite the dismal track record of the industry.

Take Cargill. Its current turkey problem is far from an anomaly for the company. Over the past decade or so, it has been involved in a series of recalls in its meat and poultry operations such as the following:

  • August 2010: recalled 8,500 pounds of ground beef after an outbreak of a rare strain of E.coli bacteria was traced to a company plant in Pennsylvania.
  • December 2009: subsidiary Beef Packers Inc. recalled 22,000 pounds of ground beef after an investigation of salmonella was traced to a company distribution center in Arizona.
  • October 2009: recalled 5,500 pounds of beef tongues because the tonsils may not have been completely removed, leaving in tissue that raises the risk of “mad cow” disease.
  • November 2007: recalled more than 1 million pounds of ground beef suspected of being tainted with E.coli.
  • April 2004: subsidiary Excel recalled 45,000 pounds of ground beef suspected of being tainted with E.coli.
  • October 2002: recalled 2.8 million pounds of ground beef suspected of being tainted with E.coli.
  • December 2000: recalled more than 16 million pounds of packaged poultry linked to an outbreak of listeria.

And this is the dismal record of an industry leader with more than $100 billion in annual revenues, not a fly-by-night operator without the resources to maintain decent standards in its operations.

Rep. Kingston likes to declare that the U.S. food supply is “99.99 percent safe.” That apparently fabricated figure does not change the fact that, according to the Centers for Disease Control, 48 million Americans are sickened by tainted food each year, of whom 128,000 are hospitalized and 3,000 die.

Debates over the proper levels of federal spending and regulation are typically framed in abstractions, but they can become a matter of survival. When Patrick Henry said “give me liberty or give me death,” I doubt he meant he would give his life for the right of a giant corporation to sell contaminated food without government interference.