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State Farm Convinces Some Weary Policyholders to Settle Hurricane Katrina Lawsuits

Tue, 13 May 2008 00:00:00 -0700

State Farm Insurance has settled with more than a dozen policyholders who were suing the nation's largest insurer over Hurricane Katrina damage claims. The settlements were reached with plaintiffs who only last month learned that their lawyers had been barred from representing them because of ethics violations.

State Farm was one of the largest insurers on the Gulf Coast when Katrina made landfall there in 2005. Thousands of homes were reduced to rubble by wind and the massive storm surge created by the hurricane. Normal home owners policies do not cover damages from flooding, only wind. But in the case of Katrina claims, many home owners accused State Farm and other insurance companies of attributing damage to flooding, when in reality it was caused by wind, as a way to avoid paying the full value of claims. Some insurance companies initially made offers to settle claims for only pennies on the dollar, sparking thousands of lawsuits along the Gulf Coast.

Last month, U.S. District Judge L.T. Senter barred attorneys working with Ricky Scruggs, the well-known lawyer who pled guilty in March to conspiring to bribe a judge, from representing Hurricane Katrina victims in Mississippi. Judge Senter made the ruling because of what he deemed to be “improper payments” made to Cori and Kerri Rigsby. The two sisters were employed by E.A. Renfroe & Co., an Alabama-based firm that State Farm contracted. The sisters supplied Scruggs with piles of documents they had secretly copied while employed by Renfroe. Scruggs touted the sisters as whistleblowers, but hired them as consultants and agreed to pay them $150,000 each. Payments to non-expert witnesses are limited by law, Senter said. “The payments Scruggs made to the Rigsby sisters bears no reasonable connection to any work they performed or to any expenses they incurred in testifying,” the judge wrote. “These payments were clearly improper.” The plaintiffs in the cases against State Farm were given a mere 45 days to find new counsel.

State Farm, which faces more than 200 Katrina-related lawsuits in Mississippi, quickly took advantage of Judge Senter's ruling, and made settlement overtures in letters it sent to policyholders. According to a court filing last Thursday, at least 13 homeowners were representing themselves, without an attorney, when they agreed to settle their suits for undisclosed terms. At least one lawyer representing former Scruggs clients told The Houston Chronicle that any settlement overture made by State Farm should be at least reviewed by an attorney. But it is understandable that, three years after Katrina, some policyholders would want to get their claims resolved. Clearly, State Farm is taking advantage of that sentiment.

Meanwhile, hundreds of others who haven't yet accepted State Farm's offer of a negotiated settlement may want to wait a bit longer. That's because Mississippi state insurance regulators are wrapping up a long-awaited report on State Farm's handling of policyholder claims after Katrina. According to The Houston Chronicle, the 18-month study should be completed by the end of May. Hopefully, the report will shed some more light on State Farm's conduct in the wake of Hurricane Katrina. The imminent release of the report could also be a factor behind State Farm's rush to settle Hurricane Katrina lawsuits.

First to Act on Toxic FEMA Trailers was Unpaid Volunteer

Thu, 01 May 2008 00:00:00 -0700

The woman who first raised the alarm about the toxic trailers distributed by the Federal Emergency Management Agency (FEMA) to Hurricane Katrina victims is the subject of a USAToday profile. Becky Gillette, an unpaid volunteer with the Sierra Club in Mississippi, took it upon herself to test a handful of FEMA trailers in 2006, after hearing health complaints from some residents.

Thousands of people in Mississippi and Louisiana were given FEMA trailers as temporary housing following hurricanes Katrina and Rita. But by 2006 FEMA was getting reports from field workers along the Gulf Coast that residents of FEMA trailers where getting sick from the air in the toxic trailers. The first suspect was formaldehyde, which is used in the manufacture of the trailers. Despite the reports, e-mails uncovered last summer during a congressional investigation into the trailers showed that FEMA lawyers told the agency to drag its feet on air quality testing. FEMA’s Office of General Council also advised the agency not to test the trailers because doing so “would imply FEMA’s ownership of the issue”.

Formaldehyde is an invisible gas that is known to cause cancer. It can also cause other illnesses ranging from nose bleeds to chronic bronchitis. Commonly used in manufactured homes, formaldehyde can cause respiratory problems and has been classified as a carcinogen by the International Agency for Research on Cancer and as a probable carcinogen by the U.S. Environmental Protection Agency.

Gillette was one of the first to realize just how toxic the FEMA trailers were. According to USAToday, Gillette heard of babies getting sick and pets, including a co-worker's parakeet, dying in the trailers over several weeks from late 2005 through early 2006. A former journalist, Gillette knew about the symptoms of formaldehyde poisoning, and immediately suspected the chemical. After a friend found a company online that sold formaldehyde testing kits, Gillette ordered 32 of the $35 kits and tested trailers along the Gulf Coast. A staggering 30 of the 32 trailers registered unsafe levels of formaldehyde. By summer 2007, Gillette had organized testing of 69 FEMA trailers and mobile homes — 60 of them showed high levels of formaldehyde.

The Sierra Club tried to let FEMA know of its findings, but the agency wouldn't listen. It also wasn't listening to its own people. According to USAToday, Jesse Fineran, a FEMA manager in charge of mobile homes in Mississippi's Hancock County, was also hearing complaints from trailer residents in the summer of 2006. Fineran was ignored when he told his supervisors about the problem, and was later demoted. FEMA told USAToday that Fineran is under investigation but would not elaborate.

It wasn't until congressional hearings in the summer of 2007 revealed FEMA's outrageous disregard for trailer residents that the agency began to take the formaldehyde issue seriously. One of those testifying at the hearings was Becky Gillette.

Late last year, FEMA and the Centers for Disease Control (CDC) conducted air quality tests of 519 trailers. The CDC tests confirmed that the FEMA trailers posed a serious danger to residents still living in them. The average formaldehyde levels found in the toxic trailers measured 77ppb (parts per billions), significantly higher than the 10 to 17 ppb concentration seen in newer homes. When it announced its findings, the CDC urged FEMA to move residents from the toxic trailers as quickly as possible, with priority given to families with children, elderly people or anyone with asthma or other chronic conditions.

Bloomberg Calls on Feds to Help Sick World Trade Center Rescue Workers, Others

Fri, 18 Apr 2008 00:00:00 -0700

The federal government should be paying the medical bills of World Trade Center rescue workers and New York City residents sickened because of the 9/11 terrorist attacks, Mayor Michael Bloomberg said yesterday. Bloomberg wants the US government to spend at least $150 million a year to help these people, many of whom are still suffering health problems because of toxic dust that blanketed lower Manhattan for weeks following the collapse of the twin towers.

Many World Trade Center rescue workers and other people in the vicinity of the 9/11 attacks have been a reporting a host of health problems since the tragedy. A study by the Mt. Sinai Medical Center found that of 9,000 emergency workers, 70-percent had suffered some type of lung ailment after the attacks, and that 60-percent still faced respiratory problems. In May the FDNY reported that cases of the rare lung disease sarcoidosis had risen dramatically among firefighters and EMS workers who had spent time at Ground Zero.

World Trade Center sickness have not just been restricted to emergency responders. The New York City Department of Health last year found that one in eight first responders still suffer from Post Traumatic Stress Disorder. Even children have not been immune from the effects of the deadly dust, as a recent report said that of 3,100 children enrolled in the World Trade Center Health Registry; nearly half had developed breathing problems three years after the attack.

Unfortunately, many of these people have had little help in dealing with their illnesses. The federal government created a $1 billion insurance fund to help ground zero workers sickened by the toxic fumes and dust released when the World Trade Center was destroyed. The fund, however, has been beset by lawsuits and criticized for the lack of payments to sick workers.

New York City is also facing hundreds of lawsuit filed by sick World Trade Center rescue workers. The city, along with the Port Authority, had tried to convince the 2nd U.S. Circuit Court of Appeals to give them immunity from nearly 8,000 workers’ claims. But in March that panel ruled against the city, after having determined the immunity claims raised by the city were so complex that they could only be resolved by further litigation.

Anthem Blue Cross Faces Lawsuit Over Illegal Cancellations

Thu, 17 Apr 2008 00:00:00 -0700

Anthem Blue Cross is the latest insurer named in a lawsuit over illegally canceled policies. The Los Angeles City Attorney is charging Anthem Blue Cross with deceptive practices and is seeking $1billion in restitution and penalties from the company.

Los Angeles City Attorney Rocky Delgadillo said Anthem, formerly Blue Cross of California, canceled policies and illegally denied claims when policy holders became ill. In February, Delgadillo's office filed a similar suit against Health Net Inc. for illegally canceling health insurance coverage for 1,600 customers.

