CoA requests investigation of Sen. Harry Reid, USCIS in EB-5 abuse

In light of Senator Harry Reid’s (D-NV) expected nomination announcement of Alejandro Mayorkas as Deputy Secretary of the Department of Homeland Security (DHS), Cause of Action (CoA) sent a request for investigation to Chairwoman Barbara Boxer (D-CA) of the U.S. Senate Select Committee on Ethics, calling for the investigation of Senator Reid’s communications with U.S. Citizenship and Immigration Services (USCIS) officials and the potential fast-tracking of EB-5 immigrant investor applications.

CoA is continuing to investigate EB-5 program abuse, and just last week, we wrote to Chairman Issa of the House Oversight and Government Reform Committee urging the committee to examine USCIS’ abuse of the EB-5 program.

Winston and Strawn: LabMD Files Suit Challenging FTC’s Authority to Regulate Data Security

Read the full story:  Winston and Strawn

LabMD joins Wyndham Hotels & Resorts LLC in challenging the FTC’s authority to regulate and punish entities for data security breaches. Like Wyndham, LabMD argues that because the FTC has never issued regulations, standards, or guidelines regarding data security under Section 5, LabMD had no constitutionally adequate fair notice of what Section 5 of the FTC Act requires, and thus, the FTC’s administrative actions against it violate the Fifth Amendment’s Due Process Clause. LabMD also argues that HHS, rather than the FTC should enforce patient security breach matters under the Health Insurance Portability and Accountability Act of 1996 (HIPAA) (LabMD is a covered entity and thus subject to HHS regulation). LabMD has requested a preliminary injunction in its favor, and the case is still pending.

Steptoe and Johnson: LabMD Goes On Offense Against FTC

Read the full story:  Steptoe and Johnson

We reported in September that LabMD (a laboratory services company) became the second company (after Wyndham Hotels & Resorts) to challenge the Federal Trade Commission’s authority to regulate cybersecurity, when it raised this issue in response to an administrative complaint filed by the Commission.  This month, LabMD switched to offense, filing a complaint in the U.S. District Court for the District of Columbia seeking to enjoin the FTC’s administrative action on various constitutional statutory grounds.  Also this month, the judge in the Wyndham case signaled that she is likely to reject Wyndham’s challenge.  So companies that want to see the FTC brought down a peg will now be pinning their hopes on LabMD’s suit.

Stewart Baker: The 2014 Privies

Read the full story:  Stewart Baker

c.  FTC v. LabMD (Federal Trade Commission)
Stupid Mistake + Media Coverage = Unfair Practice

 
When LabMD set up security for its network, it didn’t expect a rogue employee to poke holes in its security by running Limewire, a program notorious for sharing pirated music — as well as any business or personal records that happen to be on the same network. And it certainly didn’t expect a complaint from the Federal Trade Commission when Limewire shared a spreadsheet with customer data.

 
There’s no doubt that LabMD made a mistake, and a bad one. But the Federal Trade Commission isn’t empowered to correct every mistake made by American businesses.  It only has authority to charge companies that have committed “unfair practices.”  What LabMD did may have been dumb; it may have been sloppy; but you’ve got to strain pretty hard to call it an unfair practice.  The FTC has been trying for years to become America’s privacy and security enforcer.  For just as long, Congress has refused to give it that role.

 
You have to admire an agency with the cojones to argue that it can make up its own legal authority as well as the offenses that it chooses to punish.  Maybe if you look closely at the seal, you can see the agency’s true motto:  “Whatever It Takes:  Finding Ways To Punish Companies Criticized by the New York Times Since 1914.”

