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Archives for November 2013

11/7/2013

REPORT: Political Profiteering of Forest City Enterprises Part II

Political Profiteering:

How Forest City Enterprises Makes Private Profits at the Expense of America’s Taxpayers

Part II

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Executive Summary

 

“Without government development incentives, most of [Forest City Enterprises’] development projects ‘would not be economically viable.’”

 

            – The New York Post, August 6, 2013

            Forest City Enterprises (FCE) is a $10.6 billion real-estate development company that profits from public subsidies at the expense of taxpayers, job seekers, and those seeking affordable housing. Without delivering the jobs and affordable housing it forecasts, FCE takes advantage of communities where it builds large-scale, mixed-use projects, creating a pattern of broken promises. This is the second report in a three-part series detailing how FCE makes private profits at the expense of America’s taxpayers.  As part of Cause of Action’s (CoA’s) ongoing investigations into crony companies that use politics for profit, we found that local residents have been victimized by FCE’s real estate projects in Brooklyn, N.Y.; Albuquerque, N.M.; and New Rochelle, N.Y.

FCE’s pattern promises local governments that its development projects will generate plentiful jobs, housing, economic development, and tax revenues.  Concomitantly, FCE employs a well-funded public relations campaign, a team of politically-connected lobbyists, and campaign contributions to local politicians in order to acquire subsidies, tax breaks, and property through eminent domain.  However, once FCE receives public financial support, it often renegotiates or delays implementation of the benefits that it had previously promised.  In short, it lobbies, profits, and then bilks the taxpayers by breaching its promise to the community.

CoA’s investigation revealed that FCE promised to create more than 70,000 permanent jobs and 3,750 affordable housing units in Brooklyn and Albuquerque, but that it has actually produced only 3,000 permanent jobs and built no affordable housing units.  Meanwhile, FCE pocketed $277.2 million in subsidies from those communities after contributing $310,450 to local political candidates and spending over $8.6 million on lobbyists.  Sadly, these are not isolated incidents, but endemic of an intentional method in which FCE does business.  This pattern is poised to continue in the proposed project in New Rochelle.

Profits over Promises

FCE promised in 2004 that its 22-acre Atlantic Yards project in Brooklyn would generate 10,000 permanent jobs and 2,250 units of affordable housing.  In return, the company received $270 million in direct subsidies in order to construct a new sports arena, the Barclays Center, and to bring the New Jersey Nets there to play.  FCE purchased land for the project at less than half-price and received other land after the government seized it by eminent domain.  To date, the Barclay’s Center has been completed, but only 1,900 part time jobs have been created and the affordable housing remains unfinished. 

Backtracking on Promises

For the Mesa del Sol project in Albuquerque — a 12,900-acre mixed use community — FCE promised to create 30,000 economic base jobs, 30,000 service sector jobs, and 1,200 units of affordable housing over a 50-year period.   After FCE  provided $220,000 in cash and in-kind contributions to candidates for state office in New Mexico — including $150,000 to Governor Richardson’s gubernatorial campaign and the use of one of the company’s corporate jets for three campaign trips in 2006 — FCE received commitments of up to $630 million over 25 years through a new state subsidy.  But by May 2013, FCE announced the sale of its stake in Mesa del Sol, citing its need to focus on “core markets.”  As of May 2013, FCE has received $7.2 in subsidies, but only 2,000 jobs have been created and the construction of affordable housing will be delayed for at least six years.

FCE’s Next Victim of Political Profiteering

The next victim of FCE’s political profiteering appears to be the city of New Rochelle, where FCE has proposed a waterfront redevelopment project known as “Echo Bay.” FCE’s Residential Group (FCRG) has promised to add 285 luxury apartments, 25,000 feet of retail space, and a five-acre park, which FCRG estimates will generate $49 million in revenue and $307 million in economic benefits, including 211 construction jobs, 59 retail and residential management jobs, and 1,000 indirect jobs over a period of 20 years. The project would also provide FCRG with at least $20 million in tax abatements between 2016 and 2035 through a proposal that includes twenty years of Payments in Lieu of Taxes (PILOT).  Echo Bay fits the pattern that CoA exposed with FCE’s past projects.  Specifically, FCRG scaled back the scope of its original proposal, which offered 150,000 square feet of retail and 600 luxury apartments.  Additionally, FCE’s consultants for the project gave $17,000 in campaign contributions to Mayor Noam Bramson, who is a staunch defender of the project.

