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09/23/2013

REPORT: GreenTech Automotive: A Venture Capitalized by Cronyism

Executive Summary

“It seemed like a win for everyone involved when a startup car company, backed by political heavyweights, wooed investors with plans to build a massive auto plant in the Mississippi Delta, hire thousands of people and pump out a brand new line of fuel-efficient vehicles…But today, the company is under a federal investigation and about the only thing on its land in Tunica County is a temporary construction office.”

–          Associated Press, August 12, 2013

Less than half of all businesses started between 1977 and 2000 survived to five years.  Market competition is cruel but it’s not unfair.  Unfair is when political heavyweights use their influence to skew the market and force taxpayers to underwrite the risk of speculative new business ventures; taxpayers suffer while crony companies reap the profits.  Such is the case with GreenTech Automotive, Inc. (GreenTech), a startup automobile manufacturer that promised jobs and economic growth in Virginia and Mississippi but has failed to deliver.  The following report is the latest from Cause of Action’s (CoA) investigations into companies that rely upon the politically powerful, not the competitive marketplace, to determine economic winners and losers.

The story of GreenTech and its principals, Terry McAuliffe and Charles Wang, weaves a tale of promises to invest billions of dollars and create thousands of jobs as a result of alleged technological breakthroughs.  What is becoming increasingly likely, however, is that taxpayers will instead bear the costs of broken promises by subsidizing a failed business that used political connections and pressure to profit from taxpayer dollars.

Terry McAuliffe has made a career of using politics to profit.

As far back as 1997, Business Week declared that “[m]any of Terry McAuliffe’s business deals are intertwined with his political interests.” According to Leaders Magazine in 2007, McAuliffe “started over two dozen companies in the fields of banking, insurance, marketing, and real estate.  McAuliffe served as Chairman of Federal City National Bank and, most recently, was an owner and Chairman of American Heritage Homes.” These companies and his political fundraising career earned him millions in personal profit, but also brought Department of Justice investigations, accusations of conspiracy and illegal donation schemes, and Department of Labor penalties. What is clear is that political fundraiser and businessman McAuliffe has made a habit of using his connections and favors to rake in profits, and he has continued that pattern with GreenTech. After receiving campaign contributions from Charles Wang in 2008 for his first gubernatorial bid, Terry McAuliffe made his deep political Rolodex available for GreenTech’s benefit.  As Amy Gardner from The Washington Post has observed, many of McAuliffe’s biggest business deals “came in partnership with prominent donors and politicians, creating a portrait over the years of a Washington insider who got rich as he rose to power in the Democratic Party.” He continued that pattern with GreenTech, benefitting the company through his own political connections.

  • In 2008, Charles Wang made a $50,000 donation to Terry McAuliffe’s gubernatorial campaign.  Shortly thereafter, Wang’s company merged with what is now GreenTech and McAuliffe was named Chairman.
  • As GreenTech Chairman, in an email to then-Governor Haley Barbour, McAuliffe cited efforts by U.S. Senators Thad Cochran (R-MS) and Roger Wicker (R-MS) to pressure the United States Citizenship and Immigration Services (USCIS) Director Alejandro Mayorkas into fast-tracking EB-5 visa applications that would provide Chinese investments for GreenTech.
  • McAuliffe sent numerous emails to Director Mayorkas and Douglas Smith, Department of Homeland Security’s assistant secretary for the Office of the Private Sector, expressing frustration with USCIS’ slow visa approval process. Smith attended GreenTech’s groundbreaking at its temporary Horn Lake facility, where McAuliffe also privately met with President Bill Clinton and Chinese investors.
  • Anthony Rodham, brother of former Secretary of State Hillary Clinton, is President and CEO of Gulf Coast Funds Management (Gulf Coast) the country’s largest Regional Center for processing EB-5 investments, and the manager of EB-5 investments for GreenTech.

GreenTech utilized the EB-5 visa program as a catalyst for favors and a prop for business deals.

