Introducing Covid Stimulus Watch

The furor over some of the companies receiving federal financial assistance through the Paycheck Protection Program represents one of the most remarkable outbursts of anti-corporate sentiment seen for quite some time. A corporation such as Shake Shack, which used to have a cult following, found itself vilified for getting a $10 million loan from a program the public assumed would be used to help mom-and-pop businesses rather than a fast casual chain that last year had revenues of more than half a billion dollars.

I’s not just a matter of big versus small. Journalists have pounced on the disclosures of the PPP loans—which have come from SEC filings rather than the federal government—to look for examples of problem companies on the list. One of the best examples, by the New York Times, found all kinds of corporate bad actors getting the loans.

A new website my colleagues and I at Good Jobs First have just launched will make it even easier to pursue this kind of research. Covid Stimulus Watch combines available recipient data for the PPP  — as well as the Payroll Support Program, which has doled out billions to the airlines – with accountability data about the companies.

The accountability data comes in six categories. Four of those are derived from data in Violation Tracker: employment-related penalties (such as wage theft and workplace discrimination); government-contracting related penalties (mainly False Claims Act cases); environmental, healthcare and safety penalties; and consumer protection, financial misconduct and unfair competition penalties.

The fifth category, relating to taxes and subsidies, shows which large companies have paid very low federal income tax rates and which have received large amounts of pre-pandemic financial assistance from federal, state and local programs, such as those shown in Subsidy Tracker. The final category shows which recipient companies have high levels of executive compensation, especially in comparison to what they pay a typical worker.

The limited set of recipients currently listed in Covid Stimulus Watch already illustrate the accountability issues at stake. For example, the major airlines that are receiving billions of dollars in aid raise concerns in multiple categories. United has paid out over $40 million to settle employment discrimination lawsuits. American Airlines has paid over $70 million in safety violations. JetBlue and Delta had negative federal income tax rates in 2018.  The ratio of the pay of American’s CEO to that of its median employee was 195 to 1.

Concerning data can also be seen about some of the smaller recipients. One PPP recipient, Veritone Inc., paid its CEO $18 million in compensation. Another PPP company, FuelCell Energy, received more than $170 million in federal grants prior to the pandemic.

The data in Covid Stimulus Watch will hopefully fuel even more debate over which corporations deserve to be rescued by taxpayers.

Corporate-Owned Nursing Homes and Covid-19

It was only a few days ago that the Centers for Medicare and Medicaid Services announced that nursing homes will be required to notify residents and their families when coronavirus cases have been discovered in a facility. This comes many weeks after the Life Care Center in Kirkland, Washington became an early Covid-19 hotspot and deaths started mounting at other nursing homes across the country.

Even before the pandemic began, conditions in the nation’s roughly 15,000 nursing homes, which house some 1.5 million residents, were far from ideal. As a Washington Post investigation recently found, about 40 percent of nursing homes with publicly reported cases of coronavirus — the list of which is far from complete, given varying transparency practices among the states — had been previously cited by government inspectors for violating regulations meant to control the spread of infections. This made them all the more susceptible to coronavirus.

The blame for that poor track record rests to a significant degree with the large corporations, including private equity firms, that control a substantial portion of the country’s nursing homes. While the Washington Post story did not identify the parent companies of the facilities with reported Covid-19 cases, the data in Violation Tracker shows the compliance problems at those corporations.

The nursing home chain with the largest amount of total penalties is Kindred Healthcare, which has had to pay out more than $350 million in fines and settlements.  The bulk of that amount has come from cases in which Kindred and its subsidiaries were accused of violating the False Claims Act by submitting inaccurate or improper bills to Medicare and Medicaid. Another $40 million has come from wage and hour fines and settlements.

Kindred has also been fined more than $4 million for deficiencies in its operations. This includes more than $3 million it paid to settle a case brought by the Kentucky Attorney General over issues such as “untreated or delayed treatment of infections leading to sepsis.”