Delgadillo's lawsuit, filed in California Superior Court, accuses Anthem Blue Cross of violating laws prohibiting unfair competition and false advertising. He accused the company of canceling 6000 policies - many belonging to elderly people - when the holders became sick. In some case, he said the insurer denied patients with health costs that topped $100,000. “Blue Cross hides from consumers the fact that if the consumer requires an expensive medical procedure, there is a significant likelihood that Blue Cross will cancel their insurance policy,” Delgaldillo said.

One of alleged violations cited in Delgaldillo's complaint involves the use of secret units within the company that targeted consumers who became ill. He said Anthem Blue Cross internally identifies those secret units as the “medical investigation unit” and the “retroaction review unit.” Delgaldillo also accused Anthem of tricking 500,000 consumers into buying worthless insurance policies through the use of false advertising.

When Delgaldillo sued Health Net earlier this year, he claimed that company illegally paid bonuses to employees for meeting policy cancellation targets. The incentive program led to the illegal cancellations. For its part, Health Net has admitted that such a bonus policy was in effect at the company in 2002.

The Health Net lawsuit was filed the same day a California arbitration judge ordered Health Net to pay $129,000 in claims it denied, while providing $8.4 million in punitive damages and $750,000 for emotional distress for illegally canceling a woman's policy after she was diagnosed with breast cancer.

In the wake of that decision, Health Net said it would be implementing a freeze on policy cancellations that would last until the company sets up a third-party review panel to scrutinize cases. Health Net also said it would review its practices and the way its brokers and agents are trained.

Big Tobacco Handed Victory by Manhattan Appeals Court

Mon, 14 Apr 2008 00:00:00 -0700

Tobacco giants Brown & Williamson Holdings and Philip Morris USA won a huge victory last week when a Manhattan appeals court reversed a ruling in favor of a lung cancer victim who had argued that the cigarette makers were negligent by failing to market only "light cigarettes". In a 3-2 decision the appellate division ruled that the plaintiff failed to prove that light cigarettes would "have been acceptable to the consumers that constitute the market for the allegedly defective product," regular cigarettes.

However, two dissenting judges sharply criticized the tobacco companies, finding that the test of consumer acceptability amounted to "nothing more than a cynical effort by the defendants to maintain the commercial advantages of continuing to sell unreasonably dangerous addictive products to addicts."

The lawsuit in question was filed by Norma Rose, a 73-year-old woman diagnosed with lung cancer and other health problems caused by a smoking habit she began in the 1940s. In her lawsuit, Rose v. Brown & Williamson Tobacco Corp., she alleged that the cigarette makers' failure to sell only low-tar, low-nicotine products amounted to negligence. Rose said she briefly tried two low-tar brands, but found the taste unappealing.

According to the site Law.com, on March 18, 2005, in a case presided over by Acting Supreme Court Justice Karen S. Smith, a Manhattan jury handed down a $3.4 million compensatory award, to be split evenly against Philip Morris and Brown & Williamson. Rose also received a $17.1 punitive damages award against Philip Morris. The tobacco companies asked Judge Smith to overturn the jury's decision, but she refused.

Last Thursday, the Appellate Division reversed her decision and granted the dismissal the tobacco companies requested. The majority opinion, written by Justice David S. Friedman, noted that New York law does not allow a manufacturer to be held liable for declining to "adopt an alternative product design that has not been shown to retain the 'inherent usefulness' the product offers when manufactured according to the more risky (but otherwise lawful) design that was actually used."

Rose's lawyers maintained that her lawsuit had satisfied this burden by showing that it was technically feasible to manufacture light cigarettes. But the majority on the court held that Rose had failed to present evidence of "consumer acceptability" of light cigarettes, because supposedly, the majority of individuals smoke for the taste and psychological effects of tar and nicotine.

New York Village Suspects Aqueduct in Flooding

Mon, 14 Apr 2008 00:00:00 -0700

In New York’s Ulster County hamlet of Wawarsing, residents’ yards are water drenched in the driest of weather and homeowners are starting to wonder if an aqueduct one-fourth of a mile from their neighborhood is to blame for the flooding.

The Delaware Aqueduct is a water tunnel that runs deep underground and delivers about half of New York City’s drinking water. The city’s Department of Environmental Protection (DEP) has acknowledged that two 45-mile-long stretches of the aqueduct—one in Wawarsing and the other near the Hudson River in Orange County—have been leaking for 20 years. The stretches are located the Rondout-West Branch Tunnel. City officials have long studied the two leaks and have used dye tests, a robotic submarine, and divers and say the leaks are dumping 14 to 36 million gallons daily. The department says it is committed to repairing the cracks; however, removing the water from the tunnel to make repairs could jeopardize its structural integrity and could stress the city’s water supply.

The department has not released a timetable, a projected budget, or a start date and officials are not prepared to acknowledge that chronic basement flooding—which residents say has worsened in the last five years—is from the leaking aqueduct. Department employees recently took water samples from several homes to determine if their characteristics match those from the Rondout Reservoir, which feeds into the Rondout-West Branch Tunnel. “We do not chlorinate out of Rondout, so there’s no strong tracer element,” Paul V. Rush, deputy commissioner for the department’s Bureau of Water Supply, said adding, “The preliminary results don’t conclusively say that it’s 100 percent our water. There’s snowmelt. There’s surface water. There are other influences on there. But we certainly want to find out whether the water is ours. We know that in that area in the past we have positively identified that there is water coming from the tunnel.”

A city consultant detected water from the tunnel in several Wawarsing area springs. And as far back as 1993, the department investigated flooding on one property in Wawarsing and concluded it originated from the aqueduct. Mr. Rush said that the agency thought the problem abated and complaints started only recently. Meanwhile, homeowners say water spurts up from basement floors and some have multiple pumps and generators to ensure water can be removed during a power failure, black hoses attached to sump pumps snake across yards, and residents elevate washing machines and furnaces to keep them dry, and others have spent thousands to replace appliances and soggy Sheetrock.

The city has been criticized for not quickly addressing problems with the aging Delaware Aqueduct. In 2001, the environmental group Riverkeeper issued a report called “Finger in the Dike, Head in the Sand: DEP’s Crumbling Water Supply Infrastructure,” which said, “The agency’s molasses-like research and inept testing strategy seems calculated to delay the discovery of bad news until Mayor Giuliani’s term has expired.” The report quoted engineers who said the 13 ½-foot-wide aqueduct could easily collapse if drained for repairs since the flow of water helps hold up tunnel walls that date from the 1940s.

Another Bear Stearns Lawsuit

Wed, 09 Apr 2008 00:00:00 -0700

Bear Stearns, the investment bank that nearly collapsed last month, is the subject of another lawsuit. This time, liquidators of two Bear Stearns' hedge funds that failed last year are accusing the company of concealing that the two funds were "never designed to withstand even a slight downtick in the housing market.'' Bear Stearns is in the process of being acquired by JPMorgan Chase & Co, a transaction made possible by a massive bailout engineered by the Federal Reserve.

Before its near-collapse, Bear Stearns was once one of the biggest investment banks on Wall Street. But two of its hedge funds, heavily invested in subprime mortgages, folded in July. Bear’s investors became increasingly reluctant to do business with the company. Despite the company’s assurances that it had plenty of cash on hand to continue operations, the company was near to filing bankruptcy until the JPMorgan deal was struck. JPMorgan is purchasing Bear Stearns for $10 a share, or roughly $2.4 billion - a fraction of what the stock was worth just before the bank's collapse. The sale is backed by $30 billion non-recourse funding provided by the Federal Reserve to JPMorgan. Non-recourse funding means that if the collateral goes bad, the Fed can’t come after JP Morgan for other assets. In the end, taxpayers could be on the hook for the Bear Stearns debacle.

Bear Stearns is already the subject of shareholder lawsuits and various federal investigations. Now, the liquidators for Bear Stearns High-Grade Structured Credit Strategies (Overseas) Ltd. and Bear Stearns High-Grade Structured Credit Strategies Enhanced Leverage (Overseas) Ltd. - the hedge funds that went bust over the summer - are suing the investment bank. The liquidators, Geoffrey Varga and William Cleghorn of consulting firm Kinetic Partners, were appointed March 28 by unnamed investors to pursue legal claims on behalf of investors who suffered around US$1.6-billion in losses when the two funds collapsed. Their complaint alleges fraud, breach of contract, gross negligence and other legal claims.

The liquidators claim that Bear Stearns understated the risk of the funds, overstated the funds' performance, and used the funds "as dumping grounds for toxic investments held on Bear Stearns' books.'' The lawsuit also states that the funds yielded "substantial fees'' for Bear Stearns and left investors "holding grossly overvalued mortgage derivatives." Also named in the suit is Bear Stearns Asset Management and former Bear Stearns fund manager Ralph Cioffi.

