FROM: U.S. JUSTICE DEPARTMENT
Acting Assistant Attorney General for National Security John P. Carlin Delivers Remarks at the American University Business Law Review 2014 Symposium
~ Friday, March 28, 2014
Thank you for that kind introduction – and for inviting me here today. It’s a pleasure to be back at AU, and a privilege to join so many experts, essential partners, and good friends in advancing one of the most important conversations currently facing government and private sector leaders across the country.
At the Justice Department’s National Security Division, there is little we do that is more important than working on how the government can partner with private companies to protect our nation and its people better – from terrorism, from cyber attacks, and from a range of other malicious activities.
This past December, I attended a ceremony marking the twenty-fifth anniversary of the bombing of Pan Am Flight 103 over Lockerbie, Scotland, which claimed the lives of 259 people on the plane and 11 on the ground. 189 were Americans. It was the deadliest act of terror against the United States prior to September 11th.
The families and friends of those who were lost came together that winter day at Arlington National Cemetery to recall the event that changed their lives forever. They spoke movingly of loved ones who had been on board that plane, many of whom were American college students flying home for the holidays.
On December 21, 1988, instead of reuniting with their companions and loved ones, they heard news reports of a catastrophic explosion and wreckage strewn over miles of the Scottish countryside. Shortly thereafter, they learned, as did the rest of the world, that terrorists were to blame.
There was a call for justice – to find the perpetrators and hold them responsible. And there was also a call for new security measures designed to stop another attack from happening.
At the ceremony last winter, former Secretary of Labor Ann McLaughlin Korologos spoke of her experience leading the seven-member Presidential Commission on Aviation Security and Terrorism that was formed a few months after the attack to investigate what went wrong. Eighteen months after Lockerbie, that Commission issued a report calling for national attention to our aviation security system, and identifying a host of specific proposals intended to harden our nation’s airline security and keep all Americans safe – both at airports and in the skies.
Many of these measures did not become reality. Interest faded, attention waned – and so did political and social will. Twelve years later, the horror of 9/11 changed that. It reinvigorated the focus on aviation security – and the 9/11 Commission called for many of the same security measures called for in the wake of Lockerbie. This time, almost all of them were implemented.
Today, national leaders in both government and private industry must apply the lessons we learned from unspeakable tragedies like these, and from decades of effective counterterrorism policy, to business action in cyberspace. It is imperative that we take action promptly, without waiting for a galvanizing tragedy. We can work together to change norms now -- not in the wake of an immensely damaging terrorist cyber attack. In doing so, we will have a much better chance of preventing such an attack from ever taking place.
I grew up in New York City, a place where you can experience the anonymity now enjoyed by so many on the Internet. And when I was a kid, the NYPD sent an officer to our school who told us how to conduct ourselves on the streets of New York.
Our version of Officer Friendly told us to look both ways when we crossed the street. Of course, he told us not to make eye contact with people on the street -- which was pretty standard advice back then.
As a kid, that seemed to make total sense. Decades later, New York City is now one of the safest major cities on the planet. And when we look back at that advice, it seems crazy that there was a consensus of blaming the victim for making eye contact. These days, on the internet, we tell our kids to beware of chatting with individuals they don’t know, to avoid certain websites or apps.
When a person’s credit card gets stolen, or their credentials for accessing a social media site or their bank are hacked, we tell them, “You should have known better than to go to that website,” or, “You shouldn’t have used the same 18-character password more than once.” Together, hopefully, we can look back in a few short years and think that that those warnings and the victim-blaming is also strange and that we’ve come a long way with regards to cyber security.
One of the things that’s changed in New York over the years is its social norms – like making eye contact. We need to shape social norms in the cyber area, too. Just as it was in a chaotic urban environment, it’s tricky to cultivate trust in cyberspace. There were streets in New York where the bad guys and the good guys passed each other shoulder to shoulder. The same thing is true in cyberspace. Legitimate businesses and innocent customers use the same Internet that hackers and terrorists use.
As my former boss at the FBI, Bob Mueller, explained, bad actors – specifically terrorists – are using cyberspace for at least three discrete aspects of terrorist activity: (1) to propagandize and recruit; (2) to plot and plan attacks in the physical world; and (3) to launch attacks in the virtual world itself. It’s hard to cultivate trust online amidst such company and to restore a sense of security.
But like change in New York, change in cyberspace will be a community effort. When our Officer Friendly came to visit, he told us about Safe Havens – businesses that opened themselves up just a little bit, to be better members of the community, and to provide a place for people to go if they felt threatened. Back then, there were little yellow Safe Haven signs on the doors of stores in New York, and he told us, “If you’re feeling uncomfortable or scared, or are being targeted, don’t be afraid to go into one of these stores and seek help. Your safety should be your first priority.”
Just as those Safe Havens existed as trusted businesses when I was kid, the government and the corporate community can come together to create safe havens in cyberspace.
We need to work together to prevent terrorists from using networks – using the very websites and apps we use every day – to plot attacks in the physical world. And we need to shore up our security so that devastating attacks cannot be launched in the virtual world. These tasks are not easy, and they are ones we need to undertake with care, to strike a proper balance between security and liberty.
Some businesses, especially those in the communications sectors, may be hesitant to build new partnerships with government – or are drawing back from their current partnerships – because of the national discussion that has taken place over the last year.
The President has committed to providing greater transparency about the government’s lawful use of data collection authorities. However, as the President has noted, the nature of some unauthorized disclosures have shed more heat than light. And that heat has come onto companies as well, often unfairly. We take their concerns seriously, and we are dedicated to increasing transparency as well as protecting civil liberties. That is why many layers of checks and balances are built into the systems – without question some of the best protections provided by any country in the world. Our authorities are rigorously overseen by Congress, and often scrutinized by the courts and independent government watchdogs. And they are aimed at ensuring the safety of the nation and our allies.
Of course, the private sector should not be punished for complying with the law. We are concerned about this issue, and we are dedicated to working with companies to address misconceptions, correct misinformation, and help to rebuild the public’s confidence that our partnerships are conducted under the law. We are working with industry to help them be more transparent about what kinds of information they are required to share with the government, and how very few of their customers are ever impacted by government actions.
Yesterday’s announcement by the President of a way forward on the handling of telephony metadata indicates just how committed the Government is to ensuring that the public’s concerns are addressed, without the Government sacrificing certain operational needs. As you might have heard, the President announced a proposal that will, with the passage of appropriate legislation, allow the government to end bulk collection of telephony metadata records under Section 215, while ensuring that the government has access to the information it needs to meet its national security requirements.
Getting our legal policies right is one thing. But make no mistake: It will lead to tragedy if the ultimate result of these disclosures is to cause businesses to shy away from working with the government to prevent terrorism. The undeniable truth is that our collaboration, and the protections we have put in place together, make us safer from those who would attempt to do us harm – from terrorists to hostile nation-states seeking to capitalize on our vulnerabilities.
One example that comes to mind is the case of Khalid Aldawsari, a college student from Saudi Arabia who took chemistry classes at Texas Tech in Lubbock, Texas. When he began placing large and unusual orders for chemicals online, the chemical company reported the order to the FBI, as did the shipping company. Ultimately, he was convicted in federal court and sentenced to life in prison for trying to use those chemicals to make a bomb, potentially to attack a former President. And heading off that threat all began with two companies taking the right step of alerting the FBI to suspicious activity.
Whenever the public faces a threat, whether from terrorists, computer hackers, or pick-pockets on the Metro, people expect the government to protect them. But the government can’t do it alone. And that is particularly true in the context of cyber threats, given just how much of our nation’s most essential information is found online and, in particular, in the hands of private companies.
You know the threats we face. You’ve seen them firsthand. Although we often think of the government and our brave men and women serving abroad as a primary focus of terrorist attacks, we must keep in mind that the 9/11 attacks targeted this nation as a whole, and its impact was felt by all of us.
Since then, terrorism is now increasingly diverse and decentralized, from al Qaeda affiliates overseas to homegrown terrorists – such as the Boston Marathon bombers – who may live in the communities they intend to strike. But the cyber threat is growing rapidly, and down the road, may rival or even surpass the threat we face today.
Malicious cyber actors are an increasing risk to our security and prosperity. Last year, BP’s CEO stated that his company sees approximately 50,000 attempted cyber intrusions each day. And he is not alone.
As you know, hackers – in many cases working for foreign states or organized criminal syndicates – break into private businesses’ servers and steal the key intellectual property that gives us a competitive edge in the global marketplace. And malicious cyber actors sometimes target companies’ infrastructure. In 2012, Saudi Arabia’s state oil company, Aramco, suffered an attack that destroyed 30,000 of its computers – nearly 75% of its workstations, a devastating loss for any company.
Many of these same hackers exploit vulnerabilities in software, turning home computers or servers into launch pads for malicious denial-of-service attacks against banks, companies, and government agencies – shutting them down and disrupting their ability to do business. It does not take much imagination to see how these same tools could be used by terrorists, resulting in what has been referred to as a potential “cyber 9/11.”
When these attacks happen, people ask the same two basic questions many asked after the Lockerbie bombing: “What more could have been done to protect me?” And, “are they going to get these guys?” To answer these questions, we need the private sector and the government to work together.
Intrusions by nation-states have gone on longer than acknowledged. Why are so many companies waiting to come to the government for help? This situation is not unlike the way that organized crime was able to intimidate small businesses into paying for so-called “insurance” . For each mom and pop store, individually, it made more sense to pay the insurance rather than face retaliation for speaking up or going to the cops. And as a result, the criminal organizations made big profits. They only took a small amount from each business, but the money added up over the dozens or hundreds of businesses they intimidated. It wasn’t until the cost of doing business with the mafia got too high – or someone was brave enough to stand up to the mob – that law enforcement was able to break up these organized crime rings.
The calculus that many businesses make today is similar to the decisions that the mom and pop stores had to make several decades ago: Does the cost of paying out – that is, failing to tell the authorities about cyber attacks – outweigh the costs of potential retaliation? When faced with the prospect of taking on a nation-state with all of its powers – not to mention the fear of not being able to do business in that’s nation’s marketplace – many companies have made the calculation of remaining silent.
But the cost of that silence is increasing. As valuable assets, proprietary information, and research and development investments are repeatedly compromised by increasingly relentless attacks, businesses can no longer afford to stay silent victims. The calculus has changed. Companies are taking action.
Over the last year, we have seen a tipping point. As more and more companies come forward, more and more will feel emboldened. Eventually, these nation-state hackers – just like the mafia – will lose the ability to intimidate victims.
Public-private partnerships are particularly important because of the key role that businesses play in our society. Unlike some countries, where government maintains control over the telecommunications and energy industries, nearly all critical infrastructure in the United States is owned and managed by private companies. The fiber-optic cables that our communications transit; the servers that direct our Internet traffic; the software that allows us to communicate; and the energy we use to power our daily lives – all of these things, and so many more, are created and operated by private companies.
We thrive as a nation because of private innovation, and the creativity that comes with the freedom to innovate. This has been true throughout our history. But these unique strengths also create opportunities for attacks. When attacked, companies are often in the best position to protect themselves and their customers from cyber aggressors. But they may not always be in the best position to know the precise threats they face, which is where we can help.
Take, for example, the Department’s work on cyber threats. On a daily basis, the FBI is working with companies that have been the victims of hacks – many of whom may not even know they have been victimized, or how to protect themselves. The Washington Post reported earlier this week that federal agents notified more than 2,000 U.S. companies last year that their computer systems were hacked – and, as the article explained, even that considerable figure represents only a fraction of the actual number of cyber intrusions into the private sector.
There are many efforts underway across the government to work with private corporations on strengthening public-private cyber cooperation. The Department of Homeland Security, the Department of Energy, and other departments and agencies routinely work closely with companies to protect critical infrastructure.
In driving this work forward, the FBI has long relied on its InfraGard program, which brings together individuals in law enforcement, government, the private sector, and academia to talk about how to protect our critical infrastructure. InfraGard has more than 85 chapters across the country, with more than 47,000 members.
These are all positive and important efforts, but we have to do more.
As we speak, the Department of Justice is working hard to be a more accessible partner to companies. Over the past two years, the National Security Division established a national program to focus on cyber threats to the national security – those posed by terrorist and nation state actors – and we are continuing to grow. We are still a very new Division, but we are evolving quickly to meet new and emerging threats.
The story of NSD’s creation is an interesting one. Although not formally created until 2006, NSD’s story begins, like so many others, with calls for reforms that were first spotted years ago. We trace our origin all the way back to 1978, with the passage of the Foreign Intelligence Surveillance Act. FISA was, in part, a response to public and congressional dissatisfaction with a series of intentional abuses of wiretaps and surveillance for political purposes. The Church Committee’s report set out those problems and made a case for reform. The report emphasized that the Attorney General, as the nation’s chief legal officer, plays an essential role in maintaining the lawfulness of actions by our country’s intelligence agencies. NSD was created, and is proud, to execute that mission decades later on his behalf.
So as we tackle the cyber threat, we build upon our roots. We were created so that prosecutors and law enforcement officials could work smoothly and effectively with intelligence attorneys and the Intelligence Community, to ensure that we most effectively defend our nation’s security while at the same time protecting our vital civil liberties. And I would be remiss in describing the vital work of our Division if I neglected to acknowledge this week’s conviction of Sulaiman Abu Ghayth in New York. Abu Ghayth, described as a senior spokesman for Osama bin Laden and al Qaeda, was convicted by a federal jury on all counts, including conspiring to kill Americans and other terrorism charges.
So, even as we defend our national security through successful counterterrorism prosecutions in federal court, we also defend our security while protecting our civil liberties in cyberspace. In 2012, we established the National Security Cyber Specialists’ Network, with members from across all of our areas of expertise, federal prosecutors from each and every U.S. Attorney’s Office, and partners from the Department’s Computer Crime and Intellectual Property Section, who have had longstanding and continuing success against organized cyber criminals, hacktivists, criminal fraudsters and other bad actors.
Since then, we have hosted extensive training for these network members and for every member of the National Security Division, to ensure we have the skills we need to tackle the threat. Federal prosecutors across the country are reaching out to companies in their districts to let them know about the network and how we can help.
Here in our nation’s capital, we work closely with the FBI’s National Cyber Investigative Joint Task Force to assess cyber issues in real time as they arise. We’ve launched a 24/7 cyber response capacity. We are now a one-stop shop and resource for national security cyber matters across the country.
There are criminal cases to be brought against these actors, but that is just one tool. We are committed to using every tool at our disposal, law enforcement and others, to disrupt adversaries’ activities and prevent damage to U.S. national interests – just as we do in other arenas of counterterrorism, counterespionage, and export control.
