AI
Friday, May 03, 2013 2:27:58 AM
Jeffrey Sachs: Wall Street Case Shows 'Pathological System, Out Of Control'
05/02/2013
http://www.huffingtonpost.com/2013/05/02/jeffrey-sachs-wall-street_n_3201887.html [with embedded video, and comments]
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Ex-Diamondback Manager Gets 4 1/2 Years in Insider Case
Todd Newman, former portfolio manager for Diamondback Capital Management LLC, exits federal court in New York.
Victor J. Blue/Bloomberg
Todd Newman, former portfolio manager for Diamondback Capital Management LLC, left, exits federal court with his attorney Stephen Fishbein, center, in New York on Thursday, May, 2, 2013.
Louis Lanzano/Bloomberg
By Patricia Hurtado - May 2, 2013 5:53 PM CT
Former Diamondback Capital Management LLC fund manager Todd Newman was sentenced to 4 1/2 years in prison for his role in an insider-trading scheme that used tips from technology company insiders to earn $72 million.
U.S. District Judge Richard Sullivan imposed the term today in Manhattan federal court and also ordered Newman, 48, to pay a $4 million fine for the proceeds the fund earned from the scheme.
Sullivan said he may decide by later today whether to let Newman remain free pending his appeal. He granted a request by defense lawyers to allow Newman to serve his term at the federal prison camp in Devens, Massachusetts. That facility is where Galleon Group LLC co-founder Raj Rajaratnam is serving an 11- year sentence for insider trading.
“It’s hard to see why somebody who’d reached the pinnacle of success, who had the respect of the community and wealth, would risk that for more,” Sullivan said. “This was all about money and getting more. It’s hard to explain why somebody would do that when they had so much.”
While Newman didn’t speak in court, his lawyers cited his kindness and generosity while urging the judge to impose a prison term of less than the 63 to 78 months recommended under U.S. sentencing guidelines. John Nathanson, a lawyer for Newman, said after court his client will appeal the conviction.
Secret Payments
Sullivan said it troubled him that trial evidence showed Newman authorized secret payments of $175,000 to the wife of one source of illicit tips and that the scheme lasted for two years.
“It was clearly done over a period of time in a surreptitious way in order to continue this gravy train of inside information that generated substantial profits,” Sullivan said.
He questioned why Newman, who earned $3 million to $4 million a year as a portfolio manager for the Stamford, Connecticut-based fund, would be motivated to commit crimes, saying he wasn’t like other defendants who were motivated by poverty or lack of opportunity.
“People should understand the lines are so bright here that the penalties have to be severe enough to send a message,” Sullivan said.
“Insider trading is a serious crime,” he said. “People should know when you do that, the penalty will be harsh.”
Six-Week Trial
Newman, of Needham, Massachusetts, was convicted in December after a six-week trial along with Level Global Investors LP co-founder Anthony Chiasson. Prosecutors said they were part of a group of portfolio managers, fund analysts and insiders at technology companies who swapped and shared material nonpublic information about the firms and reaped millions of dollars in profits by trading on the illicit tips.
Newman was found guilty of four counts of securities fraud and one count of conspiracy related to trades on inside information that prosecutors said earned his fund more than $4 million from his insider trading. The jury found that he engaged in a two-year scheme to trade on Dell Inc. (DELL) and Nvidia Corp. (NVDA) using illicit tips provided by his then-analyst, Jesse Tortora. Tortora pleaded guilty, agreed to cooperate with the U.S. and testified against Newman during the trial.
Chiasson, who was convicted of one count of conspiracy and five counts of securities fraud, is scheduled to be sentenced by Sullivan on May 13.
Six Others
Six others charged with being part of the insider-trading ring have pleaded guilty and are cooperating with the U.S., including Jon Horvath, a former analyst at SAC Capital Advisors LP’s Sigma unit. In March, Michael Steinberg, a portfolio manager to whom Horvath reported, was indicted by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara.
During the trial, prosecutors presented evidence that showed Newman knew he was receiving highly sensitive information about Dell and Nvidia, such as earnings and revenue data ahead of quarterly announcements.
The government’s evidence also included e-mails Newman received with the names of other fund managers who were also receiving the illicit tips, including Chiasson and Steinberg.
To date more than 80 people have been charged and more than 70 have pleaded guilty or been convicted at trial of insider trading since the Manhattan U.S. Attorney and the Federal Bureau of Investigation in New York began an initiative to combat insider trading by portfolio managers, analysts and company employees.
Restitution Request
Diamondback, which was raided by the FBI in November 2010 as part of the federal investigation of insider trading at hedge funds, has asked for $39 million in restitution from Newman under the federal Mandatory Victims Restitution Act. The fund claims it’s a victim of Newman’s crimes and is seeking management fees lost as a result of his crimes.
The fund said after the raid that there was a “massive wave” of investor redemptions of about $1.3 billion and that it lost at least $26 million, or the 2 percent management fees it would have earned on those funds during the next year.
Diamondback avoided prosecution and agreed to pay $9 million to settle a suit brought by the U.S. Securities and Exchange Commission stemming from Newman’s case.
The fund announced it would close in December after clients pulled money as a result of publicity from Newman’s case.
Peter Neiman, a partner at WilmerHale who’s representing Diamondback, argued today in favor of restitution. He cited the non-prosecution agreement to end the criminal investigation.
Management Fees
Prosecutors said while they agree Diamondback is a victim of the fraud, it hasn’t established that it’s entitled to restitution for loss of its management fees.
Sullivan expressed skepticism about the restitution request.
“Should an entity’s status as a ‘victim’ turn solely on whether the government, in its discretion, decides to pull the trigger on an indictment?” Sullivan said. “It’s hard to get one’s head around the fact that Diamondback is a victim when Diamondback could have been charged as a corporate entity.”
Sullivan today ordered Newman to forfeit $737,724 to the government and said he will determine at a later date whether Diamondback should receive restitution. The judge suggested that defense lawyers submit a filing explaining their position. He said he would rule after reviewing their arguments, as well as those by the government and Diamondback.
