Dirt Diggers Digest

Facebook Joins the Multi-Billion-Dollar Penalty Club

It is a sign of how jaded we have become to corporate misconduct that the $5 billion fine imposed on Facebook by the Federal Trade Commission for privacy violations is being shrugged off by the company, by the market and by the public. Many are describing it as a slap on the wrist.

It’s true that a ten-figure penalty is no longer such a rarity. According to Violation Tracker, 35 parent companies have had to pay that amount in at least one case in the United States. Eleven corporations have been hit with billion-dollar-plus penalties more than once. Of these, nine are big banks: Bank of America, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, JPMorgan Chase, Morgan Stanley, Royal Bank of Scotland and Wells Fargo. The other two are BP and Volkswagen.

Bank of America, whose penalty total is far greater than that of any other corporation, has racked up seven ten-figure cases, including three in excess of $10 billion.

BofA’s rap sheet is perhaps the most persuasive evidence that escalating penalties are not having the desired effect of deterring corporate wrongdoing. Even at the higher levels, the fines are seen by large companies as a tolerable cost to pay for continuing to do business more or less as before.

The Justice Department and the regulatory agencies seem to be aware of this and are at least making noises about taking other steps to deter and punish miscreants.

In the case of Facebook that includes provisions in the FTC settlement that will put more responsibility on the company’s board to make sure that privacy protections are enforced. It also enhances external oversight by an independent third-party monitor.

All of this might be more impressive if Facebook had not already signed a previous settlement with the FTC in 2012 that was supposed to establish strong privacy protections—provisions that the company has clearly evaded.

Also contained in the Facebook settlement is a provision that will require Facebook CEO Mark Zuckerberg to personally certify that the company is adhering to privacy protections. This would only have an impact if it is rigorously enforced, with non-compliance putting him behind bars rather than just triggering another big payout.

There is also renewed discussion of stepped up antitrust enforcement, especially against the big tech companies. This would be more effective if federal authorities were willing to try breaking up the likes of Facebook, Alphabet/Google and Amazon rather than seeking limited restrictions on their market power. That approach has largely been shunned for the past two decades, ever since the effort to split up Microsoft collapsed and the DOJ had to settle for more modest remedies.

Prosecutors and policymakers continue to struggle with the issue of how to deal with large companies. Often it seems they are mainly concerned with little more than giving the appearance of getting tough. Only when faced with sustained public pressure will they come up with effective ways to rein in rogue corporations.

The Tainted Corporations Dominating the Opioid Industry

The release of a previously confidential database is providing insights into the opioid industry analogous to what would be contained in the secret accounts of all the Mexican drug cartels. The database, known as the Automation of Reports and Consolidated Order System, or ARCOS, is compiled by the U.S. Drug Enforcement Administration. It was made public by the federal judge in Cleveland overseeing a massive lawsuit brought by nearly 2,000 localities against opioid manufacturers and distributors.

A detailed analysis of the database by the Washington Post shows that the industry has been heavily concentrated in the hands of fewer than a dozen large corporations. These companies are among the defendants in the Cleveland case and are increasingly being targeted for their role in generating an epidemic that has caused hundreds of thousands of deaths.

The claims by the corporations that they are not to blame for the crisis is made harder to swallow by the fact that they each have a history of involvement in other types of corporate misconduct. That history, taken from their entries in Violation Tracker, is summarized below.

The Post analysis of ARCOS shows that just six companies distributed three-quarters of the 76 billion oxycodone and hydrocodone pills that saturated the country in the period from 2006 to 2012.

McKesson Corporation, which accounted for 18.4 percent of the pills, has accumulated more than $400 million in total penalties, more than half of which comes from False Claims Act cases. For example, in 2012 it paid $190 million to settle federal allegations that it reported inflated drug pricing information for a large number of prescription drugs, causing Medicaid to overpay for those medications. The company paid another $151 million to settle related allegations brought by 28 state attorneys general in a case not yet in Violation Tracker (but will be added in an expansion later this year).