We are drawing from our expertise in those areas, and building new capabilities to ensure that we can use all available tools to meet a range of constantly-evolving threats.
Employing this comprehensive, “all-tools” approach means we need to be prepared not only to prosecute cyber intrusions, economic espionage, and export control violations, but also to work with our partners to enforce other civil and regulatory laws.
We cannot do this alone. This “all-tools” approach requires trusted collaboration, including with operational and legal experts in the private sector.
It’s often said, there are only two types of companies: those that have been hacked and those that will be. Now, that’s no longer the case. Today, there is only one category: those that have been hacked, and that will be hacked again.
Going forward, we want to work even more closely with our private sector partners to be ready for whatever may happen in the near future. Of course, private companies will remain our first line of defense, and their legal teams must be prepared to face difficult questions and complex matters, including how to respond to cyber breaches; how to interpret and comply with the cyber Executive Order and the cybersecurity framework recently released by the Administration; and, how to stay on top of the evolving “standard of care” for cyber security.
All of us – including lawyers and operators in the public and private sectors – will need to cooperate closely to address these and associated threats. We all must act on the premise that success requires reporting from, and close relationships with, victims and potential victims who seek indicators of malicious activity.
My colleagues and I have already met with a number of private entities and received a positive response, and we will continue these meetings to keep the dialogue going.
And as we look toward the future, we must continue establishing channels that regularly communicate cyber threat information between the public and private sectors. Information must move in both directions. It is an approach that works in other contexts, and it will succeed here as well.
We have come a long way in our collective approach to counterterrorism. Together, we have improved airline safety, hardened critical infrastructure, developed new technology that can help first responders, and designed a wide range of protective measures. These measures, of course, don’t eliminate the threat of to our national security, which remains very real and very dangerous. But we are safer than we used to be, and better prepared to cope with any potential attack.
We need to achieve this same success in the cyber realm. So the critical question is: What will it take?
We’ve certainly had plenty of attacks that caused real pain, exposed real weaknesses, and suggested real problems for the future. Yet, despite all of these warnings, we don’t seem to have fully turned the corner in addressing this threat. And the reasons for that are understandable.
Confronting cyber threats incurs real economic cost. We appreciate that. But doing nothing will cost us all more in the long run, and may, for some businesses, prove devastating.
The writing is on the wall – our adversaries are getting bolder, more aggressive, and more skilled. They flex their muscle to show us what they can do, but it is only the tip of the iceberg. Without a concerted, collective effort to make the changes needed to protect ourselves in cyberspace, it is only a matter of time before we are really hit – hard. Far better to form partnerships and make the required investments before a large-scale attack takes place.
Indeed, perhaps even more than in the terrorism context, the private sector is critical to our success in the cyber context because of just how much vital information is now held “in corporate trust,” so to speak.
While government holds and protects some of what cyber terrorists want to access, the private sector has much, much more. So, whether it’s about ensuring that our electric grid is safe from attacks – whether physical or cyber – or making sure you can access your bank account information on your smartphone without getting hacked, we urgently need to form the type of public-private partnerships to keep those vital resources safe. These are the type of partnerships we’ve created for counterterrorism. We must build on those partnerships to combat cyber threats – not pull away from each other.
This is the challenge now before us – and this is the cause that everyone in this room, and many beyond it, must come together to confront. Each of us has a unique role to play, and distinct responsibilities to fulfill.
Leaders in government can articulate precisely what we have to offer the private sector. Leaders in the private sector can demonstrate what these partnerships have to offer to their customers. And leaders in academia can survey the legal authorities we have – and take stock of what legal authorities we don’t have but need – to facilitate cooperative, productive cyber partnerships. We can build these partnerships while respecting civil liberties and do it in a transparent and productive way.
We are committed to meeting regularly with critical partners to get your feedback on how we are doing; to solicit suggestions on how we can do better; and to gain the benefit of your views on how the overall landscape is looking. Please reach out to us so that we can talk more about what NSD does, and how we can work together to keep you safer and our nation safer.
I want to close today by calling upon everyone here to continue the important open dialogue we’re holding here at AU today. I urge you to serve as connectors – as bridges – to make private-public partnerships a reality.
We had warnings before 9/11. But we didn’t act – at least not enough. The state of security of the Internet today is a rumbling storm in the distance. We need to be smart and work together, now, before a cyber 9/11 – before there’s an attack or intrusion or exfiltration so big – and so devastating – we are forever changed. Thank you for participating in this important conversation, and thank you for having me here today.
Sunday, March 30, 2014
ASSOCIATE AG WEST'S REMARKS ON TRANSGENDER LAW ENFORCEMENT TRAINING
FROM: U.S. JUSTICE DEPARTMENT
Associate Attorney General Tony West Delivers Remarks at the Community Relations Service Transgender Law Enforcement Training
~ Thursday, March 27, 2014
Thank you, Director Lum, for that warm welcome. I am very pleased to be with you this morning to help kick off the Community Relations Service’s new Transgender Law Enforcement Training.
This training has been in the works for some time now. For the last several years, the Justice Department at various levels has engaged in a constructive dialogue, animated by common aspirations and common concerns, with LGBT leaders throughout the country. And one of the many ideas we’ve received finds its manifestation in today’s gathering: a transgender law enforcement cultural professionalism training.
It’s clear that such a training is as necessary as it is overdue. Because too often, in too many places, we know that transgender victims are discouraged from reporting hate crimes and hate violence due to their past negative interactions with and perceptions of law enforcement. We know that such experiences have undermined the confidence transgender victims have in our justice system: they’ve sown seeds of distrust; they’ve created fear where there should be reassurance; and they’ve led victims of crime to think twice about seeking the assistance of or cooperating with law enforcement.
By helping us turn the page on these painful experiences, today’s training will help lay a stronger foundation of trust between LGBT communities that are disproportionately the victims of hate violence — particularly the transgender community – and those who are charged with the awesome responsibility of protecting and serving.
And there is no better DOJ component to take the lead in this effort than CRS. Under both the Attorney General’s and Grande’s leadership, CRS has redoubled its dedication to its mission under the Matthew Shepard and James Byrd, Jr. Hate Crimes Prevention Act: to help communities prevent and respond to hate violence, and to build stronger communities in the process.
Indeed, one of CRS’ core strengths lies in its singular ability to convene parties who are in conflict and get them to work together. It’s a skill CRS has been exercising for nearly 50 years, since it was established under the Civil Rights Act of 1964. That’s thousands of cases resolved; thousands of disputes mediated; and thousands of peaceful outcomes obtained across this nation by the dedicated efforts of CRS conciliators.
Today’s launch of the Transgender Law Enforcement Training is yet another important step in the right direction. It’s what the pursuit of justice can look like in the 21st century.
Let me close by saying that as someone who has been privileged to work with law enforcement for most of my career -- first as a federal prosecutor in a U.S. Attorney's Office, then as an attorney in the California Attorney General's Office, and now as part of the Department’s leadership – I have a deep appreciation and admiration for those who take on the extremely difficult duties of serving in law enforcement. Theirs is not an easy task and for most, excellence is their yardstick.
Today’s training will help these dedicated women and men in uniform achieve that goal of excellence in service. That is why I’m so grateful to all of you who are here to help make today’s session a success.
Associate Attorney General Tony West Delivers Remarks at the Community Relations Service Transgender Law Enforcement Training
~ Thursday, March 27, 2014
Thank you, Director Lum, for that warm welcome. I am very pleased to be with you this morning to help kick off the Community Relations Service’s new Transgender Law Enforcement Training.
This training has been in the works for some time now. For the last several years, the Justice Department at various levels has engaged in a constructive dialogue, animated by common aspirations and common concerns, with LGBT leaders throughout the country. And one of the many ideas we’ve received finds its manifestation in today’s gathering: a transgender law enforcement cultural professionalism training.
It’s clear that such a training is as necessary as it is overdue. Because too often, in too many places, we know that transgender victims are discouraged from reporting hate crimes and hate violence due to their past negative interactions with and perceptions of law enforcement. We know that such experiences have undermined the confidence transgender victims have in our justice system: they’ve sown seeds of distrust; they’ve created fear where there should be reassurance; and they’ve led victims of crime to think twice about seeking the assistance of or cooperating with law enforcement.
By helping us turn the page on these painful experiences, today’s training will help lay a stronger foundation of trust between LGBT communities that are disproportionately the victims of hate violence — particularly the transgender community – and those who are charged with the awesome responsibility of protecting and serving.
And there is no better DOJ component to take the lead in this effort than CRS. Under both the Attorney General’s and Grande’s leadership, CRS has redoubled its dedication to its mission under the Matthew Shepard and James Byrd, Jr. Hate Crimes Prevention Act: to help communities prevent and respond to hate violence, and to build stronger communities in the process.
Indeed, one of CRS’ core strengths lies in its singular ability to convene parties who are in conflict and get them to work together. It’s a skill CRS has been exercising for nearly 50 years, since it was established under the Civil Rights Act of 1964. That’s thousands of cases resolved; thousands of disputes mediated; and thousands of peaceful outcomes obtained across this nation by the dedicated efforts of CRS conciliators.
Today’s launch of the Transgender Law Enforcement Training is yet another important step in the right direction. It’s what the pursuit of justice can look like in the 21st century.
Let me close by saying that as someone who has been privileged to work with law enforcement for most of my career -- first as a federal prosecutor in a U.S. Attorney's Office, then as an attorney in the California Attorney General's Office, and now as part of the Department’s leadership – I have a deep appreciation and admiration for those who take on the extremely difficult duties of serving in law enforcement. Theirs is not an easy task and for most, excellence is their yardstick.
Today’s training will help these dedicated women and men in uniform achieve that goal of excellence in service. That is why I’m so grateful to all of you who are here to help make today’s session a success.
SEC COMMISSIONER GALLAGHER ON FEDERAL PREEMPTIONS OF STATE CORPORATE GOVERNANCE
FROM: U.S. SECURITIES AND EXCHANGE COMMISSION
Remarks at the 26th Annual Corporate Law Institute, Tulane University Law School: Federal Preemption of State Corporate Governance
Commissioner Daniel M. Gallagher
New Orleans, LA
March 27, 2014
Thank you, David [Katz], for that kind introduction. I’m very pleased to be here with you this afternoon.
In April 2010, when my friend and former colleague Troy Paredes spoke at this conference, he expressed his misgivings about the draft legislation moving through Congress that ultimately became the Dodd-Frank Act.[i] Today, nearly four years after its enactment, the fundamentally flawed nature of the Act has become clear—or, to those of us who recognized its many faults from the start, clearer.
Title I of Dodd-Frank, for example, created the apparently unaccountable and inherently politicized Financial Stability Oversight Council, or FSOC. The FSOC is dominated by bank regulators, and Title I authorizes it to designate non-bank financial services companies as systemically important financial institutions, thereby making them subject to prudential regulation. This can happen without regard for whether that regulatory paradigm is appropriate for non-bank entities operating in the capital markets—or, as I like to call them, the “non-centrally controlled” markets.
I believe it is important for the SEC and other capital markets regulators to openly debate and resist where necessary the encroachment of the bank regulatory paradigm into the capital markets. I hope that market participants and lawmakers will join the debate about the proper regulatory framework for non-bank markets. To be clear, this is not a partisan issue. The structure of FSOC vests tremendous authority to appointees from the President’s party. Those who enthusiastically support FSOC today may well be singing a different tune upon a change in administration.
I should also make clear that I’m not motivated by turf wars or empire building. In fact, I believe the SEC should be willing to recognize areas where we should be the ones to stand down in favor of an alternative legal regime that is a better fit.
And so today I’d like to focus on an area where the SEC should be taking less of a role: the regulation of corporate governance.
I. Federalization of Corporate Governance
Unfortunately, the trend towards increased federalization of corporate governance law seems well-entrenched.[ii] The Sarbanes-Oxley Act included significant incursions into state corporate governance regulation, but Title IX of Dodd-Frank may cause some of you to long for the simpler days of SOX § 404.
Title IX mandates an array of new federal regulations relating to matters traditionally left to state corporate governance law, the most infamous being a requirement to hold a shareholder vote on executive compensation, or “say on pay.” Concerns that a negative vote may harm a company’s reputation or encourage litigation can lead companies to expend significant resources to guarantee passage of the vote. Even more concerning, boards of directors could substitute proxy advisors’ views on pay for their own judgment as a means of minimizing potential conflict.
And that’s just one of the new Dodd-Frank requirements encroaching on corporate governance. Others include the politically-motivated pay ratio disclosure requirement, proposed by a majority of the Commission in September 2013,[iii] as well as mandated rules micromanaging certain incentive-based compensation structures, which were proposed jointly with other regulators, again by a majority of the Commission, in March 2011.[iv] In addition, Dodd-Frank calls for rules regarding compensation clawbacks in the event of an accounting restatement, pay for performance, and employee and director hedging of company stock.
Some of these requirements unashamedly interfere in corporate governance matters traditionally and appropriately left to the states. Others masquerade as disclosure, but are in reality attempts to affect substantive behavior through disclosure regulation. This mandated intrusion into corporate governance will impose substantial compliance costs on companies, along with a one-size-fits-all approach that will likely result in a one-size-fits-none model instead. This stands in stark contrast with the flexibility traditionally achieved through private ordering under more open-ended state legal regimes.
II. Shareholder Proposals
One area where the SEC’s incursions into corporate governance have had a particularly negative effect is shareholder proposals.
1. The Problem
While the conduct of the annual shareholder meeting is generally governed by state law, the process of communicating with shareholders to solicit proxies for voting at that meeting is regulated by the Commission. The Commission’s rules have for decades permitted qualifying shareholders to require the company to publish certain proposals in the company’s proxy statement, which are then voted upon at the annual meeting.
Unfortunately, the Commission has never adequately assessed the costs and benefits of this process. Currently, a proponent can bring a shareholder proposal if he or she has owned $2,000 or 1% of the company’s stock for one year, so long as the proposal complies with a handful of substantive—but in some cases discretionary—requirements. Activist investors and corporate gadflies have used these loose rules to hijack the shareholder proposal system.