Neiman said in a statement issued after court that Diamondback will provide Sullivan with additional information. He noted that after the government’s investigation of the hedge fund, prosecutors concluded Newman had “routinely violated” Diamondback’s compliance policies. The U.S. also determined that there was “no evidence” Newman’s conduct was “known to the firm’s co-founders,” Neiman said, quoting from a statement prosecutors issued at the time the non-prosecution agreement with Diamondback was announced.
“The government at sentencing agreed that Diamondback was a victim of Newman’s crimes and that Diamondback was therefore entitled to substantial restitution,” Neiman said in the statement.
The case is U.S. v. Newman, 1:12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net
©2013 BLOOMBERG L.P.
http://www.bloomberg.com/news/2013-05-02/ex-diamondback-manager-gets-4-1-2-years-in-insider-case.html [with comment]
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Bankers Explain How They Cannot Possibly Live On $1 Million Pay [actually, 1 million British pounds, or about $1.6 million]
05/02/2013
http://www.huffingtonpost.com/2013/04/30/bankers-1-million-pay_n_3188177.html [with embedded video report, and comments]
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Executive Pay Of Austerity Advocates Saves Companies More Than $1 Billion Via Tax Loophole
Members of Alan Simpson's pro-austerity group scored tax breaks from high CEO pay.
05/02/2013
WASHINGTON -- Companies in the Fix the Debt coalition, which advocates for federal austerity policies, qualified for $1 billion or more in tax breaks tied to executive pay packages from 2009 to 2011, according to a new report [ http://www.ips-dc.org/reports/ceo-tax-subsidized-pay ] by the liberal think tanks Institute for Policy Studies and Campaign for America's Future.
The four highest-paid executives at the firms received a total of $6.3 billion in pay over the period, according to the report. Federal tax law allows companies to deduct executive pay based on performance from the firm's tax bill as a business expense. This performance-based compensation includes stock options, stock awards and other types of incentive pay. These 90 companies qualified for tax perks totaling between $1 billion and $1.5 billion over the course of three years, depending on how many types of pay firms actually deducted.
[...]
http://www.huffingtonpost.com/2013/05/02/executive-pay-austerity-a_n_3195256.html [with comments]
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Mentally disabled turkey plant workers awarded $240M for years of abuse
The Associated Press, Staff – May 1, 2013
An Iowa jury on Wednesday awarded a total of $240 million to 32 mentally disabled Iowa turkey processing plant workers for what government lawyers described as years of around-the-clock abuse and discrimination by the Texas company that oversaw their care, work and lodging.
The federal jury in Davenport determined that Henry's Turkey Service, of Goldthwaite, Tex., violated the Americans with Disabilities Act by creating a hostile living and working environment and imposing discriminatory conditions of employment. The jury also found that the company acted with "malice or reckless indifference" to the men's civil rights.
Jurors awarded each of the men $7.5 million apiece after a weeklong trial that featured emotional testimony from social workers who described the physical and verbal abuse they suffered. That includes $5.5 million apiece in compensatory damages for their pain and suffering and $2 million apiece to punish the company for knowingly violating the law.
The company, which is now defunct, is not expected to be able to pay anywhere near the full amount of damages. The Equal Employment Opportunity Commission has suggested it will go after the defunct company's assets, including up to $4 million that was transferred to founder T.H. Johnson's widow after he died in 2008.
The employees lived at a rural Iowa bunkhouse under Henry's care while they worked at the West Liberty Foods turkey processing plant, which paid Henry's to supply them under a contract that dated to the 1970s. West Liberty Foods is not accused of any wrongdoing. Company officials said they banned a Henry's supervisor from the plant in 2007 after learning he had abused the men, but were otherwise unaware of problems.
The EEOC sued Henry's after state officials shuttered the bunkhouse in 2009 because of unsafe and unsanitary conditions there, including fire hazards, shoddy construction, a leaky roof, and a rodent infestation. State officials then found new caretakers for the men, many of whom were in their 50s and 60s and had medical problems that needed immediate attention.
"This was pervasive, 24/7, in every way," EEOC attorney Robert Canino said in his closing argument.
According to social workers who treated them after the home was shuttered, the men said they had been subjected to harsh discipline and abuse at home and work by their Henry's supervisors. They said they had been forced to work through illness and injuries, denied bathroom breaks, locked in their rooms, kicked in the groin and, in one case, handcuffed to a bed. Supervisors also subjected the men to random acts of cruelty, such making them eat hot peppers, "just for laughs," Canino said.
By 2008, Henry's was being paid more than $500,000 per year by West Liberty Foods, but was paying the men the same $65 per month that it always had, regardless of how many hours they worked. The company docked the men's wages and Social Security disability benefits, telling them it was to pay for the cost of their care and lodging.
A judge has already ordered Henry's to pay the men more than $1.3 million in back wages in the case. Henry's never applied for medical care or other services for the disabled that the men would have qualified for in Iowa.
The Iowa Attorney General's Office has declined to prosecute anyone responsible for the abuse, saying it is unlikely that criminal charges could be proven beyond a reasonable doubt.
©2013 NBCNews.com
http://www.nbcnews.com/business/mentally-disabled-turkey-plant-workers-awarded-240m-years-abuse-6C9693069 [with comments]
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The Register Editorial: Huge verdict inadequately compensates men
Kenneth Henry, an owner of Henry's Turkey Service, testifies last year at an administrative law hearing over the company's appeal of a $900,000 state fine.
Mary Chind/The Register
Shameful tale of exploitation must not be repeated
May 2, 2013 10:21 PM
A $240 million jury verdict in Davenport Wednesday [ http://www.desmoinesregister.com/article/20130502/NEWS/305020065/-240-million-verdict-for-Atalissa-workers ] may be symbolic, but it is a measure of the jurors’ outrage over how Henry’s Turkey Service mistreated 32 mentally challenged workers in Iowa for many years.
