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NEW YORK — US authorities Friday charged a billionaire hedge fund manager and five others with insider trading that netted 20 million dollars on trades in Google, Hilton Hotels Corp. and other companies.

The Justice Department filed the charges which named Raj Rajaratnam, head of the Galleon Management hedge fund and listed on the Forbes magazine list of billionaires as the 559th richest person in the world with 1.3 billion dollars.

Also charged in the scheme were Danielle Chiesi and Mark Kurkland, employees of the New Castle hedge fund group of the defunct Bear Stearns; Rajiv Goel of Intel Capital, the investment arm of Intel Corp.; Anil Kumar of the consultancy McKinsey & Co; and IBM senior vice president Robert Moffat.

“All are charged with participating in insider trading schemes that together netted more than 20 million dollars in illegal profits,” said a statement from US Attorney Preet Bharara of New York.

“This case represents the first time that court-authorized wiretaps have been used to target significant insider trading on Wall Street.”
Story continues below…

“This case should be a wake up call for Wall Street,” Bharara said.

“It should be a wake up call for every hedge fund manager and every Wall Street trader and every corporate executive who is even thinking about engaging in insider trading…Today, tomorrow, next week, the week after, privileged Wall Street insiders who are considering breaking the law will have to ask themselves one important question: Is law enforcement listening?”

According to the complaint, the defendants used inside information to make illegal profits on publicly traded firms from 2006 to 2008 including Polycom, Hilton, Google, Clearwire, Akamai, Advanced Micro Devices and People Support Inc.

The case was helped by a cooperating witness, who indicated that Rajaratnam learned, for example in 2007 that Hilton was going to be taken private, enabling him to buy hundreds of thousands of shares in advance for a profit of four million dollars.

In another case, the group benefited from inside data on Akamai, an Internet service group, when it was about to lower its guidance for earnings in 2008.

New Castle sold the shares “short” and earned a profit of more than 2.4 million dollars, officials said.

A related civil complaint from the Securities and Exchange Commission seeks the return of 25 million dollars in “ill-gotten gains plus prejudgment interest,” along with other penalties.

According to Forbes, Rajaratnam is a native of Sri Lanka who studied in Britain and the United States before creating the hedge fund, believed to manage some six billion dollars in assets.

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By PAM MARTENS CounterPunch

While the Federal Trade Commission was receiving gut-wrenching documentation of predatory lending abuses at a unit of Citigroup, the Federal agency mandated to level the playing field for low income homeowners, the U.S. Department of Housing and Urban Development, was quietly awarding 19,968 mortgages of homeowners in distress to Citigroup to dispose of as it saw fit.  HUD legally became Citigroup’s joint venture partner in at least two of the deals, retaining a minority interest.

On March 6, 2001, the FTC brought suit against Citigroup, CitiFinancial Credit Company and two firms it had acquired (Associates First Capital Corporation and Associates Corporation of North America) charging them with engaging in deceptive and illegal lending practices.

The FTC had substantive evidence that a culture of incentivizing an aggressive sales force to pile predatory loans onto unsophisticated borrowers was an enshrined business model at Citigroup’s consumer lending unit.

On July 20, 2001 a former Assistant Manager for CitiFinancial, Gail Kubiniec, testified as follows to the FTC:

“At CitiFinancial, emphasis was placed on marketing new loans, particularly real estate loans (loans secured by a home mortgage), to present borrowers of CitiFinancial.  Employees would receive quarterly incentives, called “Rocopoly Money,” based on how many present borrowers they ‘renewed’ (refinanced) into new loans…Typically, employees would only state the total monthly payment amount in selling a proposed loan.  Additional information, such as the interest rate, and the financed points and fees, closing costs, and ‘add-ons’ like credit insurance, were only disclosed when demanded by the borrower…It was also common practice to try to sell borrowers the largest loan possible…All CitiFinancial branch offices had quotas for the sale of credit insurance…Loans were typically presented to consumers with ‘100% coverage,’ meaning that real estate loans were presented with at least credit life and disability already included, and personal loans were presented with at least credit life, disability, involuntary unemployment, and property insurance already included.  When quoting the monthly payment, I frequently quoted the payment with coverages already included, telling the consumer only that it was ‘fully protected.’ This was a common practice used by employees at CitiFinancial…The pressure to sell coverages came from CitiFinancial’s Regional and District Managers.  Each branch had monthly credit insurance sales goals to meet…If these goals were not met, the District Manager would call and put pressure on the Branch Manager to get the branch up to par.”

