Ted Stevens

D'oh! Another Screwup By Stevens Prosecutors

Zachary Roth | February 6, 2009, 3:17PM

Those Ted Stevens prosecutors are just looking more and more clueless.

The Anchorage Daily News reports that William Welch, the head of the Justice Department's Public Integrity Section, wrote a letter to the judge January 30, admitting that he erred when he said last month that a group of government employees, who were cited in an FBI agent's publicly-filed complaint, alleging improprieties by government officials, "want their story to be made public."

In the complaint, the FBI agent, Chad Joy, had accused a fellow agent and prosecutors of violating FBI policy and fair-trial rules. But Welch has now acknowledged that not all of the employees had agreed to have their names released.

This latest screwup comes on the heels of another slip, in which prosecutors have gone back and forth on whether Joy meets the technical definition of a protected government whistleblower.

As the ADN puts it

:
"Initially, when prosecutors sought to keep the complaint secret, they said he was a protected whistle-blower. When they sought to make the complaint public, they said he wasn't.

The defense has also filed a complaint alleging that a female FBI agent on the case had an improper personal relationship with one of the key witnesses for the prosecution, former oil-services exec Bill Allen.

And even before Stevens, the former Alaska GOP senator, was found guilty in late October of concealing gifts from Allen on his Senate disclosure form -- a conviction he is appealing -- prosecutors were reprimanded by the judge for not turning over key evidence to the defense.

Stevens' defense team has already filed a motion that the charges be dismissed, on account of government misconduct. And in a new filing made yesterday, they went further, arguing that the government should be held in contempt.

"The government still does not get it. Over and over again, it has been caught red-handed making false representations to the Court and the defense," defense attorney Robert Cary wrote.

Bailout

Another AG Probing Merrill Bonuses

Zachary Roth | February 6, 2009, 1:38PM

It looks like New York Attorney General Andrew Cuomo and Neil Barofsky, the inspector general for the bailout, aren't the only people interested in looking into those bonuses Merrill gave senior execs just before the company came under the control of Bank of America.

North Carolina Attorney General Roy Cooper has issued an "investigative demand" to B of A for documents related to the bonus awards, reports the News and Observer of Charlotte. Cooper, it seems, wants to know what B of A knew about the controversial December bonuses, and when it knew it.

Bank of America, which is based in Charlotte, is required to respond by March 4.

Despite Merrill's massive fourth-quarter losses and generally dire position, the firm's then-CEO John Thain, and the company's board, approved paying the bonuses on an accelerated schedule, apparently in an effort to get them paid before B of A took contol Jan 1.

Since the bonuses came to light, Thain and B of A have given conflicting accounts as to when B of A knew about them, and about Merrill's losses.

The paper adds some detail on the legal tools that might be available to Cooper:

Under N.C. General Statutes, the state Justice Department has the power to investigate the affairs of all corporations and persons doing business in the state. Typically, this authority is used to probe businesses accused of defrauding consumers. In this case, the attorney general has multiple avenues to pursue, depending on what the documents show, a person familiar with the matter said.

The payment of the bonuses could violate the uniform fraudulent transfer act, which restricts the transfer of assets outside of normal business practices, the person said. Typically, this act is applied to debtors in bankruptcy cases who owe creditors, but it could be extended to aggrieved shareholders. Cuomo has used this law in his investigation of insurer AIG, which agreed to freeze more than $600 million it planned to pay out in bonuses.

Cuomo has reportedly issued subpoenas to Thain and B of A's chief administrative officer as part of a probe into the bonuses, which is itself part of a broader investigation announced last fall, of executive pay on Wall Street.

Cuomo is working with Neil Barofsky, the bailout inspector general.

Barack Obama

Thanks To Obama's Order, Military Drops Charges In Gitmo Trial

Zachary Roth | February 6, 2009, 1:00PM

In one of his first acts as president, Barack Obama issued an executive order instructing prosecutors in military commissions to seek delays in the proceedings, in order to allow his administration to review the comissions process as a whole.

All but one judge complied with the prosecutors' requests. That one, Army Colonel Jame Pohl, declined to do so.

But now, the Associated Press reports, Susan Crawford, the top legal authority for Guantanamo's proceedings, has decided to drop the charges in the case over which Pohl is presiding, thereby bringing the case into compliance with Obama's order.

The case being prosecuted is that of Abd al Rahim al-Nashiri, a Saudi citizen of Yemeni descent accused of planning the October 2000 Al Qaeda attack on the USS Cole warship, which killed 17 service members.

The Pentagon says that Nashiri will remain in prison, and new charges can be filed. But
prosecutors will have to start from square one.

A group representing family members of victims of terrorist attacks has been vocally opposed to Obama's order, and isn't happy about Crawford's move.

According to the AP:

Retired Navy Cmdr. Kirk S. Lippold, the commanding officer of the Cole when it was bombed in Yemen in October 2000, said he will be among family members of Cole and 9/11 victims who are meeting with Obama at the White House on Friday afternoon.

Groups representing victims' families were angered by Obama's order, charging they had waited too long already to see the alleged attackers brought to court.

"I was certainly disappointed with the decision to delay the military commissions process," Lippold, now a defense adviser to Military Families United, said in an interview Thursday night. "We have already waited eight years. Justice delayed is justice denied. We must allow the military commission process to go forward."

Bank of America

How Theresa Hatt Caused The Financial Crisis

Zachary Roth | February 6, 2009, 11:23AM

Last month, Theresa Hatt died at 52, after a brief struggle with cancer.

Hatt, who lived in Portland, Maine, and worked for the city of Scarborough, had had several credit cards in her name. So, shortly after her death, Hatt's son, Paul Kelleher, began the sad task of calling his mother's creditors, to inform them of her passing.

The calls were uneventful, if depressing, until Kelleher got to Bank of America. Here is how he says his conversation with a representative of the company's estates unit went:

Paul Kelleher: Yes, I'm calling to inform you that my mom died on the 24th of January.

Bank of America Estates representative: I'm sorry. Oh, it looks like she never even missed a payment. That's too bad. Well, how are you planning to take care of her balance?

PK: I'm not going to. She has no estate to speak of, but you should feel free to just go through the standard probate procedure. I'm certainly not legally obligated to pay for her.

BOA: You mean you're not going to help her out?

PK: I wouldn't be helping her out -- she's dead. I'd be helping you out.

BOA: Oh, that's really not the way to look at it. I know that if it were my mother, I'd pay it. That's why we're in the banking crisis we're in: banks having to write off defaulted loans.

"I lost it there," Kelleher, a mild-mannered 30-year-old who lives in Brookline, Mass., where he works remotely for a Washington DC-based non-profit, told TPMMuckraker. When pressed, he said, the estates rep backed off that last claim, but only a little, continuing to suggest that cases like his mothers had played a role in the financial crisis.

The rep's apparent intention, as Kelleher described it, was to mislead him into believing that he was obligated -- at first legally, then, failing that, morally -- to cover his mother's debt (which, in any case, was not large: she had had a $1000 limit on her card). Of course, Kelleher was sophisticated enough to know that's not true. But how many other less savvy callers in similar situations, he wondered, might respond to the rep's breezy "how are you planning to take care of her balance?," with a confused "I guess I'll mail in a check"?

And what bothered Kelleher as much as the estate rep's insensitivity, not to mention her apparent effort to deceive, was the impression he got that she wasn't winging it.

"It seemed rote," Kelleher said. "It was too naturally delivered to have been a misstatement."