Walgreens (16.5 percent) is now part of Walgreens Boots Alliance, which has total penalties of $589 million. Nearly half of that comes from a $269 million settlement of False Claims Act allegations of improper billing for insulin pens. In 2013 Walgreens paid $80 million in a Controlled Substances Act case.

Cardinal Health (14 percent) has more than $195 million in penalties, the largest portion of which includes four cases involving violations of the Controlled Substances Act. Among its other controversies: a $35 million settlement with the SEC of allegations it engaged in fraudulent accounting and a $26.8 million settlement with the Federal Trade Commission concerning anti-competitive practices.

AmerisourceBergen (11.7 percent) has accumulated $899 million in penalties, including a $625 million False Claims Act settlement and a $260 million criminal penalty for distributing misbranded oncology drugs.

CVS (7.7 percent) has $850 million in penalties, more than half of which comes from 15 False Claims Act cases. Another $183 million resulted from Controlled Substances Act matters.

Rounding out the list of major distributors is Walmart (6.9 percent), which has accumulated $1.6 billion in penalties, 90 percent of which resulted from wage and hour cases.

According to the Post analysis, three companies accounted for 88 percent of opioid production during the 2006-2012 period.

SpecGx, a subsidiary of Mallinckrodt, accounted for the largest portion, 37.7 percent. Mallinckrodt has $139 million in penalties, including a $100 million antitrust settlement and a $35 million Controlled Substances Act settlement.

Actavis Pharma (34.6 percent) is now owned by Teva Pharmaceuticals, which has more than $2 billion in penalties, most of which comes from cases involving allegations that another subsidiary, Cephalon, engaged in anti-competitive practices and marketed drugs for purposes not approved by the Food and Drug Administration.

The last big manufacturer is Par Pharmaceutical (15.7 percent), a subsidiary of Endo International, which has total penalties of $287 million, including a $192 million settlement for marketing of drugs for unapproved purposes.

Purdue Pharma, which is often the leading target of criticism for the opioid crisis, showed up in the ARCOS database as producing only 3 percent of output.

Given the involvement of these companies in all kinds of corporate misconduct, it is highly unlikely that they were blameless in bringing about the opioid epidemic. Chances are that the lawsuit in Cleveland will result in substantial increases in their penalty totals.

One Less Wheeler Dealer

It’s unfortunate that 18,000 people will lose their jobs in the process, but it is good news that Deutsche Bank is leaving the investment banking business. The world is better off with one less wheeling and dealing financial player that has repeatedly flouted all kinds of laws and regulations.

That tarnished record dates back to the late 1990s, when Deutsche Bank acquired New York-based Bankers Trust, which was testing the limits of what a commercial bank could do while getting embroiled in a series of scandals.

Just a few months after the acquisition was announced, Bankers Trust pleaded guilty to criminal charges that its employees had diverted $19 million in unclaimed checks and other credits owed to customers over to the bank’s own books to enhance its financial results. The bank paid a $60 million fine to the federal government and another $3.5 million to New York State.

Deutsche Bank was also having its own legal problems during this period. In 1998 its offices were raided by German criminal investigators looking for evidence that the bank helped wealthy customers engage in tax evasion. In 2004 investors who purchased what turned out to be abusive tax shelters from DB sued the company in U.S. federal court, alleging that they had been misled (the dispute was later settled for an undisclosed amount). That litigation as well as a U.S. Senate investigation brought to light extensive documentation of DB’s role in tax avoidance.

In the 2000s, DB was penalized repeatedly by financial regulators, including a 2004 settlement with the Securities and Exchange Commission in which it had to pay $87.5 million to settle charges of conflicts of interest between its investment banking and its research operations, and a $208 million settlement with federal and state agencies in 2006 to settle charges of market timing violations.

In 2009 the SEC announced that DB would provide $1.3 billion in liquidity to investors that the agency had alleged were misled by the bank about the risks associated with auction rate securities.

In 2010 the U.S. Attorney for the Southern District of New York announced that DB would pay $553 million and admit to criminal wrongdoing to resolve charges that it participated in transactions that promoted fraudulent tax shelters and generated billions of dollars in U.S. tax losses.

