Today’s Queen of Hearts

During her interview with Donald Trump, Norah O’Donnell of 60 Minutes mentioned that the man accused of trying to assassinate him had attended a No Kings rally. Trump responded: “I’m not a king…If I was a king I wouldn’t be dealing with you.”

Trump’s kingliness, especially in contrast to a real monarch such as Charles, is open to debate. But it is hard to ignore Trump’s similarity to a different royal figure, namely the Queen of Hearts. Like that foul-tempered character from Alice in Wonderland, Trump lashes out at those who displease him, calling for punishments that echo the Queen’s famous command: “Off with their heads.”

While the Queen never succeeds in getting anyone decapitated, Trump, unfortunately, has filled his administration with lackies who are eager to satisfy his whims. These days, that seems to be the main function the Justice Department, whose acting head, Todd Blanche, just succeeded in getting a North Carolina grand jury to indict former FBI director James Comey for a social media posting of seashells that supposedly constituted a death threat against the president.

That case is unlikely to go anywhere. More serious is the announcement by the Federal Communications Commission chair, led by MAGA zealot Brendan Carr, that it intends to review the TV station licenses held by ABC. The unusual step is purportedly connected to the agency’s review of ABC’s diversity practices.

It is likely no coincidence that this move comes just as Trump and the First Lady are demanding that ABC fire late night host Jimmy Kimmel for making a joke that Kimmel says was a reference to the age difference between POTUS and FLOTUS but which the Trumps insist was a call for assassination.

A move by the FCC to threaten a license holder to silence a Trump critic is just as pernicious as doing so to punish a company for having sought to promote diversity. The first is an egregious violation of the First Amendment. It appeared that Carr had learned that lesson after he caused an uproar by making a similar threat against ABC for a comment Kimmel had made about the man accused of assassinating rightwing activist Charlie Kirk.

Carr’s crusade against DEI flies in the face of the FCC’s long history of policies to combat discrimination and promote diversity in the communications industry.

Those policies came about primarily through the efforts of non-profit groups with close ties to the civil rights movement. Chief among these was the Office of Communications of the United Church of Christ, now known as the UCC Media Justice Ministry. In the 1960s, the UCC effort, led by Dr. Everett C. Parker, began to research the way in which television and radio stations in the South covered the campaigns for racial justice.

The UCC found that stations such as WLBT-TV in Jackson, Mississippi mostly ignored the protests while frequently airing pejorative comments about African-Americans. The UCC petitioned the FCC to deny the station a license renewal because it was not serving the public interest, as broadcasters were required to do under federal law. After a lengthy legal battle, the UCC won a landmark court ruling.

Around the same time, the UCC successfully pressured the FCC to adopt equal employment regulations for license holders. Those rules were modified by a 1998 court ruling, but the agency continued not only to prohibit discrimination but also require broadcasters to take positive steps to promote the hiring and promotion of minorities and women. Operations with larger staffs were expected to engage in more initiatives than smaller ones.

The current FCC’s policies turn this tradition upside down. By embracing the wrong-headed idea that efforts to address discrimination are themselves discriminatory, the agency is starting to turn back the clock to a time when people of color were largely absent from the staffs of media companies.

It remains to be seen whether the “off with their heads” pronouncements of the Trump Administration are any more successful than those of the Queen of Hearts.

Coercive Price Fixing

In its early days, Amazon.com cultivated a reputation for low prices, which helped put a lot of small booksellers out of business. That eventually gave way to a business model based on a wide product selection and speedy delivery. Its Prime subscription system was designed to make customers focus on the benefits of free shipping and overlook the fact that the prices of the products were not much of a bargain.

Now the giant e-retailer is facing allegations that it not only abandoned the low-cost approach but actually conspired to raise the prices charged on its own platform as well as those of its competitors.

California Attorney General Rob Bonta brought a price-fixing lawsuit against Amazon in February and has just provided new details of the alleged conspiracy in a motion filed in state court in San Francisco. The document claims that when a competing platform is offering a product at a price lower than it is charging, Amazon demands that the supplier intervene to get that price increased: “Vendors, cowed by Amazon’s overwhelming bargaining leverage and fearing punishment, comply—agreeing to raise prices on competitors’ websites (often with the awareness and cooperation of the competing retailer) or to remove products from competing websites altogether. The scheme is neither subtle nor complex. It is price fixing, and it should be immediately enjoined.”

The pressure exerted by Amazon is said to be a part of a system called Can’t Realize a Profit, or CRaP, in which it cuts off orders from suppliers that don’t comply with the company’s demands.

