From corporation-watch at countercorp.org Tue Mar 23 03:24:41 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Tue, 23 Mar 2010 00:24:41 -0700 Subject: [Corp. Watch] Yelp accused of operating like an Internet extortion ring Message-ID: <16114BF9-3A32-4FF0-A860-AC92C22E782B@countercorp.org> Yelp Slapped By More Legal Challenges (SF Chronicle, March 17) -- Yelp Inc.'s legal challenges continue to pile up, with a San Francisco business filing the third class-action complaint in recent weeks, and nine additional firms joining an earlier lawsuit. The cases all allege that the popular San Francisco review site extorts companies by manipulating ratings or visibility on the site based on whether or not the businesses pay to advertise. Yelp vehemently denies these charges. On March 12, the owner of Renaissance Furniture Restoration, a 17-year-old business on Ocean Avenue in San Francisco, filed a complaint against Yelp in San Francisco Superior Court. Boris Levitt claims that the company removed his business' positive ratings after he refused to buy advertising. In July 2009, when he was contacted by a Yelp sales representative, he had 261 Yelp page views and an overall rating of 4.5 stars (out of five possible), according to the filing. Two days after declining the offer to pay "at least $300 a month" for advertising, six of seven 5-star reviews disappeared from the site and his overall rating dropped to 3.5 stars, the suit alleges. By August, the page views had dropped to 158 and his revenue soon fell by around 25 percent, Levitt said in an interview. "People wouldn't click on a business which only had a 3-star average rating, and I started to lose business," he said. As of Wednesday, Renaissance Furniture had 4.5 stars again, but only three reviews. The case seeks restitution, punitive damages and a prohibition against Yelp engaging in such practices in the future. In a corporate blog post on March 4, after similar lawsuits were filed, Yelp Chief Executive Jeremy Stoppelman called the cases "frivolous" and vowed to fight them aggressively. Stoppelman said the reviews in question are deleted by an automated filter designed to weed out "shill" ratings, those encouraged or actually written by the businesses in question, to ensure that only independent and relevant comments remain. "If a business could garner a top rating on Yelp simply by soliciting 5-star reviews from friends, family, and favored customers, how useful would such a site be?" Stoppelman said. Indeed, several of the businesses now suing had comments deleted that were written by the owners themselves, Yelp spokesman Vince Sollitto said. Levitt himself acknowledges asking customers to post reviews. Two similar class-action complaints were filed in the U.S. District Court in Los Angeles in late February and early March. On Tuesday, nine additional businesses joined the first suit, including Mermaid Cruise of San Francisco and Sofa Outlet of San Mateo. In all, at least a dozen firms are suing Yelp over this issue. Levitt said the sales representative never promised to alter ratings, but did say that paying for advertising would provide more page views and consequently more customers. Several plaintiffs in the other lawsuits claim Yelp reps presented explicit quid pro quos, offering to bury negative reviews or highlight positive ones in exchange for paying to advertise on the site. Mary Seaton, president of Sofa Outlet, said a Yelp employee called her several weeks after a negative review popped up on the site. In exchange for $350 a month in advertising, the sales rep offered to move positive comments to the top of the business' review page and negative ones to the bottom, she claimed in an interview. Sollitto stressed that this isn't technically possible, as Yelp sales personnel don't have control over review placement and additional safeguards are in place to prevent even false promises by "rogue" salespeople. He believes some confusion may arise from the fact that paid advertisers can select one review to place at the top of the page as an ad, but it's clearly labeled as such. Yelp, founded in 2004, features more than 9 million reviews for restaurants, bars, barbers and more across more than 30 markets in North America and Europe. It boasts around 30 million monthly visitors. "The reason 30 million consumers used Yelp last month is because of the trust they have in the reviews on the site," Sollitto said. "The whole value of Yelp to both consumers and businesses hinges on that trust, so obviously we wouldn't do anything to jeopardize that." From corporation-watch at countercorp.org Tue Mar 23 13:42:35 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Tue, 23 Mar 2010 10:42:35 -0700 Subject: [Corp. Watch] Corporate-controlled agriculture faces public, government scrutiny Message-ID: <6C34289F-8DFE-4CE4-ACE1-EDD036377D66@countercorp.org> U.S. Pledges to Probe, Bust Agribusiness Monopolies By Carey Gillam (Reuters, March 12) - Two U.S. cabinet members and other top officials on Friday pledged a thorough examination of allegations that monopolistic practices in agriculture are driving small farmers out of business and said they would aggressively enforce anti-trust laws. As farmers and other critics of corporate agriculture called for a government crackdown on agribusiness monopolies, U.S. Attorney General Eric Holder and Agriculture Secretary Tom Vilsack promised to usher in more stringent oversight of agriculture. Addressing a standing-room-only crowd at a college auditorium in Iowa, the cabinet members said they recognized several key components of agriculture were concentrated into a few corporate hands, though they