That impression was strengthened when Kelleher eventually spoke with the rep's supervisor, Eric Davis. Kelleher said that when he recounted his conversation with the rep, Davis apologized -- for what, exactly, it was unclear -- but told him: "That's not how she meant it."

From his conversation with Davis, said Kelleher, "it sounded like [the rep's approach] was encouraged."

How strongly encouraged, we wondered? And how common was this particular rep's approach? So we tracked down a former rep for Bank of America's collections unit. And according to the former rep, Kelleher's interlocutor was doing just what she was told .

The former rep, who worked until quite recently at B of A's Belfast, Maine-based collections unit, described for TPMmuckraker a system in which staffers responsible for making collections were routinely encouraged to mislead customers or those calling on their behalf, and were financially incentivized to do all they could to get payments.

Kelleher's reported conversation, the former rep said, "sounds like how I would have attempted to collect" in such a situation. "I would have asked: 'How do you plan on paying for this?'"

The rep said that employees were encouraged to walk right up to the line of actively deceiving a caller about the consequences of non-payment. "As long as you don't get caught [lying]," the former rep added, "there's no really no punishment." The former rep did not work in the estates unit, but confirmed, based on direct knowledge of B of A's practices, that it operates similarly to the former rep's own unit.

The former rep said that employees responsible for collections receive "feedback" about their phone performance from managers who monitor the calls. (When you hear "this call may be monitored for quality assurance purposes", the "quality assurance" oftentimes isn't quality of service from the customer's perspective -- it's quality of performance from the rep, who's being trained to be as effective as possible at extracting money from callers.)

The former rep added that if a manager had listened to the performance of Kelleher's rep, he would likely tell her: "Good job!" By contrast, if he had heard the rep failing to make any serious effort to convince Kelleher to pay his mother's debt, he would have told her "that was not a good 'listening score,'" -- the term gets at the precision with which a rep's phone performance is monitored -- and would have encouraged her to take a tougher approach.

There are also more direct ways to ensure that collections agents play hardball.
"We were obligated to collect 45 percent of the debt that rolled in to us," said the former rep, adding that that figure fluctuated. Employees who consistently failed to meet that baseline might be fired. "People lost their jobs all the time for non-performance."

And there were bonuses of us as much as $5000 a month for reps who successfully brought in a certain percentage of "collectible money", said the former rep, using the industry's cold-blooded jargon.

What's the larger point here? Well, here's one: When the automakers were asking Washington for a bailout recently, there was a lot of talk about insisting on conditions -- like requiring that they build more fuel-efficient cars -- that would be in the national interest. Bank of America and its competitors have already taken billions in taxpayer dollars. So it seems logical to insist on a similar set of public interest conditions -- and the industry's range of deceptive and rapacious lending practices would be a natural place to start.

Neither Eric Davis, the B of A supervisor, nor B of A's public relations office immediately responded to a request for comment.

Late Update: A Bank of America spokeswoman declined to comment on "allegations by former associates."

Bernard Madoff

Was SECer Now Running Madoff Case Involved in Failed Earlier Inquiry?

Zachary Roth | February 5, 2009, 4:36PM

The SEC is deep in the midst of beating itself up over its failure over many years to catch Bernard Madoff's alleged $50 billion Ponzi scheme. Just yesterday, agency chair Mary Schapiro told Congress in a letter that "there needs to be a full accounting, both of Mr. Madoff's activities and why we did not detect the fraud, which we regret."

But is it in danger of making the same mistakes the second time around as the first?

The SEC's civil case against Madoff, hurriedly filed in December 2008 after Madoff allegedly confessed to his lawyer, is being conducted out of the agency's New York regional office, where Madoff's business was based. But it was the New York office that conducted the 2006 inquiry into Madoff that famously came up dry. That inquiry, which found only a few technical violations and recommended that Madoff register as an investment adviser, is now itself one focus of the investigation by the SEC's inspector general into how the agency failed to catch Madoff.

According to one former SEC enforcement veteran, in other cases where the agency opened a second investigation after a regional office was found to have slipped up the first time around, the second probe has sometimes been run out of the Washington headquarters, to ensure that it retains public confidence. That wasn't done here.

Asked about the matter by TPMmuckraker, an SEC spokesman declined to comment.

But there may be even less distance between the two Madoff investigations.

The current case is being led by Andrew Calamari, the Associate Regional Director for the New York office, who last month publicly called the Madoff case "a stunning fraud that appears to be of epic proportions." Calamari's name is listed prominently on the agency's civil complaint.

But Calamari appears tied to the ill-fated 2006 effort. Doria Bachenheimer, an Assistant Regional Director in the New York office "reviewed and approved" the decision to close that inquiry, according to a "Case Closing Recommendation" document obtained by the Wall Street Journal.

And an organizational chart produced by the agency in 2006, and obtained by TPMmuckraker, indicates that Calamari is Bachenheimer's supervisor. That reading of the chart was confirmed to TPMmucraker by the ex-SECer.

It's not clear that Calamari played any active role in the failed 2006 inquiry. But at the very least, the fact that he supervised the staffer who wrongly approved closing it -- and the fact that there's no evidence he raised red flags about her work -- might suggest he's not the ideal person to handle the followup, especially given the high public profile the case has taken on.

Calamari referred an inquiry from TPMmuckraker to the SEC's press office, which again declined to comment.

Securities and Exchange Commission

SEC Chair To Lawmaker: Madoff Hearing "Cannot Have Been Satisfactory For You"

Zachary Roth | February 5, 2009, 12:50PM

Remember that weird moment during yesterday's Madoff hearings, when the SEC's top lawyer, Andy Vollmer, declined to answer questions, and kinda sorta implied he was asserting executive privilege, before backing off that claim when pressed by lawmakers? The moment that provoked Rep. Gary Ackerman's blunt assessment: "We thought the enemy was Mr. Madoff. I think it's you"?

One staffer described the Vollmer moment to TPMmuckraker as a "bombshell" within the agency's headquarters.

And it looks like the SEC is a little embarrassed about it -- and about the general evasiveness of other agency brass in their testimony yesterday.

Check out this letter, which the SEC's new chair, Mary Schapiro, sent to the committee last night.

Schapiro tells lawmakers that the hearing "cannot have been satisfactory for you." She admits that there needs to be a full accounting of what went wrong, and offers to meet with the lawmakers, at their earliest convenience, to "determine a course forward that will meet all of our interests."

As for the Vollmer issue itself, an agency spokesman confirmed that he wasn't claiming the privilege, but couldn't offer any further explanation, saying he'd get back to us.

Barney Frank

Committee: Don't Worry, CEOs Will Testify

Zachary Roth | February 5, 2009, 12:21PM

Remember that saying about catching more flies with honey than with vinegar?

Yesterday we wrote that the House Financial Services committee, chaired by Rep. Barney Frank, had invited the CEOs of eight big banks -- including Bank of America, Goldman Sachs, Citi, and JP Morgan -- to testify. But, we noted, the committee wouldn't say whether any of the CEOs had accepted the invitation -- leaving the possibility that they might just say no. Any thought given to issuing subpoenas, we wondered.

It looks like that won't be necessary. Steve Adamske, a spokesman for the committee, confirmed to TPMmuckraker that all eight CEOs would indeed testify. Adamske said that subpoenas weren't necessary, since the political optics of not showing up would be too harmful for the banks. He said committee staff is working with the banks to schedule the CEOs' appearances.

So it looks like we'll get to hear straight from the horses' mouths about what the banks have been doing with the bailout funds. Sometimes asking nicely gets results.

