U.S. Accuses S.&P. of Fraud in Suit on Loan Bundles

The offices of Standard & Poor’s in New York.

Πηγή: Dealbook
By ANDREW ROSS SORKIN AND MARY WILLIAMS WALSH
Feb 3 2013

The Justice Department late Monday filed civil fraud charges against the nation’s largest credit-ratings agency, Standard & Poor’s, accusing the firm of inflating the ratings of mortgage investments and setting them up for a crash when the financial crisis struck.

The suit, filed in federal court in Los Angeles, is the first significant federal action against the ratings industry, which during the boom years reaped record profits as it bestowed gilt-edged ratings on complex bundles of home loans that quickly went sour. The high ratings made many investments appear safer than they actually were, and are now seen as having contributed to a crisis that brought the financial system and the broader economy to its knees.

More than a dozen state prosecutors are expected to join the federal suit, and the New York attorney general is preparing a separate action. The Securities and Exchange Commission has also been investigating possible wrongdoing at S.& P.

From September 2004 through October 2007, S.&P. “knowingly and with the intent to defraud, devised, participated in, and executed a scheme to defraud investors” in certain mortgage-related securities, according to the suit filed against the agency and its parent company, McGraw-Hill Companies. S.&P. also falsely represented that its ratings “were objective, independent, uninfluenced by any conflicts of interest,” the suit said.

S.& P., which was first contacted by federal enforcement officials three years ago, said in a statement earlier Monday in anticipation of the suit that it had acted in good faith when it issued the ratings.

“A D.O.J. lawsuit would be entirely without factual or legal merit,” it said, adding that its competitors had given exactly the same ratings to all the securities it believed to be in question.

Settlement talks between S.& P. and the Justice Department broke down in the last two weeks after prosecutors sought a penalty in excess of $1 billion and insisted that the company admit wrongdoing, several people with knowledge of the talks said. That amount would wipe out the profits of McGraw-Hill for an entire year. S.& P. had proposed a settlement of around $100 million, the people said.

S.& P. also sought a deal that would allow it to neither admit nor deny guilt; the government pressed for an admission of guilt to at least one count of fraud, said the people. S.& P. told prosecutors it could not admit guilt without exposing itself to liability in a multitude of civil cases.

It was unclear whether state and federal authorities were looking at the other two major ratings agencies, Moody’s Investors Service and Fitch.

A spokesman for Moody’s declined to comment. A spokesman for Fitch, Daniel J. Noonan, said the agency could not comment on an action that appeared to focus on Standard & Poor’s, but added, “we have no reason to believe Fitch is a target of any such action.”

The case against S.& P. is said to focus on about 30 collateralized debt obligations, or C.D.O.’s, an exotic type of security made up of bundles of mortgage bonds, which in turn were composed of individual home loans. The securities were created at the height of the housing boom. S.& P. was paid fees of about $13 million for rating them.

Prosecutors, according to the people briefed on the discussions, have uncovered troves of e-mails written by S.& P. employees, which the government considers damaging. The firm gave the government more than 20 million pages of e-mails as part of its investigation, the people with knowledge of the process said.

Since the financial crisis in 2008, the ratings agencies’ business practices have been widely criticized and questions have been raised as to whether independent analysis was corrupted by Wall Street’s push for profits.

A Senate investigation made public in 2010 found that S.& P. and Moody’s used inaccurate rating models from 2004 to 2007 that failed to predict how high-risk residential mortgages would perform; allowed competitive pressures to affect their ratings; and failed to reassess past ratings after improving their models in 2006.

The companies failed to assign adequate staff to examine new and exotic investments, and neglected to take mortgage fraud, lax underwriting and “unsustainable home price appreciation” into account in their models, the inquiry found.

“Rating agencies continue to create an even bigger monster — the C.D.O. market,” one S.& P. employee wrote in an internal e-mail in December 2006. “Let’s hope we are all wealthy and retired by the time this house of card falters.”

Another S.& P. employee wrote in an instant message the next April, according to the Senate report: “We rate every deal. It could be structured by cows and we would rate it.”

The three major ratings agencies are typically paid by the issuers of the securities they rate — in this case, the banks that had packaged the mortgage-backed securities and wanted to market them. The investors who would buy the securities were not involved in the process but depended on the rating agencies’ assessments.

Although the three agencies tend to track one another, each has its own statistical methods for assessing the likelihood of a bond default. That has led to speculation that S.& P. analysts knew their method yielded unrealistic ratings, but issued the ratings anyway.

In its statement on Monday, S.& P. said it had begun stress-testing the mortgage-backed securities it rated as early as 2005, trying to see how they would perform in a severe market downturn. S.& P. said it had also sent out early warning signals, downgrading hundreds of mortgage-backed securities, starting in 2006. Nor was it the only one to have underestimated the coming crisis, it said — even the Federal Reserve’s open market committee believed at the time that any problems within the housing sector could be contained.

The Justice Department, the company said, “would be wrong in contending that S.& P. ratings were motivated by commercial considerations and not issued in good faith.”

For many years, the ratings agencies have defended themselves successfully in civil litigation by saying their ratings were independent opinions, protected by the First Amendment, which guarantees the right to free speech. Developments in the wake of the financial crisis have raised questions about the agencies’ independence however. For example, one federal judge, Shira A. Scheindlin, ruled in 2009 that the First Amendment did not apply in a lawsuit over ratings issued by S.& P. and Moody’s, because the mortgage-backed securities at issue had not been offered to the public at large. Judge Scheindlin also agreed with the plaintiffs, who argued the ratings were not opinions, but misrepresentations, possibly the result of fraud or negligence.

The federal action will be the first time a credit-rating agency has been charged under a 1989 law intended to protect taxpayers from frauds involving federally insured financial institutions, which since the financial crisis has been used against a number of federally insured banks, including Wells Fargo, Bank of America and Citigroup.

The government is taking a novel approach in this instance by accusing S.& P. of defrauding a federally insured institution and therefore injuring the taxpayer.

The government is expected to cite the demise of Wescorp, a federally insured credit union in Los Angeles that went bankrupt after investing in mortgage securities rated by S.& P. Wescorp will be showcased as an example of the contended fraud, and as a way to bring the case in California, people with knowledge of the proceedings said. The suit was filed in Federal District Court fore the Central District of California.

By bringing a civil suit, as opposed to a criminal case, the Justice Department’s burden of proof will be less, perhaps lowering the bar for a successful prosecution.

Deutsche Bank offices raided in carbon tax fraud probe

Deutsche Bank is Germany's biggest lender

Πηγή: BBC
Dec 12 2012

German prosecutors have raided offices belonging to Deutsche Bank as part of an investigation into a tax evasion scheme involving the trading of carbon permits.

The Frankfurt prosecutor's office said 25 employees of the bank were suspected of serious tax evasion, money laundering and obstruction of justice.

Arrest warrants have been issued for five of those employees.

Deutsche Bank said it was co-operating fully with the authorities.

"Public prosecutors searched Deutsche Bank offices today in connection with investigations that have been under way since the spring of 2010 against individuals suspected of tax evasion in the trading of CO2 emission certificates," Germany's biggest bank said in a statement.

Prosecutors said 500 police officers swooped on Deutsche Bank offices and private properties in Frankfurt, Berlin and Duesseldorf.

About 20 police minibuses and two large coaches were parked outside the bank's Frankfurt headquarters, where tax inspectors were seen leaving the building carrying backpacks and suitcases

Last year, a German court jailed six men over a 300m euro ($391m; £249m) fraud selling carbon emission permits through Deutsche Bank.

They bought the permits overseas and paid no tax, then resold the permits to each other to claim back tax illegally.

Under EU rules, limits are set on the amount of carbon dioxide companies emit, and those polluting less can sell 'credits' to those that need more.