Golden Living Centers, a large chain owned by the private equity firm Fillmore Capital Partners, accounts for more than $200 million in fines and settlements. Golden Living is the current incarnation of Beverly Enterprises, which in the 1990s was the poster child of nursing home misconduct. In 2000 it paid $170 million to settle allegations that it defrauded Medicare by fabricating records to make it appear that staff members were devoting much more time to residents than they actually were.

Golden Living and Beverly have also paid more than $6 million in fines arising out of inspections of their facilities, including $1.5 million paid to the Arkansas Attorney General to resolve allegations of patient neglect.

Another chain with a problematic track record is Life Care Centers of America, operator of the ill-fated facility in Kirkland. The company has paid more than $147 million in fines and settlements, most of which came from a False Claims Act case in which it was accused of improperly billing Medicare for rehabilitation services.

The company has also paid more than $2 million in fines stemming from inspections, including $467,985 for nursing homes in Washington State. Life Care facilities appear numerous times on the Washington Post list of facilities with reported coronavirus cases.

Other chains with substantial penalty totals include Genesis HealthCare ($57 million), Ensign Group ($48 million) and National Healthcare Corp. ($28 million).

Among the many problems that have been brought into sharp relief by Covid-19 — and that will have to be addressed once we have gotten through the pandemic – is the sorry state of our nursing homes, too many of which seem to put profit ahead of safety for one of the most vulnerable parts of our population.

Relying on Drug Companies With Flawed Safety Records to Save Us from Covid-19

Among the many things that have changed drastically in the past few months is the public perception of the pharmaceutical industry. At the beginning of the year, the main news about Big Pharma was the possibility of a multi-billion-dollar opioid settlement with the states.

Now, rather than being held accountable for tens of thousands of overdose deaths, the industry is being hailed as our savior from Covid-19. The news is filled with laudatory stories about the efforts of the drug companies to come up with a treatment for those currently suffering from the virus and a vaccine that may be the only way for society to return to something approximating normal.

Of course, everyone wants these efforts to succeed, but we shouldn’t ignore the very checkered track record of the industry. The safety portion of that record suggests that pushing for extremely rapid results may be risky.

The pharmaceutical industry’s safety problems date back at least to the 1930s, when a company called S.E. Massengill introduced a liquid antibiotic without testing and the drug turned out to cause fatal kidney damage. In the 1950s Parke-Davis heavily promoted a typhoid drug for less serious ailments until it emerged that users were developing severe and irreversible anemia. During the same period, thousands of children around the world were born with birth defects after their mothers took the morning-sickness drug thalidomide during pregnancy.

Sometimes these scandals involved vaccines. In the mid-1950s a California company called Cutter Laboratories produced large stocks of the new polio vaccine that mistakenly contained the live virus. Scores of children who received the vaccine developed polio.

Defenders of the pharmaceutical industry will claim that safety practices are much more stringent these days. But consider the recent history of Johnson & Johnson, which is one of the companies actively pursuing a coronavirus vaccine.

J&J, whose baby products long enjoyed a reputation for purity, has in the past two decades been implicated in a seemingly endless series of controversies about product safety and the illegal marketing of drugs for uses not approved as safe by the Food and Drug Administration.

Some of the company’s problems stemmed from faulty production practices. During 2009 and 2010 J&J 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 medications were found to be contaminated with metal particles.

in 2013 Advanced Sterilization Products, a division of J&J subsidiary Ethicon Inc., had to pay $1.2 million to settle FDA allegations that it had produced and distributed adulterated and misbranded sterilization monitoring products.

Other major companies in the coronavirus vaccine race have been involved in their own controversies. In 2012 GlaxoSmithKline, which is partnering with Sanofi in its vaccine effort, had to pay $3 billion to settle various criminal and civil charges, among which were allegations that the company withheld data on safety problems with its diabetes drug Avandia from the FDA.

Pfizer, which is working with a smaller company called BioNTech, has had safety problems dating back to the 1980s, when defective heart valves made by its Shiley division caused the death of more than 100 people. An FDA task force concluded that the company had withheld crucial safety information.

We are all desperate for drugs to treat and prevent coronavirus, but we should make sure that the urgency of the situation does not lead to safety shortcuts that can have disastrous consequences.

