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ABCs of the Custer Battles Scandal

Posted by David Phinney on March 10th, 2006

Here are some answers to some common questions about the Custer Battles federal contract fraud trial and its aftermath:

1. Why didn't the US Justice Department join in the Custer Battles lawsuit?

The plaintiffs invited them. After investigating under closed seal, the department decided against it. BUT, I did notice a Justice official sitting in the courtroom quietly taking copious notes on the proceedings.


2. Will there be criminal prosecution of Michael Battles and Scott Custer now that they have been found guilty of fraud in a federal civil case?

The plaintiffs' attorney Alan Grayson thinks not: "This is a huge embarrassment for the administration and they don't want to do anything to publicize it," Grayson said. "It's just another example of corruption and fraud that the administration does nothing about and willingly participates in. The Bush administration had people running around lining up contracts for contractors who turned out to be people who stole millions upon millions from the taxpayer."

3. Because Custer Battles was largely paid with seized Iraqi Assets, will Iraq be entitled to any or all of the damages?

No. It is considered war booty and property of the invading forces.

Custer Battles Royale

Posted by David Phinney on March 10th, 2006

Our man in DC, David Phinney, has been covering the upstart private security contractor Custer Battles since long before the mainstream media had a clue who they were. Now the company, which has made millions in taxpayer money in Iraq, has been found guilty of federal contract fraud amounting to nearly $3 million. The firm was ordered pay nearly $10 million in restitution.

David has been at the trial in recent weeks, and sends us this post-verdict dispatch:

Scott Custer and Michael Battles discovered contracting business to be so good in Iraq for their new private security firm that they soon paid themselves bonuses between $3 million to $4 million in January 2004.

One month later company managers fired off internal memos warning the two entrepreneurs that the firm was regularly charging for goods and services never delivered or, if they were, at freakishly inflated prices.

That’s just one of the tasty items to come out of the three-week trial that found their company, aptly named Custer Battles, liable for massive contract fraud while working for the Coalition Provisional Authority after the March 2003 invasion On Thursday, a federal jury in Alexandria, Va., determined that Custer Battles must now shell out more than $10 million in penalties and damages.

"What they did is treason," claims attorney Alan Grayson, the lead attorney for two former Custer Battles business associates who filed the fraud suit more than two years ago. "There's no other word for it."

The $10 million judgment addresses only part of the complaint filed by the two whistleblowers, Robert Isakson and William Baldwin, which accuses Custer Battles of orchestrating a sweeping swindling scheme on Iraq contracts with the use of bogus invoices, forgery and shell companies in the Cayman Islands to fraudulently pump up their billings.

Thursday's verdict rules on a CPA contract to protect the multi-billion currency exchange program that replaced money used by Saddam Hussein's regime with new Iraqi dinars. A second trial is expected on a $16 million security contract for Baghdad's airport. Damages for the airport contract could reach $40 million or more if the company is found of wrongdoing.

During the three-week trial, Grayson was able to tease out the tale of the $3-million-plus bonuses.

"On January 2nd, 2004, you took a bonus of $3 million out of the company, did you not?" Grayson asked Michael Battles as he sat on the witness stand.

"I didn't take a bonus necessarily, but I took a draw," Battles, a 2002 Republican candidate for Congress in Rhode Island, responded curtly.

Grayson: "What's a draw?"

Battles: "A draw is a disbursement of funds to the principals.... And I was happy to say that, yes, we were successful enough that I took a $3 million draw."

At one point Battles attempted to deflect any responsibility in the management of his company by insisting he was largely involved with business development and "strategic initiatives." He rarely took a hands-on executive role, he said.

"One thing I learned as lieutenant is that the secret to successful leadership is to surround yourself with people smarter than you are," he said.

Later, Battles shared another lesson: "In retrospect, one of the things I've learned is don't put your name on your company,"

Meanwhile, it looks as though Isakson and Baldwin will be counting their money. Individuals are allowed to sue on behalf of the government when they have knowledge that the government is being defrauded. They may receive up to 30 percent of the money paid by Custer Battles.

