SUMMARY: Facebook has been on the defensive since a New York Times investigation found it had hired a consulting firm--founded by Republican operatives--to push negative stories about its critics. Among them: liberal billionaire George Soros, a favorite target of far-right conspiracy theorists. John Yang speaks with the Wilson Center's Nina Jankowicz about whether social media needs to be regulated.
SUMMARY: The Food and Drug Administration moved to ban sales of menthol cigarettes and flavored cigars while announcing new guidelines for retailers selling flavored e-cigarettes in order to curb the rise in underage smoking and vaping. The ban is the biggest tobacco measure taken by the FDA in nearly a decade. Amna Nawaz interviews FDA commissioner Dr. Scott Gottlieb about the moves.
SUMMARY: The Food and Drug Administration issued its toughest crackdown yet on the makers of electronic cigarettes that have become increasingly popular with young people. Manufacturers now have two months to prove they can keep their e-cigarettes out of the hands of minors; it's already illegal for anyone under 18 to buy nicotine products. William Brangham talks with FDA Commissioner Dr. Scott Gottlieb.
The Office of Research and Development has been at frontlines of virtually every environmental crisis. Trump wants to cut its funding in half.
When the city of Toledo temporarily lost access to clean drinking water several years ago after a bloom of toxic algae, the Environmental Protection Agency sent scientists from its Office of Research and Development to study health effects and formulate solutions.
The same office was on the front lines of the Flint water crisis and was a critical presence in handling medical waste from the U.S. Ebola cases in 2014.
Thomas Burke, who directed ORD during the last two years of the Obama administration and was the agency's science adviser, calls the office the nation's “scientific backstop in emergencies.”
President Trump's 2018 budget would slash ORD's funding in half as part of an overall goal to cut the EPA's budget by 31 percent.
A statement from EPA Administrator Scott Pruitt did not directly address the cuts to ORD, but offered broad defense of the proposed agency budget, saying it “respects the American taxpayer” and “supports EPA's highest priorities with federal funding for priority work in infrastructure, air and water quality, and ensuring the safety of chemicals in the marketplace.”
ORD has no regulatory authority, but it conducts the bulk of the research that underlies EPA policies. ORD scientists are involved in “virtually every major environmental challenge the nation has,” Burke said. Diminishing the role and input of the office, he said, risked leaving the country “uninformed about risks and public health.”
“In time, you're flying blind,” he said. “Everything becomes a mystery.”
Trump's budget, released Tuesday, reflects the president's wish list. The numbers likely will change by the time it goes through the congressional appropriations process, but the proposed cuts are consistent with the administration's push against environmental regulation and scientific funding. Many of the cuts fall on agencies involved with climate change research, including the EPA, the National Oceanic and Atmospheric Administration, the National Science Foundation and the Department of Energy.
Mick Mulvaney, director of the White House Office of Management and Budget, told reporters in a Tuesday briefing that the budget reduces climate science funding without eliminating it.
“Do we target it? Sure,” Mulvaney said in response to a reporter's question. “Do a lot of the EPA reductions aim at reducing the focus on climate science? Yes. Does it mean that we are anti-science? Absolutely not (WTF! my comment). We're simply trying to get things back in order to where we can look at the folks who pay the taxes, and say, look, yeah, we want to do some climate science, but we're not going to do some of the crazy stuff the previous administration did.”
Much of the EPA's climate research takes place in the Office of Air and Radiation, which is separate from ORD. But ORD studies the strategic, long-term effects of climate change, including the effects on agriculture and the oceans, Burke said.
Christine Todd Whitman, a former EPA administrator who worked for George W. Bush from 2001 to June 2003, said the proposed ORD cuts are more drastic than anything she can remember.
Whitman said she expects Congress will restore much of the funding, but she worries about the message behind the budget.
“A budget to me was always a policy document,” she said. Regardless of what Congress does, this administration's policy “indicates to me [that] they'll be looking for other ways to … stifle the research and slow it down,” she said.
OMB and the EPA did not return requests for comment about the ORD cuts.
ORD is one of several EPA programs listed under a section of the budget called “2018 major savings and reforms.” The others include EPA enforcement (24 percent cut); Superfund, which cleans up toxic waste sites (30 percent); categorical state grants (45 percent); and funding for watershed protection, energy efficiency and voluntary climate programs, which would be eliminated.
The budget states the ORD reductions would allow the EPA to “focus on core Agency responsibilities … At lower funding levels for the Office of Research and Development, the Agency would prioritize intramural research activities that are either related to statutory requirements or that support basic and early stage research and development activities in the environmental and human health sciences.”
Whitman and Burke said ORD already does that — and halving the budget would make it virtually impossible to meet EPA's regulatory mandate.
ORD is “the backbone of the scientific research that goes on,” Whitman said. “Every regulation promulgated by EPA is based in science.”
Andrew Rosenberg, director of the Center for Science and Democracy at the Union of Concerned Scientists, said he worries Congress will use the budget to justify serious but less drastic cuts to the agency. This administration's philosophy seems to be “if you don't measure it, you don't have to be held accountable for it.”
ORD also helps regional EPA offices. Michael Mikulka, president of AFGE Local 704, a union representing scientists, engineers and attorneys at EPA's Region 5 office (in the Great Lakes area), said he relies on ORD's Cincinnati lab for advice on toxic waste cleanup. “If their staff is cut significantly, there would be less people to advise us.”
Burke said ORD was always going to be a target. The office came under fire from environmentalists in 2015 when it released a draft study that said hydraulic fracturing had no “widespread, systemic impacts” on drinking water. After considering comments from the EPA's independent Science Advisory Board, the report authors reversed their findings, concluding there was insufficient evidence to support their previous statement. This time, the report was widely criticized by the oil and gas industry.
ORD is also home to the IRIS (Integrated Risk Information System) program that sets exposure guidelines for chemicals. The program has been criticized for dragging its feet and bowing to the interests of the chemical industry.
“I'm very concerned the IRIS program will be zeroed out,” Burke said. “There's an endless challenge by polluters to delay the science.”
But aside from a few high-profile issues, much of ORD's work takes place under the radar. The office has laboratories all over the country, working on air pollution, ocean acidification and vehicle emissions.
One of ORD's lesser-known responsibilities is dealing with homeland security. “God forbid, if we have to clean up a water supply after a terrorist activity, it [would be] in this office,” Burke said.
Whitman said the EPA was tasked with cleaning up the Hart Senate Office Building in 2001 after then-Sen. Tom Daschle received an envelope containing anthrax powder. Whitman remembers asking the Centers for Disease Control and Prevention for a safe standard of anthrax exposure. The CDC didn't know, she said, so ORD did the research and set it at zero.
“These are the kinds of things you lose” when you de-fund the “national nerve center of the science challenges facing not just the EPA, but all the states and all the communities,” Burke said.
SUMMARY: Federal Reserve governor Daniel Tarullo was central to the implementation of the Dodd-Frank Act, which imposed tougher regulations on banks in the wake of the financial crisis. Though his term isn't up until 2022, Tarullo is now stepping down, just as President Trump is expected to scale back much of the regulation put in place. Tarullo joins economics correspondent Paul Solman for a conversation.
PAUL SOLMAN (NewsHour): Federal Reserve Governor Daniel Tarullo has been called one of the most powerful U.S. banking regulators since Alexander Hamilton. Appointed by President Obama in 2009, Tarullo was central to the implementation of the 2010 Dodd-frank Act, which imposed tougher regulations on banks in the wake of the financial crisis.
Under his watch, the Fed has sought to curb banks' reliance on short-term loans and to increase the amount of capital they must keep on hand. But President Trump is expected to try to scale back much of what was put in place.
On our visit to the Fed last week, Tarullo's wasn't the only empty office we found. Since Senate Republicans refused to vote on two of President Obama's nominees, there are now three openings on the seven-member board of governors. That means President Trump will have a chance to put his mark on Fed policy going forward.
Daniel Tarullo, welcome to the program.
DANIEL TARULLO, Federal Reserve Governor: Good to be with you.
PAUL SOLMAN: Your appointment's through 2022, right, so why are you leaving now?
DANIEL TARULLO: Well, you know, eight years is a long time. I came here, along with other people, with a sense of the need to rebuild the financial regulatory system.
I think we have made a lot of progress towards that end. And I think there comes a time where everybody individually wants to do something else, and where it's time to let other people try their hand at the job you have been occupying.
PAUL SOLMAN: Well, in this case, try their hand at dismantling what you in particular have been doing.
DANIEL TARULLO: Well, I don't really expect that there's going to be a dismantling of some of the major accomplishments that we have had. And I certainly hope not. And I don't think it would be something the American people would want to see, Democrats or Republicans, particularly with respect to the additional requirements that we and the other banking agencies have placed on the largest, most systemically important financial institutions, those that almost failed during the crisis.
I think there's a broad-based view that stronger capital requirements and better oversight is something that's needed there indefinitely.
SUMMARY: After uncovering an illegal deal, the European Union ruled that Apple pay over $14.5 billion in back taxes to Ireland. The EU's antitrust regulator found that the country and the tech giant had made an agreement that allowed Apple to pay less than 1 percent in corporate tax for over a decade. Apple plans to appeal the decision. Hari Sreenivasan speaks with EU Commissioner Margrethe Vestager.
