Thursday, August 1, 2013

SECRETARY OF DEFENSE HAGEL'S STATEMENT ON STRATEGIC CHOICES AND MANAGEMENT REVIEW

FROM:  U.S. DEPARTMENT OF DEFENSE 
Statement on Strategic Choices and Management Review
As Delivered by Secretary of Defense Chuck Hagel, Pentagon Press Briefing Room, Wednesday, July 31, 2013

Good afternoon.

I want to make some remarks about our Strategic Choices Management Review, which I directed about four months ago, and Sandy Winnefeld, who as you all know is the Vice Chairman of the Joint Chiefs, is here and will add his comments, as well.

The Chairman is in Arizona, where he has just recently welcomed his eighth grandchild, so he's doing important business, as he is taking care of twin boys who are 2 years old.  So he is testing his Chairmanship and his ability in that regard.  So that's why General Dempsey is not with us today.

So I'll begin, and then Admiral Winnefeld will add his thoughts.  And we'll take some questions.  And if you all want to go deep, deep down into what I'm going to talk about, then we have some of our budget and financial analysts here to go as deep as you want to go on what I'm going to talk about here in the next few minutes.  So, thank you for giving me some time today.

Earlier today, I briefed key congressional committee leaders on the findings of DoD's Strategic Choices Management Review.  And this afternoon, as I've said, I want to talk about these findings and clarify the major options and the difficult choices that we have ahead.

I directed the Strategic Choices and Management Review four months ago to help ensure the Department of Defense is prepared in the face of unprecedented budget uncertainty. Although DoD strongly supports the President's Fiscal Year 2014 request and long-term budget plan for the entire federal government, the deep and abrupt spending cuts under sequestration that began on March 1st of this year, are, as you all know, the law of the land.  Sequestration will continue in the absence of an agreement that replaces the Budget Control Act.

The purpose of the Strategic Choices and Management Review, which was led by the Deputy Secretary of Defense, Ash Carter, with the full participation of General Dempsey and Admiral Winnefeld, the Service Secretaries and the Service Chiefs, was to understand the impact of further budget reductions on the Department and develop options to deal with these additional cuts.  It had three specific objectives:

Help DoD prepare for how to deal with sequestration if it continues in Fiscal Year 2014;
Inform the fiscal guidance given to the military services for their F.Y. 2015 through 2019 budget plans;
And, third, anchor the upcoming Quadrennial Defense Review, which will assess our defense strategy in light of new fiscal realities and the many threats and complexities and uncertainties of this new century.
The Strategic Choices and Management Review did not produce a detailed budget blueprint. That was not the purpose of the review.  It generated a menu of options, not a set of decisions. These options were built around the potential budget scenarios:

First, the President's F.Y. 2014 budget, which incorporates the carefully calibrated and largely back-loaded $150 billion reduction in defense spending over the next 10 years.
Second, the Budget Control Act sequester-level caps, which would cut another $52 billion from defense spending in Fiscal Year 2014, with $500 billion in reductions for the DoD over the next 10 years.
And third, an "in-between scenario" that would reduce defense spending by about $250 billion over the next 10 years, but would be largely back- loaded.
It's important to remember that all these cuts are in addition to the $487 billion reduction in defense spending over the next decade required by the initial caps in the Budget Control Act of 2011, which DoD is currently implementing.  If sequester-level cuts persist, DoD would experience nearly $1 trillion in defense spending reductions over the next ten years.

To help DoD balance strategic ends, ways and means under these budget scenarios, the Strategic Choices and Management Review scrutinized every aspect of DoD's budget, including contingency planning, business practices, force structure, pay and benefits, acquisition practices, and modernization portfolios.  Everything was on the table.

As I discussed last week at the VFW Convention in Louisville, four principles helped guide this review:

First, prioritizing DoD's missions and capabilities around our core responsibility of defending our country;
Second, maximizing the military's combat power by looking to reduce every other category of spending first;
Third, preserving and strengthening military readiness;
And, fourth, honoring the service and sacrifice of DoD's people and their families.
Those principles, and a rigorous review process, resulted in packages of options that included management efficiencies and overhead reductions, compensation reform, and changes to force structure and modernization plans.

Allow me to share with you some of the options the review identified in each of the areas I've just mentioned.

First, management efficiencies and overhead reductions.  A tenet of the review was what we need to focus on is maximizing savings from reducing DoD's overhead administrative costs and other institutional expenses.

For several years, DoD has been paring back overhead.  About $150 billion in five-year efficiency reductions were proposed by Secretary Gates.  An additional $60 billion in savings were identified by Secretary Panetta.  And I submitted a $34 billion savings package in our latest budget.  DOD is continuing to implement these efficiency campaigns, but despite much progress, as well as good efforts and intentions, not every proposal has generated the savings we expected or gained the support of Congress – most notably, our request for a Base Realignment and Closure round.

The review showed that DoD will have to do more in this area, much more, even though it is getting more difficult to find these cuts, and it can take years for significant savings to be realized.  After considering the results of the review, I determined that it is possible and prudent to begin implementing a new package of efficiency reforms now – ones that should be pursued regardless of fiscal circumstances.

Some of these management efficiencies and overhead reductions include:

Reducing the Department's major headquarters budgets by 20 percent, beginning with the Office of the Secretary of Defense, the Joint Staff, Service Headquarters and Secretariats, Combatant Commands, and defense agencies and field activities. Although the 20 percent cut applies to budget dollars, organizations will strive for a goal of 20 percent reductions in government civilians and military personnel.
Reducing the number of direct reports to the Secretary of Defense by further consolidating functions within OSD, as well as eliminating positions and;
Reducing intelligence analysis and production at combatant command intelligence and operation centers, which will also foster closer integration and reduce duplication across defense enterprises.
These management reforms, consolidations, personnel cuts, and spending reductions will reduce the Department's overhead and operating costs by some $10 billion over the next five years and almost $40 billion over the next decade.  They will make the Department more agile and more versatile.

Past efficiency campaigns have shown that implementation can be very challenging, so effective follow-through is critical, if savings targets are to be realized.  This is especially true of OSD reductions.  I've asked Deputy Secretary Carter to identify someone from outside DoD who is deeply knowledgeable about the defense enterprise and eminently qualified to direct implementation of the OSD reductions and report to the Deputy Secretary.

In addition to the measures I've described, the review identified additional consolidations and mission reductions that could be required, if sequester-level caps are imposed over the long term.  These measures include consolidations of regional combatant commands, defense agency mission cuts, and further IT consolidation.

These changes would be far-reaching and require further analysis and consideration. Though defense bureaucracies are often derided, the fact is that these offices perform functions needed to manage, administer, and support a military of our size, complexity, and global reach.

Even over the course of a decade, the cumulative savings of the most aggressive efficiency options identified by the review are $60 billion.  That's a small fraction of what is needed under sequester- level cuts.  We will have to look elsewhere for more savings.

The review also confirmed that no serious attempt to achieve significant savings can avoid compensation cuts, which consume roughly half of the DoD budget.  If left unchecked, pay and benefits will continue to eat into our readiness and modernization. That could result in a far less capable force that is well-compensated, but poorly trained and poorly equipped.

Any discussion of compensation should acknowledge the following:

No one in uniform is overpaid for what they do for this country;
People are DoD's most important asset; and we must sustain compensation packages that recruit and retain the finest military in the world.
The significant military pay and benefit increases over the last decade reflected the need to sustain a force under considerable stress, especially the Army and Marines, during the height of the Iraq and Afghan campaigns.
One post-9/11 war is over, and the second, our nation's longest war, is coming to an end.
Overall, personnel costs have risen dramatically, some 40 percent above inflation since 2001. The Department cannot afford to sustain this growth.
 Reflecting these realities, the President's Fiscal Year 2014 budget included a package of modest compensation-related reforms that have the strong support of our uniform leadership. Congress has signaled its opposition to some of these proposals, including modest increases in TRICARE fees for working-age retirees.  But given our current fiscal situation, DoD has no choice but to consider compensation changes of greater magnitude for military and civilian personnel.

The review developed compensation savings options that we believe would continue to allow the military to recruit and retain the high-quality personnel we will need.  If we were to pursue these options, we would need Congress's partnership to implement many of them. Examples include:

Changing military health care for retirement -- for retirees to increase use of private-sector insurance when available;
Changing how the basic allowance for housing is calculated, so that individuals are asked to pay a little more of their own housing costs;
Reducing the overseas cost-of-living adjustments; and
Continuing to limit military and civilian pay increases.
Many will object to these ideas, and I want to be clear that we are not announcing any compensation changes today.  Instead, I've asked Chairman Dempsey to lead an effort with the Service Chiefs and the Senior Enlisted Advisers to develop a package of compensation proposals that meet savings targets identified in the review – almost $50 billion over the next decade – and still enabled us to retain and recruit the high-quality force.  We would begin implementing this package in the Fiscal Year 2015 budget. Senior OSD staff will lead a similar review for civilian pay and benefits.

The review also identified more sweeping changes to meet sequester-level targets, such as eliminating civilian pensions for retired military personnel serving in civilian government service, ending subsidies for defense commissaries, and restricting the availability of unemployment benefits.  This package would yield savings of almost $100 billion over the next decade, but would have a significant impact on our service members and our workforce.  But a sequester-level scenario would compel us to consider these changes, because there would be no realistic alternative that did not pose unacceptable risks to national security.