Trump’s Risky Covid-19 Infomercials

Donald Trump has declared himself a wartime president, but in many of his briefings these days he comes across more as one of those hucksters of late-night television touting miracle cures. He relentlessly promotes the anti-malaria drug hydroxychloroquine as a treatment for Covid-19, even though it has not been proven safe or effective for that purpose. “What do you have to lose?” Trump keeps saying, ignoring evidence that the drug can have serious cardiac side effects.

It is understandable that those suffering from coronavirus disease may be willing to try anything to survive, and some doctors are treating seriously ill patients with hydroxychloroquine as a last-ditch measure. There are also clinical trials under way to see if the drug really does work against Covid-19. But all that is entirely different from the president’s using the White House podium to suggest that everyone should try the medication as if it were a new brand of mouthwash.

Not only is that dangerous – Trump’s comments have caused a run on the drug that has affected those who need it to treat diseases such as lupus and rheumatoid arthritis – but it also stands in contradiction to several decades of efforts to discourage widespread promotion of prescription drugs for uses not approved by the Food and Drug Administration.

Data in Violation Tracker show that over the past two decades pharmaceutical companies have paid out more than $20 billion in fines and settlements to resolve Justice Department, FDA and state attorneys general cases involving the improper marketing of drugs. These include three dozen cases in which the penalty amount exceeded $100 million and five in which the amount was more than $1 billion.

The largest single penalty of this kind was the $3 billion paid by GlaxoSmithKline in 2012 for off-label promotion of drugs such as the anti-depressant Paxil as well as its failure to report certain safety data. In 2009 Pfizer and its subsidiary Pharmacia & Upjohn agreed to pay $2.3 billion to resolve allegations that they illegally promoted drugs such as the anti-inflammatory Bextra.

In 2013 Johnson & Johnson and several subsidiaries paid $2.2 billion in criminal fines and civil settlements to resolve allegations they had marketed the 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. 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.”

In the current situation, it is an elected leader rather than a drug maker doing the improper promotion, but a corporation — the French firm Sanofi, which produces hydroxychloroquine under the brand name Plaquenil – stands to benefit. As a result of Trump’s hype, a sleepy product dating back to the 1950s, is now the most sought-after pharmaceutical on the planet.

Sanofi is being cautious, stating on its website that Plaquenil “can cause serious adverse reactions and should not be taken without medical prescription or advice,” adding that it has not been approved for use in Covid-19 patients. Yet the site goes right on to state: “According to some preliminary results from independent pilot studies, hydroxychloroquine was reported as having a potential anti-viral effect on the virus that causes COVID-19.”

Other companies such as Amneal Pharmaceuticals, which produces a generic version of hydroxychloroquine, may have their own pot of gold. The company has ramped up production of the drug and has generated good p.r. by donating a quantity of the medication to the state of Texas.

The risk here is that Trump’s unbridled advocacy for the drug will steamroll the FDA into opening the floodgates and making it available not just to the desperately ill, but also to millions of others who have a mild form of the disease or are not infected at all. And we may never know for sure if those millions benefited from the medication or were needlessly exposed to cardiac and other risks.

The Rap Sheets of the Big Ventilator Producers

Earlier this year, the U.S. Attorney’s Office in South Carolina announced that a company called ResMed had agreed to pay more than $37 million to settle allegations under the False Claims Act that it illegally paid kickbacks to promote sales of equipment used to treat sleep apnea.

The case did not receive much attention at the time, but ResMed, which also produces ventilators, is now one of the companies involved in the controversy over the distribution of equipment that hospitals desperately need to save lives during the coronavirus pandemic.

New York Gov. Andrew Cuomo and other state chief executives have been complaining about price-gouging and shipments that fail to materialize, as health systems across the country compete for a woefully inadequate supply of ventilators, some of which have reportedly been exported.

This apparent profiteering should come as no surprise, given the track record of the ventilator industry, in which ResMed is not the only producer with a history of alleged misconduct. In fact, all the big publicly traded companies in the industry have paid millions of dollars in penalties in False Claims Act, kickback and bribery cases.  Along with ResMed, they are Philips, General Electric, Hill-Rom, and Medtronic.