Narco-State Run Kabul Bank Is One Major Ponzi Scheme, Surprised?!

Πηγή: StratRisks
Nov 30 2012

COMPLEX scheming by the authorities and shareholders of Kabul Bank to siphon hundreds of millions of dollars from savings accounts caused its collapse in 2010 and nearly took the Afghan financial system down with it, according to a report on Wednesday.

Weak regulatory oversight missed the early warning signs, the report found, and there was “inappropriate political interference” during the investigations into the bank’s fiasco.

The review by Independent Joint Anti-Corruption Monitoring and Evaluation Committee said a number of shareholders, administrators, employees, and others participated in a complex scheme to divert depositor funds beginning in 2006.

They led “a sophisticated operation of fraudulent lending and embezzlement through a loan book scheme” resulting in the loss of $935m funded mostly from customer’s deposits, the report said.

It detailed for the first time how the funds were misappropriated. Tactics included unjustifiable disbursements, fake capital injections, salaries paid to non-existent employees, payment for fake assets and political contributions.

Kabul Bank was the biggest bank in Afghanistan at the time of its collapse, with a 34% stake in the country’s banking sector. More than 1-million people were depositing their money. The failure and government bail-out amounts to 5% of Afghanistan’s gross domestic product.

The report found that more than 92% of Kabul Bank’s loan book — approximately $861m — was fraudulently disbursed to 12 individuals and seven companies. One set of books was allegedly prepared for regulators while another kept track of the real distribution of the money.

The bank officials also used fake stamps, forged documents and statements, some of which were provided by fake accounting firms, the report said.

The bank was effectively running a ponzi scheme, MEC co-chairman Drago Kos said.

At least $900m — which includes a large chunk of $861m bad debt — was siphoned from Kabul Bank through wire transfer that went to the accounts of parties or businesses related to the suspects and shareholders, Mr Kos said.

According to the report, the pilots were paid $320,000 in salaries between March 2008 and November 2010 under the heading “Pilots of Cash Delivery”.

The inquiry also found evidence that regulatory bodies “who should have been completely independent” were “deferring questions to the political authorities”, Mr Kos said.

The committee’s report criticised the Afghan Attorney General’s office for delaying the start of the formal investigation for more than a year, saying “political decisions were made by high-ranking officials” in office, including who to indict and what the indictment should state.

There was no evidence of Afghan President Hamid Karzai being directly involved. The brother of Vice-President Marshal Fahim benefited due to one of Mr Karzai’s decisions, an official said on condition of anonymity.

Mr Fahim’s brother was one of two “politically exposed” shareholders in the Kabul Bank, the official said, the other being Mr Karzai’s half-brother.

Like several others, they paid for their shares in the company with unsecured loans from the bank itself, according to the report.

Credit Suisse faces NY lawsuit

Πηγή: FT
By Shahien Nasiripour in Washington and Tom Braithwaite
Nov 20 2012

The New York attorney-general is preparing to file a lawsuit against Credit Suisse, alleging the Swiss bank misled investors who lost more than $11bn on mortgage-backed securities.

In the lawsuit, which is expected to be filed this week, Credit Suisse faces claims that it misled investors regarding its due diligence practices on home loans it packaged into bonds, people familiar with the matter said.

The bank also allegedly misled investors over the lending practices of the loan originators it worked with, the lawsuit is to claim.

Eric Schneiderman, the New York attorney-general, has been investigating several banks and last month sued JPMorgan, alleging it misled investors who lost more than $20bn on mortgage-backed securities.

His activities have been seen as part of a last push by state and federal authorities to call banks to account for alleged wrongdoing in the run-up to the financial crisis.

His state’s powerful Martin Act allows Mr Schneiderman to bring cases without having to show that the accused intended to commit fraud. It also allows him to operate across state lines, essentially acting on behalf of investors across the US.

Mr Schneiderman’s claims concern mortgages that Credit Suisse packaged into more than 60 mortgage-backed securities and sold to investors. In some securitisations, about 30 per cent of the loans ultimately went into default. Overall, investors have incurred losses on about 12 per cent of $93bn in loans.

New York’s top prosecutor is to allege that the bank did not conduct proper due diligence on the loans it ultimately sold, in some cases selling investors loans it knew to be faulty.

Mr Schneiderman also is to claim that Credit Suisse incentivised lenders to originate more loans, which led to bad lending practices. The bank allegedly told investors it worked to ensure that its lenders abided by proper lending standards.

Both the New York attorney-general’s office and Credit Suisse declined to comment.

The impending Credit Suisse complaint follows the creation of a presidential working group into mortgage fraud, which was widely seen as an attempt to file big cases before the US elections in November.

Mr Schneiderman last month sued JPMorgan for allegedly defrauding issuers who lost more than $20bn on mortgage-backed securities written by Bear Stearns, the investment bank purchased by JPMorgan in early 2008.

Credit Suisse is expected to fight the charges.

Why Does the SEC Protect Banks’ Dirty Secrets?

Illustration by Pete Gamlen

Πηγή: Bloomberg
By William D. Cohan
Oct 28 2012

Remember Richard Bowen?

He is the former senior executive at Citigroup Inc. (C) who in November 2007 issued a clarion call to his colleagues and Citi’s board that a major credit-quality problem loomed for the bank.

About William D Cohan

William D. Cohan is the author of the recently released "Money and Power: How Goldman Sachs Came to Rule the World" and the New York Times bestsellers "House of Cards" and "The Last Tycoons."More about William D Cohan

Bowen was the chief underwriter in the business unit that bought some $50 billion annually in home mortgages from third parties that were then bundled up and sold as securities to investors the world over. On Nov. 3 he sent an “urgent” e-mail to executives including Robert Rubin, the former U.S. Treasury secretary who was then chairman of the bank’s executive committee, and Gary Crittenden, the chief financial officer, raising concerns about “breakdowns in internal controls and resulting significant but possibly unrecognized financial losses existing within our organization.”

Bowen wrote that he had been “agonizing for some time” about the problem, especially since his direct superiors at the bank, whom he had warned repeatedly since he first discovered the problem in mid-2006, had done little or nothing to remedy it. What he had discovered was that 60 percent of the home mortgages that Citigroup had bought from third parties, or $30 billion, were “defective,” meaning that they didn’t meet Citigroup’s underwriting criteria. Nevertheless, they were still packaged up -- defects and all -- and sold as securities.

Almost Nothing

You know where this is going. The Citigroup executives did next to nothing. Rubin, who left the company in January 2009, told the federal Financial Crisis Inquiry Commission on April 8, 2010, that “either I or somebody else sent it to the appropriate people, and I do know factually that that was acted on promptly and actions taken in response to it.” Commission Chairman Phil Angelides asked Rubin to follow up with his commission and explain precisely what actions Citigroup took in response to Bowen’s e-mail. A few months later, Rubin’s attorneys sent a letterstating that the “e-mail was subsequently passed on to the appropriate personnel at Citigroup” and that “Citigroup should be able to provide a description of its response to Mr. Bowen’s concerns.” A Nixonian response if ever there was one.

Citigroup’s attorneys, in turn, wrote to the commission in November 2010 that the bank had responded to Bowen’s e-mail by firing “the head of the group” responsible for evaluating the credit quality of the purchased mortgages -- actually, Bowen had done that already -- and by putting in place a bunch of new “processes.” Yet according to a July 2012 article in Bloomberg Markets magazine by Bob Ivry about Sherry Hunt, who worked for Bowen, “There were no noticeable changes in the mortgage machinery as a result of Bowen’s warning.”