HARI SREENIVASAN (NewsHour): The European Commission ruled today that Ireland must collect $14.5 billion in back taxes from Apple. The announcement fueled new tensions between the U.S. and Europe over the role of multinational corporations, how they are taxed, and whether it should be considered a subsidy.
The antitrust regulator for the EU said Ireland had given Apple a sweetheart tax deal for well over a decade, with special laws that effectively allowed Apple to pay less than 1 percent corporate tax. The EU accused Apple of setting up two companies in Ireland with a head office that only exists on paper. The profits from European stores all go to the Ireland head office and are essentially untaxed.
Apple said it would appeal the decision and denied the characterization. In a statement, the company's chief executive, Tim Cook, said the European Commission is trying to — quote — “rewrite Apple's history in Europe, ignore Ireland's tax laws and upend the international tax system in the process.” The company has more than $200 billion in cash.
I spoke with Commissioner Margrethe Vestager, who announced the decision.
Ms. Vestager, thanks for joining us.
First off, what gave Apple an edge in Ireland that was unfair in the eyes of the EU?
MARGRETHE VESTAGER, European Commission: Well, we have a long longstanding prohibition of state aid, which means benefits, advantages to a selected company.
And that may come in any form, as a piece of land, a favorable loan, a grant or a tax benefit. And, of course, any member state can have their own tax legislation. We would never question that. But the thing is that you cannot give a specific company a benefit or an advantage which is not open to other companies.
HARI SREENIVASAN: Is there evidence that this was specific to Apple and not to all the other companies that are doing business in Ireland?
MARGRETHE VESTAGER: Yes, it is.
This arrangement is due to two things which are none of our concern, how Apple is organized and the Irish tax legislation. But the thing that is specific is two tax rulings — are two tax rulings that are directed specifically to Apple.
And tax rulings are, by nature, specific because they are directed from the government or from the authorities to a specific company. And this is only for them. It is not for other companies.
Due to an error by state officials, rent limits on tens of thousands of New York City apartments were improperly removed. Now, 20 years later, the state is relying on landlords to fix that problem. What could go wrong?
In February of 2015, Lilian Piedra received a letter with devastating news: Her landlord was jacking up the rent for her four-bedroom apartment in Manhattan’s Washington Heights from $2,100 a month to $3,500.
The notice did not say she faced eviction, but Piedra immediately understood that’s what it meant. She and her husband were already struggling to raise three young children on her salary as a bank customer service representative and his as a parking garage manager.
“As soon as I received that letter I was crying for a whole week. Every single day I was crying, even at work,” she recalled.
The prospect of much higher rent touched off months of sleepless nights for the Piedra family as they desperately searched for somewhere else to live. The only apartment she found nearby was half the size for about the same price. Her brother offered to let the family move into his house on Long Island, but Piedra knew that cramming nine people into a three-bedroom house was way too crowded.
“I saw myself living in a shelter,” Piedra said. She ultimately refused to pay the higher rent and, within days, the landlord moved to evict her.
But just before a June 2015 hearing on the family’s eviction, their lawyer made a startling discovery. Piedra was among tens of thousands of people who had been improperly excluded from a program that protects tenants from New York City’s exploding housing costs. Raising her rent 67 percent was, in fact, illegal. So was the resulting eviction. She ended up staying in her place for $2,100 a month.
Others have not been nearly as fortunate.
The law that protected Piedra — rent stabilization — was tied to a tax break a previous owner had received for renovating the building. Under a program created by a state law, owners benefiting from the taxpayer subsidy are obligated to limit annual rent increases to modest levels set by the city.
But due to a series of actions — and inactions — by a pivotal state regulator, the benefits of this program vanished for many New York City tenants.
Over two decades, owners of an estimated 50,000 apartments pocketed the tax break while charging market rents. Tenants who couldn’t pay were forced out, deepening a shortage of affordable housing which Mayor Bill de Blasio acknowledges is a “crisis.”
ProPublica has been examining what New York City gets for an estimated $1.6 billion in tax breaks it has granted to property owners and developers.
SUMMARY: President Obama reached a rare agreement with Congress on a new law to regulate toxic household chemicals. The legislation, signed Wednesday, will give the EPA the authority to vet and ban tens of thousands of substances potentially harmful to humans, including chemicals in detergents, cleaners and furniture. Gwen Ifill learns more from political director Lisa Desjardins.
GWEN IFILL (NewsHour): The President and Congress have reached rare agreement on a new law that will regulate everyday toxic chemicals. The President signed it today, setting in motion the biggest changes in four decades.
The Environmental Protection Agency now has new authority to review, and eventually restrict or ban, tens of thousands of chemicals that could be carcinogenic or otherwise harm human health, among them; substances found in household detergents and cleansers, flame retardants and furniture.
But it may take a while.
Lisa Desjardins joins us to fill in the picture.
Lisa, why is this significant?
LISA DESJARDINS (NewsHour): This is incredibly significant.
We’re talking about a vast universe of things that we touch in our everyday lives. Some estimate that one out of every three sort of processed products that we buy, not food, but everything else, could have toxic chemicals in it.
And what happened, Gwen, was the law passed 40 years ago was essentially toothless. So the EPA wasn’t even able to regulate forcefully something like asbestos, which we know from scientific evidence is lethal and may — causes a lethal form of cancer, but yet it’s not banned because the law previously wasn’t strong enough.
GWEN IFILL: You and I both have covered Washington for a while. We know how hard it is to get bipartisan agreement on anything. Why this, why now?
LISA DESJARDINS: Imagine.
GWEN IFILL: Wow.
LISA DESJARDINS: Nothing is getting done in Washington. A sweeping bill over an $800 billion industry? Well, that’s the answer. The industry got on board.
The chemical industry felt this was in their interest because, up until now, they have self-regulated and states have regulated, Gwen. So the chemical industry has dealt with 50 different sets of laws across this country. They found that it was in their interest at this time to have a national law, have the EPA take this over.
So what we’re going to have now from this law is the EPA having dominance, being able to override states, with some exceptions, in general when it comes to chemical safety.
SUMMARY: The Food and Drug Administration will begin regulating e-cigarettes and cigars the same way it regulates cigarettes and smokeless tobacco. About 2.5 million high school students or middle schoolers vaped at least once in the last month; now e-cigarettes can no longer be sold to people under 18. Hari Sreenivasan talks to Mitch Zeller of the FDA for more on the new policy.
HARI SREENIVASAN (NewsHour): There'll be no more e-cigarette and cigar sales to people under the age of 18. Federal oversight of the growing industry was announced today by the Food and Drug Administration.
(BEGIN VIDEOTAPE)
HARI SREENIVASAN: They've been around since 2006, but until now, they were largely un-regulated. E-cigarettes turn nicotine into an inhalable liquid vapor, but without the tobacco in regular cigarettes.
WOMAN: With blue e-cigs there's no tobacco only vapor.
HARI SREENIVASAN: Ads for the products tout benefits, using celebrity endorsements, like this one from actress Jenny McCarthy. In fact, there's no scientific consensus on benefits, or potential harm.
But Health and Human Services Secretary Sylvia Burwell says the industry will now be regulated, citing its rapid growth among teens.
SYLVIA BURWELL, Secretary of Health and Human Services: Between 2011 and 2015, the percentage of high school students who smoke e-cigarettes has skyrocketed over 900 percent. Meanwhile, hookah usage has risen significantly among young people and cigar smoking continues to be a problem among high schoolers. Together, that means millions of kids are being introduced to nicotine every year, a new generation hooked on a highly addictive chemical.
HARI SREENIVASAN: Manufacturers, many of them small companies, will have to undergo a lengthy federal review in order to stay on the market.
In response, Gregory Conley, president of the American Vaping Association, said today, quote, “If the FDA's rule is not changed by Congress or the courts, thousands of small businesses will close in two to three years.”
House Republicans (bough and paid for, my comment) have their own answer, a bill to curb retroactive safety reviews for e-cigarettes and cigars.
Right after the financial crisis, an SEC lawyer fought a lonely struggle to get his agency to crackdown harder on Goldman bankers. He lost.
This story was co-published with The New Yorker. It is not subject to our Creative Commons license.
In the late summer of 2009, lawyers at the Securities and Exchange Commission were preparing to bring charges in what they expected would be their first big crackdown coming out of the financial crisis. The investigators had been looking into Goldman Sachs' mortgage-securities business, and were preparing to take on the bank over a complex deal, known as Abacus, that it had arranged with a hedge fund. They believed that Goldman had committed securities violations in developing Abacus, and were ready to charge the firm.
James Kidney, a longtime SEC lawyer, was assigned to take the completed investigation and bring the case to trial. Right away, something seemed amiss. He thought that the staff had assembled enough evidence to support charging individuals. At the very least, he felt, the agency should continue to investigate more senior executives at Goldman and John Paulson & Co., the hedge fund run by John Paulson that made about a billion dollars from the Abacus deal. In his view, the SEC staff was more worried about the effect the case would have on Wall Street executives, a fear that deepened when he read an email from Reid Muoio, the head of the SEC's team looking into complex mortgage securities. Muoio, who had worked at the agency for years, told colleagues that he had seen the “devasting [sic] impact our little ol' civil actions reap on real people more often than I care to remember. It is the least favorite part of the job. Most of our civil defendants are good people who have done one bad thing.” This attitude agitated Kidney, and he felt that it held his agency back from pursuing the people who made the decisions that led to the financial collapse.