There is no way to put a price tag on the abuse suffered by those men, along with possibly hundreds of others who were sent to Iowa from Texas to work in meatpacking plants. Nor can they be adequately compensated for the years of their lives they forfeited. But maybe the magnitude of the jury’s verdict will prevent such abuses in the future.
Testimony in the U.S. District Court civil trial dredged up details of a shameful story of human exploitation that was allowed to go on for decades before state and federal officials finally interceded four years ago. Men with mental retardation were bused to a turkey processing plant in West Liberty where Henry’s paid them roughly 40 cents an hour, housed them in a filthy former school heated with space heaters and regularly subjected them to physical and mental abuse.
It was not a new story, however. Local, state and federal officials had known for years about deplorable conditions in the “bunkhouse” in the tiny Muscatine County town of Atalissa. The Des Moines Register first reported the story in the 1980s, and it was assumed authorities would act. Yet nothing changed until questions were raised anew in 2009 after the Register’s Clark Kauffman received complaints from a relative of a Henry’s employee.
Finally, the state swooped in, closed the bunkhouse and placed the remaining Henry’s workers in appropriate housing. In the meantime, the timeline of this story is dotted with example after example of this agency or that agency looking into the story. Nothing happened. What was missing was someone who was able to see the big picture and connect those dots.
That job was done by the eight-person jury on Wednesday. After hearing testimony of men being marched around a pole and handcuffed to beds in a roach-infested hovel, the jurors deliberated for just eight hours and issued a quarter-billion-dollar judgment against Henry’s.
That would amount to $7.5 million each for the 32 men on whose behalf the U.S. Equal Employment Opportunity Commission brought the case. It is unlikely the victims will see anywhere near that much, since the company may have assets of less than $4 million.
Perhaps, though, the magnitude of the judgment will send the message that humans have lately been treated like slaves in this country, not just in Bangladesh, and that it still may be happening. That message should be heard and heeded by those with the power to bring such abuse to light and abusers to justice.
Copyright © 2013 www.desmoinesregister.com
http://www.desmoinesregister.com/article/20130502/OPINION03/305020119/ [no comments yet]
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William Koch, Billionaire Brother, Must Face Lawsuit Alleging Exec's False Imprisonment: Judge
05/01/2013
http://www.huffingtonpost.com/2013/05/01/william-koch-lawsuit_n_3192933.html [with embedded video report "What A Koch-Owned LA Times Might Look Like", and comments]
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Reinhart, Rogoff Backing Furiously Away From Austerity Movement
05/02/2013
http://www.huffingtonpost.com/2013/05/02/reinhart-rogoff-austerity_n_3201453.html [with comments]
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Billy Long's Constituents: Sequester Is Hurting Us And No, We Don't Want More Cuts
05/02/2013
http://www.huffingtonpost.com/2013/05/02/billy-long-sequester_n_3203600.html [with comments]
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U.S. Faces 'Real-Time Experiment' in Economic Recovery While Cutting Spending
PBS NewsHour
DEBATE - AIR DATE: May 1, 2013
Transcript
JUDY WOODRUFF: As we mentioned earlier, the Federal Reserve today was critical of current fiscal policy in Washington. In a statement issued after their regular meeting, Fed governors wrote cuts in government spending are -- quote -- "restraining economic growth."
We look at the renewed debate surrounding spending and austerity now. Robert Kuttner is a founder and co-editor of The American Prospect magazine. He's the author of a new book, "Debtors' Prison: The Politics of Austerity vs. Possibility." And Kevin Hassett, an economist who has written papers on this subject. He served in Republican administrations and is now the director of economic policy studies at the American Enterprise Institute.
Welcome to you both.
And, Robert Kuttner, to you first. Let's start with the United States. What are some examples of policy right now in this country that you believe are hurting economic growth?
ROBERT KUTTNER, The American Prospect: Well, we had the New Year's deal that President Obama made with the Republicans that was supposed to head off the so-called fiscal cliff.
That took about $200 billion dollars out of economy. We raised Social Security taxes two points. We raised taxes on the top one percent, and then to compound the damage, we have the sequester, which was executed in March.
So, those two things together, according to the Congressional Budget Office, which is a bipartisan outfit, cut the growth rate by -- in half this year from a projected three percent to a projected 1.5 percent. If you are in a depressed economy and you reduce purchasing power further, you are only going to make the economy more depressed, and far from getting closer to an improvement in debt ratio, you are going to reduce the GDP relative to what it would have been and so the debt ratio is going to get worse.
So, we have had a real-time experiment both in the United States and in Europe in the failure of austerity policies to dig the economies out of the hole they are in.
JUDY WOODRUFF: Kevin Hassett, do you accept his examples as a sign that growth has been cut and this is how?
KEVIN HASSETT, American Enterprise Institute: Sure. Yes.
Absolutely, Robert's numbers are very precise and accurate. I mean, the 1.5 percent is the CBO estimate. I did my own back of the envelope on the car over, and it was about the same. But the fact is, I think that we need to step back and think about what is going on in Europe and all the unrest and put it in a slightly longer-term perspective to understand where we are and what policy decisions we have to make.
The fact is that before the crisis the government spending to GDP in the typical industrialized country all in counting state and local was about 39 percent. Because of expansionary Keynesian policies, but also built-in stabilizers like having to pay more unemployment insurance for folks and so on, it jumped up to about 44.5 percent.
JUDY WOODRUFF: You are saying there's a lot of spending going on?
KEVIN HASSETT: Yes. But it's still way above where it was before the crisis.
So, in the average industrialized country, it's gone from about 44.5 to 42.5, which is still above where it was before the crisis, and so there have been reductions. They have reduced growth relative to the peak. But at some point, you kind of run out of money if you keep spending -- deficit spending up around nine, 10 percent.
And so the governments have had to ratchet back because they had pursued Keynesian policies. And now they're coming back and we're in the hangover period.
JUDY WOODRUFF: Now, you are folding Europe into this conversation. I was trying to keep them separate. But maybe that's not possible.
KEVIN HASSETT: OK. Sure.