The data and statistics are striking. In 2013, the number of shareholder proposals rose,[v] with an amazing 41% of those proposals addressing social and environmental issues.[vi] And while proposals calling for disclosure of political contributions or lobbying activities continued to predominate,[vii] these proposals received particularly poor support from shareholders.[viii] Overall, only 7% of shareholder proposals received majority support in 2013.[ix]
These proposals are not coming from ordinary shareholders concerned with promoting shareholder value for all investors. Rather, they are predominantly from organized labor, including union pension funds, which brought approximately 34% of last year’s shareholder proposals, as well as social or policy investors and religious institutions, which accounted for about 25% of 2013’s proposals. Approximately 40% were brought by an array of corporate gadflies, with a staggering 24% of those proposals brought by just two individuals.[x]
In other words, the vast majority of proposals are brought by individuals or institutions with idiosyncratic and often political agendas that are often unrelated to, or in conflict with, the interests of other shareholders. I find it particularly notable that corporations that donated more funds to Republicans than to Democrats were more than twice as likely to be targeted with political spending disclosure proposals sponsored by labor-affiliated funds.[xi]
Astonishingly, only 1% of proposals are brought by ordinary institutional investors—including hedge funds. As you all know, hedge funds are not shy about elbowing their way into the boardroom when they believe a shake-up is overdue. The low level of hedge fund activism here implies that their concerns with corporate management are being addressed using avenues other than shareholder proposals—as most legitimate concerns can be.[xii]
Given all of this, it’s time we asked whether the shareholder proposal system as currently designed is a net negative for the average investor.[xiii]
2. Needed Reforms
a. Who should be able to bring a proposal?
All of this isn’t to condemn shareholder activism per se. I’ll leave that debate to Marty Lipton and Lucian Bebchuk. But existing shareholders who are unhappy with management have a range of well-accepted responses other than proposals. Given the depth and liquidity of today’s markets, passive investors can simply sell their position—taking the s0-called “Wall Street Walk.” Activist investors can threaten to take this Walk as a means of influencing management. Investors can also vote against directors who are not sufficiently overseeing management—this strategy doesn’t have a clever name, but perhaps “vote the bums out” will do.
And, of course, where management is breaching its fiduciary duties, investors can have recourse to the courts. This “see you in court” strategy is particularly viable given the outstanding job the Delaware courts do, day in and day out, in refereeing disputes between shareholders and management. Given these and other strategies, I’m not sure we need shareholder proposals at all.
But if we must have shareholder proposals, the SEC’s rules can and should do a better job ensuring that activist investors don’t crowd out everyday and long-term investors—and that their causes aren’t inconsistent with the promotion of shareholder value.
One thing is clear: we can’t continue to take the approach of our current regulatory program, especially the all too liberal program of the last five years, and simply err on the side of over-inclusion. It is enormously expensive for companies to manage shareholder proposals. They must negotiate with proponents, seek SEC no-action to exclude improper ones, form and articulate views in support or opposition in the proxy, include the proposal and the statement in the proxy itself, then take the vote on it at the annual meeting. Conversely, companies can simply fold and acquiesce to the activists’ demands. Both approaches are costly, and these costs are borne by all shareholders. Taking money out of the pocket of someone investing for retirement or their child’s education and using it instead to subsidize activist agendas is simply inexcusable. It is incumbent on the Commission to create a regulatory environment that promotes shareholder value over special interest agendas. I have a few suggestions.
First, the holding requirement to submit proxies should be updated. $2,000 is absurdly low, and was not subject to meaningful economic analysis when adopted.[xiv] The threshold should be substantially more, by orders of magnitude: perhaps $200,000 or even better, $2 million. But I don’t believe that this is actually the right fix: a flat number is inherently over- or under-inclusive, depending on the company’s size. A percentage threshold by contrast is scalable, varies less over time, better aligns with the way that many companies manage their shareholder relations, and is more consistent with the Commission’s existing requirements. Therefore, I believe the flat dollar test should be dropped, leaving only a percentage test.
Of course, we’d have to make sure we get the percentage holding requirement right. Requiring a sufficient economic stake in the company could lead to proposals that focus on promoting shareholder value rather than those championed by gadflies with only a nominal stake in the company. We would need to apply rigorous economic analysis to determine what percentage would be an appropriate default, as well as what factors should be taken into account when deviating from that default. This could be an opportunity to address the practice of “proposal by proxy,” where the proponent of a resolution—typically one of the corporate gadflies—has no skin in the game, but rather receives permission to act “on behalf” of a shareholder that meets the threshold. While I would support banning proposal by proxy, we could also consider alternatives such as requiring a proponent acting on behalf of one or more shareholders to meet a higher percentage threshold of outstanding shares than would be the case for a proponent who owns the shares directly.
I also think we need to take another look at the length of the holding requirement. A one-year holding period is hardly a serious impediment to some activists, who can easily buy into a company solely for the purpose of bringing a proposal. All that’s needed is a bit of patience, and perhaps a hedge. A longer investment period could help curtail some of this gamesmanship.
Making adjustments along these lines will go a long way towards ensuring that the proposals that make it onto the proxy are brought by shareholders concerned first and foremost about the company—and the value of their investments in that company—not their pet projects.
b. What issues should proponents be able to raise?
I also believe that we need to do a better job setting requirements as to the substance of proposals. While I don’t think a complete reevaluation of the existing categories for exclusion is necessary, we do need to re-think their application.
For example, the “ordinary business” criterion for exclusion in our rules has been perennially problematic.[xv] This provision permits exclusion of a proposal that deals with the company’s “ordinary business operations,” unless it raises “significant policy issues.” However, these terms are not defined and the Commission has given no guidance, leaving the Staff to fend for itself in determining whether to issue no-action relief pursuant to the provision.
As a result, we have seen a number of dubious “significant policy issue” proposals. For example, in 2013 the Staff denied no-action relief to PNC Bank with respect to a proposal requesting a report on greenhouse gas emissions resulting from its lending portfolio, on the grounds that climate change is a significant policy issue—arguably a reversal of a prior Staff position.[xvi] And, in 2012, Staff denials of no-action relief forced AT&T, Verizon, and Sprint to include a net neutrality proposal, even though proposals on that same topic were excludable in prior years as ordinary business. That year, 94% of AT&T shareholders voted “no” on the net neutrality proposal despite the best efforts of Michael Diamond, who some of you will know as Mike D. of the Beastie Boys—who, by helping to bring the proposal to a vote, at least succeeded in his fight for the right to proxy.[xvii]
It is a disservice to the Staff—and, more importantly to investors—when the Commission promulgates a discretion-based rule for the Staff to administer without providing guidance as to how to exercise that discretion. In addition to providing better guidance, the Commission needs to become more involved in the administration of this rule. In particular, I believe that the Commission should be the final arbiter on the types of proposals for which the Staff proposes to deny no-action relief on “significant policy issue” grounds. The Presidential appointees should vote on these often-thorny policy issues and not hide behind the Staff.
We also need to take another look at the rule which permits the exclusion of proposals that are contrary to the Commission’s proxy rules—including proposals that are materially false and misleading or that are overly vague.[xviii] In Staff Legal Bulletin 14B, issued in 2004,[xix] the Staff curtailed the use of this ground for exclusion in light of the extensive Staff resources that were being consumed in their line-by-line review of shareholder proposals, instead forcing issuers to use their statement in opposition to take issue with factual inaccuracies or vagueness.[xx] I believe issuers have raised some legitimate concerns with this approach. For example, while issuers are not legally responsible for the proposals or statements in support, they are still being forced to publish, in their proxy, statements they believe are false or misleading. Moreover, use of the statement in opposition is sometimes an incomplete remedy. Taking valuable space to correct misstatements distracts from a substantive discussion about the proposal itself, and proposals that are overly vague make it difficult to draft a sensible rebuttal.
In light of these competing concerns, I believe the pendulum has swung too far in the direction of non-intervention. And I’m not alone in this belief. Recently, a district court in Missouri granted summary judgment to Express Scripts, permitting it to exclude a proposal that contained four separate misstatements.[xxi] While I support companies exercising their right to take matters to the court system,[xxii] which can serve as a useful external check on the SEC’s no-action process, companies shouldn’t have to go through the time and expense of litigation to vindicate their substantive rights under our rules. The burden to ensure that a submission is clear and factually accurate should be placed on the proponent, not the company. I believe that the Staff should take a more aggressive posture toward proponents that fail to meet that burden. And I hope issuers would refrain from using our rule to quibble over minutiae. If this happy medium is not achievable, I believe the SEC needs to revisit our rules: we as a Commission either need to give the Staff the capacity to enforce the rule as it is currently written, or craft a rule that is enforceable.
c. How many times may a proposal be repeated?
The final issue I want to raise today with respect to the shareholder proposal process is the frequency of reproposals. Currently, once a proposal is required to be included in the proxy, it can be resubmitted for years to come, even if it never comes close to commanding majority support. Proposals need only 3, 6, or 10% of votes in support to stay alive, depending on whether the proposal has been brought once, twice, or three times or more in the past five years.[xxiii] So a proposal that gets a bare 10% of the votes, year after year, is not excludable on that basis under our current rules. Such proposals are an enormous waste of time and shareholder money.
We need to substantially strengthen the resubmission thresholds, perhaps by taking a “three strikes and you’re out” policy. That is, if a proposal fails in its third year to garner majority support, the proposal should be excludable for the following 5 years. The thresholds for the prior 2 years should be high enough to demonstrate that the proposal is realistically on the path toward 50%, for example, 5% and 20%.
3. Conclusion
Implementing these kinds of reforms can, I believe, help provide some much-needed improvement to the shareholder proposal system. I hope the Commission can consider such common-sense issues in the near future. These are real and substantial issues, and the Commission has the authority to effectuate needed change. We should not dare Congress to intervene due to our inaction, as it had to with the JOBS Act.
III. Remaining the Right Regulator
Finally, I want to return to my original theme: good government requires that, when we must regulate, we should do so in the most efficient manner possible. This means assigning the right regulator to the issue and minimizing unnecessary regulatory overlap. And of course, the Commission must continue to ensure that its regulatory approach advances its core goals of investor protection and the promotion of efficiency, competition, and capital formation.
That means, for example, pressing ahead with much-needed reforms to our corporate disclosure requirements to ensure that our filings provide investors with the information they need to make informed investment decisions and are not overwhelmed by extraneous information—like conflict minerals reports.
We must also take exception to efforts by third parties that attempt to prescribe what should be in corporate filings. It is the Commission’s responsibility to set the parameters of required disclosure.
The somewhat confusingly-named Sustainability Accounting Standards Board provides a good example of an outside party attempting to prescribe disclosure standards. I say “confusingly-named” because the SASB does not actually promulgate accounting standards, nor does it limit itself to sustainability topics, although I suppose it is in fact a Board. The SASB argues that its disclosure standards elicit material information that management should assess for inclusion in companies’ periodic filings with the Commission.[xxiv]
I don’t mean to single out the SASB, but it’s important to stress that, with the sole exception of financial accounting—where the Commission, as authorized by Congress, has recognized the standards of the Financial Accounting Standards Board as generally accepted, and therefore required under Regulation S‑X—the Commission does not and should not delegate to outside, non-governmental bodies the responsibility for setting disclosure requirements. So while companies are free to make whatever disclosures they choose on their own time, so to speak, it is important to remember that groups like SASB have no role in the establishment of mandated disclosure requirements.
With respect to information that the Commission requires to be included in filings, we need to be sure that our requirements are eliciting decision-useful and up-to-date information. We should be willing to reexamine all of our disclosure requirements. Indeed, the Commission should be engaged in a comprehensive program of periodic re-assessment of its disclosure rules to ensure that the benefits of disclosure continue to justify its often-substantial costs.
This is of course a tall order, but I know the fine men and women who serve the public at the Commission are up for the challenge.
* * *
Thank you all for your time and attention today, and I hope you enjoy the rest of the conference.
[i] See Troy A. Paredes, Speech by SEC Commissioner: Remarks at the 22nd Annual Tulane Corporate Law Institute (Apr. 15, 2010), available at http://www.sec.gov/news/speech/2010/spch041510tap.htm.
[ii] See Daniel M. Gallagher, Speech, Remarks before the Corporate Directors Forum (Jan. 29, 2013), available at www.sec.gov/News/Speech/Detail/Speech/1365171492142; see also, e.g., J. Robert Brown, Jr., The Politicization of Corporate Governance: Bureaucratic Discretion, the SEC, and Shareholder Ratification of Auditors, 2 Harv. Bus. L. Rev. 61, 62 (2012).
[iii] Rel. 33-9452, Pay Ratio Disclosure (Sept. 18, 2013).
[iv] Rel. 34-64140, Incentive-based Compensation Arrangements (Mar. 29, 2011).
[v] James R. Copeland & Margaret M. O’Keefe, Proxy Monitor 2013: A Report on Corporate Governance and Shareholder Activism (Manhattan Institute, Fall 2013) at 2 (average Fortune 250 company faced 1.26 proposals in 2013 versus 1.22 in 2012); Gibson, Dunn & Crutcher LLP, Shareholder Proposal Developments During the 2013 Proxy Season (July 9, 2013) at 1 (noting more proposals in 2013 (~820) than 2012 (~739)).
[vi] Proxy Monitor 2013 at 7.
[vii] Proxy Monitor 2013 at 12 (“[P]roposals related to corporate political spending or lobbying have been more numerous than any other class of proposal in each of the last two years.”).
[viii] ISS reports political contribution/lobbying activity approval percentage at 29%, an increase of 7.3% over 2012. See Gibson Dunn at 6. However, Proxy Monitor finds the opposite trend, at least with respect to the Fortune 250 companies. See Proxy Monitor 2013 at 2. Specifically, disaggregating lobbying and political spending proposals shows a decline in y-o-y support for both proposal classes: 22% in 2012 to 20% in 2013 for lobbying, and 17% to 16% for political spending. Id. But a change in the mix of proposals—there were more lobbying-related proposals, which typically garner higher support, given that 2013 is a non-election year—creates the impression of an increasing overall rate.
[ix] Proxy Monitor 2013 at 2 (contrasting with 9% in 2012).
[x] Proxy Monitor 2013 at 6–7.
[xi] Proxy Monitor 2013 at 8 (“Those companies [giving at least $1.5 million to candidates or PACs], as a group, were much more likely to be targeted by shareholder proposals introduced by labor-affiliated pension funds in 2013: 44 percent of these politically most active companies faced a labor-sponsored proposal, as opposed to only 18 percent of all other companies. What’s more, those corporations that gave at least half of their donations to support Republicans were more than twice as likely to be targeted by shareholder proposals sponsored by labor-affiliated funds as those companies that gave a majority of their politics-related contributions on behalf of Democrats.”).
[xii] James R. Copeland, Proxy Monitor 2011: A Report on Corporate Governance and Shareholder Activism (Manhattan Institute, Sept. 2011) at 4.
