307 posts categorized "Court Cases" Feed

Court Says Biometric Privacy Lawsuit Against Facebook Can Proceed

Facebook logo MediaPost reported:

"A federal appellate court has rejected Facebook's request for a new hearing over an Illinois biometric privacy law. Unless the Supreme Court steps in, Illinois Facebook users can now proceed with a class-action alleging that Facebook violated Illinois residents' rights by compiling a database of their faceprints... The legal battle, which dates to 2015, when several Illinois residents alleged that Facebook violated the Illinois Biometric Privacy Information Act, which requires companies to obtain written releases from people before collecting “face geometry” and other biometric data, including retinal scans and voiceprints... The fight centers on Facebook's photo-tagging function, which draws on a vast trove of photos to recognize users' faces and suggest their names when they appear in photos uploaded by their friends..."


Facebook To Pay $40 Million To Advertisers To Resolve Allegations of Inflated Advertising Metrics

Facebook logo According to court papers last week, Facebook has entered a proposed settlement agreement where it will pay $40 million to advertisers to resolve allegations in a class-action lawsuit that the social networking platform inflated video advertising engagement metrics. Forbes explained:

"The metrics in question are critical for advertisers on video-based content platforms such as YouTube and Facebook because they show the average amount of time users spend watching their content before clicking away. During the 18 months between February of 2015 and September of 2016, Facebook was incorrectly calculating — and consequently, inflating — two key metrics of this type. Members of the class action are alleging that the faulty metrics led them to spend more money on Facebook ads than they otherwise would have..."

Metrics help advertisers determine if the ads they paid for are delivering results. Reportedly, the lawsuit took three years and Facebook denied any wrongdoing. The proposed settlement must be approved by a court. About $12 million of the $40 million total will be used to pay plaintiffs' attorney fees.

A brief supporting the proposed settlement provided more details:

" One metric—“Average Duration of Video Viewed”—depicted the average number of seconds users watched the video; another—–“Average Percentage of Video Viewed”—depicted the average percentage of the video ad that users watched... Starting in February 2015, Facebook incorrectly calculated Average Duration of Video Viewed... The Average View Duration error, in turn, led to the Average Percentage Viewed metric also being inflated... Because of the error, the average watch times of video ads were exaggerated for about 18 months... Facebook acknowledges there was an error. But Facebook has argued strenuously that the error was an innocent mistake that Facebook corrected shortly after discovering it. Facebook has also pointed out that some advertisers likely never viewed the erroneous metrics and that because Facebook does not set prices based on the impacted metrics, the error did not lead to overcharges... The settlement provides a $40 million cash fund from Facebook, which constitutes as much as 40% of what Plaintiffs estimate they may realistically have been able to recover had the case made it to trial and had Plaintiffs prevailed. Facebook’s $40 million payment will... also cover the costs of settlement administration, class notice, service awards, and Plaintiffs’ litigation costs24 and attorneys’ fees."

It seems that besides a multitude of data breaches and privacy snafus, Facebook can't quite operate reliably its core advertising business. What do you think?


FTC To Distribute $31 Million In Refunds To Affected Lifelock Customers

U.S. Federal Trade Commission logo The U.S. Federal Trade Commission (FTC) announced on Tuesday the distribution of about $31 million worth of refunds to certain customers of Lifelock, an identity protection service. The refunds are part of a previously announced settlement agreement to resolve allegations that the identity-theft service violated a 2010 consent order.

Lifelock has featured notable spokespersons, including radio talk-show host Rush Limbaugh, television personality Montel Williams, actress Angie Harmon, and former New York City Mayor Rudy Giuliani, who is now the personal attorney for President Trump.

The FTC announcement explained:

"The refunds stem from a 2015 settlement LifeLock reached with the Commission, which alleged that from 2012 to 2014 LifeLock violated an FTC order that required the company to secure consumers’ personal information and prohibited it from deceptive advertising. The FTC alleged, among other things, that LifeLock failed to establish and maintain a comprehensive information security program to protect users’ sensitive personal information, falsely advertised that it protected consumers’ sensitive data with the same high-level safeguards used by financial institutions, and falsely claimed it provided 24/7/365 alerts “as soon as” it received any indication a consumer’s identity was being used."

Lifelock logo The 2015 settlement agreement with the FTC required LifeLock agreed to pay $100 million to affected customers. About $68 million has been paid to customers who were part of a class action lawsuit. The FTC is using the remaining money to provide refunds to consumers who were LifeLock members between 2012 and 2014, but did not receive a payment from the class action settlement.

The FTC expects to mail about one million refund checks worth about $29 each.

If you are a Lifelock customer and find this checkered history bothersome, Consumer Reports has some recommendations about what you can do instead. It might save you some money, too.


Court Okays 'Data Scraping' By Analytics Firm Of Users' Public LinkedIn Profiles. Lots Of Consequences

LinkedIn logo Earlier this week, a Federal appeals court affirmed an August 2017 injunction which required LinkedIn, a professional networking platform owned by Microsoft Corporation, to allow hiQ Labs, Inc. to access members' profiles. This ruling has implications for everyone.

hiQ Labs logo First, some background. The Naked Security blog by Sophos explained in December, 2017:

"... hiQ is a company that makes its money by “scraping” LinkedIn’s public member profiles to feed two analytical systems, Keeper and Skill Mapper. Keeper can be used by employers to detect staff that might be thinking about leaving while Skill Mapper summarizes the skills and status of current and future employees. For several years, this presented no problems until, in 2016, LinkedIn decided to offer something similar, at which point it sent hiQ and others in the sector cease and desist letters and started blocking the bots reading its pages."

So, hiQ apps use algorithms which determine for its clients (prospective or current employers) which employees will stay or go. Gizmodo explained the law which LinkedIn used in its arguments in court, namely the:

".... practice of scraping publicly available information from their platform violated the 1986 Computer Fraud and Abuse Act (CFAA). The CFAA is infamously vaguely written and makes it illegal to access a “protected computer” without or in excess of “authorization”—opening the door to sweeping interpretations that could be used to criminalize conduct not even close to what would traditionally be understood as hacking.

Second, the latest court ruling basically said two things: a) it is legal (and doesn't violate hacking laws) for companies to scrape information contained in publicly available profiles; and b) LinkedIn must allow hiQ (and potentially other firms) to continue with data-scraping. This has plenty of implications.

This recent ruling may surprise some persons, since the issue of data scraping was supposedly settled law previously. MediaPost reported:

"Monday's ruling appears to effectively overrule a decision issued six years ago in a dispute between Craigslist and the data miner 3Taps, which also scraped publicly available listings. In that matter, 3Taps allegedly scraped real estate listings and made them available to the developers PadMapper and Lively. PadMapper allegedly meshed Craigslist's apartment listings with Google maps... U.S. District Court Judge Charles Breyer in the Northern District of California ruled in 2013 that 3Taps potentially violated the anti-hacking law by scraping listings from Craigslist after the company told it to stop doing so."

So, you can bet that both social media sites and data analytics firms closely watched and read the appeal court's ruling this week.

Third, in theory any company or agency could then legally scrape information from public profiles on the LinkedIn platform. This scraping could be done by industries and/or entities (e.g., spy agencies worldwide) which job seekers didn't intend nor want.

Many consumers simply signed up and use LinkedIn to build professional relationship and/or to find jobs, either fulltime as employees or as contractors. The 2019 social media survey by Pew Research found that 27 percent of adults in the United States use LinkedIn, but higher usage penetration among persons with college degrees (51 percent), persons making more than $75K annually (49 percent), persons ages 25 - 29 (44 percent), persons ages 30 - 49 (37 percent), and urban residents (33 percent).  

I'll bet that many LinkedIn users never imagined that their profiles would be used against them by data analytics firms. Like it or not, that is how consumers' valuable, personal data is used (abused?) by social media sites and their clients.

Fourth, the practice of data scraping has divided tech companies. Again, from the Naked Security blog post in 2017:

"Data scraping, its seems, has become a booming tech sector that increasingly divides the industry ideologically. One side believes LinkedIn is simply trying to shut down a competitor wanting to access public data LinkedIn merely displays rather than owns..."

The Electronic Frontier Foundation (EFF), the DuckDuckGo search engine, and the Internet Archived had filed an amicus brief with the appeals court before its ruling. The EFF explained the group's reasoning and urged the:

"... Court of Appeals to reject LinkedIn’s request to transform the CFAA from a law meant to target serious computer break-ins into a tool for enforcing its computer use policies. The social networking giant wants violations of its corporate policy against using automated scripts to access public information on its website to count as felony “hacking” under the Computer Fraud and Abuse Act, a 1986 federal law meant to criminalize breaking into private computer systems to access non-public information. But using automated scripts to access publicly available data is not "hacking," and neither is violating a website’s terms of use. LinkedIn would have the court believe that all "bots" are bad, but they’re actually a common and necessary part of the Internet. "Good bots" were responsible for 23 percent of Web traffic in 2016..."

So, bots are here to stay. And, it's up to LinkedIn executives to find a solution to protect their users' information.

Fifth, according to the Reuters report the court judge suggested a solution for LinkedIn by "eliminating the public access option." Hmmmm. Public, or at least broad access, is what many job seekers desire. So, a balance needs to be struck between truly "public" where anyone, anywhere worldwide could access public profiles, versus intended targets (e.g., hiring executives in potential employers in certain industries).

Sixth, what struck me about the court ruling this week was that nobody was in the court room representing the interests of LinkedIn users, of which I am one. MediaPost reported:

"The appellate court discounted LinkedIn's argument that hiQ was harming users' privacy by scraping data even when people used a "do not broadcast" setting. "There is no evidence in the record to suggest that most people who select the 'Do Not Broadcast' option do so to prevent their employers from being alerted to profile changes made in anticipation of a job search," the judges wrote. "As the district court noted, there are other reasons why users may choose that option -- most notably, many users may simply wish to avoid sending their connections annoying notifications each time there is a profile change." "

What? Really?! We LinkedIn users have a natural, vested interest in control over both our profiles and the sensitive, personal information that describes each of us in our profiles. Somebody at LinkedIn failed to adequately represent users' interests of its users, the court didn't really listen closely nor seek out additional evidence, or all of the above.

Maybe the "there is no evidence in the record" regarding the 'Do Not Broadcast' feature will be the basis of another appeal or lawsuit.

With this latest court ruling, we LinkedIn users have totally lost control (except for deleting or suspending our LinkedIn accounts). It makes me wonder how a court could reach its decision without hearing directly from somebody representing LinkedIn users.

Seventh, it seems that LinkedIn needs to modify its platform in three key ways:

  1. Allow its users to specify which uses or applications (e.g., find fulltime work, find contract work, build contacts in my industry or area of expertise, find/screen job candidates, advertise/promote a business, academic research, publish content, read news, dating, etc.) their profiles can only be used for. The 'Do Not Broadcast' feature is clearly not strong enough;
  2. Allow its users to specify or approve individual users -- other actual persons who are LinkedIn users and not bots nor corporate accounts -- who can access their full, detailed profiles; and
  3. Outline in the user agreement the list of applications or uses profiles may be accessed for, so that both prospective and current LinkedIn users can make informed decisions. 

This would give LinkedIn users some control over the sensitive, personal information in their profiles. Without control, the benefits of using LinkedIn quickly diminish. And, that's enough to cause me to rethink my use of LinkedIn, and either deactivate or delete my account.

What are your opinions of this ruling? If you currently use LinkedIn, will you continue using it? If you don't use LinkedIn and were considering it, will you still consider using it?


Google And YouTube To Pay $170 Million In Proposed Settlement To Resolve Charges Of Children's Privacy Violations

Google logo Today's blog post contains information all current and future parents should know. On Tuesday, the U.S. Federal Trade Commission (FTC) announced a proposed settlement agreement where YouTube LLC, and its parent company, Google LLC, will pay a monetary fine of $170 million to resolve charges that the video-sharing service illegally collected the personal information of children without their parents' consent.

YouTube logo The proposed settlement agreement requires YouTube and Google to pay $136 million to the FTC and $34 million to New York State to resolve charges that the video sharing service violated the Children’s Online Privacy Protection Act (COPPA) Rule. The announcement explained the allegations:

"... that YouTube violated the COPPA Rule by collecting personal information—in the form of persistent identifiers that are used to track users across the Internet—from viewers of child-directed channels, without first notifying parents and getting their consent. YouTube earned millions of dollars by using the identifiers, commonly known as cookies, to deliver targeted ads to viewers of these channels, according to the complaint."

"The COPPA Rule requires that child-directed websites and online services provide notice of their information practices and obtain parental consent prior to collecting personal information from children under 13, including the use of persistent identifiers to track a user’s Internet browsing habits for targeted advertising. In addition, third parties, such as advertising networks, are also subject to COPPA where they have actual knowledge they are collecting personal information directly from users of child-directed websites and online services... the FTC and New York Attorney General allege that while YouTube claimed to be a general-audience site, some of YouTube’s individual channels—such as those operated by toy companies—are child-directed and therefore must comply with COPPA."

While $170 million is a lot of money, it is tiny compared to the $5 billion fine by the FTC assessed against Facebook. The fine is also tiny compared to Google's earnings. Alphabet Inc., the holding company which owns Google, generated pretax net income of $34.91 billion during 2018 on revenues of $136.96 billion.

In February, the FTC concluded a settlement with Musical.ly, a video social networking app now operating as TikTok, where Musical.ly paid $5.7 million to resolve allegations of COPPA violations. Regarding the proposed settlement with YouTube, Education Week reported:

"YouTube has said its service is intended for ages 13 and older, although younger kids commonly watch videos on the site and many popular YouTube channels feature cartoons or sing-a-longs made for children. YouTube has its own app for children, called YouTube Kids; the company also launched a website version of the service in August. The site says it requires parental consent and uses simple math problems to ensure that kids aren't signing in on their own. YouTube Kids does not target ads based on viewer interests the way YouTube proper does. The children's version does track information about what kids are watching in order to recommend videos. It also collects personally identifying device information."

The proposed settlement also requires YouTube and Google:

"... to develop, implement, and maintain a system that permits channel owners to identify their child-directed content on the YouTube platform so that YouTube can ensure it is complying with COPPA. In addition, the companies must notify channel owners that their child-directed content may be subject to the COPPA Rule’s obligations and provide annual training about complying with COPPA for employees who deal with YouTube channel owners. The settlement also prohibits Google and YouTube from violating the COPPA Rule, and requires them to provide notice about their data collection practices and obtain verifiable parental consent before collecting personal information from children."

The complaint and proposed consent decree were filed in the U.S. District Court for the District of Columbia. After approval by a judge, the proposed settlement become final. Hopefully, the fine and additional requirements will be enough to deter future abuses.


How Trump’s Political Appointees Overruled Tougher Settlements With Big Banks

[Editor's note: today's guest post, by reporters at ProPublica, discusses enforcement approaches by the United States government with the banking industry. It is reprinted with permission.]

