Archive for March, 2016

Trump and Workplace Safety

Thursday, March 31st, 2016

trump_sohoLike the other Republican candidates, Donald Trump bashes federal regulation of business. He’s called the Environmental Protection Agency “a disgrace,” saying it is “making it impossible” for companies to function. Yet it’s difficult to find any statements by Trump on another favorite regulatory whipping boy for conservatives: the Occupational Safety and Health Administration.

Trump’s silence on the subject is all the more significant given that in his business career he has had personal experience with workplace safety issues. Those dealings have not always put him in the best light.

The biggest controversy he has faced in this area involves the Trump SoHo New York. During construction of the high-rise hotel in January 2008, a portion of the top two floors buckled while concrete was being poured, sending one worker, Yurly Yanchytsky, plummeting 42 stories to his death and injuring three others, one of whom survived only because he fell into protective netting (photo).

All of the workers were employees of DiFama Concrete, a subcontractor which was charged by OSHA with various violations of regulations relating to cast-in-place concrete and fall protection. The agency initially imposed 10 violations with total penalties of $104,000. The company negotiated those down to five violations and penalties of $44,000.

This was not the first blemish on DiFama’s safety record. According to the OSHA inspection database, during the previous four years the company had been cited by OSHA for about a dozen serious violations and initially penalized $97,000 (negotiated down to about $67,000). One of those cases also involved a fatality. DiFama, by the way, was founded by Joseph Fama, who had been identified as an associate of the Lucchese organized crime family. In 2005 he divested his interest in the firm because he was being imprisoned after pleading guilty to federal racketeering and extortion charges.

Trump initially distanced himself from the accident, saying that he had simply licensed his name to the project. Yet the New York Daily News reported last year that a top official at Bovis Lend Lease, the general contractor for the project, stated in a deposition that Trump had personally reviewed the agreements with the subcontractors, including the one with DiFama. The Trump SoHo is currently listed on the Trump Organization website as part of its real estate portfolio and its hotel collection.

The SoHo hotel is not the only Trump-related property to have had problems with workplace safety. The OSHA inspection database lists other violations at places such as the Trump International Hotel & Tower Las Vegas. Undoubtedly, there are many more listed under the names of the contractors and subcontractors hired on the various projects. Inspection records from the 1980s show numerous violations at the Atlantic City casinos Trump owned at the time but subsequently had to sell.

Trump has boasted that he would be “the greatest jobs president that God has ever created.” It remains unclear how important it is to him that those jobs be free from undue safety and health risks.

Trump: The Art of the Tax Deal

Thursday, March 24th, 2016

Donald Trump is famous for making high-profile deals using other people’s money. Sometimes those other people are not his business partners or lenders but rather the taxpayers. For a figure who is seen to epitomize unfettered entrepreneurship, he has been relentless in his pursuit of government financial assistance.

Trump’s first major  project, the transformation of the old Commodore Hotel next to New York’s Grand Central Station into a new 1,400-room Grand Hyatt, established the pattern. Trump arranged to purchase the property from the bankrupt Penn Central railroad and sell it for $1 to the New York State Urban Development Corporation, which agreed to award Trump a 99-year lease under which he would make gradually escalating payments in lieu of property taxes. The resulting $4 million per year tax abatement was criticized as excessive but was approved by the Board of Estimate in 1976. The deal also provided for profit sharing with the city. The total value of the abatement has been estimated from $45 million (Wall Street Journal, January 14, 1982) to $56 million.

In 1981 the New York Department of Housing Preservation and Development denied Trump’s request for a ten-year property tax abatement worth up $20 million on his project that replaced the old Bonwit Teller department store building with the glitzy Trump Tower. The decision came amid an effort by the city to rein in its abatement program, especially with regard to luxury projects. Trump, who in order to qualify had to argue that the property was underutilized as of 1971, filed suit and got a state judge to overrule the city and allow the abatement.

