Politics

by Jesse Eisinger and Jake Bernstein

The Securities and Exchange Commission has charged an asset manager with fraud for its role in one of the most notorious groups of mortgage securities deals behind the financial crisis.

Harding Advisory and Wing Chau, the head of the firm, failed to disclose that a hedge fund, Magnetar Capital, had a significant role in selecting the securities that went into one of its collateralized debt obligations, or CDOs, the agency alleges. CDOs were bundles of mortgage securities that helped fuel the financial meltdown.

As ProPublica detailed in 2010, Magnetar worked with investment banks to build CDOs that the hedge fund also bet against.  Magnetar would buy the riskiest part of the CDO, which gave it influence in picking which bonds would be included in the CDO. In turn, the hedge fund pushed riskier bonds that would make the investment more likely to fail.

Harding was a collateral manager, which was supposed to act independently and in the interests of the deal. In selling their CDOs, Wall Street investment banks relied on investor expectations that collateral managers would act independently. As ProPublica wrote in 2010, that independence was often compromised.

In its complaint, the SEC alleges that Harding and Merrill Lynch gave Magnetar an undisclosed veto over the assets that went into a $1.5 billion deal called Octans I, which closed in September 2006. Octans 1, which was arranged and sold by Merrill Lynch, failed in April 2008, costing investors $1.1 billion. Harding received $4.5 million in fees for the deal.

The SEC alleges that Harding’s disclosures were “materially misleading” and its behavior violated securities laws. The agency alleges that Harding and Chau “knew or at least recklessly disregarded” their standards to accommodate trades requested by Magnetar. Chau “understood that, because Magnetar stood to profit if the CDOs failed to perform, Magnetar’s interests were not aligned with those of potential investors in the debt tranches of Octans I,” the complaint says.

Harding put assets into Octans that it would not have if Magnetar hadn’t pushed them, the SEC complaint says. A Harding analyst wrote in an email, “we had to pick the lesser of evils” at Magnetar’s insistence.

Chau did additional favors for Merrill Lynch and Magnetar, to the ultimate detriment of investors in the CDOs his firm managed. At one point, Chau agreed to purchase bonds from another Merrill Lynch/Magnetar deal that it was managing, called Norma. Chau indicated he was reluctant to buy them.

A Magnetar representative chided him in an email saying “Remember who was there for u when u were a little guy.” Chau later emailed the Merrill executive, “I never forget my true friends.” He placed the bonds in other Harding-managed CDOs.

Over the next year, Harding managed four more CDOs arranged by Merrill Lynch, as well as three other Magnetar deals.

Wing Chau was prominently featured in Michael Lewis’s bestseller, “The Big Short.” Chau later sued Lewis, alleging the book defamed him. Lewis prevailed in the suit earlier this year.

Harding’s lawyer Steven Molo did not return a call seeking comment. Through a spokesman, Magnetar declined to comment.

There have been a series of settlements related to Magnetar CDOs. Previously, the SEC brought charges against another CDO manager for its role in another Magnetar deal, but eventually dropped them. The SEC has not filed charges against Magnetar over its activities.

The latest case will go before an administrative law judge who is required to rule within 300 days. If the SEC wins, the agency may demand the disgorgement of profits, civil penalties and seek to ban Chau from the securities business.

Harding continues to serve as collateral managerfor nine CDOs with total assets of approximately $1 billion.

by Cora Currier

“I have some d-word difficulty,” said Michael Toscano, president and CEO of the Association for Unmanned Vehicle Systems International, a trade group for makers and enthusiasts of robots of air, land and sea.

The d-word, of course, is drones.

“Just when I say that word, ‘drrrrone,’” he intoned, waving his hands, “it has a negative connotation. Drone bees: they’re not smart, they just follow orders, they do things autonomously, and they die. When you think of a drone it’s just that, it does one thing and it blasts things out of the air.”

Toscano and I spoke over lunch at the Drones and Aerial Robotics Conference at New York University last weekend. Why was “drones” in the name? For one, it’s an attention grabber. For another, DARC is a “cool acronym,” said an organizer, even if it doesn’t help dispel the spooky associations that give Toscano a headache.

The conference was one part industry showcase, one part academic gathering, and one part workshop, reflecting the various camps of drone defenders and disparagers. Machines whirred around a stage in a demonstration, and their makers showed off a stream of videos of mountaintops, biking stunts, and cityscapes set to thumping music.

Far beyond their military uses, drones could pollinate crops, help firefighters – even accompany “a family on vacation in Hawaii,” said Colin Guinn, CEO of a company that makes drones for photography.

“There’s a reason we make the Phantom white, and not black. It’s not creepy. Look how cute it is!” said Guinn, referring to the small drone hovering at his side, flashing lights to charm its audience. (A researcher from Harvard arguably failed the creepy test, explaining to the audience what to consider “if you want to build a swarm of robotic bees.”)

The tech geeks, though, were almost outnumbered by those of another stripe: philosophers, lawyers, and critics who propose that drones are “a different ontological category,” of “social machines,” as Ryan Calo, a law professor at the University of Washington, put it.

I asked Patrick Egan, President of the Silicon Valley chapter of Toscano’s group and editor at an industry blog, if drone manufacturers lay awake at night contemplating the ethics of technology, the brave new world that their products represent?

“The hyperbole is out of control,” he said. “It is transformative technology, but not in the way people think.”

The conference brought out some “different perspectives,” said Egan, who also does consulting for the military. “I’m on this panel with a women’s studies professor. She wants to say I’m a Randian. I don’t even get that. Hey, I’ve read a little Ayn Rand; right now I’m reading Naked Lunch! It wasn’t the industry that inspired me to do that.”

The U.S. has virtually no commercial civilian drone market, as the Federal Aviation Administration has been slow to approve the widespread use of drones. In the past year, the public has increasingly pushed back against the drone war overseas and surveillance at home. ProPublica has covered the secrecy that surrounds the administration’s drone war, from signature strikes to civilian casualties. The lack of transparency (the government still won’t release documents related to its targeted killing program) has helped contribute to wariness about the pilotless craft.

But industry line at the conference was that drones are merely a technological platform, with a range of possibilities. They don’t spy, or kill; the people ordering them around do.

A panel on “life under drones” in Pakistan and Afghanistan turned tense when the presenters said they couldn't show images of drone victims. (The organizers said it was a technical issue.)

“I don’t understand the hostility,” one young engineer said in reaction.

Toscano hates that critiques of U.S. airstrikes zero in on drones. “It’s not a drone strike unless they physically fly the aircraft into whatever the target is. It is an airstrike because it launches a Hellfire missile or a weapon.”

Journalists in Yemen have made the same point about media using “drone” as a shorthand for U.S. military action in that country. But Toscano – who spent years involved in research and development at the Pentagon – also defends the use of military drones: “If they fly manned systems, some of them could be shot down. Would you want those pilots to be shot down?”

Domestic, unarmed drones were also scapegoats for the public’s concerns about privacy, he said. Other, more common technologies have already eroded privacy. The public lost privacy via “cellphones, they lost it on GPS, they lost it on the Internet. They can’t get that genie back in the bottle.” The difference with drones is that “we don’t have these systems flying.”

John Kaag, a philosopher at University of Massachusetts Lowell, had asked the audience at his lecture to stare into the eyes of the person next to them while he counted out five awkward seconds, to feel “the human” concern with surveillance. He advised the drone industry, “Make people know that you feel that.” Humans “are responsible, drones are not responsible.”

Toscano said he was fine with staring at the man beside him. “I’m an extrovert! The only thing I said to the guy is, ‘I don’t mind this at all but if you were a woman I’d probably enjoy it more.’”

And what about the concerns – both ethical and practical -- that autonomous machines take humans out of the equation in novel and dangerous ways?

Cars already do a lot of things autonomously, Toscano offered. Car crashes kill thousands every year, but we consider the technology indispensable to modern life.

“If Martians came down to earth and said we will cure all of cancer on the globe, and for doing it, you have to give me 100,000 of your people for me to cannibalize, to eat, would we do the deal? Most people would say no. Our society does not believe that cannibalism is acceptable.”

“Right now, in human nature, it’s unacceptable for a machine to kill a human being,” he said.

That’s why people are uncomfortable with driverless cars or drones, Toscano said. He’s confident the “risk acceptance” will change, and that fears about the technology will become as quaint as 19th-century concerns about elevators.

by Nina Martin

Oct. 17: This story has been corrected.

Over the past few years, Washington state’s liberal voters have been on quite a roll. Same-sex marriage? Approved. Assisted suicide? Check. Legalized pot? That too. Strong abortion protections? Those have been in place for decades.

Now, though, the state finds itself in the middle of a trend that hardly anyone there ever saw coming: a wave of mergers and alliances between Catholic hospital chains and secular, taxpayer-supported community hospitals. By the end of this year, the ACLU estimates, nearly half of Washington’s hospital beds could be under Catholic influence or outright control.

Many of the deals have been reached in near secrecy, with minimal scrutiny by regulators. Virtually all involve providers in Western Washington, which voted heavily for same-sex marriage last November and the Death with Dignity Act in 2008. The cultural divide between the region’s residents (Seattle recently edged out San Francisco as the area with the largest proportion of gay couples) and the Catholic Church (whose local archbishop led the effort against marriage equality and is overseeing a Vatican crackdown on independent-minded American nuns) couldn’t be wider. And yet more and more hospitals there — sustained by taxpayers, funded by Medicare, Medicaid, and other government subsidies — could be bound by church restrictions on birth control, sterilization and abortion, fertility treatments, genetic testing, and assisted suicide.

In affected communities, the news is not going over well.

“It’s the perfect storm here,” said Kathy Reim, president of Skagit PFLAG (Parents, Families and Friends of Lesbians and Gays) north of Seattle, where four area hospitals have been in merger talks this year. “We are the only state that has all these rights and privileges available to our citizens. Yet many of our hospital beds are being managed by a system that, for the most part, cannot and will not honor these rights and laws.”

Meanwhile, the deals just keep coming. Earlier this month, hospital commissioners approved a letter of intent between Skagit Valley Hospital and PeaceHealth, a Catholic enterprise that runs nine medical centers and dozens of clinics in three states. The week before, Franciscan Health System (which already has six hospitals in the region) said it would affiliate with an acute-care facility in the sprawling suburbs south of Seattle. In mid- September, UW Medicine, which includes the University of Washington’s teaching centers, signed a “strategic collaboration” with PeaceHealth to provide advanced specialized in-patient care.

In all, Washington has seen at least 10 completed or proposed Catholic-secular affiliations in the past three years, more than anywhere else in the country, says Sheila Reynertson of MergerWatch, a New York-based nonprofit group that tracks hospital consolidations. Three of the state’s five largest health-care systems are Catholic.

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• "Unholy Alliance," by Jonathan Cohn, New Republic (2012)
• "Could Your Doctor Deny You Health Care?", by Sabrina Rubin Erdely, Self magazine (2007)
• "Faith Healers," by Cienna Madrid, The Stranger, an alt weekly in Seattle (2013)
• "Health Care Refusals: Undermining Quality Care for Women," National Health Law Program (2010)

Catholic providers have actually been an integral part of Washington state’s health-care infrastructure since the late 1800s, when nuns from the East Coast and Europe braved rain and worse to minister to loggers and miners in remote outposts around the region. A century later, those historical ties — and their relative robustness — have made them attractive partners for community hospitals for whom the choice is: affiliate or get crushed.

“It’s harder than ever before for independent health-care organizations to thrive without alliances,” said PeaceHealth spokesman Tim Strickland. One of the main reasons: health-care reform. “It’s happening all over the country, with all kinds of providers,” he said. “We don’t perceive this trend as a Catholic scenario so much as a health-care scenario.” (Indeed, the consulting firm Booz & Company predicts that a fifth of the nation’s 5,000 hospitals could merge over the next few years.)

In some places — including big swaths of Western Washington — Catholic providers are becoming the only source of health care for an entire region. (Approximately 8 percent of what the federal government calls “sole community hospitals” are Catholic.)

The dilemma is that Catholic hospitals — there are 630 or so in the United States, representing 15 percent of all admissions every year — are not independent entities. They are bound by a 43-page document called the Ethical and Religious Directives for Catholic Health Care Services, which have been around in some form since 1921 and were last revised by the U.S. Conference of Catholic Bishops in 2009.

The 72 directives explicitly ban abortion and sterilization. They restrict other types of care as well, including emergency contraception for rape victims (“It is not permissible... to initiate or to recommend treatments [for sexual assault] that have as their purpose or direct effect the removal, destruction, or interference with the implantation of a fertilized ovum”), in vitro fertilization and artificial insemination (“contrary to the covenant of marriage, the unity of the spouses, and the dignity proper to parents and the child”), surrogate pregnancy, and anything that remotely resembles assisted suicide (the bishops’ preferred term is “euthanasia”).

Then there’s this:

5. Catholic health care services must adopt these Directives as policy, require adherence to them within the institution as a condition for medical privileges and employment, and provide appropriate instruction regarding the Directives for administration, medical and nursing staff, and other personnel.

Over the years, the ERDs have had their greatest impact on women and people too sick or poor to look around for another provider. Some states (including Washington) have laws requiring emergency birth control, but there have been numerous reports of Catholic-affiliated doctors and nurses who were prevented from treating female patients — including pregnant women with serious complications — in accordance with best medical practices and the patients’ own wishes. In a study last year by researchers at the University of Chicago, 52 percent of OB/GYNs affiliated with Catholic providers reported having conflicts over religious policies dictating medical care.