The efficiencies in compensation reforms identified in the review – even the most aggressive changes – still leave DoD some $350 billion to $400 billion short of the $500 billion in cuts required by sequestration over the next ten years.  The review had to take a hard look at changes to our force structure and modernization plans.

The President's Defense Strategic Guidance anchored this effort.  The goal was to find savings that best preserve the tenets of the President's strategy, such as strategic deterrence, homeland defense, and the rebalance to the Asia Pacific.  The review concluded we should not take reductions proportionately across the military services.  Instead, the options we examined were informed by strategy, and they will guide the services as they build two sets of budgets for F.Y. 2015 through 2019, one at the President's budget level and one at sequester-level caps.

While we want to preserve flexibility for each military service to develop the best force possible, given reduced resources, the review identified areas where we have excess capacity to meet current and anticipated future needs.  In particular, the analysis concluded that we can strategically reduce the size of our ground and tactical air forces – even beyond the current drawdown.

I've not made any program or force structure decisions, and more analysis will be required before the decisions are made.  But with the end of the war in Iraq, the drawdown in Afghanistan, and a changing requirement to conduct protracted large-scale counterinsurgency operations, it makes sense to take another look at the Army's force structure – which is currently planned to reach 490,000 in the active component and 555,000 in the reserves.

One option the review examined found that we could still execute the priority missions determined by our defense strategy, while reducing Army end strength to between 420,000 and 450,000 in the active component and between 490,000 and 530,000 in the Army Reserves.  Similarly, the Air Force could reduce tactical aircraft squadrons – potentially as many as five – and cut the size of the C-130 fleet with minimal risk.

In the months ahead, I will work closely with Chairman Dempsey and each of the Service Chiefs to reach agreement on the proper size of our armed forces, taking into account real-world needs in a dangerous world.

A modest reduction in force structure, when combined with management efficiencies and compensation reforms, would enable us to meet the $150 billion in savings required by the President's budget proposal while still defending the country and fulfilling our global responsibilities.  We can sustain our current defense strategy under the President's budget request.

Significant reductions beyond the President's plan would require many more dramatic cuts to force structure.  The review showed that the "in-between" budget scenario we evaluated would "bend" our defense strategy in important ways, and sequester-level cuts would "break" some parts of the strategy, no matter how the cuts were made.  Under sequester-level cuts, our military options and flexibility will be severely constrained.

Given that reality, the review examined two strategic approaches to reducing force structure and modernization that will inform planning for sequester-level cuts.  The basic tradeoff is between capacity – measured in the number of Army brigades, Navy ships, Air Force squadrons, and Marine battalions – and capability – our ability to modernize weapons systems and to maintain our military's technological edge.

In the first approach, we would trade away size for high-end capability.  This would further shrink the active Army to between 380,000 to 450,000 troops, reduce the number of carrier strike groups from 11 to 8 or 9, draw down the Marine Corps from 182,000 to between 150,000 and 175,000, and retire older Air Force bombers.  We would protect investments to counter anti-access and area-denial threats, such as the long-range strike family of systems, submarine cruise missile upgrades, and the Joint Strike Fighter, and we would continue to make cyber capabilities and special operations forces a high priority.

This strategic choice would result in a force that would be technologically dominant, but would be much smaller and able to go fewer places and do fewer things, especially if crisis occurred at the same time in different regions of the world.

The second approach would trade away high-end capability for size.  We would look to sustain our capacity for regional power projection and presence by making more limited cuts to ground forces, ships, and aircraft. But we would cancel or curtail many modernization programs, slow the growth of cyber enhancements, and reduce special operations forces.

Cuts on this scale would, in effect, be a decade-long modernization holiday.  The military could find its equipment and weapons systems – many of which are already near the end of their service lives – less effective against more technologically advanced adversaries.  We also have to consider how massive cuts to procurement and research and development funding would impact the viability of America's private-sector industrial base.

These two approaches illustrate the difficult tradeoffs and strategic choices that would face the Department in a scenario where sequester-level cuts continue.  Going forward in the months ahead, DoD – and ultimately the President – will decide on a strategic course that best preserves our ability to defend our national security interests under this very daunting budget scenario.

The balance we strike between capability, capacity, and readiness will determine the composition and the size of the force for years to come.  We could, in the end, make decisions that result in a very different force from the options I've described here today.  Our goal is to be able to give the President informed recommendations, not to prejudge outcomes.  Regardless, the decision-making process will benefit from the insights of this review provided.

In closing, one of the most striking conclusions of the Strategic Choices and Management Review is that if DoD combines all the reductions I've described, including significant cuts to the military's size and capability – the savings fall well short of meeting sequester-level cuts, particularly during the first five years of these steep, decade-long reductions.

The reality is that cuts to overhead, compensation, and forces generate savings slowly.  With dramatic reductions in each area, we do reach sequester-level savings, but only toward the end of a 10-year timeframe.  Every scenario of the review examined showed shortfalls in the early years of $30 billion to $35 billion.

These shortfalls will be even larger if Congress is unwilling to enact changes to compensation or adopt other management reforms and infrastructure cuts we've proposed in our Fiscal Year 2014 budget.  Opposition to these proposals must be engaged and overcome, or we will be forced to take even more draconian steps in the future.

A lot has been said about the impact of sequestration.  Before this review, like many Americans, I wondered why a 10 percent budget cut was, in fact, so destructive.  Families and businesses trim their costs by similar projections.  But this analysis showed in the starkest terms how a 10 percent defense spending reduction causes the reality in a much higher reduction in military readiness and capability.  Unlike the private sector, the federal government, and the Defense Department in particular – simply does not have the option of quickly shutting down excess facilities, eliminating entire organizations and operations, or shutting massive numbers of employees – at least not in a responsible, moral, and legal way.

The fact is that half of our budget – including areas like compensation, where we need to achieve savings – are essentially off- limits for quick reductions.  Given that reality, the only way to implement an additional, abrupt 10 percent reduction in the defense budget is to make senseless, non-strategic cuts that damage military readiness, disrupt operations, and erode our technological edge.   We have already seen some of the significant effects of the $37 billion reduction occurring in this Fiscal Year – including halting all flying for some Air Force squadrons, canceling ship deployments, ending Army Combat Training Center rotations for brigades not deploying to Afghanistan, and imposing furloughs for 650,000 DoD civilians.

In Fiscal Year 2014, this damage will continue if sequestration persists.  DoD is now developing a contingency plan to accommodate the $52 billion sequester-level reduction in Fiscal Year 2014, which I outlined in a letter this month to Senate Armed Services Committee Chairman Levin and Ranking Member Inhofe. Congress will need to help us manage these deep and abrupt reductions responsibly and efficiently.

The bold management reforms, compensation changes, and force structure reductions identified by the Strategic Choices and Management Review can help reduce the damage that would be caused by the persistence of sequestration in Fiscal Year 2014, but they won't come close to avoiding it altogether.

The review demonstrated that making cuts strategically is only possible if they are "backloaded."  While no agency welcomes additional budget cuts, a scenario where we have additional time to implement reductions – such as in the President's budget – would be far preferable to the deep cuts of sequestration.  If these abrupt cuts remain, we risk fielding a force that over the next few years is unprepared due to a lack of training, maintenance, and the latest equipment.

And as I mentioned last week at the VFW Convention, a top priority in future-year budget plans is to build a ready force, even if that requires future reductions in force structure.  No matter the size of our budget, we have a responsibility to defend the country and America's vital interests around the world.  That means crafting the strongest military possible under whatever level of resources we are providing.

DoD has a responsibility to give America's elected leaders and the American people a clear-eyed assessment of what our military can and cannot do in the event of a major confrontation or a crisis after several years of sequester-level cuts.  In the months ahead, we will continue to provide our most honest and best assessment.  And the inescapable conclusion is that letting sequester-level cuts persist would be a huge strategic miscalculation that would not be in our country's best interests.  While I've focused today on the impact to DoD, sequester-level cuts would equally harm other missions across the government to support a strong economy, which, as is always the case, supports a strong national defense. And this will be important, because providing that support through that economy to our servicemembers, veterans and their families is part of our overall readiness and capabilities and capacity responsibilities.  DoD depends on a strong education system to maintain a pool of qualified recruits.  We rely on domestic infrastructure that surrounds our bases and installations.  And we count on scientific breakthroughs funded by research and development grants and a strong manufacturing base to maintain our decisive technological edge.  All of these areas are threatened by sequestration.

It is the responsibility of our nation's leaders to work together to replace the mindless and irresponsible policy of sequestration.  It is unworthy of the service and sacrifice of our nation's men and women in uniform and their families.  And even as we confront tough fiscal realities, our decisions must always be worthy of the sacrifices we ask America's sons and daughters to make for our country.

ASSOCIATE ATTORNEY GENERAL WEST DELIVERS REMARKS ON JUVENILE JUSTICE AND DELINQUENCY

FROM:  U.S. DEPARTMENT OF JUSTICE, 
Associate Attorney General Tony West Delivers Remarks at the Meeting of the Coordinating Council on Juvenile Justice and Delinquency Prevention
~ Friday, July 26, 2013

Thank you for your leadership, Bob.