What follows in this report is a portrait of FCE’s pattern of exploitation and broken promises, documented through news reports, campaign contribution reports, lobbyist filings, litigation, and government documents obtained through Freedom of Information Act (FOIA) requests.  CoA filed seven FOIA requests to attempt to uncover how FCE works with government agencies and city councils behind the scenes, but found a lack of adequate record keeping and uncooperative responses.  CoA’s first report exposed how FCE used $23 million in political spending over the past ten years to obtain $2.6 billion in government subsidies and financial benefits. In its final report, CoA will show how FCE has enriched itself through bribery and political graft, colluded with the government to take advantage of the EB-5 investor program, and benefited from eminent domain abuse.

II. Findings

  • Finding:          Despite receiving $270 million in subsidies for the Atlantic Yards project and a commitment of $630 million over 25 years for its Mesa del Sol project, FCE has failed to deliver the public benefits promised in exchange for taxpayers’ financial support.

Atlantic Yards Project: Brooklyn, New York

  • Finding:          Forest City Ratner (FCR) promised to create 10,000 permanent jobs and 2,250 units of affordable housing in exchange for $270 million in direct taxpayer money to build its sports arena and land provided to it through eminent domain.  To date, none of the affordable housing has been built and only 2,000 permanent jobs have been created—1,900 of which are part-time jobs.
  • Finding:          FCR drafted a Community Benefits Agreement (CBA) in 2005 in order to gather local support for the Atlantic Yards project, but the promised benefits have not been provided.  FCR has not provided an Independent Compliance Monitor to oversee enforcement of the agreement.

Mesa del Sol Project: Albuquerque, New Mexico

  • Finding:          FCE employed lobbyists and provided $150,000 in campaign contributions and use of its corporate jet to then-Governor Bill Richardson in order to push through a bill creating a new subsidy for real estate development in 2006.  In 2007, FCE received commitments from the City of Albuquerque and the State of New Mexico for up to $130 million and $500 million in subsidies, respectively, over 25 years.
  • Finding:          FCE promised to create 60,000 jobs over a 50-year period and 1,200 units of affordable housing in exchange for the commitment of $630 million in subsidies. However, by the time FCE sold its stake in the project in May 2013, only 2,000 jobs had been created and the original affordable housing agreement had been renegotiated to delay construction by at least six-and-a-half years.

Echo Bay Project: New Rochelle, New York

  • Finding:          FCE’s Residential Group (FCRG) has promised the City of New Rochelle that its Echo Bay project will create about 59 permanent jobs and increase local tax revenue.  However, FCRG seeks $20 million in tax abatements from 2016 to 2035 despite the fact that residents have been facing property tax increases and cuts in public services for years.
  • Finding:          FCE executives in Cleveland gave New Rochelle Mayor Noam Bramson $5,000 in campaign contributions in August 2007 after FCE was selected as the developer for the Echo Bay project in December 2006.  Mayor Bramson has received $17,500 in campaign contributions from FCRG’s consultants since December 2012.

 

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11/6/2013

Washington Post: Senators call for resignation of embattled Homeland Security auditor

Read the full story here: Washington Post

The government watchdog group Cause of Action wrote to Obama in July asking him to fire Edwards. The organization applauded Wednesday’s bipartisan call for the inspector general’s resignation.

 

“The complete lack of transparency and accountability at [the Department of Homeland Security] must come to an end,” said Cause of Action director Dan Epstein. “We hope these concerns will be taken seriously and that steps are taken to remove Edwards from his position.”

 

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11/5/2013

Related Documents: American Public Gas Association v. Department of Energy

The Department of Energy issued a rule that will drive up costs for distributors, installers, and consumers of heating and air conditioning products across the United States.  Refusing to acknowledge properly filed comments and concerns from HARDI, the Department of Energy issued new energy efficiency standards.  Cause of Action took up HARDI’s case in the U.S. Court of Appeals to hold the Department of Energy accountable for ignoring procedure and inflicting job-killing regulation on the heating and air industry.

United States Court of Appeals for the District of Columbia

Settlement Order (April 24, 2014)

Joint Brief of Intervenors Heating, Air-Conditioning & Refrigeration Distributors International (HARDI) and Air Conditioning Contractors of America (ACCA) in Support of Petitioner (January 28, 2014)

Brief for Petitioner American Public Gas Association (January 13, 2014)

Joint Response (September 18, 2013)

Joint Brief of Intervenors (May 29, 2013)

Motion to Intervene of the Heating, Air-Condition & Refrigeration Distributors International (“HARDI”) (January 20, 2013)

Court grants HARDI opportunity to challenge DOE decision-making (May 3, 2012)

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11/5/2013

Dan Epstein on WINA The Schilling Show 9/30/13

Executive Director Dan Epstein discussing our report on GreenTech Automotive.