In 2008, Gulf Coast, a sister company of GreenTech, used political pressure to position itself as a powerful Regional Center for managing two states’ EB-5 investments, yielding large profits. GreenTech was financed by Chinese investors with a strong interest in securing visas in exchange for millions of dollars in capital through EB-5.

  • Then-Mississippi Governor Haley Barbour, one of Terry McAuliffe’s current business partners, contacted Barbara Velarde, the head of the USCIS office that oversees the Regional Center program, urging the agency to designate Gulf Coast as the Regional Center for the entire state of Mississippi.
  • Kathleen Blanco, who was Governor of Louisiana at the time that USCIS approved Gulf Coast’s application, is currently a member of Gulf Coast’s board.
  • Between 2009 and 2012, GreenTech raised $67 million from more than one hundred EB-5 investors. Gulf Coast has collected a total of approximately $7.4 million in profits from GreenTech investors.

GreenTech is abusing taxpayer funds.

Under the leadership of Charles Wang and Terry McAuliffe, GreenTech submitted exaggerated projections about its manufacturing output and job creation prospects, convincing Mississippi state officials to award millions of taxpayer dollars in loans and tax incentives to develop a GreenTech plant within the state.

  • In exchange for a promise to build a manufacturing facility in Tunica County, the Mississippi Development Authority (MDA) agreed to provide a $3 million loan to GreenTech from the Mississippi Industry Incentive Financing Revolving Fund to construct an access road to the facility.
  • A $2 million loan was given to the Tunica County Economic Development Foundation to purchase the site on which the facility would be built.  GreenTech received a host of tax breaks and incentives including reduced state income, franchise, property, sales and use taxes and income tax rebates for company employees.
  • GreenTech has claimed that it will create 25,000 direct jobs that will each create 11.86 indirect and induced jobs, or 296,500 jobs in total.  This is problematic both in expectation and legality given that current law provides for no more than 10,000 EB-5 visas per year.

While it is unknown whether GreenTech will meet its own estimate of 25,000 full-time jobs in Mississippi by 2014, according to NBC12 News in Richmond, Va., a former GreenTech employee claims that GreenTech’s “lofty goals were nowhere near reality.”

What follows in this report are these and additional findings from a six-month investigation of the relationships and political deals that allowed GreenTech to entice Mississippi into a misbegotten experiment in green automotive technology. As this report reveals, the real engine driving GreenTech’s business plan appears to be its management’s extraordinary talent for exploiting taxpayers to advance their own interests.

 

PDF: GreenTech Automotive: A Venture Capitalized by Cronyism

Exhibits:Exhibits 1-32

Wang Emails: 1 & 2

GTA Exhibit 6 (here) was the Document used in a Washington Post story

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09/19/2013

LabMD Responds to FTC Complaint: Agency Has No Section 5 Enforcement Jurisdiction

FOR IMMEDIATE RELEASE                                           CONTACT: Mary Beth Hutchins, 202-400-2721

September 19, 2013                                                                                Kevin Schmidt, 202-499-2414

 LabMD Responds to FTC Complaint: Agency Lacks Enforcement Jurisdiction

Government Watchdog Group Says the Agency has no Section 5 Authority 

WASHINGTON – Cause of Action (CoA), a government accountability organization, filed an answer to an aggressive and arbitrary enforcement action brought by the Federal Trade Commission (FTC) against LabMD, a small cancer diagnosis company.

CoA is defending LabMD against a complaint brought by the FTC in August, 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. LabMD denies the FTC’s allegations of violations of Section 5 of the FTC Act as well as allegations that LabMD failed to provide reasonable and appropriate security for personal information on its computer networks. The filed answer also explains that the FTC may lack the statutory authority to regulate data-security practices as “unfair acts or practices” under Section 5.

“The FTC admitted in 2000 that it ‘lacks the authority to require firms to adopt information practice policies,’ and while they have wanted Congressional approval for that authority, Congress has said no,” explained Reed Rubinstein, Cause of Action’s senior vice president of litigation. “This is why we are asking the Administrative Law Judge to deny the Commission’s requested relief and dismiss the Complaint in its entirety.”