The Attorney General regrets that he is not able to join us for today’s meeting; he very much wanted to be here as he has in been in the past, and asked me to convey his deep appreciation for all the critical work that the Council does for children and families.  As you all know, as both the Attorney General –as someone who has been a prosecutor, a judge, and most importantly, a father – the well-being of our nation’s youth has been and remains one of his top priorities.

As part of his Defending Childhood Initiative, the Attorney General’s Task Force on Children Exposed to Violence recommended the creation of a task force specifically devoted to American Indian and Alaska Native children in order to address the complex and unique needs of American Indian and Alaska Native communities.  I am pleased to report that the creation of the Task Force on American Indian/Alaska Native Children’s Exposure to Violence is fast becoming a reality.

Building on the work of the original and successful Defending Childhood Task Force and efforts across the Department of Justice in Indian country, the American Indian and Alaska Native Task Force will consist of two groups – an Advisory Committee and a Federal Working Group.

 The Advisory Committee will consist of non-federal experts that will convene to examine the pervasive problems associated with American Indian and Alaska Native children’s exposure to violence. This committee will act in accordance with the Federal Advisory Committee Act and OJJDP will soon engage in a member selection process.  In addition, OJJDP has already issued a solicitation seeking technical assistance and other support for the Advisory Committee of the Task Force.

 The applications for this solicitation are due to OJJDP by this Monday, July 29, 2013.

 The Federal Working Group consists of federal officials with experience in Indian country and children exposed to violence, including U.S. Attorneys with Indian country in their districts, our National Indian Country Training Coordinator Leslie Hagen, and representatives from OJP, the Office of Tribal Justice – including its director Tracy Toulou, and the Department of Interior.

 Importantly, the Federal Working Group, which has already convened on multiple occasions, will simultaneously implement policy and programmatic changes in the near-term for the benefit of American Indian and Alaska Native children exposed to violence.

 The Working Group has already identified gaps and needs where we can get to work immediately – such as the provision of adequate educational services in BIA juvenile detention facilities –  and once the Advisory Committee convenes, it will provide additional recommendations on a rolling basis so that the Federal Working Group begin addressing identified issues immediately.  This will be a very active Task Force that will move with the sense of urgency this vexing problem demands.

 And both the Advisory Committee and the Federal Working Group will review the recommendations from the Report of the Attorney General’s National Task Force on Children Exposed to Violence to determine how they may be applied in Indian Country and where there may be areas for further exploration as it relates to American Indian and Alaska Native children’s exposure to violence.

 We anticipate that the Advisory Committee will convene hearings and listening sessions throughout the United States and prioritize consultation with American Indian and Alaska Native youth.  During these events, the Advisory Committee will explore ways to improve the identification, screening, assessment, and treatment of American Indian and Alaska Native children traumatized by violence. It will also identify ways American Indian and Alaska Native communities can overcome the impact of violence.  In addition, the Advisory Committee will examine the needs of children living in urban or rural settings outside of reservations and villages and pay special attention to issues of trauma that children may experience who have been incarcerated in state, tribal, and federal judicial systems.

 Together, the Advisory Committee and the Federal Working Group will form a single Task Force committed to addressing and improving the lives of American Indian and Alaska Native children exposed to violence.  I am hopeful that we will engage in fruitful discussions with Tribal leaders and their communities on how best to combat the violence that is so harmful to American Indian and Alaska Native children and their families.  
I look forward to hearing from our trusted Council partners about the implementation of the Advisory Committee’s recommendations and will continue to update you on the Task Force’s progress at future meetings.

Now to the primary focus of this Council meeting.  We have with us three distinguished panelists who will provide their insights on the recently published National Academy of Sciences (NAS) report “Reforming Juvenile Justice:  A Developmental Approach.”  Thank you for joining us today.

You will hear remarks from OJJDP Administrator Bob Listenbee more specific to this panel, but before I turn the meeting back to Bob, I wanted to highlight that the findings and recommendations of this NAS report are closely aligned with this Council’s ongoing work related to the Defending Childhood Initiative, as well as major Department of Justice priorities, such as addressing racial and ethnic disparities in the juvenile justice system and enhancing youth access to qualified legal counsel.

I note that the NAS report makes major findings and recommendations on the critical importance of fairness in the juvenile justice system and the need for juvenile courts to ensure that youth “are represented by properly trained counsel and have an opportunity to participate in proceedings.”  Attorney General Eric Holder continues to work to ensure that the promise of the U.S. Supreme Court decisions, Gideon and In Re Gault, becomes a reality for youth involved in the nation’s juvenile and criminal justice systems.  I look forward to learning more today about how the findings of this critical report can inform the initiatives of the Department of Justice and our federal partners.

TWO COLLEGE FRIENDS SENTENCED TO 16 MONTHS IN PRISON FOR ROLES IN INSIDER TRADING SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION
Former Investment Banker and His College Friend Sentenced to 16 Months in Prison for Insider Trading Scheme

The Securities and Exchange Commission announced that on July 23, 2013, investment bank analyst Jauyo "Jason" Lee, 29, of Palo Alto, Calif., and his college friend Victor Chen, 29, of Sunnyvale, Calif., were sentenced to 16 months in prison for their roles in an insider trading scheme. The Honorable Richard Seeborg, of the U.S. District Court for the Northern District of California, also sentenced Lee and Chen to two years of supervised release following their incarceration and ordered that restitution and forfeiture be considered at a subsequent hearing. Chen paid $610,099 in forfeiture prior to sentencing. Lee and Chen both pleaded guilty on April 16, 2013, to one count of conspiracy to commit securities fraud and one count of securities fraud.

The criminal charges filed by the U.S. Attorney for the Northern District of California arose out of the same facts that were the subject of a civil action that the SEC filed against Lee and Chen on September 27, 2012. The SEC's complaint alleged that Lee, who worked in the San Francisco office of Leerink Swann LLC, gleaned sensitive, nonpublic information about two upcoming deals from unsuspecting co-workers involved with those clients and by reviewing various internal documents about the transactions, which involved medical device companies. Lee tipped Chen, his longtime college friend with the confidential information, and Chen traded heavily on the basis of the nonpublic details that Lee had a duty to protect. Chen made more than $600,000 in illicit profits, which was a 237 percent return on his initial investment. Bank records reveal a pattern of large cash withdrawals by Lee followed by large cash deposits by Chen, who then used the money for the insider trading.

According to the SEC's complaint, Lee was first privy to information about Leerink's client Syneron Medical Ltd., which was negotiating an acquisition of Candela Corporation in 2009. He later learned that Leerink's client Somanetics Corporation was in the process of being acquired by Covidien plc. in 2010. As Lee collected nonpublic details about each of the deals, he communicated with Chen repeatedly and exchanged dozens of phone calls and text messages. Some of the calls took place from Lee's office telephone at Leerink. Lee had a duty to preserve the confidentiality of the information that he received in the course of his employment at Leerink.

The SEC alleged that in the days leading up to the public announcements of each of these deals, Chen made sizeable purchases of stock and call options in Candela and Somanetics and made unusual trades in the securities of each of these acquisition targets. Chen had never previously bought securities in these companies, yet he suddenly spent a significant portion of his available cash to buy the Candela and Somanetics securities. Chen proceeded to sell most of his Candela and Somanetics holdings once public announcements were made about the transactions. Because Chen made some of his trades in his sister Jennifer Chen's account, the SEC's complaint also names her as a relief defendant for the purposes of recovering the illegal profits in her account.

As a result of their conduct, the SEC's complaint charged Lee and Chen with violations of Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 and Rules 10b-5 and 14e-3 thereunder. The complaint sought disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and permanent injunctions against Lee and Chen. The SEC's case remains pending.

Wednesday, July 31, 2013

Press Briefing | The White House

Press Briefing | The White House

PRESS BRIEFING ON THE 1230 REPORT ON PROGRESS IN AFGHANISTAN

FROM:  U.S. DEPARTMENT OF DEFENSE 
Presenter: Acting Assistant Secretary of Defense for Asia Pacific Security Affairs Dr. Peter Lavoy and Deputy to the Special Representative to Afghanistan and Pakistan Jarrett Blanc

July 30, 2013

Department of Defense Press Briefing on the July 2013 Section 1230 Report, "Progress Toward Security and Stability in Afghanistan" in the Pentagon Briefing Room

            ACTING ASSISTANT SECRETARY OF DEFENSE PETER LAVOY:  It's a pleasure to be here.  It's a pleasure to talk about this report that is coming out today.  And it's a pleasure to be here joined by my colleague, the deputy SRAP [Special Representative for Afghanistan and Pakistan], Jarrett Blanc from State Department.  The State Department's input to the 1230 report is very important, it's very critical, and they're a good partner on this effort, as well as on everything else.

            Let me make a few introductory remarks and then get into questions that you might have about the report or about issues that have occurred subsequently in Afghanistan.

            Going back, you'll recall that we undertook military operations in Afghanistan because the country was the base for terrorists who attacked the United States on 9/11.  Let's not forget that.  That's why we went there.  And we've made tremendous progress.

            And you know personally that we don't feel under the same kind of threat today in the United States and elsewhere in the world, many parts of the world, than we did over a decade ago.  And it's because of the sacrifices we've made in and around Afghanistan to diminish that terrorist threat and the hard work of American men and women, our coalition partners, and Afghans and others in the region.