In 2011, the Federal Housing Finance Agency sued DB and other firms for abuses in the sale of mortgage-backed securities to Fannie Mae and Freddie Mac (the case was settled for $1.9 billion in late 2013).

In 2012 the Southern District of New York announced that DB would pay $202 million to settle charges that its MortgageIT unit had repeatedly made false certifications to the Federal Housing Administration about the quality of mortgages to qualify them for FHA insurance coverage.

In 2013 DB agreed to pay a $1.5 million fine to the Federal Energy Regulatory Commission to settle charges that it had manipulated energy markets in California in 2010.

In 2013 Massachusetts fined Deutsche Bank $17.5 million for failing to inform investors of conflicts of interest during the sale of collateralized debt obligations. That same year, DB was fined $983 million by the European Commission for manipulation of the LIBOR interest rate index. (Later, in 2015, it had to agree to pay $2.5 billion to settle LIBOR allegations brought by U.S. and UK regulators.)

In 2015 the SEC announced that DB would pay $55 million to settle allegations that it overstated the value of its derivatives portfolio during the height of the financial meltdown. Later that year, DB agreed to pay $200 million to New York State regulators and $58 million to the Federal Reserve to settle allegations that it violated U.S. economic sanctions against countries such as Iran.

In January 2017 the bank reached a $7.2 billion settlement of a Justice Department case involving the sale of toxic mortgage securities during the financial crisis. That same month, it was fined $425 million by New York State regulators to settle allegations that it helped Russian investors launder as much as $10 billion through its branches in Moscow, New York and London.

In March 2017 Deutsche Bank subsidiary DB Group Services (UK) Limited was ordered by the U.S. Justice Department to pay a $150 million criminal fine in connection with LIBOR manipulation. The following month, the Federal Reserve fined DB $136 million for interest rate manipulation and $19 million for failing to maintain an adequate Volcker rule compliance program. Shortly thereafter, the Fed imposed another fine, $41 million, for anti-money-laundering deficiencies. In October 2017 DB paid $220 million to settle multistate litigation relating to LIBOR.

In 2018 DB paid a total of $100 million to the Commodity Futures Trading Commission–$70 million for interest-rate manipulation and $30 million for manipulation of metals futures contracts.

As a result of all these and other cases, Deutsche Bank ranks seventh among parent companies in Violation Tracker, with more than $12 billion in total penalties.

Not all these cases arose out of DB’s investment banking business. Its commercial banking operation, which will continue, was responsible for keeping the Trump Organization afloat when other banks shunned the shaky company. And it has just come to light that DB provided loans to the notorious Jeffrey Epstein.

Deutsche Bank’s history of controversies may not be over.

De-Enforcement

For the past two years, the Trump Administration has sought to give the impression it is dismantling large parts of the federal regulatory system. The effort is not only wrong-headed – it has largely been unsuccessful. Many of the moves to eliminate rules have been thwarted by court challenges.

Yet the administration has found another way to advance its goal of allowing rogue corporations to operate with much lower levels of oversight: it is reducing the ranks of federal employees whose job it is to enforce the regulations that remain on the books.

A recent overview by the Wall Street Journal found that staffing at the Environmental Protection Agency is down by about half since its height during President Obama’s second term. The Occupational Safety and Health Administration was said to have the fewest workplace inspectors in decades.

Fewer inspectors means fewer inspections and lower levels of penalties imposed for infractions. Last year, Public Citizen and the Corporate Research Project, using data from Violation Tracker, published a report showing how penalty levels were sinking at virtually all the key agencies. The evidence suggests that the trend is continuing.

Some of the staffing decline is due to attrition. Many regulatory agency employees have retired or resigned because they can no longer bear to work to see their mission undermined by the political appointees Trump has installed. More than 700 left the EPA in first 12 months after the administration took office.

Trumpworld is no longer depending entirely on attrition to hollow out the EPA. Now the administration is engaged in a direct attack on the remaining employees at the agency. EPA management has just informed the American Federation of Government Employees, the largest union at the EPA, that it will unilaterally impose changes in working conditions on 9,000 staffers.

