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Accountability Briefing, 2014

News & Features | April 22, 2014

New York, February 6

Hedge fund titan walks.

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Credit: Griffin Quasebarth

Hedge fund trader Matthew Martoma was convicted in the largest insider-trading bust in the history of finance—but his billionaire boss, Steven A. Cohen, walked. It was no secret on Wall Street that SAC Capital had been cheating using illegal inside information, yet the firm’s illegal practices went on for two decades. To get an edge on the market, SAC relied on “material nonpublic information” provided by a network of informants. Martoma was convicted for using information provided by pharmaceutical industry insider. SAC’s returns, which averaged 30 percent over the firm’s run and made it the most successful hedge fund in the world, were considered by many to be too good to be true. They were. The US Attorney for the Southern District of New York, Preet Bahrara, hoped to coax a plea bargain out of Martoma, who now faces five years in prison for conspiracy and an additional forty years for securities fraud. Martoma did not implicate his boss, and was convicted. He sought a conviction reversal on April 7. It seems that Cohen had distanced himself from the day-to-day management of the firm such that he was not implicated by the evidence the state gathered. Some additional evidence was destroyed by SAC traders. It is not clear why Martoma (who had been expelled from Harvard Law School for fabricating his transcript) accepted the conviction rather than the plea bargain. SAC has pled guilty to insider trading, and is paying a $1.8 billion fine. The firm survives, and this month rebranded itself Point72 Capital. Cohen has not been charged. He retains his $11 billion fortune, not including his $700 million art collection.

 - Robert Collins

Washington, February 26

Piercing the veil on government secrecy?

Glenn Greenwald and Laura Poitras returned to the US two weeks ago to accept a Polk Award for their reporting on National Security Agency surveillance, confident that their decision to publish classified information leaked by former NSA contractor Edward Snowden was not a crime.

Credit: Beau Collins

Credit: Beau Collins

However, a month and a half earlier, another momentous declaration came without the same media attention—this time from the gridlocked US Congress. The House unanimously passed a bill that would reform the Freedom of Information Act (FOIA), the public’s only legal tool for checking government secrecy. The bill skirted across the House floor without fanfare. It now awaits a Senate vote. The proposed legislation comes five years after President Obama urged government agencies to adopt a “presumption of disclosure” in their classification processes. The proposed reforms, introduced by Rep. Darrell Issa, are intended to pressure government agencies to adopt a more proactive stance toward declassifying records by enforcing “presumption of disclosure.” Tom Blanton, director of the National Security Archive, the largest non-profit user of FOIA, told the Observer in September that the president failed to substantially reform the open records law because “turnover in White House staff after the first two years [of Obama’s first term] meant nobody was in charge of the transparency issue, nobody enforced the Obama policies.” “[The administration] never ordered a review of pending FOIA litigation to see if the government’s position needed to be changed and lawsuits settled” Blanton said. “They never ordered the agencies to update their regulations on FOIA, so many are completely out of date and contradict the President’s policy.” According to Blanton, the Snowden revelations showed that the NSA and wiretap court process was “vastly over-classified, stifling debate that needed to happen.” Since the Guardian and Washington Post’s first reports on NSA surveillance programs in June 2013, which were based on Snowden’s leaks, about 5,300 FOIA requests have been sent to the NSA, according to Al Jazeera, which obtained the agency’s FOIA logs. That represents a seven-fold increase over the previous year. The NSA’s chief FOIA officer, Pamela Phillips, told Al Jazeera that her department had requested more staff to deal with the flood of requests, but had received none from the agency.

 - Robert Collins

Vatican City, March 5

Pope Francis defends Vatican’s response to sexual abuse of children.

For almost a year, Pope Francis avoided even mentioning the clergy sex abuse revelations that have shaken the Catholic Church to its core over the past two decades.

Credit: Griffin Quasebarth

Credit: Griffin Quasebarth

Since his accession in March 2013, Francis had offered his prayers to victims of sex abuse, but he had not specifically addressed the culpability of the Catholic Church. Now he told an Italian newspaper that “no one has done more.” Francis had indeed done more than any previous pope to combat sex abuse. He founded an investigative committee to advise him on how to address the scandals, and he had made the sexual abuse of children, for the first time, an official crime in the Vatican. But the Pope’s efforts were not enough for most abuse victims. Francis, who is the last absolute monarch in the world, has an imposing task ahead of him. Pope Benedict XVI, his predecessor, had been the first pontiff to resign from office in several centuries, and had proven unable to overcome the unspoken scandals that wracked the Vatican—and created millions of former Catholics. On April 12, Francis said that he takes personal responsibility for the child sex abuse scandals, and he has asked for forgiveness but has not taken additional action. Sexual abuse allegations have cost the US Catholic church roughly $2.6 billion.

- Robert Collins

Chicago, March 26

Northwestern football players win right to unionize.