            The progress we've made in Afghanistan really would have been practically unimaginable five years ago.  In fact, I came to Washington about five years ago, and I couldn't imagine that we'd be in the situation we are today.  And it really is a situation -- I think we're very near to achieving the objectives we set out at that time before.

            Back then, five years ago, in 2008, it was questionable whether the government would survive.  Elections were coming up in a year, in 2009.  Would these elections occur?  Would they be peaceful?  Would you have a new representative government coming in?  We're asking similar questions today about elections that will be occurring next year.

            The ISAF surge over the past three years has put the Afghan government firmly in control of all of Afghanistan's major cities and provincial capitals and has driven the insurgency into the countryside.  That wasn't the situation five years ago.  So this document is a six-month snapshot, if you will, from October 2012 to March 2013 and documents the progress and, frankly, the challenges that we experience in that time period, but, again, I wanted to put that in brief historical perspective.

            The tasks that we have today is to consolidate the gains that we've made, to support the ANSF, to pressure the remnants of Al Qaida, and to create sustainable security and stability, so that Afghanistan is never again used as a platform for international terrorists.

            I'd like to highlight three themes that emerged from this report.  First, the conflict in Afghanistan had shifted -- shifted during this time period, again, October '12 through March 2013, into a fundamentally new phase.  It's a phase marked by the United States and its ISAF partners moving into a support role, moving away from the leading combat instrument in the country, changing our mission from counterinsurgency to one of supporting the Afghan army and the Afghan police from a train, advise and assist role.  That's a fundamental shift.

            And what we've seen since the cutoff of information in March 2013 is this year's fighting season in Afghanistan, the first fighting season where the ANSF were fully out in the lead throughout their country, providing security for Afghans.  And they've done a good job.

            And I'm happy to talk about the situation after the cutoff of information in this report if you'd like to get into that, too.  But what you know now is that ISAF hardly conducts any combat missions anymore.  Their operational role is primarily focused on that train, advise and assist, although we do remain -- we do continue to do some counterterrorism operations and force protection operations ourselves.

            The second major trend or theme that emerged in this time period was the incredible improvement of the ANSF itself, the growth of professionalism and patriotism and a very capable Army and police force.  These are developments that, again, were hard to imagine.  People questioned whether they were achievable goals, and we set about developing these goals back in 2009.  But I think that the evidence that we've identified -- and, again, what we've seen to date -- has proven that the ANSF, which basically went through a phase of growing, getting to an end strength of close to the authorized level of 352,000 forces combined army and police, now focusing on quality, demonstrating combat proficiency, and doing the other things that modern militaries do, that we're seeing them do this, but, again, in a way where they are proud of their work, the country is proud of their capability and their performance, they are increasingly patriotic, they're not animated by local ethnic or tribal allegiances, but really by a sense of the whole of Afghanistan.  And they've -- the army, I think, has emerged into the strongest institution in the entire country.

            The third trend is a -- really, the operational reflection of that second point, is that as they've gone out and taken on the lead for security in the country, they've performed very, very well.  They've been tested.  The Taliban have targeted the ANSF.  The Taliban have tried to identify weaknesses of the ANSF.  They've tried to intimidate the ANSF.  They target, they overrun checkpoints, but -- and the vast majority of the cases, the army or the police get back to those checkpoints, retake the territory lost, and hold those positions.

            Now, they've suffered a lot of casualties.  Today, the ANSF probably suffers more than 30 to 1 ISAF casualties.  So that's a significant change in that ratio of casualties over the last couple of years, as they've moved into the lead of security.  Despite that, they are doing a very good job there.  They're a very resilient force, and they're out there really providing the security of the population.

            I'd like to identify three challenges that we see going forward and really focus on three key strategic questions and then turn it over to you for questions that you might have to Jarrett and myself.  I think -- and the questions that really focus on this year, 2013, next year, 2014, and then, finally, 2015.

            I think the biggest question this year -- and I think we already have the answer to this -- can the Afghan security forces actually provide for the security of their population?  Here we have an unqualified yes.  It's an affirmative answer.  They are securing the cities and the villages in the country.

            Now, to be honest, they have lost some territory in the rural areas, where they have limited reach, and the Taliban have retaken some areas, northern Helmand, in particular, but generally in the areas of priority, in the populated areas, they've really done a very, very good job.  So that's the answer yes to that question.

            The second issue in 2014 -- obviously, the key strategic event next year will be the presidential elections in April 2014.  So the question for the Afghan security forces, will they be able to secure that election?  And I think right now, it's a little early to tell, but my sense is that the answer will, indeed, be yes again.

            Right now, the level of preparations for securing that election, not to mention the other issues that Jarrett can talk about in terms of electoral preparations, were farther ahead of where we this time before the 2009 elections.

            The other issue is that the ANSF is really taking on this mission as a matter of pride and priority to secure these elections.  And you have -- a final factor is you have -- I think in April 2014, you'll have about 425,000 security forces in country, the vast majority of them being ANSF, a small minority being ISAF, compared to about 250,000 that were in Afghanistan that were tasked with securing the 2009 elections.  So you have a strength now to do this, as well as a focus and a level of preparation that you didn't have before.  So going forward, I think -- I'd like to say that I think that strategic issue, the answer is likely to be yes.

            And then the final issue -- and it's really one for that transition period of 2014 to 2015 -- is whether we can succeed in transitioning to a much smaller Western or coalition presence, U.S. presence and transition over to ANSF to really take on the sovereign responsibility for the country.  And, again, it's early to see.  I think there are a number of challenges.  There are a number of risks to that.  And those are ones that we're -- we're definitely focused on here in the department and elsewhere in the U.S. government.

            So with that as a general orientation, I open it up to questions for us.

            COLONEL STEVE WARREN:  We'll start off with Bob Burns from Associated Press.

            Q:  Hello, thanks for doing this.  Particularly thanks for doing it on the record.  It's a good change from...

            ACTING ASST. SEC. LAVOY:  Don't make me regret it, Bob. (Laughter.)

            Q:  On your point you made earlier about the improved or greater national allegiance of the ANSF, there's a section in the report that describes cease-fire deals that are being done on -- in some local areas between Afghan units and insurgent groups and other kinds of accommodations being made with the Taliban.  You described -- the report describes this as a developing issue that requires monitoring.  On the one hand, it says it's not a major problem, but it can have negative effects.  It seems a bit of a wishy-washy approach to explaining what's going on there.  Could you elaborate a bit more on -- is this a new development?  And since March when this report cuts off, has it been happening more often, less often?

            ACTING ASST. SEC. LAVOY:  I think it's not at all a new -- a new element.  I mean, going back into Afghan history, there have always been, you know, vigorous fighting, then followed by peace arrangements, cease-fires, and then new -- hopefully new political understandings.

            Even with ISAF forces, I think it's been actually more problematic at times, where we found out subsequently that some unit has cut some -- made some arrangement with local -- the local population, possibly including the Taliban.  That's been problematic.  We don't see that occurring as much today.

            Look, the -- the Afghans are providing security for their own population.  They need to get along with that population.  They need to have an understanding with the population.  They're not a foreign force.  They're not a force liberating that population.  They're protecting the population.  So there needs to be understandings.

            I think generally this is desirable.  It depends on the specifics -- and I can't really get into those specifics now of particular cases, but I think on the whole, as we said in this, maybe it sounds wishy-washy, but as we said, it does deserve, you know, close attention, generally can be positive.  If deals are cut for the wrong reasons, that could be negative.  

            And ultimately, stability and peace will be achieved in Afghanistan by these deals being cut, either from the center or, you know, in regions.  So I don't really see this as a particularly problematic trend.  And, frankly, it is a traditionally Afghanistan trend.

            Q:  Is it gaining momentum in more recent months?

            ACTING ASST. SEC. LAVOY:  Yeah, I really can't tell you.  I haven't -- I don't have the evidence of that.  I mean, it's something that we're looking at and -- you know, the next time we're together, I'd be happy to follow up with you about that.

            COL. WARREN:  So we'll go to Tony next.

            Q:  A question on page two.  You had this interesting sentence that beyond December '14, ANSF will still require substantial training, advising and assistance, including financial support to address ongoing shortcomings.  It's never addressed again in the full report.  What's the implication there for U.S. forces to -- the size of U.S. forces or the need for U.S. forces post-2014?  As you know, there's been some debate about a zero option.  This sort of knocks that -- knocks the legs out of that option, it seems, but I wanted to get your view.

            ACTING ASST. SEC. LAVOY:  Okay, well, thanks for that question.  Let me explain the information in there in that sentence and put it in perspective.  As I mentioned very briefly, we've seen a really rapid, remarkable development of the Afghan national security forces.  Initially, the focus was just simply trying to recruit and field a force of people with adequate literacy and training to do the job.  We succeeded in that phase.  Then the focus was improving the quality and the combat performance effectiveness of that force, and that's being proven this year.

            The phase that we're really focused on now is the sustainability of the force.  Will that force -- will there be some institutions, whether at the core level or the ministerial level, that makes sure that people get their paychecks, that -- you always the soldiers to get their paychecks on time -- to make sure that they're fed, to make sure that fuel contracts are developed.  These are the kind of functional skills and capabilities that Afghans are still developing today.          

