Archive for July 23, 2009

From the Washington Post


Link to original:




Outright Corruption Alleged by Justice Department

“In the autumn of 2005, a mutual friend introduced Pamela Banks to a burly ex-Marine named Gary Alexander, at the time a high-ranking official at the secretive SPAWAR military research facility in San Diego.

“Alexander had a simple proposition. He could get Banks hired as a subcontractor on government projects through his position at SPAWAR, and get her all the work she would want.

“In return, Alexander asked for one thing: a 30 percent cut of the revenue generated from the contracts.

“Banks agreed, according to federal court records. She set up a small company in her San Diego home dubbed Advanced Technical Solutions and over the next two years reeled in $325,000 in subcontracts for SPAWAR work.”

That’s the top of a story this week in the San Diego Union-Tribune. It’s based on a recently unsealed Justice Department indictment of people who worked as senior officials in the Navy program and their alleged confederates in the contracting world.

The indictment describes a sordid kickback scheme — a subversion of the public trust. Here’s more from the story in the Union-Tribune.

“Investigators placed wiretaps on the phones of the Alexanders and others in the ring centered at SPAWAR and observed meetings where cash was handed over to Alexander, Assistant U.S. Attorney Robert Ciaffa said in court yesterday.

“Alexander, 49, was the head of SPAWAR’s Air Surveillance and Reconnaissance branch, a position prosecutors said he used to steer work to contractors and subcontractors in exchange for cash and gifts.

“Also indicted were Louis Williams, 43, and his wife, Elizabeth Ramos, 42, who own a National City-based firm called Technical Logistics Corp. That company garnered about $4.8 million in government contracts between 1999 and 2008.

“Sinthia Nares, 43, also was indicted in the scheme and prosecutors say, is allegedly Alexander’s mistress, for whom he secured lucrative jobs at various contracting firms.

“A sixth defendant, Jackie Godwin, was a manager at Kratos Defense & Security Solutions, a San Diego defense company that was a primary contractor with SPAWAR. He is alleged to have directed subcontracting work to the companies Banks, Ramos and Williams ran at Alexander’s direction. Godwin is in custody in Georgia and is on his way to San Diego to face charges.

“Though it spanned years, investigators were alerted to the alleged scheme in late 2007 with an anonymous tip to a federal fraud hotline.”

By Robert O'Harrow |  July 10, 2009; 12:12 PM ET fraud


Boeing 787 may not fly this year

By Dominic Gates

Seattle Times aerospace reporter

The structural flaw that delayed the first flight of the 787 Dreamliner is more complex than originally described by the company, and the plane’s inaugural takeoff is likely at least four to six months away, say two engineers with knowledge of Boeing’s problem.

Follow link above for full story at the Seattle Times.