[xiii] Allan T. Ingraham & Anna Koyfman, Analysis of the Wealth Effects of Shareholder Proposals–Vol. III (U.S. Chamber of Commerce, May 2, 2013).
[xiv] See Rel. 34-40018, Amendments to Rules on Shareholder Proposals (May 21, 1998) (describing the change from $1,000 to $2,000 as an adjustment for inflation).
[xv] Exchange Act Rule 14a‑8(i)(7).
[xvi] See, e.g., Hunton & Williams, Client Alert, SEC Refused to Allow Bank to Omit Climate Change Proposal from Proxy Materials (Mar. 2013). It has been argued, however, that PNC was not a reversal, but rather was driven by some substantive differences with PNC’s lending portfolio. See Gibson Dunn at 9–10 (citing a “SEC spokesman” commenting to that effect). This may indicate a need for the Staff to provide fuller statements of their reasoning in no-action letters, so as to avoid confusion among practitioners and the public.
[xvii] See Larry Downes, AT&T, Verizon, and Sprint Net Neutrality Proposals: Simply Awful, Forbes.com (Apr. 12, 2012, updated Apr. 27, 2012), at http://www.forbes.com/sites/larrydownes/2012/04/12/att-verizon-and-sprint-net-neutrality-proposals-simply-awful/.
[xviii] Exchange Act Rule 14a‑8(i)(3).
[xix] See SLB 14B (2004).
[xx] Of 90 denials of exclusion during the 2013 proxy season, 63% of them had raised (i)(3) arguments. Gibson Dunn at 2. While there could be several reasons for this trend, it calls for further examination.
[xxi] Express Scripts Holding Co. v. Chevedden, No. 4:13-CV-2520-JAR (E.D. Mo., Feb. 18, 2014).
[xxii] See Waste Connections v. Chevedden, No. 13-20336, slip op. (5th Cir., Feb. 13, 2014) (affirming court’s subject matter jurisdiction over company’s declaratory judgment action despite Chevedden’s promise not to sue if company excluded the proposal).
[xxiii] See Exchange Act Rule 14a‑8(i)(12).
[xxiv] See, e.g., SASB, Commercial Banks Sustainability Accounting Standard, Provisional Version (Feb. 2014) (“SASB Standards are comprised of (1) disclosure guidance and (2) accounting standards on sustainability topics for use by U.S. and foreign public companies in their annual filings (Form 10-K or 20-F) with the U.S. Securities and Exchange Commission (SEC). To the extent relevant, SASB Standards may also be applicable to other periodic mandatory fillings with the SEC, such as the Form 10-Q, Form S-1, and Form 8-K. SASB’s disclosure guidance identifies sustainability topics at an industry level, which may be material—depending on a company’s specific operating context—to a company within that industry. Each company is ultimately responsible for determining which information is material and is therefore required to be included in its Form 10-K or 20-F and other periodic SEC filings.”).
Remarks at the 26th Annual Corporate Law Institute, Tulane University Law School: Federal Preemption of State Corporate Governance
Commissioner Daniel M. Gallagher
New Orleans, LA
March 27, 2014
Thank you, David [Katz], for that kind introduction. I’m very pleased to be here with you this afternoon.
In April 2010, when my friend and former colleague Troy Paredes spoke at this conference, he expressed his misgivings about the draft legislation moving through Congress that ultimately became the Dodd-Frank Act.[i] Today, nearly four years after its enactment, the fundamentally flawed nature of the Act has become clear—or, to those of us who recognized its many faults from the start, clearer.
Title I of Dodd-Frank, for example, created the apparently unaccountable and inherently politicized Financial Stability Oversight Council, or FSOC. The FSOC is dominated by bank regulators, and Title I authorizes it to designate non-bank financial services companies as systemically important financial institutions, thereby making them subject to prudential regulation. This can happen without regard for whether that regulatory paradigm is appropriate for non-bank entities operating in the capital markets—or, as I like to call them, the “non-centrally controlled” markets.
I believe it is important for the SEC and other capital markets regulators to openly debate and resist where necessary the encroachment of the bank regulatory paradigm into the capital markets. I hope that market participants and lawmakers will join the debate about the proper regulatory framework for non-bank markets. To be clear, this is not a partisan issue. The structure of FSOC vests tremendous authority to appointees from the President’s party. Those who enthusiastically support FSOC today may well be singing a different tune upon a change in administration.
I should also make clear that I’m not motivated by turf wars or empire building. In fact, I believe the SEC should be willing to recognize areas where we should be the ones to stand down in favor of an alternative legal regime that is a better fit.
And so today I’d like to focus on an area where the SEC should be taking less of a role: the regulation of corporate governance.
I. Federalization of Corporate Governance
Unfortunately, the trend towards increased federalization of corporate governance law seems well-entrenched.[ii] The Sarbanes-Oxley Act included significant incursions into state corporate governance regulation, but Title IX of Dodd-Frank may cause some of you to long for the simpler days of SOX § 404.
Title IX mandates an array of new federal regulations relating to matters traditionally left to state corporate governance law, the most infamous being a requirement to hold a shareholder vote on executive compensation, or “say on pay.” Concerns that a negative vote may harm a company’s reputation or encourage litigation can lead companies to expend significant resources to guarantee passage of the vote. Even more concerning, boards of directors could substitute proxy advisors’ views on pay for their own judgment as a means of minimizing potential conflict.
And that’s just one of the new Dodd-Frank requirements encroaching on corporate governance. Others include the politically-motivated pay ratio disclosure requirement, proposed by a majority of the Commission in September 2013,[iii] as well as mandated rules micromanaging certain incentive-based compensation structures, which were proposed jointly with other regulators, again by a majority of the Commission, in March 2011.[iv] In addition, Dodd-Frank calls for rules regarding compensation clawbacks in the event of an accounting restatement, pay for performance, and employee and director hedging of company stock.
Some of these requirements unashamedly interfere in corporate governance matters traditionally and appropriately left to the states. Others masquerade as disclosure, but are in reality attempts to affect substantive behavior through disclosure regulation. This mandated intrusion into corporate governance will impose substantial compliance costs on companies, along with a one-size-fits-all approach that will likely result in a one-size-fits-none model instead. This stands in stark contrast with the flexibility traditionally achieved through private ordering under more open-ended state legal regimes.
II. Shareholder Proposals
One area where the SEC’s incursions into corporate governance have had a particularly negative effect is shareholder proposals.
1. The Problem
While the conduct of the annual shareholder meeting is generally governed by state law, the process of communicating with shareholders to solicit proxies for voting at that meeting is regulated by the Commission. The Commission’s rules have for decades permitted qualifying shareholders to require the company to publish certain proposals in the company’s proxy statement, which are then voted upon at the annual meeting.
Unfortunately, the Commission has never adequately assessed the costs and benefits of this process. Currently, a proponent can bring a shareholder proposal if he or she has owned $2,000 or 1% of the company’s stock for one year, so long as the proposal complies with a handful of substantive—but in some cases discretionary—requirements. Activist investors and corporate gadflies have used these loose rules to hijack the shareholder proposal system.
The data and statistics are striking. In 2013, the number of shareholder proposals rose,[v] with an amazing 41% of those proposals addressing social and environmental issues.[vi] And while proposals calling for disclosure of political contributions or lobbying activities continued to predominate,[vii] these proposals received particularly poor support from shareholders.[viii] Overall, only 7% of shareholder proposals received majority support in 2013.[ix]
These proposals are not coming from ordinary shareholders concerned with promoting shareholder value for all investors. Rather, they are predominantly from organized labor, including union pension funds, which brought approximately 34% of last year’s shareholder proposals, as well as social or policy investors and religious institutions, which accounted for about 25% of 2013’s proposals. Approximately 40% were brought by an array of corporate gadflies, with a staggering 24% of those proposals brought by just two individuals.[x]
In other words, the vast majority of proposals are brought by individuals or institutions with idiosyncratic and often political agendas that are often unrelated to, or in conflict with, the interests of other shareholders. I find it particularly notable that corporations that donated more funds to Republicans than to Democrats were more than twice as likely to be targeted with political spending disclosure proposals sponsored by labor-affiliated funds.[xi]
Astonishingly, only 1% of proposals are brought by ordinary institutional investors—including hedge funds. As you all know, hedge funds are not shy about elbowing their way into the boardroom when they believe a shake-up is overdue. The low level of hedge fund activism here implies that their concerns with corporate management are being addressed using avenues other than shareholder proposals—as most legitimate concerns can be.[xii]
Given all of this, it’s time we asked whether the shareholder proposal system as currently designed is a net negative for the average investor.[xiii]
2. Needed Reforms
a. Who should be able to bring a proposal?
All of this isn’t to condemn shareholder activism per se. I’ll leave that debate to Marty Lipton and Lucian Bebchuk. But existing shareholders who are unhappy with management have a range of well-accepted responses other than proposals. Given the depth and liquidity of today’s markets, passive investors can simply sell their position—taking the s0-called “Wall Street Walk.” Activist investors can threaten to take this Walk as a means of influencing management. Investors can also vote against directors who are not sufficiently overseeing management—this strategy doesn’t have a clever name, but perhaps “vote the bums out” will do.
And, of course, where management is breaching its fiduciary duties, investors can have recourse to the courts. This “see you in court” strategy is particularly viable given the outstanding job the Delaware courts do, day in and day out, in refereeing disputes between shareholders and management. Given these and other strategies, I’m not sure we need shareholder proposals at all.
But if we must have shareholder proposals, the SEC’s rules can and should do a better job ensuring that activist investors don’t crowd out everyday and long-term investors—and that their causes aren’t inconsistent with the promotion of shareholder value.
One thing is clear: we can’t continue to take the approach of our current regulatory program, especially the all too liberal program of the last five years, and simply err on the side of over-inclusion. It is enormously expensive for companies to manage shareholder proposals. They must negotiate with proponents, seek SEC no-action to exclude improper ones, form and articulate views in support or opposition in the proxy, include the proposal and the statement in the proxy itself, then take the vote on it at the annual meeting. Conversely, companies can simply fold and acquiesce to the activists’ demands. Both approaches are costly, and these costs are borne by all shareholders. Taking money out of the pocket of someone investing for retirement or their child’s education and using it instead to subsidize activist agendas is simply inexcusable. It is incumbent on the Commission to create a regulatory environment that promotes shareholder value over special interest agendas. I have a few suggestions.
First, the holding requirement to submit proxies should be updated. $2,000 is absurdly low, and was not subject to meaningful economic analysis when adopted.[xiv] The threshold should be substantially more, by orders of magnitude: perhaps $200,000 or even better, $2 million. But I don’t believe that this is actually the right fix: a flat number is inherently over- or under-inclusive, depending on the company’s size. A percentage threshold by contrast is scalable, varies less over time, better aligns with the way that many companies manage their shareholder relations, and is more consistent with the Commission’s existing requirements. Therefore, I believe the flat dollar test should be dropped, leaving only a percentage test.
Of course, we’d have to make sure we get the percentage holding requirement right. Requiring a sufficient economic stake in the company could lead to proposals that focus on promoting shareholder value rather than those championed by gadflies with only a nominal stake in the company. We would need to apply rigorous economic analysis to determine what percentage would be an appropriate default, as well as what factors should be taken into account when deviating from that default. This could be an opportunity to address the practice of “proposal by proxy,” where the proponent of a resolution—typically one of the corporate gadflies—has no skin in the game, but rather receives permission to act “on behalf” of a shareholder that meets the threshold. While I would support banning proposal by proxy, we could also consider alternatives such as requiring a proponent acting on behalf of one or more shareholders to meet a higher percentage threshold of outstanding shares than would be the case for a proponent who owns the shares directly.
I also think we need to take another look at the length of the holding requirement. A one-year holding period is hardly a serious impediment to some activists, who can easily buy into a company solely for the purpose of bringing a proposal. All that’s needed is a bit of patience, and perhaps a hedge. A longer investment period could help curtail some of this gamesmanship.
Making adjustments along these lines will go a long way towards ensuring that the proposals that make it onto the proxy are brought by shareholders concerned first and foremost about the company—and the value of their investments in that company—not their pet projects.
b. What issues should proponents be able to raise?
I also believe that we need to do a better job setting requirements as to the substance of proposals. While I don’t think a complete reevaluation of the existing categories for exclusion is necessary, we do need to re-think their application.
For example, the “ordinary business” criterion for exclusion in our rules has been perennially problematic.[xv] This provision permits exclusion of a proposal that deals with the company’s “ordinary business operations,” unless it raises “significant policy issues.” However, these terms are not defined and the Commission has given no guidance, leaving the Staff to fend for itself in determining whether to issue no-action relief pursuant to the provision.
As a result, we have seen a number of dubious “significant policy issue” proposals. For example, in 2013 the Staff denied no-action relief to PNC Bank with respect to a proposal requesting a report on greenhouse gas emissions resulting from its lending portfolio, on the grounds that climate change is a significant policy issue—arguably a reversal of a prior Staff position.[xvi] And, in 2012, Staff denials of no-action relief forced AT&T, Verizon, and Sprint to include a net neutrality proposal, even though proposals on that same topic were excludable in prior years as ordinary business. That year, 94% of AT&T shareholders voted “no” on the net neutrality proposal despite the best efforts of Michael Diamond, who some of you will know as Mike D. of the Beastie Boys—who, by helping to bring the proposal to a vote, at least succeeded in his fight for the right to proxy.[xvii]
It is a disservice to the Staff—and, more importantly to investors—when the Commission promulgates a discretion-based rule for the Staff to administer without providing guidance as to how to exercise that discretion. In addition to providing better guidance, the Commission needs to become more involved in the administration of this rule. In particular, I believe that the Commission should be the final arbiter on the types of proposals for which the Staff proposes to deny no-action relief on “significant policy issue” grounds. The Presidential appointees should vote on these often-thorny policy issues and not hide behind the Staff.
We also need to take another look at the rule which permits the exclusion of proposals that are contrary to the Commission’s proxy rules—including proposals that are materially false and misleading or that are overly vague.[xviii] In Staff Legal Bulletin 14B, issued in 2004,[xix] the Staff curtailed the use of this ground for exclusion in light of the extensive Staff resources that were being consumed in their line-by-line review of shareholder proposals, instead forcing issuers to use their statement in opposition to take issue with factual inaccuracies or vagueness.[xx] I believe issuers have raised some legitimate concerns with this approach. For example, while issuers are not legally responsible for the proposals or statements in support, they are still being forced to publish, in their proxy, statements they believe are false or misleading. Moreover, use of the statement in opposition is sometimes an incomplete remedy. Taking valuable space to correct misstatements distracts from a substantive discussion about the proposal itself, and proposals that are overly vague make it difficult to draft a sensible rebuttal.