The changes, which AFGE is challenging with an unfair labor practice filing, would, among other things, bar employees from telecommuting and would severely limit the amount of time rank-and-file union representatives can spend on grievances and other workplace matters. AFGE reps would also be evicted from the office space at the agency currently being used for union activity. Grievance and arbitration rights themselves would also be put in jeopardy.

The moves by EPA management appear to be an indirect way of implementing harsh policies that Trump tried to implement through executive order last year, but which were blocked by a federal judge. “In the Trump world, there is no bargaining, only ultimatums,” stated Tim Whitehouse, executive director of Public Employees for Environmental Responsibility and a former EPA enforcement attorney. “Under these rules, important safeguards against political purges within the civil service would be removed.”

Trump has received a great deal of deserved criticism for his attacks on federal prosecutors and Congressional oversight, given the corrosive effect on the rule of law. The administration’s actions against staffers at agencies such as the EPA are just as dangerous for our system of regulatory enforcement.

Battles Over Background Reports

The Ban the Box movement seeks to remove barriers to employment for job applicants with a prior arrest or conviction. The goal is to have all candidates considered on their merits and to give those with criminal records a chance to explain their specific circumstances.

Yet there is another problem relating to employer use of criminal records and other personal background information: sometimes the information they obtain on a candidate is inaccurate or may refer to someone else with a similar name.

Employers who use such faulty information in their hiring decisions can find themselves the target of a class action lawsuit. These suits are based on provisions of the federal Fair Credit Reporting Act (FCRA), which requires employers to get written consent from a job candidate before obtaining background-check reports containing criminal records as well as credit history and other personal information. Before making an adverse decision based on data in the report, the employer must give the applicant a copy and allow time for the person to challenge any inaccuracies in the document.

You will not be surprised to learn that employers often break these rules.

I’ve been compiling information on employment-related FCRA lawsuits as part of the latest expansion of Violation Tracker. I found that over the past decade employers have paid out $174 million to resolve such cases, while companies providing those reports have paid out another $152 million when they have been sued directly.

The dollar totals derive from 146 successful class actions brought against a variety of employers in sectors such as retail, banking, logistics, security services and private prisons.

Since 2011 more than 40 employers have paid out FCRA employment settlements of $1 million or more. In one of the largest cases, Wells Fargo paid $12 million in 2016 to thousands of applicants whose FCRA rights were allegedly violated. Other large payouts by well-known companies include: Target ($8.5 million), Uber Technologies ($7.5 million), Amazon.com ($5 million), Home Depot ($3 million), and Domino’s Pizza ($2.5 million).

More cases are pending. A $2.3 million settlement involving Delta Air Lines is awaiting final court approval. In January a federal judge in California certified a class of five million Walmart job applicants.

Suits have also been brought against staffing services such as Aerotek (which paid a $15 million settlement) and temp agencies such as Kelly Services ($6.7 million).

Providers of background-check reports also have obligations under the FCRA, including a duty to employ reasonable procedures to ensure the accuracy of the information they report. The Violation Tracker compilation includes 30 provider class actions with settlements amounts as high as $28 million.

The FCRA cases are the fourth compilation of employment-related class actions to be added to Violation Tracker, following ones covering wage theft, workplace discrimination, and retirement-plan abuses. With the addition of the FCRA cases and the updating of data from more than 40 federal regulatory agencies and the Justice Department, Violation Tracker now contains 369,000 civil and criminal entries with total penalties of $470 billion.

Will Prosecutors Get Tough with the Largest Corporate Lawbreakers?

By the standards of corporate law enforcement, the Justice Department is throwing the book at Insys Therapeutics. To resolve a civil and criminal case alleging that the company paid illegal kickbacks to healthcare providers to market its powerful opioid Subsys, DOJ required Insys to pay a total of $225 million in fines and forfeitures. Its operating subsidiary had to plead guilty to five counts of mail fraud.