Those not counting their money will be the Iraqi people. Much of the money paid to Custer Battles was from seized Iraqi assets. Judge T. S. Ellis III, of the Federal District Court in Alexandria, Va., had ruled early in the trial preliminary proceedings that the False Claims Act applies only to bills paid directly from the American treasury.

The CorpWatch Oscars

Posted by Brooke Shelby Biggs on March 3rd, 2006

This year, several big-budget and award-nominated films have dared stray into the subject areas we at CorpWatch cover everyday, validating our sense that we are really not laboring obsessively in the shadows on inconsequential things (don't you get your esteem from Hollywood?). We loved "Lord of War" for its remarkably honest protrayal of the international arms trade, "Syriana" for not trying to make the issue of oil, war and corruption in the Middle East any simpler than it really is, "The Constant Gardner" for daring to take on Big Pharma so baldly, and "North Country" for its impeccable timing and for keeping mining issues in the public eye.

But these films are just the latest in a long line of brilliant anti-corporate films. In the spirit of random lists and Oscar-season bandwagon-jumping, we present you the completely subjective CorpWatch Oscars, honoring our 10 favorite non-documentary films in Hollywood history dealing with corporate malfeasance. Your fave not here? Nominate your own!

In no particular order:

Modern Times

Matewan

China Syndrome

Silkwood

Norma Rae

A Civil Action

Manchurian Candidate

Erin Brokivich

RoboCop

Soylent Green



Wal-Mart Waltons Get All Cultural

Posted by Brooke Shelby Biggs on February 23rd, 2006

Here's a story that will make your blood boil: The Walton family, owners of Wal-Mart, the world's largest corporation, are planning a huge art museum in Bentonville, Arkansas. There's nothing wrong with a little culture in the Midwest, right?

Except when you consider how much they are spending on their little hobby, while resisting spending a fraction as much to simply pay their employees a living wage.

Rebecca Solnit's article on the subject will enrage you. She discusses a single painting the family recently bought for $35 million:

The average Wal-Mart cashier makes $7.92 an hour and, since Wal Mart likes to keep people on less than full-time schedules, works only 29 hours a week for an annual income of $11,948--so a Wal-Mart cashier would have to work a little under 3,000 years to earn the price of the painting without taking any salary out for food, housing, or other expenses.

Read the article at Alternet.

Beyond Cronyism to Geopolitics in the Port Controversy

Posted by Brooke Shelby Biggs on February 22nd, 2006

As much as this is a story of privatization and racism, it is also about cronyism. The New York Daily News notes that Dubai Ports World has at least two ties to the Bush Administration - Treasury Secretary John Snow who, a year after joining the administration, sold his company's port operations to the same Dubai firm; and David Sanborn, the head of the U.S. Maritime Administration who still runs Dubai Ports World's European and Latin American operations.

But before concluding that this is simply more Bushistic cronyism, consider that almost all of the United States' military supplies headed for Iraq and Afghanistan are channelled through Dubai's ports, at the pleasure of Dubai's government, which in turn just happens to run DP World. This is geopolitical quid-pro-quo. Don't piss off Dubai, and we can still run our wars in the Middle East.


Ports Deal is Not (Only) About Race; It's About Globalization

Posted by Brooke Shelby Biggs on February 22nd, 2006

We were getting all ready to climb up on our soapbox to shout our revelation to the word: the scandal of the Dubai Ports deal is not the knee-jerk reaction that exposes a deep-seated anti-Arab xenophobia among average Americans and Congress alike. No, it's about the little-known fact that major operations of ports in America are sold off in the global marketplace. How would we feel if JFK International was run by a Venezuelan company? Or if our interstate railways were run by Pakistan, or China, or Canada for that matter? We assume too easily that certain basic infrastructure matters are of such national importance that we keep their care in American hands. That's our own naivete. In the global economy, everything's for sale.

Well, that's what we were going to say, but it turns out Joshua Holland over at AlterNet beat us to it:

This deal is about government procurement, one of the hottest controversies in the trade debate, but one of which the general public is largely unaware.