While the SEC, as well as federal prosecutors, eventually wrenched billions of dollars from the big banks, a vexing question remains: Why did no top bankers go to prison? Some have pointed out that statutes weren't strong enough in some areas and resources were scarce, and while there is truth in those arguments, subtler reasons were also at play. During a year spent researching for a book on this subject, I've come across case after case in which regulators were reluctant to use the laws and resources available to them. Members of the public don't have a full sense of the issue because they rarely get to see how such decisions are made inside government agencies.
Kidney was on the inside at a crucial moment. Now retired after decades of service to the SEC, Kidney recently provided me with a cache of internal documents and emails about the Abacus investigation. The agency holds the case up as a success, and in some ways it was: Goldman had to pay a $550 million fine, and a low-ranking trader was found liable for violating securities laws. But the documents provided by Kidney show that SEC officials considered and rejected a much broader case against Goldman and John Paulson & Co.
Kidney has criticized the SEC publicly in the past, and the agency's handling of the Abacus case has been previously described, most thoroughly in a piece by Susan Beck, in The American Lawyer, but the documents provided by Kidney offer new details about how the SEC handled its case against Goldman. The SEC declined to comment on the emails or the Abacus investigation, citing its policies not to comment on individual probes. In a recent interview with me, Muoio stood by the agency's investigation and its case. “Results matter. It was a clear win against a company and culpable individual. We put it to a jury and won,” he said.
Kidney, for his part, came to believe that the big banks had “captured” his agency — that is, that the SEC, which is charged with keeping financial institutions in line, had become overly cautious to the point of cowardice.
The Abacus investigation traces to a moment in late 2006 when the hedge fund Paulson & Co. asked Goldman to create an investment that would pay off if U.S. housing prices fell. Paulson was hoping to place a bet on what we now know as “the big short”: the notion that the real-estate market was inflated by an epic bubble and would soon collapse. To facilitate Paulson's short position, Goldman created Abacus, an investment composed of what amounted to side bets on mortgage bonds. Abacus would pay off big if people began defaulting on their mortgages. Goldman marketed the investment to a bank in Germany that was willing to take the opposite side of the bet — that housing prices would remain stable. The bank, IKB, was cautious enough to ask that Goldman hire an independent manager to assemble the deal and look out for its interests.
This is where things got dodgy. Unbeknownst to IKB, the hedge fund Paulson & Co. improved its odds of success by inducing the manager, a company called ACA Capital, to include the diciest possible housing bonds in the deal. Paulson wasn't just betting on the horse race. The fund was secretly slipping Quaaludes to the favorite. ACA did not understand that Paulson was betting against the security. Goldman knew, but didn't give either ACA or IKB the full picture. (For its part, Paulson & Co. contended that ACA was free to reject its suggestions and said that it never misled anyone in the deal.)
When SEC officials discovered this in 2009, they decided that Goldman Sachs had misled both the German bank and ACA by making false statements and omitting what the law terms “material details” — and that these actions constituted a violation of securities law. (The SEC oversees civil enforcement of U.S. securities law and can charge both companies and individuals with violations. Its work can often be a precursor to criminal cases, which are handled by prosecutors at the Justice Department.)
Kidney was a trial attorney with two decades of experience at the SEC, and had won his share of courtroom battles. But the stakes in this case were particularly high. Politically, it was a delicate moment. The global financial system was only just recovering, millions of Americans had lost their jobs, and there was growing public anger about the bailout of the banks and car companies in Detroit. When Kidney looked at the work that had been done on the case, he found what he saw as serious shortcomings. For one, SEC investigators had not interviewed enough executives. For another, the staff decided to charge only the lowest man on the totem pole, a midlevel Goldman trader named Fabrice Tourre, a French citizen who lived in London, and who was in his late twenties when the deal came together. Tourre had joked about selling the doomed deal to “widows and orphans,” and had referred to himself as “Fabulous Fab,'' a sobriquet that probably would not endear him to a jury. He was an easy target, but charging him was not likely to send a signal that Washington was serious about cracking down on Wall Street's excesses.
Kidney could not understand why SEC staffers were reluctant to investigate Tourre's bosses at Goldman or anyone at Paulson & Co. Charging only Goldman, he said, would send exactly the wrong message to Wall Street. “This appears to be an unbelievable fraud,” he wrote to his boss, Luis Mejia. “I don't think we should bring it without naming all those we believe to be liable.”
Kidney came to work at the SEC in 1986. He was thirty-nine at the time, having first worked a stint as a journalist. The “steam was elevated” at the agency when he started there, he said. Young lawyers were expected to go after the big names, and they did: the junk-bond king Michael Milken, the insider trader Ivan Boesky, the investment banker Martin A. Siegel.
As a trial lawyer, Kidney's job was to develop a compelling narrative that could be presented to a jury of laymen unfamiliar with the intricacies of finance. “Jim was a great attorney. A lawyer's lawyer. Sound legal mind, excellent writer, and a true trial lawyer,” said Terence Healy, the vice-chair of securities enforcement practice at Hughes Hubbard and a former colleague of Kidney's at the SEC. But Kidney also exasperated some staffers who thought he wasn't detail-oriented and didn't grasp nuances.
Soon after he joined the case, Kidney believed that the evidence the SEC staff had assembled justified charges against more people and he argued for, at the very least, an investigation of higher-level executives. The SEC team had not interviewed Tourre's direct superior, Jonathan Egol. Nor had they questioned top bankers in Goldman's mortgage businesses or any of the bank's senior executives. Even more surprising to Kidney, the agency had not taken testimony from John Paulson, the key figure at his eponymous hedge fund. It seemed to Kidney, as he reviewed the case materials, that the agency had spent more time and effort investigating much smaller insider-trading cases. Just two weeks after he joined the case, on August 14th, Kidney urged the team to broaden its investigation and issue key participants in the Abacus deal what are known as Wells notices — official notification that the SEC is considering charges.
Kidney's view of the case put him at odds with Muoio, who was widely respected at the agency for his analytical abilities. Kidney said that he was aghast when, in an email sent a month later congratulating his team on their work investigating Tourre, Muoio described potential targets of SEC charges as “good people who had done one bad thing,'' and he did little to hide his irritation.
“I am in full agreement that when we sue it can be devastating, and that we have sued little guys way too often on flimsy charges or when they have been punished enough,'' he wrote back. “But I'm not at all convinced that Tourre alone is sufficient here.”
Kidney later explained to Muoio that he was pushing for a more assertive approach because he believed that the SEC had grown too passive in its oversight of Wall Street. “The damage to the reputation of the [SEC] in the last few years and the decline of the institution are very troubling to me,” he wrote.
Kidney and Muoio battled for months. Kidney felt that the agency was overly dependent on the kind of direct evidence it had against Tourre. Part of the problem was that high-level Goldman executives had been savvier in how they communicated: when topics broached sensitive territory in emails, they would often write “LDL” — let's discuss live.
Kidney pressed the team to take what he thought were obvious investigative steps. He had been told by a staff attorney in the group that Muoio had vetoed the idea of calling Paulson to testify, and the agency hadn't subpoenaed Paulson's emails initially, relying mainly on the voluntary disclosure of documents. “We didn't get subpoena power until late in the investigation,” a staff attorney acknowledged to Kidney in an email sent late in August of 2009.
As the year ended, Muoio remained opposed to bringing charges against anyone but Tourre. In a December 30th email, sent to the entire group investigating the deal, Muoio offered an explanation for what had happened during the bubble years: “Now that we are gearing up to bring a handful of cases in this area, I suggest that we keep in mind that the vast majority of the losses suffered had nothing to do with fraud and the like and are more fairly attributable to lesser human failings of greed, arrogance and stupidity of which we are all guilty from time to time.”
Several days later, Kidney sent an email to Lorin Reisner, the SEC's deputy director of enforcement, in which he warned, “We must be on guard against any risk that we adopt the thinking of those sponsoring these structures and join the Wall Street Elders, if you will.”
Kidney also continued to push the agency to bring charges against Egol, Tourre's superior at Goldman, arguing that the SEC should at least interview him. According to Kidney, Muoio dismissed the idea, saying that the agency knew what Egol would say.
“That's a cardinal sin in an investigation,'' Kidney said that he told Muoio. “You can't assume what somebody will say.”
One reason for the reluctance from Muoio and others at the SEC was that they wanted to make the case about misleading statements and they didn't have that sort of evidence from Paulson & Co. employees or high-level Goldman executives.
Kidney told me that he thought the SEC could avail itself of a broader interpretation of securities law. He argued that the agency should file civil actions against top players at both the bank and the hedge fund under a concept called “scheme liability” — a doctrine of securities law that makes it illegal to sell financial products whose main purpose is to deceive investors.
