Month: October 2017

Unfettered Corporate Power

Once upon a time, there was a debate on how best to check the power of giant corporations. Starting in the Progressive Era and resuming in the 1970s with the arrival of agencies such as the EPA and OSHA, some emphasized the role of government through regulation. Others focused on the role of the courts, especially through the kind of class action lawsuits pioneered by lawyers such as Harold Kohn in the 1960s.

When regulators were seen as too aggressive, business apologists pushed back by arguing that corporate misconduct should be addressed through litigation. When class actions grew more effective, those apologists started lobbying for tort reform and arguing that regulatory agencies (especially those dominated by industry) were the better forum.

This year, amid a supposed populist upsurge, that debate is dying out. The Republican-controlled Congress and the White House are undermining both regulation and litigation. Virtually all legislative “accomplishments” since Inauguration Day have consisted of Congressional Review Act maneuvers to roll back business regulations. Now, with the Senate’s move to kill the Consumer Financial Protection Bureau’s restriction on forced arbitration, Congress has used the same device to reduce the ability of consumers to seek redress through the courts — what Sen. Elizabeth Warren aptly described as “a giant wet kiss to Wall Street.”

The result of these moves is that big business is increasingly being allowed to operate with no effective controls at all. This unilateral disarmament is taking place when corporate misconduct is rampant. Among the companies that will benefit from the arbitration move are the likes of Wells Fargo and Equifax, whose willingness to mistreat customers has been truly astounding.

We should be careful, however, not to overstate the effectiveness of damage awards in class action lawsuits in changing corporate behavior. It’s unfortunately true that large corporations have come to regard substantial monetary settlements as an acceptable cost of doing business.

That’s true both of private litigation and cases brought by regulatory agencies and the Justice Department. As shown in Violation Tracker, 40 corporations have paid $1 billion or more in fines and settlements. Seven of those have paid $10 billion or more, including all the giant national banks: Bank of America ($57 billion), JPMorgan Chase ($29 billion), Citigroup ($16 billion) and Wells Fargo ($11 billion).

These amounts have involved scores of different cases dating back to 2000. In other words, the banks are repeat violators that are willing to pay out large sums in order to continue doing business more or less as usual. More class action lawsuits are unlikely to change this dynamic.

I believe that banks and other large corporations should continue to face heavy financial penalties for their misconduct, but it has become clear that these penalties alone are not going to put an end to the corporate crime wave. It’s time to go beyond damages in addressing the damage caused by these companies.

Getting Tough on the Corporations Behind the Opioid Crisis

The withdrawal of Tom Marino’s nomination as national drug czar is a reminder of the power of whistle-blowing and aggressive investigative reporting, while the fact that he was named in the first place is a reminder of the hollowness of the Trump’s Administration’s commitments to draining the swamp and to seriously addressing the opioid epidemic.

Yet there is much more to be done beyond denying a high-profile job to the Congressman who did the pharmaceutical industry’s bidding in weakening the Drug Enforcement Administration’s ability to thwart illicit distribution of prescription painkillers.

The first step, of course, is for Congress to undo the damage caused by Marino’s bill, which Democrats and Republicans alike allowed to be enacted with little scrutiny. Also needed are reforms to the revolving door system, which the excellent reporting by the Washington Post and 60 Minutes and the revelations of DEA whistle-blower Joseph Rannazzisi (photo) showed to play a key role in the story as former DEA officials working for the drug industry or its law firms helped to draft and promote the legislation.

If the scourge of opioids is to end, there will have to be much stronger enforcement of the Controlled Substances Act (CSA), the law that forms the basis of U.S. drug control policy. For a long time, it appeared the problem was that the CSA was being enforced too strictly, at least when it was applied to drug users and low-level drug sellers.

Starting about a decade ago, federal officials and prosecutors began to pay attention to the pernicious role played by the supposedly legitimate drug industry. In 2007, Purdue Pharma’s Purdue Frederick Inc. unit and several of its executives pleaded guilty to criminal charges of misleading the public about the addictive nature of its OxyContin pain medication and paid more than $634 million in penalties. That case was brought by the office of the U.S. Attorney for the Western District of Virginia in cooperation with the Food and Drug Administration, not the DEA.

During the following years, the DEA began to bring its own enforcement actions under the CSA or referred cases to the Justice Department for prosecution. According to data I have collected for Violation Tracker (some of which has not yet been posted on the site), there have been about 80 CSA actions against drug companies, distributors or healthcare providers since 2008.

The penalties collected in the cases total about $605 million. The biggest amounts were imposed on the distributor McKesson ($176 million in three cases); CVS ($130 million in nine cases); Walgreens ($80 million); and a second big distributor, Cardinal Health ($68 million in three cases).

It’s notable that the penalties in these 80 cases combined amount to less than that imposed on Purdue alone. Moreover, all of the cases were brought as civil rather than criminal actions. I found one corporate CSA criminal cases but it was not brought against a healthcare company or retailer but rather against United Parcel Service, in connection with its role in delivering shipments from illegal online pharmacies. And in that case UPS was offered a non-prosecution agreement that essentially nullified the criminal charge.

Given the size of the industry and the profitability of the companies involved, all these cases amounted to little more than a slap on the wrist. The gravity of the opioid crisis requires stronger action against the companies involved, as well as their executives and, in cases like the Sackler Family behind Purdue Pharma, their individual owners.