Also in the trove of documents at the FTC, a series of Faxes to the sales force from one CitiFinancial manager, Mike Moniot, had the creepy feel of a Survivor-type reality tv show:

“Fax dated December 30, 2000: ‘…The manager must personally attempt to sell the loan while the customer is still on the phone if our offer is rejected when the employee pitches it.  No call backs.  Manager must get on the phone immediately.  I expect to see notes from the managers on the results of their attempt.  It makes sense for managers, our best salespeople to pitch the most difficult sales…’

“Memorandum dated June 12, 2001: ‘Good morning ladies and gentlemen.  Today is the day we must rally on real estate.  Our team has booked 7 R/E loans this month.  This is a pathetic number folks. I will be calling you for your commitment this am…’

“Fax dated June 26, 2001: ‘Enough is enough ladies and gentlemen.  We did not achieve the improvement I hoped for last week.  The following is in place effective today for the remainder of this month: Tom Politano, Cindy Lee: You are substantially below the min $/1000 level. You will personally close all personal loans the rest of this month…’

“Fax dated July 2, 2001: “The transfer by zip code of former Associates accounts was processed over month end…We have a contest in place for July to determine who does the best job of renewing these accounts.  I will award points for renewing transferred accounts…The branch with the most points earns a day off for each employee in August.’”

The FTC also had testimony from Michele V. Handzel, a former Branch Manager for CitiFinancial:

“CitiFinancial put much more pressure on employees than the Associates did to include as many credit insurance and ancillary products as possible on every loan….In fact, I feel that the credit insurance sales practices at CitiFinancial were worse than at The Associates.  From January to June 2001, the policy was that no personal loan at CitiFinancial would be approved if it did not include some type of credit insurance, nor would a real estate loan be approved without some type of ancillary product…There were several internal measures in place to effectuate this policy.  For instance, District Managers would frequently refuse to send a loan to underwriting if it did not include some type of insurance product.  Moreover, loans that were closed and did not include any insurance would be identified by CitiFinancial’s internal insurance auditors, and the employee who closed the loan would be written up…Closings at CitiFinancial resembled those at The Associates – they were brief.  Personal loan closings took approximately 10 minutes.  Real estate loan closings took a little longer but also did not provide a lot of details about the loan.  At CitiFinancial, I was instructed to do a ‘closed folder’ closing, meaning that information would be discussed orally first.  Only after the borrower indicated that he wanted to sign would the employee open the folder and have the borrower sign the papers.”

Around this same time Citigroup was running a “Live Richly” ad campaign conceived by ad agency Fallon Worldwide.  According to Citigroup, the campaign was to communicate “that Citi is an advocate for a healthy approach to money.  Citi is an active partner in achieving perspective, balance, and peace of mind in finances and in life for its customers.”

In reality, the dark underbelly of the consumer lending divisions of Citigroup was  creating a torrent of mail to federal agencies and members of Congress:

On April 22, 2001, a resident of San Antonio, Texas wrote:

“I ask for you help.  Federal law and regulations are being violated intentionally in CRIMINAL, perhaps RACKETEERING, manner by a spaghetti-like entanglement of corporations…I refer to Sanford Weil[l]’s Citigroup…The particular criminal activity is that, despite federal law & regulation, despite what is written on its customers’ statements, Citigroup/Universal Card refuses to abide by mandated policy about the purchase of defective merchandise…”

On August 28, 2001, an Ohio woman wrote to HUD as follows:

“This will be my 3rd request for someone from this dept to assist me.  I am a victim of predatory lending.  Citifinancial gave me a loan at 24.99% in June of ’99.  I had a perfect credit score. The[y] called me back into their office one week later.  Refinanced that same loan at 18.99% and had a check for $500.00 waiting for me…this time they told me that I had to use my home as collateral to get the lower interest rate…I feel that because I am a female and black that they…thought they could get away with this…”

A distraught woman in Enid, Oklahoma wrote to her Senator, James Inhofe:

“…We had paid our home loan off in full…The new loan…was in the amt. of $24,139.20.  This was a rehabilitation loan for our home. The first problem occurred when we wanted to hire L.E. Clark as our General Contractor.  The loan officer (whose name is Audrey) said that we had to use B&K Home Improvement Inc. as our contractor.  We told her that we did not want B&K. We knew Mr. Clark and his work.  She said that it was none of our business.  She had hired B&K and if my husband called back she would file harassment charges…We were supposed to co-sign a check to B&K every ¼ of work approved.  Audrey gave B&K ¾ of money up front.  This was done without our knowledge or consent…at this time we are desperate…We are living in our ‘gutted’ house which is actually unlivable but we had no choice.  Any help that you can give us would/will be very much appreciated.  You are our last hope.  We have tried everything.”

Was there any evidence to support the premise that CitiFinancial was targeting minorities and the vulnerable?  Absolutely.  According to their former Assistant Manager, Gail Kubiniec:

“I and other employees would often determine how much insurance could be sold to a borrower based on the borrower’s occupation, race, age, and education level.  If someone appeared uneducated, inarticulate, was a minority, or was particularly old or young, I would try to include all the coverages CitiFinancial offered.  The more gullible the consumer appeared, the more coverages I would try to include in the loan…”

The FTC settled their suit on September 19, 2002 for $215 million.  But the press release issued by the FTC made it appear, incorrectly, that the abuses stemmed from The Associates firms that Citigroup had acquired when the evidence clearly demonstrated that CitiFinancial was fully holding up its end of the predatory brotherhood.  The press release quoted Timothy J. Muris, Chairman of the FTC at the time: “I am pleased that Citigroup has agreed to remedy the grave injury caused by The Associates and that Citigroup has announced new measures at CitiFinancial aimed at preventing these kinds of problems.”