CIA Committed Fraud, Judge Writes in Ruling
5 Involved in Suit Could Face Sanctions
Former CIA director George J. Tenet might face sanctions. (Bebeto Matthews – AP)
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By Del Quentin Wilber
Washington Post Staff Writer
Tuesday, July 21, 2009
A federal judge has ruled that government officials committed fraud while defending a lawsuit brought by a former DEA agent who accused a CIA operative of illegally bugging his home.
In rulings unsealed Monday, U.S. District Chief Judge Royce C. Lamberth wrote that he was considering sanctions against five current and former agency lawyers and officials, including former director George J. Tenet, for withholding key information about the operative’s covert status.
The rulings, issued in recent months, highlighted what the judge called fraudulent work by CIA lawyers in defending a suit that Lamberth said had a lengthy and “twisted history.” Brought in 1994 by DEA agent Richard A. Horn, the suit alleged that the CIA illegally bugged his residence in Rangoon, Burma, while he was serving in the country.
Horn said that portions of a telephone conversation with a subordinate were used by the head of the U.S. mission, Franklin Huddle, to oust him from his post.
Horn, 63, returned to the United States and retired from the DEA in 2000, according to his attorney. His suit was sealed at the government’s request.
The CIA operative and Huddle, represented by the Justice Department, fought the suit and asked Lamberth to throw it out, invoking the state’s secrets privilege. The government argued that the case involved information, including the operative’s identity, that was too sensitive to be revealed in court.
Lamberth agreed and dismissed the suit in 2004. Three years later, the U.S. Court of Appeals for the D.C. Circuit overturned Lamberth, ruling that Horn could try to prove his case against Huddle by using unclassified information. The court upheld Lamberth’s decision to remove the CIA operative from the suit.
Early last year, the Justice Department informed Lamberth that the CIA operative’s cover had actually been lifted in 2002 but nobody told the judge or the appeals court about the change. A CIA lawyer learned about it in 2005 but did not alert the Justice Department, Lamberth or the appeals court, Lamberth wrote.
Lamberth identified that lawyer as Jeffrey W. Yeates. In his rulings, Lamberth chastised the former CIA operative, identified as Arthur Brown, for not informing the courts about his change in status and reinstated Brown as a defendant. Brown claimed in court papers that he told top CIA lawyers about his cover being lifted as early as 2002.
Lamberth called the decision to withhold the information a “fraud on the court.”
“The CIA was well aware that the assertion of the state secrets privilege as to Brown was a key strategy in getting the case dismissed,” Lamberth added.
In an order issued Monday, Lamberth ordered Yeates, Brown, Tenet and three current or former CIA lawyers — John Rizzo, Robert J. Eatinger and A. John Radsan — to file court documents explaining why he should not sanction them for the government’s conduct. Attorneys for the officials and lawyers declined to comment or could not be reached. CIA spokesman George Little said the agency “takes seriously its obligations to U.S. courts.”
Horn’s attorney, Brian C. Leighton, said Lamberth’s rulings showed that the CIA was trying to “cover up wrongdoing.”


SEC Charges Halliburton and Two Former Officers for Failure to Disclose a 1998 Change in Accounting Practice


Halliburton’s Settlement with the SEC Includes a $7.5 Million Penalty Reflecting Lapses in Conduct During the Course of the Investigation


Washington, D.C., Aug. 3, 2004 — The Securities and Exchange Commission announced today enforcement proceedings against Halliburton Co., its former chief financial officer, Gary V. Morris, and its former controller, Robert C. Muchmore, Jr. The Commission’s actions are in response to Halliburton’s failure to disclose a 1998 change to its accounting practice. As a result of that undisclosed change, Halliburton’s public statements regarding its income in 1998 and 1999 were materially misleading.

Halliburton and Muchmore have agreed to settle the enforcement actions by consenting to a Commission order to cease and desist from committing or causing future securities law violations. Additionally, Halliburton and Muchmore have agreed to pay penalties of $7.5 million and $50,000 respectively, in a related civil action. Halliburton’s penalty for the disclosure failure reflects lapses in the company’s conduct during the course of the Commission investigation, which commenced in mid-2002.

Harold F. Degenhardt, Administrator of the Commission’s Fort Worth office, commented, “The SEC’s action today emphasizes the importance of complete transparency in a company’s financial disclosures. Important information bearing on a company’s results should be clearly and timely disclosed, even if those results are calculated in accordance with Generally Accepted Accounting Principles (GAAP).”

“The penalty against Halliburton serves as yet another reminder that the Commission will not tolerate lapses by companies that serve to delay or hinder the Commission’s investigative processes,” said Spencer C. Barasch, enforcement head in the Commission’s Fort Worth office.

The Commission approved these enforcement actions following a thorough investigation that included the review of approximately 340,000 documents and sworn testimony from 23 individuals. The company’s former Chief Executive Officer, Vice President Richard B. Cheney, provided sworn testimony and cooperated willingly and fully in the investigation conducted by the Commission’s career staff.