By the time of Rubin’s FCIC testimony, of course, Citigroup had been bailed out with $45 billion in cash from the American people, along with another $306 billion in guarantees from the federal government for a pot of the very same toxic home mortgages that Bowen had warned about. Rubin pocketed $126 million in his 10 or so years at the company. Bowen, who was stripped of his responsibilities at Citigroup soon after writing the infamous e-mail, left the company two weeks after Rubin. He now teaches accounting at the University of Texas at Dallas.

Warning Ignored

As horrific as it was for Rubin, Crittenden and others to ignore Bowen’s explicit warning, that’s not the end of the story. As part of blowing the whistle on Citigroup’s bad behavior, Bowen also alerted the Securities and Exchange Commission, the bank’s main regulator, hoping it would thoroughly investigate the “breakdowns of internal controls” and take legal action against those responsible. Before the bailout of Citigroup, he gave the SEC two long depositions and 1,000 or so pages of documents, some of which were taken from the Internet, detailing the extent of Citigroup’s problems and Bowen’s attempts to rectify them. Importantly, he said he also gave his permission for the SEC to release to the public his depositions and the revealing documents.

Naturally, the SEC did nothing to pursue Bowen’s claims before billions of taxpayer dollars were used to rescue Citigroup. But it must abide by the Freedom of Information Act, which allows the public to gain access to documents such as those Bowen provided. It has a horrendous track record of fulfilling FOIA requests in anything like a timely manner. My experience has been that the agency begrudgingly gives out the bare minimum long after I really needed it.

Earlier this year, Bloomberg’s Ivry filed a FOIA request with the SEC to get copies of Bowen’s two depositions and the 1,000 pages of documents. Ivry wanted to know just what Bowen had discovered about Citigroup’s bad behavior in the years leading up to its bailout. Initially, the SEC stonewalled, claiming that the Bowen cache amounted to Citigroup “trade secrets.”

When Ivry finally got his FOIA documents back from the SEC, he was underwhelmed. “It was a discussion about nothing and it was heavily redacted, including Bowen’s name,” Ivry told me via e-mail. Needless to say, he was unable to get any additional insight into what Bowen had uncovered and was unable to inform the rest of us.
Unreleased Documents

When I told Bowen, earlier this week, that the SEC had failed to release his documents and his testimony about Citigroup to Ivry, he was flabbergasted. For legal reasons, Bowen said, he can’t share the information directly, but he fully expected the SEC to make it available to journalists and the public. He also expected the SEC to investigate the wrongdoing.

“I’m outraged, quite frankly,” Bowen told me. “I had been told that once the investigations were concluded that my material would be available to the public via FOIA. And to hear now that the SEC has made the decision that no, it cannot be available, I know nothing about the legal side of this, but quite frankly, I’m totally outraged.”

Last week, I filed my own FOIA request for Bowen’s documents and testimony. On Oct. 22, I received an acknowledgement letter from the agency. My tracking number is 13-00937-FOIA. Trust me, I’ll let you know if the SEC gives me anything more than it gave Ivry. But I won’t be counting on it.

Wells Fargo sued for million dollar mortgage fraud

Wells Fargo is the biggest mortgage lender in the US

Πηγή: BBC
Oct 10 2012

The US government has filed a lawsuit against Wells Fargo bank for mortgage fraud.

The suit alleges that the bank lied about the quality of mortgages it handled leading to huge losses for the government when the loans went bad.

It is seeking damages for hundreds of millions of dollars in insurance claims already paid to Wells Fargo by the Federal Housing Administration (FHA).

Wells Fargo has denied the allegations.

The civil complaint has been submitted by the US Attorney in Manhattan.

Wells Fargo, which is the biggest mortgage lender in the US, is alleged to have misrepresented the quality of loans in order to qualify for loan insurance from the FHA.

The insurance meant that when the loans went bad, the bank could ask the government agency to cover their losses.

"As the complaint alleges, yet another major bank has engaged in a longstanding and reckless trifecta of deficient training, deficient underwriting and deficient disclosure, all while relying on the convenient backstop of government insurance," said Manhattan US Attorney Preet Bharara.

An Alarming Two Thirds of All Scientific Publications and Research Retracted Found to Be Fraudulent

Country of origin of publications retracted

 for fraud or suspected fraud

Πηγή: Globalist Report
By Andrew Puhanic
Oct 2 2012

AN astonishing two-thirds of all biomedical and life-science research publications and research articles that have been retracted from the public domain have been retracted because of fraud.

An article published in the Proceedings of the National Academy of Sciences of the United States of America reviewed more than 2000 scientific articles for reasons why they were retracted from public scrutiny and discovered that67.4% of retractions were attributed to misconduct, of which includes fraud or suspected fraud (43.4%), duplicate publication (14.2%) and plagiarism (9.8%).

Also, the number of articles retracted from circulation has increased 10 times since 1975.

So what is biomedical and life-science research? According to Wikipedia, Biomedical research (or experimental medicine), is known as medical research, is the basic research, applied research, or translational research conducted to aid and support the body of knowledge in the field of medicine.

Most of the publications were published by authors from more than 55 countries. Of the 2,047 publications analysed, an unprecedented two-thirds of the publications retracted because of fraud or suspected fraud were from the United States, Germany, Japan and China.

The top three publications that had the most retracted entries were:
Journal of Science
Proceedings of the National Academy of Sciences
The Journal of Biological Chemistry

However, the most alarming statistic from this publication is the fact that on average it took more than 32 months for the publications and research articles to be discovered and withdrawn.

Publications and research articles retracted because of fraud took an average 46 months to be discovered and withdrawn.

So what’s so alarming about having publications and research articles in circulation for so long before being discovered to be fraudulent? Well, the major problem is that decisions and policy development could be falsely derived from one of these publications, resulting in public policy based on false assumptions.

How many publications and research articles based on global warming and climate change have been and should be retracted because of fraud?

The authors of the article suggest that ‘the surge of retractions suggests a need to re-evaluate the incentives driving this phenomenon’ and presents solutions to resolve the phenomenon such as:

• Increased use of check-lists.
• Improved training in logic, probability and statistics.
• Enhanced focus on ethics.
• The formation of a centralized database of scientific misconduct.
• The establishment of uniform guidelines for retractions and retraction notices.

At the end of the day, the authors of these fraudulent publications are human, and it should be expected from time to time that mistakes will happen.

However, all of these peer-reviewed publications can exert great influence on decisions and the attitudes of many people, therefore the public should in no way tolerate such an epidemic.

Goldman Sachs: the bank that thought it ruled the world

Finance sector stocks tumbled after Goldman Sachs was accused of fraud

Πηγή: The Telegraph
By Harry Wilson
July 19 2012

'Long-term greedy” was the phrase that Sidney Weinberg, Goldman Sachs’s legendary managing partner from the 1930s to the 1960s, used to describe the American investment bank’s overarching strategy. Such a pious mission statement from a corporate titan would make a modern audience balk. However the phrase neatly encapsulates the way that Goldman Sachs has operated over the past 80 years, a period in which it has risen from being a little-known, slightly scrubby broker to the world’s most profitable, powerful and controversial financial institution.

When Lloyd Blankfein, Goldman Sachs’s current chairman and chief executive, was caught saying last year that the bank was doing “God’s work”, the contrast between Goldman Sachs’s own view of its business and what the rest of the world thought of it was vividly demonstrated.

His comments came just weeks after the firm was memorably described in an article in Rolling Stone magazine as a “vampire squid wrapped around the face of humanity relentlessly jamming its blood funnel into anything that smells like money”. Doing God’s work is the last thing most think Goldman Sachs is up to.

As Philip Pullman writes in his latest book, The Good Man Jesus and the Scoundrel Christ, “As soon as men who believe they’re doing God’s will get hold of power, whether it’s a household or a village or in Jerusalem or in Rome itself, the devil enters into them.”