A few weeks earlier, a federal jury in Massachusetts delivered guilty verdicts against the Insys founder John Kapoor (photo) and four former top executives on racketeering charges relating to the kickbacks and other actions such as misleading insurance companies about the need for Subsys, which was supposed to be used in limited circumstances by cancer patients but which Insys tried to get prescribed more widely.

Although Insys itself was offered a deferred prosecution agreement, the company has felt the effects of these legal setbacks. It has been forced to file for Chapter 11 bankruptcy, its stock price has plunged, and it has agreed to sell off Subsys.

If Insys ends up going out of business entirely – and if Kapoor and the others end up in prison for a substantial period of time – this will serve as a warning to other players in the pharmaceutical industry that there can be dire consequences for serious misconduct.

Yet the challenge for prosecutors is whether they can apply similar punishments to larger malefactors in the drug business and related sectors. Insys, after all, had only $82 million in revenue last year and has a workforce of only 226. Its disappearance from the scene would not cause major disruptions.

Consider the case of Johnson & Johnson, with over $80 billion in annual revenues and about 135,000 employees. Despite a carefully cultivated image of purity in connection with its products for infants, J&J has been involved in a series of scandals over the past decade. Violation Tracker shows that it has paid out more than $3 billion in penalties.

The company has received a lot of unfavorable attention in recent months in connection with allegations that it covered up internal concerns about possible asbestos contamination of its baby powder and other talc-based products. J&J has been hit with a flood of lawsuits and has already received some massive adverse verdicts.

The company is also on the defensive for its role in the opioid crisis, facing a lawsuit brought by the state of Oklahoma, which has already collected substantial settlements in related cases brought against Purdue Pharma and Teva Pharmaceutics. J&J may wish it had settled.

An expert witness in the case recently accused the company of contributing to a “public health catastrophe” and charged that its behavior in some ways was even worse than that of widely vilified Purdue. It remains to be seen whether a company of the size and prominence of J&J will be subjected to the same kind of federal prosecutorial offensive launched against Insys. It is only when business giants face existential threats for their misdeeds that we may see real change in corporate behavior.

Challenging Corporate Investment in Anti-Abortion States

For the past three decades, labor activists have watched with frustration as foreign automakers concentrated their U.S. investments in states hostile to labor unions and worker rights. The problem continues today as Volkswagen is reported to be colluding with state officials in Tennessee to thwart a new United Auto Workers organizing drive.

Now reproductive rights activists are facing a similar challenge: what to do about large corporations doing business in states that are taking aggressive action to restrict women’s right to choose.

There are already moves by some media companies to address the issue by saying they will reconsider working in Georgia, a favorite location for film and television production because of its generous tax credits. In recent days, companies such as Netflix, Walt Disney and WarnerMedia have made statements saying they could shun the Peach State because of its new law that would effectively outlaw abortion.

While trying to appear bold, the companies are actually taking a weak position by saying they would act only if the law takes effect, ignoring the fact that Georgia and the other states are paving the way for a weakening of reproductive rights by the U.S. Supreme Court even if their laws are struck down before being implemented.

The media industry is not the only sector that is susceptible to pressure campaigns. Many large corporations have made substantial investments in the hardline anti-abortion states, often receiving sumptuous subsidy packages from state and local officials. Here are examples from the Good Jobs First Subsidy Tracker:

Alabama: Toyota and Mazda got $900 million for an auto assembly plant. Amazon.com got $54 million for a fulfillment center. Google got $81 million for a data center.

Georgia: Kia got $410 million for an auto assembly plant. Baxter International got $211 million for a pharmaceutical production facility.

Kentucky: Amazon.com got $75 million for a distribution facility. Toyota got $146 million for an auto assembly plant expansion.

Louisiana: IBM got $152 million for a technology center. ExxonMobil got $118 million for a refinery upgrade.

Mississippi: Continental Tire got $595 million for a manufacturing facility. Toyota got $354 million for an assembly plant.

Missouri: Amazon.com got $78 million for a fulfillment center. Boeing got $229 million to expand its operations in the state.

Ohio: Amazon.com got $93 million for a data center. General Electric got $98 million for a global operations center.