By Jesse Eisinger, ProPublica, and Kevin Wack, American Banker

Since Donald Trump’s election, federal white-collar enforcement has taken a big hit. Fines and settlements against corporations have plummeted. Prosecutions of individuals are falling to record lows.

But just how these fines and settlements came to be slashed is less well understood. Two settlements with giant banks over financial crisis-era misdeeds provide a window into how the Trump administration has eased up on corporate wrongdoers.

In settlements last year with the two big U.K.-based banks, Barclays and Royal Bank of Scotland, political appointees at the Trump administration Justice Department took the unusual step of overruling staff prosecutors to reduce the settlements sought, leaving billions of dollars in potential recoveries on the table, according to four people familiar with the settlements.

In the case of RBS, then-Deputy Attorney General Rod Rosenstein decided that the charges should not be pursued as a criminal case, as the prosecutorial team advocated, but rather as a less serious civil one.

Both cases were developed by the Obama administration DOJ and involved accusations that the banks misled buyers of residential mortgage-backed securities before the 2008 financial crisis. Prosecutors seemingly found numerous examples of bankers knowingly selling lemons to their customers. The mortgages they were putting into securities were “total fucking garbage,” one RBS executive said in a phone call that was recorded and cited in a DOJ filing. A Barclays banker said a group of loans “scares the shit out of me.” Mortgages that went into the two banks’ securities lost a total of $73 billion, according to calculations used by the government.

In March 2018, the DOJ settled with Barclays for $2 billion, a sum dictated by Trump appointees that was far below what the staff prosecutors in the Eastern District of New York in Brooklyn had sought. The settlement with RBS occurred in August 2018, for $4.9 billion. After Rosenstein downgraded the case from criminal to civil, other Trump appointees concluded that the settlement amount should be about half of what staff prosecutors in the District of Massachusetts had sought.

DOJ spokeswoman Sarah Sutton said that the Barclays and RBS settlements held the banks accountable for serious misconduct, and that the penalties recovered from the banks were fair and proportionate compared with those previously obtained from other banks. She did not respond to detailed questions about how the two settlements were reached and why key decisions were dictated from Washington. “They were largely negotiated by career attorneys in the Department and U.S. Attorneys’ offices with the support and collaboration of Department leadership,” Sutton wrote in an email.

Aspects of how the DOJ came to settle the cases have been recounted. The New York Times reported on Rosenstein’s decision in the RBS case. But this is the first extensive account of how the banks secured the favorable outcomes.

The British banks employed an old playbook, one that proved effective with the Trump administration: Hire prominent former high-level DOJ officials who were now at major law firms. These attorneys won access to the top echelons of the Trump DOJ, where they found an audience receptive to their arguments that the staff prosecutors were unfairly singling out their clients for excess punishment.

The two cases stemmed from the Obama administration’s efforts to bring charges against banks for misdeeds that contributed to the financial crisis. Critics assailed the Obama DOJ for what they perceived as tardy and inadequate policing of financial crisis malfeasance. For example, the Obama DOJ did not prosecute any top bankers for actions related to the crisis. But it did belatedly bring civil charges, and it reached large settlements with numerous banks, including JPMorgan Chase, Citigroup and Bank of America. Moreover, the Obama-era DOJ consistently required the banks to acknowledge their bad acts, a practice that has ceased during the Trump administration.

As the Obama administration was winding up in the fall of 2016, the DOJ had not completed all that it aspired to. It rushed to reach settlements with foreign banks that had shown less urgency to resolve the allegations than some of their U.S. counterparts.

Less than a week before Trump’s inauguration, the DOJ announced that Deutsche Bank had agreed to pay a $3.1 billion civil penalty, and that Credit Suisse would pay $2.48 billion. But there were holdouts, including Barclays and RBS.

Prosecutors in Brooklyn wanted Barclays to pay somewhere within a range in the high single digits of billions of dollars, according to two people familiar with the negotiations. Barclays balked, drawing a line at $2 billion, according to a Bloomberg News account.

Barclays hired an all-star team of defense lawyers. The roster included Karen Seymour, a partner at Sullivan & Cromwell who had previously served as chief of the criminal division in the U.S. attorney’s office in Manhattan and has since become general counsel at Goldman Sachs.

Also on Barclays’ legal team was Kannon Shanmugam, a former high-ranking official in the George W. Bush DOJ who was then a partner at Williams & Connolly.

With the two sides far apart in December 2016, the DOJ sued Barclays. Prosecutors also brought civil charges against two former executives at the bank who played key roles in its pre-crisis subprime mortgage operations.

Suing was an unusual step — cases against large corporations normally settle before a complaint is filed — and it was meant to send an implicit message to Barclays. Because the DOJ had been forced to go to court, the British bank could expect the price tag of an eventual settlement to be higher.

Barclays was making the opposite bet: that it would be able to negotiate a more favorable settlement once Trump appointees were in place at DOJ.

In a 192-page complaint, the DOJ alleged that Barclays engaged in fraud on a massive scale, deceiving investors about the characteristics of mortgages used to create securities that sold for tens of billions of dollars.

A Barclays employee commented during a 2006 phone call that one particular pool of mortgages was “about as bad as it can be,” but he did not abandon the loans or modify the bank’s standard disclosures to investors, according to the government’s complaint. In another example, when that same banker said that a particular pool of loans “scares the shit out of me,” because he believed the company that originated the mortgages was likely to go bankrupt soon, Barclays bought the loans anyway. The bank deliberately did not conduct due diligence on the mortgages and then packaged them into bonds, the complaint asserted, all the while falsely telling a rating agency that due diligence had been done on 100% of the loans.

“More than half of the underlying loans defaulted,” the complaint stated, causing huge losses for investors.

Barclays’ legal team argued that the bank should not pay higher penalties in a settlement than other banks had paid relative to their market share. Barclays had been a relatively small player in the residential mortgage-backed securities, or RMBS, market, and its settlement should be sized accordingly, they reasoned.

This was an argument that the DOJ had long rejected. In a 2014 speech, then-Associate Attorney General Tony West argued that a firm’s market share should not outweigh evidence of the extent of its wrongdoing. “The facts and evidence of a particular case — they are what will ultimately matter the most,” he said.

In the Barclays matter, prosecutors in Brooklyn believed they had a strong case. The judge assigned to the case, U.S. District Judge Kiyo Matsumoto, seemed to agree. “This complaint is probably one of the more fulsome complaints I’ve ever seen,” Matsumoto said at an April 2017 hearing.

But the view that ultimately mattered was the one held by a new crop of officials at Main Justice, the DOJ’s headquarters in Washington. Besides Rosenstein, who was not involved in the Barclays case, key players in the RMBS settlements included Trump administration political appointees in the associate attorney general’s office, according to people familiar with the talks.

Steve Cox, the deputy associate attorney general, oversaw the cases, reporting to Jesse Panuccio, the principal deputy associate attorney general. In February 2018, Panuccio became acting associate attorney general, the No. 3 position at the DOJ, after Rachel Brand resigned from the post.

Neither had much experience with federal prosecutions. Panuccio was a former lawyer to Florida Gov. Rick Scott, as well as the chief labor and land use official in Florida, and Cox was a onetime associate at WilmerHale who had spent six years as a corporate counsel at an oil company, Apache Corporation, before joining the DOJ.

Following communications with the Barclays legal team, DOJ officials in Washington conveyed a message to the staff prosecutors in Brooklyn: settle the case within a narrow range around $2 billion, or we will take the negotiations out of your hands. The instruction came via a spreadsheet that listed the dollar range.

For DOJ officials in Washington to dictate specific terms of a settlement was unusual. U.S. attorney offices generally have wide latitude in choosing what they investigate and in making prosecutorial decisions. “Involvement of DOJ in cases handled in the U.S. attorney’s offices is not common” but happens on big cases from time to time, said Harry Sandick, a former federal prosecutor who is now a partner at Patterson Belknap. During Obama-era negotiations, Main Justice had tried to show a united front with prosecutors who’d investigated the RMBS cases, according to former department officials.

At least one prosecutor acknowledged the internal rift between Brooklyn and Washington to the Barclays’ defense team, according to a source familiar with the matter. Once prosecutors in Brooklyn learned Main Justice’s position, this prosecutor communicated to the Barclays side that the bank had prevailed. Recalling how the deal went down, one government official said: “It seemed like a defeat.”

The staff prosecutors weren’t just disappointed about settling for a fraction of what they had sought back in 2016. They had brought civil charges against two former Barclays employees, Paul Menefee and John Carroll, and in exchange for dismissal, the two men agreed to pay a combined $2 million. But the agreement did not include language that precluded Barclays from footing the bill. That meant that Menefee and Carroll, who did not admit wrongdoing, might not have to pay a dime out of their own pockets.

Lawyers for Menefee and Carroll did not respond to requests for comment. In a statement, U.S. Attorney Richard Donoghue said, “The substantial penalty Barclays and its executives had to pay was an important step in recognizing the harm that was caused to the national economy and to investors in RMBS.”

At Main Justice, at least one official also regretted the Barclays deal, but from the opposite perspective. Cox told a prosecutor that he wished the Barclays settlement had been even smaller, but he explained that it wasn’t feasible to go lower because it had been reported that the bank offered to pay $2 billion, according to a person familiar with the conversation.

Cox did not respond to requests for comment.

Panuccio, who stepped down from the DOJ in the spring, declined to answer specific questions, citing the confidentiality of the department’s process. In an email response, he said, “The general narrative the questions seem to suggest is belied by the facts — including the fact that DOJ recovered historically significant sums in its 2018 and 2019 FIRREA settlements, and the fact that DOJ filed a major FIRREA suit against UBS in November 2018.” (FIRREA is the Financial Institutions Reform, Recovery and Enforcement Act of 1989, a law dating from the savings and loan scandals of the late ’80s.)

Barclays declined to comment.

While Barclays had been in active negotiations with the DOJ during the Obama administration, the RBS defense team had not. RBS did not want to enter negotiations until the prosecutors dropped the criminal investigation.

Boston prosecutors declined to do so. Mortgages that went into RBS’ securities suffered about $54 billion in losses, ravaging their customers’ investments. The prosecutors believed they had compiled damning evidence that RBS officials knew what they were doing was wrong. In one example, RBS’ chief credit officer in the United States called the mortgages that were going into the securities “total fucking garbage” with “fraud [that] was so rampant … [and] all random,” according to calls the prosecutors later quoted in the statement of facts against the bank. He stated that “the loans are all disguised to, you know, look okay kind of … in a data file.”

In 2016, the RBS defense team, which included former Deputy Attorney General Jamie Gorelick, of WilmerHale, appealed to Stuart Delery, then the third-highest official at the DOJ. Delery knew Gorelick from their time at the DOJ. Despite that relationship, according to a person knowledgeable about the matter, Delery said he would not interfere with an ongoing investigation at a U.S. attorney’s office. (Delery did not respond to requests for comment. Gorelick directed questions to RBS.)

Then came November. A few months later, the Trump appointees arrived.

For a while, nothing changed. The Boston prosecutors continued their investigation, more convinced than ever that the RBS conduct merited a criminal charge. They wrote what’s known as a “prosecution memo,” which they had begun during the Obama administration, describing the underlying criminal acts under FIRREA.

Such a move would have been groundbreaking. The Obama DOJ had used FIRREA, but for civil charges. And the Boston prosecutors did not want to stop there. They argued for first charging the bank criminally, and then moving on to seek criminal charges against individual bankers. Those would have been the first of their kind.

They never got that far.

In time, Trump political appointees such as Panuccio and Cox began to figure out their way around the department. The RBS defense team, including Gorelick, requested meetings with top officials. Gorelick again had a connection with a key DOJ official. She had worked with Cox, earlier in his career when he was an associate at WilmerHale, defending BP in investigations of the Deepwater Horizon spill.

The defense group now also included Mark Filip of Kirkland & Ellis, representing the British government’s interest in RBS. Filip, who did not respond to requests for comment, has a special stature. During his tenure as deputy attorney general, he had codified the conditions prosecutors had to assess in bringing cases against corporations, which are today known as the “Filip Factors.” Prosecutors are supposed to weigh a variety of issues, such as how serious offenses are and whether the company has cooperated with investigators. As a private sector big hitter, companies hire him, in the view of prosecutors, to explain why his factors are not met in a given case.

The RBS team was able to meet with the No. 2 at the DOJ, Rosenstein. It’s unusual, though not unprecedented, for a defense team to get access to such a high-level official. The RBS team persuaded Rosenstein.

In the spring of 2018, Rosenstein informed Andrew Lelling, the U.S. attorney for the District of Massachusetts, that his office couldn’t pursue criminal charges against RBS. Rosenstein said he didn’t want the DOJ treating RBS differently from other banks, which faced only civil investigations. (The Massachusetts U.S. attorney’s office declined to comment on the details of the RBS settlement. Rosenstein, who left the DOJ in May, did not respond to inquiries.)

RBS spokeswoman Linda Harper confirmed that the Boston U.S. attorney’s office had recommended criminal prosecution and that the bank had met first with Delery and then with Rosenstein.

“The argument we made was for fairness and parity,” she said. The bank’s defense team, she added, argued that “Main Justice should ensure that like cases are treated alike.”

The Boston team was disappointed and angry. It argued that prosecutors charge people when they have the necessary evidence, even if they cannot charge all people who committed the same crime. And it maintained that the decision went against department policy. In May 2017, then-Attorney General Jeff Sessions issued a memo directing prosecutors to charge defendants with the most serious provable crimes carrying the highest penalties.

“It calls into question whether the memo meant what it says when it came to white-collar prosecutions,” a person familiar with the decision said.

Once the case was downgraded, the Boston team turned to deciding on the monetary settlement. Internally, prosecutors had discussed seeking a settlement in the $9 billion to $10 billion range, reflecting their belief that the RBS conduct was especially egregious.

At one point in the spring after the Rosenstein meetings, Main Justice sent Boston a similar spreadsheet that it sent to other U.S. attorney offices concerning their open cases, including those against Barclays, Japanese bank Nomura and Swiss bank UBS. For RBS, the range was between around $4.5 billion to about $6.6 billion.

The Boston prosecutors tried to get the settlement as close to the top of the range as they could. But they were thwarted even in that attempt. Cox told the Boston team that the DOJ would “call the bluff” of RBS and tell the bank it would take $4.9 billion.

Prosecutors thought the DOJ had caved. They complained to Cox that Main Justice had authorized the office to seek as much as $6.6 billion. Cox’s reply: But RBS won’t go that high.

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.


FTC Levies $5 Billion Fine, 'New Restrictions, And Modified Corporate Structure' To Hold Facebook Accountable. Will These Actions Prevent Future Privacy Abuses?