The funds' auditor, Deloitte & Touche LLP, is also named as a defendant in the lawsuit. The claim alleges the firm "further assured investors that it was conducting independent, thorough, and objective audits,'' adding that the auditing firm failed to live up the assurance and instead acted in its own interests "to the catastrophic detriment'' of investors.

Judge Dismisses Lawyers from Mississippi State Farm Hurricane Katrina Lawsuits

Mon, 07 Apr 2008 00:00:00 -0700

Lawyers representing State Farm Insurance policyholders in Mississippi suing the insurer over Hurricane Katrina damage claims have been dismissed from the case. Citing ethical concerns, U.S. District Judge L.T. Senter Jr. in Gulfport dismissed a group of attorneys affiliated with Richard "Dickie" Scruggs, the well-known lawyer who pleaded guilty last month to conspiring to bribe a judge. Judge Senter has given plaintiffs involved in the State Farm lawsuits 45 days to retain new lawyers.

State Farm was one of the largest insurers on the Gulf Coast when Katrina made landfall there in 2005. Thousands of homes were reduced to rubble by wind and the massive storm surge created by the hurricane. Normal home owners policies do not cover damages from flooding, only wind. But in the case of Katrina claims, many home owners accused State Farm and other insurance companies of attributing damage to flooding, when in reality it was caused by wind, as a way to avoid paying the full value of claims. Some insurance companies initially made offers to settle claims for only pennies on the dollar, sparking thousands of lawsuits along the Gulf Coast.

Judge Senter barred attorneys working with Scruggs from representing Hurricane Katrina victims in Mississippi because of what the judge deemed to be "improper payments" made to Cori and Kerri Rigsby. The two sisters were employed by E.A. Renfroe & Co., an Alabama-based firm that State Farm contracted. The sisters supplied Scruggs with piles of documents they had secretly copied while employed by Renfroe. Scruggs touted the sisters as whistleblowers, but hired them as consultants and agreed to pay them $150,000 each. Payments to non-expert witnesses are limited by law, Senter said. "The payments Scruggs made to the Rigsby sisters bears no reasonable connection to any work they performed or to any expenses they incurred in testifying," the judge wrote. "These payments were clearly improper."

While Scruggs had withdrawn from the State Farm litigation following his indictment on bribery charges late last year, members of his legal team went on to form the Katrina Litigation Group and continued representing plaintiffs in the Hurricane Katrina lawsuits. But the judge said that any attorney affiliated with Scruggs shared in the responsibility for his ethical lapses, as they were aware of the payments to the Rigsby sisters and did nothing to stop them.

Senter's ban applies to Barrett Law Office, Nutt & McAlister, the Lovelace Law Firm and Hesse & Butterworth and also applies to any cases against Renfroe, the firm that employed the Rigsby sisters. The judge also said the documents that the Rigsby sisters gave Scruggs can't be used as evidence unless the plaintiffs lawyers can show they were obtained through "ordinary means of discovery." Neither of the sisters will be allowed to testify for the plaintiffs.

FDA Tobacco Bill Gains Momentum in Congress

Fri, 04 Apr 2008 00:00:00 -0700

Tobacco products might soon face regulation by the Food & Drug Administration (FDA). A bill granting the FDA jurisdiction to regulate cigarettes and other forms of tobacco was approved by the House of Representatives Energy and Commerce Committee Wednesday, setting up its passage by the full House.

Tobacco products are among the least regulated consumer products on the market. Yet, tobacco use is the number one preventable cause of death in America. Every year, smoking and other tobacco use kill more than 400,000 Americans and cost the nation more than $96 billion in health care bills.

On Wednesday, the House panel approved the FDA tobacco bill by a margin of 38-12. The measure has gained substantial bipartisan support, with 11 Republicans supporting it, including one — Mike Rogers of Michigan — who had voted against the bill when the Health Subcommittee marked it up March 13. The 12 “no” votes all came from Republicans, some of whom cited the measure’s potential effect on the FDA itself.

The FDA tobacco bill has more than 200 co-sponsors in the House, and it now also has support from some tobacco industry interests, such as the biggest U.S. smokeless tobacco maker, that had until recently opposed it. That's because the drafters of the FDA tobacco bill made key concessions the industry supports, such as prohibiting the FDA from instituting a ban on tobacco products, or requiring tobacco manufacturers to zero out nicotine.

The FDA tobacco bill, drafted by Rep. Henry Waxman (D-Calif), would among other things, allow the FDA to set product standards, which could include limiting certain ingredients in cigarettes. Tobacco makers would have to turn over to the agency extensive information and win FDA approval for claims that products carry reduced health risks. The agency would get the ability to regulate advertising of tobacco products.

According to CQ.com, a Senate version of the bill was approved by the Health, Education, Labor and Pensions Committee on Aug. 1. The full Senate is expected to debate the bill in the next few months. A report in The Walls Street Journal said all three presidential candidates -- Democratic Sens. Barack Obama and Hillary Clinton and Republican Sen. John McCain -- are co-sponsors of the Senate version of the FDA tobacco bill.

While backers of the FDA tobacco bill hope the House will vote on it sometime this spring, there are still substantial obstacles to its passage. The FDA commissioner has already raise concerns about the bill, and there is a good chance that the President will veto it when it comes to his desk. Opponents have also argued that the FDA, which has been faulted by many for its handling of drug and food safety, isn't up to handling tobacco regulation.

Tobacco Co. Funded Lung Cancer Study Elicits Mea Culpa from New England Journal of Medicine

Fri, 04 Apr 2008 00:00:00 -0700

After embarrassing disclosures of financial links between the authors of a lung-cancer study and two large companies—General Electric and Vector Group, Ltd.—the New England Journal of Medicine published a correction, a clarification, and an editorial that called for the transparent disclosure of funding sources. The lung-cancer study, which the journal published in 2006, has been controversial and suggested an annual screening with a CT scan could reduce the death rate from lung cancer, the top cancer killer. Critics said the study revealed that screening could detect cancers earlier—not that screening could avert deaths. GE is a big CT scanner maker and Vector is part of the Liggett Group, a large cigarette maker.

In the correction, the New England Journal acknowledges the study's lead authors, Claudia Henschke and David Yankelevitz of Cornell University's Weill Medical College in New York City, received royalties from GE for pending patents on ways to manipulate and interpret CT scans and other medical images.

In late 2006, Henschke released a study revealing that the vast majority of lung cancer deaths could be prevented through widespread use of CT scans. The study was published in The New England Journal of Medicine and indicated—in small print at the end of the piece—the work was financed, in part, by the Foundation for Lung Cancer: Early Detection, Prevention & Treatment. A tax record review revealed the foundation was almost entirely underwritten by $3.6 million in grants from the Vector Group, of Liggett Select, Eve, Grand Prix, Quest, and Pyramid cigarette brands. From 2000 to 2003, the foundation received four grants from Vector.

A spokesman for the doctors said they told the New England Journal that Cornell licensed the pending patents to GE before the study was printed, but not that they were personally receiving royalty shares. Jeffrey Drazen, the New England Journal's chief editor, said the publication learned of the royalties recently and that the journal will ask future researchers to provide details on funding sources. "It had not been a practice at the time to ask people about the pedigree of their sources," Dr. Drazen said. "This has been a learning process for us." The New England Journal also published a clarification from Henschke, acknowledging the study was funded, in part, by tobacco giant Vector.

In 2006, Vector announced it was funding Henschke's work, but didn't mention the connection to the tobacco industry; it claimed “no control or influence over the research." The New England Journal called for clearer disclosure of funding sources saying readers "cannot fully appreciate a study's meaning without acknowledging the subtle biases in design and interpretation that may arise when a sponsor stands to gain from the report. We and our readers were surprised to learn that the source of the funding of the charitable foundation was, in fact, a large corporation that could have an interest in the study results." The journal also questioned the "advisability of research entities accepting funding from tobacco companies" except through foundations set up following litigation between states and tobacco companies.

FTC Looking Bear at Stearns Mortgage Unit

Wed, 02 Apr 2008 00:00:00 -0700

The Federal Trade Commission (FTC) is the latest federal agency investigating doomed investment bank Bear Stearns. According to a recent filing with the Securities and Exchange Commission (SEC), Bear Stearns Cos' EMC Mortgage Corp unit has received a notice from the FTC that it may have violated laws regarding its servicing activities.

Bear Stearns, once the fifth-largest U.S. investment bank, faced a run on the bank in March and was forced to sell itself to JPMorgan Chase & Co. Two of its hedge funds, heavily invested in subprime mortgages, folded in July. Bear’s investors became increasingly reluctant to do business with the company. Despite the company’s assurances that it had plenty of cash on hand to continue operations, it collapsed last month.