It may be unrealistic to expect that corporations will abandon facilities in the anti-abortion states, but they may face pressure to avoid future investments in those places.

The big subsidy packages that may be offered by those states to lure the investments could also come to be seen in a very different light – the same way that gifts from the opioid-tainted Sackler family to major cultural institutions are now treated as toxic.

Not long ago, we saw how economic pressure on states helped to undermine opposition to gay marriage. We will now see whether similar pressure, exercised by targeting big business investment, can also help defeat the attack on reproductive rights.

A Limited Corporate Crackdown

The Trump Administration has, for the most part, allowed large corporations to get away with all kinds of misconduct. It has weakened enforcement, limited the use of heavy penalties and searched for ways to dismantle regulations.

Yet there is one corporation that Trump has been attacking recently with special fervor: the Chinese telecommunications equipment giant Huawei. A Washington Post front-page story article in mid-May was headlined: U.S. Hits Huawei with ‘death penalty,’ a reference to its placement (now delayed) on a list of companies that U.S. firms cannot do business with.

As with many of Trump’s hardball actions, the penalties against Huawei are actually collateral damage resulting from a different skirmish. The president is less concerned with the company’s practices than he is with putting pressure on China to make concessions in a trade dispute that is turning out to be a lot more difficult for the United States to win than Trump had promised.

The pretext for the actions against Huawei is that the company is a national security threat, which is the same general allegation that the U.S. had made against another Chinese telecommunications corporation, ZTE. That company was able to escape the blacklist last year after it paid a $1 billion fine, replaced its management and made other internal changes.

However the Huawei confrontation turns out, it is fascinating to see the harm that the federal government can inflict on a corporation, especially a large one, when it wants to get tough.

The use of the Entity List, compiled by the Commerce Department’s Bureau of Industry and Security, is a particular threat for a company like Huawei, which is heavily dependent on both hardware (chips from companies such as Qualcomm) and software (Google’s Android operating system) from the United States. The pressure on Huawei intensified when two British firms announced that they will abide by the U.S. restrictions. There are bound to be more international ramifications that threaten Huawei’s survival.

Imagine if the United States had applied similarly draconian measures against other foreign corporations accused of misconduct. More than half of the entries on the Violation Tracker list of the companies with the highest cumulative penalties are foreign-based. These include five banks along with BP and Volkswagen.

The U.S. Justice Department and other federal agencies have been willing to levy substantial fines against these companies, yet all of them are still doing business in the United States. These include some that have faced allegations similar to those made against Huawei. For example, the French bank BNP Paribas was accused of violating international sanctions and penalized nearly $9 billion but was not put on the Entity List.

Volkswagen may not have been involved in sanctions and national security controversies, but its environmental conduct has been quite egregious. If the federal government were serious about punishing foreign corporate bad actors, it should bring to their cases the same zeal being shown with regard to Huawei.

For that matter, a more aggressive approach toward rogue domestic companies would also be in order.

The Other Collusion

The Trump crowd may have escaped prosecution on charges of colluding with the Russians, but another case involving collusion is moving full steam ahead. Attorneys general from 43 states and Puerto Rico are pursuing a blockbuster lawsuit against the generic drug industry on charges of conspiring to artificially inflate and manipulate prices, reduce competition and unreasonably restrain trade for more than 100 different products.

Led by Connecticut Attorney General William Tong (photo), the coalition claims to have extensive evidence in the form of emails, text messages, telephone records, and statements from former company insiders documenting that 20 companies such as Teva, Sandoz and Mylan engaged in a “broad, coordinated and systematic campaign” to conspire with each other to generate prices increases that in some instances exceeded 1,000 percent.

The case, which could result in a multi-billion-dollar settlement, is a reminder that price-fixing, one of the oldest forms of corporate crime, remains a live issue. The main change is the method by which companies collude. Adam Smith’s discussion of the practice in The Wealth of Nations (1776) stated that “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Now the same results can be achieved electronically, without face-to-face encounters.