The U.S. Federal Trade Commission (FTC) announced on July 24th a record-breaking fine against Facebook, Inc., plus new limitations on the social networking service. The FTC announcement stated:

"Facebook, Inc. will pay a record-breaking $5 billion penalty, and submit to new restrictions and a modified corporate structure that will hold the company accountable for the decisions it makes about its users’ privacy, to settle Federal Trade Commission charges that the company violated a 2012 FTC order by deceiving users about their ability to control the privacy of their personal information... The settlement order announced [on July 24th] also imposes unprecedented new restrictions on Facebook’s business operations and creates multiple channels of compliance..."

During 2018, Facebook generated after-tax profits of $22.1 billion on sales of $55.84 billion. While a $5 billion fine is a lot of money, the company can easily afford the record-breaking fine. The fine equals about one month's revenues, or a little over 4 percent of its $117 billion in assets.

U.S. Federal Trade Commission. New compliance system for Facebook. Click to view larger version The FTC announcement explained several "unprecedented" restrictions in the settlement order. First, the restrictions are designed to:

"... prevent Facebook from deceiving its users about privacy in the future, the FTC’s new 20-year settlement order overhauls the way the company makes privacy decisions by boosting the transparency of decision making... It establishes an independent privacy committee of Facebook’s board of directors, removing unfettered control by Facebook’s CEO Mark Zuckerberg over decisions affecting user privacy. Members of the privacy committee must be independent and will be appointed by an independent nominating committee. Members can only be fired by a supermajority of the Facebook board of directors."

Facebook logo Second, the restrictions mandated compliance officers:

"Facebook will be required to designate compliance officers who will be responsible for Facebook’s privacy program. These compliance officers will be subject to the approval of the new board privacy committee and can be removed only by that committee—not by Facebook’s CEO or Facebook employees. Facebook CEO Mark Zuckerberg and designated compliance officers must independently submit to the FTC quarterly certifications that the company is in compliance with the privacy program mandated by the order, as well as an annual certification that the company is in overall compliance with the order. Any false certification will subject them to individual civil and criminal penalties."

Third, the new order strengthens oversight:

"... The order enhances the independent third-party assessor’s ability to evaluate the effectiveness of Facebook’s privacy program and identify any gaps. The assessor’s biennial assessments of Facebook’s privacy program must be based on the assessor’s independent fact-gathering, sampling, and testing, and must not rely primarily on assertions or attestations by Facebook management. The order prohibits the company from making any misrepresentations to the assessor, who can be approved or removed by the FTC. Importantly, the independent assessor will be required to report directly to the new privacy board committee on a quarterly basis. The order also authorizes the FTC to use the discovery tools provided by the Federal Rules of Civil Procedure to monitor Facebook’s compliance with the order."

Fourth, the order included six new privacy requirements:

"i) Facebook must exercise greater oversight over third-party apps, including by terminating app developers that fail to certify that they are in compliance with Facebook’s platform policies or fail to justify their need for specific user data; ii) Facebook is prohibited from using telephone numbers obtained to enable a security feature (e.g., two-factor authentication) for advertising; iii) Facebook must provide clear and conspicuous notice of its use of facial recognition technology, and obtain affirmative express user consent prior to any use that materially exceeds its prior disclosures to users; iv) Facebook must establish, implement, and maintain a comprehensive data security program; v) Facebook must encrypt user passwords and regularly scan to detect whether any passwords are stored in plaintext; and vi) Facebook is prohibited from asking for email passwords to other services when consumers sign up for its services."

Wow! Lots of consequences when a manager builds a corporation with a, "move fast and break things" culture, values, and ethics. Assistant Attorney General Jody Hunt for the Department of Justice’s Civil Division said:

"The Department of Justice is committed to protecting consumer data privacy and ensuring that social media companies like Facebook do not mislead individuals about the use of their personal information... This settlement’s historic penalty and compliance terms will benefit American consumers, and the Department expects Facebook to treat its privacy obligations with the utmost seriousness."

There is disagreement among the five FTC commissioners about the settlement, as the vote for the order was 3 - 2. FTC Commissioner Rebecca Kelly Slaughter stated in her dissent:

"My principal objections are: (1) The negotiated civil penalty is insufficient under the applicable statutory factors we are charged with weighing for order violators: injury to the public, ability to pay, eliminating the benefits derived from the violation, and vindicating the authority of the FTC; (2) While the order includes some encouraging injunctive relief, I am skeptical that its terms will have a meaningful disciplining effect on how Facebook treats data and privacy. Specifically, I cannot view the order as adequately deterrent without both meaningful limitations on how Facebook collects, uses, and shares data and public transparency regarding Facebook’s data use and order compliance; (3) Finally, my deepest concern with this order is that its release of Facebook and its officers from legal liability is far too broad..."

FTC Commissioners Noah Joshua Phillips and Christine S. Wilson stated on July 24th in an 8-page joint statement (Adobe PDF) with Chairman Joseph J. Simons of the U.S. District Court for the District of Columbia:

"In 2012, Facebook entered into a consent order with the FTC, resolving allegations that the company misrepresented to consumers the extent of data sharing with third-party applications and the control consumers had over that sharing. The 2012 order barred such misrepresentations... Our complaint announced today alleges that Facebook failed to live up to its commitments under that order. Facebook subsequently made similar misrepresentations about sharing consumer data with third-party apps and giving users control over that sharing, and misrepresented steps certain consumers needed to take to control [over] facial recognition technology. Facebook also allowed financial considerations to affect decisions about how it would enforce its platform policies against third-party users of data, in violation of its obligation under the 2012 order... The $5 billion penalty serves as an important deterrent to future order violations... For purposes of comparison, the EU’s General Data Protection Regulation (GDPR) is touted as the high-water mark for comprehensive privacy legislation, and the penalty the FTC has negotiated is over 20 times greater than the largest GDPR fine to date... IV. The Settlement Far Exceeds What Could be Achieved in Litigation and Gives Consumers Meaningful Protections Now... Even assuming the FTC would prevail in litigation, a court would not give the Commission carte blanche to reorganize Facebook’s governance structures and business operations as we deem fit. Instead, the court would impose the relief. Such relief would be limited to injunctive relief to remedy the specific proven violations... V. Mark Zuckerberg is Being Held Accountable and the Order Cabins His Authority Our dissenting colleagues argue that the Commission should not have settled because the Commission’s investigation provides an inadequate basis for the decision not to name Mark Zuckerberg personally as a defendant... The provisions of this Order extinguish the ability of Mr. Zuckerberg to make privacy decisions unilaterally by also vesting responsibility and accountability for those decisions within business units, DCOs, and the privacy committee... the Order significantly diminishes Mr. Zuckerberg’s power — something no government agency, anywhere in the world, has thus far accomplished. The Order requires multiple information flows and imposes a robust system of checks and balances..."

Time will tell how effective the order's restrictions and $5 billion are. That Facebook can easily afford the penalty suggests the amount is a weak deterrence. If all or part of the penalty is tax-deductible (yes, tax-deductible fines have happened before to directly reduce a company's taxes), then that would weaken the deterrence effectiveness. And, if all or part of the fine is tax-deductible, then we taxpayers just paid for part of Facebook's alleged wrongdoing. I'll bet most taxpayers wouldn't want that.

Facebook stated in a July 24th news release that its second-quarter 2019 earnings included:

"... an additional $2.0 billion legal expense related to the U.S. Federal Trade Commission (FTC) settlement and a $1.1 billion income tax expense due to the developments in Altera Corp. v. Commissioner, as discussed below. As the FTC expense is not expected to be tax-deductible, it had no effect on our provision for income taxes... In July 2019, we entered into a settlement and modified consent order to resolve the inquiry of the FTC into our platform and user data practices. Among other matters, our settlement with the FTC requires us to pay a penalty of $5.0 billion and to significantly enhance our practices and processes for privacy compliance and oversight. In particular, we have agreed to implement a comprehensive expansion of our privacy program, including substantial management and board of directors oversight, stringent operational requirements and reporting obligations, and a process to regularly certify our compliance with the privacy program to the FTC. In the second quarter of 2019, we recorded an additional $2.0 billion accrual in connection with our settlement with the FTC, which is included in accrued expenses and other current liabilities on our condensed consolidated balance sheet."

"Not expected to be" is not the same as definitely not. And, business expenses reduce a company's taxable net income.

A copy of the FTC settlement order with Facebook is also available here (Adobe PDF format; 920K bytes). Plus, there is more:

"... the FTC also announced today separate law enforcement actions against data analytics company Cambridge Analytica, its former Chief Executive Officer Alexander Nix, and Aleksandr Kogan, an app developer who worked with the company, alleging they used false and deceptive tactics to harvest personal information from millions of Facebook users. Kogan and Nix have agreed to a settlement with the FTC that will restrict how they conduct any business in the future."

Cambridge Analytica was involved in the massive Facebook data breach in 2018 when persons allegedly posed as academic researchers in order to download Facebook users' profile information they really weren't authorized to access.

What are your opinions? Hopefully, some tax experts will weigh in about the fine.


Equifax To Pay $575 Million To Settle Charges By U.S. Regulators About Massive 2017 Data Breach

U.S. Federal Trade Commission logo Yesterday, the U.S. Federal Trade Commission (FTC) announced a proposed settlement agreement with Equifax, a national credit reporting agency, which has agreed to pay $575 million to resolve charges about its massive data breach in 2017. That breach exposed the sensitive personal and financial information of about half of all citizens in the United States. The announcement stated:

"In its complaint, the FTC alleges that Equifax failed to secure the massive amount of personal information stored on its network, leading to a breach that exposed millions of names and dates of birth, Social Security numbers, physical addresses, and other personal information that could lead to identity theft and fraud..."

U.S. Consumer Financial Protection Bureau The global, proposed settlement agreement included the FTC, the Consumer Financial Protection Bureau (CFPB), and 50 U.S. states and territories. The FTC announcement described Equifax's data security failures (emphasis added):

"The FTC alleges that Equifax failed to patch its network after being alerted in March 2017 to a critical security vulnerability affecting its ACIS database, which handles inquiries from consumers about their personal credit data. Even though Equifax’s security team ordered that each of the company’s vulnerable systems be patched within 48 hours after receiving the alert, Equifax did not follow up to ensure the order was carried out... Equifax did not discover that its ACIS database was unpatched until July 2017... A company investigation revealed that multiple hackers were able to exploit the ACIS vulnerability to gain entry to Equifax’s network, where they accessed an unsecured file that included administrative credentials stored in plain text. These credentials allowed the hackers to gain access to vast amounts of consumers’ personally identifiable information... The hackers targeted Social Security numbers, dates of birth, and other sensitive information, mostly from consumers who had purchased products from Equifax such as credit scores, credit monitoring, or identity theft prevention services. For example, hackers stole at least 147 million names and dates of birth, 145.5 million Social Security numbers, and 209,000 payment card numbers and expiration dates. Hackers were able to access a staggering amount of data because Equifax failed to implement basic security measures... the FTC also alleges that Equifax stored network credentials and passwords, as well as Social Security numbers and other sensitive consumer information, in plain text."

A truly staggering amount. The most sensitive personal and financial information, indeed. Terms of the proposed settlement:

"... Equifax will pay $300 million to a fund that will provide affected consumers with credit monitoring services. The fund will also compensate consumers who bought credit or identity monitoring services from Equifax and paid other out-of-pocket expenses as a result of the 2017 data breach. Equifax will add up to $125 million to the fund if the initial payment is not enough to compensate consumers for their losses. In addition, beginning in January 2020, Equifax will provide all U.S. consumers with six free credit reports each year for seven years—in addition to the one free annual credit report that Equifax and the two other nationwide credit reporting agencies currently provide."

The settlement also requires Equifax implement a "comprehensive information security plan," and to pay $175 million to 48 states, the District of Columbia and Puerto Rico, as well as $100 million to the CFPB in civil penalties. The comprehensive information security plan will: a) designate an employee to oversee the program; b) include annual assessment of security risks and safeguards; c) obtain "annual certifications from the Equifax board of directors or relevant subcommittee attesting that the company has complied with the order;" d) monitor the effectiveness of security safeguards implemented; e) ensure service providers that access personal information stored by Equifax also implement adequate safeguards; and f) obtain third-party assessments every two years.

The CFPB also announced the proposed settlement on its website. CFPB Director Kathleen L. Kraninger said:

"Today’s announcement is not the end of our efforts to make sure consumers’ sensitive personal information is safe and secure. The incident at Equifax underscores the evolving cyber security threats confronting both private and government computer systems and actions they must take to shield the personal information of consumers. Too much is at stake for the financial security of the American people to make these protections anything less than a top priority."

Kraninger also encouraged consumers affected by the breach to submit their claims to receive free credit monitoring or cash reimbursements. Equifax Chief Executive Officer Mark W. Begor said:

"This comprehensive settlement is a positive step for U.S. consumers and Equifax as we move forward from the 2017 cybersecurity incident and focus on our transformation investments in technology and security as a leading data, analytics, and technology company. The consumer fund of up to $425 million that we are announcing today reinforces our commitment to putting consumers first and safeguarding their data... We have been committed to resolving this issue for consumers and have the financial capacity to manage the settlement while continuing our $1.25 billion EFX2020 technology and security investment program..."

Also, Equifax has set up a website about the settlement: www.equifaxbreachsettlement.com. However, the site says it won't be fully functional until after it receives the approved court order. So, it seems best for affected consumers to deal directly with the FTC.

And, several questions remain. The Identity Theft Resource Center (ITRC) discussed the proposed settlement:

"What victims will qualify for reimbursement? How will victims provide accurate evidence of their efforts and misfortunes? Is this fund only for victims who purchased identity theft services? What is the option for victims who did not have the resources then or now to purchase paid services or avail themselves of free services like those ITRC provides? If all victims filed claims and funds were distributed equally to all 148 million people, each would receive fewer than $3.00 in funds or cost of assistance. This does not accurately reflect the true value of the data that was compromised..."

Yep. More payments by Equifax may be required.

And, the ITRC article includes an important reminder. While the Equifax offer includes a long period of free credit monitoring services -- up to 10 versus the usual 2 years -- the risk to affected consumers never goes away:

"... identity theft has no expiration date. The threat of identity theft does not decrease as more time passes from the date of the breach."

This is why it is critical for companies to deploy the strongest data security measures possible. After data breaches, consumers bear the long-term risks.

Last, the FTC encourages Equifax employees who believe the company fails to comply with the settlement to contact the FTC at equifax@ftc.gov. Affected consumers should contact the FTC directly at the website below:

F.T.C. instructions for consumers affected by Equifax breach


EFF Filed Lawsuit In California Against AT&T To Stop Sales Of Wireless Customers' Realtime Geolocations

The Electronic Frontier Foundation (EFF) announced on July 16th that it had filed:

"... a class action lawsuit on behalf of AT&T customers in California to stop the telecom giant and two data location aggregators from allowing numerous entities—including bounty hunters, car dealerships, landlords, and stalkers—to access wireless customers’ real-time locations without authorization. An investigation by Motherboard earlier this year revealed that any cellphone user’s precise, real-time location could be bought for just $300. The report showed that carriers, including AT&T, were making this data available to hundreds of third parties without first verifying that users had authorized such access. AT&T not only failed to obtain its customers’ express consent, making matters worse, it created an active marketplace that trades on its customers’ real-time location data..."