Today’s enforcement actions include all of the charges that the Commission deemed appropriate in light of the investigative record developed by its staff. These actions conclude the Commission’s investigation of Halliburton’s 1998 change to its accounting practice.

Halliburton provides a wide range of industrial construction services. In providing those services, Halliburton, at times, incurs cost overruns; the overruns may be recovered from Halliburton’s customer depending on the terms of the construction contract and the nature of the overruns. Historically, Halliburton recognized income arising from cost overrun claims only in the financial quarter in which the claim was finally resolved with the customer. From 1993 to 1997, Halliburton had set forth this practice in its periodic filings with the Commission. In the second quarter of 1998, Halliburton changed its historical accounting practice and began recognizing revenues by offsetting losses on certain projects with revenues based on estimated probable recoveries on claims that had not been resolved with customers.

Under the new practice, Halliburton recognized revenues on certain claims that the company believed were probable of collection rather than, pursuant to the prior practice, claims that had been finally resolved with its customers. Although both of Halliburton’s claims recognition practices, the historical one and the revised one, are appropriate under Generally Accepted Accounting Principles, there was a significant difference in their respective effects on Halliburton’s financial presentation: the new practice reduced losses on several large construction projects. As a result, Halliburton’s reported income was higher under the revised practice than it would have been under the prior practice.

Over six reporting periods, spanning approximately 18 months covering 1998 and 1999, Halliburton failed to disclose its change of accounting practice. In the absence of any disclosure, the investing public was deprived of a full opportunity to assess Halliburton’s reported income — more particularly, the precise nature of that income, and its comparability to Halliburton’s income in prior periods. It was not until March 2000 that Halliburton, in its 1999 Form 10-K, disclosed its change in accounting practice.

The following chart demonstrates the impact the undisclosed accounting change had on the company’s pre-tax income in 1998 and 1999:

Year Filing Reported
Pre-Tax Income
Reported Pre-Tax Income — Without Component of Unapproved Claim Revenue $ Difference % Difference
  Form 10-Q [Q2] $228.70 $183.30 $45.40 24.8%
  Form 10-Q [Q3] ($609.50) ($646.20) $36.70 5.7%
  Form 10-K $278.80 $190.90 $87.90 46.1%
  Form 10-Q [Q1] $149.00 $129.80 $19.20 14.8%
  Form 10-Q [Q2] $146.00 $135.80 $10.20 7.5%
  Form 10-Q [Q3] $103.00 $92.30 $10.70 11.6%

These income figures appeared in Halliburton’s filings with the Commission. They were also presented in the company’s quarterly earnings releases and analyst teleconferences.

The Commission alleges that Morris and Muchmore were responsible for the company’s failure to disclose the accounting change, over six quarters, in Halliburton’s Commission filings. Additionally, Morris and Muchmore played key roles in the preparation and review of quarterly earnings releases and analyst teleconference scripts that included the affected income figures. They were, therefore, also responsible for the absence in the releases and scripts of any clarifying reference to the accounting change or its impact.

Halliburton and Muchmore neither admit nor deny the Commission’s findings against them.

The enforcement action against Morris is unsettled, and has been filed in U.S. District Court in Houston, Texas.

Contact: Stephen M. Cutler, Director
SEC Division of Enforcement


See Also:  Administrative Proceeding Release No. 33-8452; Litigation Release 18817