In light of these competing concerns, I believe the pendulum has swung too far in the direction of non-intervention. And I’m not alone in this belief. Recently, a district court in Missouri granted summary judgment to Express Scripts, permitting it to exclude a proposal that contained four separate misstatements.[xxi] While I support companies exercising their right to take matters to the court system,[xxii] which can serve as a useful external check on the SEC’s no-action process, companies shouldn’t have to go through the time and expense of litigation to vindicate their substantive rights under our rules. The burden to ensure that a submission is clear and factually accurate should be placed on the proponent, not the company. I believe that the Staff should take a more aggressive posture toward proponents that fail to meet that burden. And I hope issuers would refrain from using our rule to quibble over minutiae. If this happy medium is not achievable, I believe the SEC needs to revisit our rules: we as a Commission either need to give the Staff the capacity to enforce the rule as it is currently written, or craft a rule that is enforceable.
c. How many times may a proposal be repeated?
The final issue I want to raise today with respect to the shareholder proposal process is the frequency of reproposals. Currently, once a proposal is required to be included in the proxy, it can be resubmitted for years to come, even if it never comes close to commanding majority support. Proposals need only 3, 6, or 10% of votes in support to stay alive, depending on whether the proposal has been brought once, twice, or three times or more in the past five years.[xxiii] So a proposal that gets a bare 10% of the votes, year after year, is not excludable on that basis under our current rules. Such proposals are an enormous waste of time and shareholder money.
We need to substantially strengthen the resubmission thresholds, perhaps by taking a “three strikes and you’re out” policy. That is, if a proposal fails in its third year to garner majority support, the proposal should be excludable for the following 5 years. The thresholds for the prior 2 years should be high enough to demonstrate that the proposal is realistically on the path toward 50%, for example, 5% and 20%.
3. Conclusion
Implementing these kinds of reforms can, I believe, help provide some much-needed improvement to the shareholder proposal system. I hope the Commission can consider such common-sense issues in the near future. These are real and substantial issues, and the Commission has the authority to effectuate needed change. We should not dare Congress to intervene due to our inaction, as it had to with the JOBS Act.
III. Remaining the Right Regulator
Finally, I want to return to my original theme: good government requires that, when we must regulate, we should do so in the most efficient manner possible. This means assigning the right regulator to the issue and minimizing unnecessary regulatory overlap. And of course, the Commission must continue to ensure that its regulatory approach advances its core goals of investor protection and the promotion of efficiency, competition, and capital formation.
That means, for example, pressing ahead with much-needed reforms to our corporate disclosure requirements to ensure that our filings provide investors with the information they need to make informed investment decisions and are not overwhelmed by extraneous information—like conflict minerals reports.
We must also take exception to efforts by third parties that attempt to prescribe what should be in corporate filings. It is the Commission’s responsibility to set the parameters of required disclosure.
The somewhat confusingly-named Sustainability Accounting Standards Board provides a good example of an outside party attempting to prescribe disclosure standards. I say “confusingly-named” because the SASB does not actually promulgate accounting standards, nor does it limit itself to sustainability topics, although I suppose it is in fact a Board. The SASB argues that its disclosure standards elicit material information that management should assess for inclusion in companies’ periodic filings with the Commission.[xxiv]
I don’t mean to single out the SASB, but it’s important to stress that, with the sole exception of financial accounting—where the Commission, as authorized by Congress, has recognized the standards of the Financial Accounting Standards Board as generally accepted, and therefore required under Regulation S‑X—the Commission does not and should not delegate to outside, non-governmental bodies the responsibility for setting disclosure requirements. So while companies are free to make whatever disclosures they choose on their own time, so to speak, it is important to remember that groups like SASB have no role in the establishment of mandated disclosure requirements.
With respect to information that the Commission requires to be included in filings, we need to be sure that our requirements are eliciting decision-useful and up-to-date information. We should be willing to reexamine all of our disclosure requirements. Indeed, the Commission should be engaged in a comprehensive program of periodic re-assessment of its disclosure rules to ensure that the benefits of disclosure continue to justify its often-substantial costs.
This is of course a tall order, but I know the fine men and women who serve the public at the Commission are up for the challenge.
* * *
Thank you all for your time and attention today, and I hope you enjoy the rest of the conference.
[i] See Troy A. Paredes, Speech by SEC Commissioner: Remarks at the 22nd Annual Tulane Corporate Law Institute (Apr. 15, 2010), available at http://www.sec.gov/news/speech/2010/spch041510tap.htm.
[ii] See Daniel M. Gallagher, Speech, Remarks before the Corporate Directors Forum (Jan. 29, 2013), available at www.sec.gov/News/Speech/Detail/Speech/1365171492142; see also, e.g., J. Robert Brown, Jr., The Politicization of Corporate Governance: Bureaucratic Discretion, the SEC, and Shareholder Ratification of Auditors, 2 Harv. Bus. L. Rev. 61, 62 (2012).
[iii] Rel. 33-9452, Pay Ratio Disclosure (Sept. 18, 2013).
[iv] Rel. 34-64140, Incentive-based Compensation Arrangements (Mar. 29, 2011).
[v] James R. Copeland & Margaret M. O’Keefe, Proxy Monitor 2013: A Report on Corporate Governance and Shareholder Activism (Manhattan Institute, Fall 2013) at 2 (average Fortune 250 company faced 1.26 proposals in 2013 versus 1.22 in 2012); Gibson, Dunn & Crutcher LLP, Shareholder Proposal Developments During the 2013 Proxy Season (July 9, 2013) at 1 (noting more proposals in 2013 (~820) than 2012 (~739)).
[vi] Proxy Monitor 2013 at 7.
[vii] Proxy Monitor 2013 at 12 (“[P]roposals related to corporate political spending or lobbying have been more numerous than any other class of proposal in each of the last two years.”).
[viii] ISS reports political contribution/lobbying activity approval percentage at 29%, an increase of 7.3% over 2012. See Gibson Dunn at 6. However, Proxy Monitor finds the opposite trend, at least with respect to the Fortune 250 companies. See Proxy Monitor 2013 at 2. Specifically, disaggregating lobbying and political spending proposals shows a decline in y-o-y support for both proposal classes: 22% in 2012 to 20% in 2013 for lobbying, and 17% to 16% for political spending. Id. But a change in the mix of proposals—there were more lobbying-related proposals, which typically garner higher support, given that 2013 is a non-election year—creates the impression of an increasing overall rate.
[ix] Proxy Monitor 2013 at 2 (contrasting with 9% in 2012).
[x] Proxy Monitor 2013 at 6–7.
[xi] Proxy Monitor 2013 at 8 (“Those companies [giving at least $1.5 million to candidates or PACs], as a group, were much more likely to be targeted by shareholder proposals introduced by labor-affiliated pension funds in 2013: 44 percent of these politically most active companies faced a labor-sponsored proposal, as opposed to only 18 percent of all other companies. What’s more, those corporations that gave at least half of their donations to support Republicans were more than twice as likely to be targeted by shareholder proposals sponsored by labor-affiliated funds as those companies that gave a majority of their politics-related contributions on behalf of Democrats.”).
[xii] James R. Copeland, Proxy Monitor 2011: A Report on Corporate Governance and Shareholder Activism (Manhattan Institute, Sept. 2011) at 4.
[xiii] Allan T. Ingraham & Anna Koyfman, Analysis of the Wealth Effects of Shareholder Proposals–Vol. III (U.S. Chamber of Commerce, May 2, 2013).
[xiv] See Rel. 34-40018, Amendments to Rules on Shareholder Proposals (May 21, 1998) (describing the change from $1,000 to $2,000 as an adjustment for inflation).
[xv] Exchange Act Rule 14a‑8(i)(7).
[xvi] See, e.g., Hunton & Williams, Client Alert, SEC Refused to Allow Bank to Omit Climate Change Proposal from Proxy Materials (Mar. 2013). It has been argued, however, that PNC was not a reversal, but rather was driven by some substantive differences with PNC’s lending portfolio. See Gibson Dunn at 9–10 (citing a “SEC spokesman” commenting to that effect). This may indicate a need for the Staff to provide fuller statements of their reasoning in no-action letters, so as to avoid confusion among practitioners and the public.
[xvii] See Larry Downes, AT&T, Verizon, and Sprint Net Neutrality Proposals: Simply Awful, Forbes.com (Apr. 12, 2012, updated Apr. 27, 2012), at http://www.forbes.com/sites/larrydownes/2012/04/12/att-verizon-and-sprint-net-neutrality-proposals-simply-awful/.
[xviii] Exchange Act Rule 14a‑8(i)(3).
[xix] See SLB 14B (2004).
[xx] Of 90 denials of exclusion during the 2013 proxy season, 63% of them had raised (i)(3) arguments. Gibson Dunn at 2. While there could be several reasons for this trend, it calls for further examination.
[xxi] Express Scripts Holding Co. v. Chevedden, No. 4:13-CV-2520-JAR (E.D. Mo., Feb. 18, 2014).
[xxii] See Waste Connections v. Chevedden, No. 13-20336, slip op. (5th Cir., Feb. 13, 2014) (affirming court’s subject matter jurisdiction over company’s declaratory judgment action despite Chevedden’s promise not to sue if company excluded the proposal).
[xxiii] See Exchange Act Rule 14a‑8(i)(12).
[xxiv] See, e.g., SASB, Commercial Banks Sustainability Accounting Standard, Provisional Version (Feb. 2014) (“SASB Standards are comprised of (1) disclosure guidance and (2) accounting standards on sustainability topics for use by U.S. and foreign public companies in their annual filings (Form 10-K or 20-F) with the U.S. Securities and Exchange Commission (SEC). To the extent relevant, SASB Standards may also be applicable to other periodic mandatory fillings with the SEC, such as the Form 10-Q, Form S-1, and Form 8-K. SASB’s disclosure guidance identifies sustainability topics at an industry level, which may be material—depending on a company’s specific operating context—to a company within that industry. Each company is ultimately responsible for determining which information is material and is therefore required to be included in its Form 10-K or 20-F and other periodic SEC filings.”).
PRESIDENT OBAMA'S REMARKS IN PRESENTING 2014 WOMEN OF COURAGE AWARD
FROM: THE WHITE HOUSE
REMARKS BY THE PRESIDENT
IN PRESENTING STATE DEPARTMENT’S 2014 WOMEN OF COURAGE AWARD
TO DR. MAHA AL MUNEEF
Ritz Carlton
Riyadh, Saudi Arabia
THE PRESIDENT: For the press, I just wanted to let everybody know Dr. Al Muneef was a recipient of the International Women of Courage Award that the State Department annually presents to women who are doing extraordinary work around the world advocating on behalf of women, children, and families. She was not able to attend because of family health issues, but we were aware of the fact that we’d be able to see her here today to personally present the award.
I’m doing this on behalf of Michelle Obama, who normally is the presenter, and I know that Dr. Al Muneef is disappointed that it’s me instead of Michelle -- appropriately so. (Laughter.) But Dr. Maha Al Muneef has been able to not only set up services here in the kingdom, but also, more importantly in some ways, been able to pass laws providing protections for women and children for domestic abuse and to provide a safe space and shelter for those who are suffering from domestic abuses.
And so to see the kind of progress that’s been made, her ability to work with the kingdom to persuade many that this is an issue that’s going to be important to the society over the long term, I think makes this award fully justified. And so we’re very, very proud of you and grateful for all the work you’re doing here and I’m looking forward to seeing you do even more wonderful things in the future.
DR. AL MUNEEF: Thank you. (Inaudible.)
THE PRESIDENT: Thank you so much. And she has wonderful children who are over there taking pictures. She’s very proud of them.
RECENT U.S. MARINE CORPS PHOTOS
FROM: U.S. MARINE CORPS
Mar 21, 2014
Fort Hunter Liggett, CA - Marines with the tank platoon, Battalion Landing Team 2nd Battalion, 1st Marines, part of the 11th Marine Expeditionary Unit, fire the M256 smoothbore gun of four M1A1 Abrams tanks during a live-fire training exercise at Fort Hunter Liggett, Calif., March 20. Realistic Urban Training Marine Expeditionary Unit Exercise 14-1 allows the Marines and sailors of the 11th MEU the opportunity to employ techniques and tactics applicable to their future deployment. RUTMEUEX incorporates the majority of the ground combat element, aviation combat element, logistics combat element and command element of the MEU for the first time in the predeployment cycle. 140320-M-RR352-001.JPG Photo By: Sgt. Melissa Wenger.
Mar 29, 2014
Pohang, Gyeongsangbuk province, South Korea - Republic of Korea and U.S. Marines assault the beach March 29 during a rehearsal of the amphibious landing portion of Ssang Yong 2014 at Doksoek-ri in Pohang, Republic of Korea. More than 20 U.S. Navy and ROK ships are supporting the amphibious landing. This exercise demonstrates the unique ability of a Marine Expeditionary Brigade headquarters to composite multiple Marine Air Ground Task Forces arriving in theatre via amphibious shipping, along with a ROK Regimental Landing Team, into an amphibious combined MEB. (U.S. Marine Corps photo by Lance Cpl. Cedric R. Haller II/RELEASED)
REPORTS RELEASED ON DISEASES THREATENING HOSPITAL PATIENTS
FROM: CENTERS FOR DISEASE CONTROL AND PREVENTION
Despite Progress, Ongoing Efforts Needed to Combat Infections Impacting Hospital Patients
National and state data detail threat of healthcare-associated infections and opportunities for further improvements
On any given day, approximately one in 25 U.S. patients has at least one infection contracted during the course of their hospital care, adding up to about 722,000 infections in 2011, according to new data from the Centers for Disease Control and Prevention. This information is an update to previous CDC estimates of healthcare-associated infections.
The agency released two reports today – one, a New England Journal of MedicineExternal Web Site Icon article detailing 2011 national healthcare-associated infection estimates from a survey of hospitals in ten states, and the other a 2012 annual report on national and state-specific progress toward U.S. Health and Human Services HAI prevention goalsExternal Web Site Icon. Together, the reports show that progress has been made in the effort to eliminate infections that commonly threaten hospital patients, but more work is needed to improve patient safety.