The lawsuit, Scott, et al. v. AT&T Inc., et al., was filed in the U.S. District Court of the Northern District of California. The suit seeks money damages and an injunction against AT&T and the named location data aggregators: LocationSmart and Zumigo. The suit alleges AT&T violated the Federal Communications Act and engaged in deceptive practices under California’s unfair competition law. It also alleges that AT&T, LocationSmart, and Zumigo have violated California’s constitutional, statutory, and common law rights to privacy. The EFF is represented by Pierce Bainbridge Beck Price & Hecht LLP.


Low-Wage Workers Are Being Sued for Unpaid Medical Bills by a Nonprofit Christian Hospital That Employs Them

[Editor's note: today's guest post, by reporters at ProPublica, discusses business practices within the healthcare industry, and related issues of wages and debt collection. It is reprinted with permission.]

By Wendi C. Thomas, MLK50

MEMPHIS, Tennessee — This year, a Methodist Le Bonheur Healthcare housekeeper left her job just three hours into her shift and caught a bus to Shelby County General Sessions Court. Wearing her black and gray uniform, she had a different kind of appointment with her employer: The hospital was suing her for unpaid medical bills.

In 2017, the nonprofit hospital system based in Memphis sued the woman for the cost of hospital stays to treat chronic abdominal pain she experienced before the hospital hired her. She now owes Methodist more than $23,000, including around $5,800 in attorney’s fees.

It’s surreal, she said, to be sued by the organization that pays her $12.25 an hour. “You know how much you pay me. And the money you’re paying, I can’t live on,” said the housekeeper, who asked that her name not be used for fear that the hospital would fire her for talking to a reporter.

From 2014 through 2018, the hospital system affiliated with the United Methodist Church has filed more than 8,300 lawsuits against patients, including its own workers. After winning judgments, it has sought to garnish the wages of more than 160 Methodist workers and has actually done so in more than 70 instances over that time, according to an MLK50-ProPublica analysis of Shelby County General Sessions Court records, online docket reports and case files.

Some of the debts were accrued while the employees worked at Methodist; others predated their time there. The figures do not include debts incurred by onetime Methodist employees who have since moved on.

Between January and mid-June, a reporter observed more than a dozen Methodist employees in court to defend themselves in suits brought by the hospital over hospital bills.

That includes a Methodist Le Bonheur employee who owes more than $1,200. In January, she proposed paying $100 a month, even though her sworn affidavit listed monthly expenses that exceeded her $1,650 monthly income. After conferring with an attorney for Methodist, Judge Betty Thomas Moore agreed to the worker’s proposal, but she has already missed a payment.

A few weeks later, a Methodist employee appeared for an initial hearing wearing hospital scrubs. The hospital had sued her for more than $4,000. When she left the courtroom, she was annoyed. Her employer knew where she worked, she said, and should have contacted her before suing her. “I don’t know why they can’t come upstairs,” she said outside the courtroom.

And in May, an employee who has worked for Methodist for more than four years carried a large envelope full of bills with her into the courtroom. She owed more than $5,400, which included a 2017 hospital charge from the newborn unit. That is the same year that her daughter was born, according to her sworn affidavit, which also listed a checking account balance of less than $4. She offered to pay $10 biweekly, or $20 most months, but Methodist’s attorney wanted $200 per month. The judge ordered her to pay $100 per month.

It’s not uncommon for hospitals to sue patients over unpaid debts, but what is striking at Methodist, the largest hospital system in the Memphis region, is how many of those patients end up being its own employees. Hardly a week goes by in which Methodist workers aren’t on the court docket fighting debt lawsuits filed by their employer.

Making matters worse, employees say, is that Methodist’s health insurance benefits only allow employees to seek medical care at Methodist facilities, even though the financial assistance policies at its competitors are more generous.

An expert in hospital billing practices said that if the hospital is suing a fair number of its own employees, it’s time to look both at the insurance provided to workers and the pay scale.

“One would hope that if this is an action being taken against a significant amount of employees, the hospital would look at the insurance they provide workers,” said Mark Rukavina, an expert in nonprofit hospitals and a manager at Community Catalyst, a health care advocacy organization.

Methodist declined requests for an interview. It did not respond to specific written questions about the lawsuits it files against its workers or about how its policies reflect the values of the United Methodist Church. Instead, in a statement, it said it is committed to working with patients who are having trouble paying their medical bills.

“As the second largest private employer in Shelby County, we recognize the responsibility we have as an organization to contribute to the success of the diverse communities we serve and are purposeful about creating jobs in our community — intentionally choosing to keep services like printing, laundry and others in-house that are typically outsourced by the healthcare industry,” the hospital said.

Methodist also declined to answer a question about whether it has any policy that prohibits employees being sued by Methodist from talking to a reporter about the lawsuits filed against them by the hospital.

Employer and Legal Adversary

On a single January day, there were 10 defendants on the docket whose place of employment was listed in court records as Methodist.

Employees in scrubs sat just feet away from the attorneys in dress suits whom their employer hired to sue them. The hospital’s role as a tax-exempt organization that both employs the defendants and is suing them went unremarked upon by judges, attorneys and the defendants themselves.

Methodist’s financial assistance policy stands out from peers in Memphis and across the country, MLK50 and ProPublica found. The policy offers no assistance for patients with any form of health insurance, no matter their out-of-pocket costs. Under Methodist’s insurance plan, employees are responsible for a $750 individual deductible and then 20% of inpatient and outpatient costs, up to a maximum out-of-pocket cost of $4,100 per year.

The housekeeper’s story is documented in Shelby County General Sessions Court records, including online docket reports and online payment history. A reporter interviewed the housekeeper multiple times in person and on the phone. The employee gave the reporter six years of itemized Methodist hospital bills, her credit report and other past-due medical bills. Most of her debts were incurred before she started working at Methodist.

Five times between 2012 and 2014, she visited the hospital for stomach problems, according to the itemized bills. (Years later, she had surgery to treat diverticulitis.) At those times, she had insurance through her job at a hotel, where she cleaned rooms for $10.66 an hour. After insurance paid its share, she owed just over $17,500.

In 2015, the housekeeper left the hotel job and lost her insurance. Three times that year she went to Methodist’s ER, but since she was uninsured and had little income, she qualified for financial assistance. Methodist wrote off more than $45,000 in hospital bills.

In a statement, Methodist said it gives an automatic 70% discount to uninsured patients and free care to uninsured patients at or below 125% of the federal poverty guidelines. For a single adult with two dependents, that would be just over $26,600. Uninsured patients who earn more than that, but less than twice the poverty limit, are also eligible for discounts, it said.

In 2016, unable to find work, the housekeeper left Memphis. For more than a year, she said, she and her son were homeless, bouncing between relatives in Chicago, where she was born, and Texas.

But she missed her daughter and grandchildren in Memphis, so in 2017, she returned. In August 2017, Methodist sued her for the bills she accumulated when she was insured years earlier. Later that month, she was hired at a Methodist hospital, starting at $11.95 an hour.

The hospital’s collections agency, which it owns, didn’t have her correct address and was unable to serve notice that she had been sued, but last year, Methodist tried again. This time, it had the right address.

In November, a process server handed her the civil warrant at her South Memphis apartment.

At the process server’s recommendation, she called the hospital’s collection agency and offered to pay $50 every two weeks. “But they said it wasn’t enough,” she recalled. “I would just have to go to court. They said I’d be owing them all my life,” she recalled.

In a sworn affidavit filed with the court this year, the housekeeper listed her dependents as a grandson and her 27-year-old son, who she said has bipolar disorder and schizophrenia. She told the court she earned $16,000 in 2017, which puts her more than $4,000 below that year’s federal poverty level for a family of three. (Because she had insurance, though, she was ineligible for assistance under the hospital’s policy.)

Fred Morton, a retired Methodist minister in Memphis, said he was surprised to learn that Methodist is suing its own employees.

“The employees should be paid an adequate minimum wage at the very least,” he said. “Certainly they should not be predatory to their own employees on medical bills. That’s very much contrary to Scripture.”

He said that Methodist bishops who serve on its board bear responsibility for reminding it of the denomination’s values. “It’s a matter of the church pushing on its own,” Morton said.

Three United Methodist Church bishops serve on the hospital’s board. Bishop Gary Mueller’s office referred a reporter to Methodist Le Bonheur Healthcare’s communications office. Bishop Bill McAilly declined to comment. Bishop James E. Swanson did not respond to multiple requests for comment.

When the housekeeper appeared before a General Sessions Court judge this year, she’d filed a motion offering to pay $50 biweekly, or $100 in most months. When the hospital’s attorney asked for a $200 per month, she was stunned.

“This is my only job, this is my only income, so how am I supposed to live?” she remembered thinking.

Nervous that the judge would side with the hospital, the housekeeper made another offer.

“I could do $75 every two weeks,” she said quickly. The attorney agreed and the judge signed the order.

Being an employee and defendant is “really kind of sad,” the housekeeper said. Asked how she manages to make ends meet, she says she doesn’t. “It’s killing me, killing me softly,” she said.

She said she didn’t reach out to the hospital’s payroll department or a manager about the hospital bills she’s being sued for. “They don’t care about that... That I do know.”

“I Don’t Want to Be Homeless Again”

Part of what makes paying medical bills so hard for some Methodist employees is that their wages are low, lagging behind several other large employers in the Memphis market. In December, St. Jude Children’s Research Hospital announced it was raising its minimum pay for full and part-time workers to $15 an hour. St. Jude’s decision followed a similar commitment by the Shelby County government, Shelby County Schools and Blue Cross Blue Shield of Tennessee.

At Methodist, which operates five hospitals in Shelby County, the lowest-paid employees make $10 an hour and about 18% of workers make less than $15 an hour, the hospital reported in response to MLK50’s 2018 Living Wage Survey.

As recently as 2017, the Greater Memphis Chamber advertised on its website that the city offered a workforce at “wage rates that are lower than most other parts of the country.”

The United Methodist Church’s Social Principles, which state the denomination’s position on everything from climate change to the death penalty, speak directly to what employees should earn. “Every person has the right to a job at a living wage,” it states.

The Living Wage Model statement on the church’s website says, “Exploitation or underpayment of workers is incompatible with Christ’s commandment to love our neighbor.”

Methodist, which made Forbes’ 2019 list of Best Employers by State, did not answer specific questions about pay for employees. On its website, it says, “It is the policy of Methodist Le Bonheur Healthcare to pay its employees competitive, market-based wages.”

Neither Methodist, nonprofit Baptist Memorial Healthcare or Regional One, the public hospital, pay all their employees at least $15 an hour. Even that figure would make it impossible to make ends meet for an employee trying alone to support a household with dependents, according to MIT’s Living Wage Calculator and another created by the Economic Policy Institute, both of which take into account local living expenses.

The housekeeper’s $12.25 an hour pay falls well short of that. Without overtime, she said her take-home pay would be around $1,600 per month. Her rent is $610.

Even with as much overtime as she gets, she’s turned to payday loans. Since December, she’s renewed a $425 payday loan every two weeks, paying $71 each time. “You have to rob from Paul to pay Peter,” she said. “It doesn’t never seem like you can get ahead.”

The housekeeper applied for a job at Walmart but was told the store nearest her is not accepting applications. She doubts the pay will be any better, but she hopes it’ll be less stressful.

"Times be hard, because sometimes my body feels like I can’t make it, but I get up anyway, because I don’t want to be homeless again."

 

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.


Digital Jail: How Electronic Monitoring Drives Defendants Into Debt

[Editor's note: today's guest post, by reporters at ProPublica, discusses the convergence of law enforcement, outsourcing, smart devices, surveillance, "offender funded" programs, and "e-gentrification." It is reprinted with permission.]

By Ava Kofman, ProPublica

On Oct. 12, 2018, Daehaun White walked free, or so he thought. A guard handed him shoelaces and the $19 that had been in his pocket at the time of his booking, along with a letter from his public defender. The lanky 19-year-old had been sitting for almost a month in St. Louis’ Medium Security Institution, a city jail known as the Workhouse, after being pulled over for driving some friends around in a stolen Chevy Cavalier. When the police charged him with tampering with a motor vehicle — driving a car without its owner’s consent — and held him overnight, he assumed he would be released by morning. He told the police that he hadn’t known that the Chevy, which a friend had lent him a few hours earlier, was stolen. He had no previous convictions. But the $1,500 he needed for the bond was far beyond what he or his family could afford. It wasn’t until his public defender, Erika Wurst, persuaded the judge to lower the amount to $500 cash, and a nonprofit fund, the Bail Project, paid it for him, that he was able to leave the notoriously grim jail. “Once they said I was getting released, I was so excited I stopped listening,” he told me recently. He would no longer have to drink water blackened with mold or share a cell with rats, mice and cockroaches. He did a round of victory pushups and gave away all of the snack cakes he had been saving from the cafeteria.

Emass logo When he finally read Wurst’s letter, however, he realized there was a catch. Even though Wurst had argued against it, the judge, Nicole Colbert-Botchway, had ordered him to wear an ankle monitor that would track his location at every moment using GPS. For as long as he would wear it, he would be required to pay $10 a day to a private company, Eastern Missouri Alternative Sentencing Services, or EMASS. Just to get the monitor attached, he would have to report to EMASS and pay $300 up front — enough to cover the first 25 days, plus a $50 installation fee.

White didn’t know how to find that kind of money. Before his arrest, he was earning minimum wage as a temp, wrapping up boxes of shampoo. His father was largely absent, and his mother, Lakisha Thompson, had recently lost her job as the housekeeping manager at a Holiday Inn. Raising Daehaun and his four siblings, she had struggled to keep up with the bills. The family bounced between houses and apartments in northern St. Louis County, where, as a result of Jim Crow redlining, most of the area’s black population lives. In 2014, they were living on Canfield Drive in Ferguson when Michael Brown was shot and killed there by a police officer. During the ensuing turmoil, Thompson moved the family to Green Bay, Wisconsin. White felt out of place. He was looked down on for his sagging pants, called the N-word when riding his bike. After six months, he moved back to St. Louis County on his own to live with three of his siblings and stepsiblings in a gray house with vinyl siding.

When White got home on the night of his release, he was so overwhelmed to see his family again that he forgot about the letter. He spent the next few days hanging out with his siblings, his mother, who had returned to Missouri earlier that year, and his girlfriend, Demetria, who was seven months pregnant. He didn’t report to EMASS.