But the ERDs are guidelines, not hard-and-fast rules. Depending on the local bishop, Catholic providers have a certain amount of leeway in how they interpret them. In Washington state, religious hospitals have been more willing than in some other places to negotiate and accommodate their partners’ concerns — an attitude Reynertson and others call “Catholic lite.”

PeaceHealth, for example, “strongly respects the patient-physician relationship and decisions that are made jointly by physicians and patients in the best interests of those patients,” Strickland said. This means that it will allow its affiliates to dispense birth control and do emergency abortions to save the life of the mother, he said. Franciscan is seen as being stricter, but even so, its secular partner in the small city of Bremerton is continuing to perform tubal ligations on women immediately after they give birth — the medical standard in most hospitals for women seeking such procedures, but verboten in most Catholic ones.

But usually, it’s the non-religious partner that has to give. The most high-profile example involves Swedish Health Services, a secular hospital system that partnered last year with Providence Health & Services. Like most of the recent Washington deals, this one was a kind of workaround, crafted to protect Swedish’s autonomy, reassure its patients, and mollify its critics. “To ensure Providence remained Catholic and Swedish remained secular, the partnership was intentionally structured as an affiliation, not a merger or acquisition,” Swedish said in a statement to ProPublica, adding: “As a secular organization, Swedish is not subject” to the ERDs. Among other things, this allows it to continue providing the full range of birth control services, including tubal ligations and vasectomies.

But a few days after the partnership was announced, Swedish said it would stop doing elective abortions, which it had been offering as part of its reproductive health services for years. Instead, it gave $2 million to Planned Parenthood to open a clinic adjacent to Swedish’s main Seattle hospital.

By structuring deals as “affiliations,” “partnerships” or “collaborations,” hospitals gain another advantage: sidestepping regulators. Washington’s process for scrutinizing hospital mergers only kicks in if there’s a sale, purchase or lease of an existing hospital, but most of the recent agreements have stopped short of that line. Thus, the Swedish-Providence deal did not go through a full review, even though the combined health care system is by far the largest in the state. Nor did Franciscan’s affiliation with Harrison Medical Center, the only full-service hospital serving much of the hard-to-reach Kitsap Peninsula and nearby islands, which ACLU-Washington criticized as “a thinly veiled ... transfer of assets” tantamount to a sale. Terms like “affiliation” and “alliance” leave “a lot of room to maneuver,” said the ACLU’s state legislative director, Shankar Narayan. “Without government oversight, once the camel’s nose is in the pen, you don’t have much control of where the affiliation is going to go.”

“The legitimate concern is: What happens to this relationship later?” Reynertson said. “Is this affiliation, this engagement, going to last? When are they going to get married? Once things like IT infrastructure ... are intertwined, a full merger may become inevitable. It’s a connection that can never be undone. And of course, at that point the mergers will be approved, because look how well they’re working already.”

Robb Miller, executive director of Compassion & Choices, which helped pass Washington’s assisted-suicide law, doesn’t actually think things are working all that well right now. The Death With Dignity Act isn’t mandatory for providers, and even before the wave of mergers, many secular hospitals had opted not to dispense or administer lethal medications to terminally ill patients. The Catholic partnerships have drastically shrunk the pool of providers willing or able to help dying patients end their lives. Since PeaceHealth took over the public hospital serving Clark County (in the southwestern part of the state) in 2010, Miller says, doctors, nurses and social workers have stopped referring patients for counseling to groups like his. “They went from a secular organization with reasonably good policies on death with dignity to an organization with anti-choice policies based on the ERDs.” The practical result is that many terminally ill patients “simply lose their medical options” for a peaceful death, Miller said.

Strickland acknowledges that PeaceHealth forbids both physician-assisted suicide and elective abortions at its affiliates. But he insists that this not as big a change as it sounds, since many community hospitals don’t offer those health care options anyway. “We only go into communities where we’re invited,” he said, “and we have a very strong track record of adding services, not taking them away.”

But what about the future, asks PFLAG’s Reim. She notes that PeaceHealth and other Catholic-affiliated providers are unlikely to add health care services restricted by the ERDs.

“We’re expecting another 40,000 people to move to this part of the state,” she pointed out. Some of these newcomers are likely to be gay couples and transgender people who could find themselves unable get fertility treatments or hormonal therapy in their communities. “This isn’t just about protecting the rights of the people who already here, but the rights of the people who are coming,” she said.

For Mary Kay Barbieri, co-chair of a Skagit Valley group called People for Healthcare Freedom, the other big fear is that the Catholic Church and the men who run it could suddenly decide to take a harder line in how they interpret the ERDs. Or a Catholic lite provider could be gobbled up by one with stricter views, as almost happened this year when PeaceHealth and Franciscan's parent company, Colorado-based Catholic Health Initiatives, were in talks to merge (later scuttled). “That was very worrisome,” Barbieri said.

Meanwhile, the state’s largely hands-off attitude may be ending. This summer, Gov. Jay Inslee, a Democrat, directed the Department of Health to update its hospital merger oversight process, while Democratic Attorney General Bob Ferguson issued an opinion requiring all public hospital districts that offer maternity services to also provide birth control and abortions. But how those orders will play out remains a very big question. “We will be watching closely,” Barbieri said.

Correction (10/17): An earlier version of this article said that after PeaceHealth took over the public hospital serving Clark County in 2010, it closed the hospice program. It actually did not discontinue that program.

by Jake Bernstein

Beds in closets. Vermin infestations. Drug-dealing house managers. Fire hazards hidden from building inspectors.

These are just some of the conditions turned up by the John Jay College of Criminal Justice during a year-long examination of New York City’s shadowy network of residences for indigent addicts and alcoholics.

John Jay’s report on these so-called “sober” homes, released today, paints a picture of an unsafe and unregulated housing system for which no government agency wants to take ownership, leaving tenants at landlords’ mercy.

Beyond being subjected to dangerous and unsanitary living conditions, many residents of sober homes, also known in New York as “three-quarter houses,” told John Jay’s team they were required to attend specific outpatient drug treatment programs or face eviction. These programs, some of dubious quality, allegedly pay home operators fees for referring patients for services from Medicaid and other government programs. Such referrals are illegal under federal and state law.

“Many of the houses have ongoing relationships with particular [state]-licensed substance abuse treatment programs, and evidence suggests that these programs may be paying the houses kickbacks for referrals of clients,” the John Jay report says.

The report’s conclusions echo those in an investigation published in September by ProPublica that detailed links between sober home operators and an outpatient drug treatment program called New York Service Network (NYSN). The New York Attorney General’s office has received allegations of fraud and kickbacks concerning the clinic. NYSN owner Lazar Feygin adamantly denies that he makes payments to sober home operators in exchange for patient referrals.

Eight days after ProPublica’s story, auditors with the New York State Office of Alcoholism and Substance Abuse Services (OASAS) began a surprise inspection of NYSN. OASAS auditors spent five days in the clinic for what a spokeswoman termed “a routine unannounced regulatory compliance review.” The agency has not yet announced the results of the review.

OASAS oversees one of the nation’s largest addiction services systems with more than 1,600 prevent, treatment and recovery programs, according to its website. It operates its own addiction treatment centers as well as licensing and supervising more than 1,000 others. The agency does not regulate the New York three-quarter houses where many people treated at such clinics live. Nor does any other governmental agency. John Jay teamed with several not-for-profit advocacy groups to interview 43 three-quarter house residents for its report. Those interviewed are not named; nor are the residences or drug clinics described in the report.

The report estimates that as many as 10,000 New Yorkers currently reside in three-quarter houses. Residents are often former prisoners or recent patients of residential drug treatment programs. Most are unemployed and receive Medicaid. A little less than half have been homeless at one point in their lives.

Since no governmental agency regulates three-quarter houses, there are no precise numbers for how many exist in New York. The John Jay study found 317 addresses but does not claim to be comprehensive. Almost 90 percent of the addresses had a building code complaint between 2005 and 2012 that resulted in at least one violation or stop-work order by the New York City building department, the report says. The houses are concentrated in some of New York City’s poorest neighborhoods.

Residents described crowded, hazardous living conditions: 30 to 40 people residing in a single house, with as many as 16 men sharing one bathroom. In some cases, the report said, houses have no smoke detectors. Electrical wiring is jerry-rigged. Heat can be scarce. Residents resort to using kitchen ovens or space heaters to stay warm. Though the houses are touted as drug free, residents told interviewers that drug use is common and that if they complain, house managers threaten eviction or in the case of parolees, a return to prison for manufactured parole violations.

The overcrowding may partly reflect insufficient affordable housing in New York City. The New York City Human Resource Administration pays individuals undergoing drug or alcohol treatment a monthly rental shelter stipend of $215. The amount was last raised in 1988, according to the New York State Office of Temporary and Disability Assistance. The median monthly rent, not including utilities, in New York City is $1,100, according to the report.

“It comes down to being a housing issue,” said Ann Jacobs, director of the John Jay College of Criminal Justice Prisoner Reentry Institute. “There needs to be an expansion of funding into that area.”

Though the report describes poor conditions at sober homes, advocates are equally concerned that the government will respond to the findings by shutting them down, Jacobs said. Most of the residents don’t want to live in homeless shelters, which don’t have the space for them anyway.

“What would happen to these people then?” Jacobs asked.

Ultimately, substandard sober homes are no bargain for taxpayers, putting residents in jeopardy of relapsing, of getting sick, causing fires and falling into homelessness, Jacobs added. Given a clean, safe place to live, more of them could return to work and contribute to their families.

“The problem is solvable,” Jacobs said. “I think the obstacle is political will.”

by Charles Ornstein and Tracy Weber

Elderly Americans are prescribed medications in inexplicably different ways depending on where they live, according to a new report from Dartmouth researchers.

The most depressed older patients—or at least the ones being medicated -- live in parts of Louisiana and Florida. There’s a cluster with dementia around Miami. And the seniors who have the most trouble sleeping? They live, perhaps unsurprisingly, in Manhattan.

The study by the Dartmouth Institute for Health Policy and Clinical Practice examined geographic variations in the drugs elderly Medicare patients received in 2010. Researchers mapped where patients got medications they clearly needed and where they got drugs deemed risky for the elderly. They also looked at differences in the use of so-called discretionary drugs, which they say are widely prescribed but of uncertain benefits.

The report’s findings underscore those of a ProPublica investigation in May, which found that some doctors who treat Medicare patients often prescribe drugs that are dangerous or inappropriate for certain patients. ProPublica also found that the federal officials who run Medicare have done little to scrutinize prescribing patterns in their drug program, known as Part D, or question doctors whose practices differ from their peers.

Officials from the Centers for Medicare and Medicaid Services could not be reached to answer questions about the study. They have previously said that the primary responsibility for overseeing prescribing belongs to private insurers that administer the program. Still, they have acknowledged that Medicare should and will do more to track prescribing in Part D and follow up on unusual patterns.

The Dartmouth researchers did not look at the habits of individual doctors, as ProPublica did, but instead looked at the percent of patients in each region who received certain types of medications. Regionals boundaries were based on where patients would be referred for hospital care.

For example, 17 percent of elderly patients in Miami received a prescription for a dementia drug in 2010, while less than 4 percent of patients in Rochester, Minn., and Grand Junction, Colo., got one. Nationally, the average was 7 percent, according to the report, titled the Dartmouth Atlas of Medicare Prescription Drug Use.

There were similar differences by location for antidepressants. In Miami, almost one-third of elderly Medicare enrollees received at least one prescription for such drugs and about one-quarter of those in a swath of Louisiana did. In Honolulu, just 7 percent got one.

The report does not address whether the patients had diagnoses that would warrant the use of these medications. It also does not include disabled patients under 65 who are also covered by Part D.

Researchers examined whether patients in different regions had been given widely accepted drug treatments following health emergencies, for instance a beta blocker after a heart attack or an osteoporosis drug after certain fractures.  And they calculated the percentage of seniors who were given drugs labeled risky by the American Geriatrics Society because they are known to affect their cognition and balance.

“We see that some clinicians are not achieving a level of effective medication use” compared to their peers, said Dr. Nancy Morden, a lead author of the report. “Conversely, some clinicians are putting their patients at much higher risk by using hazardous medications at a much higher rate than their peers.”

The report does not tackle two of the most fraught issues in prescribing today: the use of narcotic painkillers and anti-psychotics, especially to treat dementia in the elderly.

Morden said she was surprised to find that, in some regions, large percentages of patients were getting discretionary drugs that were moderately beneficial, like those for acid reflux -- and not getting the ones that could save their lives, like the beta blockers or cholesterol-lowering drugs.

 “What are we doing?” she said. “It’s surprising to me that we can use so much of our energy to pursue medications that give us far less in terms of health. I worry that it’s coming at the cost of getting the effective medications.”

People in some regions of the country are healthier than in others. But Morden said that does not explain the wide variations her group found in so many different categories of drugs. That may be a signal that patients are not being adequately informed about the risks, benefits and costs of the drugs, she said. Doctors also may be unaware of how different their practices are from the peers in other parts of the country.

Overall, researchers found that the elderly in Miami fill more prescriptions than anywhere else. On average Miami area patients got nearly 63 per person, including refills, in 2010, compared to a national average of 49. Seniors in Miami also had the highest average spending on prescriptions that year, $4,738 compared to $2,670 nationally.

In the report, Morden and her co-authors encourage policymakers to seek ways of reducing geographic variation in the way medications are prescribed. They also urge patients to ask their doctors about whether a drug is truly needed for them.