Ben Bernanke

Report: Bernanke Threatened B Of A Over Merrill Deal

Zachary Roth | February 5, 2009, 11:45AM

We already knew, that, after it got wind of Merrill Lynch's massive fourth-quarter losses back in December, Bank of America had thought about pulling out of its deal to buy the troubled investment bank -- before being talked into it by the federal government.

But today, the Wall Street Journal adds some fascinating detail (sub. req.) about the level of hardball that the government played in making sure the deal went through.

Bush Treasury Secretary Henry Paulson and Fed chief Ben Bernanke reportedly warned B of A CEO Ken Lewis that if his firm pulled out, Merrill would collapse. They added that such a move, in the Journal's words "could undercut confidence in Bank of America, both in the markets and among government officials."

But that was just the start. Two days later, on a conference call, Bernanke told B of A that if it abandoned the Merrill deal, and came back to the Feds in the future seeking more bailout money, the government would consider removing the firm's executives and directors.

The threats, of course, seem to have worked, since Bank of America went ahead with the deal -- getting an additional $20 billion in bailout money to help digest Merrill.

Bernanke and Paulson may have been right to take such a hard line. But the episode suggests the level of control of day-to-day control that the government has had over the financial sector, since stepping in to rescue it last fall. Nationalizing the banks is still seen, in the mainstream debate as an extreme solution. But if the Feds are essentially making major operational decisions for the big banks, some would say they've been nationalized already -- it's just that no one wants to it.

The Daily Muck

The Daily Muck

Chris Black | February 5, 2009, 9:58AM

New details are emerging about the government's extreme eagerness to ensure that Bank of America didn't walk away from its deal to buy Merrill Lynch back in December. The Wall Street Journal reports (sub. req.) that Federal Reserve chairman Ben Bernanke threatened that if the deal fell through, the government would remove Bank of America's directors in the event that it needed more bailout funds. The details suggest the control that the federal government has enjoyed over the financial sector since last fall's bailout. (Wall Street Journal)

A former employee of the Interior Department was sentenced yesterday to probation and fined $2,000 for his role in a scandal at the Minerals Management Service. Milton Dial received the minimum sentence for one charge of violating federal interest laws and the judge even apologized to Dial for sentencing him at all, saying that, "high executives in our government violate all the time" and go unpunished. Dial's crime is connected to a wider scandal involving the preferential awarding of contracts by DOI that has already ensnared several current or former department managers. (KATC)

A contractor for the U.S. Army pleaded guilty yesterday to manslaughter after shooting a handcuffed Taliban member in Afghanistan. The case was the first in which a contractor working in either Iraq or Afghanistan was prosecuted under the Military Extraterritorial Jurisdiction Act of 2000, a law that allows such prosecutions. The case could set a significant precedent for other contractors working abroad. The contractor acted after he heard that the Taliban man had caused significant and eventually fatal injuries to a colleague. (Washington Post)

Read more »

Bailout

What, No Subpoena? Frank Invites Bailed Out CEOs To Testify

Zachary Roth | February 4, 2009, 5:38PM

Barney Frank, the chair of the House Financial Services committee, has invited the heads of the first eight banks that received bailout funds to testify at a hearing next Wednesday on the bailout, reports CNNMoney.com.

Those CEOs are:

Ken Lewis of Bank of America; Jamie Dimon of JPMorgan Chase; Vikram Pandit of Citi; Ronald Logue of State Street; Robert Kelly of Bank of New York; John Stumpf of Wells Fargo; John Mack of Morgan Stanley; and Lloyd Blankfein of Goldman Sachs.

But notice that word "invite." It appears that the corporate titans are free to choose not to attend -- even though Frank is seeking crucial information about what their firms did with the hundreds of billions in taxpayer money we gave them.

Indeed, CNNMoney.com adds:

A press secretary declined to comment on whether any of the CEOs have accepted the invitation.

So it sounds like a real possibility that at least some of those CEOs might just go ahead and decline Frank's polite invitation.

We've contacted the committee's press office to ask whether subpoenaing the CEOs was considered, or might still be in the future. We'll let you know what we hear.

David Iglesias

U.S. Attorney Scandal: Feds Probe Domenici for Obstruction of Justice In Iglesias Firing

Murray Waas | February 4, 2009, 5:14PM

A federal grand jury probe of the firings of nine U.S. attorneys during the Bush administration is focusing on the role played by recently retired Sen. Pete Domenici (R-NM) and former senior Bush White House aides in the 2006 dismissal of David Iglesias as U.S. attorney for New Mexico, according to legal sources familiar with the inquiry.

The federal grand jury is investigating whether Domenici and other political figures attempted to improperly press Iglesias to bring a criminal prosecution against New Mexico Democrats just prior to the 2006 congressional midterm elections, according to legal sources close to the investigation and private attorneys representing officials who prosecutors want to question.  Investigators appear to be scrutinizing Iglesias' firing in the context of whether he was fired in retaliation because Domenici and others believed that he would not manipulate the timing of prosecutions to help Republicans.

Previously, Domenici was severely criticized by two internal Justice Department watchdog offices, the Department's Inspector General and Office of Professional Responsibility (OPR), for refusing to cooperate with their earlier probe of the firings of the U.S. attorneys. In part because of their frustration that Domenici and his chief of staff, Steve Bell, as well as several senior White House officials, would not cooperate with them, the Inspector General and OPR sought that a criminal prosecutor take over their probe. It is unclear whether Domenici will now cooperate with the criminal probe. Domenici's attorney, Lee Blalack, in an interview, declined to say what Domenici will do when he is contacted by investigators.

The focus of the grand jury probe was described by a federal law enforcement official, two witnesses who have been recently been asked to answer questions from investigators, and an attorney representing a former Justice Department official who has been told that investigators want to question his client.  People who had been contacted by investigators spoke on the condition that they not be named because they did not want to upset federal law enforcement officials who would question and investigate them and also because they believe that simply being questioned might unfairly tarnish their reputations.

The grand jury investigation is currently being led by Nora Dannehy, the acting U.S. attorney in Connecticut.  Then-Attorney General Michael Mukasey named Dannehy to "determine whether any prosecutable offense was committed" in the course of the firings following September's report by the Inspector General and OPR on the firings.

The report found that Iglesias was fired largely as a result of complaints made to the White House by Domenici and Bell. But the report also concluded that the probe was severely "hindered" by the refusal by Domenici, Bell, and several senior Bush administration officials to cooperate with the investigation. 

Read more »

Securities and Exchange Commission

Lawmaker To SEC Lawyer: "We Thought The Enemy Was Mr. Madoff. I Think It's You"

Zachary Roth | February 4, 2009, 3:04PM

More great political theater from the Madoff hearings.

Rep. Gary Ackerman, a New York Democrat, just reamed out the SEC's top lawyer, Andy Vollmer, over Vollmer's decision to decline to answer lawmakers' questions about the SEC's failure to catch Madoff.

Some highlights from Ackerman:

"Most of us speak English, and we're having a hard time understanding you."

"Your value to is useless. Your value to the American people is worthless. Your contribution to this proceeding is zero."

"Our economy is in crisis, Mr. Vollmer. We thought the enemy was Mr. Madoff. I think it's you."

Here's the video. This one's good.

Jack Abramoff

Report: Staffer Who Got Gifts From Team Abramoff Was Gregg Aide

Zachary Roth | February 4, 2009, 2:50PM

Last week, when Todd Boulanger pleaded guilty to his role in the Jack Abramoff lobbying scandal, he cited a Staffer F in his plea. That staffer had received tickets to hockey and baseball games (with champagne and filet mignon provided, in the latter case) from Boulanger and Team Abramoff.