Statement: Cause of Action on Mayorkas’ Pending Deputy Secretary Nomination

Cause of Action, a government accountability group, sent a letter to Chairman Darrell Issa of the House Committee on Oversight and Government reform urging the committee to examine the U.S. Citizenship and Immigration Services’ (USCIS) oversight of the EB-5 visa Pilot Program. Cause of Action issued the following statement in response to the Senate Homeland Security and Governmental Affairs Committee pending nomination for Alejandro Mayorkas for Deputy Secretary of the Department of Homeland Security (DHS) :

Executive Director Dan Epstein:

“Just this week, Cause of Action sent a letter to the House Committee on Oversight and Government Reform urging the Committee to examine the USCIS’ administration of the EB-5 visa Pilot Program, which is under the oversight of Alejandro Mayorkas. Whistleblowers revealed that Mayorkas fast-tracked visa applications through the EB-5 program, which is being used to finance crony companies while failing to deliver on job creation.  In light of these concerns and the current DHS OIG investigation of Mayorkas, it was irresponsible for the Senate Homeland Security and Governmental Affairs Committee to vote on Mayorkas’ nomination for Deputy Secretary of the DHS before DHS’s internal investigation is complete.”

Report: Forest City Enterprises Profits Despite Legal Violations

FOR IMMEDIATE RELEASE                                                                                                 

CONTACT:      

Jamie Morris, 202-499-2425

 

Report: Forest City Enterprises Profits Despite Legal Violations

Cause of Action calls on Congress to investigate Forest City Enterprises and lax oversight at USCIS, DOJ 

WASHINGTON –Cause of Action (CoA), a government accountability organization, today released “Unfair Enrichment: How Forest City Enterprises Acts Above the Law,” the third and final installment of the three-part investigation, “Political Profiteering: How Forest City Enterprises Makes Private Profits at the Expense of America’s Taxpayers,” exposing how New York State manipulated census data to benefit Forest City Enterprises’ (FCE) New York subsidiary Forest City Ratner (FCR) and the New York City Regional Center (NYCRC).  With this data, FCR and the NYCRC enticed foreign investors into a cash-for-visas program, all while downplaying the risk of investment and exaggerating job creation predictions.  Further, the Department of Justice (DOJ) failed to prosecute FCR executives who bribed city council members to approve another FCR development in project in Yonkers, N.Y.

CoA’s nearly two-year investigation found that executives of FCR played illicit roles in the 2005-2006 bribery scandal that resulted in the federal conviction of two local politicians in Yonkers, N.Y. for securing approval for FCR’s Ridge Hill development project.  The DOJ failed to prosecute, despite being alerted by a 2010 letter from Ranking Member of the House Committee on Oversight and Government Reform Darrell Issa (R-CA) and Ranking Member of the House Judiciary Committee Lamar Smith (R-TX) that raised concerns that “political favoritism” guided the DOJ’s decision “not to pursue legal charges against Forest City Ratner and its employees.”

Dan Epstein, Cause of Action’s executive director commented:

“Our investigation uncovered that not only did FCR violate the law and engage in political profiteering, but the DOJ turned a blind eye to FCR’s criminal activity while the USCIS failed to hold New York State accountable. We can’t rely on these federal agencies to properly apply their own rules and protect the interests of taxpayers, which is why Congress should intervene and investigate these practices.”

Findings from the report include:

  • The New York Department of Labor (NYDOL) and the Empire State Development Corporation (ESDC) manipulated census data in order to create a “targeted employment area” (TEA) for the New York City Regional Center (NYRC) and FCR in violation of U.S. Citizenship & Immigration Services (USCIS) regulations.
  • FCR and NYRC, with the cooperation of New York state elected officials, misleadingly advertised the Atlantic Yards Project to potential investors by keeping the actual purpose of EB-5 funding ambiguous and exaggerating job creation predictions.  EB-5 investors were also misled as to the risk of their investing in the Atlantic Yards project—a potential Federal securities violation.
  • The DOJ failed to prosecute FCR executives who bribed Yonkers City Council Member Sandi Annabi.  FCR executives covered up payments to Yonkers Republican Party Chairman Zehy Jereis under the guise of a consulting contract for “retail hunting” in order to protect themselves from federal criminal liability when, in fact, Jereis’s consulting contract was in exchange for Annabi’s vote approving FCR’s Ridge Hill Project.
  • FCE defended and benefited from eminent domain seizures for private development in California and New York, and spent a combined $350,000 on California ballot initiatives in 2006 and 2008 to back sweeping eminent domain measures to benefit private developers.