The U.S., E.U. and Japan -- the dominant service economies -- have been pushing hard to get a deal done on government procurement that would bring public purchasing of goods and services into the WTO framework. Their goal is to give foreign-based multinationals "national status," meaning that governments couldn't favor domestic firms over foreign firms for any reason (except for security issues, and this case wouldn't be likely to qualify as such).

Let's assume that this UAE port deal was the best one out there -- that they offered the lowest bid among highly-qualified firms. Under the framework that we've been pushing, it would be a sanction-able violation of WTO rules to discriminate against the company because it's based in the Middle East.

Tell it, Joshua.

Pump and Dump

Posted by Brooke Shelby Biggs on February 22nd, 2006

We're back!

Great interview with the authors of "Pump and Dump: The Rancid Rules of the New Economy" on the WaPo site today. The book's authors float an obvious theory (to us anyway) of 1990s financial fraud called "pump and dump," in which corporate executives artificially inflate stocks and securities in order to sell their shares at higher prices, leaving any fall-out and responsibility on naive investors.

You don't say? We applaud the market timing of the publisher, releasing the book as they did during the Enron trial.


Monsanto's Old Plantation Days

Posted by Brooke Shelby Biggs on January 28th, 2006

Stay Free! Magazine is always worth a read, and the current issue caught our eye with this ad. We forget that Monsanto was a chemical giant long before Round-Up and genetically modified crops.

Down on the farm


Allison Xantha Miller's article on the history of plastics the current Stay Free! notes:

 

Plastics from cotton? The industry didn't always show plastics futuristically. In some cases, like this 1939 ad from Monsanto, it reassuringly tied plastics to nostalgia for America's agricultural heritage and for a racial order in which African-Americans worked on farms in the South. The ad speaks condescendingly of mysterious processes that "create new materials from nature's crops," juxtaposing its knowingness with the innocence and ignorance of children cavorting in the soft white piles.

Bush Defends Mining Record

Posted by Brooke Shelby Biggs on January 23rd, 2006

From Reuters:

The Bush administration on Monday defended the government's oversight of the Sago mine and said none of the previous safety problems cited at the West Virginia mine appeared to be the cause of the Jan. 2 explosion that killed 12 miners.

That's sort of like an auto mechanic saying he forgot to tighten the bolts on a customer's car wheels after the tune-up, but the accident that killed him was a seat-belt issue. Just because the Bush administration never cited Sago for the safety issue that resulted in the tragedy doesn't mean it shouldn't have, or that the political coziness of the mining industry to the Bush camp might not have resulted in the oversight.

Not clear how this makes Bush look better: Yep, all of the citations we issued were obviously not as serious as the one we should have!

Do Private Contractors Do Better Work?

Posted by Brooke Shelby Biggs on January 23rd, 2006

Categorically no, if we're to take a lesson from a recent experiment in Fresno, California. Fresno's City Council conducted a year-long competition pitting private contractors against city public works crews to see who did a better job paving their assigned roads in the municipality.

The city crew and two contractors were each given five neighborhoods to pave. The city crew finished its work in September - ahead of schedule and on budget. One private contractor had finished only 20% of its work by September and had its contract terminated. The other contractor hadn't even started paving one of its neighborhoods, and instead asked the city for $750,000 to complete the work.

The mayor still says the competition is too close to call (!). Some council members saw the competition as a waste of money, and illustrative of how city contracts need closer consideration and accountability.

"Awarding these contracts out, the administration is playing Russian roulette with taxpayer money, and it's been a costly, very expensive experiment," said Councilman Henry T. Perea.

Time Again to Expose a Mining Company's Safety Record

Posted by Brooke Shelby Biggs on January 20th, 2006

As we write this, two more miners are missing in West Virginia as the result of a fire inside a coal mine. This time, the company that owns the Mine is Massey Energy - a mining giant with one hell of a bad reputation in Appalachia.