And today the Associated Press reports that Staffer F is Kevin Koonce, a former legislative director for New Hampshire GOP senator Judd Gregg.

Koonce, who has not been charged with a crime, now works at a private firm, Sorini Samet & Associates. But he told the AP he's on personal leave. Another staffer who received similar favors from Team Abramoff, Trevor Blackann, pleaded guilty last fall to failing to disclose the gifts on his tax returns.

Gregg was announced yesterday as President Obama's pick for Commerce Secretary.
Asked about that inconvenient fact by a reporter just now at a press briefing, White House Press Secretary Robert Gibbs stressed that Gregg is not a target of the investigation, and that Koonce left Gregg's office in 2004.

Some good details from the AP's rundown:

As part of the plea documents, prosecutors said Staffer F tried to help insert spending measures and add other amendments to legislation for Boulanger's clients. Later, the staffer asked Boulanger if he could "score some hockey tickets," and Boulanger got him front-row seats.

Boulanger later got the staffer box tickets to see the Baltimore Orioles, but he wanted more.

"Could you make sure there's beer this time," he wrote in an e-mail. I "mean, the red sox, crab cakes, and fillet mignon's were nice but ... haha."

Later, Boulanger sent an e-mail to Abramoff expressing confidence that the senator for whom the staffer worked would give them a favor. "Easy money," Boulanger wrote, adding that the aide "practically lives in our various suites. We are shady."

Bernard Madoff

Top SECer Recused Herself From Madoff Probe, After Going To His Niece's Wedding

Zachary Roth | February 4, 2009, 2:36PM

Another interesting moment from the House committee hearings on the Bernard Madoff case.

Lori Richards, the director of the agency's Office of Compliance, Inspections, and Examinations, told the committee she recused herself from the Madoff probe because a former employee she supervised had married Madoff's niece, and Richards was at the wedding.

She was referring to Eric Swanson, an SEC lawyer who married Shana Madoff in 2006. Shana Madoff had worked for her uncle's firm as a compliance lawyer.

The admission that Richards -- the top SEC official overseeing examinations of brokers -- recused herself, points up the way in which Madoff's cozy ties to regulators helped his scheme go undetected.

Barbara Comstock

Conservative "Stars" Come Out For Comstock

Zachary Roth | February 4, 2009, 1:51PM

Yesterday we reported that Barbara Comstock -- a key cog in the Vast Right-Wing Conspiracy, dating back to the early Clinton years -- is running for the Virginia statehouse.

This morning, the DC Examiner offered a brief dispatch on a fundraiser held Monday night on Comstock's behalf. And it sounds like it was a who's-who of conservative luminaries.

According to the paper, the list included the Weekly Standard's Fred Barnes, National Review's Kate O'Bierne, former Cheney aide (and noted DC hostess) Juleanna Glover, former Bush administration official Fran Townsend, GOP lawyer Victoria Toensing, Jeri (Mrs. Fred) Thompson, GOP pollster Kellyanne Conway.

It's good to see friends helping friends.

Bernard Madoff

Markopolos To Mobsters: "I'm the Good Guy Here."

Zachary Roth | February 4, 2009, 1:03PM

Harry Markopolos, the Bernard Madoff whistleblower, ended his testimony about an hour ago. But before he did, he fleshed out his thoughts about Madoff's ties to organized crime.

In a remarkable moment, Markopolos even addressed the mobsters directly, arguing -- in an apparent effort to convince them not to go after him -- that he was protecting them Madoff's scheme.

Here's the exchange with Rep. Gary Ackerman:

ACKERMAN: I'm talking about, when you talk about the Russian mob and organized crime, these are people who invested through European investors or European feeder funds?

MARKOPOLOS: Correct. And I didn't fear of them, and I didn't think they were going to come after me, I want to make this perfectly clear to all those Russian mobsters and Latin American drug cartels out there...

ACKERMAN: You're talking directly to them.

MARKOPOLOS: I was acting on your behalf trying to stop him from zeroing out your accounts. I'm the good guy here. Just like to make that clear.

ACKERMAN: Uh, yeah I think we registered that.

Here's the video:

Bernard Madoff

Markopolos: SEC Couldn't Find First Base In Fenway Park

Zachary Roth | February 4, 2009, 12:16PM

Throughout his testimony, Harry Markopolos seemed to be refining his effort to express, in one crisp sound byte, his low opinion of the SEC's investigative powers.

And right at the end, he seemed to hit on it. He told the committee (the exact wording may be a little off here, we're going from memory):

If you flew the entire SEC staff to Boston, and sat them in Fenway Park, they wouldn't be able to find first base.

Might be hard to top that.

Bernard Madoff

Markopolos: SEC Has Just One Bloomberg Terminal Per Office

Zachary Roth | February 4, 2009, 11:58AM

A stunning claim just made by whistleblower Harry Markpolos helps further explain how the SEC failed to catch Madoff.

Referring to Bloomberg computer terminals, Markopolos said that the agency "might have one per regional office."

Bloomberg's terminals sit on the desk of almost every trader on Wall Street, providing a steady stream of live market data. It would be extremely difficult to detect sophisticated financial fraud without this basic tool of modern trading.

We've contacted current and former SEC sources to ask whether Markopolos' claim is accurate, and we'll keep you posted.

Late Update:
Reader FH writes in to say that Bloomberg terminals aren't useful for detecting fraud:

I'm a quant at a hedge fund, and have a bloomberg terminal that I share with a colleague.

You detect fraud by runnnig statistical tests on data, or I suppose by forensic accounting (which I don't know anything about). Not by watching live scrolling news feeds or flickering prices on a terminal.

I would say you should take as your model the 1994 paper by Bill Christie and Paul Schultz that detected implicit nasdaq market maker collusion as how enforcement research is going to be done.

In my view, it does not help his credibility if Markopolos is talking about the paucity of Bloomberg terminals at SEC offices.

Late Late Update:

Robert Fusfeld, who retired in 2006 as a senior enforcement lawyer in the SEC's Denver office, confirms to TPMmuckraker that when he left, that office had only one terminal.

Bailout

Markopolos: Madoff's Mob Ties Made Me Fear For My Life

Zachary Roth | February 4, 2009, 11:45AM

For a while now, there have been suggestions that Bernard Madoff had ties to organized crime. And Harry Markopolos just told Congress that those alleged connections made him fear for his life as a whistleblower working to expose Madoff's scheme.

When a committee member referred to Markopolos' "paranoia" about his safety, he responded by referring to Madoff's "dirty money."

Here's the full quote:

I don't consider it paranoia. And the reason is, Mr. Madoff was running such a large scheme of unimaginable size and complexity, and he had a lot of dirty money. And let me describe dirty money to you. When you're that big and you're that secrective, you're going to attract a lot of organized crime money, and which we now know came from the Russian mob and the Latin American drug cartel, and when you are zeroing out mobsters, you have a lot to fear. And he could not afford to get caught, because once he was caught. And if he would've known my name and knew he had a team tracking him, I didn't think I was long for this world.

Bernard Madoff

Congresswoman To Markopolos: You're A "Modern-Day Greek Hero"

Zachary Roth | February 4, 2009, 11:31AM

The open worship of whistleblower Harry Markopolos by members of the House committee, which had already emerged at times this morning, has reached its apotheosis.