In 2016 a Philips subsidiary called Respironics agreed to pay $34.8 million to settle allegations similar to those faced by ResMed involving the payment of kickbacks to suppliers for the purchase of sleep apnea equipment. In 2013 the Securities and Exchange Commission ordered Philips to pay $4.5 million for violations of the Foreign Corrupt Practices Act stemming from improper payments to healthcare officials in Poland.  

In 2011 GE Healthcare agreed to pay $30 million to settle False Claims Act allegations that a subsidiary caused Medicare to overpay for a radiopharmaceutical used in certain cardiac diagnostic imaging procedures by giving the federal government false or misleading information about doses.

Also in 2011 Hill-Rom agreed to pay $41.8 million to settle allegations that for years it knowingly submitted numerous and repeated false claims to the Medicare program for certain specialized medical equipment – bed support surfaces for treatment of pressure ulcers or bed sores – for patients for whom the equipment was not medically necessary.

Since 2006 Medtronic and its subsidiaries have paid more than $160 million in penalties in eight False Claims Act cases. The largest of these was a $75 million settlement agreed to by Medtronic Spine to resolve allegations that its marketing activities caused hospitals to submit false claims for kyphoplasty procedures, minimally-invasive surgeries used to treat compression fractures of the spine caused by osteoporosis, cancer or benign lesions.

Along with the False Claims Act cases, which are civil matters, a Medtronic subsidiary agreed to plead guilty and pay more than $17 million in 2018 to resolve a criminal charge that it promoted a neurovascular device for uses that were not approved by the FDA and were potentially dangerous.

It is true that none of these cases involved mechanical ventilators, but they do suggest something about ethical practices at the five companies. These are corporations accused of putting their own financial interests ahead of those of the federal government and thus the taxpayers. One of them has a subsidiary that is literally a corporate criminal.  

The coronavirus crisis is exposing many vulnerabilities of U.S. society. Among them is that the survival of many thousands of people now depends in large part on the behavior of a group of companies that have been something less than model corporate citizens.

This makes it all the more scandalous that the Trump Administration refuses to make full use of the Defense Production Act to end profiteering in the ventilator industry and force it to serve the needs of the country during this national emergency.

Bailouts and Bad Actors

The $500 billion business rescue provision of the coronavirus relief bill will be less of a slush fund than originally envisioned, thanks to the addition of some significant safeguards such as the creation of a special inspector general and a Congressional oversight commission.

There has also been a welcome move toward transparency through a requirement that the Treasury Secretary post details on each loan, loan guarantee or other form of assistance soon after the award is made.

Yet there is one risk the bill does not address: the possibility that among the companies sharing in the federal government’s largesse will be regulatory scofflaws and other corporate bad actors.

There are some notable precedents for such an outcome. The Troubled Asset Relief Program, in fact, was largely an effort to bail out the financial institutions whose misconduct to a great extent caused the meltdown of 2008. The biggest TARP recipient, with $67 billion in support from the Treasury Department, was American International Group, which had sold large quantities of risky credit default swaps. Other giant banks that helped generate toxic securities were also high on the TARP loan list, including Bank of America and Citigroup ($45 billion each) as well as JPMorgan Chase and Wells Fargo ($25 billion each).

Along with the TARP loans, these banks also benefitted from massive liquidity programs implemented by the Federal Reserve and the Federal Deposit Insurance Corporation. The data available on these programs, which include lots of short-term loans that were frequently rolled over, add up to more than $3 trillion for Bank of America and $2 billion each for Citigroup and Morgan Stanley.

On top of all this, banks received what amounted to subsidies — $435 million in the case of JPMorgan Chase – through incentives provided to mortgage servicers under the Home Affordable Modification Program.

It was unavoidable that the TARP program, designed to rescue the whole financial system, would end up assisting bad actors. The problem is that those corporations continued to exhibit anti-social behavior after being bailed out.

Consulting the data in Violation Tracker, we see that since 2010, Bank of America has paid more than $63 billion in penalties. Much of this stems from lawsuits linked to the period leading up to the financial crisis, including those brought against companies purchased by BofA, especially Merrill Lynch and the predatory home lender Countrywide Financial.