A state appeals court reversed that decision, pointing out that in 1971 the Bonwit Teller store on the site had gross sales exceeding $30 million and thus was not underutilized. Trump did not give up. He appealed to the state’s highest court, which in 1982 ordered the city to reconsider the application.  When the city turned him down again, Trump went back to court and got a judge to order the city to grant the abatement.

Trump sought extensive tax breaks for his planned Television City mega-development on the Upper West Side of Manhattan that was designed to provide a new home for the NBC network, but in 1987 the city rejected the request. Mayor Ed Koch said: “Common sense does not allow me to give away the city’s Treasury to Donald Trump.” NBC decided to remain in Rockefeller Center.

Trump kept pushing for subsidies, and in 1993 he began withholding his tax payments to pressure officials to comply with his demands for tax breaks and state-backed financing. “I’ve always informed everyone that until such time that we get zoning and the economic development package together, to pay real-estate taxes would be foolish,” Trump told a New York Times reporter. A day later he said he had changed his mind and would pay the $4.4 million in back taxes he owed.

Trump later sought assistance for the project, renamed Riverside South, from the U.S. Department of Housing and Urban Development in the form of federal mortgage insurance, but he was rebuffed.

After Trump took over Washington’s Old Post Office Pavilion in 2012 to turn it into a luxury hotel, his company asked the DC government to forgo property taxes but it refused.

When Trump does not receive tax breaks he sometimes creates do-it-yourself subsidies by challenging the assessed value of his real estate holdings in order to lower his property tax bill. He has used this practice, which is employed by many other large corporations and property owners, in places such as Palm Beach. Trumped bragged that he got a great deal when he bought  the 118-room Mar-a-Lago mansion in 1986 for $10 million (but only $2,812 of his own money, according to a June 22, 1989 article in the Miami Herald), implying it was worth much more. But when Palm Beach County assessed the property at $11.5 million, Trump appealed, seeking an $81,000 reduction in his taxes. A judge ruled against him (UPI, September 28, 1989). Trump later challenged an increased assessment and got a $118,000 reduction for one year but not for the next (Palm Beach Post, December 9, 1992).

In 1990 Trump won an assessment fight with New York City concerning his then-undeveloped waterfront property on the Upper West Side. He gained a $1.2 million savings in his 1989 taxes (Newsday, July 6, 1990).

More recently, Trump has been seeking a 90 percent reduction in property taxes on his Trump National Golf Club in Westchester County, New York. Trump listed the club as having a value of more than $50 million in the financial disclosure document he released as part of his presidential bid, yet his assessment appeal claims it is worth only $1.4 million.

It’s not hard to guess which figure is used when Trump wants to justify his claim of being worth $10 billion.

Donald Trump Corporate Raider

Thursday, March 17th, 2016

“We’re not interested in being taken over by Donald Trump.” That message, which sounds like a pronouncement by today’s Republican Party establishment, was expressed three decades ago by the board of directors of Bally Manufacturing as it sought to thwart an unwanted bid by the developer. Bally managed to escape the clutches of Trump but it had to pay a significant price.

During his recent endorsement statement, Dr. Ben Carson declared that there are two Donald Trumps running for president, one of them “cerebral.” Whether that’s true or not, there’s evidence of two Donald Trumps in the business world.

The first Trump is the one constantly promoted by the candidate — the owner and operator (or at least licensor) of a string of supposedly wildly successful business all adorned with his name. Whether Trump University or Trump Steaks, these are also the focus of his critics.

Yet Trump has another track record that involves not the running of companies but rather that of profiting by launching takeover bids that do not lead to completed transactions. During the 1980s Trump was a junior member of a fraternity of wheeler dealers known as corporate raiders. (One of the more notable members of that group, Carl Icahn, has endorsed Trump’s presidential campaign).

Among Trump’s main forays was the one involving Bally. In November 1986 Trump disclosed that he had acquired a nearly 10 percent stake in the company, then the world’s largest producer of electronic games and an operator of casinos and health clubs. Right from the beginning, analysts thought Trump was simply looking to profit from a stock price increase resulting from the bid. They pointed to an earlier investment in Holiday Corp., which Trump sold for a $30 million profit after the disclosure of his 4.9 percent stake.

