FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today charged a Manhattan-based independent filmmaker with insider trading on confidential information about impending takeovers of two biotechnology companies.
The SEC alleges that Lawrence Robbins reaped illicit profits by trading Millennium Pharmaceuticals Inc. and Sepracor Inc. securities based on confidential information that he received from his business partner John Michael Bennett in advance of the acquisition announcements by the two companies. Bennett had received the inside information from his friend Scott Allen. The SEC previously charged Bennett and Allen for their roles in the scheme.
Robbins, who lives in New York City, has agreed to settle the SEC’s charges by paying more than $1 million.
“Robbins plotted with his business partner to perpetrate an insider trading scheme that enabled him to invest a portion of his illegal profits in their film production company,” said Sanjay Wadhwa, Senior Associate Director for Enforcement in the SEC’s New York Regional Office. “Their plot, however, did not account for the real world consequences of being caught by the SEC.”
According to the SEC’s complaint filed in federal court in Manhattan, Allen learned confidential information in advance of the two acquisitions through his job at a global consulting firm that was advising the acquiring company in each deal. Based on the information that Allen leaked, Robbins and Bennett collectively spent tens of thousands of dollars acquiring call options in the companies. They made more than $2.6 million in illicit profits following public announcements of the deals, and Robbins used a portion of his proceeds to fund the independent film production business that he shared with Bennett.
The SEC alleges that Allen communicated with Bennett about the Millennium and Sepracor transactions through phone calls or in-person meetings, some of which were tracked through their simultaneous use of Metrocards at subway stations in New York City as well as large ATM and bank cash withdrawals made by Bennett prior to the meetings. Allen first obtained non-public information about the Millennium transaction in mid-February 2008 when his firm began advising Japan-based Takeda Pharmaceutical Company during its negotiations with Millennium. On February 27, Allen tipped Bennett with inside information about Takeda’s impending cash tender offer, and Bennett then tipped Robbins. Starting on February 29 and continuing up until the week before the public announcement of the acquisition, Robbins and Bennett spent tens of thousands of dollars amassing Millennium call options. Additionally, Robbins purchased Millennium shares and sold Millennium put options. After the deal was publicly announced on April 10, the price of Millennium shares increased more than 48 percent, and that afternoon Robbins began liquidating his holdings of Millennium securities for ill-gotten gains of more than $1.12 million. Bennett liquidated his Millennium holdings for illicit profits of more $602,000.
The SEC further alleges that in May 2009, Allen participated in due diligence work for the Japanese firm Dainippon Sumitomo Pharma Co. Ltd. (DSP) in connection with its impending acquisition of Sepracor. Allen again tipped Bennett with inside information about the upcoming transaction, and Bennett again shared the information with Robbins. In the months leading up to the September 3 public announcement that DSP had agreed to acquire Sepracor, Robbins and Bennett purchased more than $350,000 worth of call options in Sepracor. Additionally, they sold tens of thousands of dollars of Sepracor put options, and Robbins purchased Sepracor shares. Following the public announcement, Sepracor's stock price rose more than 26 percent, and both Robbins and Bennett liquidated their entire positions in Sepracor for ill-gotten profits of more than $388,000 and $516,000 respectively.
The SEC’s complaint charges Robbins with violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, and Section 14(e) of the Exchange Act and Rule 14e-3. Robbins has agreed to pay $865,000 in disgorgement and prejudgment interest and a $150,000 penalty. The settlement, which is subject to court approval, takes into account Robbins’s current financial condition. Without admitting or denying the allegations in the complaint, Robbins also agreed to be permanently enjoined from future violations of these provisions of the federal securities laws.
The SEC’s case continues against Allen and Bennett, who have now pled guilty in parallel criminal actions filed by the U.S. Attorney’s Office for the Southern District of New York.
The SEC’s investigation was conducted by Charles D. Riely of the SEC’s Market Abuse Unit in New York and Layla Mayer, Sandra Yanez, and Amelia A. Cottrell in the New York Regional Office. The SEC acknowledges the assistance of the U.S. Attorney’s Office for the Southern District of New York, Federal Bureau of Investigation, Options Regulatory Surveillance Authority, and Financial Industry Regulatory Authority.
Tuesday, September 24, 2013
GSA SAYS IT IS WORKING TO TRANSFORM THE GOVERNMENT WORKPLACE TO SAVE MILLIONS
FROM: GENERAL SERVICES ADMINISTRATION
GSA Transforming the Government Workplace, Saving Agencies Millions
Initiative to do away with “Mad Men” style offices, modernize the federal government
Full service offerings include design, technology, furnishings to cut office space, reduce costs and increase collaboration
Washington, DC -- Today, the U.S. General Services Administration (GSA) launched a comprehensive service to create a 21st century workplace throughout the federal government. GSA’s Total Workplace initiative provides resources and expertise to help federal agencies reduce their office space, foster collaboration, better manage IT spending, and increase energy efficiency. In a time of shrinking budgets, the initiative is already saving taxpayer dollars and helping customer agencies better serve the American people. The U.S. Departments of Agriculture (USDA), Health and Human Services (HHS), Homeland Security (DHS), and the U.S. Fish and Wildlife Service (FWS) have announced today that they have joined the Total Workplace program and are on their way to realizing significant savings and reducing their real estate footprint. The effort will also help agencies meet Obama Administration goals to cut greenhouse gas emissions and energy costs, including the freeze the federal footprint directive.
GSA has been meeting with agencies throughout the federal government to lay out the benefits of this program. Here's how GSA’s Total Workplace is already delivering savings and cost avoidance for federal agencies and the American people:
- At DHS, a reduction of rented space with subleasing, increased teleworking and the adoption of desk sharing, has allowed the agency to begin reducing its real estate footprint, resulting in a projected savings of $55 million in office real estate costs.
- USDA’s National Agricultural Statistics Service will reduce its footprint from 43 state offices across the country to 12 regional locations which will create significant savings. Through the efforts to-date, the agency is projected to save more than $700,000 in annual real estate costs.
- HHS will improve space efficiencies, reduce the agency’s footprint, and save the federal government more than $15 million in real estate costs over a ten year lease.
GSA’s Total Workplace will also allow FWS to eliminate 72,200 square feet, saving taxpayers more than $3 million in annual real estate costs.
“We are replacing buildings built around hierarchies from an era where people used the telegraph with workspaces more suited to today’s world,” said GSA Administrator Dan Tangherlini. “The kind of open office environment that Total Workplace creates encourages collaboration and cooperation that in turn leads to better services for the American people. By using our space more efficiently, we also save valuable taxpayer dollars.”
“Total Workplace gives federal workers access to the technology they need to accomplish their missions not only effectively, but also efficiently. Today’s workforce demands the tools necessary to work anywhere, anytime. Reducing the federal footprint gives agencies appropriate work spaces to get the job done together, while encouraging mobility,” said Charles Hardy, GSA’s Chief Total Workplace Officer.
GSA is leading workplace transformation with the renovation of its own headquarters in Washington, DC. GSA was able to collapse a number of leases in the region and bring those employees into the renovated headquarters, allowing it to go from 2,200 to 3,300 employees. By consolidating GSA employees into a single facility, the agency is eliminating $24.4 million in annual lease payments. The renovation also includes high-performance green building initiatives, such as photovoltaic rooftop arrays; an underground cistern to recapture and reuse rainwater/grey water; a green roof; solar hot water panels; high efficiency mechanical systems; and daylight harvesting.
GSA Transforming the Government Workplace, Saving Agencies Millions
Initiative to do away with “Mad Men” style offices, modernize the federal government
Full service offerings include design, technology, furnishings to cut office space, reduce costs and increase collaboration
Washington, DC -- Today, the U.S. General Services Administration (GSA) launched a comprehensive service to create a 21st century workplace throughout the federal government. GSA’s Total Workplace initiative provides resources and expertise to help federal agencies reduce their office space, foster collaboration, better manage IT spending, and increase energy efficiency. In a time of shrinking budgets, the initiative is already saving taxpayer dollars and helping customer agencies better serve the American people. The U.S. Departments of Agriculture (USDA), Health and Human Services (HHS), Homeland Security (DHS), and the U.S. Fish and Wildlife Service (FWS) have announced today that they have joined the Total Workplace program and are on their way to realizing significant savings and reducing their real estate footprint. The effort will also help agencies meet Obama Administration goals to cut greenhouse gas emissions and energy costs, including the freeze the federal footprint directive.
GSA has been meeting with agencies throughout the federal government to lay out the benefits of this program. Here's how GSA’s Total Workplace is already delivering savings and cost avoidance for federal agencies and the American people:
- At DHS, a reduction of rented space with subleasing, increased teleworking and the adoption of desk sharing, has allowed the agency to begin reducing its real estate footprint, resulting in a projected savings of $55 million in office real estate costs.
- USDA’s National Agricultural Statistics Service will reduce its footprint from 43 state offices across the country to 12 regional locations which will create significant savings. Through the efforts to-date, the agency is projected to save more than $700,000 in annual real estate costs.
- HHS will improve space efficiencies, reduce the agency’s footprint, and save the federal government more than $15 million in real estate costs over a ten year lease.
GSA’s Total Workplace will also allow FWS to eliminate 72,200 square feet, saving taxpayers more than $3 million in annual real estate costs.
“We are replacing buildings built around hierarchies from an era where people used the telegraph with workspaces more suited to today’s world,” said GSA Administrator Dan Tangherlini. “The kind of open office environment that Total Workplace creates encourages collaboration and cooperation that in turn leads to better services for the American people. By using our space more efficiently, we also save valuable taxpayer dollars.”
“Total Workplace gives federal workers access to the technology they need to accomplish their missions not only effectively, but also efficiently. Today’s workforce demands the tools necessary to work anywhere, anytime. Reducing the federal footprint gives agencies appropriate work spaces to get the job done together, while encouraging mobility,” said Charles Hardy, GSA’s Chief Total Workplace Officer.
GSA is leading workplace transformation with the renovation of its own headquarters in Washington, DC. GSA was able to collapse a number of leases in the region and bring those employees into the renovated headquarters, allowing it to go from 2,200 to 3,300 employees. By consolidating GSA employees into a single facility, the agency is eliminating $24.4 million in annual lease payments. The renovation also includes high-performance green building initiatives, such as photovoltaic rooftop arrays; an underground cistern to recapture and reuse rainwater/grey water; a green roof; solar hot water panels; high efficiency mechanical systems; and daylight harvesting.
SEC CHARGES OWNER NY ADVISORY FIRM WITH INSIDER TRADING IN ADVANCE OF MERGERS
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
The Securities and Exchange Commission today charged the owner of a New York-based advisory firm with insider trading in his own account and client accounts based on non-public information in advance of a merger announcement by pharmaceutical companies.
The SEC alleges that Tibor Klein, who lives on Long Island and is president of Klein Financial Services, learned confidential information about Pfizer Inc.'s planned acquisition of King Pharmaceuticals. He misappropriated the information and traded in advance of the public announcement for illicit profits of more than $300,000 for himself and his clients.
The SEC also charged Klein's close friend Michael Shechtman, a stockbroker living in South Florida who was tipped by Klein and traded on the non-public information for more than $100,000 in illegal profits.
According to the SEC's complaint filed in U.S. District Court for the Southern District of Florida, Klein learned material, non-public information about the impending merger in August 2010 from one of his clients - an attorney who works on matters for King Pharmaceuticals. On August 16 - the first day that the markets opened after he learned the confidential information - Klein began purchasing large amounts of King Pharmaceuticals' stock. Klein had not purchased so many securities of an individual stock for so many clients in such a short time period in 2010 as he did when he made these purchases.
The SEC alleges that Klein then went one step further and tipped his best friend, Shechtman, with the non-public information about King Pharmaceuticals. Klein and Shechtman speak often but rarely more than once a day. But Klein called Shechtman six times on August 16, when Shechtman submitted an application to open an options trading account and handwrote "Please expedite ASAP" at the top of the form. Shechtman had never before traded in options. On August 18, Klein called Shechtman 11 more times as Shechtman purchased 2,500 shares of King Pharmaceuticals stock and 300 call options in his personal account, and 2,400 shares in his wife's Roth IRA account.
According to the SEC's complaint, the public announcement was made on Oct. 12, 2010. King Pharmaceuticals stock subsequently rose 39 percent and trading volume increased by more than 12,000 percent from the previous day. Following the announcement, Klein sold his King Pharmaceuticals stock and generated profits of $328,375.02 for himself and his clients. Shechtman sold his shares and his wife's share in King Pharmaceuticals stock and options for profits of $109,040.53.
The SEC's complaint charges Klein and Shechtman with violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3. The SEC seeks disgorgement of ill-gotten gains, financial penalties, and permanent injunctive relief against Klein and Shechtman to enjoin them from future violations of the federal securities laws.
The SEC's investigation was conducted by Rachel K. Paulose and supervised by Elisha L. Frank in the Miami Regional Office. The SEC's litigation will be led by Robert K. Levenson. The SEC appreciates the assistance of the Financial Industry Regulatory Authority and the Chicago Board Options Exchange.
The Securities and Exchange Commission today charged the owner of a New York-based advisory firm with insider trading in his own account and client accounts based on non-public information in advance of a merger announcement by pharmaceutical companies.
The SEC alleges that Tibor Klein, who lives on Long Island and is president of Klein Financial Services, learned confidential information about Pfizer Inc.'s planned acquisition of King Pharmaceuticals. He misappropriated the information and traded in advance of the public announcement for illicit profits of more than $300,000 for himself and his clients.
The SEC also charged Klein's close friend Michael Shechtman, a stockbroker living in South Florida who was tipped by Klein and traded on the non-public information for more than $100,000 in illegal profits.
According to the SEC's complaint filed in U.S. District Court for the Southern District of Florida, Klein learned material, non-public information about the impending merger in August 2010 from one of his clients - an attorney who works on matters for King Pharmaceuticals. On August 16 - the first day that the markets opened after he learned the confidential information - Klein began purchasing large amounts of King Pharmaceuticals' stock. Klein had not purchased so many securities of an individual stock for so many clients in such a short time period in 2010 as he did when he made these purchases.
The SEC alleges that Klein then went one step further and tipped his best friend, Shechtman, with the non-public information about King Pharmaceuticals. Klein and Shechtman speak often but rarely more than once a day. But Klein called Shechtman six times on August 16, when Shechtman submitted an application to open an options trading account and handwrote "Please expedite ASAP" at the top of the form. Shechtman had never before traded in options. On August 18, Klein called Shechtman 11 more times as Shechtman purchased 2,500 shares of King Pharmaceuticals stock and 300 call options in his personal account, and 2,400 shares in his wife's Roth IRA account.
According to the SEC's complaint, the public announcement was made on Oct. 12, 2010. King Pharmaceuticals stock subsequently rose 39 percent and trading volume increased by more than 12,000 percent from the previous day. Following the announcement, Klein sold his King Pharmaceuticals stock and generated profits of $328,375.02 for himself and his clients. Shechtman sold his shares and his wife's share in King Pharmaceuticals stock and options for profits of $109,040.53.
The SEC's complaint charges Klein and Shechtman with violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3. The SEC seeks disgorgement of ill-gotten gains, financial penalties, and permanent injunctive relief against Klein and Shechtman to enjoin them from future violations of the federal securities laws.
The SEC's investigation was conducted by Rachel K. Paulose and supervised by Elisha L. Frank in the Miami Regional Office. The SEC's litigation will be led by Robert K. Levenson. The SEC appreciates the assistance of the Financial Industry Regulatory Authority and the Chicago Board Options Exchange.
FROM DEFIBRILLATOR TO "LIGHT HEART"
 |
| Photo Credit: CDC |
Researchers envision switching a heart beat on and off with light
With a few flicks of a light switch--on-off-on-off--Stanford University's Oscar Abilez is one step closer to changing the lives of millions.
Why? Because as a focused speck of light turns on and off in Abilez's lab, a cluster of heart cells begins to expand and contract. He demonstrates that he can control the rhythm of a heart using just light.
Currently, 4 million Americans suffer from some degree of cardiac arrhythmia, wherein a person's heart beats too slowly, too quickly or at irregular intervals. Such heart rhythm problems can cause a shortness of breath, fainting and, in worst-case scenarios, death.
The good news is devices like pacemakers and defibrillators allow doctors to introduce electrical signals to set patients' hearts at regularly timed beats. But these small mechanical devices come with risks.
"It's like using a cannon to kill an ant," says Leon Esterowitz, director of the National Science Foundation's (NSF) Directorate for Engineering's Biophotonics program, which funds this research through the Living Matter Lab at Stanford, under the direction of Ellen Kuhl, a professor of engineering at Stanford.
Patients must undergo invasive surgical procedures to permanently implant the devices, which can cause cardiac tissue damage. There are other challenges too, such as lifestyle limitations and the occasional battery malfunction.
Doctors and patients agree there must be a better solution.