Last modified: 8/3/2004


Union Leaders Defend GS System, Up to a Point

By Joe Davidson
Tuesday, July 21, 2009

Presidents of the two largest federal employee unions launched a defense yesterday of the General Schedule pay system that the Bush administration attempted to eliminate and the Obama administration, at a minimum, wants to reenergize.
Yet their defense was not without caveats. Both spoke to the need to modernize the familiar 60-year-old GS system that covers most of the 2 million federal workers.
National Treasury Employees Union President Colleen M. Kelley and American Federation of Government Employees President John Gage told the opening session of an “Excellence in Government” conference that while the GS system can be improved, it is far better than the Pentagon’s National Security Personnel System. The Pentagon system was the model for the kind of pay-for-performance operation the Bush administration wanted to spread throughout the government.
“The GS system, it is a system that is not perfect,” Kelley told the meeting, which was sponsored by the Government Executive Media Group. Then she added: “It is a system that is fair. It is understandable. . . . It is transparent,” all qualities the NSPS stands accused of lacking.
Critics of the NSPS are not limited to union leaders. A committee of the Defense Business Board, a group of private sector executives advising the Defense secretary, issued an interim report last week that called for a “reconstruction of the NSPS.” The report called it “complex,” “confusing,” “lacks transparency” and has “limited promotion opportunities.”
Gage told the government workers at the conference in the Ronald Reagan Building that the General Schedule “is basically a good system,” but that a new performance management program could be incorporated into an updated pay classification arrangement.
A new performance management system is key to the reform of the compensation and evaluation plan for federal employees that the Obama administration wants to develop. Pay-for-performance programs emphasize job execution, while the GS system has gained a reputation for rewarding workers for longevity.
In fact, the GS also can reward performance, but that mechanism has been stunted, like crops that get too little rain. Both union leaders later cited ways to recognize superior employees in the GS system, through a variety of means they consider more fair and open than the NSPS model.
“The GS system provides plenty of ways to reward superior performance,” Kelley said. “Under the GS, there is a framework for establishing performance levels, identifying those who meet those levels, and rewarding them. Rewards can come in the form of Quality Step Increases, under which employees with overall outstanding ratings receive a step increase in their grade without completing the waiting period.”
Gage cited the bonus and time-off awards available as incentives to GS employees.
“You can be very creative in the GS system,” Gage said.
John Berry, director of the Office of Personnel Management, addressed the conference’s closing session, but stayed away from advancing specific policy prescriptions. He would not comment on the report to the Defense Board because it is not a final document.
But he did say that the Obama administration will “develop a performance appraisal system that gives substantial rewards to our very best workers, recognizes the good work of the vast majority of our employees, and disciplines and removes the few bad apples who have been given the chance to improve but have either failed or refused to do so.”
That would be part of the “comprehensive reform, from recruitment and hiring to pay and training” Berry said the federal workplace needs.
“We have, by and large, the best workers in the world, but we do not have the systems or policies we need to support them.”
Much of Berry’s speech, titled “A New Day for the Civil Service,” was devoted to praising federal civil servants. After ticking off a list of their accomplishments, Berry said perceptions of federal employees “changed for the worse as it became fashionable for politicians of both parties to run against Washington and the boogey man of ‘the bureaucracy.’ ”
It was a bit ironic that Berry mentioned those politicians in a building named for Reagan, who did more to dump on government than anyone, famously saying “government is the problem” in his first inaugural address.
Berry, describing himself as the “chief people-person for the federal government” strongly defended the federal workforce, saying “It’s time the denigration ends.”
“I argue today that the premise of these attacks was not only misguided — it was completely wrong,” he added. “The American people were sold a bill of goods. Federal workers are not second class or inferior to workers in the private sector, and we never were.”
Curiously, some of his applause lines like that one were met with silence.
Maybe some federal workers believe the bull that’s been spread about them.
Read John Berry’s speech here.
Contact Joe Davidson at

Cemetery whistle-blower: ‘I ain’t a hero’:

‘I had my mouth closed too long,’ he says of shady goings-on at Ill. site

Autos, Banks Spend $20 Million Lobbying
Tuesday 21 July 2009
by: Silla Brush  |  Visit article original @ The Hill