Last Friday, those who believed that the devil was running the show at Goldman Sachs finally received the news they had been waiting for. America’s Securities and Exchange Commission (SEC) said that it was investigating the bank for misleading investors in so-called collateralised debt obligations, a complex financial product sold by the bank during the boom years of the Noughties.

Goldman Sachs immediately hit back, saying that it would “vigorously” contest the case. However some will have found it hard to hide a feeling of Schadenfreude that at last a bank that at its peak was worth more than $100 billion (£65 billion) was finally being brought to heel.

The story of the bank over the past decade has been one of inexorable rise. In the 1980s Salomon Brothers, now part of the American banking behemoth Citigroup, was the bank to beat on the global stage. In the 1990s a cluster of largely American firms vied for supremacy after the demise of Salomon’s, brought down in part by being found guilty of rigging bond market auctions. The 2000s, however, undoubtedly belonged to Goldman Sachs.

In whichever market observers cared to look at, whether it be share trading, bond trading, corporate advisory or securities underwriting, Goldman Sachs was either at the top or running a close second. Its success was born of a combination of brutally hard work, an undoubted ability to attract the best young minds and that undefinable X-factor that comes from being acknowledged as the best game in town.

“No one ever got fired for hiring Goldman Sachs” is still one of the markets’ mantras. Indeed it has been said that the bank was often hired by companies to advise them only because they were afraid that it might end up working for a rival.

For all its reputation, there has always been at least a hint that some of Goldman Sachs’s success had less to do with its market nous and more to do with its connections. After Lehman Brothers was allowed to file for bankruptcy in September 2008, Goldman Sachs, along with Morgan Stanley, was allowed to convert itself into a bank holding company just weeks later. This gave it access to tens of billions of dollars of government lending. One did not need to be a conspiracy theorist to point out that US Treasury Secretary Henry “Hank” Paulson – the man in charge of the bail-out – was the bank’s former chief executive.

This impression was not helped when Mr Paulson selected Neel Kashkari, a youthful former Goldman Sachs executive, to run the American government’s Troubled Asset Relief Programme, the equivalent of Britain’s Asset Protection Scheme. The move put him in charge of hundreds of billions of dollars of American taxpayers’ money. Again, Goldman Sachs was a beneficiary.

The American authorities’ case against Goldman Sachs prominently features another young Goldman Sachs banker, a French-born 31-year-old called Fabrice Tourre. Mr Tourre, who referred to himself in emails published by the SEC as “the fabulous Fab”, is alleged to have sold a debt product that he knew would fail to a group of investors, mainly large banks, including ABN Amro, now part of Royal Bank of Scotland.

Mr Tourre is alleged to have allowed another Goldman Sachs client, American hedge fund Paulson & Co, to select the complex bonds that were put inside the product. The SEC alleges that Goldman Sachs did this so that Paulson & Co could make money by betting that the bonds would fall in value (Paulson & Co has not been accused of any wrongdoing).

Goldman Sachs’s strong links with hedge funds have always aroused suspicion; however, the bank has argued that it has highly effective internal “Chinese walls”, barriers that stop employees from sharing information that might allow them or a client to trade on insider information.

The significance of the latest allegations is twofold. First, they suggest that Goldman Sachs was favouring one client over another. This is particularly resonant as Paulson & Co was one of the most high-profile success stories of the financial crisis and recently the subject of a best-selling book, The Greatest Trade Ever. The book detailed how Paulson & Co founder John Paulson made billions of dollars shorting the American sub-prime market.

Second, the allegations imply that Goldman Sachs made money from the travails of its own customers. It is often pointed out that the bank makes far more money from trading with its own money than it does from advising its clients. This so-called proprietary trading involves the firm putting billions of dollars of its own capital at risk by buying stakes in assets as diverse as golf courses – the firm was once the largest owner of golf courses in Japan – to oil and ships.

In the case of the sub-prime market, it is now well-known that Goldman Sachs, unlike almost all of its Wall Street rivals, took an early decision around 2006 to begin betting against the American housing market.

The SEC’s allegations suggest that these trades might have involved not just canny positioning by the bank, but actively putting its clients into trades that it knew would lose them money.

What this means for the future of Goldman Sachs is still too early to say. At best, the bank will be one of many financial institutions that become embroiled in a series of investigations relating to this issue – Britain’s own Financial Services Authority is already reported to be starting its own investigation into the matter. Finding safety in numbers would allow Goldman Sachs to argue that it was just doing what everyone else was.

It would be more serious, however, if the SEC’s investigation remained an isolated incident. If this was the case it could mark the beginning of the end for Goldman Sachs, going the same way as other investment banks that sailed too close to the wind and sank. Who now, aside from those with a long memory and an interest in markets, remembers Salomon Brothers or Drexel Burnham Lambert?

As one Goldman Sachs partner, quoted in Charles Ellis’s history of the bank The Partnership, said: “Only looking back could we see the real risk – the risk of arrogance. We didn’t see it then, but it was there and it was growing.

“The firm was at the top. We had always been the best – always the top students and the best athletes and the class leaders. And now we were the best firm – in our self-appraisal. But that was the first step towards arrogance.”

Pharmaceutical Giant GSK to Pay $3B in Largest-Ever Health Care Fraud Case

The company logo of GlaxoSmithKline, is seen on the headquarters building in London.

Πηγή: abc
By PIERRE THOMAS

July 2 2012

Healthcare giant GlaxoSmithKline has agreed to an unprecedented $3 billion settlement with the U.S. government over allegations that the company advertised drugs for uses not approved by the Food and Drug Administration and then used lavish gifts to convince doctors to prescribe the drugs.

The multi-billion dollar settlement is the largest in U.S. history for alleged healthcare fraud, government officials said.



In one instance, a drug was widely promoted to help treat depression even though the FDA had never tested it for such a use, according to the Department of Justice. In another, prosecutors said GlaxoSmithKline, or GSK, advertised the drug Paxil for use on children, despite the FDA not having approved antidepressant for anyone under 18. A notice posted on the website for the U.S. National Library of Medicine warned that a small number children to young adults taking Paroxetine -- which is sold under the brand name Paxil -- in clinical studies "became suicidal."

The government also said that GSK failed to report relevant safety information about the popular diabetes treatment Avandia to the FDA and even directly paid medical professionals to push the product on doctors for its alleged benefits for the heart -- even though GSK had no scientific data to back up that claim.

In all, GSK pleaded guilty to three criminal charges for which it will pay $1 billion and another $2 billion will be paid in civil liabilities under the False Claims Act.

GSK is a major manufacturer of prescription medication, vaccines and consumer healthcare products. On its website, the company boasts, "every minute more than 1,100 prescriptions are written for GSK products."

In a 2011 Corporate Responsibility Report, GSK addressed the government's allegations broadly, saying, "Some people are concerned that marketing by pharmaceutical companies may exert undue influence on doctors, that sales representatives may not always give doctors full information about the products they are promoting, or that there may be promotion of medicines for unapproved uses."

GSK goes on in that document to say that the company has "fundamentally changed our procedures for compliance, marketing and selling in the USA to ensure that we operate with high standards of integrity and that we conduct our business openly and transparently."

But critics at the Taxpayers Against Fraud non-profit group said that while recovering the money was a positive step, little is being done on a personal level to combat widespread fraud from the industry's top moneymakers – including putting executives behind bars.

"The bad news is that monetary penalties are not enough to stop rampant fraud... If we want to stop fraud, we need to recover America's stolen billions and we need to make sure that key players lose their jobs, their bank accounts, and their freedom," said Patrick Burns of Taxpayers Against Fraud. "Once the pain is personal and well-timed, the change in conduct in fraudster-companies will be very rapid."