Yet BofA also got in new trouble of its own. For instance, in 2014 it was ordered by the Consumer Financial Protection Bureau to provide $727 million in relief to credit card customers who had been charged for services they were not receiving.

Since 2010 Citigroup has paid more than $16 billion in penalties. Here, too, much of that total relates to cases stemming from the crisis – but not all. In 2015 it, along with other major U.S. and European banks, pled guilty to conspiring to manipulate the foreign exchange market. Citi’s penalty was $925 million.

And then there’s the case of Wells Fargo, which in the years after getting bailed out, has become a poster child for corporate irresponsibility as a result of its brazen sham-account scandal and other controversies.

Some of the bank misconduct of recent years could have been prevented if the federal government retained the equity stakes it took in TARP recipients while the loans were in effect. In the case of AIG the government had taken control of about 80 percent of the company. Smaller stakes were taken in other recipients.

The government used those stakes mainly to make sure that the loans were repaid, and in the end the feds made a profit on TARP. Yet those ownership interests could also have been used to retain a measure of influence over corporate governance and decision-making on issues relating to regulatory compliance and overall good behavior.

This approach could also apply to the coronavirus relief package, which seems to allow for the possibility that the federal government will take equity stakes in corporations that receive large amounts of financial assistance.

Now as in 2008, Congress cannot avoid providing assistance to bad actors, since doing so would harm employees at those firms. Yet it could use equity holdings to discourage corporations from resuming their bad behavior after we get through the pandemic.

Note: Data on the companies that received TARP bailout loans and liquidity assistance from the Fed and the FDIC can be found on this new Subsidy Tracker page, which also contains a list of corporate recipients of Recovery Act grants, loans and tax credits. Data on the misconduct of these and other companies can be found in Violation Tracker.  

A Pandemic Is No Time to Dismantle Regulatory Safeguards

As much of the economy melts down amid the coronavirus pandemic, many large corporations are lining up for financial bailouts from the federal government. Assuming the right safeguards are put in place, these payments may be justified. Yet there is a risk that big business may also seek another kind of assistance whose benefit is more dubious: relief from regulations.

Some loosening of restrictions make sense in a crisis, and federal regulators are already taking steps to address immediate needs. The FDA is changing rules so that private labs and state health departments can more readily use covid-19 tests developed outside of the agency. HHS is allowing healthcare providers to bill Medicare for telemedicine sessions.

Those are the no-brainers. But what about the decision by the Federal Motor Carrier Safety Administration to relax restrictions on truck driver hours for those making emergency deliveries? Do we want sleepy drivers on the road, even if they are doing essential work?

And then there are the calls from big banks for lower capital requirements and the easing of periodic stress tests. The point of those requirements is to make sure banks are in a position to weather a downturn. Relaxing the rules is something the big banks were urging well before the pandemic, and their push now may be little more than an effort to exploit the crisis.

We are likely to see more calls for regulatory easing both from corporations and from Trump Administration agencies such as the EPA that have already been trying to undermine existing safeguards.

There is also a debate on whether regulatory rulemaking should continue at a time when many regulators are working from home and many advocates may have a harder time monitoring current proceedings.

Since many of those proceedings involve efforts by industry and the Trump Administration to roll back or eliminate current rules, delays would provide a welcome obstacle to the deregulatory juggernaut. On the other hand, agencies may use the pandemic as an excuse to reduce the opportunities for public interest groups to intervene in the process.

Another gnarly question is how to handle bailouts for corporations that have less than stellar records when it comes to regulatory compliance. We don’t want to ignore the needs of employees of those companies who might otherwise lose their jobs, but it also doesn’t feel right to be handing over large sums to firms that have flouted the law.

If those payments are going to happen, among the strings that need to be attached could be provisions requiring companies to strictly adhere to all applicable laws and regulations. Scofflaws would be compelled to repay the money and face other serious consequences.

Big business should not be allowed to use the covid-19 pandemic as cover for undermining safeguards that protect us from the many other dangers in the world.