JUDY WOODRUFF: Robert Kuttner, what about that, the fact -- his point is pretty clear that the spending was just practically out of control before, and, yes, there have been some cutbacks, but not very much?
ROBERT KUTTNER: You know, it really wasn't out of control.
The biggest single source of the increased deficit was the recession. And let's not forget what caused the recession. It wasn't government spending being out of control. It was a financial collapse made on Wall Street. And if you have a financial collapse, the government collects less revenue and spends a little bit more on things like unemployment compensation and food stamps, and so the deficit goes up.
But it doesn't logically follow that you can get a recovery going by cutting the deficit, because the only thing that is keeping the economy afloat, given the weakness of wages and salaries and private demand and private investment, what is keeping the economy afloat is deficit spending, public spending.
And so the time to get the deficit under control is when the economy is booming. It's not when the economy is in a ditch. And that's why these policies don't work.
JUDY WOODRUFF: What about that? And that is part of what the Federal Reserve said today.
KEVIN HASSETT: Right.
Well, the problem is that a Keynesian policy is well-designed if you can do it right.
JUDY WOODRUFF: And Keynesian plan meaning ...
KEVIN HASSETT: Which means spending, trying to drive up government spending in order to drive growth -- is perfect if you look at the historic recession that lasted about 11 months and then we grew about 6.5 percent the year after.
If we could take some of the government spending from the 6.5 percent year, move it into the year where we have a recession, then of course it's a good idea if you can do it. The problem is that we're in a protracted period of slow growth. And we're trying to build a kind of Keynesian bridge, a government spending bridge to when we're growing stronger.
But the evidence -- the other Reinhart and Rogoff evidence from a different study is that it usually takes about a decade to recover from a financial crisis. And so spending our way out of that is a really, really hard thing to do. And governments haven't been able to sustain it and that's why pretty much across the industrialized world, everybody has been cutting back on spending and increasing taxes to try to get ahead of the curve on deficits.
JUDY WOODRUFF: What about that point? Robert Kuttner, you are shaking your head.
ROBERT KUTTNER: Well, it takes a decade to get out a crisis or it takes a year or two depending on what government does.
What Europe has demonstrated is, if you put the whole economy in a debtor's prison, it is going to take twice as long, three times as long. The reason I call it a debtor's prison is that if you put somebody in a debtor's prison, you ruin their ability to earn a living and they can't help themselves, they can't help their creditors.
There's a terrible double standard in debt. We have done some work on this at Demos, where I'm a senior fellow. A corporation can get out from under debt by declaring Chapter 11. But a student debt carries that student to his or her grave. If the parent co-signs the student loan and the student dies, the parent is still responsible.
We have a trillion dollars of student debt. What a thing, what a gift to give the next generation. Mortgage holders can't declare Chapter 11, but corporations can. So, there are huge double standards here. And Europe just demonstrates that you can't deflate your way to recovery.
The way to get the debt ratio down is to get a recovery going. World War II is history's great example. We went from 12 percent unemployment to zero percent in the course of six months because government spent serious money. And then we grew out way out of that. So, I think the whole view that let's tighten our belts and the economy will recover is just being refuted day by day.
JUDY WOODRUFF: You not only argue, Kevin Hassett, that belts should be tightened. You argue for much deeper cuts in entitlement programs like Social Security, Medicare in this country and the equivalent programs in Europe.
KEVIN HASSETT: That's right.
The economist's language for it is a fiscal consolidation. And there have been many studies of fiscal consolidations that suggest that a country has a better long-term growth prospects if it gets ahead of the curve on debt. But you need to do it in a measured way. You don't want to front-load all the pain right now.
And I would actually agree with Robert. If you look at European nations, for example, they have had a heck of a lot of contraction, of contractionary fiscal policy. And Robert was good to mention the tax increases here in the U.S. They have had tax increases like that in Europe throughout Europe and spending cuts. And they have front-loaded them. So, they really have cast Europe into a recession with this austerity in some pockets.
But don't forget the reason they are doing it is that nobody really wanted to lend to Greece because their deficits were so large, their policies were so unsustainable that the country looked like it might go bankrupt.
JUDY WOODRUFF: Let's end by asking you both what you think needs to be done right now in the United States if you could wave a magic wand and have Congress do it.
Robert Kuttner?
ROBERT KUTTNER: Well, I don't think you should have the kind of grand bargain that President Obama is talking about with the Republicans, where you cut Social Security, you cut Medicare, and in exchange the Republicans agree to raise taxes and you have 10 more years of austerity.
I think, in the next year or two, until the economy gets back on its feet, you need public spending to put people back to work, rebuild the infrastructure that would make the economy more competitive. And then, when you get back to something close to full employment, people have jobs, people are paying taxes, then you can start reducing the debt because you have a higher growth rate, and the debt starts coming down, the debt ratio, that is, of its own accord. That's the time to rebalance.
JUDY WOODRUFF: And would that be your remedy?
KEVIN HASSETT: I think the thing that should be the headline for listeners is not necessarily what I want, but what has already happened.
If you look at the CBO's analysis of what President Obama and the Republicans have already agreed to, then they have stabilized the debt at a pretty reasonable level, about the average of the last 20 years, relatively quickly. And my guess is, given that, there's going to be a lot of posturing in Washington, but in the end, they are probably not going to do much more either way. There won't be more tax increases. There won't be more big spending cuts.
It might be different from what I would want, but I think listeners should know that despite all the rhetoric, they have made a lot of progress already.
JUDY WOODRUFF: Well, the debate -- and it is a debate -- goes on.
Kevin Hassett, Robert Kuttner, thank you both.
ROBERT KUTTNER: Thank you.
KEVIN HASSETT: Thank you.
Copyright © 2013 MacNeil/Lehrer Productions
http://www.pbs.org/newshour/bb/world/jan-june13/austerity2_05-01.html [with embedded video and audio ( http://www.pbs.org/newshour/rss/media/2013/05/01/20130501_austerity2.mp3 ), and comments]
05/02/2013
http://www.huffingtonpost.com/2013/05/02/jeffrey-sachs-wall-street_n_3201887.html [with embedded video, and comments]
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Ex-Diamondback Manager Gets 4 1/2 Years in Insider Case
Todd Newman, former portfolio manager for Diamondback Capital Management LLC, exits federal court in New York.