Rep. Jackie Speier just told him:

I would like to say for the record that I see you as a modern-day Greek hero.

Bernard Madoff

Markopolos Wanted To Go Under Cover, Wear A Disguise, To Catch Madoff

Zachary Roth | February 4, 2009, 11:23AM

Harry Markopolos, the whistle-blower on the Berrnard Madoff case, just offered a remarkable cloak-and-dagger tidbit in his testimony before a House committee, demonstrating his commitment to bringing Madoff to justice.

He said he offered to go under cover, "as I was trained to in the army," -- and wearing a disguise -- in order to catch Madoff.

Here's the full quote:

In fact, I made an offer to the SEC in my October 2001 submission, if you look closely, you'll see, I offered to go undercover for the SEC, under their command and control, and have no one know where I was, except my wife, and have no contact with my family, during this time. And I would have assumed a disguise, as I was trained to in the army, and gone under cover and led that team to a successful result very quickly. I don't know what more I could do to put it on the line.

We don't either. Though the wife exception makes it seem like maybe he wasn't really committed enough.

Late Update:
And here's the video:

Barack Obama

White House Announces Exec Pay Limits

Zachary Roth | February 4, 2009, 11:14AM

As expected, the White House has just announced new restrictions on executive pay to be issued by the Treasury Department, in response to public outrage over cases of CEOs of bailed out firms raking in millions.

The limits set a limit of $500,000 on executive pay, for those firms receiving "exceptional financial recovery assistance" -- that is, firms that negotiated "bank-specific" deal with Treasury, including Bank of America, AIG, and Citi. Any pay beyond that must be made in restricted stock that can only be paid once the government has been paid back.

The restrictions also would give shareholders more say on executives' pay, and would make it easier for the government to "claw back" the pay of executives who had engaged in deceptive practices, among other provisions.

Last week, President Obama called the billions paid out in Wall Street bonuses last year "outrageous."

The White House's press release, with a detailed description of the new rules, follows after the jump ...

Read more »

Alberto Gonzales

Gonzo Blames "Tough Economy" For Struggle To Find A Job

Zachary Roth | February 4, 2009, 10:57AM

Last night, Alberto Gonzales continued his failing effort to rehabilitate his reputation, talking to CNN's Campbell Brown about his record at DOJ.

Brown asked about the numerous findings that Gonzo had politicized the department, provoking the response from him that "you need to look at the overall record of the Department during my tenure."

But the lowest -- and saddest -- moment when he tried to explain his struggle to find a job since leaving government service.

He blamed the economy.

Watch the video:

Remember, this man was the Attorney General of the United States.

Bernard Madoff

Markopolos Plans To Turn In A Mini-Madoff Tomorrow

Zachary Roth | February 4, 2009, 10:48AM

Harry Markopolos just warned that he's got another alleged fraudster in his sights.

"I plan to turn in a $1 billion mini-Madoff to the SEC's inspector general tomorrow," he said.

That may have put a scare into some on Wall Street.

Bernard Madoff

Markopolos: SEC Was "Captive Regulator"

Zachary Roth | February 4, 2009, 10:39AM

Markopolos identifies another problem with the SEC:

"They were a captive regulator. Mr. Madoff was too big," he just told Congress. "They looked at Madoff and said: 'he's a big firm, we dont attack big firms.'"

Bernard Madoff

Markopolos: SEC "Had No Idea How To Do The Math"

Zachary Roth | February 4, 2009, 10:34AM

Markopolos just put his finger on perhaps the key problem in the SEC's failure to catch Madoff:

"We need a highly trained finance team that is highly incentivized to look for frauds. Derivatives are too complicated otherwise," he said. "They had no idea how to do the math."

In other words, today's sophisticated Wall Street deals are simply too complex for the SEC's enforcement staff, as currently composed, to properly understand.

The only way to fix the problem, it appears, is to hire staff with more expertise.

Bernard Madoff

Markopolos: SEC "Couldn't Be Bothered"

Zachary Roth | February 4, 2009, 10:15AM

"I gift wrapped and delivered the largest Ponzi scheme in history to them and somehow they couldn't be bothered to conduct a thorough and proper investigation," he just told Congress, referring to the SEC's performance on the Madoff case.

Bernard Madoff

Markopolos On SEC Staff:

Zachary Roth | February 4, 2009, 10:06AM

"They haven't earned their paycheck, and they need to be replaced."

The whistleblower on the Madoff case, Harry Markopolos, just gave his oral testimony, in which he ripped the SEC in unusually direct language. More to come.

The Daily Muck

The Daily Muck

Chris Black | February 4, 2009, 9:56AM

Disgraced Chicago businessman Tony Rezko was quietly moved out of solitary confinement last December, the U.S. Marshal in Chicago confirmed. Rezko, who has been cooperating with prosecutors in a massive corruption investigation, was moved after complaining about the conditions of his imprisonment. The move is something of a reward for his cooperation. (Chicago Sun-Times)

A campaign ad from former Sen. Tom Daschle's 1986 Senate run shows that the South Dakotan once prided himself on driving his own beat-up Pontiac around Washington D.C. Obama's nominee for the Secretary of Health and Human Services withdrew his nomination after tax problems relating to his use of a car and driver provided by a private equity firm came to light. (ABC News)

An upcoming report by the Migration Policy Institute will target a popular program run by Immigration and Customs Enforcement. The program, designed to capture illegal immigrants with outstanding criminal records, padded its numbers by shifting its focus towards easier targets. (New York Times)

Read more »

Bernard Madoff

Whistleblower Slams SEC's "Ineptitude and Financial Illiteracy"

Zachary Roth | February 4, 2009, 8:57AM

Harry Markopolos, the fraud investigator who blew the whistle as early as a decade ago on Bernard Madoff, if only the SEC had had ears to listen, slammed the agency in written testimony made public last night.

Markopolos, who will answer questions in person before a House committee this morning, decried the SEC's inadequate efforts to detect financial fraud in response to detailed written complaints he submitted on Madoff's operation.

"There was an abject failure by the regulatory agencies we entrust as our watchdog," he wrote. According to (sub req.) the Wall Street Journal, Markopolos added that the agency's enforcement staff "made little effort to understand the derivative instruments Mr. Madoff said he was using."

Markopolos continued:

[T]he SEC securities' lawyers if only through their ineptitude and financial illiteracy colluded to maintain large frauds such as the one to which Madoff later confessed.

He even confessed that he and his team had submitted some documents anonymously -- because they feared for their safety in going after Madoff, given their target's powerful status on Wall Street.

Last month, we documented the SEC's shift away from enforcement here at TPMmuckraker.

We'll bring you more form Markopolos' live testimony after it starts this morning.

Bill Richardson

Must See TV!

Zachary Roth | February 3, 2009, 5:59PM

Check out the latest episode of TPMtv, on the investigation into possible pay to play in New Mexico, which last month forced Bill Richardson to withdraw his bid to be Commerce Secretary, and has now seemingly ensnared the Democratic Governors Association.

Alberto Gonzales

DOJer, Fired Amid Gay Rumors, Gets Job Back

Zachary Roth | February 3, 2009, 5:35PM

At last: Change We Can Believe In!

Remember Leslie Hagan, who last April was dismissed by Monica Goodling from the Justice Department's Executive Office for U.S. Attorneys because she was rumored to be gay?

Well, the Obama administration has righted that wrong, giving Hagen her job back, reports NPR, which broke the original story of her dismissal.