need to determine how that helps or hinders farmers overall. Holder told the crowd of farmers, labor and consumer groups and corporate representatives that the Justice Department sees erosion of competitive markets as a significant threat to the U.S. economy, thus a national security matter. "We want everybody to have a fair shot," said Holder. "Big is not necessarily bad, but big can be bad if power that comes from being big is misused. That is simply not something that this Department of Justice is going to stand for." Friday's meeting in Iowa was the first of a series of five such gatherings the federal agencies are holding around the United States to examine complaints about concentration in the seed, livestock, and dairy industries. The day-long meeting is organized as a forum for farmers, academics, corporate officials, and consumer groups to voice their concerns to federal officials. "What farmers need is opportunity that needs to be free of the corporations that control so much of the industry," said Iowa farmer Ken Fawcett told federal officials at the forum. "Corporations decide too much." The joint Justice Department/USDA meeting in Iowa, the top U.S. corn-growing state, was focused in part on complaints about leading seed company Monsanto. Critics say the company has gained sweeping control of the corn and soybean seed markets, driving up prices and its profits by buying up independent seed companies, patenting seed traits, and inducing dealers to promote Monsanto products over rivals. American Anti-trust Institute Vice President Diana Moss said there was no question that Monsanto enjoyed a monopoly in the seed business. "It is an inescapable fact," Moss said, describing what she called an "illusion of choice." Monsanto has denied engaging in any unfair monopolistic practices, and said its licensing arrangements foster broad competition. Monsanto Vice President Jim Tobin told the forum in Iowa that the company has licensed its technology to more than 200 seed companies and was working to help foster use of generic herbicide-resistant soybeans after the company loses its patent on Roundup Ready soybeans in 2014. Tobin said higher prices for the company's seed products are justified by higher seed performance and efficiencies farmers glean from the high-tech seeds. "That is why we have high marketshare," Tobin said. Critics of Monsanto are pushing for U.S. government action, particularly changes in Monsanto's patented control of seed germplasm. Assistant Attorney General Christine Varney, who oversees anti-trust issues for the Justice Department, did not speak directly about Monsanto, but drew applause when she said the Department would vigorously examine any misuse of patent protections to gain monopolies. She said the anti-trust division has appointed investigators with agricultural backgrounds as part of an "unrelenting quest" to ensure a balanced marketplace. Holder also emphasized the Justice Department's interest in pursuing any misuse of patents as part of an aggressive probe into agriculture. He said that consumers will see a "historic era of enforcement that will grow." The officials would not comment about specific companies or actions that they may take. "We are looking to enforce the law vigorously and fairly," Varney said. From corporation-watch at countercorp.org Wed Mar 24 04:45:26 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Wed, 24 Mar 2010 01:45:26 -0700 Subject: [Corp. Watch] Corporations are like mafia crime families Message-ID: <873BF69F-B3A9-4D3B-822A-D1589170D9E2@countercorp.org> The Bust-Out What the Mafia can teach us about corporate fraud By Mark Gimein (The Big Money, March 21) -- On a rainy day in New York last week, a man named William Black stood in front of a roomful of fellow law professors trying to sum up in a minute what had gone wrong with financial regulation over the last two decades. Actually, Black didn't have even a minute. His breathless spiel had already gone over its allotted period, leaving Black with just enough time to toss a number at his audience that encapsulated how slipshod and generally crazy-making federal efforts at dealing with fraud in the financial markets had become. The number that Black practically shouted out was the grand total of mortgage and securities fraud related convictions the government had managed to secure in the wake of the financial crisis. It was zero. With that startling statistic Black sat down, politely if impatiently waited for the other panelists to finish their brief speeches, and immediately ran off to catch a flight back to Kansas City, trailing a half-open umbrella and a jumble of bags. Last week, in a roundtable about Michael Lewis' book 'The Big Short', I wrote about how Wall Street and its financial models were blind to the reality of what was happening in the real world with the no-documentation, no-asset, no-nothing loans that drove the sub-prime mortgage industry. Black explores the other side of the coin: How that same kind of oblivion befogged the work of regulators, who came to believe that fraud rarely happens, doesn't really matter, and wasn't worth pursuing. How can that be? The work of Bill Black -- who spent a decade as a federal bank regulator -- is about how bad economic theory has given people whose jobs should be understanding fraud a screwy sense of how fraud works in the real world. One way of seeing this, as Black describes in a terrific article, is to think about a mob "bust-out." A bust-out is what happens when the mob moves in to take control of a business that's heavily indebted to a loan shark. As Black tells it, why the heck a mobster would ever want to