Victor J. Blue/Bloomberg
Todd Newman, former portfolio manager for Diamondback Capital Management LLC, left, exits federal court with his attorney Stephen Fishbein, center, in New York on Thursday, May, 2, 2013.
Louis Lanzano/Bloomberg
By Patricia Hurtado - May 2, 2013 5:53 PM CT
Former Diamondback Capital Management LLC fund manager Todd Newman was sentenced to 4 1/2 years in prison for his role in an insider-trading scheme that used tips from technology company insiders to earn $72 million.
U.S. District Judge Richard Sullivan imposed the term today in Manhattan federal court and also ordered Newman, 48, to pay a $4 million fine for the proceeds the fund earned from the scheme.
Sullivan said he may decide by later today whether to let Newman remain free pending his appeal. He granted a request by defense lawyers to allow Newman to serve his term at the federal prison camp in Devens, Massachusetts. That facility is where Galleon Group LLC co-founder Raj Rajaratnam is serving an 11- year sentence for insider trading.
“It’s hard to see why somebody who’d reached the pinnacle of success, who had the respect of the community and wealth, would risk that for more,” Sullivan said. “This was all about money and getting more. It’s hard to explain why somebody would do that when they had so much.”
While Newman didn’t speak in court, his lawyers cited his kindness and generosity while urging the judge to impose a prison term of less than the 63 to 78 months recommended under U.S. sentencing guidelines. John Nathanson, a lawyer for Newman, said after court his client will appeal the conviction.
Secret Payments
Sullivan said it troubled him that trial evidence showed Newman authorized secret payments of $175,000 to the wife of one source of illicit tips and that the scheme lasted for two years.
“It was clearly done over a period of time in a surreptitious way in order to continue this gravy train of inside information that generated substantial profits,” Sullivan said.
He questioned why Newman, who earned $3 million to $4 million a year as a portfolio manager for the Stamford, Connecticut-based fund, would be motivated to commit crimes, saying he wasn’t like other defendants who were motivated by poverty or lack of opportunity.
“People should understand the lines are so bright here that the penalties have to be severe enough to send a message,” Sullivan said.
“Insider trading is a serious crime,” he said. “People should know when you do that, the penalty will be harsh.”
Six-Week Trial
Newman, of Needham, Massachusetts, was convicted in December after a six-week trial along with Level Global Investors LP co-founder Anthony Chiasson. Prosecutors said they were part of a group of portfolio managers, fund analysts and insiders at technology companies who swapped and shared material nonpublic information about the firms and reaped millions of dollars in profits by trading on the illicit tips.
Newman was found guilty of four counts of securities fraud and one count of conspiracy related to trades on inside information that prosecutors said earned his fund more than $4 million from his insider trading. The jury found that he engaged in a two-year scheme to trade on Dell Inc. (DELL) and Nvidia Corp. (NVDA) using illicit tips provided by his then-analyst, Jesse Tortora. Tortora pleaded guilty, agreed to cooperate with the U.S. and testified against Newman during the trial.
Chiasson, who was convicted of one count of conspiracy and five counts of securities fraud, is scheduled to be sentenced by Sullivan on May 13.
Six Others
Six others charged with being part of the insider-trading ring have pleaded guilty and are cooperating with the U.S., including Jon Horvath, a former analyst at SAC Capital Advisors LP’s Sigma unit. In March, Michael Steinberg, a portfolio manager to whom Horvath reported, was indicted by prosecutors in the office of Manhattan U.S. Attorney Preet Bharara.
During the trial, prosecutors presented evidence that showed Newman knew he was receiving highly sensitive information about Dell and Nvidia, such as earnings and revenue data ahead of quarterly announcements.
The government’s evidence also included e-mails Newman received with the names of other fund managers who were also receiving the illicit tips, including Chiasson and Steinberg.
To date more than 80 people have been charged and more than 70 have pleaded guilty or been convicted at trial of insider trading since the Manhattan U.S. Attorney and the Federal Bureau of Investigation in New York began an initiative to combat insider trading by portfolio managers, analysts and company employees.
Restitution Request
Diamondback, which was raided by the FBI in November 2010 as part of the federal investigation of insider trading at hedge funds, has asked for $39 million in restitution from Newman under the federal Mandatory Victims Restitution Act. The fund claims it’s a victim of Newman’s crimes and is seeking management fees lost as a result of his crimes.
The fund said after the raid that there was a “massive wave” of investor redemptions of about $1.3 billion and that it lost at least $26 million, or the 2 percent management fees it would have earned on those funds during the next year.
Diamondback avoided prosecution and agreed to pay $9 million to settle a suit brought by the U.S. Securities and Exchange Commission stemming from Newman’s case.
The fund announced it would close in December after clients pulled money as a result of publicity from Newman’s case.
Peter Neiman, a partner at WilmerHale who’s representing Diamondback, argued today in favor of restitution. He cited the non-prosecution agreement to end the criminal investigation.
Management Fees
Prosecutors said while they agree Diamondback is a victim of the fraud, it hasn’t established that it’s entitled to restitution for loss of its management fees.
Sullivan expressed skepticism about the restitution request.
“Should an entity’s status as a ‘victim’ turn solely on whether the government, in its discretion, decides to pull the trigger on an indictment?” Sullivan said. “It’s hard to get one’s head around the fact that Diamondback is a victim when Diamondback could have been charged as a corporate entity.”
Sullivan today ordered Newman to forfeit $737,724 to the government and said he will determine at a later date whether Diamondback should receive restitution. The judge suggested that defense lawyers submit a filing explaining their position. He said he would rule after reviewing their arguments, as well as those by the government and Diamondback.