In 2000, a coal waste reservoir operated by Massey in Kentucky sprung a leak and dumped 300 million gallons of toxic sludge into local tributaries of the Ohio River. The accident killed more wildlife and destroyed a larger geographical area that the Exxon Valdez oil spill, which amounted to "only" 11 million gallons of oil.

A young investigator named Jack Spadaro was sent by the Mine Safety and Health Agency to investigate the accident. Hew discovered that Massey had been fully aware of the reservoir's likelihood to fail, and yet did nothing. Instead, Massey had poured money into Republican campaign coffers, including Kentucky Senator Mitch McConnell's campaign committee and the Bush Cheney campaign. It just so happened that McConnell's wife, Elaine Chao was appointed Secretary of Labor after Bush's election. The MSHA is an agency within the Department of Labor. Furthermore, Bush appointed a former Massey executive to the MHSA's review committee which handles all legal issues related to the Coal Act.

Spadaro recommended that Massey be charged with criminal negligence. His superiors refused. And when Spadaro publicly questioned whether mine safety had been sold to the highest bidder under Bush, he was summarily fired.

Today, another huge Massey sludge pond at a Kentucky mine sits on a hill above an elementary school. Coal dust blankets the school yard. Neighbors want the pond decommissioned; in response Massey applied for and won permits to build coal silos even closer to the school.

The Citizens Coal Council says:

The company also regularly violates coal truck weight limits, sending monster trucks weighing 140,000–160,000 pounds hurtling through central Appalachia’s winding roads. These speeding, overweight trucks damage roads and kill, on average, four to six people a year in auto accidents. Recently Don Blankenship, Massey’s CEO, weighed in with his thoughts on killing innocent motorists:

“The truth of the matter is . . . four to six fatalities a year, with the number of miles coal trucks are traveling on these highways each year, is no worse than average.”

In addition to being openly anti-union (only 5 percent of Massey’s work force is represented by a union), Massey has been called one of the worst coal companies in America for miner safety by the United Mine Workers of America union, who also claim that the company uses contracted management to avoid paying workers’ compensation. Massey has been sued by its employees for overexposure to coal processing chemicals and has been investigated by the Mine Safety & Health Administration for chronic health and safety violations at its mines.


In the past 2 years, the Massey mine where yesterday's fire broke out was cited by the MSHA 204 times for safety violations, but paid less that $50,000 in fines.

So we have Sago, Part Two. Cronyism kills.

The Old "When in Rome" Excuse

Posted by Brooke Shelby Biggs on January 19th, 2006

Great article by Richard Cohen in today's New York Times about Microsoft's recent willingness to cave in to the Chinese government and shut down an MSN blog by a Chinese journalist that criticized the current regime. They, of course, follow Cisco Systems, which sells the equipment the Chinese government uses to censor the Web and Yahoo, who revealed the contact information for a dissident who is, as a result, now in a prison camp doing 10 years hard labor.

This is just the same old birthday suit on a new emporer. The Gap, Nike, Disney, Wal-Mart and scores of other corporations who farm out manufacturing to subcontractors in developing nations have used the same tired excuse: Sure, the working conditions are bad, the labor and evironmental laws are nonexistent, and the pay is paltry - but that's how everyone does it in (insert country here). It's a positively Clintonian splitting of factual hairs - we're not breaking any local laws, we're complying with the local custom. They conveniently ignore the moral implication if, say, the local custom is to whip children who don't meet their quotas. The same semantic jig is on display whenever one of these multinationals falls back on the old reliable "we don't own the factory, so we can't be held responsible for what a factory owner does."

It is remarkable, and remarkably sad, that companies like Microsoft who have grown incomprehensibly huge and prosperous precisely because of certain freedoms and ideals that make America great, yet they choose to sell out other freedoms and ideals when it is convenient. For shame.

The Wal-Mart Image War

Posted by CorpWatch on January 18th, 2006

http://www.walmartworkersrights.orgIn this morning's email was a press release from an organization called American Rights at Work. Normally, we don't pimp for activists - we're an investigative journalism outfit. But dammit, they made us laugh.