Employers and Sexual Harassment

The Harvey Weinstein scandal is bringing necessary attention to the problem of sexual harassment. But that problem is not limited to abusive behavior on the part of big-time movie producers and a few other powerful men. Women are confronted with sexual predators in a wide variety of workplaces.

Evidence of this can be found in the cases resolved by the Equal Employment Opportunity Commission. In addition to enforcing anti-discrimination rules regarding hiring, pay levels, etc., the EEOC brings lawsuits (or joins existing ones) dealing with harassment.

In Violation Tracker I have collected data on a total of 1,393 resolved EEOC cases since the beginning of 2000 that together have resulted in about $1 billion in penalty payments by employers. Of these, about 300 involved sexual harassment (often in conjunction with other allegations). They have resulted in about $135 million in employer penalties. Here are some of the more significant cases:

In August, Ford Motor agreed to pay $10.1 million to resolve allegations that mangers at two plants retaliated against workers who complained that they were being subjected to sexual (and racial) harassment on the job.

In 2011, a telemarketing company called International Profit Associates agreed to pay $8 million to resolve allegations that some 82 female employees had been subjected to sexual harassment. It took nine years from the time the EEOC first filed the case to get to that resolution, with the agency attributing the delay to the filing of frivolous legal motions by the firm, whose top officials were alleged to have personally participated in the abusive behavior.

In 2010 ABM Industries, a major provider of janitorial services, agreed to pay $5.8 million to resolve allegations that more than 20 female workers were subjected to repeated sexual harassment by co-workers and supervisors. An EEOC press release stated: “Some of the harassers allegedly often exposed themselves, groped female employees’ private parts from behind, and even raped at least one of the victims.”

Predatory behavior can also occur at non-profit workplaces. In 2003 Lutheran Medical Center in Brooklyn, New York agreed to pay $5.4 million to resolve allegations that female workers were subjected to inappropriate touching during employment-related medical examinations conducted by a hospital physician who also asked intrusive questions about their sexual practices.

In 2005 Carrols Corporation, a major Burger King franchisee, agreed to pay $2.5 million to resolve EEOC allegations that 89 female workers, many of them teenagers, were subjected to egregious sexual harassment at many of the company’s locations. The EEOC alleged that the abuse “ranged from obscene comments, jokes, and propositions to unwanted touching, exposure of genitalia, strip searches, stalking, and even rape” and that it was “perpetrated by managers in the majority of cases.”

In a case involving retailer Fry’s Electronics, a supervisor was said to have been fired for supporting a subordinate who complained about sexual harassment The supervisor had told the company’s legal department that the worker reported receiving repeated sexually charged text messages from an assistant store manager. Fry’s paid $2.3 million to resolve the EEOC’s allegations.

Whether in the Weinstein case or these other situations, what starts out as the depraved behavior of individuals is compounded by the efforts of employers to conceal the abuse and punish those victims who dare to report it. Whether the targets are famous actresses or janitors and fast food workers, corporate America needs to do more to stop the sexual predators on its payrolls.

The Corporate Death Penalty for Wells Fargo?

Wells Fargo’s seemingly endless transgressions have reached the point that there is growing discussion of a possibility rarely considered even in some of the most egregious corporate scandals: putting it out of business.

Rep. Maxine Waters, the top ranking Democrat on the House Financial Services Committee, recently issued a report that recounted the banks sins (including a reference to the $11 billion Violation Tracker tally of its penalties), saying that Wells has “demonstrated a pattern of egregiously harming its customers.”

Such statements have been heard frequently since the Wells bogus account scandal came to light last year. But Waters goes on to argue: “When a megabank has engaged in a pattern of extensive violations of law that harms millions of consumers, like Wells Fargo has, it should not be allowed to continue to operate within our nation’s banking system, and avail itself of all of the associated privileges afforded to it.”

A similar sentiment is expressed in a letter just submitted to the Office of the Comptroller of the Currency by the AFL-CIO, Americans for Financial Reform and five other groups. The letter asks the OCC to consider whether, “in light of the bank’s pattern of law breaking,” the bank “should forfeit its national banking charter.”

The issue was even brought up in a recent Congressional hearing in which Wells CEO Tim Sloan was being grilled by members of the Senate Banking Committee. Sen. Elizabeth Warren said that Sloan should be fired, while Sen. Brian Schatz of Hawaii went further by asking Sloan: “Why shouldn’t the OCC revoke your charter?”

“We serve one out of every three Americans, we have 270,000 team members,” Sloan responded before Schatz cut him off, saying: “So, you’re too big.”

Those comments encapsulate how a debate about the possible shutdown of a bank or other company as large as Wells Fargo would play out. The corporation would emphasize the disruptive effect on its customers and employees, suggesting they would be the unintended victims. Of course, in the case of Wells it was the bank itself that victimized customers and staff.

Schatz’s comment points to the direction any serious effort to penalize a rogue corporation should take: the emphasis should not be a precipitous shutdown but rather a breakup into smaller entities that would be subjected to rigorous regulation and scrutiny. Care should be taken in the process to protect the interests of customers and employees, though upper level executives should be shown the door.

Discussions of the corporate death penalty have come and gone over the years. The need to deal with a brazen recidivist such as Wells may finally bring more serious consideration to a tool that could be more effective than billions in penalties in ending the ongoing corporate crime wave.