The football team at Northwestern University became the first ever to be allowed to unionize, after a ruling from the National Labor Relations board at the end of March. The team will hold an internal election on April 25 to determine whether they will create the first collegiate sports union in the nation. Regional Director of the NLRB, Peter Ohr, issued the ruling after deciding that college football players were employees of the university who offered athletic services to the university and received scholarships in return. Despite an NCAA rule that players can’t devote more than 20 hours per week to athletics, Ohr found that the players at Northwestern were devoting around 40 to 50 hours per week to the sport, making them not just employees, but full time ones. The ruling noted that players must already adhere to strict rules, many of which prioritize athletics over schoolwork. Players have to check their course schedules with the coaching staff and cannot take a class if it conflicts with practice. Players are required to disclose information about their cars, living situations, and to friend their coaches on Facebook. Mark Emmert, the NCAA President, called the ruling “ridiculous” and “grossly inappropriate” when he held a Sunday morning press conference after the ruling. Mr. Emmert was paid more than $1.7 million in 2011. His voice was joined by Northwestern head coach, Pat Fitzgerald, who sent a letter to his students, urging them to vote against the creation of the union. Mr. Fitzgerald is Northwestern’s highest paid employee, with $2.2 million in 2011 compensation. Northwestern has already appealed the ruling.

 – Ben Kurland

 Everywhere, April 2

UN saves the whales.

On Monday, March 31, the United Nations International Court of Justice in The Hague ordered Japan to immediately discontinue its whaling activities in the Southern Ocean. Although a global moratorium on the commercial harvest of whales was established in 1986, Japan had been able to legally kill around 1,000 whales per year for the purposes of “scientific research.” Many conservationists, however, argued that the Japanese JARPA II program is actually a cover for the commercial hunting and sale of whale meat in Japanese domestic markets; since 1988, Japan has killed over 95 percent of the 14,410 whales harvested under the auspices of the scientific research permits. Pleasing environmental activist groups such as the Sea Shepherd Conservation Society, which has opposed Japanese whaling in Antarctic waters since 1988, the ICJ supported the complaints filed by Australia, concluding “the special permits granted by Japan for the killing, taking and treating of whales in connection with JARPA II are not for purposes of scientific research.” A statement issued by the Ministry of Foreign Affairs of Japan in response to the World Court ruling said, “Japan is disappointed…however, Japan will abide by the Judgment of the Court as a State that places a great importance on the international legal order and the rule of law.”

- Tyler Green

Washington, April 8

SEC lawyer resigns, lambasts agency for failing to take on Wall Street.

James Kidney retired very loudly at the end of March. An attorney for the Securities and Exchange Commission who had spent a quarter century enforcing finance law, Kidney addressed a crowd of 70 at his retirement party with harsh words, calling his former employer “an agency that polices the broken windows on the street level and rarely goes to the penthouse floor.” He railed against the toothless nature of the modern SEC, calling the fines it has levied on Wall Street institutions in the wake of the 2008 financial crisis “at most a tollbooth on the bankster turnpike.” Kidney critiqued the agency for failing to pursue litigation against those who were responsible for the financial collapse. Kidney’s comments come after years of reticent conduct by the SEC. Despite evidence of wrongdoing leading up to the 2008 meltdown, no bankers went to jail and fines levied were kept minimal — in part, due to an SEC policy to avoid fining banks that received bailouts out of concern that the U.S. Government would only be receiving its own money back. “I have had bosses, and bosses of my bosses, whose names we all know, who made little secret that they were here to punch their ticket,” he said. “They mouthed serious regard for the mission of the commission, but their actions were tentative and fearful in many instances.” Kidney finished his speech—and his career—to applause.

 - Ben Kurland

New Orleans, since 2012

New Orleans Police ignore reforms mandated after Katrina shootings.

In the days after Hurricane Katrina, some members of the New Orleans Police Department—historically one of the most violent law enforcement institutions in the country—shot to kill. Though the governor of Louisiana denied having declared martial law to stop the looting that broke out across the city after one of the most devastating natural disasters in American history, some cops took the law into their own hands, barely covering their tracks. Eleven New Orleans residents were reportedly shot by police immediately after the storm. The remains of Henry Glover were found days after the storm in a car a few blocks away from a New Orleans police station. Glover had been burned to ash. His body was taken to the morgue in five plastic bags. Five years later, Officer George McRae admitted to purposely burning Glover’s body. Another NOPD officer had allegedly shot Glover in the chest with a .223 rifle at a nearby strip mall, and conspired in the cover-up. At the Danziger Bridge six days after the storm, five New Orleans police officers allegedly shot six people, killing two. The officers allegedly fabricated a police report claiming that four people were firing on them when they arrived at the bridge in response to a fictional “officer down” call. Charges against the officers were vacated last fall because of prosecutorial misconduct. The retrial is still pending. In 2012, the Justice Department came to an unprecedented consent decree agreement with the NOPD, which stipulated that the NOPD would enact a series of reforms, some specifically aimed at constraining the use of force.  But New Orleans mayor Mitch Landrieu has criticized the agreement, saying it costs too much for the weak New Orleans tax base to handle, and the NOPD has been slow to report its progress. Critics say the department is stalling until the agreement expires in 2017.

- Robert Collins