In light of these findings, CoA wrote to Chairman Issa of the House Oversight and Government Reform Committee urging the committee to examine USCUS’ treatment of states’ TEA designations and determine whether undue political influence affected DOJ’s decision not to prosecute FCE.

To access our letter, click here

To access Unfair Enrichment: How Forest City Enterprises Acts Above the Law, click here.

To access parts one and two of the investigation, click 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.  

To schedule an interview with Cause of Action’s Executive Director Dan Epstein, contact Mary Beth Hutchins,  202-400-2721 or Jamie Morris, jamie.morris@causeofaction.org.

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REPORT: Unfair Enrichment: How Forest City Enterprises Acts Above the Law

Political Profiteering

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

Part III of III:

Unfair Enrichment: How Forest City Enterprises Acts Above the Law

Download Report

Download Letter to Honorable Darrell E. Issa, Chairman, U.S. House Committee on Oversight and Government Reform

I. Introduction

A new neighbor has moved to your community.  But it is not someone who shares your backyard, a parking space, or neighborhood watch duties.  Rather, this neighbor plans to buy the influence of your mayor, your city council member, and your Senator with campaign contributions.  He wants his political cronies to declare your neighborhood blighted, and condemn its homes and businesses, so that he can build luxury apartment buildings, shopping centers, and a basketball arena.  He wants to congest your streets with thousands of cars and people.  And your new neighbor wants you to pay for it.  He plans to get millions of dollars in public subsidies, tax breaks, and tax-exempt financing by spending enormous amounts lobbying your representatives in government.  Not long after the ink dries on these deals, and public funding is secured, he will sell the development before it is finished, leaving you and your community without the promised public benefits.

Your new neighbor is Forest City Enterprises (FCE), a publicly-traded real estate development company with over $10 billion in assets.  Its business model involves getting unfair deals and making huge profits with the political influence it buys with campaign contributions and, if necessary, bribes.

This third and final report is the culmination of Cause of Action’s (CoA) 18-month investigation of FCE, its business practices, and the influence it wields over communities and public officials through enormous political spending and lobbying.  This investigation involved thorough statistical analyses of millions of dollars in public subsidies, gross and net profits, and campaign spending in federal, state, and local races across the country.  It also required the review of thousands of pages of documents, including legal filings, legal opinions and transcripts; the filing of Freedom of Information Act requests in New York, Texas and the District of Columbia; and telephone and in-person interviews with individuals with personal knowledge of the events that are described herein.

CoA’s first report in this series showed that FCE has a business model that depends upon political profiteering.  FCE consistently uses public money and government influence to reap millions in profit.  Using highly-paid lobbyists, political connections, campaign contributions, and strategic hiring of government officials, FCE obtains lavish public subsidies, tax-exempt financing, and eminent domain condemnations of private land.  Between 2002 and 2012, FCE, its subsidiaries, and its employees spent $23 million on campaign contributions and lobbying at the federal, state, and local level.  In return it received 52 direct and indirect government subsidies or financial benefits totaling at least $2.6 billion.  These subsidies amounted to 23% of FCE’s $11.4 billion revenue during that time.

In its second report, CoA exposed FCE’s pattern of promising local governments that its development projects would generate plentiful jobs, housing, economic development, and tax revenues.  However, once FCE receives public financial support, it often renegotiates or delays implementation of the benefits that it has promised.  FCE promised to create more than 70,000 permanent jobs and 3,750 affordable housing units for projects in Brooklyn and Albuquerque, but has actually produced only 3,000 permanent jobs, in total, and built no affordable housing units.  Meanwhile, FCE took in $277.2 million in public subsidies from those communities after contributing $310,450 to local political candidates and spending over $8.6 million on lobbyists.  In short, FCE lobbies, profits, and then bilks taxpayers by breaching its promises to the community.