"Although there has been some progress, today and every day, more than 200 Americans with healthcare-associated infections will die during their hospital stay,” said CDC Director Tom Frieden, M.D., M.P.H. “The most advanced medical care won’t work if clinicians don’t prevent infections through basic things such as regular hand hygiene. Health care workers want the best for their patients; following standard infection control practices every time will help ensure their patients’ safety."
The CDC Multistate Point-Prevalence Survey of Health Care-Associated Infections, published in NEJM, used 2011 data from 183 U.S. hospitals to estimate the burden of a wide range of infections in hospital patients. That year, about 721,800 infections occurred in 648,000 hospital patients. About 75,000 patients with healthcare-associated infections died during their hospitalizations. The most common healthcare-associated infections were pneumonia (22 percent), surgical site infections (22 percent), gastrointestinal infections (17 percent), urinary tract infections (13 percent), and bloodstream infections (10 percent).
The most common germs causing healthcare-associated infections were C. difficile (12 percent), Staphylococcus aureus, including MRSA (11 percent), Klebsiella (10 percent), E. coli (9 percent), Enterococcus (9 percent), and Pseudomonas (7 percent). Klebsiella and E. coli are members of the Enterobacteriaceae bacteria family, which has become increasingly resistant to last-resort antibiotics known as carbapenems.
Tracking National Progress
The second report, CDC’s National and State Healthcare-associated Infection Progress Report, includes a subset of infection types that are commonly required to be reported to CDC. On the national level, the report found a:
44 percent decrease in central line-associated bloodstream infections between 2008 and 2012
20 percent decrease in infections related to the 10 surgical procedures tracked in the report between 2008 and 2012
four percent decrease in hospital-onset MRSA between 2011 and 2012
two percent decrease in hospital-onset C. difficile infections between 2011 and 2012
“Our nation is making progress in preventing healthcare-associated infections through three main mechanisms: financial incentives to improve quality, performance measures and public reporting to improve transparency, and the spreading and scaling of effective interventions,” said Patrick Conway, M.D.,External Web Site Icon Deputy Administrator for Innovation and Quality for Centers for Medicare & Medicaid Services (CMS) and CMS chief medical officer. “This progress represents thousands of lives saved, prevented patient harm, and the associated reduction in costs across our nation.”
The federal government considers elimination of health care-associated infections a top priority and has a number of ongoing efforts to protect patients and improve health care quality. In addition to CDC’s expertise and leadership in publishing evidence-based infection prevention guidelines, housing the nation’s healthcare-associated infection laboratories, responding to health care facility outbreaks and tracking infections in these facilities, other federal and non-federal partners are actively working to accelerate the prevention progress that is happening across the country. These initiatives are coordinated through the National Action Plan to Prevent Healthcare-Associated Infections and include CMS’ Partnership for PatientsExternal Web Site Icon, CMS Quality Improvement OrganizationsExternal Web Site Icon, and the Agency for Healthcare Research and Quality’sExternal Web Site Icon Comprehensive Unit-based Safety ProgramExternal Web Site Icon.
State Data
The Progress Report looked at data submitted to CDC’s National Healthcare Safety Network (NHSN), the nation’s healthcare-associated infection tracking system, which is used by more than 12,600 health care facilities across all 50 states, Washington, D.C., and Puerto Rico. Not all states reported or had enough data to calculate valid infection information on every infection in this report. The number of infections reported was compared to a national baseline.
In the report, none of the 50 states, Washington, D.C., or Puerto Rico performed better than the nation on all four infection types tracked by state (CLABSI, CAUTI, and infections after colon surgery and abdominal hysterectomy). Sixteen states performed better than the nation on two infections, including two states performing better on three infections. In addition, 16 states performed worse than the nation on two infections, with seven states performing worse on at least three infections.
FY15 President’s Budget
Expanding upon current patient safety goals, the FY 2015 President’s Budget requests funding for CDC to increase the detection of antibiotic resistant infections and improve efforts to protect patients from infections, including those detailed in today’s CDC reports. Additionally the President’s Budget requests an increase for the National Healthcare Safety Network to fully implement tracking of antibiotic use and antibiotic resistance threats in U.S. hospitals.
Despite Progress, Ongoing Efforts Needed to Combat Infections Impacting Hospital Patients
National and state data detail threat of healthcare-associated infections and opportunities for further improvements
On any given day, approximately one in 25 U.S. patients has at least one infection contracted during the course of their hospital care, adding up to about 722,000 infections in 2011, according to new data from the Centers for Disease Control and Prevention. This information is an update to previous CDC estimates of healthcare-associated infections.
The agency released two reports today – one, a New England Journal of MedicineExternal Web Site Icon article detailing 2011 national healthcare-associated infection estimates from a survey of hospitals in ten states, and the other a 2012 annual report on national and state-specific progress toward U.S. Health and Human Services HAI prevention goalsExternal Web Site Icon. Together, the reports show that progress has been made in the effort to eliminate infections that commonly threaten hospital patients, but more work is needed to improve patient safety.
"Although there has been some progress, today and every day, more than 200 Americans with healthcare-associated infections will die during their hospital stay,” said CDC Director Tom Frieden, M.D., M.P.H. “The most advanced medical care won’t work if clinicians don’t prevent infections through basic things such as regular hand hygiene. Health care workers want the best for their patients; following standard infection control practices every time will help ensure their patients’ safety."
The CDC Multistate Point-Prevalence Survey of Health Care-Associated Infections, published in NEJM, used 2011 data from 183 U.S. hospitals to estimate the burden of a wide range of infections in hospital patients. That year, about 721,800 infections occurred in 648,000 hospital patients. About 75,000 patients with healthcare-associated infections died during their hospitalizations. The most common healthcare-associated infections were pneumonia (22 percent), surgical site infections (22 percent), gastrointestinal infections (17 percent), urinary tract infections (13 percent), and bloodstream infections (10 percent).
The most common germs causing healthcare-associated infections were C. difficile (12 percent), Staphylococcus aureus, including MRSA (11 percent), Klebsiella (10 percent), E. coli (9 percent), Enterococcus (9 percent), and Pseudomonas (7 percent). Klebsiella and E. coli are members of the Enterobacteriaceae bacteria family, which has become increasingly resistant to last-resort antibiotics known as carbapenems.
Tracking National Progress
The second report, CDC’s National and State Healthcare-associated Infection Progress Report, includes a subset of infection types that are commonly required to be reported to CDC. On the national level, the report found a:
44 percent decrease in central line-associated bloodstream infections between 2008 and 2012
20 percent decrease in infections related to the 10 surgical procedures tracked in the report between 2008 and 2012
four percent decrease in hospital-onset MRSA between 2011 and 2012
two percent decrease in hospital-onset C. difficile infections between 2011 and 2012
“Our nation is making progress in preventing healthcare-associated infections through three main mechanisms: financial incentives to improve quality, performance measures and public reporting to improve transparency, and the spreading and scaling of effective interventions,” said Patrick Conway, M.D.,External Web Site Icon Deputy Administrator for Innovation and Quality for Centers for Medicare & Medicaid Services (CMS) and CMS chief medical officer. “This progress represents thousands of lives saved, prevented patient harm, and the associated reduction in costs across our nation.”
The federal government considers elimination of health care-associated infections a top priority and has a number of ongoing efforts to protect patients and improve health care quality. In addition to CDC’s expertise and leadership in publishing evidence-based infection prevention guidelines, housing the nation’s healthcare-associated infection laboratories, responding to health care facility outbreaks and tracking infections in these facilities, other federal and non-federal partners are actively working to accelerate the prevention progress that is happening across the country. These initiatives are coordinated through the National Action Plan to Prevent Healthcare-Associated Infections and include CMS’ Partnership for PatientsExternal Web Site Icon, CMS Quality Improvement OrganizationsExternal Web Site Icon, and the Agency for Healthcare Research and Quality’sExternal Web Site Icon Comprehensive Unit-based Safety ProgramExternal Web Site Icon.
State Data
The Progress Report looked at data submitted to CDC’s National Healthcare Safety Network (NHSN), the nation’s healthcare-associated infection tracking system, which is used by more than 12,600 health care facilities across all 50 states, Washington, D.C., and Puerto Rico. Not all states reported or had enough data to calculate valid infection information on every infection in this report. The number of infections reported was compared to a national baseline.
In the report, none of the 50 states, Washington, D.C., or Puerto Rico performed better than the nation on all four infection types tracked by state (CLABSI, CAUTI, and infections after colon surgery and abdominal hysterectomy). Sixteen states performed better than the nation on two infections, including two states performing better on three infections. In addition, 16 states performed worse than the nation on two infections, with seven states performing worse on at least three infections.
FY15 President’s Budget
Expanding upon current patient safety goals, the FY 2015 President’s Budget requests funding for CDC to increase the detection of antibiotic resistant infections and improve efforts to protect patients from infections, including those detailed in today’s CDC reports. Additionally the President’s Budget requests an increase for the National Healthcare Safety Network to fully implement tracking of antibiotic use and antibiotic resistance threats in U.S. hospitals.
SEC ANNOUNCES SETTLEMENT IN IMMIGRANT INVESTOR OFFERING FRAUD
FROM: SECURITIES AND EXCHANGE COMMISSION
SEC Obtains Settlements in $150 Million EB-5 Immigrant Investor Offering Fraud
On March 17, 2014, the U.S. District Court entered a consent judgment against defendants Anshoo R. Sethi, A Chicago Convention Center, LLC (ACCC) and Intercontinental Regional Center Trust of Chicago, LLC (IRCTC) for their roles in raising approximately $158 million dollars from close to 300 investors as part of a fraudulent offering that targeted foreign nationals who sought to invest in the U.S. economy and gain a legal pathway to citizenship through the EB-5 Immigrant Investor Program, as alleged in the SEC's February 2013 complaint. The Final Judgment provides the following relief:
joint-and-several liability for over $11.5 million in disgorgement and prejudgment interest, subject to offsets for certain amounts refunded or credited to investors;
permanent injunctions against future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder;
an order enjoining and restraining defendants for twenty years from offering or selling securities issued by any of the defendants or issued by any entity owned or controlled by Sethi;
a civil penalty of $1 million against defendant Sethi;
civil penalties of up to $1.45 each against ACCC and IRCTC;
ACCC and IRCTC agreed to wind up and dissolve after satisfying their payment obligations.
The Defendants will satisfy their payment obligations, at least in part, by paying over the funds frozen in certain bank accounts pursuant to the Court's asset freeze order in this case and also by selling property held in ACCC's name.
The Commission filed its case on February 6, 2013, and obtained a temporary restraining order and asset freeze against Sethi, ACCC and IRCTC. On April 19, 2013, the Court granted the Commission's motion to return to investors the entire $147 million of principal that had been frozen pursuant to the SEC's motions. The agreed upon settlement resolves, among other things, the disposition of approximately $11 million in administrative fees paid by investors, which are the only funds remaining to be returned in order to make the investors whole.
Sethi, ACCC and IRCTC neither admitted nor denied the SEC's allegations.
SEC Obtains Settlements in $150 Million EB-5 Immigrant Investor Offering Fraud
On March 17, 2014, the U.S. District Court entered a consent judgment against defendants Anshoo R. Sethi, A Chicago Convention Center, LLC (ACCC) and Intercontinental Regional Center Trust of Chicago, LLC (IRCTC) for their roles in raising approximately $158 million dollars from close to 300 investors as part of a fraudulent offering that targeted foreign nationals who sought to invest in the U.S. economy and gain a legal pathway to citizenship through the EB-5 Immigrant Investor Program, as alleged in the SEC's February 2013 complaint. The Final Judgment provides the following relief:
joint-and-several liability for over $11.5 million in disgorgement and prejudgment interest, subject to offsets for certain amounts refunded or credited to investors;
permanent injunctions against future violations of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder;
an order enjoining and restraining defendants for twenty years from offering or selling securities issued by any of the defendants or issued by any entity owned or controlled by Sethi;
a civil penalty of $1 million against defendant Sethi;
civil penalties of up to $1.45 each against ACCC and IRCTC;
ACCC and IRCTC agreed to wind up and dissolve after satisfying their payment obligations.
The Defendants will satisfy their payment obligations, at least in part, by paying over the funds frozen in certain bank accounts pursuant to the Court's asset freeze order in this case and also by selling property held in ACCC's name.
The Commission filed its case on February 6, 2013, and obtained a temporary restraining order and asset freeze against Sethi, ACCC and IRCTC. On April 19, 2013, the Court granted the Commission's motion to return to investors the entire $147 million of principal that had been frozen pursuant to the SEC's motions. The agreed upon settlement resolves, among other things, the disposition of approximately $11 million in administrative fees paid by investors, which are the only funds remaining to be returned in order to make the investors whole.
Sethi, ACCC and IRCTC neither admitted nor denied the SEC's allegations.
FINAL ORDER APPROVED BY FTC REGARDING KIDS IN-APP PURCHASES OF APPLE PRODUCTS
FROM: FEDERAL TRADE COMMISSION
FTC Approves Final Order in Case About Apple Inc. Charging for Kids’ In-App Purchases Without Parental Consent
Following a public comment period, the Federal Trade Commission has approved a final order resolving FTC allegations that Apple Inc. unfairly charged consumers for in-app purchases incurred by children without their parents’ consent.
The settlement was first announced by the Commission in January. In its complaint, the agency alleged that Apple failed to notify parents that entering their password would approve a purchase and then open a 15-minute window in which unlimited charges could be made without authorization. In the complaint, the FTC cited examples of children incurring thousands of dollars in in-app purchases without their parents’ consent.
Under the settlement, by March 31, 2014, Apple must change its billing practices to ensure that it has obtained express, informed consent from consumers before charging them for in-app purchases.
Apple also must provide full refunds, totaling a minimum of $32.5 million, to consumers who were billed for in-app purchases that were incurred by children and were either accidental or not authorized by the consumer. Should Apple issue less than $32.5 million in refunds to consumers within the 12 months after the settlement becomes final, the company must remit the balance to the Commission. By April 15, 2014, Apple must notify all consumers charged for in-app purchases with instructions on how to obtain a refund for unauthorized purchases by kids.
The Commission vote approving the final order and letters to members of the public was 3-1, with Commissioner Wright voting in the negative. (FTC File No. 112-3108, the staff contacts in the Bureau of Consumer Protection are Duane Pozza, 202-326-2042; Jason Adler, 202-326-3231; and Miya Rahamim, 202-326-2351.)
The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.
FTC Approves Final Order in Case About Apple Inc. Charging for Kids’ In-App Purchases Without Parental Consent
Following a public comment period, the Federal Trade Commission has approved a final order resolving FTC allegations that Apple Inc. unfairly charged consumers for in-app purchases incurred by children without their parents’ consent.