CLICK HERE for several documents related to the case provided by the U.S. Department of Justice.

FBI takes Madoff into custody; NY judge to hear guilty plea from brother of financial villain

In this April 3, 2009 file photo, Peter Madoff exits State Supreme Court in Mineola, N.Y. The brother of Ponzi scheme king Bernard Madoff will plead guilty on Friday, June 29, 2012, to conspiracy and falsifying records, admitting his role in the multibillion-dollar fraud that destroyed the savings of thousands of investors, prosecutors told a judge on Wednesday, June 27, 2012.

Πηγή: Washington Post
By AP
June 29 2012

NEW YORK — The younger brother of disgraced financier Bernard Madoff — the loyal No. 2 at an investment firm that fronted a multibillion-dollar Ponzi scheme — pleaded guilty Friday to charges he doctored documents that helped conceal a fraud that wiped out thousands of investors.

Peter Madoff, 66, entered the plea Friday as part of a deal expected to result in a 10-year prison term. He had been taken into custody at his lawyer’s midtown Manhattan office earlier in the morning.

The plea came in the same Manhattan courthouse where Bernard Madoff was led away in handcuffs in 2009 to serve a 150-year sentence.

Peter Madoff told the judge he was “deeply ashamed and terribly sorry” but that he didn’t know about the scam until his brother revealed it in December 2008.

When he learned of the fraud, “I was in shock and my world was destroyed. I lost everything I worked for,” he said.

The government has used the cooperation of six former employees and associates at Bernard L. Madoff Investment Securities LLC to learn what went on inside the secretive business. Close to $20 billion vanished in the scam, the largest Ponzi scheme ever prosecuted in the U.S. The scheme left behind only a few hundred million dollars, not the $65 billion claimed in bogus financial statements.

Peter Madoff revealed in court that he agreed to assist his brother in sending out the only money left to favored people, including friends and family.

“I was shocked and devastated but nevertheless I did as my brother had said, as I had consistently done for decades,” he said. “I knew that the conduct was wrong and I am deeply ashamed.” The checks never went out.

In his guilty plea, Bernard Madoff admitted his investment advisory business was a sham, but insisted that his brother and two sons who also worked for him were in the dark about his misdeeds. The FBI nevertheless had been suspicious from the start about the role of Peter Madoff, who had worked side by side with his scheming brother for more than 40 years.

Peter Madoff sometimes signed many weeks of compliance reports in one sitting, intentionally changing pens and ink colors to make it appear he had signed them at various times, Assistant U.S. Attorney Lisa A. Baroni told U.S. District Judge Laura Taylor Swain. She said he also arranged for his wife to have a no-show job at the company, allowing her to receive salary.

FBI Assistant Director Janice K. Fedarcyk said Peter Madoff played an “essential enabling role” in the scam by certifying fabricated investment results.

“The Madoff investment empire, built on a foundation of deceit, was a house of cards that grew to skyscraper proportions,” she said. “As Peter Madoff has admitted today, he was one of the chief architects.”

Peter Madoff was being released on $5 million bail, secured by $1 million in cash or property, pending his Oct. 4 sentencing. Prosecutor said Peter Madoff has agreed to give up all his assets.

“Peter Madoff enabled the largest fraud in human history. He will now be jailed well into old age, and he will forfeit virtually every penny he has,” U.S. Attorney Preet Bharara said. “We are not yet finished calling to account everyone responsible for the epic fraud of Bernard Madoff and the epic pain of his many victims.”

Friends and business associates had described the brothers as very close. Their offices in midtown Manhattan were a few feet apart. Their families vacationed together.

Peter Madoff was credited with creating a computer trading system for the firm in the late 1970s and early 1980s that was considered groundbreaking at the time. He ran the daily trading operation while his brother focused on the more secretive investment advisory arm.

Both brothers made a fortune. Peter Madoff owned a Palm Beach, Fla., vacation house that recently sold for $5.5 million.

When Bernard Madoff was arrested, Peter Madoff broke the news to Madoff Securities employees. And he was a co-signer on a $10 million bond that won his brother’s release. Through attorneys, he denied any wrongdoing.

But the denial didn’t stop federal authorities from moving to freeze Peter Madoff’s assets. He agreed not to dispose of his assets and promised to curtail his personal spending as the investigation moved forward. His living expenses were capped at $10,000 a month.

A trustee appointed to recover stolen assets also came after Peter Madoff, accusing him of financing his high-end lifestyle through the fraud.

A complaint filed in bankruptcy court alleged that the Madoff investment business had transferred more than $77 million to Peter Madoff. It said that between 1993 and 2008, he was paid a total of $36 million in salary and bonuses. And it identified other income for Peter Madoff as memberships to country clubs, including Glen Oaks Club in New York and one of Donald Trump’s country clubs.

Given Peter Madoff’s “level of financial experience and sophistication,” he either knew or should have known that he reaped gains from “fraud and deception,” the trustee alleged.

The trustee also took aim at his daughter Shana, who once worked as an in-house lawyer at the firm and has denied involvement in the scheme.

“Had Peter, as the Chief Compliance Officer, or Shana, as Compliance Counsel, done their jobs properly, the fraud might have been revealed years earlier,” the complaint said. “Either they failed completely to carry out their required supervisory/compliance roles, or they knew about the fraud but covered it up.”

Defense lawyers responded by branding the complaint “a sensationalistic attempt to lump together members of the Madoff family and create liability by association.” Their court papers claimed the scandal has “left Peter Madoff mired in litigation, and has devastated his family emotionally and financially.”

Fraud hits Libya’s NTC

The payment system proved vulnerable to false claims

Πηγή: Middle East Online
April 10  2012

Interim authorities have stopped paying revolutionaries after millions lost in illegitimate payments to non-beneficiaries.

TRIPOLI - Libya's interim authorities have stopped paying bonuses to former rebels due to widespread fraud costing millions of Libyan dinars, the official LANA news agency reported on Monday.

"Payment of rewards to rebels has been stopped due to violations and abuses," Mohammed Harizi, spokesman for the ruling National Transitional Council, was quoted as saying.

"Millions of (Libyan) dinars allocated to revolutionaries were lost in (illegitimate) payments to non-beneficiaries," he said.

The interim government had been handing out cash payments of up to 4,000 Libyan dinars ($3,200) to civilians turned fighters who took on the forces of Moamer Gathafi last year.

But the system -- much like a scheme to finance the treatment of the country's war wounded abroad -- proved vulnerable to false claims.

Violations were referred to the offices of the attorney general and audit bureau for investigation, the spokesman said.

No further payments would be made until distribution mechanisms are revised and the lists of beneficiaries approved by local military councils across the country, Harizi added.

He stressed that the main purpose of the cash scheme was to encourage rebels to join the official institutions of the state and hand in their weapons.

Militiamen angered by non-payment have recently staged small protests in front of the headquarters of the interim authorities in Tripoli and raised checkpoints blocking traffic in some neighbourhoods of the capital.

US Government asks judge to approve landmark settlement over banks’ foreclosure practices

Flashback: Last year, some mortgage lenders and government officials took action after discovering that many mortgage documents were mishandled.

Πηγή: Washington Post
By Brady Dennis
March 12 2012

Government officials on Monday asked a federal judge to approve a landmark settlement with some of the nation’s largest banks over flawed and fraudulent foreclosure practices, more than a month after they announced the $26 billion deal with fanfare at the Justice Department.

The 99-page complaint filed in a D.C. federal court details the “pattern of unfair and deceptive practices” perpetrated by banks in the wake of the housing bust. Among them: filing false and misleading court affidavits, charging excessive and improper fees to borrowers, keeping abysmal records, frequently losing paperwork, breaking promises to homeowners trying to modify their loans, employing staffers with little or no training and improperly foreclosing on active-duty military members.