Just one month later, HUD would make its second award to Citigroup in as many years, handing over 6,656 mortgage loans insured by HUD sibling, FHA, of people experiencing financial hardship and delinquent on their loan payments.  HUD left the decision in Citigroup’s hands as to whether to foreclose, sell off the loans en masse to other investors (securitization), or restructure the loans.

The HUD mortgage sales in 2002 though 2005 are a stark departure from HUD’s stated mandate of helping low income people remain in their homes during periods of financial hardship.  Even the controversial sales HUD made in the 90s that eventually erupted into charges and counter-charges of improprieties had many built-in protections that do not appear to have been present in the current round of sales.

According to a June 1999 report from the U.S. Government Accountability Office (GAO), “Homeownership: Information on Single Family Loans Sold by HUD,”  the purchasers were required by HUD “to offer borrowers the same forbearance, or lower loan payments, that HUD was required to offer before the loans were sold.”  To monitor that the purchasers were actually honoring the protections contained in the loan sales agreements — including reduced mortgage payments — HUD conducted reviews of loan servicers and established a toll-free telephone complaint line for borrowers whose loans had been sold.

That contrasts with the current program which states that the private partners “determine how best to maximize the return on the loan…Loans liquidated through note sales generally earn a higher return than property sales, so the JV [joint venture] has an incentive to maximize the share of note sales relative to property sales.”

Turning over a swath of a critical social policy mandate to the piranhas of Wall Street who have demonstrated an unprecedented knack for financial incompetence except in the realm of campaign donations, is clearly a matter for congressional subpoenas and testimony under oath.  Both Congress and the public at large will be more cognizant of the escalating devastation to lives and property values by making the time to watch Andrew and Leslie Cockburn’s emotionally-gripping film, American Casino.

Despite repeated requests over the past ten days to Lemar Wooley in the Public Affairs Office of HUD, Kathleen Malone, Director of the Office of Asset Sales, and John Lucey, Deputy Director, HUD refuses to confirm the names of the winning bidders and co-bidders of distressed single family mortgage sales that stretched from at least 2000 through 2005.

In addition to the awards reported in the first part of this series (see Wall Street Titans Use Aliases to Foreclose on Families While Partnering With a Federal Agency, CounterPunch, October 5, 2009), we have learned from outside sources that a division of Citigroup also received a bid award in 2000 consisting of 8,503 loans.  As we previously reported, Lehman Brothers (now bankrupt) won a 2003 award and Bear Stearns (rescued by JPMorgan Chase and the Federal Reserve) won a 2005 award.

Deborah Leggett found out the hard way that HUD, a taxpayer funded agency legislatively mandated to serve the public interest, had joined ranks with the “heads I win, tales you lose” swashbucklers on Wall Street.  In a desperate legal battle to save her home that stretched from 2005 through February of this year, HUD and its joint venture partner Citigroup, using the alias of SFJV-4 (Single Family Joint Venture 2004), buried Ms. Leggett under motions, briefs, counter-claims and even a request for sanctions in the United States District Court for the Northern District of Texas.  According to their own record put before the court on November 11, 2008 they did not offer Ms. Leggett the HUD required protections of an effort for loan modification or forbearance prior to moving for and obtaining foreclosure.  Indeed, Ms. Leggett’s attorney quoted counsel from the other side stating that they could not even produce the mortgage note as proof they even owned the property (raising the question as to whether the property had already been sold off to investors in a securitization).

Ms. Leggett lost her court battle as well as her home and was evicted.  There is nothing in the court record to suggest that Ms. Leggett ever knew her court adversary was her own government.

We’re still lynching people in America.  It’s not a physical lynching, it’s more nuanced now.  Today, the noose is a stack of indecipherable loan papers or a court order compelling one to hand over your home and your dignity to a Wall Street bank that robbed you just because it could; that stripped you of your hope and aspirations just because your government did not stand in its way or, as here, joined forces.

Pam Martens worked on Wall Street for 21 years; she has no security position, long or short, in any company mentioned in this article other than that which the U.S. Treasury has thrust upon her and fellow Americans involuntarily through TARP. She writes on public interest issues from New Hampshire. She can be reached at pamk741@aol.com

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Washington’s Blog
Saturday, Oct 10th, 2009

Lobbyists from the financial industry have paid hundreds of millions to Congress and the Obama administration. They have bought virtually all of the key congress members and senators on committees overseeing finances and banking.

This is easy to confirm in black-and-white. See for yourself: here, here, here, here, here and here.

Manhattan Institute senior fellow Nicole Gelinas says:

The too-big-to-fail financial industry has been good to elected officials and former elected officials of both parties over its 25-year life span

And economic historian Niall Ferguson says:

Guess which institutions are among the biggest lobbyists and campaign-finance contributors? Surprise! None other than the TBTFs [too big to fails].