            And we envision that it will take a period of time before they can adequately fully have sovereign ownership of all those skill sets, including well beyond the 2014 date.  That's why, as we've looked at a number of options that we've prepared in this building, in concert with our interagency partners for interagency consideration, these have taken into account the train, advise and assist functions, in addition to our own U.S. counterterrorism mission set going forward.  But these would focus less on combat proficiency and really focus more on these functional skill developments at the -- at the core and then ministerial level.  We envision that will take a period of time.

            So you also asked about the zero option.  In one of these cases have we developed an option that is zero.  Now, if we don't get the permission of the Afghan government in the form of a bilateral security agreement, then we're not going to be able to continue this job of working with ANSF.  And so then you end up with zero.

            Q:  Just -- to follow up, though, this does portend the use -- U.S. troops in some form, some form or number, staying beyond 2014 to help with these sometimes mundane, but vital functions?

            ACTING ASST. SEC. LAVOY:  That's correct.  And that is our intention.

            Q:  Thank you.

            COL. WARREN:  We'll go to Phil, and then in the back.

            Q:  Just a quick follow-up, before that, you said whether -- assessing whether the gains that have been made are sustainable, it doesn't just depend on whether there is a force, but it depends on the size or the structure of that force.  Can you explain a bit about how the size and the structure, particularly the structure of that force, matters when assessing whether the gains of the war can be (OFF-MIC)

            ACTING ASST. SEC. LAVOY:  Yeah.  Now, when you say that force, you're referring to ISAF or U.S. forces?

            Q:  (OFF-MIC)

            ACTING ASST. SEC. LAVOY:  Yeah, it will matter.  But we're also looking at a moving target.  The ANSF -- we're seeing for the first time their performance on the battlefield as the lead combat instrument, security instrument in the country.  So our calculations on what will be required beyond 2014 will probably vary after the end of this fighting season than they -- compared to when we first thought about this issue a year ago or even before.  So we're anticipating -- making anticipations on the requirements, on the needs of the Afghan national security forces, and these have changed over time, because you've been looking at a moving target.  We have much more fidelity today than we had over a year ago, let's say.

            As you know, the president has not made a decision on what that force will be.  And the president's wanted to look -- wants to look at a number of factors that will take place this year currently and possibly going into the future and see how -- and particularly the key factor is the performance of the Afghan national security forces.  So taking into account all of these factors, there will be a decision on what forces appropriate to the tasks at hand.

            Q:  Thank you, sir.  Thank you.  Raghubir Goyal from India Globe and Asia Today.  My question is that things are not going very well in the region, especially in Afghanistan, according to Afghan people, because they have been suffering for the last 30-plus years civil wars, Taliban wars, Al Qaida wars, and so on.  My question is that Afghanistan will be going elections next year, so will be India, or in India could be earlier, and also Pakistan -- now they had just elections and new prime minister.

            My question is that, can you have stability and peace like they had in the '70s and a fruitful country of Afghanistan without the cooperation of Pakistan?  Because the Taliban is still in Pakistan.  Now they are fighting in Syria and other countries.  What that's saying is -- and they are waiting when the U.S. and NATO forces leave Afghanistan and they will focus their fighting in Afghanistan, because what they're saying is they have not learned anything but to kill people and fight.

            My question is here, what role do you think Pakistan will play and what role India will play in the region, sir?

            ACTING ASST. SEC. LAVOY:  I think both Pakistan and India will play and ought to play very important, significant roles going forward in Afghanistan.  Those countries and other immediate and nearby neighbors of Afghanistan are affected by the security conditions in Afghanistan.  Borders, as you know, are very porous in this part of the world.  They're affected by it, and they in turn affect security and political developments inside Afghanistan.

            This is a very interdependent region, if you will, from that point of view.  And what you have today is a growing sense, as you indicated, of insecurity throughout the region, in central Asia, even north of there, Russia and other places in China, but most acutely in Pakistan and India.

            There's a fear in India that there will be what is called as a surplus terrorism.  After there is some stability in Afghanistan, where will these terrorists go?  Will they target India?

            They have the exact same fears in Pakistan.  Pakistan is now facing a very vibrant insurgency in its country.  They're about 150,000 Pakistani military in western Pakistan fighting this insurgency.  They're concerned that if there is further instability in Afghanistan, this could heighten the insurgency, be motivational or provide some safe haven for insurgents to come over into Pakistan.

            So everyone in the region has these concerns.  And I think -- and this is really something where my diplomatic colleagues are taking the lead -- is to try to harmonize the policies of each of the countries in the region to try to achieve a common end purpose, a common situation of peace and stability in Afghanistan and, more broadly, throughout the region.  And there are challenges, but generally I think it's going well.

            Q:  Just a quick follow, sir, quickly, recently there have been very high-level visits to India (inaudible) Secretary Hagel recently and then Secretary Kerry and now recently Vice President Biden.  And they were all talking about the security and U.S.-India relations, military-to-military, and so forth, and also, of course, Afghanistan.  What do you think now there is a firing going on, on the India-Pakistan border, heavy fighting in the region of Kashmir?  What do you think will escalate?  Or what U.S. -- been talking to India when they were visiting or they're -- are they talking about these problems on the border?

            ACTING ASST. SEC. LAVOY:  Well, it's really for the countries in the region to manage their own relationships.  These are the countries that are most directly affected.  And the situation -- we view the situation in Kashmir as a bilateral situation for India and Pakistan to sort out.

            And regrettably, there has been violence in -- along the line of control in Kashmir for many years, for many decades now, and that's very, very regrettable.  But, again, we believe -- you mentioned earlier that, with the election of President Nawaz Sharif, there have been overtures made by the Pakistanis to the Indians and vice versa to try to normalize the situation economically and reach some kind of political understanding.  And I know we in the U.S. government fully support those efforts.

            COL. WARREN:  Blue tie, state your name and organization?

            Q:  Dion Nissenbaum with the Wall Street Journal.  One of the weakest links in the effort has been corruption, as you know.  And the report goes into a fair amount of detail about corruption at the regional level by a corrupt network running out of Kabul International Airport.  I imagine Shafafiyat and those efforts are winding down, how concerned are you that as the ISAF efforts winds up, that corruption could overwhelm the efforts to reform the ANSF?  And are you seeing it increase as ISAF winds up its efforts?

            ACTING ASST. SEC. LAVOY:  Corruption is a critical concern.  It has been -- it remains one.  And it probably will be a concern going forward.  There is some -- I'm not trying to justify it, but there historically has been level of influence-peddling, what we would call corruption, in this country.  There are certain socially accepted standards that differ, obviously, from our standards.

            But then there's clearly abusive corruption, very corrosive, toxic corruption that's taking place.  And it is a priority.  What's very heartening to us is that this is a priority for the Afghan ministerial leadership that we deal with.  Secretary Hagel's counterparts are the minister of defense and the minister of interior.  And in their conversations and other DOD officials with these individuals, they've identified anti-corruption as a priority for them.

            They've changed out leaders.  B.K. Mohammadi, the minister of defense, has made a really deliberate effort after he took over to change out leaders, to improve not only performance and the quality of forces under new leadership, but to root out corruption, which does have many negative consequences, if you allow it to fester.

            COL. WARREN:  Let's go to Thom Shanker, and then we'll finish with Gordon Lubold.

            Q:  (OFF-MIC) on March 31st, which is the fighting season hadn't really gotten underway.  All of us in this room understand the tyranny of deadlines, don't get me wrong.  But if your deadline were today, are there any trends, especially among the security forces, that you would capture in this report in light of the current fighting season?

            ACTING ASST. SEC. LAVOY:  Yeah, I'd say -- I'd probably point to three trends, and I did allude to them.  Number one, the security forces are out there doing the security job.  This was kind of a question mark before this fighting season, because this is the first fighting season where the Afghan -- where the Afghan army and the police were actually in the lead.  And they've acquitted themselves very, very well.  As I mentioned, they've taken a lot of casualties.  They've been tested by the insurgents, but they've done a good job standing up to those threats.  So that's number one.

            Number two -- and this is a challenge they're working through -- when they were partnered with American forces, they -- and ISAF forces -- they were partnered with the best military forces in the world.  They were partnered with -- with units that had the best enabling support, whether it's mobility getting into a place, whether it's intelligence that gives you time-sensitive targeting on the threats, whether it's situational awareness, whether you know that there are other threats that could be emerging.  And then after an engagement, how to get out of their mobility, to get out of there and medevac, getting people -- giving them that golden hour to get treatment.  They're used to the state-of-the-art health care.

            As we've pulled back and now Afghans are taking over not only lead for combat, they are now in the lead for getting their people around the country.  They're in the lead for identifying -- you know, using their intelligence, analyzing their -- infusing and analyzing their intelligence, identifying targets, conducting the operations, designing the operations, and getting their people out of there.

            So this has been a bit of an adjustment.  I think generally it's been positive, but it's an adjustment away from U.S.-ISAF state-of-the-art standards in all these to something that's different in other cases.  In many cases, they're finding local solutions that work just as well for their needs.  They're finding local hospitals that they can take wounded soldiers to.

            The third trend is also a bit of a challenge, but it's an anticipated and, frankly, a desirable challenge to have.  It's the trend of the Afghans developing those functional capacities to provide for the logistical support of their troops, to provide for the human capital management, for managing the contracts and finances and budgeting and so forth.  This is -- these are good problems to have.

