December 2021 Archives

The 2021 Corporate Rap Sheet

After four years of Trump’s regulation bashing, the expectation was that the Biden Administration would adopt a much more aggressive posture toward corporate misconduct.

There have been some encouraging signals, such as those given by Deputy Attorney General Lisa Monaco in an October speech, but few blockbuster federal case resolutions have been announced during the past eleven months.

According to data my colleagues and I have collected for Violation Tracker, no individual company has paid a settlement or fine of $250 million or more to the Biden DOJ. In fact, there have been only two case resolutions of that size announced by any federal agency during this period.

In September, the Securities and Exchange Commission announced a $539 million settlement with entities linked to Chinese businessman Guo Wengui relating to illegal sale of stock and digital assets. That same month, the Office of the Comptroller of the Currency fined Wells Fargo $250 million for ongoing risk management deficiencies.

By contrast, numerous mega-cases have been resolved by state attorneys general. Since last January, they have announced nine settlements of more than $250 million, including five worth $1 billion or more. Those are the giant cases against pharmaceutical manufacturers and distributors for their role in the opioid crisis.

The largest case was the settlement worth an estimated $10 billion with the biggest opiate villain of all, Purdue Pharma, which is now in bankruptcy and will effectively go out of business. Many argue that the Sackler family got off too easy in the case, but the company is paying a substantial price for its misdeeds. The other ten-figure settlements of the year involved McKesson ($8 billion), AmeriSourceBergen ($6.5 billion), Cardinal Health (also $6.5 billion) and Johnson & Johnson ($5 billion). Also substantial was the $573 million settlement McKinsey reached with states over its role in advising opioid producers in improper marketing practices.

There were also significant state settlements on issues other than opioids. Duke Energy signed an $855 settlement with the North Carolina AG relating to coal ash pollution. Boston Scientific Corporation reached a $188 million settlement with a group of states to resolve allegations it engaged in deceptive marketing of a transvaginal surgical mesh device.

While the Biden DOJ has yet to roll out blockbuster cases, it did announce some substanial resolutions during the year. For example, the U.S. Attorney’s Office in Cincinnati announced a $230 million settlement of criminal charges against utility company FirstEnergy for making improper payments to public officials to get them to pursue nuclear power legislation benefiting the company. Taro Pharmaceuticals agreed to pay $213 million to settle price-fixing charges. In a case that also involved UK and Swiss regulators, Credit Suisse paid $175 million to the DOJ to resolve criminal charges relating to a fraudulent project in Mozambique.

The year also saw the resolution of some major class action and multi-district lawsuits against large corporations. After the U.S. Supreme Court declined to hear its appeal of a court verdict, Johnson & Johnson paid more than $2 billion in damages to a group of women who claimed they developed ovarian cancer from using the company’s talcum powder.

Hyundai Motor agreed to pay up to $1.3 billion to settle a consolidated class of claims that it and its subsidiary Kia sold vehicles with defective engines that could catch fire. Facebook paid $650 million to settle a class action over its harvesting of facial data.

Facebook was also at the center of a controversy that not yet been fully resolved by regulatory or court action. A former manager leaked a large collection of internal documents indicating that the company, which now calls itself Meta Platforms, was aware of the harmful effect its services were having on some users, especially younger ones, but did little about it. The revelations prompted widespread criticism among members of Congress but no significant legislation or litigation so far.

Another widely criticized corporation that has yet to face full consequences for its conduct is Amazon.com. The e-commerce behemoth has been reproached for the way it treats employees, the small merchants who make use of its platform, and the communities in which it operates. Yet it continues to expand at a rapid pace and has seen an enormous growth of profits during the pandemic.

During the Facebook disclosures, there was growing speculation as to whether the big tech firms were now facing a situation similar to that of the tobacco companies, which were the subject of their own scandalous revelations and eventually had to pay out many billions of dollars in settlements and sharply curtail their marketing activities.

The key word there is “eventually.” The dangers of smoking were known for decades, yet the big cigarette companies adamantly denied the reality—the same way the fossil fuel companies have denied their role in climate change. We should not expect Meta, Amazon and the other tech giants to give in without a long and bitter fight.

Called to Account for Wage Theft

New data from the Bureau of Labor Statistics on job-hopping and on wage increases continue to illustrate a remarkable rise in worker assertiveness. The pandemic has finally allowed those who have been suffering for years from wage stagnation to turn the tables on employers. What business groups describe as a labor market crisis is in fact the beginning of liberation for the low-wage workforce.

These workers are reacting not only to inadequate compensation and oppressive schedules. They are also fed up with the additional indignity of being cheated out of the pay they are supposed to receive. The Great Resignation can also be seen in part as a response to the epidemic of wage theft that has afflicted the U.S. labor market.