take over a bar or liquor store in this way is incomprehensible to a classical economist. Why take over the business when you're already getting every cent of profit and more in your weekly loan payment? Except that in the real world, things don't work that way, explains Black, a professor at the University of Missouri-Kansas City. The reason to take over the business is to loot it 1,000 ways to Sunday, from buying vast amounts of liquor on credit to, ultimately, torching the place for the insurance money. Prosecutors and mobsters know this. Economists who think the mob operates like a bank that happens to charge high interest rates miss it. The problem here is that none of the ugly realities of how a business can be stripped of everything valuable make their way into the economic and regulatory theories that have been ascendant for the last two decades. How did we get to this point? Well, here's a story: Back in the early days of the savings and loan crisis, Bill Black was involved in the efforts of bank regulators to close down two savings and loans, Lincoln Savings?the bank run by Charles Keating, later to become the poster boy for the S&L crisis?and CenTrust Savings. The two S&Ls held massive portfolios of junk bonds issued by the (now long-defunct) investment bank Drexel Burnham Lambert, then the junk bond kings. Black and other regulators believed that Lincoln's and CenTrust's junk bonds and bad loans were a disaster in the making. To help make the case for their financial stability, Lincoln and CenTrust went to a consulting company called Lexecon, created by Daniel Fischel, a University of Chicago Law School professor and one of the pre-eminent authorities on the economics of regulation. Lexecon reported that Lincoln and CenTrust were extremely unlikely to fail, and in the (nearly impossible) case that they did, a failure would cost the bank insurance program less than a penny for every $1,000 of deposits. Lincoln and CenTrust did fail -- in the case of Lincoln, at a cost to the government of $3 billion. Daniel Fischel went on to become dean of the University of Chicago Law School. Not long after the Lincoln and CenTrust debacle, Fischel (who defended Keating and his patron Michael Milken in a 1995 book) and his fellow Chicagoan Frank Easterbrook went on to publish ''The Economic Structure of Corporate Law, the standard text on the intersection of law and economics. Wait a second, how can a guy who was so utterly wrong in evaluating the economics of the S&L crisis come to be the go-to guy on regulatory theory? Fischel's theories were based on the premise that in the main markets were very good at evaluating the true worth of loans, bonds, and equities, and certainly better at it than regulators. On Fischel's view -- which Black marvels at, given what the Chicago professor knew about the inner workings of Keating's bank -- no fraud could grow too fast or get too big before the markets punished it. This makes for a very neat economic theory, and a disaster in practice. In the Easterbrook-Fischel world of economic models?the world in which S&Ls don't fail and don't cost much money when they do?even the most cynical sub-prime lender acts in its own long-term self-interest. In Black's bust-out world, that's not the case at all. In the bust-out (meaning real) world, chief executives pump up their share price and dump as much of it as they can on the market before everyone else has figured out better. Investment banks pocket fees for underwriting bonds and then dump the losers on their captive investment funds. And what's left after it's done, by the time the market exacts its price, is the burnt shell from which every possible profit has been extracted. At least two key differences with the current outlook emerge when you look at fraud in this way. The first is that while legitimate companies try to grow for as long as they can, frauds are not structured with the long-term in mind. They are built to fail -- which tends to happen, as Black explains, at companies where the "wealth optimizing strategy" for those at the top is to loot the firm. The people who run such companies know that they will eventually blow up. Their object is to get out with what they can before that happens. Decisions -- like those of sub-prime lenders who handed out hundreds of billions in bad loans -- that to neo-classical economists look merely misguided may actually be evidence that the folks who run it are getting ready to burn down the store. The second difference that emerges in this view of fraud is that you just can't look at frauds in isolation. An economist looking at a bust-out scratches his head wondering why a loan shark would cut off his own best source of revenue or a bar owner would burn down his own business. But in real life there are lots of others involved -- from liquor distributors to mob bosses to crooked insurance investigators -- and lots of ways of hiding the profits. And that goes double for complicated financial frauds. You have to pay attention to who is really calling the shots and where the money lies. You can't look at the profits (or losses) of a sub-prime lender without also looking at the fees taken in by the investment banks that packaged the loans into bonds. You can't look at what happened. You can't look at a lender without also looking at the incentives paid to brokers to peddle junk mortgages. Legitimate companies make profits and pay them out to shareholders or plow them back into the business. Frauds create huge losses for the public, and hidden profits that are hard to find. And some of the biggest are designed for the chief executives to loot the company while being