The Dartmouth group has previously examined how costs and use of services in the Medicare program differ markedly across the country. They note that some of the highest-spending regions in terms of drug costs were also among the highest users of other types of medical services.

by Kim Barker

In a sharply worded ruling, a federal judge in Montana said Tuesday that documents found inside a Colorado meth house pointing to possible election law violations will not be returned to the couple claiming the papers were stolen from one of their cars.

Instead, the thousands of pages will remain where they are -- with a federal grand jury in Montana, investigating the dark money group American Tradition Partnership, once known as Western Tradition Partnership, or WTP.

The documents, detailed last fall in a Frontline documentary and ProPublica coverage, point to possible illegal coordination between candidates and WTP, which since 2008 has worked to replace moderate Republicans with more conservative candidates in both Montana and Colorado. The documents, including a folder labeled “Montana $ Bomb,” provided the first real glimpse inside a dark money group. Such so-called social welfare nonprofits, which have poured more than $350 million into federal election ads in recent years, don’t have to disclose their donors.

Conservative political consultant Christian LeFer, a former WTP official, and his wife, Allison LeFer, who helped run the couple’s printing shop, sued Montana’s former Commissioner of Political Practices Jim Murry and the state of Montana to recover the documents.

On Tuesday, the LeFers lost in almost every way possible. They didn’t get their documents. They didn’t get any money; instead, they’ll have to pay Murry’s fees, which haven’t yet been totaled. They won’t be able to file their complaint against Murry ever again.

And on every page of his ruling, U.S. District Judge Donald Molloy seemed to somehow insult them.

At one point in his 34-page ruling, Molloy referred to “the procedural morass caused by the LeFers’ posturing.” Since last fall, the LeFers have filed at least five separate complaints in different courts, sometimes with factual errors.

Molloy’s colorful order is a fitting coda for one of the strangest stories about how dark money groups have tried to influence elections.

Although WTP operated at the state level, it won national attention for its fight against campaign-finance restrictions. It sued successfully to overturn Montana’s ban on corporate spending in elections, which meant the U.S. Supreme Court’s Citizens United decision applied to all states. WTP also fought with state regulators for more than two years over their ruling that the group was a political committee and should have to report its donors. (Last year, ProPublica and Frontline obtained the bank records of the group, the first time a dark money group’s donors have been made public.)

The mysterious boxes of documents, found in a meth house in Colorado, were sent to Montana investigators in March 2011, months after state investigators wrapped up their initial case. After Frontline obtained them in 2012, ProPublica and Frontline spent months investigating how Western Tradition Partnership and LeFer appealed to donors and worked with candidates to shape elections. Coordination between outside groups and candidates is not allowed.

The federal grand jury subpoenaed the documents last December, along with other documents relating to complaints against WTP. Grand jury proceedings are secret, so it’s not clear what is being investigated. But the judge’s order Tuesday indicates that the investigation involves more than just the Colorado documents. It’s also the first sign in months that the grand jury is still hearing evidence.

Christian LeFer hasn’t yet responded to an email asking about the Tuesday ruling.

Meanwhile, because you rarely see a federal court ruling replete with descriptions like “Groundhog Day litigation,” “the ship of litigation” and “the curate’s egg,” we decided to compile our Top 12 list of quotes from the judge’s order.

1. “...the Lefers’ Complaint presents [sic] fanciful screed replete with distorted accusations implying and attributing bias and nefarious motive on the part of the Commissioner....This politicized rhetoric has no place in proper pleading and appears to serve but one purpose: it grabbed headlines.”

2. “The pleadings evidence the Plaintiffs’ belief that the end justifies the means, a principle that has no safe harbor in the rule of law.”

3. “In January 2013....the LeFers served the Commissioner with a Motion seeking to hold the Commissioner in contempt. This Motion was never filed with the state district court or with this Court...It served as political theater rather than legitimate legal practice.”

4. “Groundhog Day litigation, repeating the same case over and over again, amounts to little more than harassment.”

5. “There was a time for LeFers to abandon the ship of litigation. They did not timely use the Rule 41(a)(1)(B) lifeboat, so now their case sinks and they, like captains, sink with it.”

6. “Transparency is a (Montana) constitutional requirement because it is crucial to an informed electorate.”

7. “The LeFers’ insistence that the Colorado Documents are private property holds no water.”

8. “Nothing in the record shows he (the commissioner) did not act in good faith or that he acted with malice or corruption.”

9. “Furthermore, as this matter stands today, there is no means by which the Colorado Documents may be delivered to the LeFers, as they are in possession of a federal grand jury.”

10. “The LeFers’ claims repeatedly impute illicit conduct to the Commissioner and his office without a hint of proof or any factual support. As discussed earlier, this lawsuit began couched in nasty and unprofessional rhetoric, and continued with hyperbole.”

11. “When the Complaint was filed, and continuously throughout this litigation, the LeFers advanced their case without factual or legal foundation. Their litigation tactics were not only unreasonable; they reflect a sad view of the democratic process and the rule of law.”

12. “The Complaint is not even like the curate’s egg.”

by Charles Ornstein

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For the past two weeks, healthcare.gov, the federal government’s new health insurance marketplace, has been bogged down by problems, preventing users (including me) from viewing insurance options and plans on the website.

Federal officials have pointed to overwhelming demand to explain the site’s problems. But web developers, other experts and journalists have uncovered more fundamental issues with the design and functioning of the site.

Here are excerpts from five of the better stories explaining what happened:

Healthcare.Gov’s Flaws Found, Fixes Eyed

By Christopher Weaver and Louise Radnofsky, The Wall Street Journal

Much of the problem stems from a design element that requires users of the federal site, which serves 36 states, to create accounts before shopping for insurance, according to policy and technology experts. The site, healthcare.gov, was initially going to include an option to browse before registering, but that tool was delayed, people familiar with the situation said.

The decision to move ahead without that feature proved crucial because, before users can begin shopping for coverage, they must cross a busy digital junction in which data are swapped among separate computer systems built or run by contractors including CGI Group Inc., the healthcare.gov developer; Quality Software Services Inc., a UnitedHealth Group Inc. unit; and credit-checker Experian PLC.

If any part of the web of systems fails to work properly, it could lead to a traffic jam blocking most users from the marketplace. That’s just what happened: On Oct. 2, officials identified a bottleneck where those systems intersect at a software component sold by Oracle Corp. that still hasn’t been cleared.

Tech experts wary of more Obamacare glitches

By Brett Norman and Jason Millman, Politico

Some software engineers have suggested that the consumer end of the website, designed by one contractor, is not “talking to” the back end of the website, developed by a different company.

Diagnostic tools in Web browsers have identified coding issues that may be complicating account creation. The Wall Street Journal reported Friday that the administration is considering an overhaul of the registration system this weekend to allow people to browse health plan options without first creating an account. The paper said the tech experts are focused on a bottleneck where a flood of data meets an Oracle software component involved in identification verification.

From the Start, Signs of Trouble at Health Portal

By Robert Pear, Sharon LaFraniere and Ian Austen, The New York Times

Confidential progress reports from the Health and Human Services Department show that senior officials repeatedly expressed doubts that the computer systems for the federal exchange would be ready on time, blaming delayed regulations, a lack of resources and other factors.

Deadline after deadline was missed. The biggest contractor, CGI Federal, was awarded its $94 million contract in December 2011. But the government was so slow in issuing specifications that the firm did not start writing software code until this spring, according to people familiar with the process. As late as the last week of September, officials were still changing features of the Web site, HealthCare.gov, and debating whether consumers should be required to register and create password-protected accounts before they could shop for health plans.

Some say health-care site’s problems highlight flawed federal IT policies

By Craig Timberg and Lena H. Sun, Washington Post

The U.S. government spends more than $80 billion a year for information-technology services, yet the resulting systems typically take years to build and often are cumbersome when they launch. While the error messages, long waits and other problems with www.healthcare.gov have been spotlighted by the high-profile nature of its launch and unexpectedly heavy demands on the system, such glitches are common, say those who argue for a nimbler procurement system.

They say most government agencies have a shortage of technical staff and long have outsourced most jobs to big contractors that, while skilled in navigating a byzantine procurement system, are not on the cutting edge of developing user-friendly Web sites.

These companies also sometimes fail to communicate effectively with each other as a major project moves ahead. Dozens of private firms had a role in developing the online insurance exchanges at the core of the health-care program and its Web site, working on contracts that collectively were worth hundreds of millions of dollars, according to a Government Accountability Office report in June.

How The First Internet President Produced The Government’s Biggest, Highest-Stakes Internet Failure

By Alex Howard, Buzzfeed

The debacle is merely the most visible example of how $80 billion spent annually by the federal government on information technology falls far short of delivering the quality or service any private company would expect at a fraction of that cost.

...

At the heart of the federal IT crisis is a complex system of regulations that rewards contractors that are better at bidding on giant federal contracts than at building software. While the political figures who commission or oversee those contractors are ultimately culpable, the work itself is done by the private sector. That’s not only true of civilian agencies, as the world was reminded when a private contractor for the National Security Agency, Edward Snowden, leaked key documents from the government and gave then to the press.

Finally, explore the contractors who worked on healthcare.gov and their campaign contributions, courtesy of the Sunlight Foundation.

Here are all the contractors working on Obamacare -- and all the money they spent on lobbying and campaigns. http://t.co/qGvaJlvFtM

— Nick Confessore (@nickconfessore) October 10, 2013

by Jake Bernstein

A federal judge rejected the Federal Reserve Bank of New York’s plea to seal documents in a wrongful termination lawsuit filed by a former bank examiner who claims she was fired for doing her job.

U.S. District Judge Ronnie Abrams ruled today in the case by Carmen Segarra against the New York Fed and three employees. Much of the material the Fed hoped to keep off limits, including 67 paragraphs from Segarra’s complaint and multiple exhibits, can be found on ProPublica’s website and others.

“I am not convinced that anything will be accomplished to seal or redact a complaint that is publicly available,” said Abrams in the hearing held at the federal courthouse in lower Manhattan.

Segarra worked for the New York Fed for seven months before being fired in May of last year. She was assigned to examine Goldman Sachs and its conflict-of-interest policies, she said. Segarra said she determined that Goldman’s policies did not meet Fed requirements. Her lawsuit alleges that her bosses tried to convince her otherwise and that she was fired after refusing to change her findings.

Goldman says it has robust methods for managing conflicts of interest and has declined comment on Segarra.

At today’s hearing, New York Fed attorney David Gross accused Segarra of stealing confidential documents, including her own internal emails and meeting minutes. Were the court to allow them to remain public on its own electronic records system, called Pacer, it “would be helping this improper conduct,” Gross said.

Gross compared the New York Fed’s relationship with the financial institutions it supervises to attorney-client privilege. Should the institutions lose faith in the Fed’s ability to keep communications and documents secret, it could spell trouble, he said.

“If [the supervised banks] don’t think it will be confidential, they will be less willing to give that information, to the detriment of the financial system,” said Gross.

Although ruling against the Fed, Abrams asked Segarra and her attorney, Linda Stengle, not to reveal any more confidential supervisory information without first consulting with her. “This is not a gag order,” the judge said. “I am not telling plaintiff she cannot talk about her case.”

Linda Stengle said afterward she was pleased about the ruling but unhappy that there were constraints placed on her client. “It’s important that the public have access to the information” in support of Segarra’s case, she said.

A spokesperson for the New York Fed did not immediately respond to a request for comment.

by Theodoric Meyer

Congress did something unusual last year. It passed a bill that acknowledged that sea levels are rising — i.e., that climate change is happening.

The measure in question, buried near the end of a 584-page transportation funding bill, also required some modest action: That the Federal Emergency Management Agency use “the best available climate science” to figure out how the flood insurance program it administers should handle rising seas.

FEMA’s first step was supposed to be to set up an advisory body, the Technical Mapping Advisory Council, that would make recommendations on how the agency could take the effects of climate change into account in its flood insurance maps.

But more than a year later, FEMA hasn’t named a single member to the council. Without any members, it has been unable to meet or make any recommendations. In July, the council missed a deadline set out in the law for submitting written recommendations for how the flood insurance program might deal with future risks related to climate change.

FEMA had developed a charter for the council by the end of August and was in the process of finalizing letters to solicit council members, according to the agency. Dan Watson, the FEMA press secretary, said he was unable to provide more up-to-date information because much of the agency’s staff has been furloughed under the government shutdown.

Few areas of the federal government are more directly affected by climate change than the flood insurance program and its maps, which determine the premiums that 5.6 million American households pay for flood insurance. The program fell deeply into the red after Hurricane Katrina in 2005 and Hurricane Sandy last year. It’s currently $25 billion in debt.

Many of the maps are decades out of date and therefore don’t reflect the rise in sea levels since the time they were drawn.

FEMA released a report in June estimating that sea levels will rise an average of four feet by 2100, increasing the portion of the country at high risk of flooding by up to 45 percent. The number of Americans who live in those areas could double by the century’s end, according to the report.

The law requires the council to outline steps for improving the “accuracy, general quality, ease of use, and distribution and dissemination” of the maps. Josh Saks, legislative director for the National Wildlife Federation, which pushed for the legislation, said that might include figuring out how to better take into account the way new development along a river, say, worsens flooding for those who live downstream.

Jimi Grande, the senior vice president for federal and political affairs for the National Association of Mutual Insurance Companies, a lobbying group, said the council would “absolutely” help make the flood maps more accurate.