They've launched a new Wal-Mart-bashing site (Yes, they're a dime a dozen; the form is the Google maps mash-up of 2006). This one features Garth Brooks - the spokes-singer who recently agreed to make his latest album available only through Wal-Mart - thereby pissing off and financially screwing many an independent and even chain record store. In a smirky flash movie, the grotesquely caricaturized Brooks prances about inside a Wal-Mart, singing a knock off of his old hit "Friends in Low Places"; here he warbles "I've got friends with low wages, their health care plan fits on two pages ...". The message, the form, the content are not new, but this is a clever execution that deserves a look. It evokes (one might say steals directly from) Jib Jab's monumental viral "This Land" during the 2004 presidential election. But it does touch on some legitimate issues.

Meanwhile, of course, Wal-Mart has been stocking its arsenal against the growing chorus of such loud-mouth critics who would question its angelic, altruisitc ways. A few months back it was revealed that the company had hired former campaign consultants from the Bush and Kerry campaigns to burnish its image in the halls of power and among the public at large. Things being what they are, what with Maryland's decision last week, perhaps these consultants are sleeping on the job (Kerry's image consultants certainly proved given to fits of narcolepsy).

Then of course, there was the dust-up earlier this month in which a San Diego blogger discovered that Wal-Mart's website featured pages where one could by the DVDs of "Charlie and the Chocolate Factory" and "Planet of the Apes" which also recommended similar items - except that the "similar items" on these pages were all films about African-American history. Wal-Mart claimed a malfunction and denied racial malevolence. You goatta think that made those high-priced consultants shotgun the Kaopectate.

So I checked out Wal-Mart's charitable arm - the Wal-Mart Foundation to see how wrong these snarky yahoos - including the entire Old Line State - are. The website desribes how the store improves every community in which it operates, from educating kids to saving the environment. But what stumps us, is the site's downright peculiar slogan: "Wal-Mart Good. Works." Someone either has a severe verb deficiency, or Wal-Mart is tailoring its message for the caveman constituency (not sure this is a departure from usual). "Wal-Mart Good. Union Bad!" Wal-Mart say get your club, aisle 11. Always low-brow.

Wal-Mart critics 1, Wal-Mart 0.

Mine Tragedy Spun as Profit Opportunity

Posted by CorpWatch on January 11th, 2006

Spectacular. Bad-boy investment celebrity Jim Cramer, host of CNBC's "Mad Money with Jim Cramer," actually recommended today investing in "mine-safety" stocks. Not because it is important for us as a country to pick up the slack left by a "paper tiger" federal mine safety agency, but because there could be lots of dough in it.

According to the blog Crooks and Liars, Cramer actually said ""we're not partisan here... we're just looking to make money, and the Bush Administration has been negligent." And why on earth not cash in?

There is simply something obscene about the very suggestion.

Privatizing Public Health in Massachusetts

Posted by CorpWatch on January 10th, 2006

Letting corporations clean up after other corporations sometimes leaves a bigger mess. At least, that is what Public Employees for Environmental Responsibility (PEER) in Massachusetts are saying today.

Massachusetts has outsourced its toxic clean-up responsilibities to private contractors, who have failed spectacularly in repeated state audits. (Most other states assign clean-up to public agencies.) Some of the findings in a review of Massachusetts state records:

Three out of every four private clean-ups failed to pass state audits

• Nearly one in ten were so deficient that they were completely invalidated and retracted.

Nearly three-out of four (71%) of private clean-ups will require some sort of follow-up work, such as retesting or additional soil removal

PEER says clean-up failure rates have almost doubled during Governor Mitt Romney's reign.


How Bush Rolled Back Mine Safety

Posted by CorpWatch on January 6th, 2006

With the same logic that dictates that logging is good for trees, the 5 years of the Bush Administration has rolled back regulations on mine safety at the bidding of mining corporations.

The head of the Mining Healthy and Safety Administration is himself a former mining executive. A New York Times article in August 2004 noted:

In all, the mine safety agency has rescinded more than a half-dozen proposals intended to make coal miners' jobs safer, including steps to limit miners' exposure to toxic chemicals. One rule pushed by the agency would make it easier for companies to use diesel generators underground, which miners say could increase the risk of fire.