Officials filed separate and lengthy settlement terms with the five banks involved — Bank of America, JPMorgan Chase, Wells Fargo, Ally Financial and Citigroup — that document the penalties each must pay, how that money will be distributed, how new mortgage servicing standards will be enforced and the extent of the legal releases the firms will receive as part of the deal.

Though the dollar amounts differ, the agreements with each bank are largely the same. One exception is a side deal in which Bank of America agreed to reduce loan balances for as many as 200,000 borrowers who owe more than their homes are worth. The average amount of those so-called principal reductions is expected to be more than $100,000, and it will reduce the amount of penalties the firm owes by about $850 million.

Monday’s filing came after nearly 17 months of negotiations between state and federal officials and the nation’s largest banks. Those talks began in late 2010 after widespread outrage over news that banks were using forged and shoddy paperwork to churn through massive numbers of foreclosures, a practice that became known as “robo-signing.” Forty-nine states ultimately signed onto the deal; Oklahoma crafted a separate settlement.

The settlement is intended to help troubled homeowners by requiring the banks to reduce the amount some borrowers owe on their mortgages, lower interest rates for others and pay restitution to homeowners who suffered mortgage-related abuses. It also will force lenders to overhaul their mortgage-servicing practices, including revamping how they interact with struggling mortgage holders and barring them from trying to foreclose on borrowers while simultaneously negotiating mortgage modifications.

Under the terms of the deal, banks would have three years to complete principal writedowns, refinancings and other relief. The settlement includes incentives for actions taken within the first 12 months.

The deal also includes about $17 billion that would fund a range of foreclosure-prevention measures, the majority of which would go toward lowering the loan balance for borrowers who owe more than their homes are worth. Other provisions would provide $3 billion for lowering interest rates for homeowners who are current on their loans. In addition, as many as 750,000 borrowers who lost their homes to foreclosure since 2008 would be eligible for payouts of about $2,000 each.

About $2.5 billion would go directly to the states. Those funds are intended to pay for housing and foreclosure-prevention efforts such as counseling, mediation and legal assistance. But officials in a couple states, notably Wisconsin and Missouri, have said they plan divert some of their funds to help plug budget shortfalls.

All five banks also agreed to provide broad relief to military servicemembers who were harmed by mortgage-related misdeeds. For example, in cases where federal officials determine that a bank improperly foreclosed on a servicemember, the firm will be required to pay that homeowner $116,785 or more, plus any lost equity in the property.

Monday’s filing also details the powers former North Carolina banking supervisor Joseph Smith will have in his role as a full-time overseer and enforcer of the agreement. The banks must submit to quarterly reviews and will face penalties if they fall short of the standards established by the settlement.

The deal gives banks a broad release from legal liability over robo-signing practices and a swath of other transgressions, such as their lax underwriting practices and their failure to properly modify loans for homeowners who qualified for adjustments.

It leaves open the door for other types of future litigation, including fair-housing and fair-lending violations, as well as civil rights claims. It doesn’t bar individuals from joining class-action lawsuits or prevent private investors from seeking damages, and it preserves the possibility for future lawsuits over related the way in which banks bundled and sold mortgages, a process called securitization.

Well before Monday’s settlement filing, a common criticism of the deal has been that it is unlikely to have a broad effect on the sagging housing market, given the scope of the problems that remain. Government officials who crafted the deal acknowledge that the final sum will reach only a fraction of homeowners across the country whose homes are collectively worth $750 billion less than what is owed on their mortgages.

But they have insisted it will provide much-needed relief to certain homeowners and represents a meaningful step in halting the shoddy foreclosure practices of recent years and in nudging the housing market toward firmer footing.

In fact, banks have faced a barrage of public and private lawsuits and investigations in recent years, with more likely on the way. Groups ranging from large investors to the Federal Housing Finance Agency have filed suit against the firms, alleging a range of mortgage-related misdeed and seeking billions of dollars in damages.

Earlier this year, President Obama also announced a new effort to expand investigations into abusive lending and securitization practices, and soon after, Attorney General Eric H. Holder Jr. said the Justice Department had issued civil subpoenas to 11 financial institutions. In addition, numerous state attorneys general have launched other investigations, filed their own lawsuits and issues subpoenas of their own.

With the landmark settlement on the brink of completion, officials say they now hope that additional banks will soon sign onto similar agreements and adopt the new mortgage-servicing standards outlined in the deal.

Homeowners interested in learning more about eligibility requirements for aid or finding contact information for the banks and government agencies involved can visit www.nationalmortgagesettlement.com.

Doctors Avoid Penalties in Suits Against Medical Firms

Drugmaker Eli Lilly pleaded guilty to illegally marketing its antipsychotic Zyprexa for elderly patients and paid $1.4 billion in criminal penalties and settlements. (AP file photo/Darron Cummings)

Πηγή: Pro Publica

by Tracy Weber and Charles Ornstein

Sep. 16 2011

Two years ago, drugmaker Eli Lilly pleaded guilty to illegally marketing its blockbuster antipsychotic Zyprexa for elderly patients. Lilly paid $1.4 billion in criminal penalties and settlements in four civil lawsuits.

But a doctor named as a co-defendant in one suit - for allegedly taking kickbacks to prescribe the drug extensively at nursing homes - never was pursued.

Last year, Alpharma paid $42.5 million to settle federal allegations that it paid kickbacks to doctors to prescribe its painkiller Kadian.

"Health-care decisions must be based solely upon what is best for the individual patient and not on which pharmaceutical company is paying the doctor the biggest kickback," Rod J. Rosenstein, U.S. attorney for the District of Maryland, said in a statement announcing the settlement.

But the doctors accused of trading prescriptions for paid speaking gigs faced no consequences.

At least 15 drug and medical-device companies have paid $6.5 billion since 2008 to settle accusations of marketing fraud or kickbacks. However, none of the more than 75 doctors named as participants were sanctioned, despite allegations of fraud or of conduct that put patients at risk, a review by ProPublica found.

Reporters reviewed hundreds of pages of court records and interviewed current and former federal prosecutors, state medical board officials, attorneys for whistleblowers and, when possible, the doctors. For each doctor identified in a suit, ProPublica checked for state medical board discipline, penalties from the Medicare program and federal criminal charges.

In many of the cases, it appears that not even a cursory investigation was done to see whether the physicians had behaved inappropriately.

"Doctors have kind of gone under the radar," said Tavy Deming, a Philadelphia lawyer who represents drug company whistleblowers.

Amid concerns about the influence of drug company money on medicine, whistleblower lawsuits have emerged as a headline-grabbing tool for holding manufacturers accountable.

Yet, despite their power to secure large settlements from drugmakers, the suits have failed to resolve the culpability of physicians. Doctors often are not named as defendants, even though descriptions of their alleged misconduct are used to bolster the suits. And even when settling, many companies, including Alpharma, continue to deny the allegations.

After cases are resolved, the internal company documents used as evidence remain confidential, preventing further exploration of the physicians' behavior. Patients have no way of knowing whether their doctor's judgment has been compromised, and doctors may be tarnished by spurious accusations.

Medical boards, which normally pursue tips or complaints of wrongdoing, do not routinely scan for such cases. Justice Department lawyers, wary of spending more time and effort on a case, usually are not interested in going after lesser players.

Tony West, the assistant attorney general who oversees civil litigation nationwide for the Justice Department, declined through a spokeswoman to discuss the issue. In announcing settlements with the drug companies, however, West has said that kickbacks undermine doctors' credibility.

Sen. Charles E. Grassley (Iowa), the ranking Republican on the Judiciary Committee, said in a written statement that it takes "two sides to perpetuate this fraud" and that both need to be held accountable.