Cause of Action’s Executive Director, Dan Epstein explained, “Cause of Action is taking up this fight because the FTC’s attempt to exert authority that it does not have on a business that engaged in no wrongdoing is an abuse of agency authority that threatens American jobs.”

Key evidence of this lack of FTC authority includes:

  • Notwithstanding the FTC’s repeated requests that Congress confer upon it the authority to regulate data-security, Congress has refused to grant the FTC this authority.
    • 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 Congress enact legislation providing a federal agency with the authority to regulate data security. Since then, Congress has not passed any such law.
  • The FTC cannot rely on any judicial precedent for the proposition that the FTC has the authority to regulate data-security practices under Section 5.
  • Federal District Judge William Duffy recently noted that “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 if the Commission did have jurisdiction over the claims in the Complaint, which it does not, because the Commission has not published any rules, regulations, or other guidelines clarifying and providing any notice, let alone constitutionally adequate notice, of what data-security practices the Commission interprets Section 5 to prohibit or require, this administrative enforcement action against LabMD violates due process requirements guaranteed and protected by the Fifth Amendment to the U.S. Constitution.

CoA states in LabMD’s answer that “Section 5 of the FTC Act does not give the Commission the statutory authority to regulate the acts or practices alleged in the Complaint and therefore the Commission’s actions are arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law; contrary to constitutional right, power, privilege, or immunity; in excess of statutory jurisdiction, authority, or limitations, or short of statutory right; or without observance of procedure required by law.”

A hearing on the matter is scheduled for April 28, 2014 before Chief Administrative Law Judge Michael Chappell.

The FTC complaint can be found here  and the answer filed by CoA can be found here.

About Cause of Action:

Cause of Action is a nonprofit, nonpartisan organization that uses investigative, legal, and communications tools to educate the public on how government accountability and transparency protects taxpayer interests and economic opportunity. 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, mary.beth.hutchins@causeofaction.org or Kevin Schmidt, kevin.schmidt@causeofaction.org.

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09/6/2013

Cancer Detection Business Strikes Back Against Federal Trade Commission’s Arbitrary Enforcement

FOR IMMEDIATE RELEASE                                                                                                   

September 6, 2013

 

Cancer Detection Business Strikes Back Against Federal Trade Commission’s Arbitrary Enforcement

Cause of Action Challenges FTC Overreach, Claims It Lacks Regulatory Authority

 

WASHINGTON – LabMD, a small cancer detection facility in Atlanta, Ga., has retained government accountability group Cause of Action (CoA) in order to challenge an aggressive and arbitrary enforcement action brought by the Federal Trade Commission (FTC). LabMD was targeted by the federal agency in what the company calls “an ongoing witch hunt against private businesses.”

The FTC issued a complaint against LabMD in August, alleging  violations of Section 5 of the Federal Trade Commission Act 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’s targeting of LabMD is the most recent example of a federal agency abusing its authority and acting outside of its power in order to punish American job creators,” said Executive Director of CoA, Dan Epstein. “The FTC has scapegoated a company whose aim is to save lives.”

Cause of Action is representing LabMD in legal proceedings before the FTC in which LabMD will vigorously respond to the FTC’s complaint and address whether the FTC has authority under Section 5 of the Federal Trade Commission Act to bring its enforcement action.

As part of their efforts to educate the public on the dangers posed by the FTC’s actions, CoA and TechFreedom are co-sponsoring a Thursday, September 12, discussion of the FTC and data security issues to be held in Washington, DC and streamed live online. More information can be found here.

About Cause of Action:

Cause of Action is a nonprofit, nonpartisan organization that uses investigative, legal, and communications tools to educate the public on how government accountability and transparency protects taxpayer interests and economic opportunity. For more information, visit www.causeofaction.org.

 

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09/5/2013

FOIA Requesters Misled by Military to Waive Appeal Rights

UPDATE: We added clarification that our numbers concerning SOCOM’s FOIA appeals were taken from FOIA.gov

At least two military offices have been found to use a puzzling FOIA request form that may be an attempt to get requesters to give up their rights to appeal FOIA decisions.