The buyout of Bear Stearns by JPMorgan Chase - termed a “shotgun marriage” by some - was consummated after the Federal Reserve agreed to provide up to $30 billion in non-recourse financing to JPMorgan, with Bear Stearns’ illiquid mortgage and other securities as collateral.

According to the SEC filing, FTC staff believes EMC and Bear Stearns violated a number of federal consumer protection statutes. The FTC delivered a draft complaint and draft consent order asking for changes in business practices and unspecified monetary payments, according to the filing. EMC expects to engage in settlement talks before a formal complaint is filed, the filing shows.

Last week, the SEC indicated it was considering the its own investigation of the Bear Stearns collapse. In the days leading up to the Bear Stearns failure, several of the investment bank’s executives made reassuring statements about its prospects. On the Monday before the buyout, when rumors started to circulate that Bear Stearns might not have enough cash to do business, the firm’s executives sent out a press release to calm fears. It said Bear Stearns’ “balance sheet, liquidity and capital remain strong. … There is absolutely no truth to the rumors of liquidity problems that circulated today in the market.” That Wednesday, Bear Stearns CEO Alan Schwartz appeared on CNBC to reassure investors that the firm had ample liquidity and said he was “comfortable” that it would turn a profit in its fiscal first quarter. But by Thursday, Bear Stearns’ solvency was being called into question and by Friday it told regulators it was ready to file for bankruptcy.

The SEC enforcement division has written a letter to JPMorgan that discussed “investigations and potential future inquiries into conduct and statements by Bear Stearns” before the announcement of the takeover, the agency said. In the letter, the SEC enforcement attorneys “declined to provide assurances about possible future enforcement actions” and said it would be premature to reach conclusions about their inquiry. However, they added that the staff “would favorably take into account” the circumstances surrounding the takeover when considering whether to recommend enforcement action against JPMorgan for public statements made by Bear Stearns.

Appeals Court Ruling a Victory for World Trade Center Rescue Workers

Thu, 27 Mar 2008 00:00:00 -0700

Lawsuits filed by World Trade Center rescue workers sickened by the toxic dust at Ground Zero will be able to proceed, following an appeals court ruling limiting New York City's immunity in such lawsuits. The city had been trying to have the World Trade Center rescue workers' suits dismissed, claiming that because it was responding to the terrorist attacks of 9/11, federal and state laws provided immunity from such lawsuits.

In the hours and days after 9/11 terrorist attacks, thousands of rescue workers descended on Ground Zero to help with recovery efforts. Sifting through dust and rubble, sometimes with their bare hands, many lacked the clothing and equipment that could have kept them safe from harm. Several studies have confirmed that Ground Zero first responders are suffering from ill health as a result of their exposure to toxic dust at the site. Released last May, the initial findings of a three-year study conducted by the Mt. Sinai Medical Center found that of the 9,000 WTC first responders examined, 70-percent had suffered some type of lung ailment after the attacks, and that 60-percent still faced respiratory problems. Another report released by the FDNY that same month reported that cases of the rare lung disease sarcoidosis had risen dramatically among firefighters and EMS workers who were first responders at Ground Zero. And the New York City Department of Health also found that one in eight first responders still suffer from Post Traumatic Stress Disorder.

Faced with daunting medical bills, and often too disabled to work, thousands of World Trade Center rescue workers have had no choice but to sue New York City and the Port Authority of New York and New Jersey for their injuries. Lawyers for those entities had asked the 2nd U.S. Circuit Court of Appeals to give them immunity from nearly 8,000 workers' claims. The city was appealing a 2006 decision by the United States District Court in Manhattan that ruled it might only have partial immunity in regards to World Trade Center rescue worker lawsuits.

According to The New York Times, the 2nd Circuit ruled against the city, having determined that many of the immunity claims raised by the city were so complex that they could only be resolved by further litigation. A lawyer representing many of the World Trade Center rescue workers told the Times the ruling was a tremendous victory for his clients. He said that if the cases go to trial, workers would be able to show that the city did not take proper precautions to protect them from hazardous dust.

The city has not yet said if it would appeal the ruling to the US Supreme Court, and according to The New York Times, Mayor Michael Bloomberg and advocates for the World Trade Center rescue workers have asked Congress to reopen the Sept. 11 Victims Compensation Fund to compensate injured workers in lieu of the litigation.

Auction Rate Securities Crash Yields Lawsuits

Wed, 26 Mar 2008 00:00:00 -0700

Investors in auction rate securities have filed lawsuits against Morgan Stanley and Merrill Lynch, alleging those brokerages deceptively marketed the investment vehicles and took actions that made auction rate securities all-but-impossible to sell. Both lawsuits, filed in federal court in Manhattan, are seeking class action status.

Auction rate securities are long-term corporate bonds, municipal bonds and preferred stock on which the interest rates are reset periodically based on bids submitted through securities firms. Generally, rates are reset every seven, 14, 28 or 35 days. Because they can be sold during weekly or monthly auctions, banks and brokerages often touted auction rate securities as short-term investments or cash equivalents.

Unfortunately, because of the crisis in the credit markets, auctions of these securities haven’t been successful because of worries that bond insurers guaranteeing many of the $330 billion in outstanding auction bonds would be downgraded. Bloomberg.com has also reported that brokers such as Goldman Sachs Group Inc. and Citigroup Inc. also purposely permitted the auctions for preferred securities, which aren’t insured, to fail by not committing their own capital to sales when there weren’t enough bidders. As a result, the market for auction rate bonds has pretty much vanished, leaving a lot of small investors holding auction rate securities they once thought were safe vehicles with no way to sell them. Some legal experts have asserted that banks or brokers could be held liable for investors' auction rate securities loses if the vehicles were represented as short-term investments or cash equivalents.

According to Reuters, the auction rate securities lawsuits filed against Morgan Stanley and Merrill Lynch claim the brokers had artificially supported the auction rate securities market, causing their investments to become illiquid. They also claimed that the firms had recklessly misrepresented the risks of such investments.

Investor Gary Miller, who filed suit against Morgan Stanley, is seeking an injunction that would force the broker to rescind millions of dollars it executed in auction rate transactions from March 2003 through February 2008, and compensatory damages for himself and other investors in those securities. The other suit, filed against Merrill Lynch by Frederick Burton, alleges the company deceived the investing public and issued misleading information to clients in violation of the Exchange Act. He is also seeking compensatory damages.

Cigarette Company's "Blood Money" Paid for Important Lung Cancer Study, Critics Say

Wed, 26 Mar 2008 00:00:00 -0700

It has turned out that an important lung cancer study was actually funded by a cigarette company. In late 2006, Dr. Claudia Henschke of Weill Cornell Medical College released a study revealing that the majority (80 percent) of lung cancer deaths could be prevented through widespread use of CT scans. The study was published in The New England Journal of Medicine and indicated—in small print at the end of the piece—that the work was financed, in part, by the Foundation for Lung Cancer: Early Detection, Prevention & Treatment. A tax record review revealed the foundation was almost entirely underwritten by $3.6 million in grants from the parent company of the Liggett Group—the Vector Group—maker of Liggett Select, Eve, Grand Prix, Quest, and Pyramid cigarette brands. From 2000 to 2003, the foundation received four grants from Vector.

Dr. Jeffrey M. Drazen, editor-in-chief of the journal expressed surprise, “In the seven years that I’ve been here, we have never knowingly published anything supported by” a cigarette maker. As a matter-of-fact, more and more universities do not accept grants from cigarette makers; a growing awareness of the influence companies can have over research outcomes has led most medical journals and associations to demand researchers accurately disclose financing sources.

Prominent cancer researchers and journal editors were stunned to learn of the Henschke-Liggett link. Cigarette makers are so reviled among cancer advocates and researchers that association with industry can taint researchers and bar their work from being published. “If you’re using blood money, you need to tell people you’re using blood money,” said Dr. Otis Brawley, chief medical officer of the American Cancer Society which gave Henschke over $100,000 in grants from 2004 to 2007 it would not have provided had it known of Liggett’s grants, Brawley said.

Henschke and Dr. David Yankelevitz—Henschke’s long-time collaborator—wrote, “It seems clear that you are trying to suggest that Cornell was trying to conceal this gift, which is entirely false.” “The gift was announced publicly, the advocacy and public health community knew about it, it is quite easy to look it up on the Internet, its board has independent Cornell faculty on it, and it was fully disclosed to grant funding organizations,” they wrote, adding that the Vector grant represented a small part of the study’s overall cost. The foundation no longer accepts grants from tobacco companies, they wrote. In the Vector press release, Dr. Henschke was quoted as saying that, thanks to the Vector grants, “we have raised the initial funding needed to support this important research and data collection on the effectiveness of spiral CT screening.”