Hagen served as the liaison between DOJ and the U.S. Attorneys' committee on Native American affairs. In her performance evaluation, she received the highest possible ratings -- "outstanding" -- in each of five categories.

But Goodling, a Christian fundamentalist, heard a rumor that Hagen was gay. So it was curtains for her.

A report by the department's inspector general last, released last year, added new details to the saga.

NPR reports on how Hagen got her job back:
Last year, the Justice Department posted Hagen's old job again. The department conducted a national search. Applications came in from around the country. After several rounds of interviews, Hagen eventually won the job.

The paperwork makes it official as of Monday, Feb. 2. Hagen now has her old position back, but this time it's a little different. Her contract no longer comes up for renewal every year. Now, the job is permanent.

Hagen still owes thousands of dollars in lawyers' fees, which the Bush DOJ refused to pay (though it took a different view of Alberto Gonzales' legal fees). But the new leadership may reverse that decision too. Here's hoping.

Barbara Comstock

GOP Attack Dog Launches New Career -- Running For Office

Zachary Roth | February 3, 2009, 4:05PM

The conservative movement may be dead -- but one of its key Washington lieutenants is launching a career in electoral politics.

Barbara Comstock, who ran oppo research for the RNC and chaired Scooter Libby's defense fund, is running for the Virginia House of Delegates, from the Washington DC suburbs, according to a website set up by "Friends of Barbara Comstock".

A staffer at the Fairfax County GOP headquarters confirmed to TPMmuckraker that Comstock will challenge incumbent Democrat Margi Vanderhye.

Comstock's resume as a GOP knife-fighter is beyond impressive.

She served as a lead investigator for the notoriously partisan House Government Reform committee during the 90s, chaired by GOP congressman Dan Burton.

In his 2002 book, Blinded By The Right, David Brock painted a vivid picture of Comstock's obsessive zeal to bring down the Clintons:

Late night calls from Barbara Comstock were not unusual. She often telephoned with the latest tidbit she had dug up in the thousands and thousands of pages of administration records she pored through frantically as if she were looking for a winning lottery ticket she had somehow mislaid ... She once dropped by my house to watch the rerun of a dreadfully dull Whitewater hearing she had sat through all day. Comstock sat on the edge of her chair shaking, and screaming over and over again, "Liars!" As Constock's leads failed to pan out, and she was unable to catch anyone in a lie, the Republican aide confided that the Clinton scandals were driving her to distraction, to the unfortunate point that she was ignoring the needs of her own family. A very smart lawyer by training and the main breadwinner for her charismatic, happy-go-lucky husband and kids, Comstock remarked that maybe she couldn't get Hillary's sins off her brain because "Hillary reminds me of me. I am Hillary." In this admission, a vivid illustration of a much wider "Hillary" phenomenon can be seen. Comstock knew nothing about Hillary Clinton. Comstock's "Hillary" was imaginary, a construction composed entirely of the negative points in her own life.

Comstock may have mellowed a bit over the years, but her passion for trench warfare on behalf of the GOP never cooled.

During the 2000 election, she served as the head of the RNC's opposition research team, digging up dirt on Al Gore. "Al Gore kind of gave us the liar thing," she told The Atlantic in 2004. "He had a problem with the truth, and that could be tied to bigger things and bigger issues."

While at the RNC, she became a "close associate" of Monica Goodling, the Christian conservative lawyer and Muckraker favorite who later would help keep the Bush Justice Department stocked with good Republicans.

Comstock herself also moved to the Bush DOJ, in 2001, to run the department's public affairs operation -- doggedly stiffing reporters as they sought information on the administration's aggressive tactics in the War on Terror.

After leaving Justice, Comstock spent some time helping then-GOP Majority Leader Tom Delay play defense on a host of ethics problems.

Next, Comstock helped run Scooter Libby's legal defense fund, formed to help Libby fight charges that he illegally leaked the name of CIA agent Valerie Plame for political purposes.

Later that year, she was off to run damage control for GOP Rep. Jerry Lewis, who was wrapped up in the Duke Cunningham scandal.

And months later, she teamed up with another GOP spin master, Mark Corallo, to form the crisis management firm Corallo Comstock Inc. The firm opened its doors just in time to help defend scandal-tarred Republicans facing scrutiny from the new Democratic administration. As Corallo put it to Roll Call: "Just in time for subpoena season."

Comstock didn't return a message left at her PR firm, seeking comment on her new career. But a reader reports seeing a volunteer passing out flyers promoting Comstock's statehouse run this morning at a special election site in Fairfax County, Virginia. So her campaign appears to be well underway.

Northern Virginia is turning blue at a rapid pace, so she should have her work cut out for her. But something tells us she'll be up for the challenge.

Bill Richardson

Dem Gov Assoc Mum On Possible Subpoena In Richardson-Linked Probe

Zachary Roth | February 3, 2009, 12:53PM

The Democratic Governors Association is refusing to say whether it has been subpoenaed in connection to the federal probe of pay-to-play allegations in New Mexico which derailed Bill Richardson's bid to be Commerce Secretary.

Asked whether the DGA had received a subpoena, spokesman Brian Namey responded in an email:

The DGA fully cooperates with any state or federal agency that makes legitimate requests for information. The DGA does not make statements concerning any particular investigation.

Four investment firms contributed to the DGA in 2004, around the same time those firms won lucrative contracts to manage the state's bonds, according to a report in the Albuquerque Journal today. Richardson at the time served as vice chair of the DGA, and would become chair the following year.

Last month, Bloomberg reported that investigators had subpoenaed Richardson's office for its correspondence with the DGA, in connection with the probe*.

The DGA, which has served as a key stepping-stone to national prominence for some Democrats, is currently chaired by Montana governor Brian Schweitzer. His office did not immediately respond to a request for comment.

Richardson's office has largely declined to comment on the investigation. According to reports, a former aide to Richardson, as well as a Richardson political adviser, have received subpoenas in connection with the probe.

* This sentence has been edited from an earlier version.

Leo Hindery

Report: Daschle Pushed For Hindery Job In Administration

Zachary Roth | February 3, 2009, 11:33AM

The Politico advances the underlying story of Tom Daschle's relationship with media entrepreneur Leo Hindery - a relationship that may have helped jeopardize Daschle's bid to become HHS Secretary, after it was revealed that Daschle failed to pay taxes on the use of a car and driver that Hindery provided him.

Politico has two interesting nuggets:

First, that Daschle backed Hindery, who had run unsuccessfully for DNC chair in 2000, for a job in the Obama administration. Hindery had been mentioned as a possible Commerce Secretary or US Trade Rep. "Tom was pushing for him," says a source.

Ultimately, Hindery "waited for the phone to ring," but it never did.

The website also has a bit more detail on what Daschle might have done for Hindery's firm, InterMedia, to earn the $1 million-a-year he received as a consultant.

It reports:

An industry source said that, more specifically, Daschle's political ties could open doors to labor and state pension funds, major investors in such equity vehicles. The firm controls a fund, Intermedia Partners VII, which has $700 million under management, according to a Thomson Reuters estimate.

Yesterday, we noted Hindery's interesting background, including the fact that he walked away from his tenure as CEO of Global Crossing with at least $250 million, just over a year before the telecom went belly up.

CDR

Richardson-Linked Probe Eyeing Governors Association

Zachary Roth | February 3, 2009, 10:42AM

Could the federal investigation of possible pay-to-play in New Mexico be turning its focus to a crucial Democratic political organization?