No wonder two powerful congressmen said that banks run Congress.

No wonder two leading IMF officials, the former Vice President of the Dallas Federal Reserve, and the the head of the Federal Reserve Bank of Kansas City have all said that the United States is controlled by an oligarchy.

With the exception of a handful couple of Congress members who have the American people’s interest in mind, Congress is bought and paid for.

Note: A friend on the Hill made an important point to me by email.

The story isn’t just that a lot of members are bought and paid for, it’s that some aren’t.

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Democratic Senator Dianne Feinstein of California silently resigned from her post on the Military Construction Appropriations subcommittee (MILCON) late last week as her ethical limbo with war contracts began to surface in the media, including an excellent investigative report written by Peter Byrne for Metro in January. MILCON has supervised the appropriations of billions of dollars in reconstruction contracts since the Bush wars began.

Feinstein, who served as chairperson and ranking member for the committee from 2001-2005, came under fire early last year in these pages for profiting by way of her husband Richard Blum who, until 2005, held large stakes in two defense contracting companies. Both businesses, URS and Perini, have scored lucrative contracts in Iraq and Afghanistan in the last four years, and Blum has personally pocketed tens of millions of dollars off the deals his wife, along with her colleagues, so graciously approved.

Here’s a brief rundown of the Feinstein family’s blatant war profiteering. In April 2003, the U.S. Army Corps of Engineers gave $500 million to Perini to provide services for Iraq’s Central Command. A month earlier in March 2003, Perini was awarded $25 million to design and construct a facility to support the Afghan National Army near Kabul. And in March 2004, Perini was awarded a hefty contract worth up to $500 million for “electrical power distribution and transmission” in southern Iraq.

But it is not just Perini that has made Feinstein and Blum wealthy. Blum also held over 111,000 shares of stock in URS Corporation, which is now one of the top defense contractors in the United States. Blum was an acting director of URS, which bought EG&G, a leading provider of technical services and management to the U.S. military, from the neocon packed Carlyle Group back in 2002.

“As part of EG&G’s sale price,” reports the San Francisco Chronicle, “Carlyle acquired a 21.74 percent stake in URS – second only to the 23.7 percent of shares controlled by Blum Capital.”

URS and Blum have since banked on the war in Iraq, attaining a $600 million contract through EG&G, which Sen. Feinstein permitted. As a result, URS has seen its stock price more than triple since the war began in March of 2003. Blum has cashed in over $2 million on this venture alone and another $100 million for his investment firm.

And it is not just the Feinstein family that has benefited from the war – so too has the Democratic Party. Since 2000, the Democrats’ Daddy Warbucks has donated over $100,000 to the Democratic Senatorial Committee including leading Democrats including John Kerry, Robert Byrd, Ted Kennedy, and even Barbara Boxer.

Feinstein’s resignation from MILCON was the least the senator could do to atone for profiting off the spoils of war. But Feinstein wasn’t trying to atone, she seems to have been trying to cover her tracks instead by distancing herself from her post. If the Democratic Party had any foresight whatsoever it would return all the Blood Money donated by Blum. From there the Senate ought to hold hearings and examine Feinstein’s tenure as the chair and ranking member of MILCON and analyze every single contract she approved which benefited her husband’s respective companies.

There is absolutely no question – Sen. Dianne Feinstein has a plethora of ethics violations she needs to account for at once.

April 4, 2007

Joshua Frank [send him mail] is the author of Left Out!: How Liberals Helped Reelect George W. Bush, just published by Common Courage Press. You can order a copy at a discount through Josh’s blog.

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The former chief of the U.S. Drug Enforcement Administration’s Miami office who led the agency’s cases against infamous Panama strongman Manuel Noriega and Medellin cartel kingpin Fabio Ocho, was indicted by a federal grand jury Thursday for ordering the shredding of records once belonging to disgraced banker Allen Stanford.

Tom Raffanello, who emerged as Stanford’s worldwide security chief after leaving the DEA five years ago, was charged with ordering workers to destroy thousands of documents just days after government agents shut down the banking empire in a massive fraud case.

Prosecutors say the records, once kept at Stanford’s security office in Fort Lauderdale, were hauled away in a 95-gallon bin in February after a federal judge ordered that no company paperwork be destroyed.

The 61-year-old former DEA chief said he was prepared to turn himself over to federal agents Friday on charges of conspiracy and obstruction.

“No one is sorrier than me that it came to this — after spending 32 ½ years working for the government,” he told The Miami Herald. “But I’m prepared to fight this. I still believe in the system.”

The indictment of the highly decorated former agent is the latest in a series of charges against Stanford and top lieutenants accused of stealing more than $7 billion from investors in a spectacular Ponzi scheme.

Investigators say most of the money was diverted to support failed business ventures and Stanford’s extravagant lifestyle, which included mansions, luxury cars and sports sponsorships.

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Diebold, maker of touch-screen voting systems that have brought controversy after controversy upon the company, said Thursday that it will sell off most of it’s elections-related business, calling it a losing investment and a persistent “distraction.”