In late October of 2009, Kidney circulated a long memo arguing that the SEC should consider charging Paulson & Co., John Paulson himself, and Paolo Pellegrini, who was the hedge fund executive who worked on the Abacus deal.
“Each of them knowingly participated, as did Goldman and Tourre, in a scheme to sell a product which, in blunt but accurate terms, was designed to fail,” Kidney's memo said. “In other words, the current pre-discovery evidence suggests they should be sued for securities fraud because they are liable for securities fraud.”
John Paulson and Pellegrini declined to comment for this article. Paulson & Co. and Goldman dispute that the deal was fraudulent. A spokesman for the Paulson hedge fund said that “there was no ‘scheme' nor was Abacus ‘designed to fail'” and that the hedge fund neither told Goldman what to disclose to investors nor knew anything about what the bank was telling investors. A Goldman spokesman said that the bank never created mortgage-related products that were designed to fail. He said the precipitous collapse in the value of Abacus, which fell to zero several months after it had been created, resulted from the broad decline in the housing market that afflicted all securities related to real estate, not because of flaws in the product.
Some of Kidney's colleagues initially supported his idea to pursue scheme liability, but Muoio seemed to think that doing so would hurt the agency's solid but narrower case against Goldman. “I continue to have serious reservations about charging Paulson on our facts,'' Muoio wrote. “And I worry that doing so could severely undermine and delay our solid case against Goldman.” Muoio's viewpoint, again, prevailed.
Muoio, in a recent interview with me, dismissed Kidney's complaints. “I cannot imagine any basis for claiming ‘regulatory capture,' given that I have never worked in industry or finance and given the cases I have made, including very significant cases against banks, auditing firms, companies and senior executives," he said.
Even after he lost the debate over scheme liability, Kidney continued to argue for charging Jonathan Egol with securities-law violations. One staffer wrote that the SEC had testimony, but little documentary evidence, proving that Egol had reviewed the Abacus documents. “The law surely imposes liability on others besides the literal scrivenor [sic], or we are in big trouble,” Kidney shot back in an email. “Why are we working so hard to defend a guy who is now a managing director at Goldman so we can limit the case to the French guy in London?”
“I am sure you are not suggesting we charge Egol because of his position within the company,” Muoio replied. “Nationality is also clearly irrelevant and I hope that's the last we hear from you on that subject. Tourre admits he was principally responsible for the problematic disclosures.”
Members of the SEC staff finally interviewed Egol in January. Muoio would later tell the SEC inspector general: “We didn't lay a glove on him.” But Kidney felt differently. As he saw it, Egol had acknowledged reviewing all the documents that the SEC had deemed misleading.
On January 29, 2010, after months of investigation and debate, the SEC provided a Wells notice to Jonathan Egol. Neither Egol nor his lawyers responded to repeated calls and emails seeking comment.
Things dragged on. In March, Muoio wrote an email arguing against charging Egol, saying that, among other reasons, he “will strike most jurors as nice, likable, down-to-earth family man.” On the afternoon of March 22nd, the team gathered in the office of Robert Khuzami, the SEC's director of enforcement, for a meeting. Kidney, Lorin Reisner, and one other lawyer present were in favor of suing Egol; Muoio remained implacably against, as did others. Most of the lower-level staffers stayed quiet.
The following day, Khuzami emailed the group with his decision: “I am a no on Egol. An extremely difficult call,” he wrote. “The lack of consensus among our group is itself, for me, confirmation of this conclusion.” Khuzami did not respond to a request for comment for this article.
Kidney had lost. He was offered the job of handling the expert witnesses for the trial but knew what that meant — that he was getting demoted. He declined.
On Friday, April 16, 2010, the SEC stunned the markets, suing Goldman Sachs and charging the firm with omitting information that would have been crucial to investors in Abacus. The agency brought a charge against Tourre, as well. Goldman's stock dropped thirteen per cent that day, erasing $10 billion of its market capitalization.
A couple of months later, on July 15, 2010, the SEC settled with Goldman for $550 million. Goldman Sachs did not admit any wrongdoing. The SEC wrung an apology out of the bank, which the agency perceived as scoring a victory that critics called inadequate.
It would be the only SEC action brought against the bank for its actions in this corner of the mortgage securities markets just before the meltdown, although a Senate investigation uncovered questionable behavior related to other Goldman mortgage securities. The Justice Department recently settled a case with Goldman that charged that the bank had misrepresented mortgage-backed securities. The bank had to pay on the order of $5 billion. The Justice Department did not charge any individuals.
In 2013, Fabrice Tourre was found liable in a civil trial and ordered to pay more than $850,000. He is now a Ph.D. candidate at the University of Chicago.
Kidney became disillusioned. Upon retiring, in 2014, he gave an impassioned going-away speech, in which he called the SEC “an agency that polices the broken windows on the street level and rarely goes to the penthouse floors.”
In our conversations, Kidney reflected on why that might be. The oft-cited explanations — campaign contributions and the allure of private-sector jobs to low-paid government lawyers — have certainly played a role. But to Kidney, the driving force was something subtler. Over the course of three decades, the concept of the government as an active player had been tarnished in the minds of the public and the civil servants inside working inside the agency. In his view, regulatory capture is a psychological process in which officials become increasingly gun shy in the face of criticism from their bosses, Congress, and the industry the agency is supposed to oversee. Leads aren't pursued. Cases are never opened. Wall Street executives are not forced to explain their actions.
Kidney still rues the Goldman case as a missed chance to learn the lessons of the financial crisis. “The answers to unasked questions are now lost to history as well as to law enforcement,“ he said. ”It is a shame.”
SUMMARY: Investment bank Goldman Sachs became this week the last big institution to settle with the federal government for its role in the 2008 financial crisis. But in an election cycle that has seen big banks under more scrutiny than ever before, there are worries that regulations against institutions like Goldman Sachs aren't going far enough. Lynn Stout of Cornell Law School joins John Yang.
JUDY WOODRUFF (NewsHour): Now to our occasional series of conversations about whether some banks and firms are too big to fail, and whether they pose a risk to the country's financial health.
John Yang has our latest installment.
JOHN YANG (NewsHour): Eight years after the housing bubble exploded, investment bank Goldman Sachs this week became the last big institution to settle with the government for its role in selling bundles of bad loans to investors, which led to the financial crisis.
In this election year, there is a lot of talk about whether too many firms remain too big to fail and whether the Dodd-Frank (Act) law is working.
Lynn Stout is a Cornell University law professor who now serves on the Treasury Department's Financial Research Advisory Committee. She has been very critical of Dodd-Frank, and she joins us now from Ithaca, New York.
Professor Stout, thanks for being with us.
Let's start off with that Goldman Sachs settlement this week. They have agreed to pay as much as $5 billion in this settlement with the government. What does this say about accountability now among the big financial institutions after the financial crisis?
LYNN STOUT, Cornell University: I'm afraid the settlement confirms something that we have suspected for quite a long time, which is that it looks like fraudulent practices were hard-baked into the banking sector during 2008.
And, unfortunately, although $5 billion sounds like a lot of money, the settlement is actually relatively small. It's certainly small compared to the damage that was done by these fraudulent practices, and it's relatively small compared to some of the settlements by some of the other banks, by Citibank and by Bank of America.
So, as large as the figure may seem, I'm afraid it creates the risk that this could be business as usual, that, at the end of the day, Goldman Sachs may have found these sorts of fraudulent practices to overall profitable, even in light of the fines.
JOHN YANG: Business as usual, you say.
Now, Dodd-Frank was supposed to address all this. It was the response to all of this, the financial crisis and what brought it on. You say Dodd-Frank isn't working. Why not? What about it isn't working?
LYNN STOUT: The basic problem with Dodd-Frank is that it created the appearance of Congress doing something, without that appearance being backed up by reality.
What the Dodd-Frank Act did mostly was direct various regulators at the Federal Reserve, the FTC, the CFTC to draft regulations that were supposed to rein in the banks. But Dodd-Frank itself doesn't impose many hard and fast rules, and what's happened in all the years since is that the financial industry, through lobbying, campaign contributions, behind-the-scene actions, HAS been very effective at stymying regulators from doing anything that really crimps their style and reins them in.
SUMMARY: The Obama administration has taken steps to rein in big businesses this week: New rules issued by the Treasury Department regarding tax loopholes ended a $160 billion deal between Pfizer and Allergan. Meanwhile, the Justice Department has filed an antitrust suit against a proposed oil giant merger, and more may follow. Gwen Ifill talks to Jim Tankersley of The Washington Post for more.
GWEN IFILL (NewsHour): The Obama administration took steps this week to rein in big businesses when it comes to taxes and mergers.
First, the Treasury Department issued tough new rules that make it harder for one company merging with another to lower its taxes by taking a foreign address. The President spoke out against the so-called inversions, saying they lead to one of the most insidious tax loopholes.
A day later, the drug companies Pfizer and Allergan called off a $160 billion deal. Plus, the Obama Justice Department is trying to block oil services giant Halliburton from merging with its rival Baker Hughes. Other proposed mergers may also be in trouble.
Jim Tankersley writes about this for The Washington Post.
Welcome, Jim.
JIM TANKERSLEY, The Washington Post: Thanks for having me.