This final report details ways in which FCE violated federal law, took advantage of manipulated census data, and poured hundreds of thousands of dollars into funding ballot initiatives supporting eminent domain for private use.  FCE’s New York subsidiary, Forest City Ratner (FCR), appears to have violated federal regulations in order to attract foreign investors to support its $4.9 billion Atlantic Yards development in Brooklyn.  It took advantage of a federal immigration program using manipulated unemployment data and misleading advertising.  In 2012, when the Department of Justice secured convictions of local politicians involved in a bribery scheme that was hatched to get approval of FCR’s development in Yonkers, N.Y., the evidence at trial clearly showed that at least two FCR executives were also involved.  Yet, despite this evidence, no one at FCR was ever prosecuted.  Finally, FCE has benefited from, and actively lobbied to expand, the government’s condemnation of property for private development using eminent domain, the power that allows government to take private property for public use.  All of these activities show that FCE has ignored or subverted legal norms in order to maximize its profits.

While FCE continually looks for opportunities to expand its enterprise across the country, the company and its executives often employ nefarious schemes in order to secure the land, money, and votes needed to secure multi-million dollar development contracts.  In sum, FCE exploits political connections for enormous profits and fails to follow the law—the epitome of political profiteering.

II. Findings

Attracting Investors by Manipulating Unemployment Data: Atlantic Yards And the EB-5 Visa Program

  • Finding:          The New York Department of Labor (NYDOL) and the Empire State Development Corporation (ESDC) manipulated census data in order to create a “targeted employment area” for the New York City Regional Center (NYCRC) and Forest City Ratner (FCR) in violation of U.S. Citizenship & Immigration Services (USCIS) regulations. 
  • Finding:          FCR and NYCRC, with the cooperation of New York elected officials, misleadingly advertised the Atlantic Yards Project to potential investors by keeping the actual purpose of EB-5 funding ambiguous and exaggerating job creation predictions.  Moreover, FCR misled the public by promising that EB-5 would create a substantial number of jobs, despite ESDC predictions to the contrary.
  • Finding:          Job statistics for the Atlantic Yards Project are not based on actual numbers but on estimates derived from economic models and “reasonable methodologies.”  Nevertheless, due to questionable USCIS rules, Atlantic Yards EB-5 investors received credit for job creation.
  • Finding:          The job creation predictions for the Atlantic Yards Project appear to violate federal securities law.  Moreover, NYCRC contracted the same immigration lawyer and economist as GreenTech Automotive, another crony corporation currently under investigation by the Securities and Exchange Commission.

Anatomy of a Bribe: Forest City Ratner and the Ridge Hill Development

  • Finding:          The Department of Justice (DOJ) failed to prosecute FCR executives who bribed Yonkers City Council Member Sandy Annabi.  FCR executives covered up payments to Yonkers Republican Party Chairman Zehy Jereis under the guise of a consulting contract for “retail hunting” in order to protect themselves from federal criminal liability when, in fact, Jereis’s consulting contract was in exchange for Annabi’s vote approving FCR’s Ridge Hill project.  FCR executives made false promises and used political pressure to influence Annabi.
  • Finding:          Evidence at trial showed that Bruce Ratner appears to have participated in the bribery scheme because he gave Jereis the consulting job.
  • Finding:          In 2010, two Members of Congress wrote to U.S. Attorney Preet Bharara about concerns that political favoritism affected DOJ’s decision not to prosecute FCR.  CoA’s investigation reveals that FCE and members of the Ratner family have connections with noteworthy political appointees in the Obama Administration’s Department of Justice, including the U.S. Attorney General.  They made substantial campaign contributions to the Democratic Party and Democratic candidates in New York.

Public Seizures for Private Benefits: Atlantic Yards and Eminent Domain 

  • Finding:          FCE defended and benefited from eminent domain seizures for private development in California and New York.  FCR benefited from eminent domain seizures for its Atlantic Yards Project and New York Times Building.  FCE’s California subsidiary, Forest City Residential West (FCRW), benefited from eminent domain seizures for The Uptown project in Oakland.  FCRW spent a combined $350,000 on California ballot initiatives in 2006 and 2008 to protect broad eminent domain powers that benefit private developers.

Figure 1: The Atlantic Yards Project Targeted Employment Area for EB-5 violates USCIS regulations by crossing all existing political boundaries 

(click to enlarge)

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