"I think progress has to happen," says Ryan Aleong, a leading University of Colorado Denver cardiologist who diagnoses and treats the heart's electrical irregularities. "I think we all realize there's going to be a move for more translational medicine to solve some of these problems."
Dr. Light to the rescue
That's where Abilez, a cardiovascular physician with a doctorate in bioengineering, comes in. He's working with a team of Stanford scientists to develop a novel biological pacemaker--one that controls the human heart with light.
The project, Optogenetic Control of the Human Heart--Turning Light into Force, received $600,000 from NSF last year. The Biomechanics and Mechanobiology program and the Mechanics of Materials program in NSF's Engineering Directorate co-fund the research along the Biophotonics program.
It was one of 40 new projects funded during the first round of NSF's INSPIRE initiative, which addresses complicated and pressing scientific problems that do not fit neatly into any one traditional scientific field or domain.
Abilez's research suits that characterization. It involves two seemingly disconnected and developing technologies: optogenetics and stem cells.
At first glance optogenetics seems more like a magic trick than science, using just flashes of light to control a targeted group of cells.
But, not so fast. Optogenetics uses techniques from both optics and genetics to control the activity of individual neurons in living tissue.
Only a few organisms, such as algae, have naturally light-sensitive cells. In 2002, however, scientists in Germany were able to isolate the genes for the proteins--called opsins--responsible for cells' light sensitivity and modify the genetic code of other cells so that they, too, would produce opsins.
Once produced, the opsins act like small hatches on the surface of a cell. When light shines on them, the hatches either open or close, depending on the type of opsin they are. If the hatches open, electrical signals are able to flow through the cell and be translated into some action, such as regulating a heart. In 2005, Karl Deisseroth and colleagues, also at Stanford, were able to genetically introduce opsins into neurons and control these cells with light; this work and subsequent work has led to the field of optogenetics.
Optogenetics has huge implications for medicine. Researchers, for example, already have shown that they can stop a seizure, cure anxiety and even implant fake memories into the minds of mice using the technology.
Shining a light on someone's chest
Abilez's grand vision is to take stem cells from a person suffering from cardiac arrhythmia and convert the cells into light-sensitive cardiomyocytes--cells that constitute cardiac muscle and are responsible for pacemaker functions in the heart. The cardiomyocytes would then be grafted onto a person's heart, thus allowing doctors to control the whole heart's rhythm using light.
"The applications can be of very high reward," says Natalia Trayanova, director of John Hopkins University's Computational Cardiology Lab.
Current high-energy defibrillation is painful, traumatic and has been associated with a higher rate of mortality, she says. Trayanova also works on cardiac optogenetics.
"Wouldn't it be nice to be able to shine a light on someone's chest and defibrillate them painlessly?"
Abilez has already successfully grown light-sensitive cardiomyocytes. His next step is to test whether the lab-grown cells are accepted when coupled with a larger body of non-stem-cell derived heart cells.
If they are, then Abilez will be on his way to creating a less-invasive, longer-lasting and glitch-free treatment for arrhythmias.
Moreover, Abilez also will have paved the way for optogenetic success in other fields. If he can successfully couple light-sensitive cells with normal cells, then his method of creating light-sensitive stem cells could be used by other researchers to grow any type of light-sensitive cell they wanted, from neurons to pancreatic cells, magnifying the applications of optogenetics in an unprecedented way.
Optogenetic hurdles
At a time when many medical treatments, from prescription drugs to surgeries, can result in a laundry list of complications, it may be difficult to trust that cardiac optogenetics offers a relatively complication-free treatment for patients.
In a way, the mistrust is valid, say researchers. There still are risks involved in cardiac optogenetics. Such risks, however, exist not with the treatment itself but with the feasibility of its development. That is to say, there are still major hurdles to overcome before any applications can be realized.
Ronald Berger, professor of medicine at John Hopkins University, is concerned that biological pacemakers might not be able to coordinate electrical activity between the atria and the ventricles.
Abilez acknowledges such risk, saying that there is a chance the team will discover that their light-sensitive stem cells cannot control the heart as well as they hoped. A large part of the research's difficulty is that the team is in uncharted waters--they have no prior research on which to base their efforts.
"We have to invent things along the way. We don't have any precedent," Abilez says.
Computer models reduce uncertainty
Ellen Kuhl, director of Stanford's Living Matter Lab is helping to take out some of the uncertainty by creating computer models that simulate the heart under different conditions.
With her models, Kuhl has been able to predict optimal configurations for the gene expression of opsins, how much light needs to be shined on the cardiomyocytes and where in the heart cells should be implanted. She can predict all of this for hearts of varied sizes and ages.
"Computational models can help interpret observations in the complex cardiac setting and can guide future developments," says Emilia Entcheva, a biomechanical engineering professor at Stony Brook University in New York and a colleague of Trayanova.
More immediately, however, Kuhl says, "We can make physical or experimental models of arrhythmia and use those as a platform to test drugs to see which drugs are effective in stopping arrhythmias." In fact, companies are looking into using the technology for such drug testing purposes now.
The computational models used for cardiac optogenetics are a product of a new way of practicing medicine--one that involves not only biology and chemistry, but also engineering, mathematics and computer science.
While the applications of cardiac optogenetics are far-reaching, the field has been slow to develop. This is in part because interest in the technology started just as the scientific community began to feel the effects of the recession, says Entcheva.
"NSF support will be a great incentive for more cardiac researchers to focus on fundamental questions that can elevate the use of optogenetics in electrophysiology and cell signaling," she says.
The researchers estimate the main applications of cardiac optogenetics will be realized in the next 10-15 years.
Monday, September 23, 2013
JOHN KERRY'S REMARKS TO UN ON DISABILITY AND DEVELOPMENT
FROM: U.S. STATE DEPARTMENT
Remarks at a High-Level Meeting of the United Nations General Assembly on Disability and Development
Remarks
John Kerry
Secretary of State
United Nations
New York City
September 23, 2013
Good morning. And it’s a great pleasure for me to be able to be here with all of you, an honor to be here for my first high-level meeting at the United Nations General Assembly as Secretary of State.
Before we begin, I want to just reiterate that we are monitoring very closely and with great concern the situation in Kenya. Ruthless and valueless terrorists remain a serious challenge everywhere in the world, as we all know, whether it’s in downtown Manhattan or in a mall in Nairobi or anywhere else in the world, and all of us have a responsibility to remain vigilant. We stand with the Kenyan people. The President has talked to their President; I’ve talked to their Foreign Minister. They are a resilient people, and they will need the world’s support in the coming difficult days.
But the bottom line is that this tragedy is a reminder, a terrible reminder, to all of us that we all share a stake in one another. And that is especially important to keep in mind as the international community prepares to renew the development goals for 2015 and beyond. What happens in one country, we are reminded day to day, matters to many others, to all of us. And what matters in one culture has to be considered elsewhere. That is a bottom line with respect to the topic that we are discussing here today. The way we treat people of all backgrounds, including how we treat disabled and non-disabled alike, this is how we demonstrate our values, and it’s how we define who we are.
Through our development agenda, we have a very important opportunity to show the world that we value everyone’s contributions, and that we leave no one behind, including those with disabilities. It is clear, and we have seen here in the United States over the last years, that we can make an enormous number of lives better in that process.
The principle behind this is really very, very simple: Our societies, all of our societies, are stronger when every single one of our citizens, able bodied and disabled alike, all get to live up to their full potential. And that’s why here in our country, many states have established standards, and they steadfastly enforce them – laws like the Americans with Disabilities Act, which we passed in 1990 and we believe is really a gold standard with respect to how we treat people and how we open up the world for opportunities. We encourage the international community to look at, study, and, hopefully, emulate this law.
Thanks to laws like the Americans with Disabilities Act, nearly one in five Americans are now protected from disability-based discrimination, and all Americans benefit from the contributions of our fellow citizens with disabilities. We see this every day in everyday life in the workplace, in schools, in education all across our nation.
Thanks to other groundbreaking non-discrimination laws like the Individuals with Disabilities Education Act, nearly 60 percent of students with disabilities are in general education classrooms for 80 percent or more of their school day. Nearly 350,000 infants and toddlers with disabilities and their families now receive early intervention services. And more than 6.6 million children and youth receive special education and related services designed to meet their individual needs.
This year the Federal Communications Commission issued the first-ever National Deaf-Blind Equipment Distribution Program in order to help meet the needs of deaf-blind individuals. And since then, hundreds of deaf-blind individuals have gained access to communication technologies through this program, allowing them to lead independent lives and stay connected with their family members and their friends.
In too many countries, however, we still see the rights and the dignity that we have been blessed to be able to now almost take for granted, that it is not existent in many of those places. So as we work to ensure equal access to public spaces, communications technology, education, and more, and though we’ve seen progress internationally, everybody here knows that we still have a lot to do.
Though disabled persons comprise 15 percent of the world, 8 in 10 live in developing countries. And there’s obvious reasons for that. And in those developing countries, 9 out of 10 children with disabilities don’t go to school. Compared with 5 or 10 years ago, many more countries now have laws prohibiting discrimination on the basis of disability, and many more countries require buildings to be accessible. But all countries, we believe, can work harder to enforce these laws, and to ensure that disabled people have as much right and ability to access their local supermarket or their school or even election booths.
Frankly, this is as much an economic issue as it is a human rights issue. But it is also profoundly a family issue, a personal issue, and a moral issue. None of the change that is needed is possible without the partnerships that we’re building at the international level, including meetings like this, where the world can come together to learn from each other’s experience of how we can make rights a reality for disabled people. No one can forget, however, that the most important partnerships we build are, in the end, those that we build with persons with disabilities themselves. We cannot afford to forget that disabled individuals are not only the beneficiaries of development efforts and investments, but they are also leaders, and they are the agents of progress. And they do so on an equal basis with others.
I’m honored today to be joined by Judith Heumann and Charlotte McClain-Nhlapo, who are well known to you all as longtime leaders in the international disability movement. We’re honored that they have brought their expertise and leadership into our government to guide United States policy and practice that leaves no one behind in our diplomacy or in our development, including persons with disabilities.
So we’re here because we see the possibilities of diplomacy, the promise of development, and the potential of every single person. And in fact, I think all of us understand and we have learned gracefully in our country that the possibilities are, frankly, unlimited. So I hope everyone will leave here with a commitment to do everything that we can to make sure that we are pursuing the policies of inclusivity and that we mean it when we say we will not leave anyone behind. Thank you very much. (Applause.)
Remarks at a High-Level Meeting of the United Nations General Assembly on Disability and Development
Remarks
John Kerry
Secretary of State
United Nations
New York City
September 23, 2013
Good morning. And it’s a great pleasure for me to be able to be here with all of you, an honor to be here for my first high-level meeting at the United Nations General Assembly as Secretary of State.
Before we begin, I want to just reiterate that we are monitoring very closely and with great concern the situation in Kenya. Ruthless and valueless terrorists remain a serious challenge everywhere in the world, as we all know, whether it’s in downtown Manhattan or in a mall in Nairobi or anywhere else in the world, and all of us have a responsibility to remain vigilant. We stand with the Kenyan people. The President has talked to their President; I’ve talked to their Foreign Minister. They are a resilient people, and they will need the world’s support in the coming difficult days.
But the bottom line is that this tragedy is a reminder, a terrible reminder, to all of us that we all share a stake in one another. And that is especially important to keep in mind as the international community prepares to renew the development goals for 2015 and beyond. What happens in one country, we are reminded day to day, matters to many others, to all of us. And what matters in one culture has to be considered elsewhere. That is a bottom line with respect to the topic that we are discussing here today. The way we treat people of all backgrounds, including how we treat disabled and non-disabled alike, this is how we demonstrate our values, and it’s how we define who we are.
Through our development agenda, we have a very important opportunity to show the world that we value everyone’s contributions, and that we leave no one behind, including those with disabilities. It is clear, and we have seen here in the United States over the last years, that we can make an enormous number of lives better in that process.
The principle behind this is really very, very simple: Our societies, all of our societies, are stronger when every single one of our citizens, able bodied and disabled alike, all get to live up to their full potential. And that’s why here in our country, many states have established standards, and they steadfastly enforce them – laws like the Americans with Disabilities Act, which we passed in 1990 and we believe is really a gold standard with respect to how we treat people and how we open up the world for opportunities. We encourage the international community to look at, study, and, hopefully, emulate this law.
Thanks to laws like the Americans with Disabilities Act, nearly one in five Americans are now protected from disability-based discrimination, and all Americans benefit from the contributions of our fellow citizens with disabilities. We see this every day in everyday life in the workplace, in schools, in education all across our nation.
Thanks to other groundbreaking non-discrimination laws like the Individuals with Disabilities Education Act, nearly 60 percent of students with disabilities are in general education classrooms for 80 percent or more of their school day. Nearly 350,000 infants and toddlers with disabilities and their families now receive early intervention services. And more than 6.6 million children and youth receive special education and related services designed to meet their individual needs.
This year the Federal Communications Commission issued the first-ever National Deaf-Blind Equipment Distribution Program in order to help meet the needs of deaf-blind individuals. And since then, hundreds of deaf-blind individuals have gained access to communication technologies through this program, allowing them to lead independent lives and stay connected with their family members and their friends.
In too many countries, however, we still see the rights and the dignity that we have been blessed to be able to now almost take for granted, that it is not existent in many of those places. So as we work to ensure equal access to public spaces, communications technology, education, and more, and though we’ve seen progress internationally, everybody here knows that we still have a lot to do.
Though disabled persons comprise 15 percent of the world, 8 in 10 live in developing countries. And there’s obvious reasons for that. And in those developing countries, 9 out of 10 children with disabilities don’t go to school. Compared with 5 or 10 years ago, many more countries now have laws prohibiting discrimination on the basis of disability, and many more countries require buildings to be accessible. But all countries, we believe, can work harder to enforce these laws, and to ensure that disabled people have as much right and ability to access their local supermarket or their school or even election booths.
Frankly, this is as much an economic issue as it is a human rights issue. But it is also profoundly a family issue, a personal issue, and a moral issue. None of the change that is needed is possible without the partnerships that we’re building at the international level, including meetings like this, where the world can come together to learn from each other’s experience of how we can make rights a reality for disabled people. No one can forget, however, that the most important partnerships we build are, in the end, those that we build with persons with disabilities themselves. We cannot afford to forget that disabled individuals are not only the beneficiaries of development efforts and investments, but they are also leaders, and they are the agents of progress. And they do so on an equal basis with others.
I’m honored today to be joined by Judith Heumann and Charlotte McClain-Nhlapo, who are well known to you all as longtime leaders in the international disability movement. We’re honored that they have brought their expertise and leadership into our government to guide United States policy and practice that leaves no one behind in our diplomacy or in our development, including persons with disabilities.
So we’re here because we see the possibilities of diplomacy, the promise of development, and the potential of every single person. And in fact, I think all of us understand and we have learned gracefully in our country that the possibilities are, frankly, unlimited. So I hope everyone will leave here with a commitment to do everything that we can to make sure that we are pursuing the policies of inclusivity and that we mean it when we say we will not leave anyone behind. Thank you very much. (Applause.)
FTC ANNOUNCES SHUTDOWN OF PAY TO OBTAIN PRIZE SWEEPSTAKES SCAM
FROM: FEDERAL TRADE COMMISSION
At the request of the Federal Trade Commission, a federal court has halted a massive sweepstakes scam that has taken more than $11 million from consumers throughout the United States and dozens of other countries throughout the world, including Canada, the United Kingdom, France, and Japan. The FTC seeks to permanently end the allegedly illegal practices that have continued for seven years and return money to victims.
According to the FTC’s complaint, Liam O. Moran, a resident of Ventura, California, and his companies, mass mail personalized letters to millions of consumers telling them that they have won a large cash prize, typically more than $2 million with bold, large-type statements such as “Over TWO MILLION DOLLARS in sweepstakes has been reserved for you.” Consumers are told that they can collect the prize by sending in a small fee of approximately $20 to $30. The letters often indicate that recipients are “guaranteed” to receive the prize money if they pay the fee, and they create a sense of urgency by stating that it is a limited-time offer.
In “dense, confusing language,” often on the back of the letters, there are statements in direct conflict with the bold claims of major winnings. A very careful reader might learn that they in fact have not won, and that the defendants do not sponsor sweepstakes but instead claim only to provide consumers with a list of available sweepstakes. Consumers frequently fail to see or understand this language and send money to the defendants. The FTC alleges that this language does not appear designed to correct deceptive statements, but exists mainly as an attempt to provide a defense to law enforcement action. Consumers get nothing of value in exchange for their payment.
The defendants have sent more than 3.7 million letters during the past two years, including nearly 800,000 letters to people in 156 countries in the first half of 2013. They have collected more than $11 million from consumers since 2009. The vast majority of the victims of this scam appear to be over 65.
The court order temporarily stops the illegal conduct, freezes the operation’s assets, and appoints a receiver over the corporate defendants while the FTC moves forward with the case.