Price-fixing accounts for more of the federal criminal cases in Violation Tracker than any other offense type besides environmental matters. The 212 cases have resulted in $10 billion in penalties, including more than two dozen cases in which the defendants had to pay more than $100 million.

Many of those cases involve industries such as auto parts, electronic components and chemicals; in other words, business-to-business transactions. Federal antitrust prosecutors have focused much less on goods purchased by individual consumers.

That’s where the states come in. The current case against the generic drug companies is just the latest in a string of lawsuits in which state AGs have banded together to address anti-competitive practices that affect consumers.

We’re now in the process of collecting data on those cases to add to Violation Tracker. So far, we have identified more than 100 multistate lawsuits involving price-fixing and related matters. Quite a few of these involve drug and vitamin producers.

There have even been some brought against the same generic producers targeted in the new case. For example, in 2000 Mylan agreed to pay $108 million to settle multistate allegations that it conspired with other companies to control the market for generic anti-anxiety drugs.

The past and current allegations against companies such as Teva and Mylan are especially troubling because these generic producers were supposed to be the heroes of the drug industry. Instead of acting as a check on the avaricious impulses of the brand-name producers, it appears that they jumped on the profit-maximization bandwagon. This should serve as another indicator that market forces are not up to the task of eliminating price-gouging in the pharmaceutical industry. Strong government intervention is the only remedy.

Trump’s Wage Theft Vulnerability

Donald Trump may have Bill Barr’s Justice Department in his pocket, but the president is on much shakier ground in his home state. And that’s not only because New York Attorney General Letitia James is seeking his tax returns and investigating his business deals.

Trump also has to contend with the fact that the New York AG’s office is one of the most aggressive prosecutors of wage and hour violations by employers in the state. One of those employers is the Trump Organization, whose Trump National Golf Club in Briarcliff Manor, New York is reported to be rife with wage theft.

The Washington Post has just published a detailed account of the ways in which employees at the golf club, especially undocumented immigrants, have been required to work off the clock at no pay. Workers are reported to have been explicitly told by managers to clock out but continue to perform tasks such as vacuuming carpets and polishing silverware.

The Post article states that nearly 30 former employees of Trump golf courses have met with state prosecutors and have provided them documentation such as W-2 forms and pay stubs. One of those workers, Jose Gabriel Juarez (photo), told the Post: “It was that way with all the managers: Many of them told us ‘Just clock out and then stay and do the side work.’”

This does not bode well for the Trump Organization. According to data contained in Violation Tracker, the New York AG’s office has brought more than 60 successful cases against companies for wage theft and has collected more than $38 million in penalties. The largest recovery was $4.8 million paid by the utility company National Grid in 2013.

Yet those are only the cases in which the defendants were corporations. The New York AG’s office is one of only a few law enforcement agencies that also bring cases against individual corporate executives and business owners for labor violations. In other words, it takes the phrase wage theft literally and has on numerous occasions filed criminal charges against those individuals. Here are some examples:

In May 2016 Lalo Drywall, Inc. and its owner Sergio Raymundo, were sentenced in Manhattan Supreme Court after a conviction related to wage theft for underpaying workers at a mixed-use, commercial, and low-income residential project in Harlem. Raymundo pled guilty to one count of Falsifying Business Records in the First Degree under New York State’s Penal Law, a class E felony, as well as to one count of Failure to Pay Wages under New York State’s Labor Law, an unclassified misdemeanor.

In September 2017 Arthur Anyah, owner of Mical Home Health Care Agency, Inc. in Peekskill, New York was sentenced to one year in jail for defrauding 67 employees out of over $135,000 in wages. Anyah had pled guilty to engaging in a scheme to induce health care workers to provide home health care services to the agency’s clients without pay, as well as falsifying business records, failing to pay wages, and defrauding the state unemployment insurance contribution system.

These and other wage theft cases, as well as many other kinds of prosecutions, can be found in the press release archive of the New York AG’s office. The Corporate Research Project is in the process of compiling these cases and similar ones from the other state AGs for an expansion of Violation Tracker that will be released later this year. By that time there may very well be a new entry for the Trump Organization to include.