            Before, as I mentioned, we were concerned about fielding the force.  Then we were concerned about the operational capacity and wherewithal of the force.  Now we're concerned about these functional enabling attributes.  This is a good problem.  Again, as I said, our theme was we can really imagine having these challenges now.  We thought we'd still be mired in some of those other challenges.

            So going forward, I think the questions are, can the Afghan forces be able to sustain themselves at standards and with the kind of capacities that they can keep without being dependent on us?

            COL. WARREN:  So, last question from Gordon at Foreign Policy.

            Q:  Back to the 2014 question, the commitment of troops after 2014, as you know, there's a frustration that the administration hasn't articulated any number.  And the zero option and all that aside, I'm curious -- you know, there's frustration from the Hill, from allies, from inside this building, why can't the administration say, "Here's our range," barring anything coming up, as you mentioned?  Is there a point of diminishing returns in terms of holding out on this number and not just throwing it out there and saying, "This is what we're probably going to do at this point"?  And also, are you confident that April will -- the elections will happen in April?

            ACTING ASST. SEC. LAVOY:  Well, it's hard to be confident about events that will happen months into the future.  And I would just like to take your last question, make a point, and fully agree with the significance of that election.  As you look forward, the -- another strategic risk, this -- this gentleman mentioned the neighborhood.  I think that is a strategic risk.  If the neighbors can't get along, that could undermine the security gains in Afghanistan.

            The other strategic risk, if the political transition does not occur effectively, you could have a fragmentation of elite consensus in the country, political consensus, that could have reverberations in the military forces.  It is a multi-ethnic, multi-tribal military force.  And so to some extent, like military forces in every country in the world, the cohesion of the force is largely dependent on the political cohesion of the society.  And the election could open up schisms that would be problematic, if the -- if the political transition doesn't take place well.

            So now only do -- are we very hopeful that the election will take place and doing everything we can, particularly Jarrett and my colleagues over at State Department, who have the lead in the U.S. government for supporting the Afghans in that, to support them in this election, but it does have a very strong impact on the security forces.

            And then you asked the other question on our presence in -- decision-making about our presence to Afghanistan post-2014.  It's a critical issue.  It's something that, you know, we get asked about by countries, leaders of countries all around the world.  The U.S. does have a position of leadership.  It's had a position of leadership in Afghanistan.  It does today.  And it's likely to have that position of leadership in the future.

            We want to make sure that the decisions that -- that are reached are sound and based on full information in a very dynamic environment and something that, you know, Americans can know are the right decisions to provide for that continuing security in the region so that our interests are protected, so that the terrorist threat to the United States, which has diminished significantly in the last decade, will continue to diminish and will not reoccur in the future.

            COL. WARREN:  Thank you guys very much.

MARKETERS CHARGED BY FTC WITH DECEIVING BUSINESSES INTO PURCHASING CREDIT/DEBIT CARD PROCESSING FEES

FROM:  FEDERAL TRADE COMMISSION 
FTC Charges Marketers with Deceiving Small Businesses into Buying Credit/Debit Card Processing Services and Equipment

The Federal Trade Commission has charged an operation that sells credit and debit card payment processing services to small businesses with violating federal law.  The defendants allegedly made false and unsubstantiated claims and failed to disclose material facts to storefront businesses and sole proprietorships before they applied for services and equipment to process credit and debit card payments.  The FTC seeks to halt the allegedly illegal practices and return money to victims.

The defendants are Merchant Services Direct LLC (MSD), also doing business as Sphyra Inc.; Boost Commerce Inc.; Generation Y Investments LLC; Kyle Lawson Dove; and Shane Patrick Hurley.  The Washington State Attorney General’s Office has simultaneously filed an action against these defendants in the Superior Court for Spokane County, Washington.

According to the FTC’s complaint, as an “independent sales organization” (ISO), MSD sells to small local businesses the ability to accept credit and debit card payments.   The businesses pay fees whenever their customers pay with a credit or debit card.

As alleged in the complaint, MSD sales agents typically call small businesses and lead them to believe they are associated with the businesses’ current card processor, Visa or MasterCard, or their bank.  The sales agents allegedly promise substantial savings on credit and debit card processing.  They specify a much lower rate than the businesses currently pay, and quote one fee, a fixed per-transaction cost, without mentioning all the other fees the businesses will have to pay.  Merchants who ask if there are other fees allegedly are told there are none.

According to the FTC’s complaint, MSD agents also dupe customers into leasing new card processing terminals for two to four years, falsely claiming their current “swipe” terminals are outdated or incompatible with its services.  Sometimes they even claim the terminals are free.  Agents persuade merchants to sign fine-print, binding contracts on the spot by telling them the documents are merely applications – a ruse made easier, according to the FTC, by the fact that the contracts are labeled “applications.”  Merchants are often falsely told they can cancel any time.  Many victims discover their new lease obligation only after being billed, still owing the balance of their previous lease, which can be thousands of dollars.

Defendants also tout on various versions of their website “Guaranteed Lowest Rates,” claiming merchants could “save 30%” with “whole sale [sic] processing” or have “anywhere from 20% to 30% savings when switching to” MSD.  In fact, according to the FTC, there are no wholesale rates, as third parties process card payments, not MSD.   As alleged in the complaint, those who call MSD’s customer service department reach employees who either do not help them or say they will waive fees or provide refunds but don’t.  Customers who were promised they could cancel the “applications” they signed with no penalty are charged substantial cancellation fees, according to the FTC’s complaint.  Generally, only in response to complaints filed with the Better Business Bureau and state attorneys general have the defendants refunded money or waived fees.

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 Eastern District of Washington.  In addition to filing the lawsuit, the FTC has sought a court order immediately halting the unlawful practices along with an order freezing the defendants’ assets and appointing a receiver over the corporate defendants.

The FTC acknowledges the assistance of the Washington State Attorney General’s Office and the Better Business Bureau of Eastern Washington, North Idaho, and Montana.

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.

RECENT U.S. NAVY PHOTOS FROM AFGHANISTAN




FROM: U.S. NAVY
U.S. Navy Seabees replace the tire on equipment on Camp Leatherneck in Helmand province, Afghanistan, July 18, 2013. The Seabees are assigned to the Naval Mobile Construction Battalion 15. U.S. Navy photo by Petty Officer 1st Class Daniel Garas



A U.S. Navy Seabee dumps dirt into the back of a truck along a fence line on Camp Leatherneck in Helmand province, Afghanistan, July 18, 2013. U.S. Navy photo by Petty Officer 1st Class Daniel Garas.








Drought Dries Elephant Butte Reservoir

Drought Dries Elephant Butte Reservoir

PENSION PLAN TRUSTEE AGREES TO RESTORE ASSET SHORTFALLS

FROM:  U.S. DEPARTMENT OF LABOR 

Trustee of defunct New York City garment companies’ pension plans settles US Labor Department suit alleging misuse of more than $4.2 million in plan assets

Colette Mordo agrees to restore asset shortfalls; is permanently barred as fiduciary

NEW YORK — The U.S. Department of Labor has obtained a consent judgment in federal court in which the trustee of two defined benefit pension plans admits to entering into $4,232,915 in alleged unlawful plan transactions between 2002 and 2010. Colette Mordo, trustee and fiduciary to the pension plans of the Manhattan-based Sadimara Knitwear Inc. and the Stallion Knits Ltd. pension plans also agrees to restore, up to that amount, any shortfall in assets owed to the plans' participants and beneficiaries.

The judgment resolves a lawsuit filed in the U.S. District Court for the Southern District of New York alleging that Mordo violated her fiduciary duties under ERISA. The lawsuit alleged that Mordo authorized the pension plans to make improper loans and transfers of plan assets over several years to multiple recipients, including members of the Mordo family and International Design Concepts LLC and Apparel Group International LLC, two companies in which Mordo had an ownership interest.

"If you've been entrusted with the assets of an employee benefit plan, it's illegal to enrich yourself or your family at the plan's expense," said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. "That's not just common sense; it's the law, and the Labor Department will not hesitate to investigate and pursue appropriate legal remedies whenever fiduciaries fail to meet this standard."

The judgment removes Mordo from any and all fiduciary positions with respect to the plans and permanently bars her from serving as a fiduciary to any ERISA-covered plan. It also appoints David M. Lipkin of Metro Benefits Inc. as the independent fiduciary who will administer the plans, determine and pay out benefits to participants, and terminate the plans. The Labor Department is authorized to seek a contempt order should Mordo violate any terms of the judgment.


Sadimara Knitwear Inc. and Stallion Knits Ltd. were garment companies headquartered in Manhattan. The companies, which are no longer in operation, sponsored the plans to provide pension benefits to their employees.

Tuesday, July 30, 2013

READOUT: SECRETARY HAGEL'S MEETING WITH GREECE'S MINISTER OF DEFENSE AVRAMOPOULOS

FROM:  U.S. DEPARTMENT OF DEFENSE 
Readout of Secretary Hagel's Meeting with Greece's Minister of Defense Dimitris Avramopoulos

            Pentagon Press Secretary George Little provided the following readout: 

            "Secretary of Defense Chuck Hagel welcomed Greek Minister of Defense Dimitris Avramopoulos today to the Pentagon.