“We need to know what the risks are to have an intelligent conversation as a country” about development in areas that are vulnerable to flooding, he said.

The measure was part of a broader package of reforms to the National Flood Insurance Program that phased out many of the government subsidies that had kept flood insurance premiums artificially cheap for many homeowners. The full-risk rates phased in for many policyholders on Oct. 1, despite vocal protests against them.

An operational mapping advisory council wouldn’t fix everything that’s wrong with the flood insurance program. As ProPublica has reported, some of the maps FEMA has issued in recent years have been based on outdated, inaccurate data, giving homeowners a misleading impression of flood risk and, in some cases, forcing them to buy insurance when they were not at great risk of flooding.

Taking climate change into account when setting flood insurance rates is also a complex task.

“That’s why we put the council in charge,” said Saks, from the National Wildlife Federation. “I can read the science and say storms are happening more often, and I can read the numbers and see that sea-level rise is happening. But I’m not an actuary, and I don’t know how you then translate that to” setting insurance rates.

The risk-modeling companies that private insurers rely on have struggled to take climate change into account in their models, but they are making progress.

“I wouldn’t be too surprised if within the next five years we could credibly start to incorporate climate change into aspects of the modeling,” said David F. Smith, the vice president of the model development group at Eqecat, a risk-modeling firm.

Michael B. Gerrard, director of the Center for Climate Change Law at Columbia University, said he wasn’t surprised FEMA had been slow in setting up the council.

“It’s the rule, rather than the exception, that federal agencies miss the rule-making deadlines” set out in laws, he said. “Often they have to be sued to get back on schedule.”

by Jake Bernstein

A federal judge in Manhattan is pondering whether to grant the request of the New York Federal Reserve to seal the case brought by former senior bank examiner Carmen Segarra.

As reported by ProPublica last week, Segarra filed a lawsuit against the New York Fed and three of its employees alleging she had been wrongfully terminated last year after she determined that Goldman Sachs had insufficient conflict-of-interest policies.

On Friday, the Fed asked for a protective order to seal documents in the case as well as parts of the complaint. In a letter to U.S. District Judge Ronnie Abrams, New York Fed counsel David Gross said the information should be removed from the public docket because it is “Confidential Supervisory Information,” including internal New York Fed emails and materials provided to the Fed by Goldman.

“These documents show that at the time (Segarra) left the employ of the New York Fed, she purloined property of the Board of Governors of the Federal Reserve System,” Gross wrote, citing Fed rules that prohibit disclosing supervisory information without prior approval of the Fed.

Gross argues that the Fed’s obligation to keep bank supervisory records secret outweigh the public’s right to know. “The incantation of a ‘public right to know’ cannot ever be a license to discharged employees that they may violate Federal law simply by filing a complaint in Federal court,” Gross wrote.

Segarra and her lawyer could not be reached for comment.

While Abrams considers her decision, Segarra’s lawsuit and appended documents have been removed from Pacer, the online records system for federal courts. The complaint and related documents are available via links in ProPublica’s story and have been published elsewhere online.

Gross states in his letter that Segarra previously made a $7 million settlement offer. The Fed rejected it.

The New York Fed has historically been one of the most opaque financial regulators and maintains that it is not subject to the Freedom of Information Act because it is not a public agency.

Under new powers granted to it by Congress, the Federal Reserve System carries responsibility for ensuring that the nation’s most complex financial institutions are not posing a systemic threat to the world economy.

Because of its location, the New York Fed supervises the majority of the so-called “Too- Big-to-Fail” banks. New York Fed officials acknowledge that the institution failed in its regulatory responsibilities in the lead-up to the financial crisis.

A hearing on the Fed’s request is scheduled for tomorrow in Abrams’ court.

by Cora Currier

The United States is loosening controls over military exports, in a shift that former U.S. officials and human rights advocates say could increase the flow of American-made military parts to the world’s conflicts and make it harder to enforce arms sanctions.

Come tomorrow, thousands of parts of military aircraft, such as propeller blades, brake pads and tires will be able to be sent to almost any country in the world, with minimal oversight – even to some countries subject to U.N. arms embargos. U.S. companies will also face fewer checks than in the past when selling some military aircraft to dozens of countries.

Critics, including some who’ve worked on enforcing arms export laws, say the changes could undermine efforts to prevent arms smuggling to Iran and others.  

Brake pads may sound innocuous, but “the Iranians are constantly looking for spare parts for old U.S. jets,” said Steven Pelak, who recently left the Department of Justice after six years overseeing investigations and prosecutions of export violations.

“It’s going to be easier for these military items to flow, harder to get a heads-up on their movements, and, in theory, easier for a smuggling ring to move weapons,” said William Hartung, author of a recent report on the topic for the Center for International Policy.

In the current system, every manufacturer and exporter of military equipment has to register with the State Department and get a license for each planned export. U.S. officials scrutinize each proposed deal to make sure the receiving country isn’t violating human rights and to determine the risk of the shipment winding up with terrorists or another questionable group.

Under the new system, whole categories of equipment encompassing tens of thousands of items will move to the Commerce Department, where they will be under more “flexible” controls. Final rules have been issued for six of 19 categories of equipment and more will roll out in the coming months. Some military equipment, such as fighter jets, drones, and other systems and parts, will stay under the State Department’s tighter oversight.

Commerce will do interagency human rights reviews before allowing exports, but only as a matter of policy, whereas in the State Department it is required by law.

The switch from State to Commerce represents a big win for defense manufacturers, who have long lobbied in favor of relaxing U.S. export rules, which they say put a damper on international trade. Among the companies that recently lobbied on the issue: Lockheed, which manufactures C-130 transport planes, Textron, which makes Kiowa Warrior helicopters, and Honeywell, which outfits military choppers.

Overall, industry trade groups and big defense companies have spent roughly $170 million over the last three years lobbying on a variety of issues, including export control reform, a ProPublica analysis of disclosure forms shows.

The administration says in a factsheet that “spending time and resources protecting a specialty bolt diverts resources from protecting truly sensitive items,” and that the effort will allow them to build “higher fences around fewer items.” Commerce says it will beef up its enforcement wing to prevent illegal re-exports or shipments to banned entities. The military has also supported the relaxed controls, arguing that the changes will make it easier to arm foreign allies.

An interview with Commerce Department officials was canceled due to the government shutdown, and the State Department did not respond to questions.

The shift is part of a larger administration initiative to update the arms export process, which many acknowledge needed to be streamlined. But critics of the move to Commerce say that decision has been overly driven by the interests of defense manufacturers.

“They’ve cut through the fat, into the meat, and to the bone,” said Brittany Benowitz, who was defense adviser to former Senator Russ Feingold, D-Wisc., and recently co-authored a paper on the pending changes.

“I think it’s fair to say that the views of the enforcement agencies and actors charged with carrying out the controls haven’t won the day,” said Pelak, the former Justice Department official.

Current controls haven’t prevented the U.S. from dominating arms exports up to now: In 2011, the U.S. concluded $66 billion in arms sales agreements, nearly 80 percent of the global market. The State Department denied just one percent of arms export licenses between 2008 and 2010.

At a recent hearing, a State Department official touted the economic benefits, saying the “defense industry is going to become even more competitive than they are already.”

Under the new policy, military helicopters, transport planes and other types of military equipment that typically need approval may be eligible for license-free export to 36 allied governments, including much of Europe, Argentina, Japan, South Korea, and New Zealand.

According to Colby Goodman, an arms-control expert with the Open Society Policy Center, once an item is approved for that exemption, it’s not clear that there will be any ongoing, country-specific human rights review. (The State Department hasn’t yet responded to our request for comment on that point.)

Goodman is particularly concerned about Turkey, where in the last year authorities violently suppressed protests and “security forces committed unlawful killings,” according to the most recent State Department Human Rights report.

Under the new system, some military parts can now be sent license-free to any country besides China, Cuba, Iran, North Korea, Sudan or Syria. Other parts that are deemed not “specially designed” for military use, while also initially banned from those countries, have even fewer restrictions on re-exports.

Spare parts are in high demand from sanctioned countries and groups, which need them to keep old equipment up and running, according to arms control researchers. Indonesia scrambled to keep its C-130s in the air after the U.S. blocked exports for human rights violations in the 1990s. In a report on trade in arms parts, Oxfam noted that by the time of the 2011 NATO intervention in Libya, Muammar Qaddafi’s air combat fleet was in dire shape, referred to by one analyst as “the world’s largest military parking lot.” Goodman said Congolese militia members may be using aging arms that the U.S. sold decades ago to the former Zaire.

Pelak says the changes will make enforcement harder by getting rid of part of the paper trail as parts and munitions exit the U.S.: “When you take away that licensing record, you put the investigation overseas.” His office handled dozens of cases each year in which military items had been diverted to prohibited countries. The Government Accountability Office raised concerns last year about Commerce’s enforcement abilities as it takes control of exports that once went through the State Department.

The president is authorized – in fact, required – to revise the list of items under State Department control. But the massive shift to Commerce means that laws and regulations that were designed with the longstanding State Department system in place may now be up to presidential prerogative.

Vetting for human rights compliance is one such requirement. The Commerce Department said it will also continue to publicly report the sales of so-called “major defense equipment.”

Other laws may not get carried over, however. For example, if firearms are moved to Commerce, manufacturers may no longer have to notify Congress of foreign sales.

Several organizations, including the Center for International Policy, the Open Society Policy Center, and the American Bar Association’s Center for Human Rights, have called on the administration to hold off moving some military items from the State Department, and have asked Congress to apply State’s reporting requirements and restrictions to more of the military items and parts soon to be under Commerce control.

In one area, the administration does appear to have temporarily backed off – firearms and ammunition. Any decision to loosen exports for firearms could have conflicted with the president’s call for enhanced domestic gun control.

According to a memo obtained by the Wall Street Journal last spring, the Departments of Justice and Homeland Security both opposed draft versions of revisions to the firearms category. (The Justice Department press office is out of operation due to the government shutdown, and the Department of Homeland Security did not respond to requests for comment.) Shifting firearms was also likely to be a lightning rod for arms control groups. As the New York Times’ C.J. Chivers has documented, small arms trafficking has been the scourge of conflicts around the world.

Draft rules for firearms and ammunitions were ready in mid-2012, according to Lawrence Keane, general counsel for the National Shooting Sports Foundation, a trade group for gun manufacturers. The Commerce Department even sent representatives to an industry export conference to preview manufacturers on the new system they might fall under.

But since the school shooting in Newtown, Conn., last December, no proposed rule has been published.

Keane thinks the connection is irrelevant. “This has nothing to do with domestic gun control legislation. We’re talking about exports,” he said. “Our products have not moved forward, and we’re disappointed by that.”

The defense industry has long pushed for a loosening of the U.S. export controls. Initial wish-lists were aimed at restructuring and speeding up the State Department system, where the wait for a license had sometimes stretched to months. The current focus on moving items to Commerce began under the Obama administration.

The aerospace industry has been particularly active, as new rules for aircraft are the first to take effect. Commercial satellites had been moved briefly to Commerce in the 1990s, but when U.S. space companies were caught giving technical data to China in 1998, Congress returned them to State control. Last year, satellite makers successfully lobbied Congress to lift satellite-specific rules that had kept them from being eligible for the reforms.

Newer industries want to cash in, too. Virgin Galactic wrote in a comment on a proposed rule that the “nascent but growing” space tourism industry was hindered by current rules. At a conference in 2011, the chief executive of Northrup Grumman warned of “the U.S. drone aircraft industry losing its dominance” if exports weren’t boosted. (Drones are regulated under missile technology controls, and are mostly unaffected by the current changes.)

Lauren Airey, of the National Association of Manufacturers, named two main objections to the current system. First off, fees: Any company that makes a product on the State Department list has to be registered whether or not they actually export, with yearly costs starting at $2,500. There’s no fee for the Commerce list.

Secondly, any equipment that contains a listed part gets “lifetime controls,” Airey said. If a buyer wants to resell something, even for scrap, they need U.S. approval. (For example, the U.S. is currently debating whether to let Turkey re-sell American attack helicopters to Pakistan.) Under Commerce, “there are still limitations, but they are more flexible,” Airey said.

Airey’s association (and other trade groups) makes the case that foreign competitors are “taking advantage of perceived and real issues in U.S. export controls to promote foreign parts and components – advertising themselves as State-Department-free.” Airey demurred when asked for an estimate on the amount of business lost: “It’s hard to put a number directly on how much export controls cause U.S. companies to be avoided.”

An Aerospace Industries Association executive noted at a panel this spring, “We really did not move the needle at all by complaining about the fact that we weren't making as much money as we wanted to.”

But at a recent hearing of the House Committee on Foreign Affairs, members of Congress highlighted economic impact.

“In my district in Rhode Island,” said David Cicilline, D-R.I., “as many of our defense companies are looking to expand their business, really, to respond to declines in defense domestic spending, international sales are becoming even more important and really critical…to the job growth in my state.”

William Keating, D-Mass., said that “with declining defense budgets, arms sales are even more critical to the defense industry in my state to maintain production lines and keep jobs.”

“That would not have been the response a decade ago,” said one staffer who works on the issue. “National security hawks would have been worried about defense items moving to the Commerce list. The environment on the Hill has dramatically changed.”

One concern came from the International Association of Machinists and Aerospace Workers, which believes that easing controls on military technology and software could actually lead to more outsourcing of production.