"Otherwise, regardless of how big of a civil settlement a drug company makes, the incentive to cheat the taxpayers will still be in place for those willing to take part," said Grassley, who has led investigations into conflicts of interest in medicine.

Doctors less-attractive targets

In recent years, pharmaceutical and medical-device companies have been barraged by whistle-blower lawsuits detailing how the pursuit of profit allegedly fueled fraud and corruption.

The suits are typically filed by former employees who say that the companies promoted drugs for unapproved uses or paid doctors to prescribe drugs or use medical devices. The suits seek to recover millions - even billions - of dollars spent on these products by government health programs.

The Justice Department joins the cases – known as "qui tam" suits, from Latin – if it believes they have merit. Whistle-blowers and their lawyers get a cut of any money collected. The government has come to rely on such cases to police companies' conduct.

For Justice Department lawyers, big drug companies make attractive targets. They are flush with profits and determined to avoid crippling legal defeats. Their bureaucratic sprawl often leaves an inadvertent trail of incriminating e-mail and memos. The massive financial settlements they are willing to pay are often modest in light of their annual sales and profits.

Zyprexa, for example, had U.S. sales of nearly $3 billion in 2010 alone. Kadian, Alpharma's painkiller, brought in nearly $263 million, according to IMS Health, which tracks prescription drug sales.

Also, the rules governing drug and device companies are strict: They are banned from pushing their products for uses not approved by the U.S. Food and Drug Administration.

Doctors, on the other hand, make particularly unattractive targets. Fearful of losing their licenses - and perhaps going to prison - they will devote every penny to their legal defenses. And juries like to think the best of physicians.

"It's a scorched-earth battle" for a doctor, said Michael Loucks, a former federal prosecutor in Massachusetts who led some of the nation's biggest health-care fraud investigations. "If he's convicted, it's not only a federal prison sentence, but he loses his license."

Rules governing doctors are less strict than those for drug companies. They are permitted to talk about unapproved uses of drugs or prescribe them when they believe a patient will benefit. To secure a conviction, prosecutors must show that doctors knowingly traded their prescription pads for money or perks.

Of course, doctors can and have been held accountable in other circumstances for negligence and malpractice if they prescribe the wrong drug for a patient or quantities that are harmful.

Another factor weighing against prosecution is burnout. After spending years taking on a drug company, many government attorneys are loath to tack on more time for a relatively minor victory.

Take the case of Maryland psychiatrist Peter Gleason. In 2006, federal prosecutors in New York charged him with pushing the narcolepsy drug Xyrem, also known as GHB or the "date-rape drug," for unapproved uses such as depression and fibromyalgia, a condition marked by chronic pain and fatigue.

Gleason vigorously challenged the charges, saying he believed in the benefits of the drug. He ultimately pleaded guilty to a single misdemeanor count of misbranding a drug for interstate commerce. In 2010, he was given one year of probation.

In July, Florida's health department filed an administrative complaint against him based on his conviction, apparently unaware that Gleason had committed suicide in February.
Evidence sealed at settlement

For concerned outsiders, the whistle-blower suits are often troublingly vague. Many don't provide enough specifics about physicians' roles to allow assessment of their veracity. Some offer only worrisome hints of doctors' misconduct.

But the case against Lilly and Florida psychiatrist George Jerusalem, unsealed in 2009, was rich with detailed allegations.

While purportedly receiving money and gifts from Lilly from 2001 to 2003, Jerusalem favored its antipsychotic Zyprexa, according to a case filed in federal court in Pennsylvania by Steven Woodward, a former Lilly sales representative.

Jerusalem was a consulting psychiatrist at more than 100 nursing homes in Florida's panhandle, treating 3,000 to 5,000 residents. According to the lawsuit, he prescribed more than $1 million worth of Zyprexa a year to them even though it was known to be potentially dangerous for older patients, according to the lawsuit.

Jerusalem had a change of heart, the suit said, when Lilly balked at hiring his son as a sales rep.

"As he had threatened, Dr. Jerusalem retaliated by immediately starting to switch his thousands of patients from Zyprexa" to a competitor's drug, the suit said. Sales of Zyprexa among Jerusalem's patients plummeted by 33 percent in one month, the lawsuit alleged.

Jerusalem did not return calls seeking comment. His wife, Tessie, who was also named as a defendant, said the accusations in the suit about trading prescriptions for favors are "not true."

Tessie Jerusalem, who managed his home office, said her husband gave only a few talks about Zyprexa over the years. If Woodward "can prove that Dr. Jerusalem made $50,000 from the company, oh my goodness," she said. "Where did he get that amount is beyond me."

Lilly settled this and three similar suits for $1.4 billion in 2009 and pleaded guilty to a misdemeanor charge for promoting Zyprexa in elderly populations as a treatment for dementia. Although Jerusalem was named as a defendant, the case against him was dropped when Lilly settled and there was no response from him in the court file. His case shows how hard it is for outsiders to get to the bottom of such allegations.

Once the Justice Department joins a case like this one, government lawyers have access to any evidence the whistle-blower brings. With their subpoena power, they also can secure patients' medical records, a breakdown of the drugs prescribed and a listing of a company's payments to physicians.

When a case is settled, however, any evidence typically remains confidential, is sealed or even returned to the drug company. The public is effectively left in the dark.

ProPublica's effort to substantiate the allegations against Jerusalem was inconclusive. Reporters sought Medicaid-prescribing data from Florida for Jerusalem. Those records show he had prescribed only a small amount of antipsychotics during 2003.

But the data might not reveal his true impact on the prescriptions of his patients. State records showed he had treated at least 1,557 patients enrolled in both Medicare and Medicaid (mostly nursing home residents) in 2003 alone.

It is common for consulting psychiatrists such as Jerusalem to recommend drugs for patients, while the actual prescriptions are then written by physicians who work as medical directors for the nursing homes. Assessing the allegations against Jerusalem would require a review of confidential patient medical records to show that he recommended a drug that was later prescribed by another doctor.

Prosecutors could conduct such a review with a subpoena, but federal patient privacy laws would shield the records from reporters.

Asked for substantiation, attorneys for Woodward said his claims were based on memory because he was not allowed to take his records when he was fired. They said the government found him to be a trustworthy source. Woodward did not return calls for comment.

Two government lawyers involved in the case wouldn't comment on it but said the Justice Department typically focuses on whether the allegations in a suit support a pattern of behavior by the company. The department does not vouch for whistle-blowers' specific claims about individual doctors.

Brian Kenney, a Woodward attorney, said he pushed prosecutors to pursue the psychiatrist because his conduct was "egregious," but they were not interested.

"Dr. Jerusalem's conduct is tantamount to elder abuse," the suit alleged.

Medical boards don't follow up

When physicians are accused of sexual misconduct, medical malpractice or criminal behavior, medical boards typically launch investigations and impose public discipline if justified.

Medical-board officials in several states, however, said they could not recall any cases in which a doctor had been sanctioned for taking a kickback from a drug company or being part of a company's plan to market drugs "off-label" – for uses that are not approved by the FDA.

Russell Aims, chief of staff for Massachusetts Board of Registration in Medicine, said such cases are hard to prove because physicians can always claim they are prescribing and promoting a drug because they believe in it - not because of the money they are being paid.

"It's not like a wrong-site surgery, like sexual misconduct, like getting popped for a DWI," where the evidence is clear-cut, he said.

Further, many whistle-blower suits are filed in federal courts and never referred to state officials. Some former federal prosecutors said such suits should be routinely forwarded to state medical boards.

Attorney Marcella Auerbach, whose Florida practice represents whistle-blowers, said she is struck by the lack of interest in the cases by boards.