The Ohio-based company said it told Texas-based Premiere Election Solutions to former rival vote machine manufacturer Election Systems & Software for just $5 million. Diebold purchased the company for $31 million in 2001, noted Ohio newspaper The Canton Rep. The company said its sale will force a pretax loss between $45 and $55 million.

“For the last couple of years the elections business has been a distraction,” a spokeswoman told the Rep.

“Diebold retains certain existing liabilities, including an ongoing lawsuit involving the Cuyahoga County Board of Elections, and shares with ES&S other liabilities in connection with the elections systems business,” added The Cleveland Plain Dealer.

“Diebold was the industry’s biggest maker of electronic voting machines heading into the 2004 elections,” noted The Wall Street Journal. “Security concerns have dogged electronic voting. The company in early 2006 decided to seek options for the U.S. elections business, including a potential sale. Diebold essentially separated the company from the rest of Diebold in August 2007, having no direct operational involvement in the business.”

Included in the deal, Diebold said it would also collect 70 percent of Premiere’s accounts payable, added Reuters.

The sale concludes Diebold’s involvement in North American elections, either in the U.S. or Canada. It does not, however, affect its operations in Brazil, where its ATM’s are growing in popularity with the nation’s largest bank.

The company also supplies “voting machines for Brazil’s national elections board, the Tribunal Superior Eleitoral,” notes ATM Marketplace. “Diebold entered the elections business in Brazil in 1999.

Brazil is South America’s largest economy, and its president said Thursday that he expects his nation to become one of the world’s powers in the 21st Century.

“Premier has about 180 employees in the United States and Canada,” reported the Associated Press. “Premier operates in 33 states and ES&S operates election services in 39 states and overseas.”

“Perhaps the biggest loss was to the company’s image,” added the Canton Rep. “Key among its problems was a 2003 statement by then Chairman and CEO Walden O’Dell — a well-known Republican supporter and fundraiser — that he was committed to delivering the vote for President George W. Bush.

“The statement fueled organizations that already mistrusted electronic voting. It, along with a financial decline in the company’s core business, led to O’Dell’s ouster in December 2005.”

“Diebold said Premier generated $88.2 million, or 2.8%, of its total revenue in 2008,” reported CNN.