William Lowell, who spent a decade of his 30 years at the State Department directing defense trade controls, told ProPublica that the move represents a major shift in the U.S. attitude towards international arms trade. U.S. policy has long been aimed at “denying the entry of U.S. military articles of any type into the international gray arms market – for which small arms and military parts are the lifeblood,” Lowell wrote in comments opposing the new rules. “Commercial arms exports have never been considered normal commercial trade.”

by Charles Ornstein

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Since the federal health insurance exchange has launched, top federal officials have told interviewers that they do not know how many people have been able to enroll using the healthcare.gov website.

In an interview with the Associated Press on Oct. 4, President Obama said: “Well, I don’t have the numbers yet.”

Then, appearing on the Daily Show on Oct. 8, the Health and Human Services Secretary Kathleen Sebelius said she didn’t have the information either. “I can’t tell you because I don’t know.”

Some states, including California, New York and Colorado, are running their own health insurance marketplaces for their residents. But the Centers for Medicare and Medicaid Services (CMS) is handling enrollment for 30-plus states, including Texas, Georgia and Florida, which decided not to set up their own exchanges.

Federal officials have proudly proclaimed the number of visitors to the healthcare.gov site, as in this tweet:

Interest still high for http://t.co/BSPAgxrr4e, 14.6m unique visits in first 10 days, more people enrolling, wait times reduced & eliminated

— Joanne Peters (@JoannePtrs) October 11, 2013

But they have declined numerous opportunities to provide enrollment figures. The latest example: A New York Times article on Sunday about the site’s problems included this sentence: “Neither [CMS administrator Marilyn] Tavenner nor other agency officials would answer questions about the exchange or its performance last week.”

Reporters and consumers across the country have said they are simply unable to enroll on the site. You can read about my experience.

Federal officials have said that they will release enrollment figures once a month, beginning in November.

Those interested in what transparency looks like can check the states. Some examples of those that have put out numbers:

Connecticut

Source: http://learn.accesshealthct.com/in-the-news/

Kentucky

Source: http://migration.kentucky.gov/Newsroom/governor/20131010kynectupdate.htm

Maryland (full of charts)

Source: http://www.marylandhealthconnection.gov/assets/MHC_Update_Oct112013.pdf

Washington

Source: http://www.wahbexchange.org/news-resources/press-room/press-releases/washington-healthplanfinder-receives-10000-applications

by Charles Ornstein

There’s been a lot of talk in recent days about how the glitchy rollout of the federal health insurance marketplace may not mean much IF the developers of healthcare.gov are able to turn it around in the next month.

To prove the point, health policy experts point to the 2006 start of Medicare Part D, the prescription drug program for seniors and the disabled, which was also bumpy.

But in a number of ways, it appears the agency that runs the federal health insurance exchange, the Centers for Medicare and Medicaid Services, hasn’t modeled that website after Part D, which it also runs.

Journalists have pointed out that one major problem with the exchanges is that, until Thursday, it did not allow consumers to “window shop,” or look at details of plans, before giving their personal information and being verified as eligible for coverage. Now users can do that.

Part D’s signup site is quite different. Medicare beneficiaries do not have to provide any information about themselves or verify their eligibility to get detailed cost estimates.

Below are screenshots that show how simple the user interface is for those trying to register for a Part D plan (although if you are a senior with health problems or disabled, this too may seem complicated.)

The beginning: Go to the Plan Finder page. While you have the option to enter your personal information, the first choice is to perform a general search in which you simply enter your zip code.

Step 1: The system relies on the user to indicate the type of coverage he or she wants. There’s no complicated verification system at this point.

Step 2: You begin by entering the drugs you take. The website has a search tool that helps correct possible spelling errors and suggest similar drugs.

Step 3: Next you pick the pharmacies you use. Notice at the top how the page generates a drug list ID and password, which lets you come back later and make changes without having to start all over.

Step 4: You get to refine your results based on what’s important to you — for example, your desire to limit your premium or limit your deductible.

Finally: The results. That was fast. Once you find a plan you like, you can go through the enrollment process.

Could the federal exchange have been modeled off the Part D plan finder? Perhaps it will be in the future.

by Marshall Allen

ESPN reporters Steve Fainaru and Mark Fainaru-Wada faced formidable challenges when they investigated the National Football League’s denial of the brain injuries suffered by its players. Foremost among them: ESPN has a $15.2 billion dollar contract to broadcast NFL games, so they were investigating one of their own network’s biggest products. Furthermore, the League refused to cooperate with the story and pressured the network to soften its reports. “Every step of the way we got pushback from the NFL,” Steve Fainaru told ProPublica. “They fought almost every story we did.“

The reporting by the Fainaru brothers resulted in “League of Denial,” a book and documentary of the same name by the PBS public affairs program Frontline. The journalists revealed that the NFL spent decades undermining researchers who found links between football and brain injuries, and created their own research arm that downplayed the risks of playing football – even as its retirement fund was paying for brain injuries suffered by players. Behind the scenes, the NFL attacked the project “with a vengeance,” Steve Fainaru said. “They went to our editors, and they went to our editors’ editors. They basically tried to say (the reporting) was wrong without really providing any information.”

The brothers sat down with ProPublica health reporter Marshall Allen on the release date for the book and the documentary, Oct. 8, for ProPublica’s #muckreads podcast. They shared the inside story of how they got the story and the challenges it presented, including the conflict of interest of producing investigative reports that could undermine the profits of their employer and its biggest business partner, the NFL.

Weeks before the documentary aired, ESPN suddenly pulled out of the Frontline partnership, reportedly due to pressure from the NFL. Mark Fainaru-Wada said the breakdown was disappointing, but that ESPN never backed down from their journalism. The brothers are still credited as ESPN reporters in the film. The film uses footage created for ESPN, and the network as promoted their work. “The book and the film are creatures of ESPN – we wouldn’t have been able to do it without the full support of ESPN,” Fainaru-Wada said. “And the one saving grace that Steve and I continue to talk about is that the journalism hasn’t changed a bit. It’s exactly as it was when we went into it.”

by Christie Thompson

11:32 am, Oct. 11: this post has been updated to include proposals to amend state legislation.

Last week, a federal judge threw out former intern Lihuan Wang’s sexual harassment lawsuit against her boss at Phoenix Satellite Television U.S. Why? The judge ruled Wang, an unpaid intern, wasn’t an actual employee.

“Because Ms. Wang was an unpaid intern, she may not assert claims under the cited provisions of the [New York State Human Rights Law] and the [New York City Human Rights Law],” wrote U.S. District Judge P. Kevin Castel.

Castel noted that despite several recent amendments to the New York City Human Rights law, unpaid interns are still not explicitly covered. But that may not be the case for long. In response to the judge’s ruling, city council member Gale Brewer announced she would propose legislation to extend harassment protections to unpaid interns.

“As we have seen with a number of recent cases, interns are ripe for exploitation from their superiors,” council member Brewer said in an emailed statement. “We need to ensure that every person in the city of New York is offered the full protections of our Human Rights Law.”

Public advocate and mayoral frontrunner Bill de Blasio has also voiced support for the proposal.

“No one should ever be denied protection against sexual harassment in the workplace. Period,” de Blasio told the New York Daily News.

New York State Assembly members Joe Borelli and Linda Rosenthal said they will introduce legislation to address the issue on a state level. 

Brewer’s office said they weren’t aware of the loophole until the recent court decision.

“It takes a shocking opinion like this to catalyze some action,” said Wang’s lawyer Lynne Bernabei.

Wang interned in the Hong Kong-based media company’s New York office from December 2009 to January 2010, while getting her master’s degree in journalism from Syracuse University. Bernabei said Wang was doing much of the same work as Phoenix’s paid journalists, including on-air reporting.

Wang alleged that her boss Zhengzhu Liu lured her to his hotel room under the pretense of discussing her job performance and then groped her. According to the complaint, he later invited Wang to Atlantic City “to discuss job opportunities.” When she refused to go, Liu allegedly dropped all interest in hiring her, “in clear retaliation for her refusing his sexual advances.”

Wang is just one of many female employees and interns who say they were sexually harassed or assaulted by Liu. Another complaint filed in federal court in Washington, D.C., alleged that for eight years, “Mr. Liu intentionally preyed on the most vulnerable employees at Phoenix, primarily those who were just beginning their careers in America or were looking to advance at Phoenix as interns.”

Phoenix Television could not be reached for comment. In a statement sent to Mother Jones in response to the D.C. lawsuit, Phoenix Television said it doesn’t tolerate “discrimination, sexual harassment, or retaliation in its workplace."

We’ve reported before how unpaid interns in many areas of the country aren’t protected from harassment and discrimination in the workplace. Lawmakers in Oregon and Washington D.C. have passed legislation to close the loophole, allowing complaints like the Phoenix case to proceed where they may be otherwise dismissed.

Both policies extend discrimination and harassment protections to unpaid interns, but do not address questions about pay. Brewer’s proposal would follow a similar model.

Brewer said unpaid interns may be especially vulnerable to harassment. “By their very nature, unpaid interns are less likely to have prior work experience,” Brewer said. “As they often take on internships in an effort to get a foot in the door, they are less likely to report offensive behavior.”

Women are more likely than men to face sexual harassment at work. Women filed about 8 of every 10 sexual harassment claims made to the Equal Employment Opportunity Commission in 2012. And according to a study by Intern Bridge, women are significantly more likely than men to be in an unpaid internship.

“The fact that there’s no legislation to protect them...encourages people like Liu to harass these women,” Bernabei said. “They have no accountability, and companies know they don’t have to take action when they learn about it.”

by David Epstein

Everyone knows Americans are fat and getting fatter, and everyone thinks they know why: more eating and less moving.

But the “big two” factors may not be the whole story. Consider this: Animals have been getting fatter too. The National Pet Obesity Survey recently reported that more than 50 percent of cats and dogs — that’s more than 80 million pets — are overweight or obese. Pets have gotten so plump that there’s now a National Pet Obesity Awareness Day. (It was Wednesday.) Lap dogs and comatose cats aren’t alone in the fat animal kingdom. Animals in strictly controlled research laboratories that have enforced the same diet and lifestyle for decades are also ballooning.

In 2010, an international team of scientists published findings that two dozen animal populations — all cared for by or living near humans — had been rapidly fattening in recent decades. “Canaries in the Coal Mine,” they titled the paper, and the “canaries” most closely genetically related to humans — chimps — showed the most troubling trend. Between 1985 and 2005, the male and female chimps studied experienced 33.2 and 37.2 percent weight gains, respectively. Their odds of obesity increased more than 10-fold.

To be sure, some of the chimp obesity crisis may be caused by the big two. According to Joseph Kemnitz, director of the Wisconsin National Primate Research Center, animal welfare laws passed in recent decades have led caretakers to strive to make animals happier, often employing a method known to any parent of a toddler: plying them with sugary food. “All animals love to eat, and you can make them happy by giving them food,” Kemnitz said. “We have to be careful how much of that kind of enrichment we give them. They might be happier, but not healthier.”

And because they don’t have to forage for the food, non-human primates get less exercise. Orangutans, who Kemnitz says are rather indolent even in their native habitats in Borneo and Sumatra, have in captivity developed the physique of spreading batter.

Still, in “Canaries in the Coal Mine,” the scientists write that, more recently, the chimps studied were “living in highly controlled environments with nearly constant living conditions and diets,” so their continued fattening in stable circumstances was a surprise. The same goes for lab rats, which have been living and eating the same way for thirty years.

The potential causes of animal obesity are legion: ranging from increased rates of certain infections to stress from captivity. Antibiotics might increase obesity by killing off beneficial bacteria. “Some bacteria in our intestines are associated with weight gain,” Kemnitz said. “Others might provide a protective effect.”

But feral rats studied around Baltimore have gotten fatter, and they don’t suffer the stress of captivity, nor have they received antibiotics. Increasingly, scientists are turning their attention toward factors that humans and the wild and captive animals that live around them have in common: air, soil, and water, and the hormone-altering chemicals that pollute them.

Hormones are the body’s chemical messengers, released by a particular gland or organ but capable of affecting cells all over the body. While hormones such as testosterone and estrogen help make men masculine and women feminine, they and other hormones are involved in a vast array of functions. Altering or impeding hormones can cause systemic effects, such as weight gain.

More than a decade ago, Paula Baille-Hamilton, a visiting fellow at Stirling University in Scotland who studies toxicology and human metabolism, started perusing scientific literature for chemicals that might promote obesity. She turned up so many papers containing evidence of chemical-induced obesity in animals (often, she says, passed off by study authors as a fluke in their work) that it took her three years to organize evidence for the aptly titled 2002 review paper: “Chemical Toxins: A Hypothesis to Explain the Global Obesity Epidemic.” “I found evidence of chemicals that affect every aspect of our metabolism,” Baille-Hamilton said. Carbamates, which are used in insecticides and fungicides, can suppress the level of physical activity in mice. Phthalates are used to give flexibility to plastics and are found in a wide array of scented products, from perfume to shampoo. In people, they alter metabolism and have been found in higher concentrations in heavier men and women.

In men, phthalates interfere with the normal action of testosterone, an important hormone for maintaining healthy body composition. Phthalate exposure in males has been associated with a suite of traits symptomatic of low testosterone, from lower sperm count to greater heft. (Interference with testosterone may also explain why baby boys of mothers with higher phthalate levels have shorter anogenital distances, that is, the distance between the rectum and the scrotum. Call it what you want, fellas, but if you have a ruler handy and find that your AGD is shorter than two inches, you probably have a smaller penis volume and a markedly higher risk of infertility.)