Note: Violation Tracker has just been updated. It now contains more than 412,000 entries representing more than $616 billion in penalties. The corporation with the biggest jump in its penalty total is Wells Fargo, due to its recent $3 billion sham-account settlement with the federal government.

Another Crooked Bank?

For the past three years, Wells Fargo has been pilloried for having created millions of bogus accounts to extract unauthorized fees from its customers. Now it seems Wells may not have been the only financial institution to engage in this type of fraud.

The Consumer Financial Protection Bureau, despite having been somewhat defanged by the Trump Administration, has just filed suit against Fifth Third Bank for similar behavior. Based in Cincinnati, Fifth Third is a large regional bank with branches in ten states and total assets of about $170 billion.

According to the CFPB’s complaint, the problem at Fifth Third arose when it, like Well Fargo, imposed overly aggressive cross-selling targets on its employees, causing them to create bogus accounts to meet those goals. These actions not only generated illicit fees, the complaint states, but also exposed customers to a higher risk of identity theft when, for example, online banking accounts were created without their knowledge. The issuance of unauthorized credit cards may have harmed customers’ credit scores.

The agency is asking a federal court to order Fifth Third to stop these practices and pay damages and penalties for its actions. The bank issued a press release denying the allegations and vowing to fight the lawsuit vigorously.

Although its “rap sheet” is a lot shorter than those of Wells Fargo and the other megabanks, Fifth Third has not been free from controversy. Violation Tracker’s tally on the company runs to more than $132 million in penalties.

One of the cases on the list was brought by the CFPB. In 2015 the agency announced that Fifth Third would pay $21.5 million to resolve two actions—one involving allegations of using racially discriminatory loan pricing and another involving deceptive marketing of credit card add-on products. The second case included allegations similar to those in the new case: telemarketers for the bank were alleged to have failed to tell cardholders that by agreeing to receive information about a product they would be enrolled and charged a fee.

Fifth Third’s largest past penalty was the $85 million it agreed to pay in 2015 to settle a case brought by the Justice Department and the Department of Housing and Urban Development concerning the bank’s improper origination of federally insured residential mortgage loans during the housing bubble.

In 2013 Fifth Third paid $6.5 million to settle an SEC case concerning the improper accounting of commercial real estate loans in the midst of the financial crisis. It has also paid out more than $8 million in wage theft lawsuits.

If the allegations against Fifth Third hold up, bank regulators and federal prosecutors will also have to determine whether the scheme occurred at other financial institutions. Megabanks such as JPMorgan Chase and Bank of America have run up billions of dollars in fines and settlements for many different kinds of misconduct. We need to know whether the creation of sham accounts should be added to the list.

Cracking Down on Modern-Day Child Labor Abuses

When the Massachusetts Attorney General announced in January that Chipotle was being fined over $1 million for child labor violations, it was a jarring reminder that a practice usually associated with the sweatshops and coal mines of the early 20th century is still with us.

The Fair Labor Standards Act of 1938 put restrictions on the employment of minors but did not abolish it entirely. Instead, it established minimum ages for various kinds of work and set restrictions on working hours.  States have child labor laws of their own.

Compliance with these rules was far from universal, but it appeared that the violators were mainly small businesses. The U.S. Labor Department’s Wage and Hour Division did its best to investigate these abuses and imposed penalties that typically amounted to around $10,000 and involved a single location, even when it was an outlet or franchise of a much larger corporation.

Massachusetts AG Maura Healey is abandoning that approach and bringing broader actions that highlight the magnitude of the problem. The Chipotle case included $1.37 million in restitution and penalties for an estimated 13,253 child labor violations and other state wage-and-hour infractions at the company’s 50 corporate-owned locations in the state. As part of the settlement, Chipotle also agreed to pay $500,000 to help create a fund to be administered by the AG’s office to educate the public about child labor and to provide training opportunities for young people.

Healey’s investigators had found that Chipotle regularly employed minors without work permits, required 16- and 17-year-old employees to work later than the law allows, and in some instances had minors working beyond the nine-hour daily limit and the 48-hour weekly maximum.