Bally took poison-pill evasive action and sued Trump for what it called an “unfair and coercive” takeover attempt that could jeopardize the company’s gaming licenses in Nevada and New Jersey (Businesswire, December 5, 1986 and Chicago Sun-Times, December 6, 1986).  Trump countersued for $1 billion. The war of words and court filings ended in February 1987, when Trump agreed to sell his shares back to Bally at a premium and netted a profit of more than $31 million.

Both Trump and Bally denied that the deal constituted “greenmail,” and the company prevailed in a shareholder lawsuit challenging the arrangement, but as Gwenda Blair wrote in her book on Trump, the stock transaction was “extremely close to greenmail.”

The Bally and Holiday Corp. bids were far from unique. Trump frequently bought stakes in companies — sometimes large enough to trigger an SEC reporting requirement, sometimes not — and ended up selling at a profit after short-lived takeover moves. On October 6, 1989 the Associated Press ran a story headlined TRUMP HAS A HISTORY OF TAKEOVER FEINTS that stated: “Like a high-stakes baccarat player at one of his Atlantic City casinos, real estate tycoon Donald Trump has made some profitable bluffs to help bankroll his ambitious and splashy acquisitions.” The piece noted several examples in which he “accumulated shares in the company – sometimes indicating he might be interested in mounting a buyout – and later sold all or some of his shares at a profit after the price rose on the ensuing takeover speculation or when another bidder emerged.”

In 1988 Trump had to pay a $750,000 civil penalty to settle allegations by the Federal Trade Commission and the Justice Department that he failed to comply with pre-merger notification requirements in some of these situations.

Given this track record, one has to ask which Donald Trump is mounting the current challenge to the Republican Party — the one who takes things over and runs them (sometimes well, sometimes not) or the one who engages in takeovers just to make a profit.

Trump’s behavior in the presidential race often leans toward the latter. His incessant bragging about business acumen has become routine, but the press conference in which he displayed an array of Trump-branded products reinforced the impression that he may view his campaign not so much as a political revolution as an open-ended marketing opportunity for his ventures.

One cannot help but wonder how things would be different if the Republican elite had responded to Trump the way Bally did — by buying him off rather than fighting him. It’s not clear what form greenmail would take in a presidential campaign, but Trump is always saying he is open to a good deal.

What was Done with the Banks’ $110 Billion?

Thursday, March 10th, 2016

Over the past few years, the Justice Department and state prosecutors have collected tens of billions of dollars in fines and settlements from large banks in a series of cases stemming from fraudulent practices in the period leading up to the financial meltdown of 2008.

Much of the debate on these cases has focused on whether the financial penalties, pursued in lieu of criminal charges against bank executives, were the most appropriate response to widespread bank misconduct. Or else the issue was whether the penalties, especially after accounting for the fact that they were in part tax-deductible, were big enough.

The Wall Street Journal has just published a front-page story addressing yet another facet: what was done with the money, which totaled some $110 billion in cases relating to toxic mortgage-backed securities, foreclosure abuses and related issues. The largest of the cases involved nearly $17 billion from Bank of America in 2014.

Roughly half of the overall total stayed with the federal government, with little disclosure of how it is being used. It appears that most of the roughly $50 billion has simply gone into the Treasury and was comingled with other federal funds.

The Journal states: “Bank executives grumble privately about the opaque process and are critical the government didn’t ensure more money went to housing-related issues.” Opinions of the culprits should not count for much in this discussion. The fact that the Journal cites them adds to the suspicion that paper is in some way trying to discredit the feds for their handling of the cases.

That posture is more explicit when it comes to the share of the money that ended up with the states. The Journal implies there is something wrong with New York’s decision to use some of its settlement funds to replace the Tappan Zee Bridge north of New York City and to provide high-speed internet access in rural communities — or the decision of other states to direct settlement funds into state pension funds. One can disagree with the particular uses, but they are all valid public purposes.