The settlement was first announced by the Commission in January. In its complaint, the agency alleged that Apple failed to notify parents that entering their password would approve a purchase and then open a 15-minute window in which unlimited charges could be made without authorization. In the complaint, the FTC cited examples of children incurring thousands of dollars in in-app purchases without their parents’ consent.
Under the settlement, by March 31, 2014, Apple must change its billing practices to ensure that it has obtained express, informed consent from consumers before charging them for in-app purchases.
Apple also must provide full refunds, totaling a minimum of $32.5 million, to consumers who were billed for in-app purchases that were incurred by children and were either accidental or not authorized by the consumer. Should Apple issue less than $32.5 million in refunds to consumers within the 12 months after the settlement becomes final, the company must remit the balance to the Commission. By April 15, 2014, Apple must notify all consumers charged for in-app purchases with instructions on how to obtain a refund for unauthorized purchases by kids.
The Commission vote approving the final order and letters to members of the public was 3-1, with Commissioner Wright voting in the negative. (FTC File No. 112-3108, the staff contacts in the Bureau of Consumer Protection are Duane Pozza, 202-326-2042; Jason Adler, 202-326-3231; and Miya Rahamim, 202-326-2351.)
The Federal Trade Commission works for consumers to prevent fraudulent, deceptive, and unfair business practices and to provide information to help spot, stop, and avoid them. To file a complaint in English or Spanish, visit the FTC’s online Complaint Assistant or call 1-877-FTC-HELP (1-877-382-4357). The FTC enters complaints into Consumer Sentinel, a secure, online database available to more than 2,000 civil and criminal law enforcement agencies in the U.S. and abroad. The FTC’s website provides free information on a variety of consumer topics. Like the FTC on Facebook, follow us on Twitter, and subscribe to press releases for the latest FTC news and resources.
LANL RESEARCH ON MAGNETIZING A SEMICONDUCTOR MATERIAL WITH LIGHT
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| Photo Credit: U.S. Government/Wikimedia |
Flipping the Switch on Magnetism in Strontium Titanate
Semiconductor material can be magnetized with light, suggesting new technology opportunities
LOS ALAMOS, N.M., March 27, 2013—Interest in oxide-based semiconductor electronics has exploded in recent years, fueled largely by the ability to grow atomically precise layers of various oxide materials.
One of the most important materials in this burgeoning field is strontium titanate (SrTiO3), a nominally nonmagnetic wide-bandgap semiconductor, and researchers at Los Alamos National Laboratory have found a way to magnetize this material using light, an effect that persists for hours at a time.
“One doesn’t normally think of this material as being able to support magnetism. It’s supposed to be useful – but magnetically uninteresting – stuff. So when we started shining light on it and saw what appeared to be extremely long-lived magnetic signals – that persisted for hours even after we turned the light off – it came as quite a surprise,” said Scott Crooker, lead scientist on the project at Los Alamos.
Studies of strontium titanate’s electrical and optical properties abound, it’s not a new material – in fact it was marketed in the 1950s and ‘60s as a “faux diamond” product before cubic zirconium gained popularity. Though often used in industry for its robust dielectric properties, its potential magnetic properties were less well understood. A renewed interest in SrTiO3 was recently sparked by observations of an unexpected and emergent magnetization in strontium titanate-based structures.
“There’ve been tantalizing hints in recent years that there might be more to SrTiO3 than originally thought. When layered with other ‘nominally non-magnetic’ oxides, a handful of recent experiments around the world have shown not only superconductivity but also an unexpected magnetism. So that piqued our interest in this material,” Crooker said.
"This is really something completely new in oxide materials like these - the ability to write permanent magnetic patterns into an otherwise non-magnetic material. The challenge will be to properly understand how and why this works, and to increase the temperature at which it can be done. The exciting possibility is to potentially use this to store data in some way,” said collaborator Chris Leighton of the University of Minnesota.
In a paper published this week in Nature Materials, Crooker and collaborators illustrated a new aspect to the nature of magnetism in strontium titanate, reporting the observation of an optically induced and persistent magnetization in crystals of SrTiO3 when they are slightly oxygen-deficient.
Using samples prepared by collaborators in Leighton’s group, Crooker and Los Alamos colleagues William Rice and Joe Thompson used magnetic circular dichroism spectroscopy and also SQUID magnetometry to show that circularly polarized light can induce an extremely long-lived magnetic moment in SrTiO3 at zero applied magnetic field.
These signals appear below 18 Kelvin, persist for hours below 10 K, and can be controlled in both magnitude and sign via the circular polarization and wavelength of blue/green light in the range spanning 400-500 nm. As such, magnetic patterns can be “written” into SrTiO3, and subsequently read out, using light alone. These effects occur only in crystals containing oxygen vacancies, revealing a detailed interplay between magnetism, lattice defects and light in an archetypal complex oxide material.
This work was funded by Laboratory Directed Research and Development Exploratory Research at Los Alamos National Laboratory under the auspices of the US DOE Office of Science.
Saturday, March 29, 2014
WOMAN PLEADS GUILTY IN CASE OF HOLDING PERSON FOR FORCED LABOR IN RESTAURANT
FROM: U.S. JUSTICE DEPARTMENT
Department of Justice
Office of Public Affairs
FOR IMMEDIATE RELEASE
Wednesday, March 26, 2014
Minnesota Woman Pleads Guilty to Human Trafficking for Holding Victim in Forced Labor in Restaurant
Tieu Tran, 59, of Mankato, Minn., pleaded guilty to one count of forced labor trafficking in the U.S. District Court for the District of Minnesota, the Justice Department announced today. Tran is the former owner and manager of Nails By Jordan, a nail salon located in Mankato.
According to evidence presented in court proceedings and documents, in 2008, Tran recruited a woman from Vietnam to travel to the United States using false promises of legal immigration status and a high-paying job. In reality, Tran smuggled the victim and two other Vietnamese nationals across the southern U.S.-Mexico border, imposed a significant debt upon the victim and forced the victim to pay down the smuggling debt by working at Tran’s son’s Vietnamese restaurant, Pho Saigon, in Mankato.
During the plea proceedings, Tran admitted to compelling the victim to work long hours without paying her as promised, using a scheme, plan and pattern of non-violent coercion. This included manipulation of debts, isolation and verbal intimidation to hold the victim in fear, knowing that the victim was without legal status and money, did not have the ability to speak English, feared losing her family home in Vietnam to creditors and had nowhere else to turn for subsistence.
“This defendant preyed on vulnerable victims and exploited them for her profit,” said Acting Assistant Attorney General Jocelyn Samuels for the Civil Rights Division. “Traffickers routinely use schemes of non-violent coercion to exploit victims by manipulating the victims’ debts, fears of immigration consequences, linguistic isolation and other vulnerabilities. The Civil Rights Division is committed to seeking justice on behalf of victims of human trafficking and to holding human traffickers accountable”
“Human trafficking degrades the dignity of humanity and strikes at the heart of individual equality and freedom,” said U.S. Attorney Andy Luger for the District of Minnesota. “The U.S. Attorney’s Office for the District of Minnesota will aggressively prosecute those who seek to capitalize on human frailty through such conduct.”
“ The FBI, in conjunction with its law enforcement partners, remains steadfast in its commitment to eradicate human trafficking,” said Special Agent in Charge J. Chris Warrener of the FBI’s Minneapolis Field Office. “Human trafficking is an insidious crime which impacts not only its victims, but society as a whole. Detecting and bringing to justice those who perpetrate these schemes will always be a top priority for law enforcement. ”
Tran faces a statutory maximum sentence of 20 years in prison and a $250,000 fine. As part of her plea agreement, Tran agreed to nullify all debts imposed upon the victim, as well as similar debts imposed upon seven other individuals believed to be under similar circumstances.
This case was investigated by the FBI and is being prosecuted by Trial Attorney William Nolan of the Civil Rights Division’s Human Trafficking Prosecution Unit and Assistant U.S. Attorney David Steinkamp of the U.S. Attorney’s Office for the District of Minnesota.
Department of Justice
Office of Public Affairs
FOR IMMEDIATE RELEASE
Wednesday, March 26, 2014
Minnesota Woman Pleads Guilty to Human Trafficking for Holding Victim in Forced Labor in Restaurant
Tieu Tran, 59, of Mankato, Minn., pleaded guilty to one count of forced labor trafficking in the U.S. District Court for the District of Minnesota, the Justice Department announced today. Tran is the former owner and manager of Nails By Jordan, a nail salon located in Mankato.
According to evidence presented in court proceedings and documents, in 2008, Tran recruited a woman from Vietnam to travel to the United States using false promises of legal immigration status and a high-paying job. In reality, Tran smuggled the victim and two other Vietnamese nationals across the southern U.S.-Mexico border, imposed a significant debt upon the victim and forced the victim to pay down the smuggling debt by working at Tran’s son’s Vietnamese restaurant, Pho Saigon, in Mankato.
During the plea proceedings, Tran admitted to compelling the victim to work long hours without paying her as promised, using a scheme, plan and pattern of non-violent coercion. This included manipulation of debts, isolation and verbal intimidation to hold the victim in fear, knowing that the victim was without legal status and money, did not have the ability to speak English, feared losing her family home in Vietnam to creditors and had nowhere else to turn for subsistence.
“This defendant preyed on vulnerable victims and exploited them for her profit,” said Acting Assistant Attorney General Jocelyn Samuels for the Civil Rights Division. “Traffickers routinely use schemes of non-violent coercion to exploit victims by manipulating the victims’ debts, fears of immigration consequences, linguistic isolation and other vulnerabilities. The Civil Rights Division is committed to seeking justice on behalf of victims of human trafficking and to holding human traffickers accountable”
“Human trafficking degrades the dignity of humanity and strikes at the heart of individual equality and freedom,” said U.S. Attorney Andy Luger for the District of Minnesota. “The U.S. Attorney’s Office for the District of Minnesota will aggressively prosecute those who seek to capitalize on human frailty through such conduct.”
“ The FBI, in conjunction with its law enforcement partners, remains steadfast in its commitment to eradicate human trafficking,” said Special Agent in Charge J. Chris Warrener of the FBI’s Minneapolis Field Office. “Human trafficking is an insidious crime which impacts not only its victims, but society as a whole. Detecting and bringing to justice those who perpetrate these schemes will always be a top priority for law enforcement. ”
Tran faces a statutory maximum sentence of 20 years in prison and a $250,000 fine. As part of her plea agreement, Tran agreed to nullify all debts imposed upon the victim, as well as similar debts imposed upon seven other individuals believed to be under similar circumstances.
This case was investigated by the FBI and is being prosecuted by Trial Attorney William Nolan of the Civil Rights Division’s Human Trafficking Prosecution Unit and Assistant U.S. Attorney David Steinkamp of the U.S. Attorney’s Office for the District of Minnesota.
MAN SENTENCED FOR PART IN RACIAL ASSAULT AGAINST WHITE MAN AND AFRICAN-AMERICAN WOMAN
FROM: U.S. JUSTICE DEPARTMENT
Tuesday, March 25, 2014
California Man Sentenced to Federal Prison for Racially Motivated Assault on White Man and African-American Woman
Billy James Hammett, 30, of Marysville, Calif., was sentenced today by U.S. District Judge John A. Mendez to serve 87 months in prison for violating the Matthew Shepard and James Byrd Jr. Hate Crimes Prevention Act in a 2011 racially motivated attack against a white man and an African-American woman in Marysville. The court also ordered Hammett to pay restitution in the amount of $175 and to serve three years of supervised release following his prison sentence. Hammett pleaded guilty on Dec. 17, 2013, and his co-defendants, Perry Sylvester Jackson, 28, and Anthony Merrell Tyler, 33, have also pleaded guilty and are awaiting sentencing.
According to documents filed with the court, around 10:45 p.m. on April 18, 2011, a white man and an African-American woman parked their car at a convenience store in Marysville. Shortly afterward, the three defendants, each of whom has white supremacist tattoos, attacked the man and woman based on race. After calling the male victim a “[racial slur]-lover,” Jackson punched him twice in the head through the open passenger window. At the same time, Hammett kicked the woman in the chest. A few seconds later, Tyler smashed the car’s windshield with a crowbar. As the attack continued, the woman managed to take refuge inside the convenience store. All three assailants then descended upon the male victim and began attacking him in the parking lot. He sustained abrasions on his right forearm and knees, while the woman suffered bruising to her chest. At the end of the incident, Tyler used a racial slur to refer to an African-American witness.
In sentencing the defendant, Judge Mendez said he found surveillance video footage of the assault “disturbing.” He noted that Hammett’s attack on the victims was “unprovoked and unwarranted,” and that the victims continue to suffer.
During the sentencing hearing, Judge Mendez also specifically considered Hammett’s background and criminal history, which includes a conviction in 2006 for assaulting a 72-year-old black man, also in Marysville. According to court records, Hammett made racial comments immediately before the unprovoked attack. In addition, Hammett has been affiliated with a number of white supremacist gangs, including Supreme White Power. He has tattoos of the words “white power” across his abdomen, a large swastika on the right side of his torso and the word “skinhead” written across the top of his back. Judge Mendez stated during the sentencing hearing that Hammett poses “a serious threat to the public.”
“The defendant and his associates accosted the victims in public and assaulted them because of their race,” said Acting Assistant Attorney General Jocelyn Samuels for the Civil Rights Division. “The department is committed to stamping out racial violence and will continue to prosecute hate crimes vigorously.”
“Racially-motivated violence has no place in civilized society,” said U.S. Attorney Benjamin B. Wagner for the Eastern District of California. “This office has a history of prosecuting those who perpetrate crimes of hate, and as long as these crimes continue, we will be there to enforce the law and uphold this nation’s constitutional values.”
Jackson is scheduled to be sentenced on April 22, 2014, and Tyler is scheduled to be sentenced on July 8, 2014. Each defendant faces a statutory maximum sentence of 10 years in prison and a fine of $250,000.
This case was investigated by the FBI with the assistance of the Yuba County Sheriff's Office and the Yuba County District Attorney's Office. The case is being prosecuted by U.S. Attorney Wagner and Trial Attorney Chiraag Bains of the Justice Department's Civil Rights Division.