Neiman said in a statement issued after court that Diamondback will provide Sullivan with additional information. He noted that after the government’s investigation of the hedge fund, prosecutors concluded Newman had “routinely violated” Diamondback’s compliance policies. The U.S. also determined that there was “no evidence” Newman’s conduct was “known to the firm’s co-founders,” Neiman said, quoting from a statement prosecutors issued at the time the non-prosecution agreement with Diamondback was announced.
“The government at sentencing agreed that Diamondback was a victim of Newman’s crimes and that Diamondback was therefore entitled to substantial restitution,” Neiman said in the statement.
The case is U.S. v. Newman, 1:12-cr-00121, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net
To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net
©2013 BLOOMBERG L.P.
http://www.bloomberg.com/news/2013-05-02/ex-diamondback-manager-gets-4-1-2-years-in-insider-case.html [with comment]
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Bankers Explain How They Cannot Possibly Live On $1 Million Pay [actually, 1 million British pounds, or about $1.6 million]
05/02/2013
http://www.huffingtonpost.com/2013/04/30/bankers-1-million-pay_n_3188177.html [with embedded video report, and comments]
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Executive Pay Of Austerity Advocates Saves Companies More Than $1 Billion Via Tax Loophole
Members of Alan Simpson's pro-austerity group scored tax breaks from high CEO pay.
05/02/2013
WASHINGTON -- Companies in the Fix the Debt coalition, which advocates for federal austerity policies, qualified for $1 billion or more in tax breaks tied to executive pay packages from 2009 to 2011, according to a new report [ http://www.ips-dc.org/reports/ceo-tax-subsidized-pay ] by the liberal think tanks Institute for Policy Studies and Campaign for America's Future.
The four highest-paid executives at the firms received a total of $6.3 billion in pay over the period, according to the report. Federal tax law allows companies to deduct executive pay based on performance from the firm's tax bill as a business expense. This performance-based compensation includes stock options, stock awards and other types of incentive pay. These 90 companies qualified for tax perks totaling between $1 billion and $1.5 billion over the course of three years, depending on how many types of pay firms actually deducted.
[...]
http://www.huffingtonpost.com/2013/05/02/executive-pay-austerity-a_n_3195256.html [with comments]
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Mentally disabled turkey plant workers awarded $240M for years of abuse
The Associated Press, Staff – May 1, 2013
An Iowa jury on Wednesday awarded a total of $240 million to 32 mentally disabled Iowa turkey processing plant workers for what government lawyers described as years of around-the-clock abuse and discrimination by the Texas company that oversaw their care, work and lodging.
The federal jury in Davenport determined that Henry's Turkey Service, of Goldthwaite, Tex., violated the Americans with Disabilities Act by creating a hostile living and working environment and imposing discriminatory conditions of employment. The jury also found that the company acted with "malice or reckless indifference" to the men's civil rights.
Jurors awarded each of the men $7.5 million apiece after a weeklong trial that featured emotional testimony from social workers who described the physical and verbal abuse they suffered. That includes $5.5 million apiece in compensatory damages for their pain and suffering and $2 million apiece to punish the company for knowingly violating the law.
The company, which is now defunct, is not expected to be able to pay anywhere near the full amount of damages. The Equal Employment Opportunity Commission has suggested it will go after the defunct company's assets, including up to $4 million that was transferred to founder T.H. Johnson's widow after he died in 2008.
The employees lived at a rural Iowa bunkhouse under Henry's care while they worked at the West Liberty Foods turkey processing plant, which paid Henry's to supply them under a contract that dated to the 1970s. West Liberty Foods is not accused of any wrongdoing. Company officials said they banned a Henry's supervisor from the plant in 2007 after learning he had abused the men, but were otherwise unaware of problems.
The EEOC sued Henry's after state officials shuttered the bunkhouse in 2009 because of unsafe and unsanitary conditions there, including fire hazards, shoddy construction, a leaky roof, and a rodent infestation. State officials then found new caretakers for the men, many of whom were in their 50s and 60s and had medical problems that needed immediate attention.
"This was pervasive, 24/7, in every way," EEOC attorney Robert Canino said in his closing argument.
According to social workers who treated them after the home was shuttered, the men said they had been subjected to harsh discipline and abuse at home and work by their Henry's supervisors. They said they had been forced to work through illness and injuries, denied bathroom breaks, locked in their rooms, kicked in the groin and, in one case, handcuffed to a bed. Supervisors also subjected the men to random acts of cruelty, such making them eat hot peppers, "just for laughs," Canino said.
By 2008, Henry's was being paid more than $500,000 per year by West Liberty Foods, but was paying the men the same $65 per month that it always had, regardless of how many hours they worked. The company docked the men's wages and Social Security disability benefits, telling them it was to pay for the cost of their care and lodging.
A judge has already ordered Henry's to pay the men more than $1.3 million in back wages in the case. Henry's never applied for medical care or other services for the disabled that the men would have qualified for in Iowa.
The Iowa Attorney General's Office has declined to prosecute anyone responsible for the abuse, saying it is unlikely that criminal charges could be proven beyond a reasonable doubt.
©2013 NBCNews.com
http://www.nbcnews.com/business/mentally-disabled-turkey-plant-workers-awarded-240m-years-abuse-6C9693069 [with comments]
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The Register Editorial: Huge verdict inadequately compensates men
Kenneth Henry, an owner of Henry's Turkey Service, testifies last year at an administrative law hearing over the company's appeal of a $900,000 state fine.
Mary Chind/The Register
Shameful tale of exploitation must not be repeated
May 2, 2013 10:21 PM
A $240 million jury verdict in Davenport Wednesday [ http://www.desmoinesregister.com/article/20130502/NEWS/305020065/-240-million-verdict-for-Atalissa-workers ] may be symbolic, but it is a measure of the jurors’ outrage over how Henry’s Turkey Service mistreated 32 mentally challenged workers in Iowa for many years.
There is no way to put a price tag on the abuse suffered by those men, along with possibly hundreds of others who were sent to Iowa from Texas to work in meatpacking plants. Nor can they be adequately compensated for the years of their lives they forfeited. But maybe the magnitude of the jury’s verdict will prevent such abuses in the future.