GWEN IFILL: So, give me a sense of whether this is a conscious strategic use by the administration on tax policy to crack down on business.
JIM TANKERSLEY: Well, in this particular case, it’s absolutely the administration saying, this is a practice in the corporate world that we don’t like, and we’re going to use tax policy to stop it. It looks very tailored in particular to mergers like the Pfizer one, which, I mean, it’s very rare that you see a rule get announced on one day and a merger get called off the next, but that’s what they have pulled off here.
GWEN IFILL: So, one of the things that they — when we talk about this, though, for instance, the administration decided they wanted to make financial advisers more accountable to clients.
JIM TANKERSLEY: Yes.
GWEN IFILL: Is that part of that same strategy, or is that different?
JIM TANKERSLEY: I think what we’re seeing are two things.
Over time, we have seen the President sort of shed his inhibitions about taking positions that might be opposed by the business community. He doesn’t seem to really care too much anymore if he’s being called anti-business. So, we see like sort of string of decisions this week that we have mentioned that are all in that vein.
And the business community has howled, and he hasn’t really let that bother him. Shorter term, what we’re seeing, though, is the President, I think, is thinking about his legacy, and he knows right now we’re in a time, a very populist time, anti-corporate time in the America in the campaign.
And so by personally getting out and announcing details of the inversions rule, making the case for it, for example, this week, he’s trying to cement that rule in the public’s mind, so that the next President doesn’t change it or walk it back.
This story was co-published with WNYC and the Albany Times Union.
Thomas Maino knew he was going to die. Suffering from serious ailments, the 93-year-old veteran had rejected invasive treatments and asked only that he be made comfortable after he was admitted to a Syracuse nursing home in November 2008.
But on a snowy Saturday morning the following January, his moans could be heard down the hallway.
Over the next eight hours, coworkers reported to the nurse in charge of Maino's unit that he needed pain medication. That nurse, Maura Quinn, gave him only Tylenol and never alerted the doctor. Other nurses told her Maino was in agony, but she ignored them, even when his moaning turned to yelling, seven staffers at the home later testified in depositions taken during an investigation by the state Attorney General's office.
“Oh great, now people are going to tell me how to do my freaking job,” Quinn said when a nurse from a nearby wing left a note for her about Maino, according to one deposition.
Maino died that evening.
After an administrator reported the incident to New York nursing home regulators, Quinn was fired and, in December 2010, convicted of a misdemeanor for providing Maino with inadequate care. The state Attorney General's office reported Quinn to the Office of the Professions, the agency that licenses and disciplines nurses, when she was sentenced two months later.
But it would take another three years for the Office of the Professions to suspend her from nursing. By then, the agency had learned that Quinn lied on her initial licensing application, failing to disclose a 1988 conviction for drug possession, and that she was convicted in 2012 of driving without a license — both grounds for more disciplinary action. The agency finally suspended Quinn's nursing license for three months in May 2014.
Over the past 15 years, nursing boards across the country have taken steps to tighten oversight of nurses, screening applicants more extensively before issuing licenses and instituting swifter, tougher sanctions for problem licensees.
Not New York.
Unlike many states, New York does not require applicants for nursing licenses to undergo simple background checks or submit fingerprints, tools that can identify those with criminal histories and flag subsequent legal problems. And it often takes years for New York to discipline nurses who provide inept care, steal drugs or physically abuse patients.
A ProPublica review of hundreds of disciplinary records, arrest reports and court filings shows New York's system for overseeing nurses is deeply flawed. Among our findings:
- The Office of the Professions often fails to act when it is informed that other states or even other New York agencies have disciplined New York nurses. One example: The state health department penalized a nurse in early 2014 for administering an overdose of insulin that nearly caused a patient's death, but the Office of the Professions has taken no action against her license.
- Though the Office of the Professions can take immediate action against nurses accused of endangering the public's health or safety, it has not done so, even in egregious cases. After a nurse in the Bronx was caught sexually assaulting a patient in February 2014, the agency didn't revoke his license for more than a year and a half, records show.
- New York disciplines nurses far less often than other large states. In 2014, the Office of the Professions disciplined fewer than 350 licensees, which works out to 1 in 1,190. In the same year, Ohio disciplined more than 1,600 (1 in 153), and Texas disciplined almost 2,300 (1 in 167). In fiscal 2014, California disciplined over 1,600 nurses, roughly 1 in 325.
- “As a professional nurse who is registered in the state of New York, I'm appalled,” said Donna Nickitas, the executive officer of the nursing PhD program at the Graduate Center of the City University of New York. “This is [about] the health and welfare of the general public.”
- The Office of the Professions is an arm of the New York Department of Education. In response to these ratios, a spokeswoman for the education department said that New York's numbers only reflected actions that needed the approval of the Board of Regents. The department did not respond to multiple requests to quantify or elaborate on this.
- Even inside the Office of the Professions, concerns have grown so pronounced that one investigator wrote to New York State Sen. Michael Venditto last July about the consequences of not performing background checks on nurses, as well as delays in disciplinary action, letters obtained by ProPublica show. The investigator cited one nurse who was licensed despite a violent criminal history because he never reported it on his application. Another nurse maintained an active license for three years while she awaited trial on charges of selling prescription drugs, the investigator wrote.
- In response to a letter from Venditto about the investigator's concerns, New York State Commissioner of Education MaryEllen Elia said in October 2015 that her agency would support background checks and fingerprinting for nurses if state legislators proposed a measure requiring them. (They have not done so.)
- But Elia cited an “extraordinarily high” success rate for the investigations completed by the Office of the Professions. “We are very proud of the work the office does and believe that New York's licensed professionals are among the safest in the country,” Elia wrote in a second letter in December 2015. She did not clarify how she was defining success, and also declined requests to be interviewed.
- Peggy Chase, a member of the New York nursing board, the licensing board for nurses that is part of the Office of the Professions, acknowledged the blind spots in the oversight system. She said she did not remember the issue of background checks being raised at any of the board's meetings. In a phone interview, she conceded that “people can lie and we will never know,” but said the responsibility for spotting and dealing with problem nurses should not fall exclusively on the Office of the Professions.
- In an e-mailed response to ProPublica's findings, Jeanne Beattie, a spokesperson for the education department, acknowledged that the Office of the Professions had limited ability to discipline nurses.
- “We are working with the chairs of the Senate and Assembly Higher Education Committees to improve the disciplinary process to include greater authority and tools for the department,” said Beattie.
- Quinn could not be reached by phone and did not respond to a letter sent to her most recent address in Florida. The education department declined to comment on Quinn's discipline record or the cases of any other individual nurses that ProPublica asked about.
- In a handwritten statement three days after Maino died, Quinn said she had left her shift that Saturday afternoon believing Maino was stable and resting. “I was not concerned [with] Thomas's yelling act because that's what he had been doing for weeks,” she wrote.
- Quinn's disregard for her patient left a lasting impression on her former colleagues. “Whenever I think about what happened that day I get sick to my stomach,” Veronica Barricella, one of the aides who tended to Maino, said in her February 2009 deposition. “I have also had nightmares.”
There may be no better illustration of the value of checking nurses' criminal histories than the strange tale of Randall Silsby.
Silsby received a New York nursing license in 1992. Five years later, faced with two divorces and child support payments, Silsby decided to solve his “midlife crisis” by faking his own death. He left Niagara Falls for the Dominican Republic, where he paid a lawyer to draw up a fake death certificate and assumed the name of Julio DiMuerte (muerte means “death” in Spanish). When he decided to resurrect himself and head back to New York, the federal government charged him with making a material false statement to the government, a felony. He was sentenced to six months in prison in 2001. As a condition of his release, Silsby was ordered to receive mental health treatment.
But in 2002, Silsby was able to renew his New York nursing license and return to work simply by not disclosing his conviction on the renewal application. As is typical, the Office of the Professions didn't independently seek out records on his criminal past. It only does this if nurses admit they have been convicted of crimes or are accused of wrongdoing, officials say.
Silsby's scheme only came to light more than a decade later, when state officials investigated a claim that he touched the breasts of a sedated 85-year-old patient at Wilson Medical Center in Johnson City, New York. According to a 2014 nursing board document, Silsby was not disciplined for the sexual abuse allegation, and was suspended for one month for forging his death certificate. His license is still active in New York.
Silsby did not respond to multiple emails or phone calls.
New York's approach to vetting nurses is increasingly out of step with that of other states. In 2005, the National Council of State Boards of Nursing, the trade group representing state nursing boards, issued a report recommending that nursing boards conduct state and federal criminal background checks on all applicants and licensees. “Consumers needing health care are vulnerable. Nursing is a stressful profession. Stress tends to cause bad habits to reappear,” it said, adding that it was “appropriate to establish high behavior standards” for nursing applicants.
In the last decade, a majority of state boards have adopted such measures. In 1998, only five states performed background checks on nurses; by 2014, 37 states did them and more were initiating these procedures.
New York not only relies on nurses to self-report criminal convictions, it also only requires them to do so every three years, when they renew their licenses. Other states mandate that nurses report problems far sooner. Florida, for example, requires nurses to report convictions within 30 days. Georgia gives nurses 10 days to report felony convictions. And nurses in Pennsylvania must report criminal convictions as well as pending criminal charges within 30 days.