What he didn’t realize was that he had failed to meet a deadline. Typically, defendants assigned to monitors must pay EMASS in person and have the device installed within 24 hours of their release from jail. Otherwise, they have to return to court to explain why they’ve violated the judge’s orders. White, however, wasn’t called back for a hearing. Instead, a week after he left the Workhouse, Colbert-Botchway issued a warrant for his arrest.

Three days later, a large group of police officers knocked on Thompson’s door, looking for information about an unrelated case, a robbery. White and his brother had been making dinner with their mother, and the officers asked them for identification. White’s name matched the warrant issued by Colbert-Botchway. “They didn’t tell me what the warrant was for,” he said. “Just that it was for a violation of my release.” He was taken downtown and held for transfer back to the Workhouse. “I kept saying to myself, ’Why am I locked up?’” he recalled.

The next morning, Thompson called the courthouse to find the answer. She learned that her son had been jailed over his failure to acquire and pay for his GPS monitor. To get him out, she needed to pay EMASS on his behalf.

This seemed absurd to her. When Daehaun was 13, she had worn an ankle monitor after violating probation for a minor theft, but the state hadn’t required her to cover the cost of her own supervision. “This is a 19-year-old coming out of the Workhouse,” she told me recently. “There’s no way he has $300 saved.” Thompson felt that the court was forcing her to choose between getting White out of jail and supporting the rest of her family.

Over the past half-century, the number of people behind bars in the United States jumped by more than 500%, to 2.2 million. This extraordinary rise, often attributed to decades of “tough on crime” policies and harsh sentencing laws, has ensured that even as crime rates have dropped since the 1990s, the number of people locked up and the average length of their stay have increased. According to the Bureau of Justice Statistics, the cost of keeping people in jails and prisons soared to $87 billion in 2015 from $19 billion in 1980, in current dollars.

In recent years, politicians on both sides of the aisle have joined criminal-justice reformers in recognizing mass incarceration as both a moral outrage and a fiscal sinkhole. As ankle bracelets have become compact and cost-effective, legislators have embraced them as an enlightened alternative. More than 125,000 people in the criminal-justice system were supervised with monitors in 2015, compared with just 53,000 people in 2005, according to the Pew Charitable Trusts. Although no current national tally is available, data from several cities — Austin, Texas; Indianapolis; Chicago; and San Francisco — show that this number continues to rise. Last December, the First Step Act, which includes provisions for home detention, was signed into law by President Donald Trump with support from the private prison giants GEO Group and CoreCivic. These corporations dominate the so-called community-corrections market — services such as day-reporting and electronic monitoring — that represents one of the fastest-growing revenue sectors of their industry.

By far the most decisive factor promoting the expansion of monitors is the financial one. The United States government pays for monitors for some of those in the federal criminal-justice system and for tens of thousands of immigrants supervised by Immigration and Customs Enforcement. But states and cities, which incur around 90% of the expenditures for jails and prisons, are increasingly passing the financial burden of the devices onto those who wear them. It costs St. Louis roughly $90 a day to detain a person awaiting trial in the Workhouse, where in 2017 the average stay was 291 days. When individuals pay EMASS $10 a day for their own supervision, it costs the city nothing. A 2014 study by NPR and the Brennan Center found that, with the exception of Hawaii, every state required people to pay at least part of the costs associated with GPS monitoring. Some probation offices and sheriffs run their own monitoring programs — renting the equipment from manufacturers, hiring staff and collecting fees directly from participants. Others have outsourced the supervision of defendants, parolees and probationers to private companies.

“There are a lot of judges who reflexively put people on monitors, without making much of a pretense of seriously weighing it at all,” said Chris Albin-Lackey, a senior legal adviser with Human Rights Watch who has researched private-supervision companies. “The limiting factor is the cost it might impose on the public, but when that expense is sourced out, even that minimal brake on judicial discretion goes out the window.”

Nowhere is the pressure to adopt monitors more pronounced than in places like St. Louis: cash-strapped municipalities with large populations of people awaiting trial. Nationwide on any given day, half a million people sit in crowded and expensive jails because, like Daehaun White, they cannot purchase their freedom.

As the movement to overhaul cash bail has challenged the constitutionality of jailing these defendants, judges and sheriffs have turned to monitors as an appealing substitute. In San Francisco, the number of people released from jail onto electronic monitors tripled after a 2018 ruling forced courts to release more defendants without bail. In Marion County, Indiana, where jail overcrowding is routine, roughly 5,000 defendants were put on monitors last year. “You would be hard-pressed to find bail-reform legislation in any state that does not include the possibility of electronic monitoring,” said Robin Steinberg, the chief executive of the Bail Project.

Yet like the system of wealth-based detention they are meant to help reform, ankle monitors often place poor people in special jeopardy. Across the country, defendants who have not been convicted of a crime are put on “offender funded” payment plans for monitors that sometimes cost more than their bail. And unlike bail, they don’t get the payment back, even if they’re found innocent. Although a federal survey shows that nearly 40% of Americans would have trouble finding $400 to cover an emergency, companies and courts routinely threaten to lock up defendants if they fall behind on payment. In Greenville, South Carolina, pretrial defendants can be sent back to jail when they fall three weeks behind on fees. (An officer for the Greenville County Detention Center defended this practice on the grounds that participants agree to the costs in advance.) In Mohave County, Arizona, pretrial defendants charged with sex offenses have faced rearrest if they fail to pay for their monitors, even if they prove that they can’t afford them. “We risk replacing an unjust cash-bail system,” Steinberg said, “with one just as unfair, inhumane and unnecessary.”

Many local judges, including in St. Louis, do not conduct hearings on a defendant’s ability to pay for private supervision before assigning them to it; those who do often overestimate poor people’s financial means. Without judicial oversight, defendants are vulnerable to private-supervision companies that set their own rates and charge interest when someone can’t pay up front. Some companies even give their employees bonuses for hitting collection targets.

It’s not only debt that can send defendants back to jail. People who may not otherwise be candidates for incarceration can be punished for breaking the lifestyle rules that come with the devices. A survey in California found that juveniles awaiting trial or on probation face especially difficult rules; in one county, juveniles on monitors were asked to follow more than 50 restrictions, including not participating “in any social activity.” For this reason, many advocates describe electronic monitoring as a “net-widener": Far from serving as an alternative to incarceration, it ends up sweeping more people into the system.

Dressed in a baggy yellow City of St. Louis Corrections shirt, White was walking to the van that would take him back to the Workhouse after his rearrest, when a guard called his name and handed him a bus ticket home. A few hours earlier, his mom had persuaded her sister to lend her the $300 that White owed EMASS. Wurst, his public defender, brought the receipt to court.

The next afternoon, White hitched a ride downtown to the EMASS office, where one of the company’s bond-compliance officers, Nick Buss, clipped a black box around his left ankle. Based in the majority white city of St. Charles, west of St. Louis, EMASS has several field offices throughout eastern Missouri. A former probation and parole officer, Michael Smith, founded the company in 1991 after Missouri became one of the first states to allow private companies to supervise some probationers. (Smith and other EMASS officials declined to comment for this story.)

The St. Louis area has made national headlines for its “offender funded” model of policing and punishment. Stricken by postindustrial decline and the 2008 financial crisis, its municipalities turned to their police departments and courts to make up for shortfalls in revenue. In 2015, the Ferguson Report by the United States Department of Justice put hard numbers to what black residents had long suspected: The police were targeting them with disproportionate arrests, traffic tickets and excessive fines.

EMASS may have saved the city some money, but it also created an extraordinary and arbitrary-seeming new expense for poor defendants. When cities cover the cost of monitoring, they often pay private contractors $2 to $3 a day for the same equipment and services for which EMASS charges defendants $10 a day. To come up with the money, EMASS clients told me, they had to find second jobs, take their children out of day care and cut into disability checks. Others hurried to plead guilty for no better reason than that being on probation was cheaper than paying for a monitor.

At the downtown office, White signed a contract stating that he would charge his monitor for an hour and a half each day and “report” to EMASS with $70 each week. He could shower, but was not to bathe or swim (the monitor is water-resistant, not waterproof). Interfering with the monitor’s functioning was a felony.

White assumed that GPS supervision would prove a minor annoyance. Instead, it was a constant burden. The box was bulky and the size of a fist, so he couldn’t hide it under his jeans. Whenever he left the house, people stared. There were snide comments ("nice bracelet") and cutting jokes. His brothers teased him about having a babysitter. “I’m nobody to watch,” he insisted.

The biggest problem was finding work. Confident and outgoing, White had never struggled to land jobs; after dropping out of high school in his junior year, he flipped burgers at McDonald’s and Steak ’n Shake. To pay for the monitor, he applied to be a custodian at Julia Davis Library, a cashier at Home Depot, a clerk at Menards. The conversation at Home Depot had gone especially well, White thought, until the interviewer casually asked what was on his leg.

To help improve his chances, he enrolled in Mission: St. Louis, a job-training center for people reentering society. One afternoon in January, he and a classmate role-played how to talk to potential employers about criminal charges. White didn’t know how much detail to go into. Should he tell interviewers that he was bringing his pregnant girlfriend some snacks when he was pulled over? He still isn’t sure, because a police officer came looking for him midway through the class. The battery on his monitor had died. The officer sent him home, and White missed the rest of the lesson.

With all of the restrictions and rules, keeping a job on a monitor can be as difficult as finding one. The hours for weekly check-ins at the downtown EMASS office — 1 p.m. to 6 p.m. on Tuesdays and Wednesdays, and 1 p.m. until 5 p.m. on Mondays — are inconvenient for those who work. In 2011, the National Institute of Justice surveyed 5,000 people on electronic monitors and found that 22% said they had been fired or asked to leave a job because of the device. Juawanna Caves, a young St. Louis native and mother of two, was placed on a monitor in December after being charged with unlawful use of a weapon. She said she stopped showing up to work as a housekeeper when her co-workers made her uncomfortable by asking questions and later lost a job at a nursing home because too many exceptions had to be made for her court dates and EMASS check-ins.

Perpetual surveillance also takes a mental toll. Nearly everyone I spoke to who wore a monitor described feeling trapped, as though they were serving a sentence before they had even gone to trial. White was never really sure about what he could or couldn’t do under supervision. In January, when his girlfriend had their daughter, Rylan, White left the hospital shortly after the birth, under the impression that he had a midnight curfew. Later that night, he let his monitor die so that he could sneak back before sunrise to see the baby again.

EMASS makes its money from defendants. But it gets its power over them from judges. It was in 2012 that the judges of the St. Louis court started to use the company’s services — which previously involved people on probation for misdemeanors — for defendants awaiting trial. Last year, the company supervised 239 defendants in the city of St. Louis on GPS monitors, according to numbers provided by EMASS to the court. The alliance with the courts gives the company not just a steady stream of business but a reliable means of recouping debts: Unlike, say, a credit-card company, which must file a civil suit to collect from overdue customers, EMASS can initiate criminal-court proceedings, threatening defendants with another stay in the Workhouse.

In early April, I visited Judge Rex Burlison in his chambers on the 10th floor of the St. Louis civil courts building. A few months earlier, Burlison, who has short gray hair and light blue eyes, had been elected by his peers as presiding judge, overseeing the city’s docket, budget and operations, including the contract with EMASS. It was one of the first warm days of the year, and from the office window I could see sunlight glimmering on the silver Gateway Arch.

I asked Burlison about the court’s philosophy for using pretrial GPS. He stressed that while each case was unique and subject to the judge’s discretion, monitoring was most commonly used for defendants who posed a flight risk, endangered public safety or had an alleged victim. Judges vary in how often they order defendants to wear monitors, and critics have attacked the inconsistency. Colbert-Botchway, the judge who put White on a monitor, regularly made pretrial GPS a condition of release, according to public defenders. (Colbert-Botchway declined to comment.) But another St. Louis city judge, David Roither, told me, “I really don’t use it very often because people here are too poor to pay for it.”

Whenever a defendant on a monitor violates a condition of release, whether related to payment or a curfew or something else, EMASS sends a letter to the court. Last year, Burlison said, the court received two to three letters a week from EMASS about violations. In response, the judge usually calls the defendant in for a hearing. As far as he knew, Burlison said, judges did not incarcerate people simply for failing to pay EMASS debts. “Why would you?” he asked me. When people were put back in jail, he said, there were always other factors at play, like the defendant’s missing a hearing, for instance. (Issuing a warrant for White’s arrest without a hearing, he acknowledged after looking at the docket, was not the court’s standard practice.)

The contract with EMASS allows the court to assign indigent defendants to the company to oversee “at no cost.” Yet neither Burlison nor any of the other current or former judges I spoke with recalled waiving fees when ordering someone to wear an ankle monitor. When I asked Burlison why he didn’t, he said that he was concerned that if he started to make exceptions on the basis of income, the company might stop providing ankle-monitoring services in St. Louis.

“People get arrested because of life choices,” Burlison said. “Whether they’re good for the charge or not, they’re still arrested and have to deal with it, and part of dealing with it is the finances.” To release defendants without monitors simply because they can’t afford the fee, he said, would be to disregard the safety of their victims or the community. “We can’t just release everybody because they’re poor,” he continued.

But many people in the Workhouse awaiting trial are poor. In January, civil rights groups filed suit against the city and the court, claiming that the St. Louis bail system violated the Constitution, in part by discriminating against those who can’t afford to post bail. That same month, the Missouri Supreme Court announced new rules that urged local courts to consider releasing defendants without monetary conditions and to waive fees for poor people placed on monitors. Shortly before the rules went into effect, on July 1, Burlison said that the city intends to shift the way ankle monitors are distributed and plans to establish a fund to help indigent defendants pay for their ankle bracelets. But he said he didn’t know how much money would be in the fund or whether it was temporary or permanent. The need for funding could grow quickly. The pending bail lawsuit has temporarily spurred the release of more defendants from custody, and as a result, public defenders say, the demand for monitors has increased.

Judges are anxious about what people released without posting bail might do once they get out. Several told me that monitors may ensure that the defendants return to court. Not unlike doctors who order a battery of tests for a mildly ill patient to avoid a potential malpractice suit, judges seem to view monitors as a precaution against their faces appearing on the front page of the newspaper. “Every judge’s fear is to let somebody out on recognizance and he commits murder, and then everyone asks, ’How in the hell was this person let out?’” said Robert Dierker, who served as a judge in St. Louis from 1986 to 2017 and now represents the city in the bail lawsuit. “But with GPS, you can say, ’Well, I have him on GPS, what else can I do?’”

Critics of monitors contend that their public-safety appeal is illusory: If defendants are intent on harming someone or skipping town, the bracelet, which can be easily removed with a pair of scissors, would not stop them. Studies showing that people tracked by GPS appear in court more reliably are scarce, and research about its effectiveness as a deterrent is inconclusive.