Testimony in the U.S. District Court civil trial dredged up details of a shameful story of human exploitation that was allowed to go on for decades before state and federal officials finally interceded four years ago. Men with mental retardation were bused to a turkey processing plant in West Liberty where Henry’s paid them roughly 40 cents an hour, housed them in a filthy former school heated with space heaters and regularly subjected them to physical and mental abuse.
It was not a new story, however. Local, state and federal officials had known for years about deplorable conditions in the “bunkhouse” in the tiny Muscatine County town of Atalissa. The Des Moines Register first reported the story in the 1980s, and it was assumed authorities would act. Yet nothing changed until questions were raised anew in 2009 after the Register’s Clark Kauffman received complaints from a relative of a Henry’s employee.
Finally, the state swooped in, closed the bunkhouse and placed the remaining Henry’s workers in appropriate housing. In the meantime, the timeline of this story is dotted with example after example of this agency or that agency looking into the story. Nothing happened. What was missing was someone who was able to see the big picture and connect those dots.
That job was done by the eight-person jury on Wednesday. After hearing testimony of men being marched around a pole and handcuffed to beds in a roach-infested hovel, the jurors deliberated for just eight hours and issued a quarter-billion-dollar judgment against Henry’s.
That would amount to $7.5 million each for the 32 men on whose behalf the U.S. Equal Employment Opportunity Commission brought the case. It is unlikely the victims will see anywhere near that much, since the company may have assets of less than $4 million.
Perhaps, though, the magnitude of the judgment will send the message that humans have lately been treated like slaves in this country, not just in Bangladesh, and that it still may be happening. That message should be heard and heeded by those with the power to bring such abuse to light and abusers to justice.
Copyright © 2013 www.desmoinesregister.com
http://www.desmoinesregister.com/article/20130502/OPINION03/305020119/ [no comments yet]
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William Koch, Billionaire Brother, Must Face Lawsuit Alleging Exec's False Imprisonment: Judge
05/01/2013
http://www.huffingtonpost.com/2013/05/01/william-koch-lawsuit_n_3192933.html [with embedded video report "What A Koch-Owned LA Times Might Look Like", and comments]
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Reinhart, Rogoff Backing Furiously Away From Austerity Movement
05/02/2013
http://www.huffingtonpost.com/2013/05/02/reinhart-rogoff-austerity_n_3201453.html [with comments]
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Billy Long's Constituents: Sequester Is Hurting Us And No, We Don't Want More Cuts
05/02/2013
http://www.huffingtonpost.com/2013/05/02/billy-long-sequester_n_3203600.html [with comments]
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U.S. Faces 'Real-Time Experiment' in Economic Recovery While Cutting Spending
PBS NewsHour
DEBATE - AIR DATE: May 1, 2013
Transcript
JUDY WOODRUFF: As we mentioned earlier, the Federal Reserve today was critical of current fiscal policy in Washington. In a statement issued after their regular meeting, Fed governors wrote cuts in government spending are -- quote -- "restraining economic growth."
We look at the renewed debate surrounding spending and austerity now. Robert Kuttner is a founder and co-editor of The American Prospect magazine. He's the author of a new book, "Debtors' Prison: The Politics of Austerity vs. Possibility." And Kevin Hassett, an economist who has written papers on this subject. He served in Republican administrations and is now the director of economic policy studies at the American Enterprise Institute.
Welcome to you both.
And, Robert Kuttner, to you first. Let's start with the United States. What are some examples of policy right now in this country that you believe are hurting economic growth?
ROBERT KUTTNER, The American Prospect: Well, we had the New Year's deal that President Obama made with the Republicans that was supposed to head off the so-called fiscal cliff.
That took about $200 billion dollars out of economy. We raised Social Security taxes two points. We raised taxes on the top one percent, and then to compound the damage, we have the sequester, which was executed in March.
So, those two things together, according to the Congressional Budget Office, which is a bipartisan outfit, cut the growth rate by -- in half this year from a projected three percent to a projected 1.5 percent. If you are in a depressed economy and you reduce purchasing power further, you are only going to make the economy more depressed, and far from getting closer to an improvement in debt ratio, you are going to reduce the GDP relative to what it would have been and so the debt ratio is going to get worse.
So, we have had a real-time experiment both in the United States and in Europe in the failure of austerity policies to dig the economies out of the hole they are in.
JUDY WOODRUFF: Kevin Hassett, do you accept his examples as a sign that growth has been cut and this is how?
KEVIN HASSETT, American Enterprise Institute: Sure. Yes.
Absolutely, Robert's numbers are very precise and accurate. I mean, the 1.5 percent is the CBO estimate. I did my own back of the envelope on the car over, and it was about the same. But the fact is, I think that we need to step back and think about what is going on in Europe and all the unrest and put it in a slightly longer-term perspective to understand where we are and what policy decisions we have to make.
The fact is that before the crisis the government spending to GDP in the typical industrialized country all in counting state and local was about 39 percent. Because of expansionary Keynesian policies, but also built-in stabilizers like having to pay more unemployment insurance for folks and so on, it jumped up to about 44.5 percent.
JUDY WOODRUFF: You are saying there's a lot of spending going on?
KEVIN HASSETT: Yes. But it's still way above where it was before the crisis.
So, in the average industrialized country, it's gone from about 44.5 to 42.5, which is still above where it was before the crisis, and so there have been reductions. They have reduced growth relative to the peak. But at some point, you kind of run out of money if you keep spending -- deficit spending up around nine, 10 percent.
And so the governments have had to ratchet back because they had pursued Keynesian policies. And now they're coming back and we're in the hangover period.
JUDY WOODRUFF: Now, you are folding Europe into this conversation. I was trying to keep them separate. But maybe that's not possible.
KEVIN HASSETT: OK. Sure.
JUDY WOODRUFF: Robert Kuttner, what about that, the fact -- his point is pretty clear that the spending was just practically out of control before, and, yes, there have been some cutbacks, but not very much?