Moran’s co-defendants are Applied Marketing Sciences LLC; Standard Registration Corporation, also doing business as Consolidated Research Authority and CRA; and Worldwide Information Systems Incorporated, also doing business as Specific Monitoring Service, SMS, Specific Reporting Service, SRS, Universal Information Services, UIS, Compendium Sampler Services, and CSS.
The FTC would like to thank the United States Postal Inspection Service, the Vancouver Police Department, the Metropolitan Police in the United Kingdom, the National Fraud Intelligence Bureau, and the Australian Competition & Consumer Commission for their assistance in this case.
To learn how to avoid these kinds of scams, read the FTC's Prize Offers: You Don't Have to Pay to Play.
The Commission vote authorizing the staff to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the Central District of California.
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.
At the request of the Federal Trade Commission, a federal court has halted a massive sweepstakes scam that has taken more than $11 million from consumers throughout the United States and dozens of other countries throughout the world, including Canada, the United Kingdom, France, and Japan. The FTC seeks to permanently end the allegedly illegal practices that have continued for seven years and return money to victims.
According to the FTC’s complaint, Liam O. Moran, a resident of Ventura, California, and his companies, mass mail personalized letters to millions of consumers telling them that they have won a large cash prize, typically more than $2 million with bold, large-type statements such as “Over TWO MILLION DOLLARS in sweepstakes has been reserved for you.” Consumers are told that they can collect the prize by sending in a small fee of approximately $20 to $30. The letters often indicate that recipients are “guaranteed” to receive the prize money if they pay the fee, and they create a sense of urgency by stating that it is a limited-time offer.
In “dense, confusing language,” often on the back of the letters, there are statements in direct conflict with the bold claims of major winnings. A very careful reader might learn that they in fact have not won, and that the defendants do not sponsor sweepstakes but instead claim only to provide consumers with a list of available sweepstakes. Consumers frequently fail to see or understand this language and send money to the defendants. The FTC alleges that this language does not appear designed to correct deceptive statements, but exists mainly as an attempt to provide a defense to law enforcement action. Consumers get nothing of value in exchange for their payment.
The defendants have sent more than 3.7 million letters during the past two years, including nearly 800,000 letters to people in 156 countries in the first half of 2013. They have collected more than $11 million from consumers since 2009. The vast majority of the victims of this scam appear to be over 65.
The court order temporarily stops the illegal conduct, freezes the operation’s assets, and appoints a receiver over the corporate defendants while the FTC moves forward with the case.
Moran’s co-defendants are Applied Marketing Sciences LLC; Standard Registration Corporation, also doing business as Consolidated Research Authority and CRA; and Worldwide Information Systems Incorporated, also doing business as Specific Monitoring Service, SMS, Specific Reporting Service, SRS, Universal Information Services, UIS, Compendium Sampler Services, and CSS.
The FTC would like to thank the United States Postal Inspection Service, the Vancouver Police Department, the Metropolitan Police in the United Kingdom, the National Fraud Intelligence Bureau, and the Australian Competition & Consumer Commission for their assistance in this case.
To learn how to avoid these kinds of scams, read the FTC's Prize Offers: You Don't Have to Pay to Play.
The Commission vote authorizing the staff to file the complaint was 4-0. The complaint was filed in the U.S. District Court for the Central District of California.
NOTE: The Commission files a complaint when it has “reason to believe” that the law has been or is being violated and it appears to the Commission that a proceeding is in the public interest. The case will be decided by the court.
READOUT OF PRESIDENT OBAMA'S CALL TO KENYAN PRESIDENT KENYATTA
FROM: THE WHITE HOUSE
Readout of the President’s Call with President Kenyatta of Kenya
President Obama called President Kenyatta of Kenya this morning to express condolences to the government and people of Kenya for the terrorist attack carried out by al-Shabaab yesterday on the Westgate Shopping Mall in Nairobi. President Obama reiterated U.S. support for Kenya’s efforts to bring the perpetrators of the attack to justice. The President also reaffirmed the strong and historic partnership between the United States and Kenya as well as our shared commitment to combating terrorism and promoting peace and prosperity in East Africa and around the world.
REMARKS BY SECRETARY OF STATE KERRY BEFORE MEETING WITH EGYPTIAN FOREIGN MINISTER FAHMY
FROM: U.S. STATE DEPARTMENT
Remarks With Egyptian Foreign Minister Nabil Fahmy Before Their Meeting
Remarks
John Kerry
Secretary of State
New York City
September 22, 2013
QUESTION: Mr. Secretary, what do you have to say to al-Shabaab after this weekend's attack?
SECRETARY KERRY: I’ll have something to say about it tomorrow, but obviously it’s an enormous offense against everybody’s sense of right and wrong. And President Obama talked today with the President; I talked with the Foreign Minister, our Ambassador. We’re in close touch with everybody there. But it’s – it represents the seriousness and the breadth of the challenge that we face with ruthless and completely reckless terrorists. So we’re going to proceed.
Thank you
Remarks With Egyptian Foreign Minister Nabil Fahmy Before Their Meeting
Remarks
John Kerry
Secretary of State
New York City
September 22, 2013
QUESTION: Mr. Secretary, what do you have to say to al-Shabaab after this weekend's attack?
SECRETARY KERRY: I’ll have something to say about it tomorrow, but obviously it’s an enormous offense against everybody’s sense of right and wrong. And President Obama talked today with the President; I talked with the Foreign Minister, our Ambassador. We’re in close touch with everybody there. But it’s – it represents the seriousness and the breadth of the challenge that we face with ruthless and completely reckless terrorists. So we’re going to proceed.
Thank you
EXPORT-IMPORT BANK FINANCES $34 MILLION IN EXPORTS TO SUPPORT 200 U.S. JOBS
FROM: EXPORT-IMPORT BANK
Ex-Im Bank Approves $34 Million to Finance the Export of U.S.
Solar-Related Products to Spain and South Africa
Transaction Supports White House Power Africa Initiative
Washington, D.C. – As part of its renewable-energy push, the Export-Import Bank of the United States (Ex-Im Bank) has authorized a pair of direct loans totaling $33.6 million to Abengoa of Seville, Spain, that will facilitate the export of American heat-transfer fluid produced by The Dow Chemical Company for use in solar projects in Spain and South Africa.
Ex-Im Bank’s financing will support approximately 200 U.S. jobs, according to bank estimates derived from Departments of Commerce and Labor data and methodology.
“Ex-Im Bank’s consistent support of renewable-energy projects demonstrates our commitment to supporting high-skilled jobs in an important homegrown industry and improving the environment,” said Ex-Im Bank Chairman and President Fred P. Hochberg. “In addition to contributing to cleaner sources of energy and supporting U.S. jobs, these two transactions will support President Obama’s goal of doubling access to power in sub-Saharan Africa.”
Power Africa is a new initiative to double access to power in sub-Saharan Africa. In its initial phase, the United States has already committed more than $7 billion in financial support to this effort.
DOWTHERMTM A heat-transfer fluid from Dow is a key component of the steam-heating process in concentrated solar power plants and replaces conventional fossil-fuel boilers.
Headquartered in Midland, Mich., The Dow Chemical Company, and its consolidated subsidiaries (Dow), delivers a broad range of technology-based products and solutions through the production, marketing, and sales of specialty chemicals and advanced materials and plastics. Dow operates manufacturing sites in 36 countries and employs approximately 54,000 people.
“The Ex-Im Bank is enabling growth in the U.S. and beyond,” said Carolina Barrios, market development manager for Dow Heat Transfer Fluids. “By supporting the use of high quality, U.S.-made exports, this transaction advances the competitiveness of Dow manufacturing and operations jobs locally, while helping to meet clean energy demands around the world.”
Abengoa is an international company based in Seville, Spain, that applies innovative technology solutions for sustainability in the energy and environment sectors. The company operates two parabolic-trough solar plants in Logrosan, Spain, and is currently building two plants in the Northern Cape Province of South Africa with the Industrial Development Corporation. The two plants in Spain and one of the two in South Africa will rely upon DOWTHERM A.
Ex-Im Bank Approves $34 Million to Finance the Export of U.S.
Solar-Related Products to Spain and South Africa
Transaction Supports White House Power Africa Initiative
Washington, D.C. – As part of its renewable-energy push, the Export-Import Bank of the United States (Ex-Im Bank) has authorized a pair of direct loans totaling $33.6 million to Abengoa of Seville, Spain, that will facilitate the export of American heat-transfer fluid produced by The Dow Chemical Company for use in solar projects in Spain and South Africa.
Ex-Im Bank’s financing will support approximately 200 U.S. jobs, according to bank estimates derived from Departments of Commerce and Labor data and methodology.
“Ex-Im Bank’s consistent support of renewable-energy projects demonstrates our commitment to supporting high-skilled jobs in an important homegrown industry and improving the environment,” said Ex-Im Bank Chairman and President Fred P. Hochberg. “In addition to contributing to cleaner sources of energy and supporting U.S. jobs, these two transactions will support President Obama’s goal of doubling access to power in sub-Saharan Africa.”
Power Africa is a new initiative to double access to power in sub-Saharan Africa. In its initial phase, the United States has already committed more than $7 billion in financial support to this effort.
DOWTHERMTM A heat-transfer fluid from Dow is a key component of the steam-heating process in concentrated solar power plants and replaces conventional fossil-fuel boilers.
Headquartered in Midland, Mich., The Dow Chemical Company, and its consolidated subsidiaries (Dow), delivers a broad range of technology-based products and solutions through the production, marketing, and sales of specialty chemicals and advanced materials and plastics. Dow operates manufacturing sites in 36 countries and employs approximately 54,000 people.
“The Ex-Im Bank is enabling growth in the U.S. and beyond,” said Carolina Barrios, market development manager for Dow Heat Transfer Fluids. “By supporting the use of high quality, U.S.-made exports, this transaction advances the competitiveness of Dow manufacturing and operations jobs locally, while helping to meet clean energy demands around the world.”
Abengoa is an international company based in Seville, Spain, that applies innovative technology solutions for sustainability in the energy and environment sectors. The company operates two parabolic-trough solar plants in Logrosan, Spain, and is currently building two plants in the Northern Cape Province of South Africa with the Industrial Development Corporation. The two plants in Spain and one of the two in South Africa will rely upon DOWTHERM A.
DOCTOR RECEIVES 151 YEAR PRISON SENTENCE FOR ROLE IN $77 MILLION MEDICARE FRAUD
FROM: U.S. JUSTICE DEPARTMENT
Monday, September 16, 2013
“No Show” Doctor Sentenced to 151 Months in Prison in Connection with $77 Million Medicare Fraud Scheme
Gustave Drivas, M.D., 58, of Staten Island, N.Y., was sentenced to serve 151 months in prison for his role as a “no show” doctor in a $77 million Medicare fraud scheme. The State of New York revoked Dr. Drivas’s medical license earlier this year.
Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Loretta E. Lynch of the Eastern District of New York, Assistant Director in Charge George Venizelos of the FBI’s New York Field Office and Special Agent in Charge Thomas O’Donnell of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) made the announcement.
Drivas was convicted by a jury on April 8, 2013, of health care fraud conspiracy and health care fraud after a seven-week trial. He was acquitted of kickback conspiracy. Including Drivas, 13 individuals have been convicted of participating in the massive fraud scheme, either through guilty pleas or trial convictions. In addition to the prison term, U.S. District Judge Nina Gershon of the Eastern District of New York sentenced Drivas to three years of supervised release with a concurrent exclusion from Medicare, Medicaid and all Federal health programs, ordered him to forfeit $511,000 and ordered him to pay restitution in the amount of $50.9 million.
The evidence at trial showed that Drivas knowingly authorized his co-conspirators at a Brooklyn medical clinic to use his Medicare billing number to charge Medicare for more than $20 million in medical procedures and services that were never performed. In return, he received more than $500,000 for his role in the scheme. According to court documents, from 2005 to 2010, Drivas was the medical director of or a rendering physician at a clinic in Brooklyn that billed Medicare under three corporate names: Bay Medical Care PC, SVS Wellcare Medical PLLC and SZS Medical Care PLLC (collectively “Bay Medical clinic”). The evidence established that Drivas was a “no show” doctor, who almost never visited the clinic except to pick up his check. The evidence also showed that the clinic paid cash kickbacks to Medicare beneficiaries and used the beneficiaries’ names to bill Medicare for more than $77 million in services that were medically unnecessary and never provided.
The government’s investigation included the use of a court-ordered audio/video recording device hidden in a room at the clinic in which the conspirators paid cash kickbacks to corrupt Medicare beneficiaries. The conspirators were recorded paying approximately $500,000 in cash kickbacks during a period of approximately six weeks from April to June 2010. This room was marked “PRIVATE” and featured a Soviet-era poster of a woman with a finger to her lips and the words “Don’t Gossip” in Russian. The purpose of the kickbacks was to induce the beneficiaries to receive unnecessary medical services or to stay silent when services not provided to the patients were billed to Medicare.
To generate the large amounts of cash needed to pay the patients, Drivas’s business partners and co-conspirators recruited a network of external money launderers who cashed checks for the clinic. Clinic owners wrote clinic checks payable to various shell companies controlled by the money launderers. These checks did not represent payment for any legitimate service at or for the Bay Medical clinic, but rather were written to launder the clinic’s fraudulently obtained health care proceeds. The money launderers cashed these checks and provided the cash back to the clinic. Clinic employees used the cash to pay illegal cash kickbacks to the Bay Medical clinic’s purported patients.
This case was investigated by the FBI and HHS-OIG and was brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York. The case is being prosecuted by Trial Attorney Sarah M. Hall of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys William C. Campos and Shannon C. Jones of the Eastern District of New York.
The Medicare Fraud Strike Force operations are part of the Health Care Fraud Prevention & Enforcement Action Team (HEAT), a joint initiative announced in May 2009 between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,500 defendants who have collectively billed the Medicare program for more than $5 billion. In addition, HHS’s Centers for Medicare & Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.
Monday, September 16, 2013
“No Show” Doctor Sentenced to 151 Months in Prison in Connection with $77 Million Medicare Fraud Scheme
Gustave Drivas, M.D., 58, of Staten Island, N.Y., was sentenced to serve 151 months in prison for his role as a “no show” doctor in a $77 million Medicare fraud scheme. The State of New York revoked Dr. Drivas’s medical license earlier this year.
Acting Assistant Attorney General Mythili Raman of the Justice Department’s Criminal Division, U.S. Attorney Loretta E. Lynch of the Eastern District of New York, Assistant Director in Charge George Venizelos of the FBI’s New York Field Office and Special Agent in Charge Thomas O’Donnell of the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) made the announcement.
Drivas was convicted by a jury on April 8, 2013, of health care fraud conspiracy and health care fraud after a seven-week trial. He was acquitted of kickback conspiracy. Including Drivas, 13 individuals have been convicted of participating in the massive fraud scheme, either through guilty pleas or trial convictions. In addition to the prison term, U.S. District Judge Nina Gershon of the Eastern District of New York sentenced Drivas to three years of supervised release with a concurrent exclusion from Medicare, Medicaid and all Federal health programs, ordered him to forfeit $511,000 and ordered him to pay restitution in the amount of $50.9 million.
The evidence at trial showed that Drivas knowingly authorized his co-conspirators at a Brooklyn medical clinic to use his Medicare billing number to charge Medicare for more than $20 million in medical procedures and services that were never performed. In return, he received more than $500,000 for his role in the scheme. According to court documents, from 2005 to 2010, Drivas was the medical director of or a rendering physician at a clinic in Brooklyn that billed Medicare under three corporate names: Bay Medical Care PC, SVS Wellcare Medical PLLC and SZS Medical Care PLLC (collectively “Bay Medical clinic”). The evidence established that Drivas was a “no show” doctor, who almost never visited the clinic except to pick up his check. The evidence also showed that the clinic paid cash kickbacks to Medicare beneficiaries and used the beneficiaries’ names to bill Medicare for more than $77 million in services that were medically unnecessary and never provided.
The government’s investigation included the use of a court-ordered audio/video recording device hidden in a room at the clinic in which the conspirators paid cash kickbacks to corrupt Medicare beneficiaries. The conspirators were recorded paying approximately $500,000 in cash kickbacks during a period of approximately six weeks from April to June 2010. This room was marked “PRIVATE” and featured a Soviet-era poster of a woman with a finger to her lips and the words “Don’t Gossip” in Russian. The purpose of the kickbacks was to induce the beneficiaries to receive unnecessary medical services or to stay silent when services not provided to the patients were billed to Medicare.
To generate the large amounts of cash needed to pay the patients, Drivas’s business partners and co-conspirators recruited a network of external money launderers who cashed checks for the clinic. Clinic owners wrote clinic checks payable to various shell companies controlled by the money launderers. These checks did not represent payment for any legitimate service at or for the Bay Medical clinic, but rather were written to launder the clinic’s fraudulently obtained health care proceeds. The money launderers cashed these checks and provided the cash back to the clinic. Clinic employees used the cash to pay illegal cash kickbacks to the Bay Medical clinic’s purported patients.