As Silsby's case demonstrates, in the absence of background checks, nurses aren't always honest. Kathy Thomas, the executive director of the Texas Board of Nursing, said her board instituted background checks and fingerprinting in 2003 after consulting other state boards that discovered many nurses with criminal histories when they stopped relying exclusively on self-reporting.
“We knew self reports were unreliable,” Thomas said. When Texas added background checks, the board discovered “serious criminal history that hadn't been disclosed.”
According to data provided by the Texas Board of Nursing, the board received just over 4,000 reports filed against Texas nurses in 2004. The state gradually began implementing the fingerprinting system that year. By 2015, the number of reports against nurses had ballooned to almost 14,000, largely as a result of a system that automatically sends reports of criminal convictions and arrests to the nursing board.
David Keepnews, a professor at the Hunter-Bellevue School of Nursing, said background checks and fingerprinting would likely turn up a relatively small number of nurses with serious criminal convictions. But that should not deter New York from pursuing reform, he said.
The “nursing profession as a whole has an interest in ensuring safe nursing care and in maintaining the public's trust,” he said. “We should see this as an opportunity to make the practice even safer by working to plug the holes in our disciplinary system.”
Even when nurses do report their own misconduct, New York's system falters. The unit within the Office of the Professions that renews licenses is separate from the unit that pursues investigations, so both processes — renewals and investigations — can proceed simultaneously, on separate tracks.
In August 2012, licensed New York nurse Matthew Schroeder was sentenced to three years in prison for selling a drug without a prescription over eBay. The FDA had initiated an investigation after a Georgia teenager who purchased drugs from him died of an overdose.
“I thought what I was doing was legal. I was trying to branch out and become a self-made business man,” Schroeder said in a phone interview, explaining that the drug he sold was not listed as a controlled substance.
In April 2015, Schroeder applied to renew his state nursing license, although he was not released from prison until that July. Schroeder said he admitted his conviction on the application but the state renewed his license anyway, though it later informed him it had opened an investigation.
“I think it is completely OK for me to be a nurse. I have always taken great care of my patients,” he said, adding that he expected to pay a fine but continue practicing.
Schroeder voluntarily surrendered his California license in March 2014 while he was in prison because he said he could not be present for the hearing in front of the state board. States share disciplinary actions against their nurses, but Schroeder's New York license has remained active.
New York nurses who report minor crimes say the Office of the Professions can take years to complete investigations, leaving their professional lives in limbo.
Registered nurse Danielle DiSciullo was nervous when she reported a December 2010 DUI on her renewal application in 2013, and was relieved when her license arrived in the mail the following month. But months later, DiSciullo received a letter informing her that the nursing board was investigating her. State records indicate she had a hearing in May 2014, nine months after she voluntarily disclosed the conviction. She received a month-long suspension the following September.
“It was torture at times; I just wanted to know what was going to happen,” said DiSciullo, whose license is now clear.
Edie Brous, an attorney who represents nurses in front of the Office of the Professions, said DiSciullo's situation is not uncommon. Many of her clients have been disciplined for minor crimes several years after admitting to them. The drawn-out process ill serves nurses without protecting the public, she said.
“If you believe that this is a licensee that needs to be disciplined in order to protect the public's safety, you don't sit on it for six months or a year.”
In most states, nurses are overseen either by health departments or independent nursing boards. In New York, however, the Office of the Professions, like the rest of the Department of Education, comes under the Board of Regents, whose primary responsibility is to oversee the state's vast public education system.
The education department once oversaw all licensed professionals, but in 1975, the health department assumed authority over doctors and physician assistants after the Board of Regents was criticized for failing to provide adequate oversight. “It has been our experience that the response of the Regents to our investigations has been inaction,” Dr. Lawrence Essenson, chairman of the Medical Society of the County of New York's Board of Censors, wrote in a 1975 letter quoted by the New York Times.
Under the Board of Regents' umbrella, there's a complex disciplinary process for nurses accused of misconduct. First, a member of the state nursing board partners with an investigator for the Office of the Professions to determine what happened and, in some cases, recommend discipline. Then a member of the Board of Regents' Professional Practices Committee reviews and refines their recommendation. Then the full Board of Regents has to approve the final recommendation at its monthly meeting, along with recommendations for disciplinary action from the other 53 professions overseen by the Office of the Professions.
Regent Wade Norwood, the co-chair of the regents' Professional Practice Committee, defended this process, saying the layers involved created a more “fair and thorough review.”
But Regent Catherine Collins, the only licensed nurse on the Board of Regents, was concerned by the comparatively few disciplinary actions against nurses approved by the board and felt the board does not have a deep enough understanding of individual professions. She said it was crucial for the regents to pay special attention to professions that care for those who are vulnerable, such as nurses.
“People look for loopholes when they want to commit bad behavior. If there is a hole in our system we need to plug it,” Collins said.
Doctors received closer scrutiny after the health department took over their discipline, but legislators say it would be near-impossible to shift authority over nurses.
“There would be a lot of logic to that, but it would be like moving heaven and earth in terms of a legislative task,” said Assemblyman Richard Gottfried, who chairs the Assembly Committee on Health and sits on the Committee on Higher Education.
Legislative oversight of nurses falls to higher education committees, so the committees charged with overseeing health have no ability to initiate legislation concerning the profession.
Kemp Hannon, chair of the Senate Standing Committee on Health, said there had been “incredible” resistance from the higher education committee when his committee had attempted to write measures that included nurses.
Some have pointed to budgetary issues as an explanation for the inefficiency of the Office of the Professions. Democrat Deborah Glick, who chairs the state Assembly's Higher Education Committee, said the professions office had been “systematically starved” of finances since it doesn't have the power to raise licensing fees without legislative approval.
But data from the National Council of State Boards of Nursing shows New York's licensure fees are comparable to other states across the country. Ohio charges lower licensing fees than New York but disciplined almost five times as many nurses in 2014. ProPublica requested a breakdown of the Office of the Professions' spending to compare with that of other state nursing authorities, but a spokeswoman was unable to provide one beyond aggregate numbers for revenue and expenses.
The Office of the Professions also does not post disciplinary documents online (as its neighbors, New Jersey, Connecticut and Pennsylvania, do), instead providing short summaries for why nurses have been disciplined on its website. The summary of Silsby's case, for example, simply states that he made a false statement to the government and not that he faked his own death.
While it is routine for states to track the average time it takes to discipline a nurse, New York could not provide this information. Beattie, the education department spokeswoman, said because “there is no average case, it is nearly impossible to define an average time.”
While the Office of the Professions has sole authority over nurses' licenses, multiple other agencies have a hand in investigating misconduct by nurses.
The state health department enforces care standards at many types of health facilities, from hospitals to nursing homes. If regulators find facilities have not met nursing requirements, they can levy civil fines and report nurses to the Office of the Professions. The state attorney general's office also tells the Office of the Professions when nurses are convicted of crimes, including cases involving Medicaid fraud.
Still, even when the Office of the Professions is alerted to wrongdoing by other agencies, it re-investigates the allegations from square one.
Between 2013 and 2015, 48 nurses with active licenses were convicted of crimes related to Medicaid fraud investigations, according to data provided by the New York Attorney General's office. All were referred to the Office of the Professions for disciplinary action, yet 17 have not been disciplined. The office has not disciplined a nurse convicted of Medicaid fraud since November 2014.
The Office of the Professions also rarely acts on cases referred over by the health department, ProPublica found. Documents obtained under New York's Freedom of Information Law show that out of 54 nurses the health department recommended for discipline in 2014, only 13 were disciplined by the end of 2015.
In March 2012, on her first unsupervised day as a nurse, Linda Ansa administered insulin to a resident of the Mary Manning Walsh Nursing Home on Manhattan's Upper East Side. The 99-year-old patient was supposed to receive two units of the drug, but Ansa recorded that she'd administered 100. The nurse who took over on the next shift found the patient with labored breathing, sweating, and unresponsive. It took 24 hours to get her blood sugar back to normal, and days later she was still disoriented. Records show the patient nearly died.
The Health Department investigated. Ansa claimed in a hearing that the entry of “100” was simply a clerical error, and that the patient's symptoms could have reflected her age or other circumstances. In October 2013, a Department of Health administrative judge ruled that Ansa had neglected the patient and therefore violated public health law, though he did not levy a fine. “The Petitioner has been fired from this position and will, in all likelihood, lose her license for her deeds. This is a severe enough penalty for the proven facts of this case,” he wrote.
But even though the health department reported Ansa's case to the Office of the Professions in January 2014, no action has been taken on her license since then. When reached by telephone, Ansa declined to comment on the case. A health department spokesperson said in an email that “the New York State Department of Education is responsible for overseeing the Office of the Professions, not [the] State Department of Health.”
In addition to receiving reports when other New York agencies sanction nurses, the Office of the Professions is also alerted automatically when other states discipline New York practitioners through NURSYS, a national system run by the National Council of State Boards of Nursing.