ROBERT KUTTNER: You know, it really wasn't out of control.
The biggest single source of the increased deficit was the recession. And let's not forget what caused the recession. It wasn't government spending being out of control. It was a financial collapse made on Wall Street. And if you have a financial collapse, the government collects less revenue and spends a little bit more on things like unemployment compensation and food stamps, and so the deficit goes up.
But it doesn't logically follow that you can get a recovery going by cutting the deficit, because the only thing that is keeping the economy afloat, given the weakness of wages and salaries and private demand and private investment, what is keeping the economy afloat is deficit spending, public spending.
And so the time to get the deficit under control is when the economy is booming. It's not when the economy is in a ditch. And that's why these policies don't work.
JUDY WOODRUFF: What about that? And that is part of what the Federal Reserve said today.
KEVIN HASSETT: Right.
Well, the problem is that a Keynesian policy is well-designed if you can do it right.
JUDY WOODRUFF: And Keynesian plan meaning ...
KEVIN HASSETT: Which means spending, trying to drive up government spending in order to drive growth -- is perfect if you look at the historic recession that lasted about 11 months and then we grew about 6.5 percent the year after.
If we could take some of the government spending from the 6.5 percent year, move it into the year where we have a recession, then of course it's a good idea if you can do it. The problem is that we're in a protracted period of slow growth. And we're trying to build a kind of Keynesian bridge, a government spending bridge to when we're growing stronger.
But the evidence -- the other Reinhart and Rogoff evidence from a different study is that it usually takes about a decade to recover from a financial crisis. And so spending our way out of that is a really, really hard thing to do. And governments haven't been able to sustain it and that's why pretty much across the industrialized world, everybody has been cutting back on spending and increasing taxes to try to get ahead of the curve on deficits.
JUDY WOODRUFF: What about that point? Robert Kuttner, you are shaking your head.
ROBERT KUTTNER: Well, it takes a decade to get out a crisis or it takes a year or two depending on what government does.
What Europe has demonstrated is, if you put the whole economy in a debtor's prison, it is going to take twice as long, three times as long. The reason I call it a debtor's prison is that if you put somebody in a debtor's prison, you ruin their ability to earn a living and they can't help themselves, they can't help their creditors.
There's a terrible double standard in debt. We have done some work on this at Demos, where I'm a senior fellow. A corporation can get out from under debt by declaring Chapter 11. But a student debt carries that student to his or her grave. If the parent co-signs the student loan and the student dies, the parent is still responsible.
We have a trillion dollars of student debt. What a thing, what a gift to give the next generation. Mortgage holders can't declare Chapter 11, but corporations can. So, there are huge double standards here. And Europe just demonstrates that you can't deflate your way to recovery.
The way to get the debt ratio down is to get a recovery going. World War II is history's great example. We went from 12 percent unemployment to zero percent in the course of six months because government spent serious money. And then we grew out way out of that. So, I think the whole view that let's tighten our belts and the economy will recover is just being refuted day by day.
JUDY WOODRUFF: You not only argue, Kevin Hassett, that belts should be tightened. You argue for much deeper cuts in entitlement programs like Social Security, Medicare in this country and the equivalent programs in Europe.
KEVIN HASSETT: That's right.
The economist's language for it is a fiscal consolidation. And there have been many studies of fiscal consolidations that suggest that a country has a better long-term growth prospects if it gets ahead of the curve on debt. But you need to do it in a measured way. You don't want to front-load all the pain right now.
And I would actually agree with Robert. If you look at European nations, for example, they have had a heck of a lot of contraction, of contractionary fiscal policy. And Robert was good to mention the tax increases here in the U.S. They have had tax increases like that in Europe throughout Europe and spending cuts. And they have front-loaded them. So, they really have cast Europe into a recession with this austerity in some pockets.
But don't forget the reason they are doing it is that nobody really wanted to lend to Greece because their deficits were so large, their policies were so unsustainable that the country looked like it might go bankrupt.
JUDY WOODRUFF: Let's end by asking you both what you think needs to be done right now in the United States if you could wave a magic wand and have Congress do it.
Robert Kuttner?
ROBERT KUTTNER: Well, I don't think you should have the kind of grand bargain that President Obama is talking about with the Republicans, where you cut Social Security, you cut Medicare, and in exchange the Republicans agree to raise taxes and you have 10 more years of austerity.
I think, in the next year or two, until the economy gets back on its feet, you need public spending to put people back to work, rebuild the infrastructure that would make the economy more competitive. And then, when you get back to something close to full employment, people have jobs, people are paying taxes, then you can start reducing the debt because you have a higher growth rate, and the debt starts coming down, the debt ratio, that is, of its own accord. That's the time to rebalance.
JUDY WOODRUFF: And would that be your remedy?
KEVIN HASSETT: I think the thing that should be the headline for listeners is not necessarily what I want, but what has already happened.
If you look at the CBO's analysis of what President Obama and the Republicans have already agreed to, then they have stabilized the debt at a pretty reasonable level, about the average of the last 20 years, relatively quickly. And my guess is, given that, there's going to be a lot of posturing in Washington, but in the end, they are probably not going to do much more either way. There won't be more tax increases. There won't be more big spending cuts.
It might be different from what I would want, but I think listeners should know that despite all the rhetoric, they have made a lot of progress already.
JUDY WOODRUFF: Well, the debate -- and it is a debate -- goes on.
Kevin Hassett, Robert Kuttner, thank you both.
ROBERT KUTTNER: Thank you.
KEVIN HASSETT: Thank you.
Copyright © 2013 MacNeil/Lehrer Productions
http://www.pbs.org/newshour/bb/world/jan-june13/austerity2_05-01.html [with embedded video and audio ( http://www.pbs.org/newshour/rss/media/2013/05/01/20130501_austerity2.mp3 ), and comments]
Greensburg, KS - 5/4/07
"Eternal vigilance is the price of Liberty."
from John Philpot Curran, Speech
upon the Right of Election, 1790
F6
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