This case was investigated by the FBI and HHS-OIG and was brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York. The case is being prosecuted by Trial Attorney Sarah M. Hall of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys William C. Campos and Shannon C. Jones of the Eastern District of New York.
The Medicare Fraud Strike Force operations are part of the Health Care Fraud Prevention & Enforcement Action Team (HEAT), a joint initiative announced in May 2009 between the Department of Justice and HHS to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,500 defendants who have collectively billed the Medicare program for more than $5 billion. In addition, HHS’s Centers for Medicare & Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.
TWO FUJIKURA LTD. EXECUTIVES INDICTED IN AUTO PARTS PRICE FIXING CASE
FROM: U.S. JUSTICE DEPARTMENT
Thursday, September 19, 2013
Two Fujikura Ltd. Executives Indicted for Roles in Fixing Prices on Automobile Parts Sold to Subaru to Be Installed in U.S. Cars
A federal grand jury in Detroit returned an indictment against two Fujikura Ltd. executives for their roles in an international conspiracy to fix prices of auto parts used in automotive wire harnesses sold to Subaru and installed in U.S. cars, the Department of Justice announced today.
The indictment, filed today in U.S. District Court for the Eastern District of Michigan, in Detroit, charges Ryoji Fukudome and Toshihiko Nagashima, both Japanese nationals, with participating in a conspiracy to fix prices of automotive wire harnesses sold to Fuji Heavy Industries–an automaker more commonly known by its brand name, Subaru–for installation in automobiles sold in the United States and elsewhere.
Fukudome was employed by Fujikura as general manager of the Automotive Global Marketing Department from April 2001 to April 2006 and Nagashima was employed by Fujikura as manager of the Fujikura Wire Harness Center in Ohta, Japan, from July 1994 to April 2006, and as general manager of the Automotive Global Marketing Department from April 2006 to April 2009.
Fujikura is a Toyko-based manufacturer of automotive wire harnesses. Automotive wire harnesses are automotive electrical distribution systems used to direct and control electronic components, wiring and circuit boards. Fujikura pleaded guilty to its role in the conspiracy in June 2012, and was sentenced to pay a $20 million criminal fine.
The indictment alleges, among other things, that from at least as early as September 2005 until at least February 2010, Fukudome, Nagashima and their co-conspirators attended meetings in Japan to reach collusive agreements to rig bids and allocate the supply of automotive wire harnesses sold to Subaru. The indictment alleges that Fukudome, Nagashima and their co-conspirators had further communications to monitor and enforce the collusive agreements.
“International cartels targeting U.S. businesses and consumers pose a serious threat to our competitive market place,” said Scott D. Hammond, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program. “The Antitrust Division is working closely with competition enforcers abroad to ensure that there are no safe harbors for executives who engage in international cartel crimes.”
“Those who engage in price fixing, bid rigging and other fraudulent schemes harm the automotive industry by driving up costs for vehicle makers and buyers,” said John Robert Shoup, Acting Special Agent in Charge, FBI Detroit Division. “The FBI is committed to pursuing and prosecuting these individuals for their crimes.”
Fukudome and Nagashima are charged with price fixing in violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.
Including Fukudome and Nagashima, 11 companies and 18 executives have been charged in the Justice Department’s ongoing investigation into the automotive parts industry. To date, more than $874 million in criminal fines have been imposed and 14 individuals have been sentenced to pay criminal fines and to serve prison sentences ranging from a year and a day to two years each. One other executive has agreed to serve time in prison and is scheduled to be sentenced on Sept. 25, 2013.
The charges are the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the automotive parts industry, which is being conducted by each of the Antitrust Division’s criminal enforcement sections and the FBI.
Thursday, September 19, 2013
Two Fujikura Ltd. Executives Indicted for Roles in Fixing Prices on Automobile Parts Sold to Subaru to Be Installed in U.S. Cars
A federal grand jury in Detroit returned an indictment against two Fujikura Ltd. executives for their roles in an international conspiracy to fix prices of auto parts used in automotive wire harnesses sold to Subaru and installed in U.S. cars, the Department of Justice announced today.
The indictment, filed today in U.S. District Court for the Eastern District of Michigan, in Detroit, charges Ryoji Fukudome and Toshihiko Nagashima, both Japanese nationals, with participating in a conspiracy to fix prices of automotive wire harnesses sold to Fuji Heavy Industries–an automaker more commonly known by its brand name, Subaru–for installation in automobiles sold in the United States and elsewhere.
Fukudome was employed by Fujikura as general manager of the Automotive Global Marketing Department from April 2001 to April 2006 and Nagashima was employed by Fujikura as manager of the Fujikura Wire Harness Center in Ohta, Japan, from July 1994 to April 2006, and as general manager of the Automotive Global Marketing Department from April 2006 to April 2009.
Fujikura is a Toyko-based manufacturer of automotive wire harnesses. Automotive wire harnesses are automotive electrical distribution systems used to direct and control electronic components, wiring and circuit boards. Fujikura pleaded guilty to its role in the conspiracy in June 2012, and was sentenced to pay a $20 million criminal fine.
The indictment alleges, among other things, that from at least as early as September 2005 until at least February 2010, Fukudome, Nagashima and their co-conspirators attended meetings in Japan to reach collusive agreements to rig bids and allocate the supply of automotive wire harnesses sold to Subaru. The indictment alleges that Fukudome, Nagashima and their co-conspirators had further communications to monitor and enforce the collusive agreements.
“International cartels targeting U.S. businesses and consumers pose a serious threat to our competitive market place,” said Scott D. Hammond, Deputy Assistant Attorney General for the Antitrust Division’s criminal enforcement program. “The Antitrust Division is working closely with competition enforcers abroad to ensure that there are no safe harbors for executives who engage in international cartel crimes.”
“Those who engage in price fixing, bid rigging and other fraudulent schemes harm the automotive industry by driving up costs for vehicle makers and buyers,” said John Robert Shoup, Acting Special Agent in Charge, FBI Detroit Division. “The FBI is committed to pursuing and prosecuting these individuals for their crimes.”
Fukudome and Nagashima are charged with price fixing in violation of the Sherman Act, which carries a maximum penalty of 10 years in prison and a $1 million criminal fine for individuals. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victims of the crime, if either of those amounts is greater than the statutory maximum fine.
Including Fukudome and Nagashima, 11 companies and 18 executives have been charged in the Justice Department’s ongoing investigation into the automotive parts industry. To date, more than $874 million in criminal fines have been imposed and 14 individuals have been sentenced to pay criminal fines and to serve prison sentences ranging from a year and a day to two years each. One other executive has agreed to serve time in prison and is scheduled to be sentenced on Sept. 25, 2013.
The charges are the result of an ongoing federal antitrust investigation into price fixing, bid rigging and other anticompetitive conduct in the automotive parts industry, which is being conducted by each of the Antitrust Division’s criminal enforcement sections and the FBI.
Sunday, September 22, 2013
THE PUBLIC PERCEPTION PROBLEM OF AIR TRAINING IN AFGHANISTAN
FROM: U.S. DEFENSE DEPARTMENT
ISAF Air Training Commander Describes 'Delicate Balance'
By Karen Parrish
American Forces Press Service
NATIONAL HARBOR, Md., Sept. 20, 2013 - The commander of NATO's Air Training Command Afghanistan admits that he has a public perception problem: while polls show Americans have largely dismissed the war in Afghanistan as an effort that's winding down, his mission is ramping up in size and complexity and in the number of obstacles encountered.
Air Force Brig. Gen. John E. Michel's command is responsible for training the Afghan air force, or as he puts it, building a minimum, sustainable air capability suited to Afghanistan's needs, terrain, development and resources.
While visiting here this week to attend an Air Force conference, Michel spoke to American Forces Press Service about the challenges his command faces in ramping up a training mission to last through 2017 as the rest of NATO's International Security Assistance Force looks to draw down troops by the end of next year.
He acknowledges that to accomplish his mission by December 2017, he'll need every advantage he can wring from dwindling war funds.
"It's very easy to lose this in translation, because most people don't realize [air trainers are] staying [in Afghanistan] until '17," he said. "The mindset is, 'We're done in '14,' and I got that, but the biggest challenge is just where we are in time and space. The story has shifted to another direction.
"Everyone else is leaving, and we're growing," he continued. "We're building an 8,000-person force that can do what they need for Afghanistan -- humanitarian [missions], basic intelligence, troop insertion, resupply [and] casualty evacuation."
Michel's coalition aircrews fly alongside their Afghan counterparts during training, combat and joint missions, conducting resupply, troop and passenger movements and casualty evacuation for the Afghan army. Coalition advisors also train in maintenance, logistics, finance and communications.
The Afghan air force is divided into three wings, located respectively in Kabul, Kandahar and Shindand. The command center is in Kabul, and the Shindand Air Base in Herat province is the main training area.
The Afghan air force's fleet eventually will include 58 Mi-17 transport helicopters, six Mi-35 attack helicopters, 20 C-208 turboprop airliners, four C-130 transport aircraft and 20 A-29 light attack aircraft. The training command staff that will grow in the next few years as Afghan air capabilities come online, Michel emphasized, will shrink as the Afghan force develops its own experts.
"We've got to go from 649 to 1,114 people," he said. That number will plateau for a time, and then gradually decline as Afghan air capabilities are ramped up, brought to sustainment and handed off, the general said.
Michel said the American people are the command's "stockholders," along with the coalition nations and the Afghans.
His trainers are "very good stewards of every dollar we spend, every person we bring in," Michel said. He and his staff use detailed charts that show growing Afghan air mission capability to brief NATO International Security Assistance Force leaders. They demonstrate the progress made and justify future effort, he said.
Fighting for funding is becoming familiar again in military circles, Michel said, noting the importance of what he views as a mission vital to U.S. and Afghan security.
"My goal is, 'Let's use data to keep us on the intellectual high ground, instead of being pulled to the emotional low ground,'" he said.
Partner commitment is as important as economic commitment in mission success, the general noted.
"There are things the U.S. Air Force cannot build in an Afghan air force, because those skills aren't requisite [to American needs]," he said. "Where are we going to get Mi-17 talent? Where's my Mi-35 talent? Who's going to turn wrenches?"
American pilots have learned to fly those Russian helicopters, Michel said, and the training command relies on ISAF coalition partners, including Croatia and Italy, to teach the Afghan force how to maintain and support them. But some partners are reluctant to pledge people or funds after the larger national security mission transition wraps up in 2014, he added, partly because of uncertainty over U.S. intentions in Afghanistan.
"There's a series of concerns, realistically," he said, listing partner questions about final troop numbers, funding and security concerns. All contribute to an environment in which partner nations postpone commitment, Michel said.
"So we've got this very perilous situation setting up that, without the coalition support -- if we don't get the right people ... for the right time frame -- then we'll have to start de-scaling capabilities," he added.
Among other metrics, Michel said, the charts his command keeps track growth in the Afghan air force's overall and detailed capabilities, using a green-yellow-red legend. Given the state of development the Afghan forces have achieved to date, he said, "if we stop [training] today, the only things they could sustain is what's green."
Those capabilities all are in the "air movement" category, and about halfway mature there, judging by the green-yellow chart pattern, he said. The yellow areas, he added, "where we are currently improving slowly, would immediately start to diffuse and be unsustainable. And then if it's red, we haven't started it yet."
Red areas on the chart include advanced combat capabilities such as close air support and close air attack, which now are mostly yellow.
Likewise, he said, the air training command is still building infrastructure which will continue through 2015 if current plans hold. It was just last month, he noted, that the Shindand Air Wing Training Complex opened, adding 32 facilities from aircraft hangars to flight simulators to Afghanistan's training inventory.
"But now there are pressures to potentially reduce infrastructure," Michel said, noting that a recent report from the Special Inspector General for Afghanistan Reconstruction drew media and congressional attention when it blasted an unused headquarters building that was built in Helmand for $34 million.
"Every [inspector general] report is killing us," he said.
The general emphasized that all new Afghan air force facilities will be designed for Afghanistan's needs and budgeted accordingly. But, he added, "if all of a sudden we change our minds on infrastructure, that significantly impacts our ability to build a sustainable air force."
Michel and his staff also are preparing for a scaling-back in funding on Kabul's part; he said the Afghan air force is projected to cost its government between $600 million and $620 million a year after coalition funding support ends.
"Let's look at their overall defense budget," he said. "Because of the Chicago accords, it's fixed at $4.1 billion. So as a percentage, 3.5 percent of the force -- their air force -- is going to, now, absorb as much as 15 to 20 percent of their budget."
Planning in true military fashion for likely contingencies, Michel said, he and his staff offered to plan force structure options at a number of funding levels for Afghan leaders.
"The smart thing to do is find efficiencies [and] recommend options," he said.
Synchronizing the systems and subsystems that are working toward a self-sustaining Afghan air force with its own training, command, maintenance and support systems requires a delicate balance, the general said.
"We think [what they can pay for] is the right question," he said. "Because we can go to the [Afghan] leadership and say, 'It is affordable, therefore it's sustainable.' ... They've got to steward their own resources when we leave. It's our job to create the conditions, and advise, and train."
ISAF Air Training Commander Describes 'Delicate Balance'
By Karen Parrish
American Forces Press Service
NATIONAL HARBOR, Md., Sept. 20, 2013 - The commander of NATO's Air Training Command Afghanistan admits that he has a public perception problem: while polls show Americans have largely dismissed the war in Afghanistan as an effort that's winding down, his mission is ramping up in size and complexity and in the number of obstacles encountered.
Air Force Brig. Gen. John E. Michel's command is responsible for training the Afghan air force, or as he puts it, building a minimum, sustainable air capability suited to Afghanistan's needs, terrain, development and resources.
While visiting here this week to attend an Air Force conference, Michel spoke to American Forces Press Service about the challenges his command faces in ramping up a training mission to last through 2017 as the rest of NATO's International Security Assistance Force looks to draw down troops by the end of next year.
He acknowledges that to accomplish his mission by December 2017, he'll need every advantage he can wring from dwindling war funds.
"It's very easy to lose this in translation, because most people don't realize [air trainers are] staying [in Afghanistan] until '17," he said. "The mindset is, 'We're done in '14,' and I got that, but the biggest challenge is just where we are in time and space. The story has shifted to another direction.
"Everyone else is leaving, and we're growing," he continued. "We're building an 8,000-person force that can do what they need for Afghanistan -- humanitarian [missions], basic intelligence, troop insertion, resupply [and] casualty evacuation."
Michel's coalition aircrews fly alongside their Afghan counterparts during training, combat and joint missions, conducting resupply, troop and passenger movements and casualty evacuation for the Afghan army. Coalition advisors also train in maintenance, logistics, finance and communications.
The Afghan air force is divided into three wings, located respectively in Kabul, Kandahar and Shindand. The command center is in Kabul, and the Shindand Air Base in Herat province is the main training area.
The Afghan air force's fleet eventually will include 58 Mi-17 transport helicopters, six Mi-35 attack helicopters, 20 C-208 turboprop airliners, four C-130 transport aircraft and 20 A-29 light attack aircraft. The training command staff that will grow in the next few years as Afghan air capabilities come online, Michel emphasized, will shrink as the Afghan force develops its own experts.
"We've got to go from 649 to 1,114 people," he said. That number will plateau for a time, and then gradually decline as Afghan air capabilities are ramped up, brought to sustainment and handed off, the general said.
Michel said the American people are the command's "stockholders," along with the coalition nations and the Afghans.
His trainers are "very good stewards of every dollar we spend, every person we bring in," Michel said. He and his staff use detailed charts that show growing Afghan air mission capability to brief NATO International Security Assistance Force leaders. They demonstrate the progress made and justify future effort, he said.
Fighting for funding is becoming familiar again in military circles, Michel said, noting the importance of what he views as a mission vital to U.S. and Afghan security.
"My goal is, 'Let's use data to keep us on the intellectual high ground, instead of being pulled to the emotional low ground,'" he said.
Partner commitment is as important as economic commitment in mission success, the general noted.
"There are things the U.S. Air Force cannot build in an Afghan air force, because those skills aren't requisite [to American needs]," he said. "Where are we going to get Mi-17 talent? Where's my Mi-35 talent? Who's going to turn wrenches?"
American pilots have learned to fly those Russian helicopters, Michel said, and the training command relies on ISAF coalition partners, including Croatia and Italy, to teach the Afghan force how to maintain and support them. But some partners are reluctant to pledge people or funds after the larger national security mission transition wraps up in 2014, he added, partly because of uncertainty over U.S. intentions in Afghanistan.
"There's a series of concerns, realistically," he said, listing partner questions about final troop numbers, funding and security concerns. All contribute to an environment in which partner nations postpone commitment, Michel said.