After devoting most of the article to these imaginary scandals, the Journal finally gets to what is really the most important issue: what the banks themselves are doing with the roughly $45 billion of the total that was supposed to be devoted to consumer relief. It’s important to realize that the banks were not required to simply distribute these funds to abused customers in the form of reparations (which might have been a good idea).

Instead, the banks get credit toward the consumer relief settlement portions ($7 billion in the case of BofA) when they modify existing mortgages or make new loans to low-income consumers who lost their homes to foreclosure. In other words, they are being credited for restoring loans to more reasonable terms and thereby increasing the chances that the homeowners will avoid default. This is good for the homeowners but it also benefits the banks.

The Journal article describes the case of one homeowner who did not benefit much from her mortgage modification. On the other hand, Eric Green, the monitor of the BofA settlement has glowing words for the program in his most recent report. He says that first lien principal reductions have averaged 51 percent, that the average loan-to-value ratio has been brought down from 179 percent to 75 percent, that the average interest rate has been cut in half, and that the average monthly payment has been reduced 38 percent, or more than $600.

There may be more to the story, but this is what the Journal should be investigating rather than implying that it was a mistake to extract large sums from banks to pay for their sins.

Why Don’t More Corporate Executives Commit Suicide?

Thursday, March 3rd, 2016

The business news is abuzz with reports that the fatal car crash of fracking executive Aubrey McClendon a day after he was indicted on federal bid-rigging charges may have been intentional. The high speed at which McClendon’s SUV was apparently travelling at the time of the collision and the absence of skid marks are generating speculation that he deliberately drove into a bridge support.

If McClendon did indeed take his own life for reasons connected to his indictment, it would not be the first case of scandal-induced corporate suicide. In 2002, for instance, J. Clifford Baxter, former vice chairman of the notorious energy company Enron, was reported to have shot himself in the head, leaving a note saying “where there was once great pride now it’s gone.”

Yet in comparison to the high degree of corporate misconduct, executive suicides are quite rare. Part of the reason is that so few executives are prosecuted individually, as was McClendon, and thus are less likely to feel the intense shame that usually prompts acts of self-destruction. And when those prosecutions do occur, some executives remain defiant, depicting themselves of victims of overzealous prosecutors.

A prime example of such defiance was former Massey Energy CEO Don Blankenship, who insisted he was targeted for political reasons despite the extensive evidence against him in a case stemming from the deaths of 29 miners in the Upper Big Branch disaster in 2010. Blankenship was convicted of conspiracy to violate federal mine safety laws but acquitted of lying to regulators.

It’s significant that McClendon’s possible suicide occurred after he was indicted on the relatively abstract charge of conspiring to rig bids for oil and natural gas leases in Oklahoma. While the charges are serious, they do not directly involve harm to people and the environment.

On the other hand, Chesapeake Energy, which McClendon co-founded in 1989 and ran until 2013, has been involved in numerous cases involving allegations of such harm in the course of fracking. In the Violation Tracker my colleagues and I at Good Jobs First created, we found more than 30 cases since 2010 in which the company has paid more than $10 million in EPA fines and settlements. Apparently, there was no shame in that.

Although it would be ghoulish to suggest that anyone commit suicide, there is no shortage of other executives who should also at least be feeling more intense shame for their actions. A number of them are at companies in the business of producing vehicles like the one in which McClendon was driving at the time of his death. McClendon’s Chevrolet Tahoe is produced by General Motors, which had to pay a fine of $900 million to resolve criminal charges in connection with an ignition switch defect linked to more than a dozen deaths.

Then there’s the case of Japan’s Takata, which is embroiled in a controversy over the production of millions of defective airbags that in some cases ruptured and sent shrapnel flying at drivers and passengers. Or else Volkswagen, which has admitted wholesale cheating on auto emissions tests, leading to untold additional amounts of air pollution.

There are plenty of additional past and present examples from industries such as chemicals, mining, tobacco and asbestos. The answer is not for more top executives to take their own lives, but for them to end their reckless behavior to protect the lives of the rest of us.