Dr. Antonio Gotto, dean of Weill Cornell, said Henschke, Yankelevitz, and another colleague set up the foundation initially without university’s approval, which faculty members are allowed to do. He and Mahon joined the board following its creation to ensure Vector grants were handled correctly, “If we had been approached, we would not have set up the foundation,” Gotto said. “We would have accepted the gift directly. We think we behaved honorably. There was no attempt to set up a foundation to hide tobacco money.”

SEC Mulling Bear Stearns Probe

Thu, 20 Mar 2008 00:00:00 -0700

Bear Stearns, the investment bank recently rescued by a massive bailout engineered by the Federal Reserve, hasn't seen the end of its troubles. Already facing lawsuits by angry shareholders and employees whose stock in the company is worth far less than it was two weeks ago, Bear Stearns could also soon be subject of a probe by the Securities and Exchange Commission (SEC). According to the Associated Press, securities regulators have not ruled out legal action over potentially misleading comments about Bear Stearns' financial health made days before JP Morgan arranged to buy the investment bank.

Bear Stearns was once one of the biggest investment banks on Wall Street before being acquired by JP Morgan Chase over the weekend in an effort to salvage the failing institution. Two of its hedge funds, heavily invested in subprime mortgages, folded in July. Bear’s investors became increasingly reluctant to do business with the company. Despite the company’s assurances that it had plenty of cash on hand to continue operations, it collapsed last Friday.

The buyout of Bear Stearns by JP Morgan Chase - termed a “shotgun marriage” by some - was consummated after the Federal Reserve agreed to provide up to $30 billion in non-recourse financing to JP Morgan, with Bear Stearns’ illiquid mortgage and other securities as collateral. When the dust settled, JP Morgan ended up buying Bear Stearns for a paltry $2.00 a share, a fraction of what it was once worth.

In the days leading up to the Bear Stearns failure, several of the investment bank's executives made reassuring statements about its prospects. Last Monday, when rumors started to circulate that Bear Stearns might not have enough cash to do business, the firm's executives sent out a press release to calm fears. It said Bear Stearns' "balance sheet, liquidity and capital remain strong. ... There is absolutely no truth to the rumors of liquidity problems that circulated today in the market." On Wednesday, Bear Stearns CEO Alan Schwartz appeared on CNBC to reassure investors that the firm had ample liquidity and said he was "comfortable" that it would turn a profit in its fiscal first quarter. By Thursday, Bear Stearns' solvency was being called into question and by Friday it told regulators it was ready to file for bankruptcy.

While Schwartz and others were trying to quell panic, Bear Stearns' stock was in a freefall. Bear Stearns' shares traded last Monday at $62.30 and remained close to that level until Thursday, when they dipped to $57. On Friday, they plunged to $30. Yesterday, it closed at $5.33 per share.

Now, those reassurances issued by Bear Stearns last week could have both the bank and its buyer in hot water. The SEC enforcement division has written a letter to JP Morgan that discussed "investigations and potential future inquiries into conduct and statements by Bear Stearns" before the announcement of the takeover, the agency said. In the letter, the SEC enforcement attorneys "declined to provide assurances about possible future enforcement actions" and said it would be premature to reach conclusions about their inquiry. However, they added that the staff "would favorably take into account" the circumstances surrounding the takeover when considering whether to recommend enforcement action against JP Morgan for public statements made by Bear Stearns.

According to the Associated Press, in the past the SEC has shown leniency toward companies that acquire firms that may have violated securities laws, since the parent company did not play a part and the acquisition ceases to exist as an independent entity. The agency, however, still has brought enforcement actions against individuals.

Stunning Bear Stearns Collapse Leaves Shareholders in the Lurch

Tue, 18 Mar 2008 00:00:00 -0700

Bear Stearns, once one of the biggest investment banks on Wall Street, was acquired by JP Morgan Chase over the weekend in an effort to salvage the failing institution. The buyout of Bear Stearns by JP Morgan Chase - termed a "shotgun marriage" by some - was consummated after the Federal Reserve agreed to provide up to $30 billion in non-recourse financing to JP Morgan, with Bear Stearns' illiquid mortgage and other securities as collateral. When the dust settled, JP Morgan ended up buying Bear Stearns for a paltry $2.00 a share, a fraction of what it was once worth.

Left holding the bag are Bear Stearns stockholders. Bear Stearns is being sold for just $236 million. The deal's value is more than 90 percent below the company's Friday closing share price of $30.85. Earlier in the week, the stock had been selling for as much as $60 per share. But even as the investment bank was crumbling around them, Bear Stearns executives maintained that the bank was solvent.

Already, Bear Stearns shareholders are exploring their legal options. Shareholders might sue Bear and its executives and officers for securities fraud, contending they failed to disclose the company's true financial health, lawyers say. Separate suits may be brought by Bear Stearns employees who hold company shares that are now virtually worthless

The collapse of Bear Stearns began last Tuesday, when financial markets began turning against the investment bank. But the genesis of the crisis occurred when the housing bubble burst. As home prices soared to economically unsustainable levels, fewer people could afford to buy. In response, banks and other lenders created new types of mortgages, which made loans affordable to people who normally wouldn't qualify for a conventional 30-year mortgage. Banks and brokers collected fees for closing the deals but faced no risk once they sold the loans to Wall Street. Investment banks like Bear Stearns were enthusiastic buyers of subprime loans, which they packaged with other types of debt into complex securities and sold to other investors.

Bear Stearns was one of the biggest underwriters of complex investments linked to mortgages. Two of its hedge funds, heavily invested in subprime mortgages, folded in July. Bear's investors became increasingly reluctant to do business with the company. Despite the company's assurances that it had plenty of cash on hand to continue operations, it collapsed Friday.

Because it was linked to so many other financial institution, the collapse of Bear Stearns threatened the already precarious financial markets. The Federal Reserve was desperate to prevent a "fire sale" of Bear Stearns' assets, which could have further depressed markets. For that reason, the Federal Reserve stepped in to mitigate the damage. The Fed bailout included the $30 billion in non-recourse funding to JP Morgan. Non-recourse funding means that if the collateral goes bad, the Fed can't come after JP Morgan for other assets. In the end, taxpayers could be on the hook for the Bear Stearns debacle.

Nassau Child Protective Services Missed Warning Signs Leading Up to New Cassel Murders.

Wed, 05 Mar 2008 00:00:00 -0800

Leatrice Brewer, the mother who drowned her three children at her New Cassel apartment, had a long history with Nassau County’s Child Protective Services (CPS). The Friday before Brewer murdered the children, the father of the two boys contacted CPS when Brewer was acting strangely and threatening to harm the children. CPS was dispatched that day and again that night, but they were unable to locate Brewer. A night supervisor opted to put off a third visit for another day. It was during this time that the murders occurred. Brewer drowned all three children—Jewell, six; Michael, five; and Innocent, 18-months—on Sunday. The CPS employee who failed to schedule a third visit with Brewer has been suspended without pay and is under investigation.

The father of Jewell Ward, one of the three murdered children has filed a $60 million lawsuit against Nassau County, Child Protective Services and the Department of Social Services. Ricky Ward is being represented by the Long Island law firm Parker Waichman Alonso LLP. The lawsuit charges that the County “negligently, carelessly and recklessly failed to protect Jewel Ward and are, therefore, responsible for the pain and suffering and wrongful death of his daughter.” The lawsuit alleges that if the agencies followed policy Jewell and her two brothers would have been removed from Brewer’s home, preventing their deaths.

It is difficult to understand how CPS failed to miss the warning signs that Brewer was a danger to her children, especially considering the agency's long history with her. In 1997, Brewer was fined twice for disorderly conduct and police were often called to the home by the children’s fathers who claimed she assaulted them when they tried to see their children. From 2003 until last week, caseworkers from CPS investigated nine complaints against Brewer alleging she neglected her children, left them unattended, or failed to send them to school. The fathers sought custody, claiming Brewer was mentally ill and neglectful and may have been abusing drugs; custody was never in jeopardy. Police, mental health, child protection, and Family Court officials all had case files on the family; however, none was in communication with workers in the other agencies.

In 2003, Michele Sambriski, a mother with mental health problems, drowned her two-year-old daughter. This, after a CPS investigation concluded the child was not at risk. In the late 1990s, a case investigator had an average of 60 cases. Because more caseworkers have been hired, the monthly average is 23, nearly twice the recommended number. In the last few years, caseworker turnover has ranged from 5 to 12 percent.  Nassau had about 900 children in foster care in the late 1980s; today the figure has dropped, but 500 still remain in the system.