This was brought home to me again in the course of updating the data in Violation Tracker. There continues to be a steady stream of announcements of cases involving the failure to provide proper overtime pay, the failure to provide required paid breaks and the numerous other ways employers take money out of the pockets of workers.

The cases we document come from either private litigation or regulatory actions. The larger settlements involve collective action lawsuits brought by plaintiff law firms on behalf of groups of workers. Here are some examples that were finalized in just the past few months:

Chipotle agreed to pay $15 million to resolve allegations that it denied overtime pay to management trainees.
Humana paid more than $11 million to settle allegations that it denied overtime to nurses by improperly classifying them as exempt employees.
T-Mobile agreed to pay $2 million to resolve a lawsuit alleging that it forced customer service representatives to do off-the-clock work.
The discount grocery chain Aldi paid $2 million to thousands of California employees who said they were cheated out of overtime pay.

Wage theft is, of course, also investigated by the Wage and Hour Division of the U.S. Labor Department. Many of the cases handled by WHD involve small firms, but it also takes on bigger employers and sometimes collects substantial amounts of back pay and penalties. Among the recent examples of these larger actions are the following:

In October, a federal court in Pittsburgh entered a consent judgment in which an oilfield services company admitted liability for more than $40 million in back wages and damages after a WHD investigation found Fair Labor Standards Act violations affecting 700 workers. The company, Holland Services, has filed for bankruptcy.

In November, a federal court in San Francisco ordered telemarketing firm Wellfleet Communications to pay more than $1.4 million in back wages and liquidated damages to more than 1,300 call center workers found by a WHD investigation to have been improperly classified as independent contractors.

There has also been an increasing focus on wage theft by state and local prosecutors. For example, the New York Attorney General, in partnership with the New York City Department of Consumer and Worker Protection, recently announced an agreement with two major home care health agencies to deliver up to $18.8 million in unpaid wages to approximately 12,000 workers who had been denied fair pay for years.

The San Francisco City Attorney announced a $5 million settlement with DoorDash to resolve allegations that it misclassified its delivery drivers as independent contractors to avoid providing required sick leave and that it improperly used tip income to cover their base pay.

Some businesses are paying a price in fines and settlements while others are now having to offer higher wages. One way or another, they are being called to account for years of labor exploitation.

Note: all these cases will be included in the Violation Tracker updated that will be posted later this month.

Populism Real and Ridiculous

Some analyses of Trumpism and Republican populism have claimed to detect a strain of anti-corporate sentiment. It is true that today’s right-wingers are willing to criticize big tech companies for supposedly treating them unfairly, but most of the times the GOP continues to serve the interests of big business.

That was clear during an important hearing just held by the House Judiciary Committee’s subcommittee on antitrust, commercial and administrative law. Subcommittee chair David Cicilline, vice chair Pramila Jayapal, other Democratic members and the witnesses all raised serious questions about the current regulatory system, focusing on issues such as disclosure and social equity.

The Republicans, on the other hand, did their best to change the subject or spoke in favor of less rather than more oversight. Ranking member Ken Buck used his opening remarks to attack “executive overreach” and praise the Trump Administration’s wholesale attack on regulation.

Jim Jordan spent his time attacking what he claimed was a plan by the Justice Department to treat parents critical of school boards as domestic terrorists. One of the witnesses, NAACP climate justice director Jacqueline Patterson, was asked by Dan Bishop whether she was a revolutionary. She was also chastised for a facetious tweet about vaccines. The comments of GOP members on regulation were mainly limited to attacks on “woke bureaucrats.”

Despite these antics, there was a serious exchange between the Democrats and the witnesses on the failures of the current regulatory system. These issues are also addressed in the Stop Corporate Capture Act introduced by Rep. Jayapal. The legislation would create more transparency in rulemaking, reduce corporate influence over the process and create a framework for considering social equity. It would fine companies that lie about the impact of public interest rules. It would also create a Public Advocate to provide for more robust public participation.

It turns the usual discussion on its head. Rejecting the idea of executive overreach, the bill correctly diagnoses the problem as a situation of what one might called regulatory anemia. Agencies are not aggressive enough in tackling serious problems relating to the environment, the workplace and the marketplace. The parties meant to be targeted instead are playing an outsized role in creating the rules. Hence the reference in the bill’s title to regulatory capture.

Jayapal’s proposal is what one might call a populist approach to reforming the regulatory system—one that is not likely to receive support from corporate lobbyists. When they are not simply kicking up dust, Republicans, by contrast, are doing the bidding of big business by continuing the Trump Administration’s drumbeat against regulation.

This is one of those areas in which the conventional labels of U.S. politics continue to baffle me. Why are those working to benefit giant corporations called populist, while those who are seeking to rein in that power called elitist?