But an analysis of disciplinary records in Connecticut, Pennsylvania and New Jersey shows that the Office of the Professions routinely does not sanction New York licensees disciplined by those states. Of 13 nurses disciplined by Connecticut since 2013 who also held active New York licenses, the Office of the Professions has only imposed its own sanction in three cases. In the same time span, it took action against four of 17 nurses disciplined in Pennsylvania who also had active New York licenses and zero out of 26 disciplined in New Jersey.
In March 2012, Heather Graham was summoned before the Pennsylvania nursing board. A physical examination done that month at the board's request showed she was suffering from “opiate dependence in full early remission” as well as ongoing anxiety and depression due to medical and legal problems, Pennsylvania disciplinary records say.
Court records show Graham was arrested with three other nurses in June 2013 for stealing 31 vials of hydromorphone, an opioid pain medication, from a Watertown, N.Y. hospital where she was employed. She then made false entries in the medication dispensing system to cover up the theft, according to the testimony of a narcotics investigator for the state health department.
In August 2013, New York received a notification through NURSYS that Pennsylvania had revoked Graham's license. The following year, Graham was convicted and sentenced to three years' probation in a New York court for falsifying business records and acts prohibited under the public health law.
Yet the Office of the Professions took no action on Graham's New York license until September 2015. At that time, she was fined $500, but her license was not suspended, according to a summary of her disciplinary action. Graham's New York license remains active to this day.
Graham could not be reached for comment through her former attorney.
Cindy Powell, a former nurse who worked for the investigative arm of the Office of the Professions for more than two decades until 2011, said she often handled cases of nurses stealing medications who had already been disciplined by another state. Asked whether New York should screen applicants for out-of-state discipline, she said, “That would have made our job so much easier.”
ProPublica's analysis turned up several other nurses with troubling records in other states and clear licenses in New York.
Celeste Nwanna voluntarily surrendered her New Jersey license in February 2013 while facing criminal charges for improperly drugging an elderly resident of a group home, landing the patient in the emergency room. She had previously been disciplined in New Jersey for making up entries on a patient's chart. Two years later she applied for a license in Connecticut and to renew her license in New York. Connecticut denied her application because she lied about her criminal history. New York approved the renewal and Nwanna's license remains active in the state. (Nwanna could not be reached for comment.)
Diane Posthauer voluntarily surrendered her Connecticut nursing license in February 2015 after she was caught taking oxycodone from her hospital. A few months later, Wyoming and North Carolina revoked her licenses in those states. But the same month that she surrendered her Connecticut license, Posthauer's license was renewed by New York. New York is the only state where her license remains active.
Contacted by phone, Posthauer said she had been prescribed the drug by a doctor and was not addicted. She said that instead of undergoing an expensive drug treatment program, she decided to retire.
Just after 1 a.m. on a February morning in 2014, a nurse's aide walked in to find Nanic Aidasani in the bed of a 64-year-old dementia patient at a Bronx nursing home. The nurse was moving his body back and forth on top of the patient, according to a police report. The woman had suffered a stroke, which left her unable to speak. Her gown was found unsnapped and her vagina was exposed, the police report said.
Aidasani was charged with attempted rape, sexual abuse and endangering the welfare of an incompetent person, and the story soon made the local news. The day after his arrest, the National Council of State Boards of Nursing sent a news article to the Office of the Professions to alert it to the incident, a spokeswoman for the NCSBN confirmed.
The Office of the Professions can suspend a nurse's license on an emergency basis, pending a full hearing, in cases in which it decides someone could pose a serious public safety risk. Aidasani's case appeared tailor-made for such a step. But for more than a year and a half, Aidasani's license remained active in New York.
It remained active after Aidasani posted $20,000 bail and walked out of Rikers Island days after his arrest. It was active in April 2015, when he was sentenced to prison and agreed to relinquish his license to the court under the terms of a plea deal. Although the Bronx District Attorney's office notified the Office of the Professions of his sentence, and Aidasani submitted paperwork to voluntarily surrender his license at the time of his sentencing, his license remained active and reflected no punishment even when he was released from jail in August.
Aidasani's license was finally revoked in September, and he was deported to the Philippines in November.
“A discipline that takes that long is an injustice,” said Barbara Zittel, the former executive secretary to the New York Board of Nursing, when told of Aidasani's case. The Office of the Professions declined to comment on Aidasani's case, other than to say officials had “cooperated fully” with the investigation and his sentencing.
Loida Rivera, the victim's daughter, was surprised to learn it had taken so long for the Office of the Professions to revoke his license. She had been disappointed with the six-month prison sentence and hoped at least his license would be revoked immediately so others wouldn't be hurt.
After the attack, Rivera's mother suffered nightmares and broke out into cold sweats, and it took her months to trust the home health aide that now cares for her. In the first few months, she trembled and clutched onto her diaper when the aide tried to help her change it.
“It's something she is unable to understand because she is disabled,” said Rivera. “She just knows something happened to her body.”
The family is now suing Manhattanville Health Center, the nursing home that employed Aidasani. The home did not respond to calls about the case.
In the last 10 years, the Office of the Professions has used its emergency suspension powers just twice, according to a review of disciplinary action summaries posted online. Both times, it was in response to a nurse sexually abusing a patient.
By comparison, the Department of Health levied 89 summary suspensions against physicians between 2011 and 2013. Other nursing boards in large states often use this power, saying they view it as a critical tool to protect patients. The Florida board of nursing issued 87 emergency orders against nurses in the 2013–2014 fiscal year, while Michigan filed 134 emergency suspensions in the same period.
These suspensions allow the state “to act quickly to ensure public safety,” said Michael Loepp, a spokesman for Michigan's Department of Licensing and Regulatory Affairs. Without them, “a licensee who presents a risk to patients could continue to practice for months before a decision to suspend the license could be reached through the administrative process.”.
Florida even created a special unit to handle emergency actions.
New York's education department said that in part, the low number of emergency suspensions against nurses is due to how the law was written.
Unlike other states, which often can issue summary suspensions before a hearing, New York nurses can only be summarily suspended after a hearing and with the approval of the Regents board. This process said Beattie, the education spokesperson, “takes a fair amount of time, which makes it not as an effective tool” when compared to the authority the health department has over its physicians.
Beattie added that the numbers for emergency suspensions do not reflect cases in which the Office of Professions initiated actions and nurses voluntarily surrendered their licenses before this process was finished. She did not say how many such cases there have been.
Even when New York's nurses face accusations of horrible abuse, discipline comes slowly. In April 2015, nurse Oluyemisi Adebayo was accused of killing a 2-year-old toddler by submerging her in a bath so hot that her skin peeled off, police said. The national nursing board trade group sent New York nursing overseers a news notification the day after Adebayo's arrest, a spokeswoman said. But nearly a year later, the state has not taken any action.
The family of the toddler is suing Adebayo and the agency that employed her. Adebayo is currently in jail facing second-degree murder charges. A lawyer for the family, Mark Shaevitz, was surprised to learn that despite the charges, Adebayo's license remains active.
“For someone to do something like this, even to be alleged, and still be able to retain their nursing license is absolutely ludicrous,” he said.
Support for this project was provided by the Stabile Center for Investigative Journalism at Columbia University. Reporting research was contributed by Nina Agrawal, Malena Carollo, Darwin Chan, Tyler Daniels, Folasade Falebita, Zoe Kirsch, Alexandra Levine, Liza Lucas, Emily Silber, Miriam Sitz, Tal Trachtman and Mohamad Yaghi. The project was supervised by Columbia University adjunct professor Charles Ornstein, a senior reporter at ProPublica.
Filings from a lawsuit, scheduled to go to trial today in Atlantic City, describe a previously unreported lobbying campaign by McNeil Consumer Healthcare to protect its iconic painkiller.
Recently filed court documents show the makers of Tylenol planned to enlist the White House and lawmakers to block the Food and Drug Administration from imposing tough new safety restrictions on acetaminophen, the iconic painkiller’s chief ingredient.
An executive with McNeil Consumer Healthcare – which counts Tylenol as its flagship product – told the board of directors for parent company Johnson and Johnson about a campaign to “influence the FDA” and block recommendations made by an agency advisory panel in 2009.
After Dr. Janet Woodcock, the FDA’s top drug regulator, put off meeting with McNeil executives, the company’s president, Peter Luther, sent out an August 2009 email.
“We’re being too nice and too worried about stepping on FDA’s toes. It may be time to let members of Congress to put some pressure on FDA,” Luther wrote to other top executives. ”We have to make this our top priority and pull out all stops.”
Acetaminophen is considered safe when taken as directed. But in higher doses, the drug can cause liver damage and death. Studies show the drug is the leading cause of acute liver failure in the U.S., with fatalities increasing seven-fold in the decade between 1995 and 2005 to more than 200 a year.
“’We’re going to involve key opinion leaders, and we’re going to get them to help us influence the FDA to disregard what the advisors said,’” a plaintiff’s lawyer told a New Jersey court late last month, describing the contents of internal corporate documents.
The previously unreported lobbying campaign was disclosed as part of a trial scheduled to start today in Atlantic City that promises to draw new scrutiny to McNeil’s efforts to protect its painkiller from additional regulation and disclosures about the full extent of its risks.