“The fundamental question is, What purpose is electronic monitoring serving?” said Blake Strode, the executive director of ArchCity Defenders, a nonprofit civil rights law firm in St. Louis that is one of several firms representing the plaintiffs in the bail lawsuit. “If the only purpose it’s serving is to make judges feel better because they don’t want to be on the hook if something goes wrong, then that’s not a sensible approach. We should not simply be monitoring for monitoring’s sake.”

Electronic monitoring was first conceived in the early 1960s by Ralph and Robert Gable, identical twins studying at Harvard under the psychologists Timothy Leary and B.F. Skinner, respectively. Influenced in part by Skinner’s theories of positive reinforcement, the Gables rigged up some surplus missile-tracking equipment to monitor teenagers on probation; those who showed up at the right places at the right times were rewarded with movie tickets, limo rides and other prizes.

Although this round-the-clock monitoring was intended as a tool for rehabilitation, observers and participants alike soon recognized its potential to enhance surveillance. All but two of the 16 volunteers in their initial study dropped out, finding the two bulky radio transmitters oppressive. “They felt like it was a prosthetic conscience, and who would want Mother all the time along with you?” Robert Gable told me. Psychology Today labeled the invention a “belt from Big Brother.”

The reality of electronic monitoring today is that Big Brother is watching some groups more than others. No national statistics are available on the racial breakdown of Americans wearing ankle monitors, but all indications suggest that mass supervision, like mass incarceration, disproportionately affects black people. In Cook County, Illinois, for instance, black people make up 24% of the population, and 67% of those on monitors. The sociologist Simone Browne has connected contemporary surveillance technologies like GPS monitors to America’s long history of controlling where black people live, move and work. In her 2015 book, “Dark Matters,” she traces the ways in which “surveillance is nothing new to black folks,” from the branding of enslaved people and the shackling of convict laborers to Jim Crow segregation and the home visits of welfare agencies. These historical inequities, Browne notes, influence where and on whom new tools like ankle monitors are imposed.

For some black families, including White’s, monitoring stretches across generations. Annette Taylor, the director of Ripple Effect, an advocacy group for prisoners and their families based in Champaign, Illinois, has seen her ex-husband, brother, son, nephew and sister’s husband wear ankle monitors over the years. She had to wear one herself, about a decade ago, she said, for driving with a suspended license. “You’re making people a prisoner of their home,” she told me. When her son was paroled and placed on house arrest, he couldn’t live with her, because he was forbidden to associate with people convicted of felonies, including his stepfather, who was also on house arrest.

Some people on monitors are further constrained by geographic restrictions — areas in the city or neighborhood that they can’t go without triggering an alarm. James Kilgore, a research scholar at the University of Illinois at Champaign-Urbana, has cautioned that these exclusionary zones could lead to “e-gentrification,” effectively keeping people out of more-prosperous neighborhoods. In 2016, after serving four years in prison for drug conspiracy, Bryan Otero wore a monitor as a condition of parole. He commuted from the Bronx to jobs at a restaurant and a department store in Manhattan, but he couldn’t visit his family or doctor because he was forbidden to enter a swath of Manhattan between 117th Street and 131st Street. “All my family and childhood friends live in that area,” he said. “I grew up there.”

Michelle Alexander, a legal scholar and columnist for The Times, has argued that monitoring engenders a new form of oppression under the guise of progress. In her 2010 book, “The New Jim Crow,” she wrote that the term “mass incarceration” should refer to the “system that locks people not only behind actual bars in actual prisons, but also behind virtual bars and virtual walls — walls that are invisible to the naked eye but function nearly as effectively as Jim Crow laws once did at locking people of color into a permanent second-class citizenship.”

BI Incorporated logo As the cost of monitoring continues to fall, those who are required to submit to it may worry less about the expense and more about the intrusive surveillance. The devices, some of which are equipped with two-way microphones, can give corrections officials unprecedented access to the private lives not just of those monitored but also of their families and friends. GPS location data appeals to the police, who can use it to investigate crimes. Already the goal is both to track what individuals are doing and to anticipate what they might do next. BI Incorporated, an electronic-monitoring subsidiary of GEO Group, has the ability to assign risk scores to the behavioral patterns of those monitored, so that law enforcement can “address potential problems before they happen.” Judges leery of recidivism have begun to embrace risk-assessment tools. As a result, defendants who have yet to be convicted of an offense in court may be categorized by their future chances of reoffending.

The combination of GPS location data with other tracking technologies such as automatic license-plate readers represents an uncharted frontier for finer-grained surveillance. In some cities, police have concentrated these tools in neighborhoods of color. A CityLab investigation found that Baltimore police were more likely to deploy the Stingray — the controversial and secretive cellphone tracking technology — where African Americans lived. In the aftermath of Freddie Gray’s death in 2015, the police spied on Black Lives Matter protesters with face recognition technology. Given this pattern, the term “electronic monitoring” may soon refer not just to a specific piece of equipment but to an all-encompassing strategy.

If the evolution of the criminal-justice system is any guide, it is very likely that the ankle bracelet will go out of fashion. Some GPS monitoring vendors have already started to offer smartphone applications that verify someone’s location through voice and face recognition. These apps, with names like Smart-LINK and Shadowtrack, promise to be cheaper and more convenient than a boxy bracelet. They’re also less visible, mitigating the stigma and normalizing surveillance. While reducing the number of people in physical prison, these seductive applications could, paradoxically, increase its reach. For the nearly 4.5 million Americans on probation or parole, it is not difficult to imagine a virtual prison system as ubiquitous — and invasive — as Instagram or Facebook.

On January 24, exactly three months after White had his monitor installed, his public defender successfully argued in court for its removal. His phone service had been shut off because he had fallen behind on the bill, so his mother told him the good news over video chat.

When White showed up to EMASS a few days later to have the ankle bracelet removed, he said, one of the company’s employees told him that he couldn’t take off his monitor until he paid his debt. White offered him the $35 in his wallet — all the money he had. It wasn’t enough. The employee explained that he needed to pay at least half of the $700 he owed. Somewhere in the contract he had signed months earlier, White had agreed to pay his full balance “at the time of removal.” But as White saw it, the court that had ordered the monitor’s installation was now ordering its removal. Didn’t that count?

“That’s the only thing that’s killing me,” White told me a few weeks later, in early March. “Why are you all not taking it off?” We were in his brother’s room, which, unlike White’s down the hall, had space for a wobbly chair. White sat on the bed, his head resting against the frame, while his brother sat on the other end by the TV, mumbling commands into a headset for the fantasy video game Fortnite. By then, the prosecutor had offered White two to three years of probation in exchange for a plea. (White is waiting to hear if he has been accepted into the city’s diversion program for “youthful offenders,” which would allow him to avoid pleading and wipe the charges from his record in a year.)

White was wearing a loosefitting Nike track jacket and red sweats that bunched up over the top of his monitor. He had recently stopped charging it, and so far, the police hadn’t come knocking. “I don’t even have to have it on,” he said, looking down at his ankle. “But without a job, I can’t get it taken off.” In the last few weeks, he had sold his laptop, his phone and his TV. That cash went to rent, food and his daughter, and what was left barely made a dent in what he owed EMASS.

It was a Monday — a check-in day — but he hadn’t been reporting for the past couple of weeks. He didn’t see the point; he didn’t have the money to get the monitor removed and the office was an hour away by bus. I offered him a ride.

EMASS check-ins take place in a three-story brick building with a low-slung facade draped in ivy. The office doesn’t take cash payments, and a Western Union is conveniently located next door. The other men in the waiting room were also wearing monitors. When it was White’s turn to check-in, Buss, the bond-compliance officer, unclipped the band from his ankle and threw the device into a bin, White said. He wasn’t sure why EMASS had now softened its approach, but his debts nonetheless remained.

Buss calculated the money White owed going back to November: $755, plus 10% annual interest. Over the next nine months, EMASS expected him to make monthly payments that would add up to $850 — more than the court had required for his bond. White looked at the receipt and shook his head. “I get in trouble for living,” he said as he walked out of the office. “For being me.”

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.


Fracking Companies Lost on Trespassing, but a Court Just Gave Them a Different Win

[Editor's note: today's guest post by ProPublica discusses business practices within the fracking industry. It is reprinted with permission.]

By Ken Ward Jr., The Charleston Gazette-Mail

A week after the West Virginia Supreme Court unanimously upheld the property rights of landowners battling one natural gas giant, the same court tossed out a challenge filed by another group of landowners against a different natural gas company.

In the latest case, decided earlier this month, the court upheld a lower court ruling that threw out a collection of lawsuits alleging dust, traffic and noise from gas operations were creating a nuisance for nearby landowners.

Charlie Burd, executive director of the Independent Oil and Gas Association of West Virginia, said the latest ruling lets “Wall Street know capital investment in oil and natural gas is welcome in West Virginia” and increases the possibility of more such investments in drilling and in so-called “downstream” chemical and manufacturing plants related to the gas industry.

In the property rights case last week, the justices set a clear legal standard that natural gas companies can’t trespass on a person’s land, without permission, to tap into gas reserves from neighboring tracts. In Monday’s case, the justices didn’t articulate a new legal precedent.

The mixed messages of the two cases show that “this is new litigation and the theories are evolving,” said Anthony Majestro, a lawyer who represented residents who lost their nuisance action before the Supreme Court.

“As the Marcellus shale drilling has expanded, there have been conflicts between surface owners and the companies that are drilling,” Majestro said. “Absent some legal requirement to require the industry to be good neighbors, I’m afraid we’ll continue to have these situations.”

Majestro’s clients were a group of residents in the Cherry Camp area of Harrison County, in north-central West Virginia. They wanted Antero Resources, the state’s largest gas company, to compensate them for unbearable traffic, “constant dust” that hangs in the air and settles on homes and vehicles, disruptive heavy equipment noise and bright lights that shine into their homes day and night.

The case focused on two dozen wells and a compressor station on six pads. The plaintiffs argued that their lives were being interfered with by Antero’s production of gas from beneath their property, even though the wells were on neighboring land, not on their own properties.

Across West Virginia’s gas-producing region, many residents own the surface of the land where they live, but don’t hold the minerals located beneath. Often, rights to the natural gas were signed over decades ago, long before drilling and gas production of the size and scope now conducted was even dreamed of.

The two court cases were featured last year as part of a series of stories by the Gazette-Mail and ProPublica that explored the impacts of the growth of natural gas on West Virginia communities.

In some ways, the Antero case was more complex than the earlier matter, in which the state court ruled clearly for Doddridge County residents Beth Crowder and David Wentz in their dispute with EQT Corp., West Virginia’s second-largest gas producer.

EQT had built a well pad and pipelines on Crowder and Wentz’s property to reach natural gas not located beneath their farm, but under neighboring tracts, including some that were thousands of feet away. Modern natural gas drilling uses horizontal drilling to use smaller numbers of larger wells to reach much greater amounts of gas.

Justice John Hutchison wrote the court’s 5-0 decision against EQT, including a new point of law that sets a precedent that calls what the company did trespassing and forbids it from being done in the future.

The ruling in the Antero case was a split, 3-2 decision, and the opinion by Justice Evan Jenkins included no new points of law setting precedent for future cases.

Instead, his opinion was based on the view that Antero had gas leases that created a right for it to do whatever was “reasonably necessary” to get at its mineral holdings.

Antero spokeswoman Stephanie Iaquinta said, “We appreciate the court’s thorough review of this important matter and its decision.”

Chief Justice Beth Walker wrote a concurring opinion, pointing out that the majority decision wasn’t necessarily getting to the heart of the matter: whether the kinds of gas industry impacts complained about by the Harrison County residents constitute a legal nuisance.

And Justice Margaret Workman wrote a strongly worded dissent, saying that the court had not only ducked the central legal issue in the case, but that it had usurped the authority of a jury to decide if the facts of how Antero operates should be deemed to be “reasonably necessary” to produce natural gas.

“For a century, the tenor of our mineral easement case law, in each temporal and technological ideation, has been that there must be a balance of the rights of surface owners and mineral owners,” Workman wrote. “Rather than making any attempt to establish legal guidance for that goal in this new context, the majority endorses a gross inequity that effectively gives this new industrialization carte blanche to operate without any regard for the rights of those who live on the land.”

Filed under:

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.

 


Walmart To Pay $282 Million To Settle Bribery Charges By Regulators In The United States

Walmart logo The U.S. Securities And Exchange Commission (SEC) announced on June 20th a settlement agreement to resolve charges that Walmart violated:

"... the Foreign Corrupt Practices Act (FCPA) by failing to operate a sufficient anti-corruption compliance program for more than a decade as the retailer experienced rapid international growth... According to the SEC’s order, Walmart failed to sufficiently investigate or mitigate certain anti-corruption risks and allowed subsidiaries in Brazil, China, India, and Mexico to employ third-party intermediaries who made payments to foreign government officials without reasonable assurances that they complied with the FCPA. The SEC’s order details several instances when Walmart planned to implement proper compliance and training only to put those plans on hold or otherwise allow deficient internal accounting controls to persist even in the face of red flags and corruption allegations."

Walmart agreed to pay more than $144 million to settle the SEC’s charges and about $138 million to resolve parallel criminal charges by the U.S. Department of Justice (DOJ), for a combined total of more than $282 million. The settlements cover activities by the retailer's foreign subsidiaries in Brazil, China, India, and Mexico.

United States Department of Justice logo The DOJ announcement on June 20th stated:

"According to Walmart’s admissions, from 2000 until 2011, certain Walmart personnel responsible for implementing and maintaining the company’s internal accounting controls related to anti-corruption were aware of certain failures involving these controls, including relating to potentially improper payments to government officials in certain Walmart foreign subsidiaries, but nevertheless failed to implement sufficient controls that, among other things, would have ensured: (a) that sufficient anti-corruption-related due diligence was conducted on all third-party intermediaries (TPIs) who interacted with foreign officials; (b) that sufficient anti-corruption-related internal accounting controls concerning payments to TPIs existed; (c) that proof was required that TPIs had performed services before Walmart paid them; (d) that TPIs had written contracts that included anti-corruption clauses; (e) that donations ostensibly made to foreign government agencies were not converted to personal use by foreign officials; and (f) that policies covering gifts, travel and entertainment sufficiently addressed giving things of value to foreign officials and were implemented. Even though senior Walmart personnel responsible for implementing and maintaining the company’s internal accounting controls related to anti-corruption knew of these issues, Walmart did not begin to change its internal accounting controls related to anti-corruption to comply with U.S. criminal laws until 2011... In a number of instances, insufficiencies in Walmart’s anti-corruption-related internal accounting controls in these foreign subsidiaries were reported to senior Walmart employees and executives. The internal control failures allowed the foreign subsidiaries in Mexico, India, Brazil and China to open stores faster than they would have with sufficient internal accounting controls related to anti-corruption. Consequently, Walmart earned additional profits through these subsidiaries by opening some of its stores faster..."