Baille-Hamilton’s work highlights evidence that weight gain can be influenced by endocrine disruptors, chemicals that mimic and can interfere with the natural hormone system.

A variety of flame retardants have been implicated in endocrine disruption, and one chemical originally developed as a flame retardant — brominated vegetable oil, or BVO — is banned in Europe and Japan but is prevalent in citrusy soft drinks in the U.S. Earlier this year, Gatorade ditched BVO, but it’s still in Mountain Dew and other drinks made by Gatorade’s parent company, PepsiCo. (Many doctors would argue that for weight gain, the sugar in those drinks is the primary concern.) PepsiCo did not respond to a request for comment, but shortly after the Gatorade decision was made a company spokeswoman said it was because “some consumers have a negative perception of BVO in Gatorade.”

While PepsiCo has taken brominated vegetable oil out of Gatorade, it's still in Mountain Dew and other drinks made by the company. (Krista Kjellman Schmidt/ProPublica)

And then there are the newly found zombie chemicals, which share a nasty habit — rising from the dead at night — with their eponymous horror flick villains. The anabolic steroid trenbolone acetate is used as a growth promoter in cattle in the U.S., and its endocrine disrupting metabolites — which wind up in agricultural run-off water — were thought to degrade quickly upon exposure to sunlight. Until last month, when researchers published results in Science showing that the metabolites reconstitute themselves in the dark.

Says Emily Dhurandhar, an obesity researcher at the University of Alabama-Birmingham: “Obesity really is more complex than couch potatoes and gluttons.”

by Jake Bernstein

A version of this story was co-published with The Washington Post.

In the spring of 2012, a senior examiner with the Federal Reserve Bank of New York determined that Goldman Sachs had a problem.

Under a Fed mandate, the investment banking behemoth was expected to have a company-wide policy to address conflicts of interest in how its phalanxes of dealmakers handled clients. Although Goldman had a patchwork of policies, the examiner concluded that they fell short of the Fed’s requirements.

That finding by the examiner, Carmen Segarra, potentially had serious implications for Goldman, which was already under fire for advising clients on both sides of several multibillion-dollar deals and allegedly putting the bank’s own interests above those of its customers. It could have led to closer scrutiny of Goldman by regulators or changes to its business practices.

Before she could formalize her findings, Segarra said, the senior New York Fed official who oversees Goldman pressured her to change them. When she refused, Segarra said she was called to a meeting where her bosses told her they no longer trusted her judgment. Her phone was confiscated, and security officers marched her out of the Fed’s fortress-like building in lower Manhattan, just 7 months after being hired.

“They wanted me to falsify my findings,” Segarra said in a recent interview, “and when I wouldn’t, they fired me.”

Today, Segarra filed a wrongful termination lawsuit against the New York Fed in federal court in Manhattan seeking reinstatement and damages. The case provides a detailed look at a key aspect of the post-2008 financial reforms: The work of Fed bank examiners sent to scrutinize the nation’s “Too Big to Fail” institutions.

.right-sidebar-media { width: 290px; float:right; margin: 0 0 12px 12px; } .right-sidebar-media h2.definition { font-size: 20px; font-weight: bold; font-family: "ff-meta-serif-web-1", "ff-meta-serif-web-2", "Georgia", serif; margin-bottom: 10px; } .right-sidebar-media ul { list-style: disc; margin-left: 1.2em; } .right-sidebar-media ul li { font-size: 13px; left: 1.2em; margin-right: 1.2em; font-family: "Helvetica Neue", Helvetica, Arial, sans-serif; padding-bottom:1.3em; } .right-sidebar-media p.definition .termtbd { text-transform: uppercase; font-weight: bold; } .annotation { background: #cecbc3 ; border-radius: 3px; padding: 0px 3px; transition: all 0.10s ease-in-out; -webkit-transition: all 0.10s ease-in-out; -moz-transition: all 0.10s ease-in-out; cursor:pointer; } .annotation.tweet { background: url("http://propublica.s3.amazonaws.com/projects/projectx/tweet_icon.png") no-repeat top left #e8eef1; padding-left: 24px; background-size: 13px; background-position: 5px 2px; text-decoration:none; } .annotation.tweet:hover { background: url("http://propublica.s3.amazonaws.com/projects/projectx/tweet_icon_hover.png") no-repeat top left #d7dee1; padding-left: 24px; background-size: 13px; background-position: 5px 2px; text-decoration:none; } .annotation.tweet a:hover {text-decoration:none} Takeaways

• Former New York Fed examiner, Carmen Segarra, says she was fired after uncovering problems with Goldman Sachs' conflict-of-interest policy.
• Segarra says her supervisors pressured her to falsify her findings that Goldman's policies were inadequate, and she refused.
• Segarra and New York Fed colleagues recommended Goldman be downgraded because of deficient policies.
• Segarra found that Goldman's efforts to wall off conflicts in a multi-billion dollar energy deal was full of holes.

In hours of interviews with ProPublica, the 41-year-old lawyer gave a detailed account of the events that preceded her dismissal and provided numerous documents, meeting minutes and contemporaneous notes that support her claims. Rarely do outsiders get such a candid view of the Fed’s internal operations.

Segarra is an expert in legal and regulatory compliance whose previous work included jobs at Citigroup and the French bank Société Générale. She was part of a wave of new examiners hired by the New York Fed to monitor systemically important banks after passage in July 2010 of the Dodd-Frank regulatory overhaul, which gave the Fed new oversight responsibilities.

Goldman is known for having close ties with the New York Fed, its primary regulator. The current president of the New York Fed, William Dudley, is a former Goldman partner. One of his New York Fed predecessors, E. Gerald Corrigan, is currently a top executive at Goldman. At the time of Segarra’s firing, Stephen Friedman, a former chairman of the New York Fed, was head of the risk committee for Goldman’s board of directors.

In an email, spokesman Jack Gutt said the New York Fed could not respond to detailed questions out of privacy considerations and because supervisory matters  are confidential. Gutt said the Fed provides “multiple venues and layers of recourse for employees to freely express concerns about the institutions it supervises.”

“Such concerns are treated seriously and investigated appropriately with a high degree of independence,” he said. “Personnel decisions at the New York Fed are based exclusively on individual job performance and are subject to thorough review. We categorically reject any suggestions to the contrary.”

Dudley would not have been involved in the firing, although he might have been informed after the fact, according to a Fed spokesman.

Goldman also declined to respond to detailed questions about Segarra. A spokesman said the bank cannot discuss confidential supervisory matters. He said Goldman “has a comprehensive approach to addressing conflicts through firm-wide and divisional policies and infrastructure” and pointed to a bank document that says Goldman took recent steps to improve management of conflicts.

Segarra’s termination has not been made public before now. She was specifically assigned to assess Goldman’s conflict-of-interest policies and took a close look at several deals, including a 2012 merger between two energy companies: El Paso Corp. and Kinder Morgan. Goldman had a $4 billion stake in Kinder Morgan while also advising El Paso on the $23 billion deal.

Segarra said she discovered previously unreported deficiencies in Goldman’s efforts to deal with its conflicts, which were also criticized by the judge presiding over a shareholder lawsuit concerning the merger.

Her lawsuit also alleges that she uncovered evidence that Goldman falsely claimed that the New York Fed had signed off on a transaction with Santander, the Spanish bank, when it had not. A supervisor ordered her not to discuss the Santander matter, the lawsuit says, allegedly telling Segarra it was “for your protection.”

‘Eyes Like Saucers’

The New York Fed is one of 12 regional quasi-private reserve banks. By virtue of its location, it supervises some of the nation’s most complex and important financial institutions. After the 2008 financial crisis, disparate voices pointed to failures of enforcement by the New York Fed as a key reason banks took on too much risk.

Even Fed officials acknowledged shortcomings. After Dodd-Frank, new examiners like Segarra, called "risk specialists," were hired for their expertise. They were in addition to other Fed staffers, dubbed "business line specialists," some of whom were already embedded at the banks.

Segarra believed she had found the perfect home when she joined the New York Fed's legal and compliance risk specialist team in October 2011. It was a prestigious job, insulated from business cycles, where she could do her part to prevent another financial meltdown. Her skills, honed at Harvard, Cornell Law School and the banks where she had worked, consisted of helping to create the policies and procedures needed to meet government financial regulations.

As part of their first assignment, Fed officials told Segarra's group of risk specialists to examine how the banks in which they were stationed complied with a Fed Supervision and Regulation Letter issued in 2008.

The letter, known as SR 08-08, emphasizes the importance of having company-wide programs to manage risks at firms like Goldman, which engage in diverse lines of business, from private wealth management and trading to mergers and acquisitions. The programs are supposed to be monitored and tested by bank compliance employees to make sure they are working as intended.

“The Fed recognized that financial conglomerates should act like truly combined entities rather than separate divisions or entities where one group has no idea what the other group is doing,” said Christopher Laursen, an economic consultant and former Federal Reserve employee who helped draft the supervisory letter.

In 2009, a review by the Fed had found problems with its efforts to ensure that banks followed the policy, which also says that bank compliance staffers must “be appropriately independent of the business lines” they oversee.

Segarra’s team included examiners placed at nine other “Too Big to Fail” banks, including Citigroup, JPMorgan Chase, Deutsche Bank and Barclays.

.right-sidebar-media h2.explainer { font-size: 20px; font-weight: bold; font-family: "ff-meta-serif-web-1", "ff-meta-serif-web-2", "Georgia", serif; margin-bottom: 10px; } .right-sidebar-media p.explainer { font-size: 12px; font-family: "Helvetica Neue", Arial, sans-serif; } .right-sidebar-media p.deal { text-transform: uppercase; font-weight: bold; } Goldman's Controversial Plays

A sampling of deals that have posed conflicts of interest for Goldman Sachs:

Kinder Morgan-El Paso

The Deal: In 2011, gas pipeline operator Kinder Morgan agreed to buy pipeline operator El Paso Corp. for $21.1 billion. Goldman advised El Paso on the deal.
The Issue: Goldman owned 19 percent of Kinder Morgan and controlled two board seats. Goldman’s lead banker for El Paso failed to disclose owning $340,000 in Kinder Morgan stock.
Aftermath: A Delaware judge declined to stop the deal but criticized Goldman and El Paso’s management for conflicts of interest.

Abacus

The Deal: Abacus 2007-AC1 was a mortgage-backed security created by Goldman. Investors in the deal lost over $1 billion, contributing to the financial crisis.
The Issue: Goldman failed to disclose that hedge fund manager John Paulson had helped pick assets for the security that he wanted to bet against.
Aftermath: In 2010, Goldman settled with the SEC for $550 million; Goldman V.P. Fabrice Tourre was found liable of securities fraud earlier this year.

Stephen Friedman

The Deal: In the midst of the 2008 financial crisis, Goldman won approval from the Federal Reserve to convert to a bank holding company and later received federal bailout money.
The Issue: Stephen Friedman, then chairman of the New York Federal Reserve, sat on Goldman’s board and bought 37,300 shares of Goldman while helping plan the Wall Street bailout.
Aftermath: Friedman resigned from the Fed shortly after news of his stock purchases broke in 2009; last spring, he retired from the Goldman board.

Solyndra

The Deal: Goldman was hired in 2008 by Solyndra, a California-based solar panel manufacturer, and secured Solyndra a $535 million loan guarantee from the U.S. Department of Energy.
The Issue: Goldman netted fees as an adviser but reportedly decided against investing its own money into Solyndra.
Aftermath: In 2011, Solyndra filed for bankruptcy and laid off 1,100 workers, spurring a government investigation into whether Solyndra misled officials about its finances.

Archipelago-NYSE

The Deal: In 2005, the New York Stock Exchange bought Archipelago Holdings, which ran a rival electronic trading network.
The Issue: Goldman advised Archipelago and saw its stake in the company surge — as did value of Goldman’s seats on the NYSE, then headed by former Goldman President John Thain.
Aftermath: The NYSE settled a member suit that claimed Goldman gave conflicted advice.

Reported by Liz Day

Segarra said her bosses told her to focus on Goldman’s conflict-of-interest policies. The firm had long been famous for trying to corral business from every part of the deals it worked on. “If you have a conflict, we have an interest,” is an oft-told joke on Wall Street about the firm’s approach.

The year before Segarra joined the Fed, for instance, Goldman had received a drubbing from the Securities and Exchange Commission and a Senate subcommittee over conflicts related to Abacus, a mortgage transaction the bank constructed. The SEC imposed a $550 million fine on the bank for the deal. A January 2011 Goldman report concluded that the firm should "review and update conflicts-related policies and procedures, as appropriate."

Initial meetings between the New York Fed and Goldman executives to review the bank’s policies did not go well, said Segarra, who kept detailed minutes.

When the examiners asked in November 2011 to see the conflict-of-interest policy, they were told one didn’t exist, according to the minutes. “It’s probably more than one document — there is no one policy per se,” the minutes recount one Goldman executive as saying.

The discussion turned to the name of the group that oversaw conflicts at Goldman: “Business Selection and Conflicts Resolution Group.” Segarra’s supervisor, Johnathon Kim, asked if business selection and conflicts were, in fact, two different groups. He was told they were not, the minutes show.

Goldman officials stated that the bank did not have a company-wide conflict-of-interest program, Segarra’s minutes show. Moreover, the head of the business selection and conflicts group, Gwen Libstag, who is not a lawyer, said in a subsequent meeting on Dec. 8 that she did not consider what her staff did a “legal and compliance function,” according to Segarra’s minutes.

“That’s why it’s called business selection,” another Goldman executive added. “They do both.”