"So we've got this very perilous situation setting up that, without the coalition support -- if we don't get the right people ... for the right time frame -- then we'll have to start de-scaling capabilities," he added.
Among other metrics, Michel said, the charts his command keeps track growth in the Afghan air force's overall and detailed capabilities, using a green-yellow-red legend. Given the state of development the Afghan forces have achieved to date, he said, "if we stop [training] today, the only things they could sustain is what's green."
Those capabilities all are in the "air movement" category, and about halfway mature there, judging by the green-yellow chart pattern, he said. The yellow areas, he added, "where we are currently improving slowly, would immediately start to diffuse and be unsustainable. And then if it's red, we haven't started it yet."
Red areas on the chart include advanced combat capabilities such as close air support and close air attack, which now are mostly yellow.
Likewise, he said, the air training command is still building infrastructure which will continue through 2015 if current plans hold. It was just last month, he noted, that the Shindand Air Wing Training Complex opened, adding 32 facilities from aircraft hangars to flight simulators to Afghanistan's training inventory.
"But now there are pressures to potentially reduce infrastructure," Michel said, noting that a recent report from the Special Inspector General for Afghanistan Reconstruction drew media and congressional attention when it blasted an unused headquarters building that was built in Helmand for $34 million.
"Every [inspector general] report is killing us," he said.
The general emphasized that all new Afghan air force facilities will be designed for Afghanistan's needs and budgeted accordingly. But, he added, "if all of a sudden we change our minds on infrastructure, that significantly impacts our ability to build a sustainable air force."
Michel and his staff also are preparing for a scaling-back in funding on Kabul's part; he said the Afghan air force is projected to cost its government between $600 million and $620 million a year after coalition funding support ends.
"Let's look at their overall defense budget," he said. "Because of the Chicago accords, it's fixed at $4.1 billion. So as a percentage, 3.5 percent of the force -- their air force -- is going to, now, absorb as much as 15 to 20 percent of their budget."
Planning in true military fashion for likely contingencies, Michel said, he and his staff offered to plan force structure options at a number of funding levels for Afghan leaders.
"The smart thing to do is find efficiencies [and] recommend options," he said.
Synchronizing the systems and subsystems that are working toward a self-sustaining Afghan air force with its own training, command, maintenance and support systems requires a delicate balance, the general said.
"We think [what they can pay for] is the right question," he said. "Because we can go to the [Afghan] leadership and say, 'It is affordable, therefore it's sustainable.' ... They've got to steward their own resources when we leave. It's our job to create the conditions, and advise, and train."
PRESS STATEMENT ON TERRORIST ATTACK AT NAIROBI, KENYA SHOPPING MALL
FROM: U.S. STATE DEPARTMENT
Terrorist Attack at Westgate Shopping Mall in Nairobi, Kenya
Press Statement
John Kerry
Secretary of State
Washington, DC
September 21, 2013
Today's terrorist massacre of so many innocents is a heartbreaking reminder that there exists unspeakable evil in our world which can destroy life in a senseless instant. I want to express my deepest condolences - and the condolences of our entire nation - to the families and friends of the victims in Nairobi today. While the casualty count is still to be determined, we know already that there are at least 30 innocent men, women, and children dead and 60 injured, including several American citizens. We have offered our assistance to the Government of Kenya and stand ready to help in any way we can.
Although we have no reports of any Americans killed today, we have lost a member of our own State Department family: the wife of a foreign service national working for the U.S. Agency for International Development. The men and women of USAID work courageously around the world to help people striving for a better life. While we mourn with her family today, we also pledge our commitment to do whatever we can to assist in bringing the perpetrators of this abhorrent violence to justice, and to continue our efforts to improve the lives of people across the globe.
Attacks like this can't change who we are, a people committed to peace and justice for all, but rather must reaffirm our determination to counter extremism and promote tolerance everywhere. As we prepare to bring the world's leaders together at the United Nations next week, we are reminded again in tragedy of our common humanity.
Terrorist Attack at Westgate Shopping Mall in Nairobi, Kenya
Press Statement
John Kerry
Secretary of State
Washington, DC
September 21, 2013
Today's terrorist massacre of so many innocents is a heartbreaking reminder that there exists unspeakable evil in our world which can destroy life in a senseless instant. I want to express my deepest condolences - and the condolences of our entire nation - to the families and friends of the victims in Nairobi today. While the casualty count is still to be determined, we know already that there are at least 30 innocent men, women, and children dead and 60 injured, including several American citizens. We have offered our assistance to the Government of Kenya and stand ready to help in any way we can.
Although we have no reports of any Americans killed today, we have lost a member of our own State Department family: the wife of a foreign service national working for the U.S. Agency for International Development. The men and women of USAID work courageously around the world to help people striving for a better life. While we mourn with her family today, we also pledge our commitment to do whatever we can to assist in bringing the perpetrators of this abhorrent violence to justice, and to continue our efforts to improve the lives of people across the globe.
Attacks like this can't change who we are, a people committed to peace and justice for all, but rather must reaffirm our determination to counter extremism and promote tolerance everywhere. As we prepare to bring the world's leaders together at the United Nations next week, we are reminded again in tragedy of our common humanity.
DETAILS OF 2014 SEQUESTRATION PRESENTED BEFORE HOUSE PANEL
FROM: U.S. DEFENSE DEPARTMENT
Service Chiefs Detail 2014 Sequestration Effects
By Cheryl Pellerin
American Forces Press Service
WASHINGTON, Sept. 19, 2013 - One after another yesterday in a hearing before a House panel, the nation's service chiefs described how severe budget cuts required by law in fiscal year 2014 would slash their forces, capabilities and readiness and raise security risks to the American people.
The House Armed Services Committee heard testimony on planning for sequestration in fiscal 2014 from Army Chief of Staff Gen. Ray Odierno, Chief of Naval Operations Adm. Jonathan W. Greenert, Air Force Chief of Staff Gen. Mark A. Welsh III and Marine Corps Commandant Gen. James F. Amos.
Sequestration is the name for a decade-long series of severe budget cuts mandated by the Budget Control Act of 2011 that amount to $470 billion taken from defense spending in addition to an equivalent cut that already was planned.
In fiscal 2013 the cuts, implemented only in the last half of the year and leading to six furlough days for DOD civilian employees, were $37 billion. In fiscal 2014 they are estimated to be $52 billion.
It is imperative to preserve the range of strategic options for the commander in chief, the secretary of defense, and Congress, Odierno told the panel.
"Together," the general said, "we must ensure our Army can deliver a trained and ready force that deters conflict but when necessary has the capability and capacity to execute a sustained successful major combat operation. The Budget Control Act with sequestration simply does not allow us to do this."
If Congress does not act to mitigate the magnitude and speed of reductions with sequestration, Odierno said, the Army will not be able to fully execute requirements of the defense strategic guidance issued in 2012.
By the end of fiscal 2014, the Army will have significantly degraded readiness, as 85 percent of active and reserve brigade combat teams will be unprepared for contingency requirements, he said.
From fiscal 2014 to fiscal 2017, as the Army continues to draw down and is restructured into a smaller force, its readiness will continue to degrade and modernization programs will experience extensive shortfalls, the general added.
"We'll be required to end, restructure or delay over 100 acquisition programs, putting at risk the ground combat vehicle program, the armed aerial scout, the production and modernization of our other aviation programs, system upgrades for unmanned aerial vehicles, and the modernization of air defense command-and-control systems, just to name a few," Odierno told the panel.
Only in fiscal 2018 to fiscal 2023 will the Army begin to rebalance readiness and remodernization, the general said, but this will come at the expense of significant reductions in the Army's number of soldiers and its force structure.
The Army will be forced to take further cuts from a wartime high of 570,000 soldiers in the active Army, 358,000 in the Army National Guard and 205,000 in the Army Reserve to no more than 420,000 in the active Army, 315,000 in the Army National Guard and 185,000 in the Army Reserve, the general said.
This represents a total Army end-strength reduction of more than 18 percent over seven years, a 26 percent reduction in the active Army, a 12 percent reduction in the Army National Guard and a 9 percent reduction in the Army Reserve, he explained, adding that it also will cause a 45-percent reduction in active Army brigade combat teams.
"In my view, these reductions will put at substantial risk our ability to conduct even one sustained major combat operation," Odierno said.
Today's international environment and its emerging threats require a joint force with a ground component that has the capability and the capacity to deter and compel adversaries who threaten our national security interests," he said. "Sequestration severely threatens our ability to do this."
The Army is increasing its investment in the cyber domain, however, the general said, adding at least 1,800 people to that effort.. And noting that the Army provides intelligence not only for the Army, but also for the broader strategic and operational force -- he said Army officials are reviewing how they do that, but that the primacy of what it does in the intelligence community will not change.
In his comments to the panel, Greenert said sequestration also would reduce readiness in the Navy's preparations for fiscal 2014, its impacts realized mainly in operations and maintenance and in investments.
"There are several operational impacts, but the most concerning to me is that reductions in operations and maintenance accounts are going to result in having only one nondeployed carrier strike group and one amphibious ready group trained and ready for surge operations," Greenert said.
"We have a covenant with the global combatant commanders and the national command authority," he told the panel. "We provide carrier strike groups forward ready on deployment, and that's generally two. We have two to three, generally three, ready to respond within about 14 days. And then we have about three within 60 to 90 days. That's what we've signed up to. That's called the fleet response plan. That has to change now."
The Navy also will be forced to cancel maintenance, inevitably leading to reduced life for ships and aircraft, he said, adding that the service will conduct only safety-essential renovation of facilities, further increasing the maintenance backlog.
The Navy probably will be compelled to keep a hiring freeze in place for most of its civilian positions, Greenert added, affecting the spectrum and balance of the civilian force.
Because the Navy will not be able to use prior-year funds to mitigate sequestration cuts in its investment accounts as it could in fiscal 2013, without congressional action it will lose at least a Virginia-class submarine, a littoral combat ship, and an afloat forward-staging base, the admiral said.
"We will be forced to delay the delivery of the next aircraft carrier, the Ford, and will delay the mid-life overhaul of the George Washington aircraft carrier. Also we'll cancel procurement of 11 tactical aircraft," he noted.
Greenert said the Navy needs to transfer $1 billion into its operations and maintenance account by January and $1 billion into its procurement accounts post-sequestration to get shipbuilding back on track and to meet its essential needs.
"Other deliveries of programs and weapon systems may be delayed regardless," he added, "depending on the authority that we are granted to reapportion funds between accounts."
On the topics of nuclear deterrence and cyber, Greenert said, "My job is to provide strategic nuclear deterrence, safe and credible, No. 1. Right behind that is cyber. ... We are staying the course on our cyber warrior plan that we've briefed in here. Through any budget scenario ... we have got to maintain that."
In his remarks, Welsh told the panel that if sequestration stays in place in fiscal 2014, the Air Force will be forced to cut flying hours by up to 15 percent.
"Within three to four months, many of our flying units will be unable to maintain mission readiness," he said. "We'll cancel or significantly curtail major exercises again, and we'll reduce our initial pilot production targets."
Over the long term, sequestration will significantly affect the service's force structure, readiness and modernization, Welsh said, adding that over the next five years the service could be forced to cut up to 25,000 total force airmen, or about 4 percent of its people.
"We also will probably have to cut up to 550 aircraft, about 9 percent of our inventory," the general said. "And to achieve the necessary savings in aircraft force structure, we'll be forced to divest entire fleets of aircraft."
To determine the proper force structure, the Air Force will prioritize global, long-range capabilities and multirole platforms needed to operate in a highly contested environment. Other platforms will be at risk, the general said.
"We plan to protect readiness to the maximum extent possible [and to] prioritize full-spectrum training, because if we're not ready for all possible scenarios, we'll be forced to accept what I believe is unnecessary risk, which means we may not get there in time, it may take the joint team longer to win, and our people will be placed at greater risk," Welsh added.
Air Force modernization and recapitalization forecasts will be bleak if sequestration continues, he said, affecting every program.
"We will favor recapitalization over modernization whenever that decision is required," he said. "That's why our top three acquisition priorities will remain the KC-46, the F-35, and the long-range strike bomber."
The U.S. Air Force is the best in the world and a vital piece of the world's best military team, the general said, "but the impacts are going to be significant, and the risk occurs from readiness in the ways it impacts our airmen."
In his remarks to the panel, Amos said that for the Marine Corps to meet requirements of the defense strategic guidance it needs 186,800 active-duty Marines to meet steady-state requirements, go to war, and preserve a 1-to-3 ratio of deployed time to home-station time for Marines.
"Our share of the 2011 Budget Control Act's $487 billion reduction cut our end strength to 182,000," he said. "Based on sequestration, I simply cannot afford a force that size." Sequestration will force the Marines to plow through scarce resources, funding old equipment and weapon systems to try to keep them functional, the general said.
The Marines will be forced to reduce or cancel modernization programs and infrastructure investments to maintain readiness for deployed and next-to-deploy units, he said. Money that should be available for procuring new equipment will be rerouted to maintenance and spare accounts for legacy equipment, including a 42-year-old Nixon-era amphibious assault vehicle, he added.
In February, the Marines initiated a parallel study to the Defense Department's Strategic Choices and Management Review, Amos said.
"Our exhaustive research, backed by independent analysis, determined that a force of 174,000 Marines is the smallest force that can meet mission requirements. This is a force with levels of risk that are minimally acceptable," he said.
"For instance," he added, "assuming that global requirements for Marine forces remain the same over the foreseeable future, a force of 174,000 will drive the Marine Corps to a 1-to-2 dwell –[ratio] for virtually all Marine units -- gone six months, home 12 months, gone six months."
A force of that size accepts risk when the nation commits itself to the next major theater war, Amos said. The Marines would have 11 fewer combat arms battalions and 14 fewer aircraft squadrons.
"This is a single Marine major contingency operation force that would deploy and fight until the war's end," the general said. "In other words, we would come home when the war was over."
Marines who joined the corps during that period likely would go from drill field to battlefield, he added. Across the joint force, America would start to see shortfalls in the military's ability to accomplish its national strategy.
"Today we are seeing only the tip of the iceberg," Amos said. "Tomorrow's Marines will face violent extremism, battles for influence and natural disasters. Developing states and nonstate actors will acquire new technology and advanced conventional weapons that will challenge our ability to project power and gain access."
To be effective in the new environment, he said, Marines must maintain their forward influence, strategic mobility, power projection, and rapid response capabilities they are known for today.
Service Chiefs Detail 2014 Sequestration Effects
By Cheryl Pellerin
American Forces Press Service
WASHINGTON, Sept. 19, 2013 - One after another yesterday in a hearing before a House panel, the nation's service chiefs described how severe budget cuts required by law in fiscal year 2014 would slash their forces, capabilities and readiness and raise security risks to the American people.
The House Armed Services Committee heard testimony on planning for sequestration in fiscal 2014 from Army Chief of Staff Gen. Ray Odierno, Chief of Naval Operations Adm. Jonathan W. Greenert, Air Force Chief of Staff Gen. Mark A. Welsh III and Marine Corps Commandant Gen. James F. Amos.
Sequestration is the name for a decade-long series of severe budget cuts mandated by the Budget Control Act of 2011 that amount to $470 billion taken from defense spending in addition to an equivalent cut that already was planned.
In fiscal 2013 the cuts, implemented only in the last half of the year and leading to six furlough days for DOD civilian employees, were $37 billion. In fiscal 2014 they are estimated to be $52 billion.
It is imperative to preserve the range of strategic options for the commander in chief, the secretary of defense, and Congress, Odierno told the panel.
"Together," the general said, "we must ensure our Army can deliver a trained and ready force that deters conflict but when necessary has the capability and capacity to execute a sustained successful major combat operation. The Budget Control Act with sequestration simply does not allow us to do this."
If Congress does not act to mitigate the magnitude and speed of reductions with sequestration, Odierno said, the Army will not be able to fully execute requirements of the defense strategic guidance issued in 2012.
By the end of fiscal 2014, the Army will have significantly degraded readiness, as 85 percent of active and reserve brigade combat teams will be unprepared for contingency requirements, he said.
From fiscal 2014 to fiscal 2017, as the Army continues to draw down and is restructured into a smaller force, its readiness will continue to degrade and modernization programs will experience extensive shortfalls, the general added.
"We'll be required to end, restructure or delay over 100 acquisition programs, putting at risk the ground combat vehicle program, the armed aerial scout, the production and modernization of our other aviation programs, system upgrades for unmanned aerial vehicles, and the modernization of air defense command-and-control systems, just to name a few," Odierno told the panel.
Only in fiscal 2018 to fiscal 2023 will the Army begin to rebalance readiness and remodernization, the general said, but this will come at the expense of significant reductions in the Army's number of soldiers and its force structure.
The Army will be forced to take further cuts from a wartime high of 570,000 soldiers in the active Army, 358,000 in the Army National Guard and 205,000 in the Army Reserve to no more than 420,000 in the active Army, 315,000 in the Army National Guard and 185,000 in the Army Reserve, the general said.