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11/5/2013

LabMD Files Motion for Protective Order to Quash FTC’s Burdensome and Oppressive Subpoenas

FOR IMMEDIATE RELEASE

CONTACT: Kevin Schmidt, 202-499-2414

kevin.schmidt@causeofaction.org

 

LabMD Files Motion for Protective Order to Quash FTC’s Burdensome and Oppressive Subpoenas

Already overstepping its enforcement authority, FTC issues 35 subpoenas for 23 simultaneous depositions

WASHINGTON – Cause of Action (CoA), a government accountability organization, filed a Motion for Protective Order before an Administrative Law Judge on behalf of LabMD seeking to quash 35 subpoenas served by the Federal Trade Commission (FTC) in a single day. The subpoenas are burdensome, oppressive and are consistent with the Commission’s plain goal of forcing LabMD into submission by exhausting the small Atlanta-based cancer diagnosis company’s resources.

CoA is defending LabMD against a complaint brought by the FTC based, in part, on allegations that a third party was able to obtain data from LabMD’s computers through the peer-to-peer (P2P) file sharing program LimeWire. The FTC has attacked LabMD without publishing any data-security regulations or standards and with the knowledge that LabMD’s data security practices are regulated by the Department of Health and Human Services (HHS).  HHS has never suggested that LabMD has violated any patient information data-security regulations or requirements.

In September, CoA filed pleadings challenging the FTC’s statutory authority to regulate patient information data-security practices as “unfair acts or practices” under Section 5 of the FTC Act and denying the Commission’s claim that  LabMD supposedly failed to provide reasonable and appropriate security for personal information on its computer networks.

“From the outset of the FTC’s investigation, the Commission has exerted authority it does not have to punish a business that has done nothing wrong,” said CoA Executive Director Dan Epstein.  “CoA has taken up this fight because the Commission is abusing its power and destroying a small business, and it must be held accountable for demonstrations such as these burdensome subpoenas.”

“No court has ever said that Section 5 authorizes the FTC to regulate patient information data-security practices, or any other data-security practices, for that matter,” explained CoA Senior VP of Litigation Reed Rubinstein.  “Despite the Commission’s repeated requests, Congress has refused to confer upon the FTC jurisdiction over such data-security cases.  Therefore, in an end-run around both the courts and the Congress, the Commission illegally abuses and burdens individual businesses like LabMD.”

CoA asserts in LabMD’s Motion for Protective Order that essentially, the FTC is flexing its “muscles” in retaliation for LabMD’s [public criticism]. No other reason explains why the FTC would issue 35 subpoenas to obtain information it already has. Instead of venerably standing on the strength (or lack thereof) of its Complaint, the FTC, is utilizing the vast resources at its disposal to harass LabMD and its clients. It is demanding irrelevant, costly, unnecessary, and duplicative information in an attempt to crush LabMD and its viability as a business.

The FTC’s bullying tactics include:

  • Conducting a multi-year “civil investigation” requiring LabMD to produce thousands of documents and its principals to submit to multiple examinations by government lawyers all unsupported by any concrete allegation of wrongdoing.  Complying with the FTC’s demands has cost LabMD hundreds of thousands of dollars as well as thousands of hours of management and employee time.
  • Forcing LabMD into an administrative hearing in which the Commission itself makes the “law,” prosecutes the “violations” and then determines the “verdict.”
  • Using abusive tactics that would not be tolerated by any federal court.  For example, the FTC served 35 subpoenas on third parties around the country demanding at least 23 depositions to take place simultaneously.  For LabMD to comply with the FTC’s oppressive subpoenas, LabMD would have to hire more than 23 attorneys and pay for their transportation to appear at depositions in California, Georgia, Pennsylvania and Florida, etc.