Advocates and social work experts say that child protective agencies need adequate funding, caseload caps, and training and close supervision of staffers on the front lines.  Caseworkers are often recent college graduates with little experience, said Susan Lambiase, associate director of Children's Rights, a watchdog group in Manhattan. "Unless they are trained how to assess a troubled mom, you are not going to get the right decision making," she said. "And kids get hurt. And kids get killed."

Experts say context is critical. "If you ... do not assess whether there is also alcoholism or addiction, mental illness or domestic violence, then you have not done a full assessment," said Kathryn Conroy, an assistant dean of Columbia University School of Social Work.  While criminal records are publicly available, Nassau child welfare workers did not routinely check them until last week. Also, New York State privacy laws often prevent caseworkers from accessing medical and drug treatment histories. "It's very frustrating because our goal is to help people," said Mary Curtis, Nassau's deputy county executive for health and human services.

Each year, children with open cases in the Nassau child welfare system die of causes ranging from abuse to accidents: Eight in 2004, four in 2005, and five in 2006, the most recent year data was available.

New Cassel Mother's Neglect of Children Evident Long Before Murders of Three Children

Mon, 03 Mar 2008 00:00:00 -0800

Two days before the triple New Cassel child murders by Leatrice Brewer, 27, the father of two of the children—Innocent Demesyeux—complained to Child Protective Services (CPS) that Brewer was behaving bizarrely and threatening to harm the children. A caseworker was sent to investigate, but found no one home. A second caseworker was sent that night and was unable to gain access. Instead of ordering a follow-up visit for Saturday, a night supervisor scheduled another visit for Sunday; he was suspended without pay. The family blames the Nassau County child welfare agency, saying it should have been more proactive. “Everybody knew she left the kids home sometimes,” said a family member.

Brewer drowned all three children—Jewell, six; Michael, five; and Innocent, 18-months—that Sunday and then called 911 to report she had drowned each after repeatedly stabbing Jewell with a knife. Brewer then threw herself from the second-floor, surviving the fall. Brewer was arraigned on three counts of murder; she pleaded not guilty to all charges.

The father of Jewell Ward, one of the three murdered children has filed a $60 million lawsuit against Nassau County, Child Protective Services and the Department of Social Services. Ricky Ward is being represented by the Long Island law firm Parker Waichman Alonso LLP. The lawsuit charges that the County "negligently, carelessly and recklessly failed to protect Jewel Ward and are, therefore, responsible for the pain and suffering and wrongful death of his daughter.” The lawsuit alleges that if the agencies followed policy Jewell and her two brothers would have been removed from Brewer's home, preventing their deaths.

Family and friends say Brewer was both extremely possessive and severely negligent towards her children. Brewer stopped working sometime last year; some say she was fired. Visitors often found the children alone. “You would ring the bell and the little girl would say, ‘No, my mommy’s not home, come back later,’” a friend, said. Conversely, at Christmas, Brewer permitted Jewell to spend an evening with her father. Brewer telephoned the house several times each hour to check on Jewell and find out when she would be returning home.

In 1997, Brewer was fined twice for disorderly conduct. Police were often called to the home by the children’s fathers who claimed she assaulted them when they tried to see their children. Brewer is six-feet tall and 200 pounds, “Leatrice was moody, and she could be a little ‘off’—one day friendly, the next day like she never knew you,” said a friend. Relatives said after giving birth to Jewell, Brewer suffered from depression. That year she was charged with third-degree assault and second-degree criminal contempt and sentenced to three years’ probation. From 2003 until last week, caseworkers from CPS investigated nine complaints against Brewer alleging she neglected her children, leaving them unattended, or failing to send them to school. Jewell was responsible to change diapers and wash baby bottles. Family members pleaded with Brewer to let the children live with them.

The fathers sought custody, claiming Brewer was mentally ill and neglectful and may have been abusing drugs. Custody was never in jeopardy, Dr. Curtis said. “When we spoke to the kids, they were not bruised, they looked well cared for, the house was clean,” Curtis said adding, "Being mentally ill is not automatically grounds for removing children from their mother." Police, mental health, child protection, and Family Court officials all had case files on the family, Curtis said, yet none was in communication with workers in the other agencies.

Neighbors also noticed Jewell handled increasingly more of her brothers’ care. “She would change the baby’s diapers, wipe Michael’s nose, take care of the house, make sure they didn’t play near the stove, all that kind of stuff,” said Ms. Maddox, Ms. Brewer’s friend.

Health Net Ordered to Pay $9 Million for Illegally Canceling Breast Cancer Patient's Policy

Mon, 25 Feb 2008 00:00:00 -0800

Health Net Inc. has been ordered to pay $9 million to a California woman for illegally canceling her health insurance coverage after it learned she had been diagnosed with breast cancer. The Health Net fine, levied by an arbitration judge, came one day after the Los Angeles city attorney's office announced it would be suing Health Net for illegally canceling health insurance coverage for 1,600 other customers

Patsy Bates, 52, a hairdresser from Lakewood, California, had been left with more than $129,000 in unpaid medical bills when Health Net Inc. canceled her policy in 2004. Bates had been insured with another company but was persuaded to switch over to a Health Net policy after an agent suggested she could save money. She said she had undergone surgery to remove a tumor and had received her first two chemotherapy treatments when doctors stopped treating her because her bills were going unpaid. Bates was able complete her cancer treatment through a state-funded program.

On Friday, arbitration judge Sam Cianchetti ordered Health Net to repay that amount while providing $8.4 million in punitive damages and $750,000 for emotional distress. "It's hard to imagine a situation more trying than the one Bates has had to endure," Cianchetti wrote in the decision. "The rug was pulled out from underneath, and that occurred at a time when she is diagnosed with breast cancer, one of the leading causes of death for women."

Los Angeles City Attorney Rocky Delgadillo has also sued Health Net, charging that the company illegally paid bonuses to employees for meeting policy cancellation targets. Delgadillo alleges that Health Net illegally cancelled at least 1,600 policies due to the incentive program. For its part, Health Net has admitted that such a bonus policy was in effect at the company in 2002.

In the wake of the Bates decision, Health Net said it would be implementing a freeze on policy cancellations that would last until the company sets up a third-party review panel to scrutinize cases. Health Net also said it would review its practices and the way its brokers and agents are trained. "Obviously we regret the way that this has turned out, but we are intent on fixing the processes to maintain the public trust," a Health Net spokesperson told the Associated Press.

Bates' attorney told Reuters that he hoped that multimillion-dollar punitive damages award, the first in a such case, will send a message to other large health insurers who face lawsuits over the similar practices. "Let's see if these other big health carriers will change their practices, then we will have done something," he said. "Until this punitive damages award came down, nobody was doing anything."

401(K) Lawsuits Get Supreme Court OK

Thu, 21 Feb 2008 00:00:00 -0800

The Supreme Court gave workers a major victory by allowing them to sue over mismanagement of their 401(k) retirement accounts. Wednesday’s ruling could affect over 50 million employees with nearly $3 trillion invested in such retirement plans. The court’s unanimous holding reverses a lower court decision barring individuals from filing 401K lawsuits over losses related to mistakes and misconduct and which had also protected employers from lawsuits. That earlier decision was a blow to workers during a time when U.S. workers relying on the savings accounts to cushion their retirement was on the rise.

Justice John Paul Stevens recognized that retirement investing had been undergoing change since the high court's last ruling on related issues over 20 years ago as individual plans—known as 401(k) accounts—burgeoned while employers moved away from defined-benefit plans. As a result, Stevens wrote, courts should interpret employee benefits law as giving individuals the green light to sue over administrative problems with their accounts, rather than limiting cases to those that affected an employer's "entire" retirement savings plan.

Wednesday's decision allows James LaRue sue his former employer, DeWolff Boberg & Associates, for over $150,000 in losses he claims occurred after the Texas management consultancy failed to act on instructions to shift his retirement savings when the stock market hit turbulence over six years ago. LaRue, 47, criticized his former company for being "nonresponsive" when he moved to transfer his money from stocks into cash during the Internet crash and the post September 11th market plunge. The Labor Department and Solicitor General, who argues the Bush administration's position before the Supreme Court, backed LaRue. Assistant Solicitor General Matt Roberts argued in November that any recovery by the plaintiff would benefit the company's retirement plan as a whole in keeping with the law, known as the Employee Retirement Income Security Act, or ERISA. "Today's decision supporting our position is a huge victory for workers and retirees," said Labor Secretary Elaine Chao.

Peter Stris, a professor at Whittier Law School said the decision protected the savings of everyone with a 401(k). "If the lower court opinion had stood, it would have prevented the Department of Labor from pursuing claims when retirement funds had been stolen or mismanaged," he said.