This represents a total Army end-strength reduction of more than 18 percent over seven years, a 26 percent reduction in the active Army, a 12 percent reduction in the Army National Guard and a 9 percent reduction in the Army Reserve, he explained, adding that it also will cause a 45-percent reduction in active Army brigade combat teams.
"In my view, these reductions will put at substantial risk our ability to conduct even one sustained major combat operation," Odierno said.
Today's international environment and its emerging threats require a joint force with a ground component that has the capability and the capacity to deter and compel adversaries who threaten our national security interests," he said. "Sequestration severely threatens our ability to do this."
The Army is increasing its investment in the cyber domain, however, the general said, adding at least 1,800 people to that effort.. And noting that the Army provides intelligence not only for the Army, but also for the broader strategic and operational force -- he said Army officials are reviewing how they do that, but that the primacy of what it does in the intelligence community will not change.
In his comments to the panel, Greenert said sequestration also would reduce readiness in the Navy's preparations for fiscal 2014, its impacts realized mainly in operations and maintenance and in investments.
"There are several operational impacts, but the most concerning to me is that reductions in operations and maintenance accounts are going to result in having only one nondeployed carrier strike group and one amphibious ready group trained and ready for surge operations," Greenert said.
"We have a covenant with the global combatant commanders and the national command authority," he told the panel. "We provide carrier strike groups forward ready on deployment, and that's generally two. We have two to three, generally three, ready to respond within about 14 days. And then we have about three within 60 to 90 days. That's what we've signed up to. That's called the fleet response plan. That has to change now."
The Navy also will be forced to cancel maintenance, inevitably leading to reduced life for ships and aircraft, he said, adding that the service will conduct only safety-essential renovation of facilities, further increasing the maintenance backlog.
The Navy probably will be compelled to keep a hiring freeze in place for most of its civilian positions, Greenert added, affecting the spectrum and balance of the civilian force.
Because the Navy will not be able to use prior-year funds to mitigate sequestration cuts in its investment accounts as it could in fiscal 2013, without congressional action it will lose at least a Virginia-class submarine, a littoral combat ship, and an afloat forward-staging base, the admiral said.
"We will be forced to delay the delivery of the next aircraft carrier, the Ford, and will delay the mid-life overhaul of the George Washington aircraft carrier. Also we'll cancel procurement of 11 tactical aircraft," he noted.
Greenert said the Navy needs to transfer $1 billion into its operations and maintenance account by January and $1 billion into its procurement accounts post-sequestration to get shipbuilding back on track and to meet its essential needs.
"Other deliveries of programs and weapon systems may be delayed regardless," he added, "depending on the authority that we are granted to reapportion funds between accounts."
On the topics of nuclear deterrence and cyber, Greenert said, "My job is to provide strategic nuclear deterrence, safe and credible, No. 1. Right behind that is cyber. ... We are staying the course on our cyber warrior plan that we've briefed in here. Through any budget scenario ... we have got to maintain that."
In his remarks, Welsh told the panel that if sequestration stays in place in fiscal 2014, the Air Force will be forced to cut flying hours by up to 15 percent.
"Within three to four months, many of our flying units will be unable to maintain mission readiness," he said. "We'll cancel or significantly curtail major exercises again, and we'll reduce our initial pilot production targets."
Over the long term, sequestration will significantly affect the service's force structure, readiness and modernization, Welsh said, adding that over the next five years the service could be forced to cut up to 25,000 total force airmen, or about 4 percent of its people.
"We also will probably have to cut up to 550 aircraft, about 9 percent of our inventory," the general said. "And to achieve the necessary savings in aircraft force structure, we'll be forced to divest entire fleets of aircraft."
To determine the proper force structure, the Air Force will prioritize global, long-range capabilities and multirole platforms needed to operate in a highly contested environment. Other platforms will be at risk, the general said.
"We plan to protect readiness to the maximum extent possible [and to] prioritize full-spectrum training, because if we're not ready for all possible scenarios, we'll be forced to accept what I believe is unnecessary risk, which means we may not get there in time, it may take the joint team longer to win, and our people will be placed at greater risk," Welsh added.
Air Force modernization and recapitalization forecasts will be bleak if sequestration continues, he said, affecting every program.
"We will favor recapitalization over modernization whenever that decision is required," he said. "That's why our top three acquisition priorities will remain the KC-46, the F-35, and the long-range strike bomber."
The U.S. Air Force is the best in the world and a vital piece of the world's best military team, the general said, "but the impacts are going to be significant, and the risk occurs from readiness in the ways it impacts our airmen."
In his remarks to the panel, Amos said that for the Marine Corps to meet requirements of the defense strategic guidance it needs 186,800 active-duty Marines to meet steady-state requirements, go to war, and preserve a 1-to-3 ratio of deployed time to home-station time for Marines.
"Our share of the 2011 Budget Control Act's $487 billion reduction cut our end strength to 182,000," he said. "Based on sequestration, I simply cannot afford a force that size." Sequestration will force the Marines to plow through scarce resources, funding old equipment and weapon systems to try to keep them functional, the general said.
The Marines will be forced to reduce or cancel modernization programs and infrastructure investments to maintain readiness for deployed and next-to-deploy units, he said. Money that should be available for procuring new equipment will be rerouted to maintenance and spare accounts for legacy equipment, including a 42-year-old Nixon-era amphibious assault vehicle, he added.
In February, the Marines initiated a parallel study to the Defense Department's Strategic Choices and Management Review, Amos said.
"Our exhaustive research, backed by independent analysis, determined that a force of 174,000 Marines is the smallest force that can meet mission requirements. This is a force with levels of risk that are minimally acceptable," he said.
"For instance," he added, "assuming that global requirements for Marine forces remain the same over the foreseeable future, a force of 174,000 will drive the Marine Corps to a 1-to-2 dwell –[ratio] for virtually all Marine units -- gone six months, home 12 months, gone six months."
A force of that size accepts risk when the nation commits itself to the next major theater war, Amos said. The Marines would have 11 fewer combat arms battalions and 14 fewer aircraft squadrons.
"This is a single Marine major contingency operation force that would deploy and fight until the war's end," the general said. "In other words, we would come home when the war was over."
Marines who joined the corps during that period likely would go from drill field to battlefield, he added. Across the joint force, America would start to see shortfalls in the military's ability to accomplish its national strategy.
"Today we are seeing only the tip of the iceberg," Amos said. "Tomorrow's Marines will face violent extremism, battles for influence and natural disasters. Developing states and nonstate actors will acquire new technology and advanced conventional weapons that will challenge our ability to project power and gain access."
To be effective in the new environment, he said, Marines must maintain their forward influence, strategic mobility, power projection, and rapid response capabilities they are known for today.
CFTC CHAIRMAN GENSLER MAKES REMARKS BEFORE THE ISDA EUROPEAN CONFERENCE
FROM: COMMODITY FUTURES TRADING COMMISSION
Remarks of Chairman Gary Gensler before the ISDA European Conference
September 19, 2013
Thank you, Bob, for that introduction. I would also like to thank the International Swaps and Derivatives Association (ISDA) for the invitation to speak at this annual European conference.
Five years ago this week, the U.S. economy was in a free fall. Federal Reserve Chairman Bernanke and then Treasury Secretary Paulson faced the unthinkable – asking the American people to bail out financial institutions to save the economy.
Five years ago, the swaps market was at the center of the crisis. It cost middle-class Americans – and hardworking people across the globe – their jobs, their pensions and their homes.
Five years ago, there was no reporting of swaps to the public or to regulators
Five years ago, the swaps market was largely uncleared.
Five years ago, unregulated dealers dominated the market.
Five years ago, swaps were not exchange traded – all classic attributes of a dark market.
President Obama then met in 2009 with the G-20 leaders in Pittsburgh. They committed to bringing the swaps market into the light through transparency and oversight.
The President, working with the U.S. Congress, in 2010 gave the task of implementing swaps market reform to the Commodity Futures Trading Commission (CFTC) and security-based swaps market reform to the Securities and Exchange Commission.
Today, the CFTC has substantially completed these reforms.
The CFTC’s 61 final rules, orders and guidance have brought traffic lights, stop signs, and speed limits to the once dark and unregulated swaps roads.
This new era of swaps market reform began to be implemented last October 12. With numerous implementation dates behind us and a number of critical dates coming up, the transition to a reformed swaps market is fully in motion.
This represents a paradigm shift to a transparent, regulated marketplace.
Transparency
Today, the public can see the price and volume of each swap transaction as it occurs on a website, like a modern-day tickertape. Further, half of the swaps market (by volume) is being reported to the public without delay – or as Congress mandated “as soon as technologically practicable.” Soon swaps will be traded on transparent platforms.
This transparency lowers costs for investors, consumers and businesses. It increases liquidity, efficiency and competition.
Regulators have benefited as well. Nearly $400 trillion in market facing swaps now are being reported into data repositories. There is still work to be done to ensure the data in the warehouses is reliable and accessible. There is still work to be done to aggregate across data warehouses as well. But this market transparency is a reality.
This transparency also spans the entire marketplace – cleared as well as bilateral or customized swaps. All categories of market participant from swap dealers to end-users now are to report transactions. Every product, without exception, now must be reported – interest rate; cross currency; foreign exchange; credit index; equity index; and commodities, such as energy and agricultural.
On September 30, the far-flung operations of U.S. financial entities, the guaranteed affiliates and the branches of U.S. persons, also will begin required public reporting.
Further, starting October 2 the public will benefit from the competition and transparency that swap execution facilities (SEFs) will bring to the marketplace. All market participants will have impartial access to SEFs where they can leave live, executable bids or offers in an order book.
We have 18 SEF applications, with seven of them now temporarily registered.
These reforms will finally close what had been known in the U.S. as the “Enron Loophole,” which had allowed for unregistered, multilateral swaps trading platforms.
Five years ago, this market transparency was nonexistent.
Clearing
This month, with the completion of phased implementation, mandatory clearing of interest rate and credit index swaps is a reality. Clearinghouses lower risk and promote access for market participants.
In the month of August, even before our last domestic clearing compliance date, 63 percent of new interest rate swaps were cleared. In total, nearly $180 trillion of the approximately $330 trillion market facing interest rate swaps market, or 53 percent, was cleared at the end of August. This compares to only 21 percent of the market in 2008, according to information on ISDA’s website.
On October 9, the guaranteed affiliates and branches of U.S. persons also will come into central clearing. This includes hedge funds that are operating in the United States but are incorporated in the Cayman Islands.
As we move into 2014, I would anticipate that closer to two-thirds of the interest rate swaps market will be in central clearing.
Yet five years ago, there was no required clearing in the swaps market.
We’ve also made significant progress since the crisis on reforms to protect both futures and swaps customers through the CFTC’s gross margining and the so-called “LSOC” (legal segregation with operational comingling) rules.
Commissioners now are considering final rules that would further strengthen controls around customer funds.
Swap Dealer Oversight
In 2008, swaps were basically not regulated in the United States, Europe or Asia. Among the reasons for this, it was claimed that financial institutions did not need to be specifically regulated for their swaps activity, as they or their affiliates already were generally regulated as banks, investment banks, or insurance companies.
AIG’s downfall was a clear example of what happens with such limited oversight.
Today, we have 82 swap dealers and two major swap participants registered. This group includes the world’s 16 largest financial institutions in the global swaps market, commonly referred to as the G16 dealers. It also includes a number of energy swap dealers.
These reforms help protect the public, lower risk and increase market integrity as swap dealers now must report their transactions and comply with sales practice and other business conduct standards.
Working closely with our counterparts in Europe, we have essentially identical risk mitigation rules that include promoting the timely confirmation of trades and documentation of the trading relationship. Through ISDA protocols, 9,100 market participants have amended their documents to conform to the new U.S. risk mitigation requirements, and 5,200 market participants have conformed to European standards. More than 10,900 market participants are adhering to ISDA’s protocols for sales practices.
These reforms will significantly lower the risk of the swaps market to the public and the economy.
Five years ago, such oversight of swap dealers did not exist.
International Coordination on Swap Market Reform
AIG nearly brought down the U.S. economy through the operations of its offshore guaranteed affiliate.
It wasn’t the only U.S. financial institution that brought risk back home from its far-flung operations during the 2008 crisis.
It was also true at Lehman Brothers, Citigroup, and Bear Stearns. Ten years earlier, it was true at Long-Term Capital Management.
The nature of modern finance is that financial institutions commonly set up hundreds, or even thousands, of legal entities around the globe. When a run starts on any part of an overseas affiliate or branch of a modern financial institution, risk crosses international borders.
The U.S. Congress was clear in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) that the far-flung operations of U.S. enterprises are to be covered by reform.
The CFTC, coordinating closely with global regulators, completed guidance on the cross-border application of the Dodd-Frank Act in July. Swaps market reform covers transactions between non-U.S. swap dealers and guaranteed affiliates of U.S. persons, as well as swaps between two guaranteed affiliates.
Further, the guidance captures offshore hedge funds and collective investment vehicles that have their principal place of business in the U.S. or that are majority owned by U.S. persons.
The guidance embraces the concept of substituted compliances where there are comparable and comprehensive rules abroad. We are currently reviewing submissions for entity-level substituted compliance in six jurisdictions (the European Union, Australia, Canada, Hong Kong, Japan and Switzerland). We’re consulting closely with regulators in those jurisdictions and look forward to making determinations prior to December 21 of this year.
Benchmark Interest Rates
Five years ago, interest rate benchmarks such as LIBOR and Euribor were being readily and pervasively rigged.
Working with the Financial Conduct Authority and the U.S. Justice Department, we brought actions against three global banks for such abuses.
LIBOR and Euribor are critical reference rates for global futures and swaps markets. In the U.S., LIBOR is the reference rate for 70 percent of the futures market and more than half of the swaps market. It is the reference rate for more than $10 trillion in loans.
We must ensure that these benchmark interest rates have market integrity and that they are based on fact, not fiction.
The interbank, unsecured market that the benchmarks are intended to measure, however, essentially no longer exists, particularly for longer tenors.
The U.S. Financial Stability Oversight Council recommended that U.S. regulators work with foreign regulators, international bodies, and market participants to promptly identify alternative interest rate benchmarks anchored in observable transactions and supported by appropriate governance structures, and to develop a plan to accomplish a transition.
An International Organization of Securities Commissions (IOSCO) task force took an important step in announcing new principles in July that require benchmarks to be anchored by observable transactions and subject to robust governance processes that address potential conflicts of interest.
Building on IOSCO’s work, the Financial Stability Board is initiating a review of alternatives to existing benchmark interest rates, as well as considering any potential transition issues.
I want to thank Martin Wheatley, with whom I’ve worked so closely on these issues, for all of his efforts and leadership.
Conclusion
In the five years since the financial crisis, the swaps market has experienced a paradigm shift.
No longer is the market closed and dark.
With the substantially completed reforms, the public and regulators have transparency. We have a majority of the market moving to central clearing. We have oversight of swap dealers, including the far-flung operations of U.S financial institutions.
The public and the markets are benefitting from these common-sense rules of the road.
I’d like to close by saying that the CFTC is currently an underfunded agency. We are only slightly larger than we were 20 years ago. At that time, we oversaw just the futures market, which is less than a tenth of the size of the swaps market we now oversee as well.
It is critical to the public’s confidence in these markets that the regulator is well funded.
Investments in both people and technology are needed for effective market oversight – like having more cops on the beat.
It’s only with a well-funded CFTC that market participants, including this association’s members, will get timely reviews of applications and petitions and answers to your questions.
Last Updated: September 19, 2013
Remarks of Chairman Gary Gensler before the ISDA European Conference
September 19, 2013
Thank you, Bob, for that introduction. I would also like to thank the International Swaps and Derivatives Association (ISDA) for the invitation to speak at this annual European conference.
Five years ago this week, the U.S. economy was in a free fall. Federal Reserve Chairman Bernanke and then Treasury Secretary Paulson faced the unthinkable – asking the American people to bail out financial institutions to save the economy.
Five years ago, the swaps market was at the center of the crisis. It cost middle-class Americans – and hardworking people across the globe – their jobs, their pensions and their homes.
Five years ago, there was no reporting of swaps to the public or to regulators
Five years ago, the swaps market was largely uncleared.
Five years ago, unregulated dealers dominated the market.
Five years ago, swaps were not exchange traded – all classic attributes of a dark market.
President Obama then met in 2009 with the G-20 leaders in Pittsburgh. They committed to bringing the swaps market into the light through transparency and oversight.
The President, working with the U.S. Congress, in 2010 gave the task of implementing swaps market reform to the Commodity Futures Trading Commission (CFTC) and security-based swaps market reform to the Securities and Exchange Commission.
Today, the CFTC has substantially completed these reforms.
The CFTC’s 61 final rules, orders and guidance have brought traffic lights, stop signs, and speed limits to the once dark and unregulated swaps roads.