Given the FTC’s lack of jurisdiction to even bring such a data-security action against LabMD, it makes it abusive practices all the more egregious:

  • Notwithstanding the FTC’s repeated requests that Congress confer upon it the authority to regulate data-security, Congress has refused to do so.
  • In a 2000 report to Congress, Privacy Online: Fair Information Practices in the Electronic Marketplace: A Report to Congress, for example, the FTC admitted that it “lacks the authority to require firms to adopt information practice policies” and requested that Congress enact legislation providing a federal agency with the authority to regulate data security.  Notwithstanding the FTC’s pleas, Congress has not seen fit to expand the FTC’s jurisdiction.
  • The FTC cannot rely on any statutory precedent for the proposition that the FTC has authority to regulate data-security practices under Section 5 of the FTC Act.
  • Federal District Judge William Duffy recently noted, “There is significant merit to [LabMD’s] argument that Section 5 [of the Federal Trade Commission Act] does not justify an [FTC] investigation into data security practices and consumer privacy issues….”
  • Even assuming, arguendo, that the FTC did have jurisdiction over its asserted claims against LabMD because the Commission has not promulgated any rules, regulations, or other binding guidelines establishing the data-security practices with which it expects compliance, this enforcement action against LabMD violates due process requirements guaranteed and protected by the Fifth Amendment to the U.S. Constitution.

The FTC complaint can be found here, CoA’s answer on behalf of LabMD can be found here, and the Motion for Protective Order can be found here.

About Cause of Action:

Cause of Action is a non-profit, nonpartisan government accountability organization that fights to protect economic opportunity when federal regulations, spending and cronyism threaten it. For more information, visit www.causeofaction.org.

About LabMD:

LabMD is a cancer detection facility that specializes in analysis and diagnosis of blood, urine, and tissue specimens for cancers, micro-organisms and tumor markers. You can find out more about their battle with the FTC here.

To schedule an interview with Cause of Action’s Executive Director Dan Epstein, contact Mary Beth Hutchins,  202-400-2721 or Kevin Schmidt, kevin.schmidt@causeofaction.org.

 

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11/5/2013

Related Documents: XP Vehicles v. Department of Energy

Cause of Action is representing XP Vehicles, a San Francisco-based electric car company  in a lawsuit against the federal government concerning the U.S. Department of Energy’s denial of XP’s loan guarantee application under the Advanced Technology Vehicles Manufacturing (AVTM) loan program.

United States Court of Federal Claims

Opposition to Motion to Dismiss (February 18, 2014)

Complaint (January 10, 2013)

United States District Court for the District of Columbia

Opposition to Defendant’s Motion to Dismiss the Official Capacity Claims (October 17, 2013)

Opposition to the Individual Capacity Defendants’ Motion to Dismiss (October 17, 2013)

Memorandum in Opposition to Defendants Motion to Dismiss Official Capacity Counts 2, 3 and 4 (July 30, 2013)

Motion to Amend Complaint (July 30, 2013)

Opposition to Individual Capacity Defendants Motion to Dismiss (July 29, 2013)

Complaint (January 10, 2013)

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11/1/2013

New York Times: In Regulators’ Sights

In Regulators’ Sights

By HILARY STOUT

Published: October 31, 2013

Over the last three weeks, more than 2,200 people have placed orders for $10-to-$40 sets of magnetic stacking balls, rising to the call of a saucy and irreverent social media campaign against a government regulatory agency.

The money from the sales of the so-called Liberty Balls goes to a legal-defense fund. At the crux of the battle is an arcane legal tussle that has caught the attention of a number of mainstream business organizations and free-market legal groups.

It involves an effort by the federal Consumer Product Safety Commission to recall Buckyballs, sets of tiny, powerfully magnetic stacking balls that the magazines Rolling Stone and People once ranked on their hot products lists.

Last year, the commission declared the balls a swallowing hazard to young children and filed an administrative action against the company that made the product, demanding it recall all Buckyballs, and a related product called Buckycubes, and refund consumers their money. The company, Maxfield & Oberton Holdings, challenged the action, saying labels on the packaging clearly warned that the product was unsafe for children.

But the fuss now has less to do with safety. After Maxfield & Oberton went out of business last December, citing the financial toll of the recall battle, lawyers for the product safety agency took the highly unusual step of adding the chief executive of the dissolved firm, Craig Zucker, as a respondent in the recall action, arguing that he controlled the company’s activities. Mr. Zucker and his lawyers say the move could ultimately make him personally responsible for the estimated recall costs of $57 million.

While the “responsible corporate officer” doctrine (also known as the Park doctrine) has been used frequently in criminal cases, allowing for prosecutions of individual company officers in cases asserting corporate wrongdoing, experts say its use is virtually unheard-of in an administrative action where no violations of law or regulations are claimed.

A spokesman for the product safety commission said the group had never used it in a recall action. He declined to say why it was used in this case.