Chipotle is not the only large company targeted by Healey. In February her office announced a $400,000 settlement with Wendy’s International covering an estimated 2,100 violations at its 46 corporate-owned restaurants in the state. The infractions were similar, such as having 16- and 17-year-olds working later than allowed and beyond the nine-hour daily limit.

Last year, the Massachusetts AG reached a $409,000 settlement with Qdoba Restaurant Corporation for the same kind of violations at its 22 corporate-owned locations.

The consequences of overworking minors are the same as they were was a century ago. Long hours on the job interfere with school work and can negatively impact the health of young people. Fast food outlets may not pose quite the same physical hazards as the factories and mines where children were once employed, but they are far from risk-free.

For instance, there have been many reports of sexual harassment of young workers at restaurant chains such as McDonald’s, sometimes on the part of managers. Such harassment is a problem for workers of all ages but is particularly serious when the victims are minors.

Low unemployment rates and labor shortages are making it more common for employers to turn to young workers to fill in the gaps. Yet we should make sure that these businesses do not break the rules when they do so. Other regulators should follow the lead of Massachusetts in getting tough with employers who exploit the most vulnerable workers.

Justice Deferred at Wells Fargo

In finally resolving its investigation of Wells Fargo for a brazen scheme to bilk customers through the creation of millions of sham fee-generating accounts, the Trump/Barr Justice Department employed some tough language but administered what amounted to a slap on the wrist.

DOJ issued a press release quoting Deputy Assistant Attorney General Michael Granston as saying that the settlement “holds Wells Fargo accountable for tolerating fraudulent conduct that is remarkable both for its duration and scope.” The release was accompanied by a 16-page summary of the bank’s abuses, including the adoption of “onerous sales goals and accompanying management pressure [that] led thousands of its employees to engage in: (1) unlawful conduct to attain sales through fraud, identity theft, and the falsification of bank records, and (2) unethical practices to sell products of no or low value to the customer, while believing that the customer did not actually need the account and was not going to use the account.”

The document states that senior Wells executives were well aware of the unlawful behavior yet continued to ratchet up the sales pressure on employees.

This recitation echoes the content of a 100-page notice issued earlier by Wells’ primary regulator, the Office of the Comptroller of the Currency. While the OCC imposed substantial financial penalties against several former executives of the bank, DOJ has not charged any individuals.

Justice imposed a $3 billion monetary penalty on Wells, which resolves criminal issues such as false bank records and identity theft as well as civil issues under the Financial Institutions Reform, Recovery and Enforcement Act and securities violations that may be brought by the SEC. That penalty is not insignificant but it will not be too much of a burden for a bank whose profits last year exceeded $19 billion.

Moreover, the impact of the criminal portion of the case was diminished by the inclusion of a deferred prosecution agreement rather than the filing of any actual charges. This overused gimmick (like its evil twin, the non-prosecution agreement) allows DOJ to give the impression it is being tough with corporate bad actors while actually failing to do so.

In its press release on the Wells case, DOJ tries to justify the use of the DPA by noting factors such as the bank’s cooperation with the investigation. Yet it also cites “prior settlements in a series of regulatory and civil actions.”

How are the bank’s prior bad acts, which according to Violation Tracker have resulted in more than $17 billion in penalties, an argument for leniency? If anything, they militate against the use of DPA, which was originally meant to provide an incentive for a company caught up in a single case of misconduct to return to the straight and narrow.

Wells Fargo, in fact, was the recipient, via its acquisition Wachovia, of a previous DPA in 2010 for anti-money-laundering deficiencies as well as a 2011 non-prosecution agreement in connection with municipal bond bid-rigging. Those deals do not appear to have much of a beneficial effect on the ethical climate at the bank.

Allowing Wells to once again evade true criminal responsibility is sending the wrong signal to a corporation whose conduct was so pernicious, both in cheating its customers and in coercing lower-level employees to participate in the massive fraud.

Behavior like this calls out for tougher penalties. In 2018 the Federal Reserve took a step in that direction by barring Wells from growing any larger until it cleaned up its business practices. The agency also announced that the bank had been pressured to replace four members of its board of directors.

Meanwhile, the Justice Department continues to rely on prosecutorial approaches that have done little to stem the ongoing wave of corporate criminality.