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05/27/2015

Nonpartisan Transparency Coalition Asks Federal Trade Commission For Information About Email Use

Cause of Action, along with MuckRock News and National Security Counselors, have submitted a Freedom of Information Act (FOIA) request to the Federal Trade Commission seeking to determine whether agency employees may be attempting to shield government records.

The FOIA specifically seeks “access to all records referring or relating to, but not maintained or hosted on, the domain name ftcexchange.com.”

The existence of this domain was recently confirmed via emails obtained by MuckRock showing that FTC Chairwoman Edith Ramirez lobbied former Sen. Jay Rockefeller to delay important FOIA reform legislation late last year. MuckRock requested those emails based on a tip from Cause of Action.

The emails show not only how the FTC lobbied aggressively against transparency reform, but also that Jeanne Bumpus, the FTC’s congressional liaison, used a non-government email account, ftcexchange.com, to lobby the FTC.

“While this revelation may come as a shock to some, opacity at the FTC is nothing new to us,” said Cause of Action Executive Director Dan Epstein.

On a related note, Cause of Action is currently defending LabMD, a cancer detection facility that is being targeted by the FTC. Throughout our efforts, the FTC has failed to fully cooperate with our requests to view agency communications regarding the case.

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05/27/2015

Cause of Action Asks Federal Court To Reconsider Complaint Filed By Small Business Owner Who Is Being Wrongly Targeted By The Federal Government

This week, Cause of Action filed an opening brief on behalf of Rhea Lana, Inc. and Rhea Lana’s Franchise Systems, Inc. in Rhea Lana v. U.S. Department of Labor (No. 15-5014). The case is now pending in the United States Court of Appeals for the D.C. Circuit.

In a nutshell, Rhea Lana’s is appealing from the district court’s dismissal of its case on procedural grounds. The brief we’re filing explains why the district court erred, and why Rhea Lana’s complaints against the Department of Labor are ready for the district court to consider on the merits. Here is some key background on the case.

Rhea Lana’s is a family-owned business that organizes consignment sales of children’s clothing in 24 states. Rhea Lana’s, like other consignment industry participants, gives its consignors the opportunity to volunteer at consignment events to set up, write price tags, check inventory, and help with sales.

Consignors are typically young stay-at-home mothers, working mothers, and retired grandmothers, and many of them are also interested in shopping at the sales where they contribute clothing. Volunteering gives them the opportunity to shop early and a higher likelihood of selling their own items — not to mention the chance to build friendships with other moms. In short, volunteering is a “win-win” for all concerned.

The Department of Labor, though, wants to put a stop to it. In 2013, the Department notified Rhea Lana’s that its volunteers are actually employees under the Fair Labor Standards Act (FLSA), and are therefore entitled to back wages. The Department also informed Rhea Lana’s that if it doesn’t start treating its volunteers like employees, which would put Rhea Lana’s at a major competitive disadvantage in the industry, Rhea Lana’s would be liable for statutory penalties. Even worse, the Department sent a letter to Rhea Lana’s volunteers telling them that they have a right to sue Rhea Lana’s themselves. Tellingly, none have taken up that offer.

Rhea Lana’s sued the Department, arguing that due process and basic principles of federal administrative law ought to prevent the government from punishing entrepreneurship, undermining the culture of volunteerism, and depriving mothers of the opportunities that volunteering affords.

The United States District Court for the District of Columbia dismissed Rhea Lana’s complaint on November 21, 2014.  Even though the Department has told Rhea Lana’s that it is in violation of the FLSA and liable for penalties if it doesn’t change its business model, the district court held that there hasn’t been any “final agency action” by the Department that’s ready for judicial review.

As Cause of Action’s opening brief shows, though, that’s completely mistaken: The Department’s letters determine Rhea Lana’s rights, effectively order Rhea Lana’s to conduct its business differently, and change Rhea Lana’s legal position for the worse.  That’s all that Rhea Lana’s needed to show, and all that’s required for the district court to reach the merits and decide whether the Department’s bullying can stand.

Looking ahead, the Department’s response brief is due on July 6, 2015. Rhea Lana’s has requested oral argument.

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05/22/2015

Cause of Action Asks Appellate Court to Disallow Government-Sanctioned Abuse of Federal Grant Program in President’s Hometown

By: Laura N. Begun 

This week, Appellant Cause of Action filed a reply brief in Cause of Action v. Chicago Transit Authority, pending in the United States Court of Appeals for the Seventh Circuit.

This case arises from Cause of Action’s investigation into CTA’s long-standing practice of misreporting data used by the Federal Transit Administration to allocate federal grant funds. Cause of Action’s investigation revealed that CTA’s potentially fraudulent reporting from 1982 to 2011 allowed CTA to pocket up to $150 million in undeserved taxpayer dollars. Adding insult to injury, federal officials knew about CTA’s misreporting, yet continued to allow CTA to receive unearned grant funds year after year.