The policy of the Bush Administration from the first has been to kowtow to energy interests, allowing them to tinker with the nation's energy policy, labor codes, and environmental protections in exchange for huge financial contributions to campaign coffers. Only today, in the wake of the Sago mine tragedy, we see how such policies can actually kill. And to think that West Virginia is a blood red state; perhaps not for long.

Wal-Mart Conflates Apes, African-Americans

Posted by CorpWatch on January 5th, 2006

Wal-Mart keeps having what you might call image problems. No one seems to want it to go into the banking business, it was just busted for overcharging customers in Wisconsin, and several states are gunning for the mega-retailer for not providing adequate healthcare for its employees (leaving taxpayers to pick up the difference). Wal-Mart are presently under investigation for mishandling hazardous waste, and it has long had serious problems with sweatshops overseas. It is fighting a class-action lawsuit claiming that it systematically discriminated against female employees, and was exposed for having taken out life insurance policies on its lowest-level employees.


But this just beats all. On Wal-Mart's website, the page for the Planet of the Apes DVD set includes recommendations for "similar items." Listed there are films about Dorothy Dandridge and Martin Luther King, Jr., "Unforgiveable Blackness: The Rise and Fall of Jack Johnson," and "What's Love Got To Do With It," a film about Tina Turner.

BoingBoing.net has a full screenshot, in case Wal-Mart takes the page down.

UPDATE: Wal-Mart has apologized and claimed that it's cross-selling system had gone haywire. They deny that anyone perhaps coded some offensive keywords to enable the system to equate apes and African-Americans.

Tyco Execs' Mugshots

Posted by CorpWatch on January 3rd, 2006

It isn't everyday you get to see Dennis Kozlowski holding a jailhouse clapboard featuring his vitals. Thanks to Thesmokinggun.com, we can give you that pleasure.

kozlowski mugshot

Click here for former Tyco CFO Mark Swartz's mugshot. (Hey, where did his curly tresses go?)

The Vicious Tobacco Cycle

Posted by CorpWatch on January 3rd, 2006

Oklahoma has a problem. Too many people are quitting smoking. It's cutting into the state's budget.

Tobacco tax revenues are up, but not as high as expected, and that means that health programs funded by tobacco revenue are gasping for air. This illustrates an interesting conundrum: how can state governments effectively fight tobacco use when they have arranged to be so dependent on the tax revenue smokers provide? Sin taxes like those levied on tobacco are supposed to dissuade people from using the product - but if too many are scared off, budget line items go up in a puff of smoke.

George Will recently made this same observation (although he demonizes state governments for their 1998 deal with the tobacco companies to seize proceeds from a legal and federally subsidized commodity), but with a decidedly different conclusion. He says the Master Settlement Agreement should be scrapped. But consider: if fewer people smoke, fewer people get sick, meaning fewer costs associated with both healthcare and lost productivity. In the long run, if the theory holds, income may dwindle at roughly the same pace that outlay does.

Quitting smoking takes time, patience and determination. Apparently, so does quitting tobacco taxes.

Looking Back on 2005

Posted by Brooke Shelby Biggs on January 2nd, 2006

Sure, sure, The New York Times is the voice of the status quo according to lefties, the bully pulpit of the liberal elite according to righties. But if corporate corruption, graft, greed, incompetence and influence-peddling are of concern to you - no matter your political stripe - you have to admit that a lot of stories used to fly under the radar of the Gray Lady are now frontpage news, and that is good news. Perhaps we can thank Kenneth Lay for that; what we at CorpWatch have long done just wasn't as sexy before he came along. Thanks, you big lug.

So here in the first week of a new year, we begin with a clean slate, ready for a year of customary despoiling. In reflection, let us review the year in corporate crime, courtesy of Gretchen Morgenson at The New York Times. (Or, of course, you could page through a few thousand of our favorite stories on the subject from the last 12 months ...)

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