Given the Fed’s requirements, the regulators were stunned, Segarra recounted in an interview. “Our eyes were open like saucers,” she said. “Business selection is about how you get the deal done. Conflicts of interest acknowledge that there are deals you cannot do.”

After the Dec. 8 meeting, the New York Fed’s senior supervising officer at Goldman, Michael Silva, called an impromptu session with Fed staffers, including Segarra. Silva said he was worried that Goldman was not managing conflicts well and that if the extent of the problem became public, clients might abandon the firm and cause serious financial damage, according to Segarra’s contemporaneous notes.

A Chinese Wall In Their Heads

As part of her examination, Segarra began making document requests. The goal was to determine what policies Goldman had in place and to see how they functioned in Kinder Morgan’s acquisition of El Paso. The merger was in the news after some El Paso shareholders filed a lawsuit claiming they weren’t getting a fair deal.

Although Segarra reported directly to Kim, she also had to keep Silva abreast of her examinations. Silva, who is also a lawyer, had been at the Fed for 20 years and previously had served as a senior vice president and chief of staff for Timothy Geithner while he was New York Fed president. As a senior vice president and senior supervisor, Silva outranked Kim in the Fed hierarchy.

Segarra said James Bergin, then head of the New York Fed’s legal and compliance examiners, noted at a November meeting that there was tension between the new risk specialists and old-guard supervisors at the banks. Segarra said the tension surfaced when she was approached in late December by a Fed business line specialist for Goldman, who wanted to change Segarra’s Dec. 8 meeting minutes.

Segarra told her Fed colleague that she could send any changes to her. When Segarra next met with her fellow risk specialists, she said she told them what had transpired. They told her that nobody should be allowed to change her meeting minutes because they were the evidence for her examination.

Around that time, Silva had a meeting with Segarra, she said. According to her notes, Silva warned her that sometimes new examiners didn’t recognize how they are perceived and that those who are taken most seriously are the most quiet. Segarra took it as more evidence of tension between the two groups of regulators.

Bergin, Silva and Kim did not respond to requests for comment.

By mid-March 2012, Goldman had given Segarra and a fellow examiner from the New York State Banking Department documents and written answers to their detailed questions. Some of the material concerned the El Paso-Kinder Morgan deal.

Segarra and other examiners had been pressing Goldman for details about the merger for months. But it was from news reports about the shareholder lawsuit that they learned the lead Goldman banker representing El Paso, Steve Daniel, also had a $340,000 personal investment in Kinder Morgan, Segarra said.

Delaware Chancery Court Judge Leo Strine had issued a 34-page opinion in the case, which eventually settled. The opinion castigated both El Paso’s leadership and Goldman for their poor handling of multiple conflicts of interest.

At the New York Fed, Goldman told the regulators that its conflict-of-interest procedures had worked well on the deal. Executives said they had “exhaustively” briefed the El Paso board of directors about Goldman’s conflicts, according to Segarra’s meeting minutes.

Yet when Segarra asked to see all board presentations involving conflicts of interest and the merger, Goldman responded that its Business Selection and Conflict Resolution Group “as a general matter” did not confer with Goldman’s board. The bank’s responses to her document requests offered no information from presentations to the El Paso board discussing conflicts, even though lawsuit filings indicate such discussions occurred.

Goldman did provide documents detailing how it had divided its El Paso and Kinder Morgan bankers into “red and blue teams.” These teams were told they could not communicate with each other — what the industry calls a “Chinese Wall” — to prevent sharing information that could unduly benefit one party.

Segarra said Goldman seating charts showed that that in one case, opposing team members had adjacent offices. She also determined that three of the El Paso team members had previously worked for Kinder Morgan in key areas.

“They would have needed a Chinese Wall in their head,” Segarra said.

Pressure To Change Findings

According to Segarra’s lawsuit, Goldman executives acknowledged on multiple occasions that the bank did not have a firm-wide conflict-of-interest policy.

Instead, they provided copies of policies and procedures for some of the bank’s divisions. For those that did not have a division-wide policy, such as the investment management division, they offered what was available. The policy for the private banking group stated that employees shouldn’t write down their conflicts in “emails or written communications.”

“Don’t put that in an email in case we get caught?” Segarra said in an interview. “That’s a joke.”

Segarra said all the policies were missing components required by the Fed.

On March 21, 2012, Segarra presented her conclusion that Goldman lacked an acceptable conflict-of-interest policy to her group of risk specialists from the other “Too Big to Fail” banks. They agreed with her findings, according to Segarra and another examiner who was present and has requested anonymity.

Segarra’s group discussed possible sanctions against the bank, but the final decision was up to their bosses. A summary sheet from the meeting recommended downgrading Goldman from “satisfactory” to “fair” for its policies and procedures, the equivalent of a “C” in a letter grade.

A week later, Segarra presented her findings to Silva and his deputy, Michael Koh, and they didn’t object, she said. Reached by ProPublica, Koh declined to comment.

In April, Goldman assembled some of its senior executives for a meeting with regulators to discuss issues raised by documents it had provided. Segarra said she asked Silva to invite officials from the SEC, because of what she had learned about the El Paso-Kinder Morgan merger, which was awaiting approval by other government agencies.

Segarra said she and a fellow examiner from New York state’s banking department had prepared 65 questions. But before the meeting, Silva told her she could only ask questions that did not concern the El Paso-Kinder Morgan merger, she said.

Nonetheless, SEC officials brought it up. Goldman executives said they had no process to check the personal holdings of bankers like Steve Daniel for possible conflicts, according to notes Segarra took at the time. Asked by Segarra for Goldman’s definition of “conflicts,” the bank’s general counsel, Greg Palm, responded that it could be found in the dictionary, she said.

“What they should have is an easy A-B-C approach to how to manage conflicts,” Segarra said. “But they couldn’t even articulate what was a conflict of interest.”

Goldman declined a request to make Palm available for comment.

As the Goldman examination moved up the Fed’s supervisory chain, Segarra said she began to get pushback. According to her lawsuit, a colleague told Segarra in May that Silva was considering taking the position that Goldman had an acceptable firm-wide conflict-of-interest policy.

Segarra quickly sent an email to her bosses reminding them that wasn’t the case and that her team of risk specialists was preparing enforcement recommendations.

In response, Kim sent an email saying Segarra was trying to “front-run the supervisory process.” Two days later, a longer email arrived from Silva, stating that “repeated statements that you have made to me that [Goldman] does not have a [conflict-of-interest] policy AT ALL are debatable at best, or alternatively, plainly incorrect.”

As evidence, Silva cited the 2011 Goldman report that called for a revamp of its conflict-of-interest procedures, as well as the company’s code of conduct — neither of which Segarra believed met the Fed’s requirements.

While not commenting on Goldman’s situation, Laursen, the consultant who helped draft the Fed policy, said the idea is to police conflicts across divisions. “It would need to be a high-level or firm-wide policy,” he said, that “would identify the types of things that should not occur and the processes and monitoring that make sure they don’t.”

In its email to ProPublica, Goldman cited a May report from its Business Standards Committee that says the company completed an overhaul of its business practices earlier this year that included new policies and training for managing conflicts.

Before Segarra could respond to Silva’s email, Koh summoned her to a meeting. For more than 30 minutes, he and Silva insistently repeated that they did not agree with her findings concerning Goldman, she said.

Segarra detailed all the evidence that supported her conclusion, she said. She offered to participate in a wider meeting with New York Fed personnel to discuss it further. Because Fed officials would ultimately have to ratify her conclusions, she let them know she understood that her findings were subject to change.

Silva and his deputy did not engage with her arguments during the meeting. Instead, they kept reiterating that she was wrong and should change her conclusions, she said.

Afterward, Segarra said she sent an email to Silva detailing why she believed her findings were correct and stating that she could not change them. There was just too much evidence to the contrary, she said in an interview.

Three business days later, Segarra was fired.

Segarra has no evidence that Goldman was involved. Silva told her that the Fed had lost confidence in her ability to follow directions and not jump to conclusions.

Today, Segarra works at another financial institution at a lower level than she feels her qualifications merit. She worries about the New York Fed’s ability to stop the next financial crisis.

“I was just documenting what Goldman was doing,” she said. “If I was not able to push through something that obvious, the Federal Reserve Bank of New York certainly won’t be capable of supervising banks when even more serious issues arise.”

ProPublica research director Liz Day contributed to this story.

by Theodoric Meyer

This article has been updated to reflect new developments. It was first published on Jan. 31, 2011.

The Obama administration is reportedly preparing to cut much of the $1.55 billion in annual aid that the U.S. sends to Egypt.

The move, which has yet to be formally announced, comes after more than 1,000 Egyptians have died in a crackdown following the military coup this summer, including at least 51 who were killed on Sunday in clashes in Cairo and other cities. Most were apparently supporters of ousted president Mohamed Morsi.  

We've taken a step back and tried to answer some basic questions about the aid, including how much the U.S. is giving Egypt, what's changed in the years since the Arab Spring and what all the money buys.

How much does the U.S. spend on Egypt?

Egypt receives more U.S. aid than any country except for Israel, Afghanistan, Pakistan and Iraq.

The exact amount varies from year to year and there are many different funding streams, but U.S. foreign assistance to Egypt has averaged about $2 billion a year since 1979, when Egypt struck a peace treaty with Israel. Most of that goes toward military aid. President Obama’s 2014 budget tentatively included $1.55 billion in aid, about the same amount the U.S. has sent in recent years.

Has any of the aid been cut off?

Yes. The State Department said in August that it had put a hold on some of the programs financed by the $250 million in annual economic aid to Egypt, including training programs in the U.S. for Egyptian hospital administrators, teachers and other government workers. The administration is now planning to cut off all economic aid that goes directly to the Egyptian government, U.S. officials told the New York Times on Tuesday, but not aid for education, hospitals and similar activities.

What about the military aid?

We don’t know the details yet, but it appears most of the military aid will be cut off, too. The administration, which delayed a scheduled delivery of four F-16 fighters to Egypt in July, is now planning to halt more deliveries, including helicopters, tanks and fighter jets.

It’s not clear exactly how much of the military aid — which has held steady at about $1.3 billion since 1987 — will be cut off. (The economic aid, meanwhile, has fallen by more than two-thirds since 1998.) About $585 million of the aid of the 2013 fiscal year, which ended last week, has yet to be deposited in the Egyptian government’s account in the Federal Reserve Bank in New York, according to the Times.

The U.S. is unlikely to cut off aid that funds counterterrorism operations or security in the Sinai Peninsula and along Egypt’s border with Israel and the Gaza Strip, according to the Times and the Associated Press. The administration is expected to announce the exact cuts in the coming days.

American officials say that military aid doesn’t just promote peace between Egypt and Israel, it also gives the U.S. benefits such as “expedited processing” for U.S. Navy warships when they pass through the Suez Canal. A 2009 U.S. embassy cable released by WikiLeaks makes essentially the same point:

President Mubarak and military leaders view our military assistance program as the cornerstone of our mil-mil relationship and consider the USD 1.3 billion in annual FMF as "untouchable compensation" for making and maintaining peace with Israel. The tangible benefits to our mil-mil relationship are clear: Egypt remains at peace with Israel, and the U.S. military enjoys priority access to the Suez Canal and Egyptian airspace.

According to the State Department, the military aid has included tanks, armored personnel carriers, antiaircraft missile batteries and surveillance aircraft in addition to the F-16 fighters and Apache attack helicopters. In the past, the Egyptian government has bought some of the weaponry on credit.

How important is the aid to Egypt?

Pretty important. Saudi Arabia, which along with other Persian Gulf countries pledged $12 billion in aid to Egypt after the coup, promised to make up the difference in any aid cut by the U.S. or other Western nations. But much of the aid can’t easily be replaced, in particular the fancy American-made weaponry and replacements parts for them.

The Egyptian government declined to comment on the reported cuts on Wednesday.

“We have not been officially informed of any change,” BadrAbdellaty, a spokesman for the Egyptian Foreign Ministry, told the Washington Post. “Until the administration takes its decision and informs us officially, we cannot comment.”

Does the aid require Egypt to meet any specific conditions regarding human rights?

Not really. When an exiled Egyptian dissident called on the U.S. to attach conditions to aid to Egypt in 2008, Francis J. Ricciardone Jr., who had recently stepped down as the U.S. ambassador to Egypt, told the Washington Post the idea was "admirable but not realistic." And then-Defense Secretary Robert Gates said in 2009 that military aid "should be without conditions" at a Cairo press conference.

Sen. Patrick Leahy, a Vermont Democrat, led Congress in adding language to a spending bill in 2011 to make aid to Egypt conditional on the secretary of state certifying that Egypt is supporting human rights and being a good neighbor. The language requires that Egypt abide by the 1979 peace treaty with Israel, support "the transition to civilian government including holding free and fair elections," and put in place policies to protect freedom of expression, association, and religion, and due process of law." It sounds pretty tough, but it's not.

Has American aid to Egypt ever been cut off before?

No. Congress threatened to block aid last year when Egypt began a crackdown on a number of American pro-democracy groups. A senior Obama administration official said that then-Secretary of State Hillary Rodham Clinton had no way to certify the conditions set out in the spending bill were being met.

But Clinton waived the certification requirement (yes, the secretary of state can do that) and approved the aid, despite concerns about Egypt's human rights record. The reason? "A delay or cut in $1.3 billion in military aid to Egypt risked breaking existing contracts with American arms manufacturers that could have shut down production lines in the middle of President Obama's re-election campaign," the New York Times reported. Breaking the contracts could have left the Pentagon on the hook for $2 billion.