Cause of Action filed suit on behalf of taxpayers pursuant to the False Claims Act (“FCA”), which allows private citizens to sue based on fraud against the federal government. However, the lower court dismissed the case on procedural grounds, finding that the Seventh Circuit’s interpretation of the FCA prevented Cause of Action from the opportunity to prove that CTA committed fraud.

The FCA provides that a case cannot proceed if the lawsuit’s allegations are substantially the same as information that has already been publicly disclosed in a government audit, report, hearing or investigation. Cause of Action disputes that there has been a public disclosure of the information in its complaint. The documents at issue are a state audit report, a private memorandum provided to government officials, and a private letter from the Federal Transit Administration to CTA, and none contain information about a potential fraud.

On appeal, Cause of Action is asking the Seventh Circuit to overturn its interpretation of the FCA’s public disclosure bar, which allows a defendant like CTA to escape liability for knowingly submitting a false claim for federal funds if a responsible government official knew about the wrongdoing, yet did nothing to disallow the claim.

The Seventh Circuit’s interpretation improperly equates a disclosure to the government as a disclosure to the public, contrary to the plain language of the FCA and Congressional intent. This interpretation also contradicts the approach followed by a majority of circuit courts, which require a disclosure of potential fraud to the public at large.

Cause of Action requested oral argument, which the Court could schedule later this summer.

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05/13/2015

New Documents Show How FTC Lobbied Sen. Jay Rockefeller To Kill FOIA Reform

By: Daniel Epstein

Cause of Action led the charge to uncover the information

Yesterday, MuckRock.com released documents obtained through the Freedom of Information Act (FOIA) showing how the Federal Trade Commission (FTC), at the direction of FTC Chairwoman Edith Ramirez, lobbied former U.S. Sen. Jay Rockefeller to hold up FOIA reform legislation late last year.

Sen. Rockefeller is the former chairman of the Senate Commerce Committee – the committee charged with FTC oversight.

Shawn Musgrave at MuckRock.com requested the documents at the suggestion of our organization—Cause of Action, a group that works tirelessly to make the federal government more open and transparent.

While the revelation may come as a shock to some, cronyism and opacity at the FTC is nothing new to us. Prior to yesterday, our organization released documents exposing both the close relationship between the FTC and Sen. Rockefeller, as well as the FTC’s opacity when it comes to FOIA requests.

The documents obtained by MuckRock.com show not only how the FTC lobbied aggressively against transparency reform, but also reflect the heights to which FTC’s opacity – and Sen. Rockefeller’s acquiescence – reach. In fact, Jeanne Bumpus, the FTC’s congressional liaison, used a non-government email account to lobby the FTC: ftcexchange.com.

This isn’t the first case of a government official using a non-government email address to conduct official government business. It is, however, yet another example of how this administration’s “commitment…to usher in a new era of open Government” was little more than lip service.

The FTC Used Sen. Rockefeller As Its Personal Hit Man

Last year, Cause of Action alleged that Sen. Rockefeller was a pawn for the FTC. We produced documents showing that Sen. Rockefeller’s own chief of staff negotiated with Chairwoman Ramirez concerning former House Oversight Committee Chairman Darrell Issa’s investigation into the FTC, an investigation initiated in response to the FTC’s aggressive and fraudulent battle with the cancer detection company LabMD.

In an effort to silence our organization, the FTC motivated Sen. Rockefeller to publicly attack us in a letter to Congressman Issa.

What the documents uncovered yesterday confirm is that the FTC and Sen. Rockefeller shared an extremely cozy relationship whereby the FTC would use the senator as a proxy to fight its battles to kill FOIA reform and to attack us.

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05/6/2015

Witness in LabMD Proceeding Confirms that FTC Never Checked Source of Key Evidence

By: Patrick Massari

After nearly one year, the Federal Trade Commission’s (FTC) enforcement action against LabMD, Inc., a cancer detection company, resumed (In re: LabMD, Inc., No. 9357). After much anticipation, LabMD called to the stand Richard Wallace, a former employee turned whistleblower of Tiversa, Inc. (the company that provided the primary evidence relied upon by the FTC in bringing this enforcement action). According to LabMD’s attorney Reed Rubinstein, Wallace’s testimony confirmed that “the FTC action was based on manufactured evidence.”

Specifically, the FTC’s case has hinged on whether a LabMD file with confidential patient information was located on a publicly available network. Wallace testified in open court that although Tiversa told FTC that it located the file at various IP addresses, this simply was not true. To the contrary, Wallace said that Tiversa sought to “monetize” a business model where it would fabricate IP addresses where confidential information was available. According to Wallace, Tiversa would then contact the “offending” company with a proposal to pay money to Tiversa to remediate the cybersecurity threat, or face prosecution from the FTC for violating federal laws regarding data security practices. When LabMD refused to pay Tiversa, Tiversa’s CEO Robert Boback “basically said F him, make sure he’s at the top of the list.” According to Wallace, the list (given to FTC) identified companies that refused to hire Tiversa, but for which Tiversa fabricated IP addresses with confidential information.