The request forms, which are included below, appear on the FOIA web sites of the U.S. Army Special Operations Command (SOCOM) and the U.S. Navy’s Space and Naval Warfare Systems Command(SPAWAR).   In both forms, the offices ask requesters to agree to accept “a releasable copy” of the requested records; however, they fail to expressly inform requesters that electing this option may legally prevent them from appealing if the agency withholds any records.

If requesters do not agree in advance to accept “releasable” records, the forms indicate that their request will be “referred to the appropriate reviewing authority for a final review and release determination.”  This is precisely the procedure that the Department of Defense’s FOIA regulations already require.  Specifically, all Department of Defense FOIA requests must be reviewed by a designated “Initial Denial Authority,” and all decisions to withhold requested records must be explained in sufficient detail so as to allow requesters to decide whether to appeal.

Making matters worse, SOCOM’s version of the FOIA request form implies that the referral procedure described above will dramatically increase the time needed to process the request, noting that “it could take a year” for a decision — essentially coercing the FOIA requester to select the “releasable” records option if they want to receive the production in a timely manner.  As a result SOCOM’s form has effectively minimized FOIA appeals.  During fiscal years 2008 to 2012, SOCOM adjudicated 933 FOIA requests, yet it received zero administrative appeals according to FOIA.gov. Do the zero administrative appeals accurately reflect that in fact there were no appeals by requesters during this four year period regardless of whether they accepted the “releasable” records option, or are these statistics the result of virtually all 933 FOIA requesters abdicating their rights to appeal?

Notably, these forms do not conform to the FOIA request template recommended by the Department of Defense’s main FOIA office.   Nor are they even consistent with sample request letters provided by the FOIA offices of the Department of the Navy or the Department of the Army.  In the words of Victor Hugo, no army can withstand the strength of an idea whose time has come.  It is time for these forms to go.

SOCOM FOIA Request Form

Socom

SPAWAR FOIA Request Form

SPAWAR

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09/5/2013

National Law Journal: Group Wants Justices to Lift Limits on Political Giving

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09/5/2013

Liability Alert Letter to the General Counsel of Covered California regarding Enroll America

Cause of Action sent a letter to Covered California, California’s state health exchange, to alert them of liabilities under federal and state laws and guidelines. Enroll America will be a liaison to state health exchanges across the country, such as Covered California, who manage the sale of health insurance policies.

“The risk of spending federal money in wasteful, fraudulent or abusive ways as they fund outreach activities to enroll the uninsured should put state exchanges on high alert,” said Dan Epstein. “Covered California creates a one-stop insurance marketplace, while conducting outreach similar to that of Enroll America, and we want these exchanges to be aware of the numerous laws and regulations that could present multiple liabilities for them as enrollment begins.”

Liability Alert Letter to the General Counsel of Covered California regarding Enroll America

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09/4/2013

Statement: Cause of Action on Proposed Advertising Campaign for Affordable Care Act

Yesterday, Senator Rubio asked HHS Secretary Sebelius to cancel $8.7 million in planned advertisement buys made through the Centers for Medicare & Medicaid Services (CMS) to promote the Patient Protection and Affordable Care Act using taxpayer dollars.

Dan Epstein, executive director of Cause of Action, offered this response to the possible misuse of federal dollars through efforts to promote the Patient Protection and Affordable Care Act:

“HHS must take seriously the concerns that have arisen about use of taxpayer money for advertising campaigns promoting the Patient Protection and Affordable Care Act. We are already troubled by the fact that HHS has spent nearly $60 million in taxpayer funds to contract with huge PR companies to promote the implementation of the new law, while Secretary Sebelius has simultaneously asked executives from pharmaceutical and insurance companies to support Enroll America, an organization that has spent ‘at least seven figures’ on paid advertising.  Cause of Action’s warning about the high risk of misuse of taxpayer dollars has recently been expressed through letters to state health exchanges and we will continue to monitor any wasteful spending or abuse of federal funds as the law goes into effect.”

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