            "Secretary Hagel thanked Minister Avramopoulos for Greece's continued hosting of U.S. forces at Naval Support Activity at Souda Bay.  Souda Bay is a key enabler of U.S. strategic objectives in the region, the importance of which became apparent during Operation Unified Protector in Libya.

            "Secretary Hagel praised Greece's contributions to regional security in the Balkans and expressed appreciation for Greece's support and cooperation in the North Atlantic Treaty Organization.  Secretary Hagel and Minister Avramopoulos discussed issues of mutual strategic importance in the Mediterranean, Middle East, and North Africa including Egypt and Syria. Minister Avramopoulos highlighted the partnership between the United States and Greece and pledged to maintain the strong relationship between the two allies.

            "Secretary Hagel and Minister Avramopoulos agreed to continue joint military training, exchanges, and high level defense consultations, and committed to recognizing these activities through development of a U.S.-Greece Defense Cooperation Roadmap."

President Obama Speaks on Jumpstarting Job Growth | The White House

President Obama Speaks on Jumpstarting Job Growth | The White House

U.S. Department of Defense Armed with Science Update

U.S. Department of Defense Armed with Science Update

Longer fat

Longer fat

READOUT OF DEPUTY SECRETARY CARTER'S MEETING WITH JAPANESE PARLIAMENTARY SENIOR VICE MINISTER ETO

FROM:  U.S. DEPARTMENT OF DEFENSE 
Readout of Deputy Secretary Carter's Meeting with Japanese Parliamentary Senior Vice Minister Eto

           Pentagon Press Secretary George Little provided the following readout:

           Deputy Secretary of Defense Ashton B. Carter hosted Japanese Parliamentary Senior Vice Minister of Defense Akinori Eto today at the Pentagon. 

           Deputy Secretary Carter welcomed Parliamentary Senior Vice Minister Eto and expressed admiration for the strong work the United States and Japan have accomplished together in support of the bilateral Alliance.  Deputy Secretary Carter emphasized the steadfast nature of the U.S. commitment to the Asia-Pacific rebalance, and noted the significant role of the U.S.-Japan Alliance in maintaining regional security and stability.  The two leaders discussed the strategic environment and the possibility of a review of the 1997 U.S.-Japan Defense Guidelines in order to meet emerging opportunities and challenges. They agreed that strengthening cooperation with other regional partners, including the Republic of Korea, is an important element of promoting peace and stability.

           Parliamentary Senior Vice Minister Eto updated Deputy Secretary Carter on the status of Japan's National Defense Program Guidelines, including the content of the interim report released on July 26.  Deputy Secretary Carter and Parliamentary Senior Vice Minister Eto agreed to make steady progress on the realignment of U.S. Forces Japan, including the relocation of Marine Corps Air Station Futenma to Henoko and of U.S. Marines from Okinawa to Guam.  They also discussed progress being made with respect to the Joint Strike Fighter program. The two leaders agreed to stay in close touch to build upon the strong bilateral relationship between their two countries.

EXPORT-IMPORT BANK CHAIRMAN HOCHBERG'S MESSAGE

FROM:  U.S. EXPORT-IMPORT BANK
Message from the Chairman,
Fred Hochberg

Let me begin by telling you how honored I am to have been reappointed by President Obama and confirmed by the Senate for another term as Chairman of the Export-Import Bank. After a strong, bipartisan vote, I look forward to working with the excellent team here at Ex-Im on behalf of American exporters, supporting jobs here at home through sales abroad. And I look forward to working with all of you.

As we continue our economic recovery, exports continue to play a key role. Over the past four years, Ex-Im Bank’s financing has supported nearly one million American jobs and helped thousands of small businesses expand their reach into international markets.  The Bank also delivered more than $1 billion to the U.S. Treasury during this period at no cost to American taxpayers.

Moving forward, all of us at Ex-Im will continue to work with members of Congress, our Board and customers to ensure that America’s workers, small business owners, and exporters have access to the financing they need.  We’ll work to ensure America’s exporters are able to compete on a level playing field and sell their products and services around the world.

Aside from the confirmation proceedings, it’s been an eventful three months here at Ex-Im. I would like to update you on our latest results.

Following fiscal year 2012’s record results, Ex-Im is on track for another productive year—thanks to America’s dynamic exporting community.  Authorizations in our April-June quarter were $6 billion, for a total of $21.7billion for the year to date.  More important, our financing supported 165,000 export-related American jobs so far this year in communities across the country.  Our total exposure is nearly $110 billion.

The Bank’s year-to-date authorizations have declined relative to the same period last year from $23.8 billion to $21.7 billion, a promising trend that illustrates the renewed lending activity of commercial banks in the wake of the financial crisis. Our transportation authorizations, for instance, will be down overall as commercial banks re-enter commercial-aircraft financing, though our support for general aviation and helicopters has increased as we have diversified our portfolio.  Mining, which has traditionally played a large role, will decrease as well due in large part to slower global demand for commodities. However, our authorizations for satellite and manufacturing deals are up this year.  We’ve done more transactions this year than in FY 2012, but our ticket sizes are smaller. While commercial banks are stepping back into the breach, we’re still needed to do the tougher, more complicated deals.

And if you allow me to brag a little, we won three prestigious awards:

Trade Finance magazine named Ex-Im “Best Global Export Credit Agency” for the second time and, for the fourth consecutive time, “Best ECA in the Americas.”  Besides that, Trade Finance recognized Ex-Im for our participation in six “Deals of the Year.”
Two weeks later, London’s Trade and Forfaiting Review named us “World’s Best Export Credit Agency” for our support for exports and innovative deals.
AirFinance Journal recognized Ex-Im for four 2012 aviation “Deal of the Year” awards – each of them financed by our innovative Bank-guaranteed bonds, one of our most successful innovations in recent years.
We’ve achieved these results without any significant increase in staff, instead creating new financial products to meet the unique needs of our exporters competing in today’s global economy.  For example, our innovative Global Credit Express program for short-term working capital loans to small exporters continues to grow rapidly.  We’re having great success with our capital markets initiative that issues large, long-term guaranteed bonds for export sales like commercial aircraft.

I was also pleased that President Obama recently nominated Ex-Im Bank Vice Chair Wanda Felton for a second term here.  Among her accomplishments, she’s been a driving force behind our successful expansion of financing exports to Sub-Saharan Africa.  We look forward to her timely confirmation by the Senate.

Sadly, Director Larry Walther left the Bank earlier this month after two years of outstanding service as a member of our Board of Directors.  Larry is a seasoned pro in trade finance and promotion here and in his beloved Arkansas, where he returns for some well-earned relaxation.

None of these successes would have been possible without the creativity, hard work and dedication of Ex-Im staff – in support of our exporters who continue to sell world-class goods and services to buyers in over 150 countries.  You are a great team, and I’m proud to work with you.

Sincerely,
Fred P. Hochberg

FORMER SENIOR EXECUTIVE PLEADS GUILTY IN $400 MILLION SECURITIES FRAUD CASE

FROM:  U.S. DEPARTMENT OF JUSTICE 
Tuesday, July 23, 2013
Former Senior Executive of ArthroCare Corp. Pleads Guilty in $400 Million Securities Fraud Scheme

A former senior executive of ArthroCare Corp., a publicly traded medical device company based in Austin, Texas, pleaded guilty for his role in a scheme to defraud the company’s shareholders and members of the investing public by falsely inflating ArthroCare’s earnings, announced Acting Assistant Attorney Mythili Raman of the Department of Justice’s Criminal Division and U.S. Attorney Robert Pitman of the Western District of Texas. The plea was taken under seal on June 24, 2013, and unsealed late yesterday.

John Raffle, 45, of Austin, pleaded guilty before U.S. Magistrate Judge Mark Lane in Austin to conspiracy to commit securities, mail and wire fraud and two false statements violations.  Raffle was the senior vice president of Strategic Business Units at ArthroCare, overseeing all sales and marketing staff at the company.  Raffle admitted that he and other co-conspirators falsely inflated ArthroCare’s sales and revenue through a series of end-of-quarter transactions involving ArthroCare’s distributors and that he and other co-conspirators caused ArthroCare to file a Form 10-K for 2007 and Form 10-Q for the first quarter of 2008 with the U.S. Securities and Exchange Commission that materially misrepresented ArthroCare’s quarterly and annual sales, revenues, expenses and earnings.  As part of his plea, Raffle agreed that his conduct and the conduct of his co-conspirators caused more than $400 million in losses to shareholders.

According to court documents, Raffle and others determined the type and amount of product to be shipped to distributors – notably ArthroCare’s largest distributor, DiscoCare Inc. –  based on ArthroCare’s need to meet sales forecasts, rather than the distributors’ actual orders. Raffle and others then caused ArthroCare to “park” millions of dollars worth of ArthroCare’s medical devices at its distributors at the end of each relevant quarter. ArthroCare would then report these shipments as sales in its quarterly and annual filings at the time of the shipment, enabling the company to meet or exceed internal and external earnings forecasts.

According to the superseding information, DiscoCare agreed to accept shipment of approximately $37 million of product in exchange for substantial, upfront cash commissions, extended payment terms and the ability to return product, as well as other special conditions, allowing ArthroCare to falsely inflate its revenue by tens of millions of dollars.  To conceal the fact that DiscoCare owed ArthroCare a substantial amount of money on the unused inventory, Raffle and others caused ArthroCare to acquire DiscoCare on Dec. 31, 2007.