The case pits McNeil against Regina Jackson, a New Jersey state employee who claims she was hospitalized with elevated liver enzymes after inadvertently exceeding the daily recommended dose for Extra Strength Tylenol for a couple of days.
The Atlantic City case is being watched closely as it is the first to come to trial of more than two hundred lawsuits currently pending in state and federal courts that allege McNeil knew its drug was potentially dangerous while promoting its safety.
As detailed in a 2013 investigation by ProPublica and This American Life, McNeil has opposed warning labels, dosage restrictions and even public awareness campaigns over concerns of profitability.
At the same time, the investigation found that the FDA has delayed implementing suggestions to improve the safety of acetaminophen, taken by tens of millions of Americans every week. Though hearings began more than 38 years ago, the agency has yet to finalize regulations for the safe use of the drug.
The long-running battle between McNeil and the FDA over the safety of one of the country’s most popular painkillers has been a key focus during the run up to the trial, which is expected to last four to six weeks.
As New Jersey Superior Court Judge Nelson C. Johnson told attorneys at a hearing on Aug. 31: “I think the jury is going to learn that the margin of safety for acetaminophen may be more narrow than the public understands.”
McNeil spokeswoman Jodie Wertheim declined to comment on material divulged during the pretrial proceedings, saying the company would defend itself at trial. McNeil has contested the allegations in all the lawsuits.
“Johnson & Johnson Consumer Inc., McNeil Consumer Healthcare Division is committed to providing consumers with safe and effective over-the-counter medicines and recommends consumers always read and follow the product label,” Wertheim said. “The company has acted appropriately, responsibly and in the best interests of patients regarding Tylenol, which has one of the most favorable safety profiles among OTC pain relievers.”
Skirmishes at a series of pre-trial hearings have hinted at McNeil’s methods and motives in protecting its star product. Neither attorneys for McNeil or the plaintiff responded to a request for comment on the trial.
The proposed lobbying campaign arose in response to a June 2009 meeting of more than three dozen scientists, researchers and pharmacists convened by the FDA to review the safety of acetaminophen.
The panel of independent experts endorsed a sweeping set of reforms. They recommended that the FDA reduce the total daily dose of acetaminophen, and make extra-strength pills available only by prescription.
McNeil officials viewed the recommendations as a threat to sales of Extra Strength Tylenol, according to R. Clay Milling, one of the plaintiff’s attorneys. McNeil makes about $400 million in revenue from its extra-strength line, compared with only about $14 million from regular strength Tylenol, Milling told the court, according to a transcript.
Milling, who reviewed internal McNeil documents as part of the lawsuit, told the court that a senior McNeil executive made a presentation to the Johnson and Johnson board about a plan that included contacting the White House, the Office of Management and Budget and lawmakers.
“This petitioning of the government is not just petitioning of the government. It goes right to what the heart of this case is, saving Extra Strength Tylenol, their billion-dollar product,” Milling told the judge.
The campaign’s size and effects, if any, are unclear. At the time, Johnson & Johnson did not significantly increase its spending of about $6.5 million a year on lobbying, according to records compiled by the Center for Responsive Politics.
McNeil Consumer Healthcare is listed as a separate entity only sporadically — for example, the lobbying firm Foley Hoag reported receiving $45,000 from McNeil in 2010 to contact lawmakers in the House and Senate regarding “regulation of [over the counter] drugs.”
McNeil’s over the counter drugs sales, at $4 billion last year, are a small fraction of Johnson & Johnson’s total revenues, which came to $74 billion in 2014.
OMB officials declined to comment and the White House did not respond to requests for comment. The FDA’s top drug regulator said she would not comment given the pending lawsuit.
Whether McNeil’s campaign had impact, this much is certain: Six years later, the FDA has still taken no action on the recommendations made by its advisory board to clamp down on the “persistent, important public health problem” of deaths and injuries involving over-the-counter acetaminophen. (The FDA has implemented tougher restrictions on prescription medicines containing the drug and has issued guidelines on pediatric formulations.)
An FDA spokeswoman said the agency is continuing to review its advisers’ recommendations.
“The agency strives for a timely review and decision for future actions to assure that acetaminophen-containing medicines are safe and effective for the American public,” said Andrea Fischer, a spokeswoman for the agency.
Both agency and independent scientists have expressed concerns about acetaminophen’s safety margin – the difference between what can help and what can harm.
The current recommended daily dose for the drug is four grams per day — the equivalent of eight extra strength pills. But occasional reports in scientific literature have documented liver damage occurring after taking as little as two extra pills per day for several days.
The agency has worried about the prevalence of acetaminophen on the market — McNeil and its generic competitors have developed hundreds of over-the-counter products that contain the drug, increasing the risk that a consumer could inadvertently ingest dangerous levels.
The most recent FDA data show that acetaminophen remains, by far, the leading cause of acute liver failure in the United States, with the number of cases increasing.
FDA officials have blamed the agency’s inaction largely on a system designed in the 1970s to regulate over-the-counter drugs. The process requires lengthy public debate, legal review and economic analysis to make even small changes.
After the ProPublica investigation, the FDA announced it was seeking to reform the cumbersome process.
“The law allows the FDA to handle safety issues with prescription drugs rapidly,” said Dr. Joshua Sharfstein, an associate dean at the Johns Hopkins Bloomberg School of Public Health and the former number two at the FDA. “By contrast, for over-the-counter drugs, the law generally requires a mountain of paperwork and a tortuous path through the federal government.”
At the late August pretrial hearing, Michael B. Hewes, an attorney for McNeil, acknowledged that McNeil had talked with FDA officials after the June 2009 meeting to discuss the new proposals.
His account is consistent with documents obtained by ProPublica and This American Life through the Freedom of Information Act. Only a month after the experts’ recommendations, McNeil sent a letter to Woodcock, the director of the FDA branch overseeing drugs. The first sentence requested a meeting “to establish a dialogue.”
In the letter, the company reversed several positions it had taken a month earlier before the advisory panel. For instance, McNeil offered to voluntarily add language to Tylenol products suggesting a limit of three grams per day. McNeil products currently direct consumers to take up to three grams, while maintaining that four grams per day is a safe daily limit.
But McNeil stood its ground on the experts’ recommendation to make a dose of two Extra Strength Tylenol pills available only via prescription. Any such action, McNeil warned Woodcock, would take a “significant amount of time,” citing the agency’s process.
A series of emails between executive at McNeil and Johnson & Johnson from mid-August 2009 that were read into the court record on Sept. 17 by attorneys indicate Woodcock and her aides were not ready to meet with McNeil. So the head of Johnson & Johnson’s FDA liaison office, who formerly worked as a lawyer in the FDA drug division, was planning to “reach out directly” to Woodcock in the coming days, one email said.
Luther responded with the suggestion that McNeil enlist members of Congress to press the FDA on the company’s behalf.
It is not clear what became of McNeil’s lobbying plans. But internal documents show their strategy was one part compromise and one part resistance.
The compromise, as discussed with the Johnson & Johnson board and in the subsequent letter to Woodcock, adopted one of the panel’s recommendations, lowering the daily maximum recommended dose. The FDA, in 2010, gave its blessing to that idea and it became part of Tylenol’s label by the summer of 2011.
But the company also opposed any move to have Extra Strength Tylenol fall under the more prohibitive prescription drug regimen, as the panel had recommended. The main goal, one senior Johnson & Johnson executive wrote Luther in September 2009, was to “just save” the 500-milligrams product, according to court records from last week. The medication remains an over-the-counter drug to this day.
In the six months after the 2009 advisory meeting no senior agency official, including Woodcock, indicated holding a meeting with McNeil on acetaminophen, according to the agency’s public calendar. Woodcock, through a spokeswoman, declined to comment, citing the court case.
However, Woodcock made her concerns over acetaminophen public in an opinion article in the New England Journal of Medicine in November 2009. She said the agency was considering the panel’s recommendations, which she acknowledged would have a “considerable” effect on the availability of the drug on the market.
“Although acetaminophen, when used as labeled, is generally safe, the ubiquity of the drug and its relatively narrow therapeutic index create the potential for serious harm from both inadvertent and intentional overdoses,” Woodcock wrote.
The judge, in pre-trial rulings, has said the 2009 lobbying documents will not be presented to the jury unless McNeil’s attorneys ask witnesses to discuss what happened to the advisory panel’s recommendations.
Last week, the judge asked whether the company had an “ulterior motive” in seeking to influence the FDA, as the plaintiff’s lawyers had suggested. Hewes, the McNeil lawyer, said the company’s concerns involved “unintended health consequences” if Tylenol became a prescription drug. He later went on to say that restrictions on acetaminophen would shift consumers to other painkillers, such as NSAIDs, which can have adverse gastrointestinal and other side effects.
Even without the FDA lobbying issue, McNeil’s attorneys in the Atlantic City case indicated they plan to emphasize that the company has always complied with the rules of the FDA – the agency charged with protecting the American public.
“The FDA is all over the case. I mean, all over the case,” David Kott, another lawyer for McNeil, told Johnson, the presiding judge last month.
Johnson expressed his agreement.
“We’re talking about a product that’s been on the market for 50 years and is widely used,” he told the attorneys. “Throughout that process, FDA was giving various blessings.”