Tuesday, March 25, 2014
California Man Sentenced to Federal Prison for Racially Motivated Assault on White Man and African-American Woman
Billy James Hammett, 30, of Marysville, Calif., was sentenced today by U.S. District Judge John A. Mendez to serve 87 months in prison for violating the Matthew Shepard and James Byrd Jr. Hate Crimes Prevention Act in a 2011 racially motivated attack against a white man and an African-American woman in Marysville. The court also ordered Hammett to pay restitution in the amount of $175 and to serve three years of supervised release following his prison sentence. Hammett pleaded guilty on Dec. 17, 2013, and his co-defendants, Perry Sylvester Jackson, 28, and Anthony Merrell Tyler, 33, have also pleaded guilty and are awaiting sentencing.
According to documents filed with the court, around 10:45 p.m. on April 18, 2011, a white man and an African-American woman parked their car at a convenience store in Marysville. Shortly afterward, the three defendants, each of whom has white supremacist tattoos, attacked the man and woman based on race. After calling the male victim a “[racial slur]-lover,” Jackson punched him twice in the head through the open passenger window. At the same time, Hammett kicked the woman in the chest. A few seconds later, Tyler smashed the car’s windshield with a crowbar. As the attack continued, the woman managed to take refuge inside the convenience store. All three assailants then descended upon the male victim and began attacking him in the parking lot. He sustained abrasions on his right forearm and knees, while the woman suffered bruising to her chest. At the end of the incident, Tyler used a racial slur to refer to an African-American witness.
In sentencing the defendant, Judge Mendez said he found surveillance video footage of the assault “disturbing.” He noted that Hammett’s attack on the victims was “unprovoked and unwarranted,” and that the victims continue to suffer.
During the sentencing hearing, Judge Mendez also specifically considered Hammett’s background and criminal history, which includes a conviction in 2006 for assaulting a 72-year-old black man, also in Marysville. According to court records, Hammett made racial comments immediately before the unprovoked attack. In addition, Hammett has been affiliated with a number of white supremacist gangs, including Supreme White Power. He has tattoos of the words “white power” across his abdomen, a large swastika on the right side of his torso and the word “skinhead” written across the top of his back. Judge Mendez stated during the sentencing hearing that Hammett poses “a serious threat to the public.”
“The defendant and his associates accosted the victims in public and assaulted them because of their race,” said Acting Assistant Attorney General Jocelyn Samuels for the Civil Rights Division. “The department is committed to stamping out racial violence and will continue to prosecute hate crimes vigorously.”
“Racially-motivated violence has no place in civilized society,” said U.S. Attorney Benjamin B. Wagner for the Eastern District of California. “This office has a history of prosecuting those who perpetrate crimes of hate, and as long as these crimes continue, we will be there to enforce the law and uphold this nation’s constitutional values.”
Jackson is scheduled to be sentenced on April 22, 2014, and Tyler is scheduled to be sentenced on July 8, 2014. Each defendant faces a statutory maximum sentence of 10 years in prison and a fine of $250,000.
This case was investigated by the FBI with the assistance of the Yuba County Sheriff's Office and the Yuba County District Attorney's Office. The case is being prosecuted by U.S. Attorney Wagner and Trial Attorney Chiraag Bains of the Justice Department's Civil Rights Division.
DOCTOR ACCUSED OF BILLING MEDICARE FOR MILLIONS IN MEDICARE FRAUD SCHEME
FROM: U.S. JUSTICE DEPARTMENT
Tuesday, March 25, 2014
Long Island Doctor Arrested and Accused of Multi-million Medicare Fraud Scheme
A Long Island, N.Y., doctor was arrested today on charges that he submitted millions of dollars in false billings to Medicare.
The charges were announced by Acting Assistant Attorney General David A. O’Neil of the Justice Department’s Criminal Division, U.S. Attorney Loretta E. Lynch of the Eastern District of New York, Assistant Director in Charge George Venizelos of the FBI’s New York Field Office and Special Agent in Charge Thomas O’Donnell of the Department of Health and Human Services Office of Inspector General (HHS-OIG).
Dr. Syed Imran Ahmed, 49, was charged with one count of health care fraud by a criminal complaint unsealed this morning in federal court in Brooklyn, N.Y. A seizure warrant seeking millions of dollars of Ahmed’s alleged ill-gotten gains, including the contents of seven bank accounts, was also unsealed. In addition, a civil forfeiture complaint was also filed today against Ahmed’s residence located in Muttontown, N.Y., valued at approximately $4 million. Further, search warrants were executed earlier today at six locations in New York, Michigan and Nevada. Ahmed’s initial appearance is scheduled this afternoon before U.S. Magistrate Judge Marilyn Go.
“The Medicare system entrusts doctors to provide patients with the care and services they need,” said Acting Assistant Attorney General O’Neil. “The charges unsealed today allege that Dr. Ahmed billed millions of dollars to Medicare for surgical procedures that he did not actually perform. These charges are yet another example of the Department of Justice’s determination to hold accountable those who abuse the trust placed in them and steal from the system for personal gain.”
“As alleged, Ahmed created phantom medical procedures to steal very real taxpayer money. The defendant sought to enrich himself and fund his lifestyle through billing Medicare for services he never performed,” stated United States Attorney Lynch. “We are committed to protecting these taxpayer-funded programs and prosecuting those who steal from them.”
“Fraudulently billing the government defrauds every American taxpayer,” said FBI Assistant Director in Charge Venizelos. “We will investigate cases of graft and greed to protect important programs for those who need them.”
“For a single physician, the alleged conduct in this case is among the most serious I've seen in my law enforcement career," said HHS-OIG SAC O’Donnell. “Being a Medicare provider is a privilege, not a right. When Dr. Ahmed allegedly billed Medicare for procedures he never performed, he violated the basic trust that taxpayers extend to healthcare providers.”
As alleged in the complaint, Ahmed engaged in a scheme to submit claims to Medicare for surgical procedures that were not in fact performed. The complaint alleges multiple instances in which either patients told law enforcement officers that they never had the procedures that were billed, or hospital medical records did not contain any evidence that the procedures were actually performed. From January 2011 through mid-December 2013, Medicare was billed at least $85 million for surgical procedures purportedly performed by Ahmed.
The investigation has been conducted by the FBI and HHS-OIG and brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York. The case is being prosecuted by Trial Attorney Turner Buford of the Fraud Section and Assistant U.S. Attorneys William Campos and Erin Argo of the U.S. Attorney’s Office for the Eastern District of New York.
The charges in the complaint are merely allegations, and the defendant is presumed innocent unless and until proven guilty.
Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,700 defendants who have collectively billed the Medicare program for more than $5.5 billion. In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.
Tuesday, March 25, 2014
Long Island Doctor Arrested and Accused of Multi-million Medicare Fraud Scheme
A Long Island, N.Y., doctor was arrested today on charges that he submitted millions of dollars in false billings to Medicare.
The charges were announced by Acting Assistant Attorney General David A. O’Neil of the Justice Department’s Criminal Division, U.S. Attorney Loretta E. Lynch of the Eastern District of New York, Assistant Director in Charge George Venizelos of the FBI’s New York Field Office and Special Agent in Charge Thomas O’Donnell of the Department of Health and Human Services Office of Inspector General (HHS-OIG).
Dr. Syed Imran Ahmed, 49, was charged with one count of health care fraud by a criminal complaint unsealed this morning in federal court in Brooklyn, N.Y. A seizure warrant seeking millions of dollars of Ahmed’s alleged ill-gotten gains, including the contents of seven bank accounts, was also unsealed. In addition, a civil forfeiture complaint was also filed today against Ahmed’s residence located in Muttontown, N.Y., valued at approximately $4 million. Further, search warrants were executed earlier today at six locations in New York, Michigan and Nevada. Ahmed’s initial appearance is scheduled this afternoon before U.S. Magistrate Judge Marilyn Go.
“The Medicare system entrusts doctors to provide patients with the care and services they need,” said Acting Assistant Attorney General O’Neil. “The charges unsealed today allege that Dr. Ahmed billed millions of dollars to Medicare for surgical procedures that he did not actually perform. These charges are yet another example of the Department of Justice’s determination to hold accountable those who abuse the trust placed in them and steal from the system for personal gain.”
“As alleged, Ahmed created phantom medical procedures to steal very real taxpayer money. The defendant sought to enrich himself and fund his lifestyle through billing Medicare for services he never performed,” stated United States Attorney Lynch. “We are committed to protecting these taxpayer-funded programs and prosecuting those who steal from them.”
“Fraudulently billing the government defrauds every American taxpayer,” said FBI Assistant Director in Charge Venizelos. “We will investigate cases of graft and greed to protect important programs for those who need them.”
“For a single physician, the alleged conduct in this case is among the most serious I've seen in my law enforcement career," said HHS-OIG SAC O’Donnell. “Being a Medicare provider is a privilege, not a right. When Dr. Ahmed allegedly billed Medicare for procedures he never performed, he violated the basic trust that taxpayers extend to healthcare providers.”
As alleged in the complaint, Ahmed engaged in a scheme to submit claims to Medicare for surgical procedures that were not in fact performed. The complaint alleges multiple instances in which either patients told law enforcement officers that they never had the procedures that were billed, or hospital medical records did not contain any evidence that the procedures were actually performed. From January 2011 through mid-December 2013, Medicare was billed at least $85 million for surgical procedures purportedly performed by Ahmed.
The investigation has been conducted by the FBI and HHS-OIG and brought as part of the Medicare Fraud Strike Force, under the supervision of the Criminal Division’s Fraud Section and the U.S. Attorney’s Office for the Eastern District of New York. The case is being prosecuted by Trial Attorney Turner Buford of the Fraud Section and Assistant U.S. Attorneys William Campos and Erin Argo of the U.S. Attorney’s Office for the Eastern District of New York.
The charges in the complaint are merely allegations, and the defendant is presumed innocent unless and until proven guilty.
Since its inception in March 2007, the Medicare Fraud Strike Force, now operating in nine cities across the country, has charged more than 1,700 defendants who have collectively billed the Medicare program for more than $5.5 billion. In addition, HHS’s Centers for Medicare and Medicaid Services, working in conjunction with HHS-OIG, is taking steps to increase accountability and decrease the presence of fraudulent providers.
PRESIDENT'S WEEKLY ADDRESS ON MARCH 29, 2014
FROM: THE WHITE HOUSE
Weekly Address: Raise The Minimum Wage – It’s The Right Thing To Do For Hardworking Americans
WASHINGTON, DC— In this week’s address, Vice President Biden discusses the importance of raising the federal minimum wage. It’s good for workers, it’s good for business, and it would help close the gender pay gap, as women make up more than half of the workers who stand to benefit from a raise. And as the Vice President highlights, Congress should boost the federal minimum wage because it is what a majority of the American people want.
The audio of the address and video of the address will be available online atwww.whitehouse.gov at 6:00 a.m. ET, Saturday, March 29, 2014.
Remarks of Vice President Joe Biden
Weekly Address
The White House
March 29, 2014
Weekly Address
The White House
March 29, 2014
Ladies and gentlemen, I’m Joe Biden. I’m filling in for President Obama, who is abroad.
I want to talk to you today about the minimum wage and the overwhelming need to raise the minimum wage. There’s no reason in the world why an American working 40 hours a week has to live in poverty. But right now a worker earning the federal minimum wage makes about $14,500 a year. And you all know that's incredibly hard for an individual to live on, let alone raise a family on.
But if we raise the minimum wage to $10.10 an hour, that same worker will be making $20,200 a year—and with existing tax credits would earn enough to bring that family or a family of four out of poverty. But there’s a lot of good reasons why raising the minimum wage makes sense.
Not only would it put more hard-earned money into the pockets of 28 million Americans, moving millions of them out of poverty, it’s also good for business. And let me tell you why.
There’s clear data that shows fair wages generate loyalty of workers to their employers, which has the benefit of increasing productivity and leading to less turn over. It’s really good for the economy as a whole because raising the minimum wage would generate an additional $19 billion in additional income for people who need it the most.
The big difference between giving a raise in the minimum wage instead of a tax break to the very wealthy is the minimum wage worker will go out and spend every penny of it because they're living on the edge. They’ll spend it in the local economy. They need it to pay their electric bill, put gas in their automobile, to buy fundamental necessities. And this generates economic growth in their communities.
And I’m not the only one who recognizes these benefits. Companies big and small recognize it as well. I was recently in Atlanta, Georgia, and met the owner of a small advertising company, a guy named Darien. He independently raised the wages of his workers to $10.10 an hour. But large companies, as well, Costco and the Gap—they're choosing to pay their employees higher starting wages.
A growing list of governors are also raising wages in their states – the minimum wage. They join the President who raised the minimum wage for employees of federal contractors like the folks serving our troops meals on our bases. They're all doing this for a simple reason. Raising the minimum wage will help hardworking people rise out of poverty.
It’s good for business. It’s helpful to the overall economy. And there’s one more important benefit. Right now women make up more than half of the workers who would benefit from increasing the minimum wage. Folks, a low minimum wage is one of the reasons why women in America make only 77 cents on a dollar that every man makes. But by raising the minimum wage, we can close that gap by 5 percent. And it matters. It matters to a lot of hardworking families, particularly moms raising families on the minimum wage.
And one more thing, folks—it’s what the American people want to do. Three out of four Americans support raising the minimum wage. They know this is the right and fair thing to do, and the good thing to do for the economy. So it’s time for Congress to get behind the minimum wage bill offered by Tom Harkin of Iowa and Congressman George Miller of California—the proposal that would raise the federal minimum wage from $7.25 an hour to $10.10 an hour.
So ask your representatives who oppose raising the federal minimum wage—why do they oppose it? How can we look at the men and women providing basic services to us all, like cleaning our offices, caring for our children, serving in our restaurants and so many other areas—how can we say they don't deserve enough pay to take them out of poverty?
The President and I think they deserve it. And we think a lot of you do too. So, folks, it’s time to act. It’s time to give America a raise.
Thanks for listening and have a great weekend. God bless you all and may God protect our troops.
THE SUPER GUPPY DELIVERS INNOVATIVE COMPOSITE ROCKET FUEL TANK
NASA’s Super Guppy, a wide-bodied cargo aircraft, landed at the Redstone Army Airfield near Huntsville, Ala. on March 26 with a special delivery: an innovative composite rocket fuel tank. The tank was manufactured at the Boeing Developmental Center in Tukwila, Wash. The tank will be unloaded from the Super Guppy, which has a hinged nose that opens and allows large cargos like the tank to be easily unloaded. After the tank is removed from the Super Guppy, it will be inspected and prepared for testing at NASA’s Marshall Space Flight Center in Huntsville, Ala. The composite tank project is part of the Game Changing Development Program and NASA's Space Technology Mission Directorate. Image credit: NASA/MSFC/Emmett Given › Alternate view #1 › Alternate view #2.
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