What is notable about the California AG’s motion is that it include details on specific vendors that were said to have gotten caught up in the price fixing. For example, it quotes an email from GlobalOne Pet Products, a producer of premium pet treats, to the big pet supplies website Chewy urging it to coordinate a price increase with Amazon.

In another example, Amazon was said to have threatened to stop ordering goods from a home décor vendor called All the Rages until it arranged for price increases on the Home Depot website.

Amazon’s alleged pressure tactics were not limited to small suppliers. The motion accuses the company of leaning on Levi Strauss to get Walmart.com to boost the prices of Easy Khaki Classic pants.

The California AG obtained many communications by Amazon employees alluding to these practices. But the motion claims that those documents do not reflect the true extent of the conspiracy, given that the discovery process is said to have yielded materials advising staffers to arrange things with vendors on the phone rather than in writing.

Among the nearly 200 entries Amazon has in Violation Tracker representing nearly $3 billion in penalties, there is only one case involving price fixing—a 2022 action brought by the Washington AG which Amazon settled for $2.25 million.

Given the impressive evidence collected by the California AG, it seems likely that Amazon’s price-fixing rap sheet will soon be much more substantial.

Bizarro World at the Justice Department

Normally, my colleagues and I are happy to include a new multi-million-dollar penalty paid by a Fortune 100 company to the Justice Department in our Violation Tracker updates. This month, however, we are reluctantly creating an entry for a $17 million settlement reached with IBM.

Our hesitation stems from the fact that the case is less a legitimate enforcement action than a salvo in the Trump Administration’s ongoing crusade against Diversity, Equity, and Inclusion. DOJ is making an example of IBM to intimidate Corporate America into eliminating whatever vestiges remain of conventional policies designed to address systemic racism and sexism in the workplace.

Turning decades of public policy on its head, this administration has decided that those efforts to rectify discrimination are themselves discriminatory and should be the main focus of DOJ’s civil rights enforcement.

What makes the IBM case especially pernicious is that DOJ brought it under the guise of a False Claims Act action. The FCA is normally used against contractors found to have been cheating the federal government. It is most commonly applied against healthcare providers and suppliers to the Pentagon.

IBM was accused of violating its responsibilities as a federal contractor by taking race, color, national origin, or sex into account when making employment decisions, including by using a diversity modifier that tied bonus compensation for managers to achieving demographic targets.

In a press release announcing the settlement, Associate Attorney General Stanley Woodward proclaimed: “Merit drives promotion and opportunity. Not someone’s sex or race.” He continued: “Today’s settlement proves this Department’s commitment to ensure companies are not using taxpayer funded work to further woke unconstitutional practices in American workplaces.”

Woodward managed both to ignore the long history of exclusion and bias in U.S. corporations and to give the misleading impression that the Trump Administration’s anti-DEI efforts regarding contractors are based on a solid legal foundation. That foundation actually consists of a controversial executive order Trump issued in March and highly questionable interpretations of existing civil rights laws.

The IBM case is also troubling because the company’s supposedly illegal practices were put in place well before the Trump Administration announced its new policies. Although IBM did not admit liability, it cooperated with the DOJ in the investigation and voluntarily terminated or modified the practices in question. Like various law firms and universities targeted by Trump, IBM decided to pay off the administration to be done with the matter.

DOJ’s decision to pervert the False Claims Act to pursue bogus discrimination cases is problematic not only for companies such as IBM that will have to respond to the allegations. It also raises a question about what genuine contract fraud and bias situations are not being investigated.

At a time when the DOJ has been hollowed out by the departure of many career prosecutors, the department can ill afford to devote resources to spurious cases. The fact that it is doing so is good news only for those companies eager to adhere to the lowest ethical standards.

Taking Pride in Doing Less

Regulatory agencies used to brag about how much enforcement they did. After all, that is their job. Under Trump 2.0 agencies such as the EPA and the Justice Department’s Criminal Division Fraud Section have continued this practice, even when it meant greatly exaggerating what they had actually accomplished.

Now the Securities and Exchange Commission is taking a very different tack: It just issued a press release boasting about cutting back on its enforcement. The motivation is ideological: the current SEC leadership wants to be less aggressive in its oversight of the financial industry.

In typical Trumpian manner, the release begins with a swipe at the previous Administration, which is accused of having used the SEC “to pursue media headlines and run up numbers,” creating “misguided expectations on what constitutes effective enforcement.”