In New York’s financial district, a man walks into a JP Morgan Chase & Co. building. Eight of the country’s biggest banks, including JP Morgan Chase, have increased lobbying expenditures since the bailout. (Photo: AP)
    Auto companies and eight of the country’s biggest banks that received tens of billions of dollars in federal bailout money spent more than $20 million on lobbying Washington lawmakers in the first half of this year.
    General Motors, Chrysler and GMAC, the finance arm of GM, cut back significantly on lobbying expenses in the period, spending about one-third less in total than they had in the first half of 2008.
    But the eight banks, the earliest recipients of billions of dollars from the federal government, continued to rely heavily on their Washington lobbying arms, spending more than $12.4 million in the first half of 2009. That is slightly more than they spent during the same period a year ago, according to a review of congressional records.
    The heavy lobbying comes as President Obama and congressional lawmakers work to overhaul the financial system and the auto industry undergoes a dramatic restructuring that has already witnessed GM and Chrysler pass through historic bankruptcy proceedings.
    As lawmakers turn their attention to enacting major changes to the regulatory system, the financial industry is at a crossroads. Some smaller and regional banks continue to show considerable signs of weakness while several big Wall Street banks announce multibillion-dollar profits.
    Those big banks traditionally are among the most active Washington lobbying interests in the financial industry, and the recession has done little to dent their spending. Major banking interests maintain it’s important to have a seat at the table as lawmakers chart such large changes. Since last fall, companies receiving government funds have argued that none of the taxpayer money they were receiving was being spent on lobbying.
    Still, lawmakers have pushed back hard on companies that continued to lobby, with some targeting the banking industry for scuttling legislative efforts while relying on government help. Democratic leaders blamed the industry when a major bankruptcy bill failed to pass the Senate earlier this year.
    The bill would have empowered bankruptcy judges to rewrite the terms of primary home mortgages. Industry groups were stridently opposed to the effort, which they dubbed “cramdown.”
    Some of the biggest banks are also among the more than 30 that have already moved to repay funds from the Troubled Asset Relief Program (TARP), the formal name for the bailout package Congress passed last October. More than $70 billion has been repaid to the federal government.
    Six of the eight banks spent more to try to sway lawmakers in the first half of 2009 than over the same period in 2008, before the worst of the financial crisis took hold. The eight banks include: Citigroup, JPMorgan Chase & Co, Bank of America, Goldman Sachs, Morgan Stanley, Wells Fargo, State Street and Bank of New York Mellon.
    JPMorgan was the top spender, at $1.76 million in the second quarter and $3.07 million in first half of the year. That is roughly 20 percent more than the bank spent on lobbying in the first half of 2008.
    Citigroup, which has yet to repay any of the $50 billion in bailout money it has received, was the second highest, at $1.67 million in the quarter and $2.92 million in the first half. A spokesman for Citigroup declined to comment.
    Only Bank of America and Goldman Sachs spent less on lobbying during the first six months of 2009 compared to the first half of 2008.
    GM spent $5.56 million on lobbying in the first half of 2009, compared with $7.08 million in the same period in 2008. GM also has dropped a dozen lobbying contracts.
    “GM’s spending is proportional to its activity,” said Greg Martin, GM’s spokesman. “At any given time, GM is engaged with policymakers on a variety of complex policy issues with significant economic and competitive consequences to individual automotive companies.”
    Chrysler has continued its outside lobbying contracts after establishing itself as a legally new company during the bankruptcy proceeding. Chrysler spent $1.42 million in the first half of the year, compared with $2.78 million a year ago. GMAC spent $660,000 this year, compared with $1.15 million a year ago.
    American International Group, the insurance firm crippled by trades in financial derivatives that received roughly $180 billion in bailout commitments, closed its Washington lobbying shop earlier this year. AIG continues to spend money on counsel to answer requests for information from the federal government, but the firm said it does not lobby on federal legislation.
    Jim Snyder contributed reporting.