This new era of swaps market reform began to be implemented last October 12. With numerous implementation dates behind us and a number of critical dates coming up, the transition to a reformed swaps market is fully in motion.
This represents a paradigm shift to a transparent, regulated marketplace.
Transparency
Today, the public can see the price and volume of each swap transaction as it occurs on a website, like a modern-day tickertape. Further, half of the swaps market (by volume) is being reported to the public without delay – or as Congress mandated “as soon as technologically practicable.” Soon swaps will be traded on transparent platforms.
This transparency lowers costs for investors, consumers and businesses. It increases liquidity, efficiency and competition.
Regulators have benefited as well. Nearly $400 trillion in market facing swaps now are being reported into data repositories. There is still work to be done to ensure the data in the warehouses is reliable and accessible. There is still work to be done to aggregate across data warehouses as well. But this market transparency is a reality.
This transparency also spans the entire marketplace – cleared as well as bilateral or customized swaps. All categories of market participant from swap dealers to end-users now are to report transactions. Every product, without exception, now must be reported – interest rate; cross currency; foreign exchange; credit index; equity index; and commodities, such as energy and agricultural.
On September 30, the far-flung operations of U.S. financial entities, the guaranteed affiliates and the branches of U.S. persons, also will begin required public reporting.
Further, starting October 2 the public will benefit from the competition and transparency that swap execution facilities (SEFs) will bring to the marketplace. All market participants will have impartial access to SEFs where they can leave live, executable bids or offers in an order book.
We have 18 SEF applications, with seven of them now temporarily registered.
These reforms will finally close what had been known in the U.S. as the “Enron Loophole,” which had allowed for unregistered, multilateral swaps trading platforms.
Five years ago, this market transparency was nonexistent.
Clearing
This month, with the completion of phased implementation, mandatory clearing of interest rate and credit index swaps is a reality. Clearinghouses lower risk and promote access for market participants.
In the month of August, even before our last domestic clearing compliance date, 63 percent of new interest rate swaps were cleared. In total, nearly $180 trillion of the approximately $330 trillion market facing interest rate swaps market, or 53 percent, was cleared at the end of August. This compares to only 21 percent of the market in 2008, according to information on ISDA’s website.
On October 9, the guaranteed affiliates and branches of U.S. persons also will come into central clearing. This includes hedge funds that are operating in the United States but are incorporated in the Cayman Islands.
As we move into 2014, I would anticipate that closer to two-thirds of the interest rate swaps market will be in central clearing.
Yet five years ago, there was no required clearing in the swaps market.
We’ve also made significant progress since the crisis on reforms to protect both futures and swaps customers through the CFTC’s gross margining and the so-called “LSOC” (legal segregation with operational comingling) rules.
Commissioners now are considering final rules that would further strengthen controls around customer funds.
Swap Dealer Oversight
In 2008, swaps were basically not regulated in the United States, Europe or Asia. Among the reasons for this, it was claimed that financial institutions did not need to be specifically regulated for their swaps activity, as they or their affiliates already were generally regulated as banks, investment banks, or insurance companies.
AIG’s downfall was a clear example of what happens with such limited oversight.
Today, we have 82 swap dealers and two major swap participants registered. This group includes the world’s 16 largest financial institutions in the global swaps market, commonly referred to as the G16 dealers. It also includes a number of energy swap dealers.
These reforms help protect the public, lower risk and increase market integrity as swap dealers now must report their transactions and comply with sales practice and other business conduct standards.
Working closely with our counterparts in Europe, we have essentially identical risk mitigation rules that include promoting the timely confirmation of trades and documentation of the trading relationship. Through ISDA protocols, 9,100 market participants have amended their documents to conform to the new U.S. risk mitigation requirements, and 5,200 market participants have conformed to European standards. More than 10,900 market participants are adhering to ISDA’s protocols for sales practices.
These reforms will significantly lower the risk of the swaps market to the public and the economy.
Five years ago, such oversight of swap dealers did not exist.
International Coordination on Swap Market Reform
AIG nearly brought down the U.S. economy through the operations of its offshore guaranteed affiliate.
It wasn’t the only U.S. financial institution that brought risk back home from its far-flung operations during the 2008 crisis.
It was also true at Lehman Brothers, Citigroup, and Bear Stearns. Ten years earlier, it was true at Long-Term Capital Management.
The nature of modern finance is that financial institutions commonly set up hundreds, or even thousands, of legal entities around the globe. When a run starts on any part of an overseas affiliate or branch of a modern financial institution, risk crosses international borders.
The U.S. Congress was clear in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) that the far-flung operations of U.S. enterprises are to be covered by reform.
The CFTC, coordinating closely with global regulators, completed guidance on the cross-border application of the Dodd-Frank Act in July. Swaps market reform covers transactions between non-U.S. swap dealers and guaranteed affiliates of U.S. persons, as well as swaps between two guaranteed affiliates.
Further, the guidance captures offshore hedge funds and collective investment vehicles that have their principal place of business in the U.S. or that are majority owned by U.S. persons.
The guidance embraces the concept of substituted compliances where there are comparable and comprehensive rules abroad. We are currently reviewing submissions for entity-level substituted compliance in six jurisdictions (the European Union, Australia, Canada, Hong Kong, Japan and Switzerland). We’re consulting closely with regulators in those jurisdictions and look forward to making determinations prior to December 21 of this year.
Benchmark Interest Rates
Five years ago, interest rate benchmarks such as LIBOR and Euribor were being readily and pervasively rigged.
Working with the Financial Conduct Authority and the U.S. Justice Department, we brought actions against three global banks for such abuses.
LIBOR and Euribor are critical reference rates for global futures and swaps markets. In the U.S., LIBOR is the reference rate for 70 percent of the futures market and more than half of the swaps market. It is the reference rate for more than $10 trillion in loans.
We must ensure that these benchmark interest rates have market integrity and that they are based on fact, not fiction.
The interbank, unsecured market that the benchmarks are intended to measure, however, essentially no longer exists, particularly for longer tenors.
The U.S. Financial Stability Oversight Council recommended that U.S. regulators work with foreign regulators, international bodies, and market participants to promptly identify alternative interest rate benchmarks anchored in observable transactions and supported by appropriate governance structures, and to develop a plan to accomplish a transition.
An International Organization of Securities Commissions (IOSCO) task force took an important step in announcing new principles in July that require benchmarks to be anchored by observable transactions and subject to robust governance processes that address potential conflicts of interest.
Building on IOSCO’s work, the Financial Stability Board is initiating a review of alternatives to existing benchmark interest rates, as well as considering any potential transition issues.
I want to thank Martin Wheatley, with whom I’ve worked so closely on these issues, for all of his efforts and leadership.
Conclusion
In the five years since the financial crisis, the swaps market has experienced a paradigm shift.
No longer is the market closed and dark.
With the substantially completed reforms, the public and regulators have transparency. We have a majority of the market moving to central clearing. We have oversight of swap dealers, including the far-flung operations of U.S financial institutions.
The public and the markets are benefitting from these common-sense rules of the road.
I’d like to close by saying that the CFTC is currently an underfunded agency. We are only slightly larger than we were 20 years ago. At that time, we oversaw just the futures market, which is less than a tenth of the size of the swaps market we now oversee as well.
It is critical to the public’s confidence in these markets that the regulator is well funded.
Investments in both people and technology are needed for effective market oversight – like having more cops on the beat.
It’s only with a well-funded CFTC that market participants, including this association’s members, will get timely reviews of applications and petitions and answers to your questions.
Last Updated: September 19, 2013
TRAFFICKER IN BLACK RHINOCEROS HORNS ARRESTED
FROM: U.S. JUSTICE DEPARTMENT
Wednesday, September 18, 2013
Rhino Horn Trafficker Arrested and Detained
Irish National Arrested for Passing Fraudulent Documents in Connection with His Sale of Four Black Rhinoceros Horns for $50,000
Earlier today, a federal magistrate judge in Brooklyn detained an Irish national who was arrested on Saturday and charged in a complaint for false labeling in connection with his alleged role in international rhinoceros horn smuggling in violation of the Lacey Act. The arrest and charge is a result of “Operation Crash,” a nationwide effort led by the U.S. Fish & Wildlife Service (FWS) and the Justice Department to investigate and prosecute those involved in the black market trade of endangered rhinoceros horns.
The Department of Justice filed a complaint in federal court in the Eastern District of New York alleging that Michael Slattery, Jr., a 25-year-old Irish national, fraudulently purchased a set of black rhinoceros horns in Texas and then travelled to New York and used a falsified document to sell the horns for $50,000.
The charge and arrest were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, and Robert G. Dreher, Acting Assistant Attorney General for the Justice Department’s Environmental and Natural Resources Division.
According to the complaint filed in on September 14, 2013, in 2010 Slattery traveled from England to Texas to acquire black rhinoceros horns. Slattery and others then used a day laborer with a Texas driver’s license as a straw buyer to purchase two horns from an auction house in Austin. The complaint charges that Slattery and his group then traveled to New York where they presented a fraudulent Endangered Species Bill of Sale and sold those two and two other horns to an individual for $50,000.
According to court records and government statements made in court, Slattery is a member of The Rathkeale Rovers (also known as the “Irish Travelers”), which are tight-knit extended family groups that live a nomadic lifestyle. The group leverages the rising price for rhinoceros horns in the black market to be used for traditional medicines and carving. According to information made public by Europol, the Rathkeale Rovers have been involved in an epidemic of raids on museums in Europe in which rhinoceros horns have been stolen.
Rhinoceros are an herbivore species of prehistoric origin and one of the largest remaining mega-fauna on earth. They have no known predators other than humans. All species of rhinoceros are protected under United States and international law, and all black rhinoceros species are endangered. Since 1976, trade in rhinoceros horn has been regulated under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), a treaty signed by more than 175 countries around the world to protect fish, wildlife and plants that are or may become imperiled due to the demands of international markets. Nevertheless, the demand for rhinoceros horn and black market prices have skyrocketed in recent years due to the value that some cultures have placed on ornamental carvings, good luck charms or alleged medicinal purposes, leading to a decimation of the global rhinoceros population. In China, there is a tradition dating back centuries of intricately carved rhinoceros horn cups. Drinking from such a cup was believed to bring good health and such carvings are highly prized by collectors. As a result of this demand, rhino populations have declined by more than 90 percent since 1970. South Africa, for example, has witnessed a rapid escalation in poaching of live animals, rising from 13 in 2007 to more than 618 in 2012.
The charge in the complaint is merely and allegation, and the defendant is presumed innocent unless and until proven guilty. The government’s case is being prosecuted by Assistant U.S. Attorney Julia Nestor of the Eastern District of New York and Trial Attorney Gary N. Donner of the Justice Department’s Environmental and Natural Resources Division.
Wednesday, September 18, 2013
Rhino Horn Trafficker Arrested and Detained
Irish National Arrested for Passing Fraudulent Documents in Connection with His Sale of Four Black Rhinoceros Horns for $50,000
Earlier today, a federal magistrate judge in Brooklyn detained an Irish national who was arrested on Saturday and charged in a complaint for false labeling in connection with his alleged role in international rhinoceros horn smuggling in violation of the Lacey Act. The arrest and charge is a result of “Operation Crash,” a nationwide effort led by the U.S. Fish & Wildlife Service (FWS) and the Justice Department to investigate and prosecute those involved in the black market trade of endangered rhinoceros horns.
The Department of Justice filed a complaint in federal court in the Eastern District of New York alleging that Michael Slattery, Jr., a 25-year-old Irish national, fraudulently purchased a set of black rhinoceros horns in Texas and then travelled to New York and used a falsified document to sell the horns for $50,000.
The charge and arrest were announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, and Robert G. Dreher, Acting Assistant Attorney General for the Justice Department’s Environmental and Natural Resources Division.
According to the complaint filed in on September 14, 2013, in 2010 Slattery traveled from England to Texas to acquire black rhinoceros horns. Slattery and others then used a day laborer with a Texas driver’s license as a straw buyer to purchase two horns from an auction house in Austin. The complaint charges that Slattery and his group then traveled to New York where they presented a fraudulent Endangered Species Bill of Sale and sold those two and two other horns to an individual for $50,000.
According to court records and government statements made in court, Slattery is a member of The Rathkeale Rovers (also known as the “Irish Travelers”), which are tight-knit extended family groups that live a nomadic lifestyle. The group leverages the rising price for rhinoceros horns in the black market to be used for traditional medicines and carving. According to information made public by Europol, the Rathkeale Rovers have been involved in an epidemic of raids on museums in Europe in which rhinoceros horns have been stolen.
Rhinoceros are an herbivore species of prehistoric origin and one of the largest remaining mega-fauna on earth. They have no known predators other than humans. All species of rhinoceros are protected under United States and international law, and all black rhinoceros species are endangered. Since 1976, trade in rhinoceros horn has been regulated under the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES), a treaty signed by more than 175 countries around the world to protect fish, wildlife and plants that are or may become imperiled due to the demands of international markets. Nevertheless, the demand for rhinoceros horn and black market prices have skyrocketed in recent years due to the value that some cultures have placed on ornamental carvings, good luck charms or alleged medicinal purposes, leading to a decimation of the global rhinoceros population. In China, there is a tradition dating back centuries of intricately carved rhinoceros horn cups. Drinking from such a cup was believed to bring good health and such carvings are highly prized by collectors. As a result of this demand, rhino populations have declined by more than 90 percent since 1970. South Africa, for example, has witnessed a rapid escalation in poaching of live animals, rising from 13 in 2007 to more than 618 in 2012.
The charge in the complaint is merely and allegation, and the defendant is presumed innocent unless and until proven guilty. The government’s case is being prosecuted by Assistant U.S. Attorney Julia Nestor of the Eastern District of New York and Trial Attorney Gary N. Donner of the Justice Department’s Environmental and Natural Resources Division.
SEC VOTES ON EXECUTIVE "PAY RATIO" PROPOSAL AND DISSENTING OPINION
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Sept. 18, 2013
The Securities and Exchange Commission today voted 3-2 to propose a new rule that would require public companies to disclose the ratio of the compensation of its chief executive officer (CEO) to the median compensation of its employees.
The new rule, required under the Dodd-Frank Act, would not prescribe a specific methodology for companies to use in calculating a “pay ratio.” Instead, companies would have the flexibility to determine the median annual total compensation of its employees in a way that best suits its particular circumstances.
“This proposal would provide companies significant flexibility in complying with the disclosure requirement while still fulfilling the statutory mandate,” said SEC Chair Mary Jo White. “We are very interested in receiving comments on the proposed approach and the flexibility it affords.”
The proposal will have a 60-day public comment period following its publication in the Federal Register.
Dissenting Statement of Commissioner Daniel M. Gallagher Concerning the Proposal of Rules to Implement the Section 953(b) Pay Ratio Disclosure Provision of the Dodd-Frank Act
Commissioner Daniel M. Gallagher
SEC Open Meeting, Washington, D.C.
Sept. 18, 2013
Today, the Commission will vote on proposed rules to implement yet another Dodd-Frank mandate having nothing to do with the SEC’s mission and everything to do with the politics of not letting a serious crisis go to waste.
The pay ratio computation that the proposed rules would require is sure to cost a lot and teach very little. Its only conceivable purpose is to name and, presumably in the view of its proponents, shame U.S. issuers and their executives. This political wish-list mandate represents another page of the Dodd-Frank playbook for special interest groups who seem intent on turning the notion of materiality-based disclosure on its head.
There are no – count them, zero – benefits that our staff have been able to discern. As the proposal explains, “[T]he lack of a specific market failure identified as motivating the enactment of this provision poses significant challenges in quantifying potential economic benefits, if any, from the pay ratio disclosure[.]”[1]
So much for the benefits. If you don’t have a good imagination – or a robust political agenda – you simply won’t find any.
* * *
It could have been worse, and I commend, as always, our expert staff in the Division of Corporation Finance, under the Chair’s direction, for taking a somewhat more flexible approach to the proposal than many which have been considered. But the fact that the Commission could have imposed even greater costs does not create some otherwise absent benefit to mitigate the wasteful costs of the proposal. It merely confirms that there are even more costly ways to accomplish nothing.
So why do this at all? Simple. Dodd-Frank says we must.[2] Crossing one more required rule proposal off our long to-do list of unfinished Dodd-Frank mandates might be the closest thing to a benefit that an objective analysis can squeeze out of today’s proposal.
It's important not to forget, however, that the pay ratio mandate, unlike so many in Dodd-Frank, carries no congressionally imposed deadline. We need not act on it now or soon. It has, nevertheless, jumped to the front of the queue.
We must, therefore, acknowledge as another cost of the rule the decision not to do something else, something more pressing, something that would have yielded discernible benefits – a JOBS Act rulemaking to address the ongoing employment crisis in this country, perhaps, or something – anything – to do with the financial crisis – maybe, for example, the Dodd-Frank section 939A rulemaking that is years overdue.