SEC Chairman Paul S. Atkins  is quoted as saying: “Over the past year, the Commission has put a stop to regulation by enforcement and recentered its enforcement program on the Commission’s core mission by prioritizing cases that provide meaningful investor protection and strengthen market integrity.”

The phrase “regulation by enforcement” seems to be meant as a critique of the prior leadership’s attempt to exercise oversight over newer sectors such as cryptocurrency, which is favored under Trump 2.0, due in no small part to the fact that the President’s family business is heavily involved in the business.

Atkins’s claim to be focusing on serious fraud cases has yet to become evident in the SEC’s announcements of case resolutions. According to data collected for Violation Tracker, total penalties collected by the agency during the first 12 months of Trump 2.0 were $298 million, down from $1.6 billion during Biden’s final year. The average penalty sank from $25 million to $5 million.

This year the SEC has announced only half a dozen resolved cases against companies with a penalty of $1 million or more.

A sign of things to come can be seen in the appointment of a new director of the SEC’s Division of Enforcement. David Woodcock had been a partner in the corporate law firm of Gibson, Dunn & Crutcher and before that was a senior staff attorney at Exxon Mobil.

Meanwhile, another easing of financial regulation was announced by the Treasury Department’s Financial Crimes Enforcement Network.  FinCEN is proposing a rule that would give banks much more responsibility to assess their own exposure to illicit activity such as money laundering.

This approach is justified in the usual anti-regulatory rhetoric. Treasury Secretary Scott Bessent is quoted as saying: “Our proposal restores common sense with a focus on keeping bad actors out of the financial system, not burying America’s banks in more red tape.” Not surprisingly, banks are thrilled with the proposal.

FinCEN and the SEC are trying to give the impression they are making enforcement more effective by focusing on the more serious cases. What is more likely is that there will be less enforcement of cases of all kinds and financial miscreants will enjoy greater impunity.

Crackdown or Anomaly?

The Trump Administration leaves no doubt where it stands on street crime and drug trafficking: it supports the harshest punishments for perpetrators. When it comes to corporate crime, the stance has generally been quite different. Trump has used his pardon power to benefit a slew of convicted businesspeople, and the Justice Department is finding new ways to offer leniency to corporate defendants.

The past two months, however, have seen a burst of case resolutions in which corporations are paying fines and settlements of $100 million or more, which could be called mega-penalties. These have included cases in areas such as environmental protection for which the Trump Administration has not usually engaged in aggressive enforcement.

For example, in a case brought by the Environmental Protection Agency and the Justice Department, a federal court in Michigan ordered utility DTE Energy to pay a $100 million penalty for Clean Air Act violations at its coke battery in River Rouge.

PacifiCorp, owned by Berkshire Hathaway, agreed to pay $575 million to resolve U.S. government claims relating to wildfires in Oregon and Washington. The government argued that the company’s electrical lines negligently started all six fires.

Walmart agreed to pay $100 million to settle a case brought by the Federal Trade Commission and a group of states alleging that the retailer caused delivery drivers to lose tens of millions of dollars’ worth of earnings, by deceiving them about the base pay, incentive pay and tips they could earn.

Aetna, owned by CVS Health, agreed to pay $117 million to resolve DOJ allegations that it violated the False Claims Act by submitting or failing to withdraw inaccurate and untruthful diagnosis codes for its Medicare Advantage Plan enrollees in order to increase its payments from Medicare.

Adobe Systems agreed to pay $150 million, including a $75 million penalty and $75 million in free services to customers,  in a case brought by the Justice Department alleging that the company’s subscription practices violated the Restore Online Shoppers’ Confidence Act by failing to clearly disclose important subscription information and provide subscribers with simple ways to cancel.

The Department of Commerce’s Bureau of Industry and Security (BIS) announced that Applied Materials Inc. would pay a $252 million penalty for illegal exports of U.S. semiconductor manufacturing equipment to China.

If the Trump Administration maintains this pace, it will end up with 36 mega-penalties for the year, nearly twice the number announced during the first year of Trump 2.0, according to the data collected for Violation Tracker.

That figure would give the administration a mega-penalty annual tally comparable to that of the past two Democratic presidencies. Biden’s annual total averaged 36.5 and Obama’s average was 43. For Trump 1.0 the figure was 32.

It remains to be seen whether the spate of mega-penalties of the past two months is an indication that enforcement is ramping up or is just an anomaly. In any event, it is encouraging to see that at least some federal regulators and Justice Department prosecutors are taking their job seriously.