Business advocates predicted the ruling would unleash a number of lawsuits by employees, particularly as stock market volatility again upsets investment accounts. Employment law experts said the decision leaves some issues unanswered such as questions about other steps workers must take before suing over retirement savings disputes.

Chief Justice John Roberts agreed that reasoning by the U.S. Court of Appeals for the Fourth Circuit was "flawed." While others wonder if plaintiffs could recoup their losses if they do not first follow set procedures, such as an appeal to the plan administrator. Others worry that the court’s move will enable severe punishment for minor mistakes. In past cases, the Supreme Court gave administrators wide latitude to develop standards for eligibility and other terms, judgments that courts can review only for an abuse of discretion.

Imperial Sugar Co. Plant Explosion Investigation Begins

Tue, 19 Feb 2008 00:00:00 -0800

The fatal Imperial Sugar Co. plant explosion was not the first-such incident at the Port Wentworth, Georgia refinery this year. According to investigators who arrived at the plant this week, just a few weeks prior to the massive Imperial Sugar Co. plant explosion, a smaller blast occurred when dust became trapped in a piece of safety equipment. No injuries or damage where caused by that small blast, however, nine people where killed and dozens where injured – some critically—by the larger February 7 explosion.

The Imperial Sugar Co. plant explosion occurred at 7:00 p.m. in a silo where refined sugar was stored before being packaged. Speculation about the cause of the Imperial Sugar Co. explosion has centered on a “sugar dust explosion”. Plants where a lot of sugar dust is present are classified by the U.S. Occupational Safety and Health Administration as “hazardous locations,” the same classification as coal preparation plants and producers of plastics, medicines and fireworks, according to the OSHA Web site. When sugar dust is aerosolized, it can get ionically charged and ignite from just a bit of static electricity. Witnesses in neighboring towns and across the Savannah River in South Carolina reported seeing flames shoot up several stories and hearing the blast.

It took fire crews a week to extinguish the fire sparked by the Imperial Sugar plant explosion. Mounds of sugary sludge that poured out of two silos had solidified in places, making a sticky, concrete-like mixture that had to be cut with power tools. According to Port Wentworth emergency officials, the fire spread deeper into the sugar silos than first imagined, complicating efforts to put it out. It was initially thought that only the first 3 or 4 feet of sugar in the silo was on fire, but thermal imaging cameras were used to determine that the fire reaches down as deep as 10 or 12 feet.

Sixteen people remain hospitalized in critical or serious condition with severe burns as a result of the Imperial Sugar Co. plant explosion. Four victims of the Imperial Sugar Co. blast where buried on Saturday, and the remaining dead are expected to be laid to rest this week.

Investigators with the US Chemical Safety Board are on the scene of the Imperial Sugar Co. refinery explosion in Port Wentworth. They're still early into the investigation and they said finding the ignition source that started the explosion may be "impossible." U.S. Chemical Safety Board Investigations Manager Stephen Selk said earlier this week that investigators are looking into reports that some safety equipment failed a few before the large blast and set off a smaller explosion. Selk said it was too early to tell if that incident had anything to do with the larger explosion.

Meanwhile about 50 employees returned to work at the Imperial Sugar Co. plant today to help with clean up and the investigation. The employees have been broken up into three groups, one team is checking out the equipment and extent of the damage, a second team is working with engineers and the Chemical Safety Board as they tour the facility, and the third group is removing finished sugar in the warehouse which the US Department of Agriculture approved and packing it up to ship out.

Alon USA Refinery Explosion Injures 1, Causes Evacuations

Mon, 18 Feb 2008 00:00:00 -0800

The Alon USA refinery explosion near Big Spring, Texas this morning injured one worker and resulted in the evacuation of people living within one mile of the Alon USA refinery. All workers of the Alon USA refinery have been accounted for, and the fire from the Alon USA refinery explosion is reportedly under control.

There is no word yet on what set off the Alon USA refinery explosion. The Alon USA refinery is located just outside of Big Spring, a town with a population of about 25,000, and about 250 miles from Fort Worth. The Alon USA refinery employs about 170 people and processes about 70,000 barrels of oil each day. The Alon USA refinery supplies an area including West Texas, New Mexico, Arizona, southern Oklahoma and Arkansas with fuel products and asphalt, the company’s Web site says.

The Alon USA refinery explosion occurred at 8:00 a.m., and witnesses reported hearing a large blast followed by a billowing plume of smoke and flame. According to media reports, the impact from the Alon USA refinery explosion was felt 60 miles away. The worker injured by the Alon USA refinery explosion was transported to a Lubbock hospital, according to Midland television station KWES, but the condition of the worker is not known.

The Alon USA refinery sets adjacent to East Interstate 20, a portion of which was shut down shortly after the Alon USA refinery explosion. Two elementary schools were evacuated as a result of the Alon USA refinery explosion, then classes were canceled at all nine campuses in the Big Spring school district. A district spokesperson told the Associated Press that the cancelations were necessary because bus routes were affected by road closures and that emergency officials were warning of the potential for more explosions from the Alon USA refinery. School officials were asking parents to come pick up their children as soon as possible. That same school district official told the Associated Press that the explosion forced open the doors of the school district’s administration building about four miles from the plant.

Howard College, located near the Alnon USA refinery was also evacuated, and residents living within one mile of the plant where also asked to leave their homes.

Health Insurance Companies Defrauding Consumers Critics Charge

Mon, 18 Feb 2008 00:00:00 -0800

Critics of the health insurance industry say the gap between what a physician charges and what is reimbursed may be too big. In response, New York State Attorney General Andrew Cuomo is suing UnitedHealthGroup—the nation’s largest health insurer—and Ingenix, its subsidiary. Cuomo also launched an industry-wide investigation into health care reimbursements saying that some companies have been underpaying customers for a decade and that UnitedHealthGroup, in particular, manipulated data to cheat consumers.

The way insurers determine prevailing market rates for medical services has long been a subject of controversy; even the American Medical Association has a pending eight-year-old lawsuit. The practice “is primarily unfair to consumers,” said Dr. Nancy H. Nielsen, president-elect of the medical association. Cuomo said, “We believe there was an industry-wide scheme perpetuated by some of the nation’s largest health insurers to deceive and defraud consumers.” Cuomo’s investigation comes when the industry is reporting huge profits while the rising cost of medical insurance has left about 47 million uninsured in the US. “The larger issue is health plans make an awful lot of money,” said Sheryl R. Skolnick, a health care analyst for CRT Capital. If insurers are found to have underpaid, they could end up having to make big restitutions to consumers.

Cuomo’s investigation focuses on how insurers determine what is reimbursed when a patient receives out-of-network care. Those using out-of-network providers must pay around 20 percent of what the insurer deems “reasonable and customary,” a calculation meant to reflect prevailing market rates by geographic area for medical services. Cuomo contends the industry has consistently underestimated prevailing market rates, forcing insured patients to pay more of their own medical bills than their policies are supposed to require.

Cuomo said he planned to sue UnitedHealth and some of its subsidiaries, accusing them of deceptive practices and consumer fraud. United Health owns Ingenix, the company used by the industry to calculate reasonable and customary rates. “We believe Ingenix systemically reduced the amount of money consumers should have been reimbursed,” Cuomo said. Cuomo also issued subpoenas to 16 insurers, including Aetna, Cigna, and Empire Blue Cross and Blue Shield who all conduct business in New York State. Cuomo’s office compared the rate for a routine doctor’s visit with what Ingenix calculated as reasonable and customary. Doctors in the metropolitan New York City area typically charged $200 per visit; Ingenix calculated the rate at $77. Under a typical plan, the insurer would pay 8o percent—$62—leaving the patient responsible for $138.

Cuomo contends Ingenix and others manipulate information to arrive at artificially low rates, adding that insurers had an inherent conflict because it was in their interest to understate the true rates. “There is no disclosure; there’s no transparency; there’s no accountability,” said Cuomo. He also said patients who belonged to a UnitedHealth plan were also not told that the company generating the rate data was a unit of the insurer. Mr. Nathan, the UnitedHealth spokesman, said, “We don’t think there is a conflict of interest,” because the data is supplied to Ingenix by various insurers.

State Farm Latest Insurer to Bail on Long Island Homeowners

Fri, 15 Feb 2008 00:00:00 -0800

State Farm is canceling homeowner policies on Long Island, forcing customers to look for new—and often costlier—insurance options. Senator Charles Schumer (D-NY) said that State Farm has become the latest giant insurance company to notify customers on Long Island that their homeowner's policies will be terminated. In a press release, Schumer, said his office had "received several calls in the last six months from Long Island residents who received word from State Farm that their policies would be terminated and they would be forced to find new, more costly insurance." 