Doesn’t the U.S. have to cut off foreign aid after a coup?

The Foreign Assistance Act mandates that the U.S. cut aid to any country “whose duly elected head of government is deposed by military coup or decree.” But in July the White House decided that it was not legally required to decide whether Morsi, who was democratically elected last year, was the victim of a coup — which allowed the aid to keep flowing. “We will not say it was a coup, we will not say it was not a coup, we will just not say,” an anonymous senior official told the New York Times.

As the Washington Post’s Max Fisher points out, Obama and his predecessors have dealt this kind of thing before. The president cut some aid to Honduras after a coup in 2009 and to Mali and the Central African Republic after coups there in 2012, but not all of it. And those countries aren’t nearly as important to U.S. foreign policy as Egypt. President Bill Clinton cut some aid to Pakistan after a coup there in 1999, but President George W. Bush reinstated all of it after the Sept. 11, 2001, attacks.

Obama’s refusal to call it a coup infuriated Morsi supporters. “What is a coup?” Wael Haddara, a senior adviser to Morsi, told the New York Times. “We’re going to get into some really Orwellian stuff here.”

What about economic aid and efforts to promote democracy?

The various economic aid efforts have had mixed results. The State Department has described the Commodity Import Program, which gave Egypt millions of dollars between 1986 and 2008 to import American goods, as "one of the largest and most popular USAID programs." But an audit of the four-year, $57 million effort to create agricultural jobs and boost rural incomes in 2007 found that the program “has not increased the number of jobs as planned.” And an audit of a $151 million program to modernize Egypt's real estate finance market in 2009 found that, while the market had improved since the program began, the growth was "not clearly measureable or attributable" to the aid efforts.

The U.S. has also funded programs to promote democracy and good government in Egypt — again with few results. It has sent about $24 million a year between 1999 and 2009 to a variety of NGOs in the country. According to a 2009 inspector general's audit, the efforts didn't add much due to "a lack of support" from the Egyptian government, which "suspended the activities of many U.S. NGOs because Egyptian officials thought these organizations were too aggressive."

A recent audit of the European Union’s €1 billion — about $1.35 billion —aid program found that it had been “well-intentioned but ineffective” in promoting good governance and human rights. And a WikiLeaks cable revealed the Egyptian government had asked USAID in 2008 to stop financing NGOs that weren't properly registered.

Marian Wang contributed reporting.

by Kim Barker

Smart move?

The IRS has granted nonprofit status to America Is Not Stupid – a so-called dark money group best known for a 2012 election ad featuring a talking baby who compared the smell of his diaper with a Montana senator.

As ProPublica wrote in January, America Is Not Stupid and a related group, A Better America Now, applied for IRS recognition in the run-up to the 2012 election, swearing under penalty of perjury that they would not spend money on elections.

Then both groups went ahead and did exactly that, spending more than $125,000 on mailers and ads opposing Democratic candidates in Texas and Montana.

Despite these disclosures, records show, the IRS gave A Better America Now its stamp of approval as a social welfare nonprofit in April and recognized America Is Not Stupid in late June, decisions that elicited amazement among campaign finance watchdogs.

Marcus Owens, a nonprofit lawyer who ran the IRS Exempt Organizations division from 1990 to 2000, questioned whether a controversy that erupted earlier this year, over the agency subjecting certain conservative nonprofits to extra review, had damaged its ability to fulfill its regulatory functions.

“The oversight has collapsed,” Owens said. “The current people in Exempt Organizations have no tax law enforcement experience and no exempt organization experience in particular. And they’ve been charged with making this particular headache go away.”

Because of the government shutdown, the IRS could not be reached for comment. In the past, the IRS has not commented on stories about specific groups. Talking about individual taxpayers violates the law.

No one from either America Is Not Stupid or A Better America Now responded to emails and phone calls asking for comment.

In May, the IRS admitted that it had flagged the applications of Tea Party and related groups for extra review, dooming many to years of limbo. That admission turned into a firestorm, leading to the immediate resignation of the acting IRS commissioner and the eventual replacement of the top officials in the Exempt Organizations division. Senate and House committees started investigating. The Treasury Inspector General for Tax Administration expanded its initial audit. And the Justice Department announced a criminal inquiry. (Later, records were released showing that the IRS was also flagging liberal groups with “progressive” in their names.)

Since the Supreme Court’s Citizens United ruling in early 2010 opened the door to increased political spending by corporations and unions, nonprofits like America Is Not Stupid have taken on an expanding role in U.S. elections. That’s largely because they do not have to identify their donors, unlike super PACS, leading them to be dubbed “dark money” groups.

About 150 of these nonprofits spent more than $254 million in 2012 on ads, phone calls and mailings reported to the Federal Election Commission. Almost all the donors of that money have remained anonymous. Most of that money — more than 85 percent — was spent by conservative groups, according to the Center for Responsive Politics and research by ProPublica.

These groups are allowed to spend limited amounts to influence elections, as long as they can prove their primary purpose is “social welfare.” But ProPublica has shown how dozens of social welfare nonprofits have underreported their political spending, or spent money on elections despite telling the IRS they would not do so.

In its 2012 annual work plan, the IRS recognized the problem, announcing it would take a hard look at nonprofits and “serious allegations of impermissible political intervention.”

If the agency’s exchanges with America Is Not Stupid and A Better America Now are any indication, however, the augmented focus on nonprofits has been less than ferocious.

The IRS sent ProPublica the groups’ applications for recognition last November, even though they had not yet been recognized and the documents were therefore not supposed to be made public. We wrote stories about these and several other pending applications, bringing it to the IRS’ attention that these groups had pledged that they would not spend money on elections, yet did so.

According to IRS records, neither group ever amended its application to reflect its political spending.

In response to IRS questions about their applications, though, the groups acknowledged that they had spent small amounts on elections – a contradiction that apparently did not hobble their chances for recognition.

A month after receiving IRS recognition in April of this year, A Better America Now changed its story again. It filed its 2012 tax return and asserted – again, under penalty of perjury -- that it had spent no money to influence elections. ProPublica reported this in July.

The group’s president, Bob Portrie, lawyer Eugene Peek, and accounting firm LBA Group, all out of Florida, did not return calls and emails for comment.

The IRS told ProPublica that the 2012 tax return for America Is Not Stupid was “unavailable” as of last month. Renae Duncan, the group’s certified public accountant in Texas, said she would pass on an inquiry from ProPublica to Miguel A. Gutierrez, the group’s president, on Monday morning. He has not yet responded.

In replying this May to IRS questions on America Is Not Stupid’s application, Gutierrez provided several examples of the group’s activities as proof that it had a bona fide social welfare mission of improving the good of a community — the critical factor in maintaining tax-exempt status.

He said the group had created a website, www.NewsEagle360.com, and had authored articles “regarding how underserved communities or minority populations and economically disadvantaged small businesses may be affected by certain U.S. federal rules and regulations in the coming years.” There’s no sign of any such articles on the website or elsewhere, however. (On Monday, one of the website’s top stories was on “CoralActives: Breakthrough Acne Skin Care.”)

To showcase the group’s “educational content,” Gutierrez pointed to the main website for America Is Not Stupid, a single page with 156 words on it.

He told the IRS that the nonprofit conducted polls in Montana, Nevada and Texas, targeting heads of households with Hispanic surnames. But the only poll included in the response didn’t mention Latinos at all. Instead, it asked Montanans about which candidates they planned to vote for in the 2012 election.

The group’s president also said the group held events, including one in San Antonio to “openly discuss topics affecting the Hispanic population in the U.S., including, but not limited to, healthcare, the housing market, jobs and the economy, and various education issues.”

Gutierrez said the event was held on Oct. 26 — just before the 2012 election. The event was free for the first 3,000 people, and billed to the public as strictly entertainment, an evening featuring comedian Paul Rodriguez and the Leslie Lugo Band playing music “to dance into the night.”

But former Bush official Hector Barreto gave the keynote address, Gutierrez told the IRS. One detail America Is Not Stupid didn’t mention: Barreto also happened to be the co-chair of Juntos Con Romney, Republican presidential candidate Mitt Romney’s Hispanic steering committee.

Nothing Gutierrez said in his May 24 response to the IRS seems to have raised any red flags with the IRS, however.

A month after receiving it, the IRS recognized America Is Not Stupid.

by Marian Wang

The chancellor of Oregon’s higher-education system currently oversees all seven of the state’s public colleges and universities. But as of July next year, she’ll be chancellor of four.

The schools aren’t closing. Rather, Oregon’s three largest state schools are in the process of breaking away from the rest of the public system.

The move, long pushed by some university leaders in the system, will give the University of Oregon, Portland State University and Oregon State University more freedom to hire and fire presidents, issue revenue bonds, and raise tuition.

Across the country, a small but growing number of public universities are making similar pushes, looking to cut deals with state lawmakers that scale back direct oversight, often in return for less funding or for meeting certain performance targets. Over the past few years, schools in Texas, Virginia and Florida have all gotten more flexibility to raise tuition. Other plans have recently been broached, though with less success, in Wisconsin, California and Louisiana.  

The proposals vary in scope, but their proponents generally argue that more autonomy allows public universities to operate with less red tape and with greater freedom to raise revenue as state funding has fallen.  

But many within higher education point to the potential downsides. They worry that these universities -- often the better-known and wealthier public universities -- could end up sidelining broader state goals such as access and affordability in pursuit of their own agendas, such as moving up in college rankings.

“My fear is that if public flagships become so focused on revenue and prestige, and so focused on autonomy, they will minimize their commitment to the public agenda,” said Richard Novak, who was previously director of public-sector programs at the Association of Governing Boards. “They should be leading the public agenda. If they privatize too much, they’re not going to be doing it for much longer.”

Others have similar concerns.

“I think there’s a potential for confusion, unhealthy competition and misuse of resources,” said Robert O’Neil, who headed the statewide University of Wisconsin system and was also president of the University of Virginia. In O’Neil’s experience, centralized oversight helps keep in check ambitions that might lead colleges to pursue wasteful projects or duplicative programs.

There’s relatively little research on the overall benefits or drawbacks of schools gaining autonomy, but it does appear that such universities often end up resembling private colleges, moving toward a “high tuition, high aid” model in which schools hike sticker prices significantly while offering big discounts to students schools are trying to attract.  (As ProPublica has detailed, state schools have been giving a growing portion of grants to wealthier students and a shrinking portion to the neediest.) 

State and university officials pushing for more autonomy often balk at the term “privatization,” noting that the universities aren’t severing all ties with the state.

As one planning group at the University of Virginia wrote last month, “Autonomous is not the opposite of public.”

The University of Virginia, along with two other state universities, struck deals in 2005 that won it significant autonomy from the Commonwealth. Those agreements mandated that the schools still meet various benchmarks -- but they also gave the universities wiggle room.

Three years after the deal, a state audit report concluded that while the schools were meeting their “access” goals, the number of low-income students at each of the universities -- as measured by federal Pell grants -- was actually decreasing. (A university spokesman said enrollment of low-income students has gone up since then.)   

Even some supporters of moving toward privatization have begun to have second thoughts. 

James Garland, former president of Miami University, a public university in Ohio, was once a strong proponent of what he calls “semi-privatization” of American public universities, having headed a university that he describes as “public in name only.” In 2009, he wrote a book arguing that public universities should be autonomous and deregulated by their states.

In the years since, Garland said, his views on the autonomy question have “mellowed.” Though he still believes autonomy can make sense for some schools, he’s also concerned about the potential pitfalls.

“Some of these flagships would like to make decisions that benefit their own financial future and give them the ability to build posh dining halls or giant stadiums or create new nanotechnology centers,” Garland said, “when what really may be more needed than that is simply providing a high-quality rigorous college education for legions of students in the state who can’t afford that now and have no place to go and get it.”

“It’s not an accident that you see this happening among big, well-funded publics,” Garland added.

At the University of Virginia, internal discussion of further steps toward privatization has continued. As the Washington Post recently reported, a draft report from a university planning committee recommended “another major restructuring of the relationship between the University and the Commonwealth.” The document notes that the change “would not mean complete privatization.”

University of Virginia spokesman McGregor McCance said the draft report was part of early discussions about possible models for public higher education, and that there are no plans for the university to ask for additional autonomy.

Colleges and universities that do seek to move in this direction need to have candid conversations about their goals, said Garland: “As more and more schools argue successfully for some kind of autonomy from their states, there has to be a real understanding about what the mission of those schools is going to be in the future and there has to be some way of evaluating their conformity to that mission.”

In Oregon, they’re still feeling their way through. All of the state’s public colleges will still be overseen in some way by a coordinating commission. That includes the three largest schools, which, even with their new freedoms, will still need the commission to approve certain items, such as tuition hikes beyond 5 percent. The details of how that system of checks and balances will work -- and how the change will affect the smaller universities still part of the system -- remain to be seen.

“It’s such a turbulent time for higher education, there’s a lot to be said for helping to position institutions to be much more nimble when it comes to shaping the business and delivery of higher education,” said Ben Cannon, the governor of Oregon’s education policy advisor, who was recently appointed head of the commission.

As to whether the new autonomy will actually help schools become more nimble, Cannon acknowledged, “It’s kind of unproven.”

Asked what they will call the new structure and whether the “Oregon University System” will nominally continue to refer to all seven universities, Cannon said that was still being decided.

“That’s a complicated question. The labels are still up for grabs,” Cannon said. “The structure really isn’t. That’s done.”