“I think this case presents some important and troubling legal issues that really break new ground legally for the C.P.S.C.,” said Nancy A. Nord, who was the only commissioner to vote against filing the administrative action. Ms. Nord retired from the commission last weekend.

Three well-known business organizations — the National Association of Manufacturers, the National Retail Federation and the Retail Industry Leaders Association — banded together this summer to file a brief urging the administrative law judge reviewing the recall case to drop Mr. Zucker as a respondent.

The groups argue that holding an individual responsible for a widespread, expensive recall sets a disturbing example and runs counter to the business desire for limited liability. They contend that such risk would have a detrimental effect on entrepreneurism and openness in dealing with regulatory bodies.

“It really has a chilling effect on the kinds of things all of us were trying to do, which is involve corporate officers in these kinds of decisions — to decide if something should be reported and if there should be a recall,” said Lee Bishop, a lawyer for the manufacturers association, who helped draft the brief.

Conservative legal groups like Cause of Action, a nonprofit that targets what it considers governmental overreach, have been watching the proceedings with interest and weighing taking some action.

“This really punishes entrepreneurship and establishes a bad precedent for businesses working to create products for consumers,” said Daniel Z. Epstein, the group’s executive director. “It undermines the business community’s ability to rely upon the corporate form.”

Mr. Epstein once worked for a foundation run by Charles G. Koch, who, with his brother David, has funded numerous conservative and antigovernment or antiregulatory causes. He would not disclose the donors behind Cause of Action. The Washington Legal Foundation, which promotes pro-business and free-market positions, has weighed in with a background paper titled “C.P.S.C.’s Misuse of R.C.O. Doctrine Bodes Ill for C.E.O.’s and Consumers.”

The administrative law judge on the case has refused to drop Mr. Zucker’s name from the case. Last month, Mr. Zucker, 34, began the so-called “United We Ball” campaign on Facebook, Twitter and other outlets to raise money for his legal defense fund. The products for sale, called Liberty Balls, are bigger versions of Buckyballs — too big, he says, to be a swallowing risk. So far, he says, the campaign has raised more than $100,000.

“The Consumer Product Safety Act in the Congress is very clear that recalls cannot be conducted by individuals, so entrepreneurs can innovate and create products and don’t have to be in fear of personal bankruptcy and personal financial ruin in the case of a product defect,” Mr. Zucker said in an interview. He added: “But Buckyballs weren’t defective. The commission changed its mind. It said the product was lawful and changed its mind.”

The case is now in the hands of the administrative law judge. If he rules that the product does present a hazard and a recall is warranted, Mr. Zucker may appeal to the commissioners, who will then vote on what action to take.

Buckyballs were created by Mr. Zucker and Jake Bronstein, two friends who said they were down to their last $1,000 each when they invested it in the company. There was something strangely addictive about stacking the powerful little magnets into endless shapes, and the product took off. By 2011, sales reached $18 million. Mr. Bronstein has not been named in the case.

The company had a history of collaborating with the commission, including during a voluntary recall of the product in 2010 to change its warning labels. The original labels said the product was unsafe for people under 13, but after Congress passed a law changing the definition of a child to anyone under 14, the company worked with the commission to recall the product and replace the labels.

The product safety agency says it has reports of about 1,700 emergency room visits involving children who had ingested Buckyballs. The power of the magnet in some cases caused ripped intestines.

“The core issue for Consumer Product Safety Commission is we did not see progress on safety to children,” said Scott Wolfson, a spokesman for the agency. “The labels were not effective,” he said, explaining that many people did not keep the balls in the packaging so the labels were going unnoticed. “Children were getting access to this product,” he said.

After the company protested the recall, the commission approached retailers directly. At least six — including Barnes & Noble, Brookstone and Bed Bath & Beyond — initiated a voluntary recall and agreed to stop selling the product.

Buckyballs were also popular in Europe and elsewhere, including Canada and Australia, which have both initiated similar regulatory actions. The product had distributors in approximately 15 foreign countries, accounting for about 15 percent of sales, according to a spokeswoman for Mr. Zucker. When Maxfield & Oberton went out of business, sales to those distributors stopped as well.

Last week, the commission moved ahead with plans to outlaw these types of small powerful magnets from the marketplace, separate from the recall action. Five doctors testified about safety hazards in a hearing aimed at drafting a federal rule limiting the force and size of magnets for sale to the public.

http://www.nytimes.com/2013/11/01/business/buckyball-recall-stirs-a-wider-legal-campaign.html

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