The probe, which derailed Bill Richardson's bid to be Commerce Secretary, has largely focused on one investment firm, CDR Financial Products. That company won a contract from Governor Richardson's administration to help manage the state's bonds, around the same time that it contributed to two Richardson political committees, as well as to the Democratic Governors Association (DGA), of which Richardson was vice chair at the time. (He would become chair in 2005).

And now the Albuquerque Journal reports that three other firms that won contracts to manage the state's bonds also contributed to the DGA, giving almost $500,000 around the time the transportation financing plan was being developed and finalized. Those firms are J.P. Morgan Securities, UBS Bank and RBC Dain Rauscher.

The paper adds:

Some of the donations were in cash, others were "in kind" services, such as catering.

The DGA describes itself on its website as a "political organization organized to support the candidacies of Democratic gubernatorial nominees and incumbents across the nation" and as "the united voice for America's Democratic governors." It has been a key stepping-stone to national prominence for some Dems, and its current chair, Governor Brian Schweitzer of Montana, is seen as a rising star in the party.

Bloomberg recently reported that federal investigators, in addition to subpoenaing aides to Richardson and a banker with JP Morgan Chase, also asked for DGA correspondence records in connection with the probe.

The bond contract program, known as GRIP, appears to have quarterbacked by David Harris, the led the state's financing authority at the time and had previously served as Richardson's deputy chief of staff.

Reports the paper:

Harris organized the team of GRIP bond underwriters and advisers after the Legislature approved GRIP at a special session in November 2003, according to NMFA board meeting minutes.

Harris also helped plan the financing for GRIP and shepherded the transportation package through the Legislature.

Harris, who left the NMFA after the GRIP financing details were approved to become a University of New Mexico vice president, has declined comment. His lawyer says his client denies any wrongdoing.

Something tells us we haven't heard the last of this.

The Daily Muck

The Daily Muck

Chris Black | February 3, 2009, 9:52AM

According to audits by the Inspector General for the U.S. Agency for International Development, the government has paid hundreds of millions of dollars to private contractors in Afghanistan that frequently failed to deliver results. Of six different audits conducted in the last year, only one found a rebuilding program producing the desired results. (USA Today)

The federal judge presiding over the bankruptcy case of Lehman Brothers was arrested on domestic violence charges Saturday. James Peck was charged with one count of third-degree attempted assault and one count of second-degree harassment after allegedly striking his wife during an argument at their home. (New York Times)

Financial firms that received bailout funds reportedly spent hundreds of thousands of dollars on charitable gifts for members of Congress. Eight firms spent $366,000 in the last six months of 2008. Fannie Mae and Freddie Mac were the largest spenders, contributing more than $330,000, according to a review of congressional lobbying records. (The Hill)

Read more »

Attorney: Rove Will Cooperate With DOJ Probes

Murray Waas | February 2, 2009, 7:08PM

Karl Rove will cooperate with a federal criminal inquiry underway into the firings of nine U.S. attorneys and has already spoken to investigators in a separate, internal DOJ investigation into the prosecution of former Alabama Gov. Don Siegelman, his attorney said in an interview.

Rove previously refused to cooperate with an earlier Justice Department inquiry into the firings. The Justice Department's Inspector General and its Office of Professional Responsibility (OPR) said in a report released last September detailing their earlier probe of the firings of the U.S. attorneys that their investigation was severely "hindered" by the refusal by Rove and other senior Bush administration officials to cooperate with the probe.

Rove's attorney, Robert Luskin, said that Rove, however, will cooperate with a federal criminal probe of the firings being led by Nora Dannehy, the Acting U.S. Attorney for Connecticut who was selected by former Attorney General Michael Mukasey to lead the investigation. Dannehy has recently empaneled a federal grand jury to hear evidence in the matter.

Luskin told me that Rove had earlier not cooperated with the Inspector General and OPR probe into the firings because "it was not his [Karl's] call... it was not up to us decide." Luskin said that Rove was directed by the Bush White House counsel's office not to cooperate with the Inspector General and OPR.

Regarding the more recent probe by Dannehy, Luskin said: "I can say that he would cooperate with the Dannehy investigation if asked."

In recent days, according to legal sources, two former Bush White House officials, including one former aide to Rove, have been contacted by investigators working for Dannehy and asked for interviews. One of the two has agreed to be interviewed.

Regarding the decision to cooperate with Dannehy, Luskin said that Rove "has not and will not assert any personal privileges." He also said that in regard to the earlier probe, Rove had not done so, but had rather only "followed the guidance of the White House."

Read more »

Eric Holder

Holder Confirmed...

Zachary Roth | February 2, 2009, 6:52PM

...as Attorney General by a vote of 75-21.

Said Pat Leahy, the chair of the Senate Judicary committe:

[O]f the last four Attorneys General, Eric Holder has the largest 'aye' vote of any of them. I think it is a good sign for the country. It is a good sign for the Department of Justice.

Tom Daschle

Daschle Friend Walked Away From Global Crossing With Millions

Zachary Roth | February 2, 2009, 5:54PM

At the center of the issues that have complicated Tom Daschle's nomination to run the Department of Health and Human Services is his relationship with Leo Hindery, the politically connected founder of the private equity firm InterMedia.

Taxes aside, we still don't know much about what Hindery got for the $1 million-a-year consulting fee he paid Daschle. Hindery and his colleagues at InterMedia aren't speaking, and the New York Times reports only that, according to a Daschle spokeswoman, "[i]n addition to lending the prestige of his name, Mr. Daschle traveled to help raise money from investors for Mr. Hindery's new venture".

But whatever Daschle did for his very healthy pay check, his association with Hindery should raise some eyebrows.

Hindery, a media entrepreneur who in 2001 founded the YES Network as the TV home of the New York Yankees, was briefly the CEO of Global Crossing, the upstart fiber-optic carrier whose collapse in late 2001, amid claims that executives had made fraudulent claims about the state of the company's finances, rocked the financial world.

To be clear, Hindery had left by the time of the meltdown, and most accounts place the largest share of the blame for the company's crackup on its founder Gary Winick. But when Hindery left, in October 2000 -- not long after predicting, inaccurately, that the company would be cash-flow positive by early 2002 -- he was definitely in the money. He had negotiated the sale of one of the company's divisions to Exodus Communications, in a deal which netted Hindery himself nearly $250 million.

How? BusinessWeek explained at the time:

Based on his contract with Global Crossing, he'll own 5.5% of the company if there's a change of control -- something that Hindery himself manufactured over the past two months by brokering the deal to Exodus. With a strike price of $54.37 a share, Hindery's stake stands to make him nearly $250 million when Exodus completes its "definitive" deal to buy GlobalCenter.

Not bad work if you can get it. Though when, just over a year later, Global Crossing filed for the seventh-largest bankruptcy in American history, its investors and employees -- who in 2004 received a $325 million settlement stemming from the loss of their pensions and 401ks -- might have been less impressed.

But Hindery wasn't done there. In October 2002, he went to court to force Global Crossing to fork over another $708,000 in back pay and more than $100,000 in rent for an apartment at the Waldorf-Astoria Towers on Park Avenue. Hindery had had the foresight to write into his original Global Crossing contract the stipulation that the firm would keep footing the bill for the rent on his Park Avenue pad through Oct. 3, 2002, and would keep paying him a $1-million-a-year consulting fee through September of that year. A lawyer for Global Crossing's many creditors called the effort "laughable", telling the Wall Street Journal Hindery "can line up with all the other general unsecured creditors."

Change we can believe in!