So, to fast-track store openings company executives allegedly made secret payments to "third-party individuals" who passed the money on to specific government officials who approve permits. CBS News reported:

"... the payments to the intermediary were recorded as payments to a construction company, even though there were numerous "red flags" to indicate that the intermediary was actually a government official... The federal agreement does not identify the intermediary, but describes her in some detail: It says she became known inside Walmart Brazil as a "sorceress" or "genie" for her "ability to acquire permits quickly by 'sort(ing) things out like magic.' " The plea agreement also includes a provision barring the Brazilian subsidiary from making public claims or issuing press releases contradicting the facts outlined under the plea agreement."

United States Securities And Exchange Commission logo Walmart is not alone regarding FCPA violations. According to the SEC, several companies agreed to settlement agreements and payments during 2019:

Readers of this blog may remember, Fresenius paid $3.5 million last year to resolve HIPAA violations from 5 small data breaches during 2012. And, last week a whistleblower report discussed Cognizant's content moderation work as a Facebook subcontractor.

Notable companies with SEC settlement agreements and payments during 2018:


Medical Collections Vendor Files For Bankruptcy Protection

Things have become complicated regarding American Medical Collection Agency (AMCA), a collections firm used by several medical testing firms. After breach announcements by Quest Diagnostics and LabCorp earlier this month, more healthcare firms announced breach notices.

So, more than 20 million persons have been affected. ZD Net reported the patient totals by healthcare firm:

"Quest Diagnostics (11.9 million patients), LabCorp (7.7 million patients), BioReference Laboratories (Opko Health subsidiary, 422,600 patients), Carecentrix (500,000 patients), and Sunrise Laboratories (undisclosed number of patients)."

Now, we learn that AMCA has filed for bankruptcy protection:

"According to the Chapter 11 declaration (.PDF), filed with the court for the Southern District of New York, AMCA first became aware of a potential security incident when a disproportionate number of credit cards that interacted with the company's web portal were linked to fraudulent transactions... Cybersecurity forensics bills of roughly $400,000, IT support costs, severe restrictions that were put in place to protect AMCA's network from further intrusion, looming court cases, and the loss of valuable business partners have all taken their toll."

A "Chapter 11" bankruptcy means a reorganization, compared to a total liquidation under "Chapter 7." So, AMCA executives expect their company to survive.

ZD Net also reported that AMCA has paid more than:

"... $3.8 million to inform over seven million people who have potentially been impacted via mail. This figure alone is more than the company had to hand, forcing AMCA to take out a loan from the CEO and founder, Russell Fuchs, just to meet this expense. By filing for bankruptcy protection, the business will continue on as usual as AMCA seeks to pay off its creditors."

The costs highlight the consequences when companies fail to protect consumers' sensitive personal and payment data. The bankruptcy filing begs the next question: continue operating how effectively? Reportedly, AMCA has already cut its workforce from 155 to 25 employees. Usually under bankruptcy protection, a court decides which creditors get paid and whether they are paid in full -- including employees.

This scenario makes one wonder if AMCA can afford the ongoing expenses and resources necessary to harden its computer systems against intrusions, pay its employees, fully support data breach victims, and pay any post-breach fines. If AMCA can't pay its employees, it is probably already dead.


Court to Big Fracking Company: Trespassing Still Exists — Even For You

[Editor's note: today's guest post by ProPublica discusses business practices within the fracking industry. It is reprinted with permission. Readers may also be interested in this blog post from February.]

By Kate Mishkin and Ken Ward Jr., The Charleston Gazette-Mail

Seven years ago this month, Beth Crowder and David Wentz told natural gas giant EQT Corp. that it did not have permission to come onto their West Virginia farm to drill for the natural gas beneath neighboring properties.

EQT Corporation logo EQT had a lease that entitled the company to the gas directly beneath their farm, but it also wanted to use a new, 20-acre well pad to gather gas from 3,000 acres of adjacent or nearby leases. The company ignored their warnings. It built roads and drilled a well, and it put in horizontal pipes stretching for miles in all directions.

Crowder and Wentz sued — and they’ve been fighting EQT in court ever since. On Wednesday, the West Virginia Supreme Court ended the matter with a surprisingly straightforward and unanimous conclusion: Going onto someone else’s land without their permission is trespassing.

Gas and other mineral companies must obtain permission from surface owners in order to use their land to reach reserves under other properties, Justice John Hutchison wrote for the court. "The right must be expressly obtained, addressed, or reserved in the parties’ deeds, leases, or other writings," he wrote.

Attorney Dave McMahon, who represented Crowder and Wentz, broke the news to them by phone. "The short answer is, we won. And we won big time," he said.

On the other end of the line in Doddridge County, Crowder and Wentz shouted and laughed. "I think I’m feeling kind of numb," Crowder said. "I’ve been used to being in limbo forever."

Kristina Whiteaker, another lawyer for Crowder and Wentz, told them, "You guys really made some good law for the whole state."

EQT said in a statement issued Thursday afternoon that the company was "disappointed in the court’s ruling” but didn’t “expect the decision to have a significant impact on our operations in West Virginia."

"We intend to maintain cooperative and mutually beneficial relationships with our customers, our partners, and residents in the regions where we do business," EQT said.

The West Virginia Oil and Natural Gas Association, an industry trade association, said it is analyzing the ruling to determine how it may impact its member companies.

In a statement, Charlie Burd, the executive director of the Independent Oil and Gas Association of West Virginia, said the industry group would have preferred a ruling that encouraged horizontal drilling, but planned to comply with it. “IOGAWV members like to have good relationships with property owners,” Burd said.

Crowder and Wentz’s saga was chronicled last year by the Gazette-Mail and ProPublica, in an investigation that detailed how the natural gas industry had gained an upper hand on the state’s residents.

The 22-page court ruling Wednesday represents a rare victory for residents in a state where economics and politics are increasingly controlled by the natural gas business after decades of domination by the coal industry. Making it more gratifying for Crowder and Wentz, the court that ruled in their favor has been under the microscope because of connections to the gas industry.

Much of the land in mineral-producing parts of West Virginia has split ownership. Someone might own the surface land, while someone else owns the coal, oil or gas underneath. Gas is generally produced under leases, in which gas owners or their ancestors granted a production company the right to drill. But often, the leases are so old the current owners didn’t sign them, and certainly the advanced types of gas-production techniques used today were not anticipated.

Compounding the matter, gas producers now use a process called hydraulic fracturing, which pumps huge amounts of water and chemicals underground to loosen up gas reserves, and drill extensive horizontal holes to suck in gas from much wider areas. They bring in fleets of heavy trucks and install tanks and pipelines. The entire process has brought an influx of vibrations, noise and traffic. Though bills have been introduced year after year that are designed to mitigate the impacts on residents, West Virginia lawmakers have repeatedly refused to act.

Crowder and Wentz moved to their 300-acre farm on Brush Run in 1975, part of the “back-to-the-land” movement, seeking to live simply and be left alone. They divorced in 2005 and split the land, but both still live there on separate tracts.

There had been small gas wells on the property for years, but they were nothing like the noise, traffic and disturbance that EQT brought with it when it drilled nine new wells that would take in gas through nearly 10 miles of underground bores.

In February 2016, a local judge ruled that EQT had trespassed, and in September 2017, a jury awarded Crowder and Wentz about $200,000 in damages. EQT appealed.

The case is one of two major gas property-rights and drilling cases this term in which the industry is pressing for rulings that support its current method and scope of operations.

In the other case heard before the West Virginia Supreme Court in January, Harrison County residents said Antero Resources’ operations were creating a nuisance. A ruling on that hasn’t been issued yet.

At the heart of these cases is the fact that, economically and technologically, gas production today is all about what industry officials call “laterals.” These horizontal holes are drilled out in all directions from a vertical well. They can pull in natural gas from several miles away.

Industry officials say horizontal drilling allows them to minimize environmental impacts by building one well pad for multiple wells. But in doing so, it has magnified the impact for those residents who happen to live near — or on — the tracts chosen for those pads.

The Independent Oil and Gas Association had warned in a court brief that a ruling against EQT in the case would have “significant negative implications upon future and existing natural gas development in West Virginia.” EQT lawyers made similar warnings at trial.

Joshua Fershee, a West Virginia University law professor who has followed the case, said that the court’s decision won’t stop gas drilling. It will, however, make it more expensive for companies to secure the needed rights.

In concluding the court’s opinion, Hutchison said the justices didn’t aim to “challenge or constrain the drilling methods chosen by the oil and gas industry.”

“The industry has shown that horizontal drilling and hydraulic fracturing techniques are evolving at a rapid pace and are an economical and efficient tool for producing hydrocarbons,” Hutchison wrote. “Our opinion only affirms a classical rule of property jurisprudence: it is trespassing to go on someone’s land without the right to do so.”

Filed under:

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.

 


After Pleading Guilty To Continued Pollution And Trying To Hide It, Carnival Corporation Fined An Additional $20 Million Fine

[Editor's note: I'm back from my break. Thanks to readers for your patience. That break included a vacation on a different cruise line sailing from New Zealand to Canada via Polynesia, Tasmania, southern Australia, French Polynesia, and the Hawaiian Islands. So, this news story caught my attention.]

On Monday, Carnival Corporation acknowledged violating its probation terms from a 2016 pollution case. Government prosecutors fined the company an additional $20 million for the continuing violations. The New York Times reported:

"In 2016, Princess Cruise Lines agreed to pay a $40 million penalty for illegally dumping oil-contaminated waste into the sea and acts by employees to try to cover it up. It was the largest criminal penalty ever imposed for intentional vessel pollution... The new violations included discharging plastic into waters in the Bahamas, falsifying records and interfering with court supervision of ships... Vessel pollution is just one of the many human-caused hazards facing ocean life today. Ship traffic and noise can cause the death of sea creatures; marine animals routinely turn up dead with plastic in their stomachs; and rising sea temperatures, stemming from climate change caused by human activity, are destroying the framework of many ocean ecosystems."

Based in Miami, Carnival Corporation operates several cruise lines including Princess Cruises, Carnival Cruise Line, Holland America Line, P&O Cruises (UK), Cunard, Seabourn, AIDA Cruises (Germany), and Costa Cruises (Italy). It's website states a combined fleet of 102 ships with 19 new ships to be delivered between 2017 and 2022. The company employs about 120,000 people worldwide, and 11.5 million guests sail in its ship each year. In 2018, Carnival Corporation generated after-tax profits of $3.15 billion on revenues of $18.88 billion.

Government regulators focused upon the company after:

"... Princess agreed, in 2016, to plead guilty to felony charges and pay the hefty $40 million penalty. In that case... the Caribbean Princess ship, had used several means, including a device called a magic pipe, to circumvent water-cleaning mechanisms... Officials said that four other Princess ships had also been found to have engaged in illegal practices to discharge waste. The discharged waste included gray water — water that has been contaminated with food particles, grease and fat — and water found in the ship’s bilge, the bottom part of the ship where oil waste from engines can accumulate. A whistleblower employee alerted the authorities and certain engineers ordered a coverup, including directing subordinates to lie, according to prosecutors."

In an announcement on Monday, the U.S. Department of Justice (DOJ) listed in detail the violations by Carnival Corporation and its executives:

"1. Failing to establish a senior corporate officer as a corporate compliance manager with responsibility and sufficient authority for implementing new environmental measures required during probation;
2. Contacting the Coast Guard seeking to re-define the definition of what constitutes a major non-conformity under the ECP without going through the required process and after the government had rejected the proposal and told the company to file a motion with the court if it wanted to pursue the issue;
3. Deliberately falsifying environmental training records aboard two cruise ships; and
4. Deliberately discharging plastic in Bahamian waters from the Carnival Elation and failing to accurately record the illegal discharges. Prosecutors advised the Court that this particular instance was an example of a more widespread problem, identified by the external audits, in failing to segregate plastic and non-food garbage from waste thrown overboard from numerous cruise ships."

The DOJ announcement also listed the terms of the settlement agreement, which requires Carnival Corporation:

"i) Pay a $20 million criminal penalty;
ii) Issue a statement to all employees in which Carnival’s CEO accepts management’s responsibility for the probation violations;
iii) Restructure the company’s corporate compliance efforts, including appointing a new chief Corporate Compliance Officer, creating an Executive Compliance Committee across all cruise lines, adding a new member to the Board of Directors with corporate compliance expertise, and train its Board of Directors;
iv) Pay up to $10 million per day if it does not meet deadlines for submitting and implementing needed changes to its corporate structure;
v) Pay for 15 additional independent audits per year conducted by the third-party auditor and Court Appointed Monitor (on top of approximately 31 ship audits and 6 shore-side audits currently performed annually);
vi) Comply with new reporting requirements, including notifying the government and court of all future violations, and specifically identifying foreign violations and the country impacted; and
vii) Make major changes in how the company uses and disposes of plastic and other non-food waste to urgently address a problem on multiple vessels concerning illegal discharges of plastic mixed with other garbage."

Plus, Princess Cruise Line will remain on probation for three more years. The third-party auditor suggests that the court doesn't trust the company and its executives to accurately report progress and corrective actions toward the deadlines. That's good given the light fines (as a percentage of the company's profits).

Cruise customers have already shared their views. According to the Cruise Critic website:

"... SO DISAPPOINTED IN Carnival/Princess... NOT acceptable!!! I just went on a 12 day cruise on the Star Princess last month. I feel betrayed reading this. I had such a great time too. To intentionally break pollution laws means no integrity and shoddy business practice. I want to slap someone."
-- Marykay8

" Well now we know why they have increased some pricing, including some drink packages by 40%. Got to get more from the passengers to pay their fine. The customer always pays more in these scenarios."
-- KYwildcatfanone

"Let's hope this will finally get Carnival Corp. to ensure all of its ships adhere to environmental regulations. But in the big scheme of things, $20 million is just a minuscule amount on a company that had $3.2 billion in net income."
-- GeoHerb

More discussion by customers is available here. Clearly, cruise customers want the pollution stopped, executives held accountable, and the company to change its behavior.

A search of both the Carnival Corporation and Princess Cruises websites at press time failed to find any press releases or mention of the latest fine. The Miami Herald published a brief statement by Arnold Donald, the company's Chief Executive Officer, who appeared in court:

"Donald spoke on behalf of Carnival Corp. "I sincerely regret this case," he said. "In my role as CEO I do take responsibility for the problems we have. I am extremely disappointed that we’ve had them. I know you have reservations about our commitment and who we are. I want you to know we are fully committed." Donald was the only executive who spoke at the hearing."

Fully committed? The proof will be in the company's future actions -- not words -- to fully, consistently, and faithfully comply with the latest settlement agreement and clean up its pollution mess. Will it? What action will the board of directors take? Which executives will be disciplined? Which senior executives will resign? Will more whistle blowers come forward? Lots more news to come.