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Thugs of Fortune

Jeff Huber

August 31, 2009 A singular absurdity of the 21st century is that the nation that spends more on defense than the rest of the world combined needs to hire mercenaries to fight wars against enemies who have no defense budget at all. An August 19 New York Times article revealed that in 2004 the CIA hired Blackwater USA to help “locate and assassinate top operatives of al-Qaeda.”  This is the secret program that Dick Cheney ordered the CIA to not tell Congress about for seven years.  “It is unclear,” wrote Times reporter Mark Mazetti, “whether the C.I.A. had planned to use the contractors to actually capture or kill Qaeda operatives, or just to help with training and surveillance in the program.”  The program, says Mazetti, “did not successfully capture or kill any terrorist suspects,” which makes it sound like they tried to kill terrorist suspects and blew it.  There’s something about assassinating “suspects” that makes the mercenary aspect of the program seem trivial. It was the mercenary facet, though, according to Mazetti, that led CIA director Leon Panetta to cancel the program in June and then tell Congress about it.  Panetta would have been fine with assassinating suspects, I reckon, if only CIA types had been involved. But wait a minute.  An August 20 Times article by Mazetti and James Risen says the CIA is still using mercenaries to help them kill terror suspects.  A “division” of “the company formerly known as ‘Blackwater’” is loading Hellfire missiles and guided bombs on drone aircraft at “hidden” bases in Pakistan and Afghanistan.  The Blackwater mercenaries, now known as “Xe” (pronounced “zee”) mercenaries, also provide security at the bases.  They don’t pull the trigger or pickle off bombs though; CIA “employees” do that by remote control from the agency’s Langley, Virginia headquarters.  CIA types also pick which terror suspects to target. How is this drone assassination program different from the assassination program Panetta cancelled in June?  Both employ mercenaries.  Both target “suspects.”  Both rely on iffy information; our intelligence in that part of the world amounts to beating people up or bribing them so they tell us what we want to hear. Our intelligence is so bad that we don’t even know for certain if our drone assassination program has killed any suspects.  We know for sure that we’ve killed a lot of people who aren’t terrorists through collateral damage though, so we can be fairly sure the drone assassination program — like the rest of our woebegone war on terror — creates two or more new terrorists for every one it eliminates. In the assassination program that Panetta cancelled, operations to kill or capture suspects had to be approved by the CIA director and presented to the White House.  Risen and Mazetti say that drones land or take off from the bases in the Bananastans “almost hourly,” so it’s a good bet that nobody at the White House is getting told about the drone assissination missions, and the CIA director probably gets a weekly summary that he may or may not read.  That means that “employees” are deciding when and where to create collateral damage. The assassination program Panetta cancelled probably violated U.S. and international law.  The drone assassination program does too.  We’re running airstrikes, which are acts of war, against targets in Pakistan.  Congress has not specifically approved combat operations in Pakistan, unless you consider the September 2001 Authorization for Use of Military Force as a blank check for any president to apply military power anywhere at any time if it involves counterterrorism.  If that’s the case, Mr. Obama can fire bomb Dresden and nuke Nagasaki if he thinks suspected terrorists are hiding there.  Heck, he might delegate those decisions to CIA “employees,” or even employees of Blackwater/Xe. It speaks philosophical volumes about contemporary American values that an illegal secret assassination program that involved mercenaries had to be shut down, but an illegal overt assassination program involving mercenaries continues without objection. In March 2009 Blackwater/Xe lost its billion-dollar contract to protect U.S. diplomats in Baghdad, a job normally done by the U.S. Marines.  Blackwater had been under fire for a 2007 incident in which its security personnel killed 17 civilians in an unprovoked shooting.  Another mercenary outfit, Triple Canopy, won the contract and hired the same security personnel who had just been fired to do the same job they’d been fired from.  Some in the Iraqi government speculated that Triple Canopy subcontracted the job to an outfit called the Falcon Group, which was a Blackwater/Xe affiliate. Two former Blackwater/Xe employees have filed sworn statements in a federal court alleging that company founder Erik Prince may have been involved in the murder of individuals who were cooperating with federal authorities investigating the company’s actions in Iraq and Afghanistan.   The statements assert that Prince “views himself as a Christian crusader tasked with eliminating Muslims and the Islamic faith from the globe,” and that Prince’s companies “encouraged and rewarded the destruction of Iraqi life.”  There’s plenty more and it’s plenty sordid, and it’s mighty salacious stuff for people to swear to in front of a federal magistrate if it has no basis in truth.  Prince is a former Navy Seal, he’s rich, and he’s politically connected.  He probably knows a few good lawyers. There are a number of reasons to hire mercenaries.  Some of them are financial; it’s cheaper to rent a shooter for a short-term job than it is to train a career soldier or intelligence officer or torture specialist whom you have to provide with benefits and retirement pay.  The main reason to use mercenaries, though, is that they exist in a legal twilight zone.  If they operate overseas, they’re not exactly subject to U.S. law or host nation law or international law.  They don’t operate under the Uniform Code of Military Justice or congressional oversight either.  They can get away with shenanigans that even the CIA and Special Forces wouldn’t dirty their hands on.  Nobody has to know how contract interrogators get information from prisoners, and the second the government pays a mercenary outfit the money vanishes from the books forever. If, as Seymour Hersh of The New Yorker says, a certain former vice president formed death squads that answered directly to him, they likely contained mercenaries.  Blackwater/Xe may not have been directly involved in any trigger pulling, but former Middle East CIA field officer Robert Baer noted recently at TIME.com that “Blackwater was not the worst of the contractors, some of which did reportedly end up carrying out their assigned hits.” Doesn’t all this make you proud to be an American?

Link: original.antiwar.com/huber/2009/08/28/thugs-of-fortune/

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L.A. Police Chief to Lead Unit Seeking Big U.S. Contracts

William Bratton, best known for his crime-reduction efforts in New York City in the 1990s, is stepping down as Los Angeles police chief to join Altegrity.

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For more than 12 years, Falls Church-based USIS went about its business quietly scrutinizing the backgrounds of thousands of individuals who needed security clearance to work in the U.S. government or in the private sector.

Not anymore.

USIS, which renamed itself Altegrity last month, has ambitions of becoming much more than an investigation and data-collection company.

Altegrity announced two weeks ago that Los Angeles Police Chief William J. Bratton, best known for reducing crime in New York City under Mayor Rudolph Giuliani in the 1990s, would become chief executive of its new Altegrity Security Consulting. The new unit is part of the privately held company’s plan to increase revenue well beyond its current $1 billion.

“We have aspirations to be substantially larger, so we are hiring Bill Bratton and bringing in a series of experts in different specific areas that can specifically target how you use information and to give great advice,” said Altegrity chief executive Michael G. Cherkasky, who was hired a year ago from Marsh & McLennan, the giant security consulting and risk management firm.

The firm will have lots of competition. Dyncorp, SAIC, Lockheed Martin and Kroll all overlap to some extent with Altegrity.

Bratton and Cherkasky know each other well. They worked together when Bratton served as a consultant to Kroll, the Marsh & McLennan company that competes in the same security sector as USIS.

Bratton plans to leave his position in Los Angeles this October and lead the company from New York City.

Altegrity’s mission is to train and consult U.S. and foreign police departments, as well as to advise foreign governments on how to build a criminal justice system. Most of the foreign programs will be carried out through the U.S. State Department.

Specifically, Altegrity has its eye on about a dozen State Department contracts expected to be awarded in the coming months. The contracts are aimed at helping post-conflict democracies rebuild their public safety infrastructures.