According to court documents, between December 2005 and December 2008, ArthroCare’s shareholders held more than 25 million shares of ArthroCare stock.  On July 21, 2008, after ArthroCare announced publicly that it would be restating its previously reported financial results from the third quarter 2006 through the first quarter 2008 to reflect the results of an internal investigation, the price of ArthroCare shares dropped from $40.03 to $23.21 per share.  The drop in ArthroCare’s share price caused an immediate loss in shareholder value of more than $400 million.

Raffle faces a maximum prison sentence of five years in prison for each charge.  A sentencing date has yet to be scheduled.  Raffle’s co-defendant David Applegate pleaded guilty on May 9, 2013.  ArthroCare’s Chief Executive Officer, Michael Baker, and Chief Financial Officer, Michael Gluk, were indicted as part of the same alleged securities fraud scheme on July 16, 2013.  An indictment is merely a charge, and the defendants are presumed innocent until proven guilty.

This case was investigated by the FBI’s Austin office.  The case is being prosecuted by Deputy Chief Benjamin D. Singer and Trial Attorneys Henry P. Van Dyck and William Chang of the Criminal Division’s Fraud Section.  The Department recognizes the substantial assistance of the U.S. Securities and Exchange Commission.

THE LITTLE ROVER BELOW



FROM:  NASA

NASA's Mars Science Laboratory rover Curiosity appears as a bluish dot near the lower right corner of this enhanced-color view from the High Resolution Imaging Science Experiment (HiRISE) camera on NASA's Mars Reconnaissance Orbiter.  The rover's tracks are visible extending from the landing site, "Bradbury Landing," in the left half of the scene. Two bright, relatively blue spots surrounded by darker patches are where the Mars Science Laboratory spacecraft's landing jets cleared away reddish surface dust at the landing site. North is toward the top.  For scale, the two parallel lines of the wheel tracks are about 10 feet (3 meters) apart. HiRISE shot this image on June 27, 2013, when Curiosity was at an outcrop called "Shaler" in the "Glenelg" area of Gale Crater.  Subsequently the rover drove away from Glenelg toward the southwest. When HiRISE captured this view, the Mars Reconnaissance Orbiter was rolled for an eastward-looking angle rather than straight downward. The afternoon sun illuminated the scene from the western sky, so the lighting was nearly behind the camera. Specifically, the angle from sun to orbiter to rover was just 5.47 degrees. This geometry hides shadows and reveals subtle color variations. The image is one product from HiRISE observation ESP_032436_1755.  Other image products from this observation are available at http://www.uahirise.org/ESP_032436_1755 . HiRISE is one of six instruments on NASA's Mars Reconnaissance Orbiter. The University of Arizona, Tucson, operates HiRISE, which was built by Ball Aerospace & Technologies Corp., Boulder, Colo. NASA's Jet Propulsion Laboratory, a division of the California Institute of Technology in Pasadena, manages the Mars Reconnaissance Orbiter and Mars Science Laboratory projects for NASA's Science Mission Directorate, Washington. Image credit: NASA/JPL-Caltech/Univ. of Arizona › Related release.


Monday, July 29, 2013

JOHN KERRY'S REMARKS WITH AMBASSADOR MARTIN INDYK ON ISRAELI-PALESTINIAN NEGOTIATIONS

FROM:  U.S. STATE DEPARTMENT 
Remarks With Ambassador Martin Indyk
Remarks
John Kerry
Secretary of State
Press Briefing Room
Washington, DC
July 29, 2013

SECRETARY KERRY: Good morning, everybody. Well, as you all know, it’s taken many hours and many trips to make possible the resumption of the Israeli-Palestinian negotiations. And the negotiators are now en route to Washington, even as we speak here. And I will have more to say about the journey to this moment and what our hopes are after our initial meetings conclude tomorrow.
This effort began with President Obama’s historic trip to Israel and Ramallah in March of this year. And without his commitment, without his conversations there, and without his engagement in this initiative, we would not be here today. The President charged me directly with the responsibility to explore fully the possibility of resuming talks. And in our meetings with President Abbas and Prime Minister Netanyahu, he conveyed his expectations for this process.


Getting to this resumption has also taken the courageous leadership of Prime Minister Netanyahu and President Abbas. And I salute both of them for their willingness to make difficult decisions and to advocate within their own countries and with their own leadership teams – countries with the Palestinian territories.

I would also like to recognize the important contributions of senior negotiators on both sides, particularly Minister Tzipi Livni and Saeb Erekat, both of whom really stood up and stood strong in the face of very tough criticism at home and whose unwavering commitment made the launch of these talks possible. I look forward to beginning work with them tonight.

Going forward, it’s no secret that this is a difficult process. If it were easy, it would have happened a long time. It’s no secret, therefore, that many difficult choices lie ahead for the negotiators and for the leaders as we seek reasonable compromises on tough, complicated, emotional, and symbolic issues. I think reasonable compromises has to be a keystone of all of this effort. I know the negotiations are going to be tough, but I also know that the consequences of not trying could be worse.

To help the parties navigate the path to peace and to avoid its many pitfalls, we’ll be very fortunate to have on our team on a day-to-day basis, working with the parties wherever they are negotiating a seasoned American diplomat, Ambassador Martin Indyk, who has agreed to take on this critical task at this crucial time as the UN – U.S. – excuse me – U.S. Special Envoy for Israeli-Palestinian Negotiations. Assisting Martin will be – as his deputy and as a senior advisor to me – will be Frank Lowenstein, who has been working with me on this process from the beginning.

In his memoir about the peace process, Ambassador Indyk quotes a poem by Samuel Coleridge that begins, “If men could learn from history, what lessons it would teach us!” Ambassador Indyk brings to this challenge his deep appreciation for the history of the Israeli-Palestinian conflict. And from his service under President Clinton, Secretary Christopher, and Secretary Albright, he brings a deep appreciation for the art of U.S. diplomacy in the Middle East. That experience has earned Ambassador Indyk the respect of both sides, and they know that he has made the cause of peace his life mission. He knows what has worked and he knows what hasn’t worked, and he knows how important it is to get this right.

Ambassador Indyk is realistic. He understands that Israeli-Palestinian peace will not come easily and it will not happen overnight. But he also understands that there is now a path forward and we must follow that path with urgency. He understands that to ensure that lives are not needlessly lost, we have to ensure that opportunities are not needlessly lost. And he shares my belief that if the leaders on both sides continue to show strong leadership and a willingness to make those tough choices and a willingness to reasonably compromise, then peace is possible.

So Martin, I’m grateful that you’ve agreed to take a leave from your post at the Brookings Institution to serve once again in this most important role. And I know that you are eager to get to work, as am I. Martin.

AMBASSADOR INDYK: Thank you. Mr. Secretary, thank you very much for that generous introduction and for vesting in me such important responsibilities. I am deeply honored to serve you and to serve President Obama in your noble endeavor to achieve Israeli-Palestinian peace. The fact that later today Israeli and Palestinian negotiators will sit down in this building to resume final status negotiations after a three-year hiatus is testament to your extraordinary tireless efforts, backed by President Obama, to try to resolve this intractable conflict.

President Obama made the case so eloquently in his historic speech in Jerusalem in March of this year when he argued to an audience of young Israelis that, quote, “Peace is necessary, peace is just, and peace is possible.” And you, Mr. Secretary, have proven him right. You’ve shown that it can be done.

I couldn’t agree more with President Obama. It’s been my conviction for 40 years that peace is possible since I experienced the agony of the 1973 Yom Kippur War as a student in Jerusalem. In those dark days, I witnessed firsthand how one of your predecessors, Henry Kissinger, brokered a ceasefire that ended the war and paved the way for peace between Israel and Egypt.

Because of your confidence that it could be done, you took up the challenge when most people thought you were on a mission impossible. And backed by the President, you drove the effort with persistence, patience, and creativity. As a result, today, Prime Minister Netanyahu and President Mahmoud Abbas have made the tough decisions required to come back to the negotiating table.

I’m therefore deeply grateful to you and to President Obama for entrusting me with the mission of helping you take this breakthrough and turn it into a full-fledged Israeli-Palestinian peace agreement. It is a daunting and humbling challenge, but one that I cannot desist from. I look forward with great excitement to working with you, President Abbas, and Prime Minister Netanyahu, and their teams, to do our best to achieve President Obama’s vision of two states living side-by-side in peace and security. I also look forward to working with the team that you are assembling, starting with Frank Lowenstein, who, as you said, has made such an important contribution to getting us to this point and who will be my partner in this endeavor.

Fifteen years ago my son, Jacob, who was 13 at the time, designed a screensaver for my computer. It consisted of a simple question that flashed across the screen constantly: Dad, is there peace in the Middle East yet? I guess you could say, Mr. Secretary, that he was one of the original skeptics. (Laughter.) But behind that skepticism was also a yearning. And for 15 years, I’ve only been able to answer him, “Not yet.” Perhaps, Mr. Secretary, through your efforts and our support, we may yet be able to tell Jake, and more importantly, all those young Israelis and Palestinians who yearn for a different, better tomorrow, that this time, we actually made it.

Thank you.

SECRETARY KERRY: Thank you, all. We’ll see you later. Thank you.

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