With regard to the primary exhibit upon which FTC’s case rests, Walllace confirmed the Judge’s insightful observation that “[Exhibit] CX 19, these four IP addresses were created by you and they’re actually for all practical purposes they’re fake as far as the aging file was not found on these [four] IP addresses…” Wallace added: “…the actual files that were doctored up were never provided to LabMD. They just — I just had to put them in the data store so they would look real.” Despite the opportunity, FTC chose not to question Wallace at this time.

This testimony supports the assertion that FTC never fulfilled its obligation to confirm the key information upon which it relied to bring this enforcement action, which, for all practical purposes, has ended LabMD’s business. Indeed, it confirms what LabMD has argued in motions and publicly since September 2013: that FTC’s case against LabMD is based upon a crime – the theft of LabMD’s confidential medical files – and a lie – Tiversa misled Congress, FTC, and LabMD in misrepresenting that the file was available on other IP addresses.

At this time, the parties await FTC’s decision on whether it intends to present more testimony in light of LabMD’s case, and Wallace’s testimony.

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05/6/2015

Cause of Action Renews Request for Review of Department of Justice’s Asset Forfeiture Program

By: Josh Schopf

Cause of Action today sent a letter to the Inspector General for the Department of Justice (DOJ IG), renewing its request for an investigation of DOJ’s asset forfeiture program. In response to a prior letter from Cause of Action, the DOJ IG announced in January 2015 that it was conducting a review of its asset seizure activities. This review, however, does not examine administrative seizures, or the civil liberties threats that result from such seizures, even though administrative seizures comprise the majority of adoptions.

Cause of Action also demanded an immediate investigation of Desert Snow, LLC, an approved federal contractor involved in asset seizure and training activities. Specifically, Desert Snow’s founders created a program known as Black Asphalt, which was used for a government-run license-plate tracking system, and enabled more than 25,000 officers and federal authorities throughout the country to share reports about American motorists, many of whom had not been charged with any crimes. The purported goal of the license-plate tracking program, run by the DEA, is to seize cars, cash and other assets to help combat drug trafficking. But the breadth of the program has expanded, and is now being used in connection with potential crimes and is being accessed by numerous state and local law-enforcement agencies. Congress has questioned license-plate tracking systems and other surveillance programs, but reports indicate that the program continues to expand, and that Desert Snow continues to receive federal funds, including from DOJ.

Cause of Action is asking the DOJ IG to investigate Asset Forfeiture Program contractors and systems, including but not limited to, Desert Snow, Black Asphalt, and license plate tracking systems.

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04/29/2015

HHS Inspector General Finds Potential Misuse of Obamacare Federal Grant Dollars

By: Aram Gavoor

The Inspector General for Health and Human Services, Daniel R. Levinson (HHS IG), sent a letter this week to Centers for Medicare & Medicaid Services (CMS) expressing concern that Obamacare state exchanges (State-based marketplaces or SBMs) may be unlawfully spending federal grant dollars to fund operations.  The HHS IG identified the issue in the midst of audits of establishment or startup grant monies disbursed to SBMs.

The violation of the law is under Section 1311(a) of the Affordable Care Act (ACA), which requires that since January 1, 2015, SBMs must be self-sustaining.  According to the HHS IG: “We have concerns that, without more detailed guidance from CMS, SBMs might have used, and might continue to use, establishment grant funds for operating expenses after January 1, 2015, contrary to law.”

This is not, however, the first time that ACA grant funds have potentially been misused.

In September 2014, Cause of Action exposed the fraudulent misuse of Navigator grant funds by Southern United Neighborhoods (SUN) in light of allegations that United Labor Unions Local 100 (ULU), a federal subgrantee of SUN, directed an ACA navigator, paid with federal grant funds, to recruit members for ULU in Texas.

In a letter to the HHS IG requesting an investigation and audit of SUN, Cause of Action explained that a former employee of SUN filed a class action lawsuit in which he sought damages for unpaid overtime for himself and other putative class members under federal labor law.  He alleged that SUN and ULU shared control of the terms and conditions of his Navigator duties, and that he was directed by the labor union to recruit new ULU members by engaging cafeteria workers at schools in the course of his ACA work.  OMB Circular A-133 and relevant HHS regulations mandate that federal grand funds may only be used for approved programmatic purposes, which does not include such behavior.

Cause of Action is cautiously optimistic that SUN and ULU will be held accountable for their potential misuse of ACA grant money.  The HHS IG recently sent a letter to Cause of Action, confirming that there is an “open and ongoing investigation concerning this matter.”  Both of these instances evince the need for the HHS IG to conduct a robust investigation/audit into the misuse of Obamacare funds.

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