“It’s a multibillion-dollar market opportunity,” said David Baron, who has been a financial adviser to USIS for the past nine years and is currently head of the U.S. financial sponsors advisory group for Macquarie Capital.
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Bratton brings to the job extensive experience in public safety as well as a list of seasoned subordinates on which he can draw. Many members of his brain trust from Los Angeles and elsewhere are likely to join his management team at Altegrity.

“One of my great strengths is I surround myself with very smart people,” Bratton said.

He headed the Bratton Group for six years after leaving the New York City job, and said he has experience and contacts throughout Central and South America, which could bring business to Altegrity.

“That’s a part of the world where I could proactively reach out and indicate that I and this newly formed company are available,” Bratton said.

Altegrity was launched when the federal government privatized the investigative branch of the Office of Personnel Management in July 1996. The company, which began with 600 employees, started with a five-year contract to provide security clearance background investigations. Its original name was U.S. Investigations Services Inc., and it was an employee-owned company.

The firm has grown to more than 8,000 employees worldwide, with 2,000 based in Northern Virginia and the District. USIS performed more than 2 million investigations for 95 federal agencies and organizations last year, according to an Altegrity spokesman.

The Carlyle Group invested in USIS in October 1999 as a financial and strategic partner. USIS employees cashed out in November 2003 when another investment firm, Welsh, Carson, Anderson and Stowe, acquired a majority stake in the company. Providence Equity Partners, a large, Rhode Island-based private-equity firm, bought USIS in August 2007.

Separate business units operate under the Altegrity umbrella brand.

Its core USIS background-check business, which employs 3,000 investigators in North America alone, also provides training and consulting to foreign governments on how to build a military.

USIS has trained more than 10,000 people around the world in police, anti-terrorism and counterinsurgency techniques. The firm currently has teams in Afghanistan, Colombia, Iraq, Indonesia and Pakistan, according to a spokesman.

The company’s HireRight unit supplies background and drug screening for companies, including more than a quarter of the U.S. Fortune 500.

The firm’s Explore Information Services unit monitors the driving records of more than 30 million drivers for U.S. auto insurers.

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The memo, which according to a knowledgeable health care lobbyist was prepared by a person directly involved in the negotiations, lists exactly what the White House gave up, and what it got in return.

It says the White House agreed to oppose any congressional efforts to use the government’s leverage to bargain for lower drug prices or import drugs from Canada — and also agreed not to pursue Medicare rebates or shift some drugs from Medicare Part B to Medicare Part D, which would cost Big Pharma billions in reduced reimbursements.

In exchange, the Pharmaceutical Researchers and Manufacturers Association (PhRMA) agreed to cut $80 billion in projected costs to taxpayers and senior citizens over ten years. Or, as the memo says: “Commitment of up to $80 billion, but not more than $80 billion.”

Representatives from both the White House and PhRMA, shown the outline, adamantly denied that it reflected reality. PhRMA senior vice president Ken Johnson said that the outline “is simply not accurate.” “This memo isn’t accurate and does not reflect the agreement with the drug companies,” said White House spokesman Reid Cherlin.

Stories in the Los Angeles Times and the New York Times last week indicated that the administration was confirming that such a deal had been made.

Critics on Capitol Hill and online responded with outrage at the reports that Obama had gone behind their backs and sold the reform movement short. Furthermore, the deal seemed to be a betrayal of several promises made by then-Sen. Obama during the presidential campaign, among them that he would use the power of government to drive down the costs of drugs to Medicare and that negotiations would be conducted in the open.

And over the past several days, both the White House and PhRMA have offered a series of sometimes conflicting accounts of what happened in an attempt to walk back the story.

The White House meeting took place on July 7th, as first reported that evening in the Wall Street Journal. Also on the same day, a health care lobbyist following the talks was provided the outline of the deal by a person inside the negotiations. That outline had been floating around K Street before being obtained by the Huffington Post. In order to learn more about its origin, HuffPost agreed not to reveal the name of the lobbyist who originally received it.

“That is the PhRMA deal,” said the lobbyist of the outline. He then clarified, “It was the PhRMA deal.”

The deal, as outlined in the memo:

Commitment of up to $80 billion, but not more than $80 billion.1. Agree to increase of Medicaid rebate from 15.1 – 23.1% ($34 billion)

2. Agree to get FOBs done (but no agreement on details — express disagreement on data exclusivity which both sides say does not affect the score of the legislation.) ($9 billion)

3. Sell drugs to patients in the donut hole at 50% discount ($25 billion)
This totals $68 billion

4. Companies will be assessed a tax or fee that will score at $12 billion. There was no agreement as to how or on what this tax/fee will be based.

Total: $80 billion

In exchange for these items, the White House agreed to:

1. Oppose importation

2. Oppose rebates in Medicare Part D

3. Oppose repeal of non-interference

4. Oppose opening Medicare Part B

“Non-interference” is the industry term for the status quo, in which government-driven price negotiations are barred. In other words, the government is “interfering” in the market if it negotiates lower prices. The ban on negotiating was led through Congress in 2003 by then-Rep. Billy Tauzin (R-La.), who is now the head of PhRMA.