Tom Daschle

Taking Stock Of The Daschle Charges

Zachary Roth | February 2, 2009, 12:58PM

Tom Daschle's nomination to be Secretary of Health and Human Services has hit a serious snag, in the wake of a string of revelations mostly related to his payment of taxes on income he received as part of his consulting activities since he left the Senate in 2004.

Looking at a range of news reports, there are several different charges out there, each of varying degrees of seriousness. So -- leaving aside the real-world question of which of these charges might be the most politically damaging to Daschle's nomination -- it's worth taking stock of what exactly the former Senate leader stand accused of. And of how, at least initially, might we rate the seriousness of each individual misdeed.

Let's run down the list:

1. The most serious charge -- which comes from a report conducted for the Senate Finance committee, which is handling Daschle's nomination -- is that from 2005 to 2007, he failed to report on his taxes income from the use of a limousine and driver totaling over $255,000, and provided by InterMedia Advisors LLP, a private-equity firm. On January 2, Daschle, having concluded that he owed the money, filed amended returns and paid more than $140,000 in back taxes and interest.

InterMedia, whose advisory board Daschle chairs, was founded in 2005 by Leo Hindery, a politically connected media and telecommunications executive (with an apparent record of embellishing his personal story). Hindery gave at least $42,000 to Mr. Daschle from 1997 to 2004.

Daschle told the committee that he realized last June that the limo service might count as taxable income, and asked his accountant to look into it. A Daschle spokeswoman said the accountant didn't come back to Daschle until late December or early January with a finding that the taxes were owed. Only then did Daschle inform the Obama transition team. "He thought his accountant was taking care of it," the spokeswoman told a reporter.

2. The Finance committee is also probing a second potential tax impropriety stemming from Daschle's relationship with InterMedia. The committee says he failed to report on his 2007 tax return consulting income from the company of $83,333.

But this one appears to be an oversight, if a careless one. According to the committee report, Daschle received that sum per month (or a $1 million a year) from InterMedia under the consulting arrangement. InterMedia left off one monthly payment -- the one for May 2007 -- from the annual statement of income it sent Daschle. The error occurred because the InterMedia staffer normally responsible for reporting such payments was on maternity leave, according to the committee. All the other months were accounted for.

3. The issue that almost certainly has the greatest relevance for Daschle's desired new job as HHS Secretary is his work on behalf of healthcare-industry interests.

In his financial disclosure statement, Daschle reported getting paid more than $390,000 for giving speeches to groups including America's Health Insurance Plans (AHIP), a trade organization representing health insurers. He also got nearly $100,000 from health-related companies affected by federal regulation, including more than $5000 (again, the exact figure wasn't reported) for giving "policy advice" to the insurer UnitedHealth.

4. The committee is also probing Daschle's ties to Educap -- a student loan company that paid Daschle over $5,000 for "policy advice," according to his financial disclosure report. (The exact amount wasn't disclosed).

The inquiry is focused on whether "travel and entertainment services" given to Daschle by Educap and several related entities should have been reported as income. At issue, it appears, are two trips Daschle took on EduCap's corporate jet, one to the Bahamas, the other to the Middle East, to speak with members of the board of directors of a related organization. On the latter trip, Daschle and his traveling companions met with King Abdullah of Jordan, and Israeli minister Ehud Barack, according to the Daschle spokeswoman.

In addition, Daschle has worked during the last few years for Alston & Bird, the high-powered DC law and lobbying firm, which was registered as a lobbyist for EduCap. Some on the committee have suggested that Daschle should himself have registered as a lobbyist for Educap.

So what should we make of all this?

Individually, each charge -- with the exception, perhaps of the until-recently-unpaid taxes on the InterMedia car and driver -- might be seen as not much more than business as usual for a former Congressional leader who has slipped through Washington's revolving door to offer his contacts and expertise to private interests. But cumulatively, they paint a picture of a Washington insider who, at best, has grown negligent about tracking the various forms of compensation he's receiving.

Perhaps more important, Daschle's coziness with corporate interests, many of whom will have key business before Congress and the Obama administration, could complicate the larger task of reducing the influence of the private sector in Washington.

For instance, there's nothing explicitly nefarious about Daschle's work on behalf of health insurers. But interests like AHIP and UnitedHealth have, by and large, stood in the way of efforts to remove our healthcare system from the grip of private interests, which many see as a prerequisite for real reform. Of course, that likely won't happen without at least neutralizing the opposition of the private insurers -- so perhaps Daschle's ties to those insurers make him ideally suited for the role. But at the very least, it would be nice to know what kind of "policy advice" he gave his corporate clients.

Late Update: One additional angle we might have noted. The Finance committee report also found that, from 2005 to 2007, Daschle overstated the deductions to which he was entitled for charitable contributions. When he filed amended returns, he reduced the deductions by almost $15,000.

Late Late Update: Jonathan Cohn of The New Republic adds his well-informed and somewhat more favorable take on Daschle's ability to stand up to private healthcare interests:

On reform, Daschle favors the mainstream Democratic position, which relies primarily on private insurance to deliver coverage--although it also calls for creating a new public plan, into which anybody could enroll. That would put him a bit to my right, insofar as my touting of single-payer as a technically superior--if politically inferior--reform puts me to the mainstream's left. But Daschle's philosophy on health care seems, if anything, to be slightly to the left of where I'd expect a politician of his background (ideological, geographical) to be. And it's exactly where President Obama is, for better or for worse.

What's more, Daschle is very bullish on scrutinizing new treatments for their cost-effectiveness, an idea that the drug and device industries oppose strongly. He's also proposed heavy regulation of the insurance industry and been explicit about the public plan, two positions that don't go over particularly well with most insurers (or many other corporate interest groups, for that matter). Finally, having both heard and read Daschle on many occasions, I believe he is genuinely offended by the way our health care system ruins the lives of countless Americans--and genuinely committed to solving that problem, regardless of which special interests that solution may offend.

Bailout

Obama Planning Bailout Board

Zachary Roth | February 2, 2009, 11:41AM

In an interview with NBC's Matt Lauer that aired this morning, President Obama offered a concrete proposal intended to help his administration ensure that bailout money is spent more wisely than it has been until now.

Obama referred to "an independent board ... that actually looks at these programs, and the money, before it goes out the door."

Watch the clip:

Of course, how effective such a board will be is still entirely to be determined. But at least nominally this adds to the evidence that the new Congress and administration appear to understand the need to exert much tighter control over the bailout money than we saw initially.

The Daily Muck

The Daily Muck

Chris Black | February 2, 2009, 10:16AM

Despite making some moves toward a different approach to the fight against terrorism, President Obama has issued executive orders recently preserving the practice of rendition. While advanced interrogations have been stopped and Obama has announced his intention to close Guantanamo Bay, the administration has chosen to preserve the rendition program because it, along with missile strikes from Predator drones, allows the U.S. to keep terrorists off the streets, according to intelligence officials. (Los Angeles Times)

An investigation of visa applications by the Associated Press revealed that major U.S. banks, many of which now receive bailout money, sought to get visas for more than 21,800 foreign workers. Applicants were sought for positions ranging from senior vice presidents to legal counsel to junior analysts. Foreign workers are attractive to banks because they can be paid less. (Associated Press)

The union for employees of U.S. Customs and Border Patrol is alleging that Border Patrol agents working in Riverside, California were given monthly arrest quotas. Agents were told last month that they had to make 150 arrests, two leading to prosecutions, or supervisors would "change [their] weekends off," according to the president of a local union. A spokesperson for the agency said that quotas run counter to agency policy. (Associated Press)

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