able to claim that he didn't know what was going on and take shelter under the claim that he just couldn't predict where the market would go. "You don't need to send out a memo to your employees telling them to make fraudulent deals," says Black, who wrote a book called 'The Best Way To Rob a Bank Is To Own One'. None of this means that the entire financial crisis can be chalked up to fraud -- though Black believes that much of it can. I've written before about how what happened on and off Wall Street with the mortgage crisis was linked to a national delusion in which both ordinary people and those who should have known a lot better imagined that real-estate prices could keep going up forever. Yet as charitable as one might want to be, there is still the issue of that extraordinary statistic about the number of successful prosecutions in this crisis, that big fat zero. To believe that none of the mortgage crisis was the result of fraud is just as mistaken as to believe that all of it was. And maybe more pernicious, because the lesson is that if a fraud is big enough, it will be ignored. The outlook for that changing soon is not promising. For instance, in the case of Angelo Mozilo, the chief executive of Countrywide, once the country's biggest mortgage lender, and arguably the man who most defined the mortgage meltdown, the government is pursuing civil -- not criminal -- penalties. The rest of the world has figured out that the markets are not very good at self-policing. The economists haven't caught up yet. Nor have the regulators and enforcement agencies. As Black pointed out to me, recently the FBI announced a new and unlikely partner in its efforts to fight mortgage fraud. It is the Mortgage Banker's Association, the trade group for the very industry that set the financial crisis in motion. From corporation-watch at countercorp.org Fri Mar 26 14:39:00 2010 From: corporation-watch at countercorp.org (Corporation Watch) Date: Fri, 26 Mar 2010 11:39:00 -0700 Subject: [Corp. Watch] Yet another hidden corporate crime: Bribery Message-ID: <339345BE-C6AE-43C2-AFE6-B255D2F9A17C@countercorp.org> Chrysler Whistleblower's Tip Brings U.S. Charges of Global Bribery By Justin Hyde (Detroit Free Press, March 23) ? Nine years ago, Chrysler auditor David Bazzetta was shocked to hear from DaimlerChrysler executives in Germany that the company regularly bribed foreign governments for business -- even though they knew it violated U.S. law. That whistle Bazzetta blew will finally be answered next week, when Daimler appears in a U.S. federal court in Washington on charges it spent hundreds of millions of dollars on payoffs to officials in 22 countries between 1998 and 2008. Several outlets reported that the company will pay $185 million to settle the charges, but the company and the U.S. Department of Justice declined comment. So too did Bazzetta, 54, whose 2004 lawsuit first revealed the secret accounting system Daimler ran to pay off officials from Greece to North Korea, and included kickbacks to Saddam Hussein's government under the United Nations' "oil-for-food" program. According to his lawsuit, Bazzetta, an 18-year veteran of Chrysler, warned about the payments to his boss. When he told Bazzetta to keep quiet, Bazzetta went over his head. When nothing was done, he was transferred, and eventually fired in January 2004, two weeks after his corporate protector retired. At the time, DaimlerChrysler was trying to recover the aura that surrounded its creation, washed away by Chrysler's struggles and anger in the United States that the "merger of equals" had given way to a German takeover of Chrysler. The Justice Department said today that all told, Daimler's bribes generated at least $50 million in pre-tax profits. At the time of its 1997 purchase of Chrysler, Daimler had 200 accounts used for bribes around the world. By 2004, it had winnowed such accounts to 40, but the Justice complaint says the company only eliminated the practice after the launch of probes by U.S. officials. The kickbacks weren't just handed over in cash. Daimler paid for tourist trips for Chinese officials, and gave the son of a Chinese government official an internship, a four-month job and help getting him and his girlfriend German student visas. The company also gave an armored Mercedes sedan worth $350,000 to a Liberian government official in 1999, and sent another worth $400,000 to a high-ranking official in the Turkmenistan government in 2003, likely late president-for-life Saparmurat Niyazov. Daimler's distributor also tried to get in Niyazov's personal graces by spending $250,000 on translating 10,000 copies of his personal manifesto from Turkmen into German, which were delivered to Niyazov in a golden box. Daimler eventually sold 879 vehicles in the country from 2000 to 2008. Bazzetta's lawsuit sparked a probe in 2004 by U.S. Securities and Exchange Commission officials. The payments fell under the U.S. Foreign Corrupt Practices Act since DaimlerChrysler's shares were traded in the United States, and several bribes were routed through U.S. bank accounts. Daimler responded to Bazzetta's suit in 2004 saying he had been fired because he falsified internal financial information and directed subordinates to do the same. It said Bazzetta's whistleblower claims had no merit because corporate officials were addressing the practice. The automaker settled the suit out of court in 2005, but later admitted in 2006 that its own investigation had found "improper payments" in Africa, Asia and Eastern Europe, and that several employees had been dismissed. The government and Daimler are set to appear before a federal judge April 1.