Given the tremendous strain placed on our resources by Dodd-Frank's seemingly endless stream of mandates as well as our "day job" of doing the blocking-and-tackling work that actually protects investors, maintains fair, orderly, and efficient markets, and facilitates capital formation, today's rulemaking represents a significant and distressing misallocation of time and resources.
* * *
Section 953(b) of Dodd-Frank mandates the application of the pay ratio requirement to “each issuer.” A flexible approach, designed to reduce costs to issuers, would have defined the word “issuer” simply to mean the registrant itself, thus requiring issuers to include only their own employees in the median employee compensation calculation. Such an interpretation would also have the benefit of being consistent with the plain language of the statute. It would have been consistent with the definition of the term “issuer” in both the Securities Act and the Exchange Act, which define the term to mean any person who issues or proposes to issue any security.[3]
This morning’s proposal, however, interprets the term “issuer” by reference to Item 402 of Regulation S-K, which has enterprise-wide applicability and so concludes that in section 953(b) the term “issuer” should likewise have enterprise-wide scope.[4] This inflexible interpretation has the effect of bringing exponentially more entities – and all of their employees’ compensation – into the pay ratio provision’s costly ambit.
Even more problematically, the proposal would extend the scope of the proposed rules further by requiring the calculation of the median salary and, therefore, the resulting ratio, to be global – that is, applicable not only to the full-time U.S. employees of the issuer and its subsidiaries, but to all of its employees everywhere in the world – including the worldwide employees of its subsidiaries. And the median calculation must include seasonal, temporary, and part-time employees – assuming they are on the rolls at fiscal year’s end – without, however, requiring annualization of their compensation.[5]
Even from the perspective of the 953(b) supporters, these interpretations of the statute are unnecessary overkill. Requiring issuers to calculate the median salary based solely on their own full-time employees located in the United States would still have yielded pay ratio figures more than impressive enough to serve the law’s scapegoating and shaming goals. Such a calculation would still have been complex, although much less costly and more in line with our responsibility as regulators to strike an appropriate balance between costs and benefits.
In addition, a more reasonable, literal interpretation of the statutory mandate would have avoided the distortions the chosen method inevitably introduces. Why, after all, should we require a global calculation, thereby introducing a non-scientific and uninstructive comparison that ignores the variances in the costs of labor and the costs of living in widely disparate economies worldwide?[6] Of what conceivable use could comparing the pay of workers in developing nations to that of U.S. CEOs be to the investors the SEC is tasked with protecting? Why include part-time and temporary and seasonal employees? Why incorporate currency exchange assumptions or pay variations due to governmental social benefits schemes that vary from country to country? These and other extraneous variables introduce a degree of complexity and obfuscation that renders meaningless what was meant to be a simple ratio.
The only logical conclusion is that the real point of this exercise is to ensure the most eye-poppingly huge ratios possible. Gimmicks like these don’t belong in corporate filings. The agency would sanction issuers who acted so “creatively” in other areas of their 10K or proxy disclosure.
* * *
Finally, I remind the Commission, once again, that the Exchange Act mandates that we consider the effect of what we do on competition,[7] which even the proposal itself acknowledges by noting, “the competitive impact of compliance with the disclosure requirements prescribed by Section 953(b) could disproportionately fall on U.S. companies with large workforces and global operations….”[8] Notwithstanding this clear mandate, today’s proposal continues a trend of politically motivated new disclosure requirements that impose unnecessary compliance costs on U.S. issuers, reducing their international competitiveness while providing no benefits to investors and political benefits to special interest groups.[9]
* * *
Putting the most positive face possible on today’s proposal, then, its benefits are not so much elusive, as illusory. Indeed, the “benefits” portion of our economists’ evaluation of the proposed rules is really just a discussion of relative costs. It amounts to this: Congress told us to do it, and since we could have done it in a more costly way than we did, the result is an implicit net benefit. I believe this is the best that DERA could do with such a rotten mandate, but none of us should be happy about it.
I cannot see any way to support today’s proposal. I lament the time wasted on it, and I urge investors, public companies and others directly affected by the proposal to submit detailed, data-heavy comments.
[1] Release at p. 91 (“Economic Analysis”).
[2] Note, however, that on June 19, 2013, a bipartisan majority of the House Financial Services Committee reported favorably H.R. 1135, which would repeal Section 953(b).
[3] Securities Act, sec. 2(a)(4); Exchange Act, sec. 3(a)(8).
[4] “By directing the Commission to amend Item 402, we believe that Section 953(b) is intended to cover employees on an enterprise-wide basis, including both the registrant and its subsidiaries, which is the same approach as that taken for other Item 402 information” (Release at p. 110), and “we believe it is appropriate to apply the same definition of subsidiary that is used for other disclosure under Item 402” (id. at 111).
[5] The Release permits annualization for permanent employees, which would include those employed at fiscal year’s end but not for the whole fiscal year, as well as permanent part-time employees. It does not permit annualization for seasonal or temporary employees employed at year’s end. Release at 33-34 and 114-15.
[6] The Release acknowledges that any comparison of registrants’ pay ratios would be uninstructive: “[W]e do not believe that precise comparability or conformity of disclosure from registrant to registrant is necessarily achievable due to the variety of factors that could cause the ratio to differ…” (Release at 35).
[7] Exchange Act, sec. 23(a)(2).
[8] Release at p. 104 (“Economic Analysis”).
[9] See, e.g., Release No. 34-67716 (“Conflict Minerals”), Aug. 22, 2012, and Rel. No. 34-67717 (“Disclosure of Payments by Resource Extraction Issuers”), Aug. 22, 2012 (subsequently vacated and remanded).
Sept. 18, 2013
The Securities and Exchange Commission today voted 3-2 to propose a new rule that would require public companies to disclose the ratio of the compensation of its chief executive officer (CEO) to the median compensation of its employees.
The new rule, required under the Dodd-Frank Act, would not prescribe a specific methodology for companies to use in calculating a “pay ratio.” Instead, companies would have the flexibility to determine the median annual total compensation of its employees in a way that best suits its particular circumstances.
“This proposal would provide companies significant flexibility in complying with the disclosure requirement while still fulfilling the statutory mandate,” said SEC Chair Mary Jo White. “We are very interested in receiving comments on the proposed approach and the flexibility it affords.”
The proposal will have a 60-day public comment period following its publication in the Federal Register.
Dissenting Statement of Commissioner Daniel M. Gallagher Concerning the Proposal of Rules to Implement the Section 953(b) Pay Ratio Disclosure Provision of the Dodd-Frank Act
Commissioner Daniel M. Gallagher
SEC Open Meeting, Washington, D.C.
Sept. 18, 2013
Today, the Commission will vote on proposed rules to implement yet another Dodd-Frank mandate having nothing to do with the SEC’s mission and everything to do with the politics of not letting a serious crisis go to waste.
The pay ratio computation that the proposed rules would require is sure to cost a lot and teach very little. Its only conceivable purpose is to name and, presumably in the view of its proponents, shame U.S. issuers and their executives. This political wish-list mandate represents another page of the Dodd-Frank playbook for special interest groups who seem intent on turning the notion of materiality-based disclosure on its head.
There are no – count them, zero – benefits that our staff have been able to discern. As the proposal explains, “[T]he lack of a specific market failure identified as motivating the enactment of this provision poses significant challenges in quantifying potential economic benefits, if any, from the pay ratio disclosure[.]”[1]
So much for the benefits. If you don’t have a good imagination – or a robust political agenda – you simply won’t find any.
* * *
It could have been worse, and I commend, as always, our expert staff in the Division of Corporation Finance, under the Chair’s direction, for taking a somewhat more flexible approach to the proposal than many which have been considered. But the fact that the Commission could have imposed even greater costs does not create some otherwise absent benefit to mitigate the wasteful costs of the proposal. It merely confirms that there are even more costly ways to accomplish nothing.
So why do this at all? Simple. Dodd-Frank says we must.[2] Crossing one more required rule proposal off our long to-do list of unfinished Dodd-Frank mandates might be the closest thing to a benefit that an objective analysis can squeeze out of today’s proposal.
It's important not to forget, however, that the pay ratio mandate, unlike so many in Dodd-Frank, carries no congressionally imposed deadline. We need not act on it now or soon. It has, nevertheless, jumped to the front of the queue.
We must, therefore, acknowledge as another cost of the rule the decision not to do something else, something more pressing, something that would have yielded discernible benefits – a JOBS Act rulemaking to address the ongoing employment crisis in this country, perhaps, or something – anything – to do with the financial crisis – maybe, for example, the Dodd-Frank section 939A rulemaking that is years overdue.
Given the tremendous strain placed on our resources by Dodd-Frank's seemingly endless stream of mandates as well as our "day job" of doing the blocking-and-tackling work that actually protects investors, maintains fair, orderly, and efficient markets, and facilitates capital formation, today's rulemaking represents a significant and distressing misallocation of time and resources.
* * *
Section 953(b) of Dodd-Frank mandates the application of the pay ratio requirement to “each issuer.” A flexible approach, designed to reduce costs to issuers, would have defined the word “issuer” simply to mean the registrant itself, thus requiring issuers to include only their own employees in the median employee compensation calculation. Such an interpretation would also have the benefit of being consistent with the plain language of the statute. It would have been consistent with the definition of the term “issuer” in both the Securities Act and the Exchange Act, which define the term to mean any person who issues or proposes to issue any security.[3]
This morning’s proposal, however, interprets the term “issuer” by reference to Item 402 of Regulation S-K, which has enterprise-wide applicability and so concludes that in section 953(b) the term “issuer” should likewise have enterprise-wide scope.[4] This inflexible interpretation has the effect of bringing exponentially more entities – and all of their employees’ compensation – into the pay ratio provision’s costly ambit.
Even more problematically, the proposal would extend the scope of the proposed rules further by requiring the calculation of the median salary and, therefore, the resulting ratio, to be global – that is, applicable not only to the full-time U.S. employees of the issuer and its subsidiaries, but to all of its employees everywhere in the world – including the worldwide employees of its subsidiaries. And the median calculation must include seasonal, temporary, and part-time employees – assuming they are on the rolls at fiscal year’s end – without, however, requiring annualization of their compensation.[5]
Even from the perspective of the 953(b) supporters, these interpretations of the statute are unnecessary overkill. Requiring issuers to calculate the median salary based solely on their own full-time employees located in the United States would still have yielded pay ratio figures more than impressive enough to serve the law’s scapegoating and shaming goals. Such a calculation would still have been complex, although much less costly and more in line with our responsibility as regulators to strike an appropriate balance between costs and benefits.
In addition, a more reasonable, literal interpretation of the statutory mandate would have avoided the distortions the chosen method inevitably introduces. Why, after all, should we require a global calculation, thereby introducing a non-scientific and uninstructive comparison that ignores the variances in the costs of labor and the costs of living in widely disparate economies worldwide?[6] Of what conceivable use could comparing the pay of workers in developing nations to that of U.S. CEOs be to the investors the SEC is tasked with protecting? Why include part-time and temporary and seasonal employees? Why incorporate currency exchange assumptions or pay variations due to governmental social benefits schemes that vary from country to country? These and other extraneous variables introduce a degree of complexity and obfuscation that renders meaningless what was meant to be a simple ratio.
The only logical conclusion is that the real point of this exercise is to ensure the most eye-poppingly huge ratios possible. Gimmicks like these don’t belong in corporate filings. The agency would sanction issuers who acted so “creatively” in other areas of their 10K or proxy disclosure.
* * *
Finally, I remind the Commission, once again, that the Exchange Act mandates that we consider the effect of what we do on competition,[7] which even the proposal itself acknowledges by noting, “the competitive impact of compliance with the disclosure requirements prescribed by Section 953(b) could disproportionately fall on U.S. companies with large workforces and global operations….”[8] Notwithstanding this clear mandate, today’s proposal continues a trend of politically motivated new disclosure requirements that impose unnecessary compliance costs on U.S. issuers, reducing their international competitiveness while providing no benefits to investors and political benefits to special interest groups.[9]
* * *
Putting the most positive face possible on today’s proposal, then, its benefits are not so much elusive, as illusory. Indeed, the “benefits” portion of our economists’ evaluation of the proposed rules is really just a discussion of relative costs. It amounts to this: Congress told us to do it, and since we could have done it in a more costly way than we did, the result is an implicit net benefit. I believe this is the best that DERA could do with such a rotten mandate, but none of us should be happy about it.
I cannot see any way to support today’s proposal. I lament the time wasted on it, and I urge investors, public companies and others directly affected by the proposal to submit detailed, data-heavy comments.
[1] Release at p. 91 (“Economic Analysis”).
[2] Note, however, that on June 19, 2013, a bipartisan majority of the House Financial Services Committee reported favorably H.R. 1135, which would repeal Section 953(b).
[3] Securities Act, sec. 2(a)(4); Exchange Act, sec. 3(a)(8).
[4] “By directing the Commission to amend Item 402, we believe that Section 953(b) is intended to cover employees on an enterprise-wide basis, including both the registrant and its subsidiaries, which is the same approach as that taken for other Item 402 information” (Release at p. 110), and “we believe it is appropriate to apply the same definition of subsidiary that is used for other disclosure under Item 402” (id. at 111).
[5] The Release permits annualization for permanent employees, which would include those employed at fiscal year’s end but not for the whole fiscal year, as well as permanent part-time employees. It does not permit annualization for seasonal or temporary employees employed at year’s end. Release at 33-34 and 114-15.
[6] The Release acknowledges that any comparison of registrants’ pay ratios would be uninstructive: “[W]e do not believe that precise comparability or conformity of disclosure from registrant to registrant is necessarily achievable due to the variety of factors that could cause the ratio to differ…” (Release at 35).
[7] Exchange Act, sec. 23(a)(2).
[8] Release at p. 104 (“Economic Analysis”).
[9] See, e.g., Release No. 34-67716 (“Conflict Minerals”), Aug. 22, 2012, and Rel. No. 34-67717 (“Disclosure of Payments by Resource Extraction Issuers”), Aug. 22, 2012 (subsequently vacated and remanded).
FTC WARNS PUBLIC OF POSSIBLE DONATION SCAMS AFTER COLORADO FLOODING DISASTER
FROM: FEDERAL TRADE COMMISSION
If You're Helping Colorado Flood Victims, Make Sure Your Donations Count
In the wake of the flooding in Colorado, the Federal Trade Commission, the nation’s consumer protection agency, urges people to be wary of charity scams.
If you’re looking for a way to give, do some research to ensure that your donation will go to a reputable organization. Urgent appeals that you get in person, by phone or mail, by e-mail, on websites, or on social networking sites may not be on the up-and-up. Unfortunately, legitimate charities face competition from fraudsters who either solicit for bogus charities or aren't entirely honest about how a so-called charity will use your contribution.
If you’re asked to make a charitable donation to support victims of the flooding in Colorado, consider these tips:
Donate to charities you know and trust. Be alert for charities that seem to have sprung up overnight in connection with current events.
Ask if a caller is a paid fundraiser, who they work for, and what percentage of your donation goes to the charity and to the fundraiser. If you don’t get a clear answer – or if you don’t like the answer – consider donating to a different organization.
Don’t give out personal or financial information – including your credit card or bank account number – a unless you know the charity is reputable.
Never send cash: you can’t be sure the organization will receive your donation, and you won’t have a record for tax purposes.
Check out the charity with the Better Business Bureau's (BBB) Wise Giving Alliance, Charity Navigator, Charity Watch, or GuideStar.
Find out if the charity or fundraiser must be registered in your state by contacting the National Association of State Charity Officials.
The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.
If You're Helping Colorado Flood Victims, Make Sure Your Donations Count
In the wake of the flooding in Colorado, the Federal Trade Commission, the nation’s consumer protection agency, urges people to be wary of charity scams.
If you’re looking for a way to give, do some research to ensure that your donation will go to a reputable organization. Urgent appeals that you get in person, by phone or mail, by e-mail, on websites, or on social networking sites may not be on the up-and-up. Unfortunately, legitimate charities face competition from fraudsters who either solicit for bogus charities or aren't entirely honest about how a so-called charity will use your contribution.
If you’re asked to make a charitable donation to support victims of the flooding in Colorado, consider these tips:
Donate to charities you know and trust. Be alert for charities that seem to have sprung up overnight in connection with current events.
Ask if a caller is a paid fundraiser, who they work for, and what percentage of your donation goes to the charity and to the fundraiser. If you don’t get a clear answer – or if you don’t like the answer – consider donating to a different organization.
Don’t give out personal or financial information – including your credit card or bank account number – a unless you know the charity is reputable.
Never send cash: you can’t be sure the organization will receive your donation, and you won’t have a record for tax purposes.
Check out the charity with the Better Business Bureau's (BBB) Wise Giving Alliance, Charity Navigator, Charity Watch, or GuideStar.
Find out if the charity or fundraiser must be registered in your state by contacting the National Association of State Charity Officials.
The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.
Subscribe to:
Posts (Atom)