Bernie Madoff
Thursday 30 April 2009
by: Michael Moore  |  Visit article original @ Time Magazine
Elie Wiesel called him a “God.” His investors called him a “genius.” But, proving correct that old adage from the country and western song, you never really know what goes on behind closed doors.
    Bernie Madoff, for at least 20 years, ran a Ponzi scheme on thousands of clients, among them the people you and I would consider the best and brightest. Business leaders, celebrities, charities, even some of his own relatives and his defense attorney were taken for a ride (this has to be the first time a lawyer was hosed by the client).
    We’re clearly in one of those historic, game changing years: up is down, red is blue and black is president. Aside from Obama himself, no person will provide a more iconic face of this end-of-capitalism-as-we-know-it year than Bernard Lawrence Madoff.
    Which is too bad. Yes, he stole $65 billion from some already quite-wealthy people. I know that’s upsetting to them because rich guys like Bernie are not supposed to be stealing from their own kind. Crime, thievery, looting – that’s what happens on the other side of town. The rules of the money game on Park Avenue and Wall Street are comprised of things like charging the public 29% credit card interest, tricking people into taking out a second mortgage they can’t afford, and concocting a student loan system that has graduates in hock for the next 20 years. Now that’s smart business! And it’s legal. That’s where Bernie went wrong – his scheming, his trickery was an outrage both because it was illegal and because he preyed on his side of the tracks.
    Had Mr. Madoff just followed the example of his fellow top one-percenters, there were many ways he could have legally multiplied his wealth many times over. Here’s how it’s done. First, threaten your workers that you’ll move their jobs offshore if they don’t agree to reduce their pay and benefits. Then move those jobs offshore. Then place that income on the shores of the Cayman Islands and pay no taxes. Don’t put the money back into your company. Put it into your pocket and the pockets of your shareholders. There! Done! Legal!
    But Bernie wanted to play X-games Capitalism, run by the mantra that’s at the core of all capitalistic endeavors: Enough Is Never Enough. You have the right to make as much as you can, and if people are too stupid to read the fine print of their health insurance policy or their GM “100,000-mile warranty,” well, tough luck, losers. Buyers beware!
    It would be too easy – and the wrong lesson learned – to put Bernie on TIME’s list all by himself. If Ponzi schemes are such a bad thing, then why have we allowed all of our top banks to deal in credit default swaps and other make-believe rackets? Why did we allow those same banks to create the scam of a sub-prime mortgage? And instead of putting the people responsible in the cell block in Lower Manhattan, where Bernie now resides, why did we give them huge sums of our hard-earned tax dollars to bail them out of their self-inflicted troubles? Bernard Madoff is nothing more than the scab on the wound. He’s also a most-needed and convenient distraction. Where’s the photo on this list of the ex-chairmen of AIG, Merrill Lynch and Citigroup? Where’s the mug shot of Phil Gramm, the senator who wrote the bill to strip the system of its regulations, or of the President who signed that bill? And how ’bout those who ran the fake numbers at the ratings agencies, the lobbyists who succeeded in making sleazy accounting a lawful practice, or the stock market itself – an institution that’s treated like the Holy Sepulchre instead of the casino that it is (and, like all other casinos, the house eventually wins).
    And what of Madoff’s clients themselves? What did they think was going on to guarantee them incredible returns on their investments every single year – when no one else on planet Earth was getting anything like that? Some have admitted they did have an inkling “something was up,” but no one really wanted to ask what it was that was making their money grow on trees. They were afraid they might find out it had nothing to do with gardening. Many of Madoff’s victims have told investigators that, over the years, they have made much more than the original investment they gave Bernie. If I buy a stolen car from the guy down the street, the police will take that car from me regardless of whether I knew it was stolen. If I knew it was stolen, then I go to jail for receiving stolen property. Will these “victims” give back their gains that were fraudulently obtained? Will the head of Goldman Sachs reveal what he was doing at the meetings with the Fed chairman and the Treasury secretary before the bailout? Will Bank of America please tell us what they’ve spent $45 billion of our TARP money on?
    That’s probably going too far. Better that we just put Bernie on this list.
    Moore’s new documentary on the wonders of capitalism will be in movie theaters this fall.
    This essay is an extended version of the one that appears in the print version of Time.