Federal Reserve Enforcement Action Against Banking Executives

Last month, the Federal Reserve Board (FRB) announced several notable enforcement actions. A February 5th press release discussed a:

"Consent Notice of Suspension and Prohibition against Fred Daibes, former Chairman of Mariner's Bancorp, Edgewater, New Jersey, for perpetuating a fraudulent loan scheme, according to a federal indictment."

The order against Daibes described the violations:

"... on October 30, 2018, a federal grand jury in the United States District Court for the District of New Jersey charged [Diabes] and an accomplice by indictment with one count conspiracy to misapply bank funds and to make false entries to deceive a financial institution and the FDIC, five counts of misapplying bank funds, six counts of making false entries to decide a financial institution and the FDIC, and one count of causing reliance on a false document to influence the FDIC... During the relevant time period, Mariner’s was subject to federal banking regulations that placed limits on the amount of money that the Bank could lend to a single borrower... the Indictment charges that in about January 2008 to December 2013, Daibes and others orchestrated a nominee loan scheme designed to circumvent the Lending Limits by ensuring that millions of dollars in loans made by the Bank (the “Nominee Loans”) flowed from the nominees to Daibes, while concealing Daibes’ beneficial interests in those loans from both the Bank and the FDIC. Daibes recruited nominees to make materially false and misleading statements and material omissions..."

The FRB and the U.S. Federal Deposit Insurance Corporation (FDIC) are two of several federal agencies which oversee and regulate the banking industry within the United States. The order bars Daibes from working within the banking industry.

Then, a February 7th FRB press release discussed a:

"Consent Prohibition against Alison Keefe, former employee of SunTrust Bank, Atlanta, Georgia, for violating bank overdraft policies for her own benefit."

The order against Keefe described the violations:

"... between September 2017 and May 2018, while employed as the manager of the Bank’s Hilltop Branch in Virginia Beach, Virginia, Keefe repeatedly overdrew her personal checking account at the Bank and instructed Bank staff, without authorization and contrary to Bank policies, to honor the overdrafts... Keefe’s misconduct described above constituted unsafe or unsound banking practices and demonstrated a reckless disregard for the safety and soundness of the Bank..."

Keefe was fired by the bank on July 12, 2018, and has repaid the bank. The order bars Keefe from working within the banking industry.

A February 21st press release discussed the agency's enforcement action against a former manager at J.P. Morgan Chase bank. The FRB:

"... permanently barred from the banking industry Timothy Fletcher, a former managing director at a non-bank subsidiary of J.P. Morgan Chase & Co. Fletcher consented to the prohibition, which includes allegations that he improperly administered a referral hiring program at the firm by offering internships and other employment opportunities to individuals referred by foreign officials, clients, and prospective clients in order to obtain improper business advantages for the firm. The FRB is also requiring Fletcher to cooperate in any pending or prospective enforcement action against other individuals who are or were affiliated with the firm. The firm was previously fined $61.9 million by the Board relating to this program. In addition, the Department of Justice and the Securities and Exchange Commission have also fined the firm."

The $61.9 million fine was levied against J.P. Morgan Chase in November, 2016. Back then, the FRB found that the bank:

"... did not have adequate enterprise-wide controls to ensure that referred candidates were appropriately vetted and hired in accordance with applicable anti-bribery laws and firm policies. The Federal Reserve's order requires J.P. Morgan Chase to enhance the effectiveness of senior management oversight and controls relating to the firm's referral hiring practices and anti-bribery policies. The Federal Reserve is also requiring the firm to cooperate in its investigation of the individuals..."

Last month's order against Fletcher described the violations:

"... from at least 2008 until 2013 [Fletcher] engaged in unsafe and unsound practices, breaches of fiduciary duty, and violations of law related to his involvement in the Firm’s referral hiring program for the Asia-Pacific region investment bank, whereby candidates who were referred, directly or indirectly, by foreign government officials and existing or prospective commercial clients were offered internships, training, and other employment opportunities in order to obtain improper business advantages for the Firm... the Firm’s internal policies prohibited Firm employees from giving anything of value, including the offer of internships or training, to certain individuals, including relatives of public officials and relatives and associates of non-government corporate representatives, in order to obtain improper business advantages for the Firm..."

Kudos to the FRB for its enforcement action. Executives must suffer direct consequences for wrongdoing. After reading this, one wonders why direct consequences are not applied against executives within the social media industry. The behaviors there do just as much damage; and cross borders, too. What are your opinions?


Large Natural Gas Producer to Pay West Virginia Plaintiffs $53.5 Million to Settle Royalty Dispute

[Editor's note: today's guest post by ProPublica discusses business practices within the energy industry. It is reprinted with permission.]

By Kate Mishkin and Ken Ward Jr., The Charleston Gazette-Mail

The second-largest natural gas producer in West Virginia will pay $53.5 million to settle a lawsuit that alleged the company was cheating thousands of state residents and businesses by shorting them on gas royalty payments, according to terms of the deal unsealed in court this week.

EQT Corporation logo Pittsburgh-based EQT Corp. agreed to pay the money to end a federal class-action lawsuit, brought on behalf of about 9,000 people, which alleged that EQT wrongly deducted a variety of unacceptable charges from peoples’ royalty checks.

The deal is the latest in a series of settlements in cases that accused natural gas companies of engaging in such maneuvers to pocket a larger share of the profits from the boom in natural gas production in West Virginia.

This lawsuit was among the royalty cases highlighted last year in a joint examination by the Charleston Gazette-Mail and ProPublica that showed how West Virginia’s natural gas producers avoid paying royalties promised to thousands of residents and businesses. The plaintiffs said EQT was improperly deducting transporting and processing costs from their royalty payments. EQT said its royalty payment calculations were correct and fair.

A trial was scheduled to begin in November but was canceled after the parties reached the tentative settlement. Details of the settlement were unsealed earlier this month.

Under the settlement agreement, EQT Production Co. will pay the $53.5 million into a settlement fund. The company will also stop deducting those post-production costs from royalty payments.

“This was an opportunity to turn over a new leaf in our relationship with our West Virginia leaseholders and this mutually beneficial agreement demonstrates our renewed commitment to the state of West Virginia,” EQT’s CEO, Robert McNally, said in a prepared statement.

EQT is working to earn the trust of West Virginians and community leaders, he said.

Marvin Masters, the lead lawyer for the plaintiffs, called the settlement “encouraging” after six years of litigation. (Masters is among a group of investors who bought the Charleston Gazette-Mail last year.)

Funds will be distributed to people who leased the rights to natural gas beneath their land in West Virginia to EQT between Dec. 8, 2009, and Dec. 31, 2017. EQT will also pay up to $2 million in administrative fees to distribute the settlement.

Settlement payments will be calculated based on such factors as the amount of gas produced and sold from each well, as well as how much was deducted from royalty payments. The number of people who submit claims could also affect settlement payments. Each member of the class that submits a claim will receive a minimum payment of at least $200. The settlement allows lawyers to collect up to one-third of the settlement, or roughly $18 million, subject to approval from the court.

The settlement is pending before U.S. District Judge John Preston Bailey in the Northern District of West Virginia. The judge gave it preliminary approval on February 11th, which begins a process for public notice of the terms and a fairness hearing July 11 in Wheeling, West Virginia. Payments would not be made until that process is complete.

Filed under:

ProPublica is a Pulitzer Prize-winning investigative newsroom.Sign up for The Big Story newsletter to receive stories like this one in your inbox.


Ex-IBM Executive Says She Was Told Not to Disclose Names of Employees Over Age 50 Who’d Been Laid Off

[Editor's note: today's guest blog post, by reporters at ProPublica, explores employment and hiring practices within the workplace. Part of a series, it is reprinted with permission.]

IBM logo By Peter Gosselin, ProPublica

In sworn testimony filed recently as part of a class-action lawsuit against IBM, a former executive says she was ordered not to comply with a federal agency’s request that the company disclose the names of employees over 50 who’d been laid off from her business unit.

Catherine A. Rodgers, a vice president who was then IBM’s senior executive in Nevada, cited the order among several practices she said prompted her to warn IBM superiors the company was leaving itself open to allegations of age discrimination. She claims she was fired in 2017 because of her warnings.

Company spokesman Edward Barbini labeled Rodgers’ claims related to potential age discrimination “false,” adding that the reasons for her firing were “wholly unrelated to her allegations.”

Rodgers’ affidavit was filed Jan. 17 as part of a lawsuit in federal district court in New York. The suit cites a March 2018 ProPublica story that IBM engaged in a strategy designed to, in the words of one internal company document, “correct seniority mix” by flouting or outflanking U.S. anti-age discrimination laws to force out tens of thousands of older workers in the five years through 2017 alone.

Rodgers said in an interview Sunday that IBM “appears to be engaged in a concerted and disproportionate targeting of older workers.” She said that if the company releases the ages of those laid off, something required by federal law and that IBM did until 2014, “the facts will speak for themselves.”

“IBM is a data company. Release the data,” she said.

Rodgers is not a plaintiff in the New York case but intends to become one, said Shannon Liss-Riordan, the attorney for the employees.

IBM has not yet responded to Rodgers’ affidavit in the class-action suit. But in a filing in a separate age-bias lawsuit in federal district court in Austin, Texas, where a laid-off IBM sales executive introduced the document to bolster his case, lawyers for the company termed the order for Rodgers not to disclose the layoffs of older workers from her business unit “unremarkable.”

They said that the U.S. Department of Labor sought the names of the workers so it could determine whether they qualified for federal Trade Adjustment Assistance, or TAA, which provides jobless benefits and re-training to those who lose their jobs because of foreign competition. They said that company executives concluded that only one of about 10 workers whose names Rodgers had sought to provide qualified.

In its reporting, ProPublica found that IBM has gone to considerable lengths to avoid reporting its layoff numbers by, among other things, limiting its involvement in government programs that might require disclosure. Although the company has laid off tens of thousands of U.S. workers in recent years and shipped many jobs overseas, it sought and won TAA aid for just three during the past decade, government records show.

Company lawyers in the Texas case said that Rodgers, 62 at the time of her firing and a 39-year veteran of IBM, was let go in July 2017 because of "gross misconduct."

Rodgers said that she received “excellent” job performance reviews for decades before questioning IBM’s practices toward older workers. She rejected the misconduct charge as unfounded.

Legal action against IBM over its treatment of older workers appears to be growing. In addition to the suits in New York and Texas, cases are also underway in California, New Jersey and North Carolina.

Liss-Riordan, who has represented workers against a series of tech giants including Amazon, Google and Uber, has added 41 plaintiffs to the original three in the New York case and is asking the judge to require that IBM notify all U.S. workers whom it has laid off since July 2017 of the suit and of their option to challenge the company.

One complicating factor is that IBM requires departing employees who want to receive severance pay to sign a document waiving their right to take the company to court and limiting them to private, individual arbitration. Studies show this process rarely results in decisions that favor workers. To date, neither plaintiffs’ lawyers nor the government has challenged the legality of IBM’s waiver document.

Many ex-employees also don’t act within the 300-day federal statute of limitations for bringing a case. Of about 500 ex-employees who Liss-Riordan said contacted her since she filed the New York case last September, only 100 had timely claims and, of these, only about 40 had not signed the waivers and so were eligible to join the lawsuit. She said she’s filed arbitration cases for the other 60.

At key points, Rodgers’ account of IBM’s practices is similar to those reported by ProPublica. Among the parallels:

  • Rodgers said that all layoffs in her business unit were of older workers and that younger workers were unaffected. (ProPublica estimated that about 60 percent of the company’s U.S. layoffs from 2014 through 2017 were workers age 40 and above.)
  • She said that she and other managers were told to encourage workers flagged for layoff to use IBM’s internal hiring system to find other jobs in the company even as upper management erected insurmountable barriers to their being hired for these jobs.
  • Rodgers said the company reversed a decades long practice of encouraging employees to work from home and ordered many to begin reporting to a few “hub” offices around the country, a change she said appeared designed to prompt people to quit. She said that in one case an employee agreed to relocate to Connecticut only to be told to relocate again to North Carolina.

Barbini, the IBM spokesman, didn’t comment on individual elements of Rodgers’ allegations. Last year, he did not address a 10-page summary of ProPublica’s findings, but issued a statement that read in part, “We are proud of our company and our employees’ ability to reinvent themselves era after era, while always complying with the law.”

Filed under:

ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.


Walgreens To Pay About $2 Million To Massachusetts To Settle Multiple Price Abuse Allegations. Other Settlement Payments Exceed $200 Million

Walgreens logo The Office of the Attorney General of the Commonwealth of Massachusetts announced two settlement agreements with Walgreens, a national pharmacy chain. Walgreens has agreed to pay about $2 million to settle multiple allegations of pricing abuses. According to the announcement:

"Under the first settlement, Walgreens will pay $774,486 to resolve allegations that it submitted claims to MassHealth in which it reported prices for certain prescription drugs at levels that were higher than what Walgreens actually charged, resulting in fraudulent overpayments."

"Under the second settlement, Walgreens will pay $1,437,366 to resolve allegations that from January 2006 through December 2017, rather than dispensing the quantity of insulin called for by a patient’s prescription, Walgreens exceeded the prescription amount and falsified information on claims submitted for reimbursement to MassHealth, including the quantity of insulin and/or days’ supply dispensed."

Both settlements arose from whistle-blower activity. MassHealth is the state's healthcare program based upon a state law passed in 2006 to provide health insurance to all Commonwealth residents. The law was amended in 2008 and 2010 to make it consistent with the federal Affordable Care Act.

Massachusetts Attorney General (AG) Maura Healey said:

"Walgreens repeatedly failed to provide MassHealth with accurate information regarding its dispensing and billing practices, resulting in overpayment to the company at taxpayers’ expense... We will continue to investigate cases of fraud and take action to protect the integrity of MassHealth."

In a separate case, Walgreen's will pay $1 million to the state of Arkansas to settle allegations of Medicaid fraud. Last month, the New York State Attorney General announced that New York State, other states, and the federal government reached:

"... an agreement in principle with Walgreens to settle allegations that Walgreens violated the False Claims Act by billing Medicaid at rates higher than its usual and customary (U&C) rates for certain prescription drugs... Walgreens will pay the states and federal government $60 million, all of which is attributable to the states’ Medicaid programs... The national federal and state civil settlement will resolve allegations relating to Walgreens’ discount drug program, known as the Prescription Savings Club (PSC). The investigation revealed that Walgreens submitted claims to the states’ Medicaid programs in which it identified U&C prices for certain prescription drugs sold through the PSC program that were higher than what Walgreens actually charged for those drugs... This is the second false claims act settlement reached with Walgreens today. On January 22, 2019, AG James announced that Walgreens is to pay New York over $6.5 million as part of a $209.2 million settlement with the federal government and other states, resolving allegations that Walgreens knowingly engaged in fraudulent conduct when it dispensed insulin pens..."

States involved in the settlement include New York, California, Illinois, Indiana, Michigan and Ohio. Kudos to all Attorneys General and their staffs for protecting patients against corporate greed.