"There is absolutely no follow-up by any medical organization - not an e-mail, a phone call - ever that we've received in the office," she said. "No one's asked the question."

The federal government can fine doctors or strip them of their ability to bill federal health programs. But none of the physicians named in the suits settled since 2008 have faced such actions, according to a review this summer of a list of physicians excluded from billing Medicare and Medicaid.

In an earlier round of cases, the inspector general at the U.S. Department of Health and Human Services sanctioned three Florida doctors for seeking or receiving kickbacks from hip and knee-device makers. One was banned from Medicare and Medicaid for three years and fined $65,000. The others were fined $650,000 and $101,000, respectively.

None was disciplined by Florida's medical board.

Lewis Morris, chief counsel to the HHS inspector general, said doctors need to know there are repercussions."If you don't focus on doctors, this is a problem that will never end," he said.

He also acknowledged that he only has the resources to focus on the most glaring cases.

"I don't have a logical defense," Morris said. "We have a finite number of people to do a hell of a lot of work, so we can't get to every case we'd like to."
Doctors say they're unfairly labeled

Some doctors named in the suits say they've been unfairly branded. The inclusion of allegations in an official court document gives them a ring of truth, they say.

A 2008 whistle-blower lawsuit against Pfizer, for instance, names Delaware psychiatrist Neil Kaye as "one of the key champions of this nationwide fraudulent marketing scheme" involving the antipsychotic Geodon.

At least one of Kaye's PowerPoint presentations, the suit alleged, promoted the drug to treat a host of conditions for which it was not approved by the FDA.

Pfizer paid Kaye $4,000 a day plus expenses, said the suit, filed in Massachusetts. He even used his private helicopter to fly to speaking gigs "all at Pfizer's expense," the suit said.

Pfizer paid the government $2.3 billion in 2009 to resolve this and 10 other civil suits and a criminal case. As part of the settlement, a Pfizer subsidiary pleaded guilty to felony charges relating to the painkiller Bextra, which was pulled from the market in 2005. Kaye was named as a co-defendant but said he was never served with the suit nor was a party to the settlement.

A Pfizer spokesman said the allegations against Kaye are false. In an interview, Kaye said, "I've never off-label marketed. I never would."

Kaye said people have mentioned the suit to him. "I sometimes try to convince people that not everything that is on the Internet is the truth."

Jeffrey Bostic, a child psychiatrist in Boston, similarly was accused of being a cog in Forest Laboratories' marketing of its antidepressants Celexa and Lexapro for children. The drugs were not approved for that use.

In court papers filed in Massachusetts, the government said Bostic gave more than 350 Forest-sponsored talks and presentations.

"Dr. Bostic became Forest's star spokesman in the promotion of Celexa and Lexapro for pediatric use," the complaint said. The firm paid Bostic more than $750,000 in honoraria for his presentations on Celexa and Lexapro between 2000 and 2006, it said.

Bostic, who was not named as a defendant, said he was paid for his speeches but not $750,000. He said his talks were based on his experiences treating depressed children at a community mental-health center where he worked in southern New Hampshire.

Forest settled criminal and civil cases for $313 million in 2010. One of its subsidiaries pleaded guilty to a felony count of obstructing justice involving the thyroid hormone Levothroid, and separate misdemeanor counts of off-label promotion of Celexa as a treatment for pediatric patients and distributing Levothroid even though it was not approved.

The misdemeanor counts did not allege that the company intended to violate the law, the company said in a statement at the time.

"I've never had difficulty sleeping at night feeling I did anything inappropriate," Bostic said. "Maybe I'm deluded. There were no kickbacks."

Goldman Sachs braced for legal battles over financial crisis

Goldman Sachs chief Lloyd Blankfein seen at a Senate hearing last year, has hired top defence lawyer Reid Weingarten. Photograph Charles Dharapak/AP

Πηγή: The Guardian
By Simon Goodley and Graeme Wearden

Tuesday 23 August 2011 20.13 BST

Goldman Sachs, the embattled investment bank, will face an array of legal claims focusing on its conduct during the financial crisis, one of Wall Street's most feared lawyers warned last night.

The prediction of an escalation in cases is being made by Jake Zamansky, the US attorney nicknamed "Jaws" who spearheaded the successful pursuit of the investment banks after the dotcom crash. It follows a move by Lloyd Blankfein, the chief executive of Goldman Sachs, to hire Reid Weingarten, one of America's top criminal defence lawyers, to help him address claims that the bank misled clients in the run-up to the financial crisis and, afterwards, Congress.

"I consider this to be a very significant event. For Lloyd Blankfein to be hiring a top criminal lawyer indicates that there may be allegations of wrongdoing forthcoming from the Department of Justice [DoJ]," Zamansky said. "Investors are asking why there have been no criminal cases against Goldman Sachs or any investment bank arising from the financial crisis. This may be a sign of more cases to come. It may be the beginning of a series of cases against Wall Street firms".

Back in 2001, as the internet bubble was bursting, Zamansky filed the very first lawsuit against Merrill Lynch's Henry Blodget, then a top-rated technology analyst caught pushing shares to investors which internal emails showed he actually rated as "dogs". The case proved to be a catalyst for a legal assault on Wall Street which resulted in the banks signing some huge cheques.

Zamansky is representing a group of un-named investors suing Goldman, although the case is unrelated to the bank's battles with the DoJ.

However, other moves to pursue the investment bank and its directors are under way, with court documents showing that Blankfein and his fellow directors have been named in a derivative court action filed in New York by an individual investor called Michael Brautigam. Counsel for the defendants, who also include Goldman non-executive and steel tycoon Lakshmi Mittal, have been asked by District Judge William H Pauley III to appear in court next month for a pre-trial conference. As this is a civil case, Weingarten will not be representing Blankfein. The derivative action formed part of a 12-page report detailing the current legal cases the bank is facing, which Goldman outlined in a regulatory filing this month.

The document goes on to admit: "The firm expects to be the subject of additional putative shareholder derivative actions, purported class actions, rescission and 'put back' claims and other litigation, additional investor and shareholder demands, and additional regulatory and other investigations and actions with respect to mortgage-related offerings, loan sales, CDOs [collateralized debt obligations] and servicing and foreclosure activities".

Shares in Goldman fell in late trading on Monday after Weingarten's appointment emerged – shedding 4.7% to $104.25, their lowest level since April 2009.They had dropped again on Tuesday.

Blankfein turned to the high profile lawyer after the DoJ began investigating the way Goldman sold subprime mortgages – the toxic investments that triggered the credit crunch. The banker has also been accused of misleading a Senate committee – a claim that is emphatically denied by Goldman. Blankfein has not been charged with any offence. Goldman itself was charged in April 2010 with defrauding investors of more than $1bn (£606m), and later paid a $550m fine. In June, the bank was served with a subpoena by the Manhattan prosecutor.

"As is common in such situations, Mr Blankfein and other individuals who were expected to be interviewed in connection with the justice department's inquiry into certain matters raised in the [Senate] report hired counsel at the outset," said a Goldman spokesman.

Weingarten specialises in white-collar criminal defence, and has represented former WorldCom chief executive Bernard Ebbers and former Enron accounting officer Richard Causey. Both men are incarcerated after being convicted of fraud charges.

The website of Steptoe and Johnson, the firm where Weingarten is a partner, states that the lawyer "is part of the firm's white-collar criminal defence group". It continues: "Weingarten represents clients in complex criminal matters in both state and federal courts at the pre-trial, trial, and post-trial stages, including cases involving public corruption, the Racketeer Influenced and Corrupt Organizations Act, bank fraud, bribery, government procurement fraud, antitrust, healthcare fraud, and tax and securities fraud."

The State of Fraud In Government (PDF)

Sas State of Fraud