The rebates reference is to Medicare overpayments Big Pharma managed to wrangle from the Republican Congress that Democrats are trying to recoup. The House bill would require Big Pharma to return some of that money. The rebate proposal would save $63 billion over ten years, according to the Congressional Budget Office. The White House, given the chance, declined to tell the Wall Street Journal for a July 17th article that it supported the effort to pursue the rebates.

The Medicare Part B item refers to “infusion drugs,” which can be administered at home. If they fall under Part B, Big Pharma gets paid more than under Part D. The agreement would leave infusion drugs in Part B.

In the section on Big Pharma’s concessions, “FOBs” refers to follow-on biological drugs. Democrats have pushed to make it easier to allow generic drug makers to produce cheaper versions of such drugs, an effort Big Pharma has resisted. The Senate health committee bill gives drug makers 12 years of market exclusivity, five more than the White House proposed.

PhRMA’s Johnson cast doubts on the provenance of the outline. “The memo, as described, is simply not accurate,” he said in a statement. “Anyone could have written it. Unless it comes from our board of directors, it’s not worth the paper it’s written on. Clearly, someone is trying to short circuit our efforts to try and make health care reform a reality this year. That’s not going to happen. Too much is at stake for both patients and the U.S. economy. Our new ads supporting health care reform are starting this week, and we are redoubling our efforts to drive awareness of why this issue is so important to America’s future.”

Johnson added that “no outside lobbyists — not a single one — were ever involved in our discussions with the Senate Finance Committee or the White House so someone is blowing smoke.”

But the lobbyist who was given the outline defended its authenticity. And although the White House now says that drug price negotiations and reimportation were not actually discussed in the talks with PhRMA, the lobbyist said: “Well, that’s bull — that’s baloney. That was part of the deal, for them not to push that.”

The new uncertainty surrounding the deal comes after House Speaker Nancy Pelosi (D-Calif.) has repeatedly said that her chamber is not bound by any agreement it is not a party to. On July 8th, the day after the Journal reported some elements of the deal, Energy and Commerce Committee Chairman Henry Waxman (D-Calif.) said in a public speech that his committee would not be tied down by the agreement.

Before recess, he followed through. His committee passed a bill that allowed for re-importation and drug-price negotiations.

In the Senate, Democrats Sherrod Brown (Ohio) and Byron Dorgan (N.D.) pressed White House officials at a closed-door meeting last week, asking whether the White House had tied the Senate’s hands.

The health care lobbyist said that what deal still exists is uncertain, as a result of House pressure. “Now the White House is backing away from it, as you know, because of pressure from the House, because the House was not a party to the deal,” he said. “The Speaker put enormous pressure on the White House, [saying], ‘We weren’t a party to it and we reserve the right to do whatever we want.’ And which they did in the House Energy and Commerce Committee bill, which led the White House to say, ‘Well, maybe it’s not cast in concrete.’”

Obama is walking a tightrope here. He wants to keep PhRMA from opposing the bill, and benefits by having its support, which now includes a $150 million advertising campaign. That’s a fortune in politics — more than Republican presidential candidate John McCain spent on advertising during his entire campaign — but it’s loose change in the pharmaceutical business.

Opponents of the deal with PhRMA hope that Obama is playing a multilayered game, making a deal in order to keep the drug makers in his camp for now, but planning to double-cross them in the end if he needs to in order to pass his signature initiative.

Big Pharma, however, is still comfortable. “As far as the pharmaceutical industry, PhRMA and its member companies, yes, they say a deal is a deal. We’ll see what happens,” said the health care lobbyist.

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July 30 (Bloomberg) — A Senate panel seeking evidence of fraud tied to last year’s mortgage crisis has issued subpoenas to financial companies including Goldman Sachs Group Inc. and JPMorgan Chase & Co., said U.S. Senator Tom Coburn, a Republican from Oklahoma.

Coburn declined to say whether subpoenas were issued to other institutions. Frankfurt-based Deutsche Bank AG, Germany’s biggest bank by assets, also was sent a subpoena, according to a person with knowledge of the inquiry, who declined to be identified because the request isn’t public.

Coburn declined to discuss what kinds of information was requested by the Permanent Subcommittee on Investigations. Coburn, the highest ranking Republican on the subcommittee, said he approved issuing the subpoenas with Subcommittee Chairman Carl Levin, a Michigan Democrat.

The subpoenas don’t mean the financial institutions violated the law, Coburn said. “There is no indication that JPMorgan or Goldman Sachs did anything wrong,” he said.

Thomas Kelly, spokesman for New York-based JPMorgan, the second-largest U.S. bank by assets, declined to say whether the bank received a subpoena. The firm “always cooperates” with the government, he said.

Michael Duvally, spokesman for New York-based Goldman Sachs, the biggest U.S. securities firm before converting to a bank last year, declined to comment. Michele Allison, a New York-based spokeswoman at Deutsche Bank, didn’t respond to a call seeking comment.

To contact the reporter on this story: Chris Stern in Washington at cstern3@bloomberg.net

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