State Farm isn’t the only insurer to be taking these measures. Last year Allstate, MetLife, Nationwide, and several other insurers said they would be sharply cutting the number of homes they would be covering on Long Island, in New York City, and in Westchester County. The insurers site the reason for these cuts as because of the fear of intense storms and huge damage claims. The result is of this insurance chaos is higher premiums for Long Island homeowners. For instance, when Wading River resident Walter Buhner was dropped by State Farm, two insurance brokers worked for a month looking for another carrier before one found Narragansett Bay Insurance Co., in Pawtucket, R.I., to insure Buhner’s house. The yearly price for the insurance policy came in at $2,048 a year for premiums, 75 percent more than his $1,172 policy with State Farm Insurance.

Buhner, 57, is a law enforcement officer who was also was insured with State Farm for his car but switched to Travelers following the notice of cancellation on his homeowner’s policy. "I'm not going to give my business to State Farm if they don't want to take care of my home."  Buhner said his home is a tenth of a mile from the Long Island Sound but 300 feet above sea level.

Schumer said that some Long Island homeowners might be forced to take out so-called "extreme insurance," usually reserved for fireworks stores, which he said can carry very high premiums that are more than double the cost of other policies. In his announcement, Schumer said his office had receive calls from homeowners in both Nassau and Suffolk counties "reporting that their State Farm policies had been suddenly terminated."  Schumer said he sent a letter of protest to Edward Rust Jr., State Farm Insurance’s chief executive officer urging "the arbitrary and capricious decisions to cancel existing policies should be stopped immediately."

Schumer said he will propose two new bills. In one bill he will look to increase coverage limits in high-cost areas, such as Long Island. He said he will also propose a Commission on National Risk Management and Insurance to study "the growing crises of insurers abandoning communities with perceived risks, like Long Island."

UnitedHealthGroup Cheated Customers, NY Attorney General Claims

Thu, 14 Feb 2008 00:00:00 -0800

New York State Attorney General Andrew Cuomo said yesterday he is suing UnitedHealthGroup—the nation’s largest health insurer and its subsidiary Ingenix. The New York attorney general also launched an industry-wide investigation into health care reimbursements. Cuomo alleges that UnitedHealthGroup manipulated data to cheat consumers, and he believes some insurance companies have been underpaying customers for a decade, An investigation revealed two UnitedHealthGroup subsidiaries—United HealthCare Insurance Co. of New York Inc. and United Healthcare of New York Inc.—manipulated data to severely under-reimburse customers, to the tune of millions. Cuomo has not yet filed charges, but said investigators found UnitedHealthGroup and its subsidiaries lied about data and manipulated numbers.

Cuomo said he would file a civil lawsuit to include three other subsidiaries of UnitedHealthGroup. He has subpoenaed 16 insurers, including Aetna, CIGNA, and Empire BlueCross BlueShield requesting they provide documents on how they computed reimbursements; copies of member complaints and appeals; and communications between members, Ingenix, and insurers.   Cuomo's office said they found Ingenix’s reimbursement database—owned by UnitedHealthGroup and used by most major insurers—used data resulting in smaller payouts.

Linda Lacewell, head of Cuomo's health care industry taskforce, said, "United has a track record that stretches from Monterey to Montauk." The potentially affected insured were those with "out-of-network" insurance allowing them treatment from doctors of their choice. About 28,000 Long Islanders have such policies with United, a Cuomo spokesman said. "When insurers like United receive convoluted and dishonest systems for determining the rate or reimbursement, real people get stuck with excessive bills and are less likely to seek the care they need," Cuomo said.

United said it is talking with Cuomo, "The reference data is rigorously developed, geographically specific, comprehensive, and organized using a transparent methodology that is very common in the healthcare industry."  Empire president Mark Wagar said they would continue to work with Cuomo to determine whether information used was inaccurate, "If that is found to be the case, Empire would consider any and all remedies available to protect the interests of our members, their families, our group customers, and providers in the New York marketplace and to maintain our company's historic commitment to fair and reasonable coverage."

Reimbursement is based on "reasonable and customary" geographic pricing; however, Cuomo said that while the United companies that used the database knew customary charges for a doctor's visit might average $200, reimbursement was based on a $77 rate; therefore, customers receiving 80 percent reimbursements would get about $61.   "Based on the findings in this investigation," Consumers Union program director Chuck Bell said, "it appears that United Health failed to fulfill the promises it made to cover a fair portion of medical expenses and consumers were stuck with the bill."

Dr. Nancy Nielsen, president-elect of the American Medical Association said, "The investigation launched today by New York Attorney General Andrew Cuomo calls into question the validity of a system that health insurers have used for years to reimburse physicians and their enrolled members."  Dr. Robert Goldberg, president of the Medical Society of the State of New York, supported Cuomo’s investigation, saying there will be "long-term benefits to health care in New York" as a result of cracking down on reimbursement pricing.

Imperial Sugar Co. Plant Explosion Death Toll Stands at 8

Thu, 14 Feb 2008 00:00:00 -0800

The number of Imperial Sugar Co. plant explosion fatalities rose to 8 today, following the death of an injured worker at burn center in Augusta, Georgia. Seven other people have been found dead in the rubble at the plant following the Imperial Sugar Co. plant explosion, and one worker was still missing. Emergency crews had recovered the body of another missing Imperial Sugar Co. worker yesterday.

The Imperial sugar plant explosion occurred at 7:00 p.m. last Thursday in a silo where refined sugar is stored before being packaged. According to news reports, the Imperial Sugar Co. explosion was the result of a “sugar dust explosion”. Plants where a lot of sugar dust is present are classified by the U.S. Occupational Safety and Health Administration as “hazardous locations,” the same classification as coal preparation plants and producers of plastics, medicines and fireworks, according to the OSHA Web site. When sugar dust is aerosolized, it can get ionically charged and ignite from just a bit of static electricity. Witnesses in neighboring towns and across the Savannah River in South Carolina reported seeing flames shoot up several stories and hearing the blast.

Fourteen other people burned during the explosion a week ago at the Imperial Sugar Company plant in Port Wentworth remain hospitalized in critical condition. Two others are in serious condition.

Fire crews are still having problems extinguishing the fire sparked by the Imperial Sugar plant explosion. Mounds of sugary sludge that poured out of two silos had solidified in places, making a sticky, concrete-like mixture that had to be cut with power tools. According to Port Wentworth emergency officials, the fire spread deeper into the sugar silos than first imagined, complicating efforts to put it out. It was initially thought that only the first 3 or 4 feet of sugar in the silo was on fire, but thermal imaging cameras were used to determine that the fire reaches down as deep as 10 or 12 feet. One major concern is that the silos could collapse, an event that would make the plant unsearchable.

Fire crews had had to call in a specialized team with powerful equipment to assault the silo fires, where the thick masses of molten sugar were still smoldering even after a helicopter dumped thousands of gallons of water.

Title Insurance Price Fixing, other Fraud Costs Consumers Millions

Tue, 12 Feb 2008 00:00:00 -0800

Title insurance fraud became a growing problem during the housing boom, and now that the housing bubble has burst, the business practices of title insurance companies have come under increased scrutiny. Earlier this month, a title insurance fraud lawsuit was filed New York State, alleging that title insurers engaged in price fixing and kickback schemes in an attempt to enrich themselves. Title insurance fraud always results in consumers paying inflated prices, and the New York title insurance fraud lawsuit alleges that such practices have resulted in residents paying some of the highest title insurance premiums in the country.

Title insurance must be purchased for any type of real estate transaction, from home purchases to refinances. Title insurance is insurance against loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens. Because most consumers don’t understand what they are buying, they often depend on their real estate agents or mortgage brokers to recommend the title insurance company that best suits their needs. What’s more, four companies - Fidelity National Title Group, a unit of Fidelity National Financial Inc.; First American Corp.; LandAmerica Financial Group Inc. and Stewart Title Insurance, a unit of Stewart Information Services Corp. – control 90% of the title insurance business in the United States. Title insurance rates in New York are set by an industry group, which submits them to state regulators for review.

The New York title insurance fraud lawsuit alleges that the four dominant firms illegally fixed prices in the state. The New York title insurance class action lawsuit also alleges that title insurance companies paid illegal kickbacks to individuals or firms so that they would recommend their services to consumers. Examinations of title insurers’ financial statements in the course of the lawsuit have revealed millions spent on gifts, auto expenses, and travel and entertainment expenses paid to real estate agents and mortgage brokers in return for referrals. The lawsuit also alleges that the rates submitted by the title insurance companies overcharged consumers because they concealed from regulators these referrals and kickback payments that make up much of the cost of a title policy.

New York is not the only state where title insurance companies have been receiving greater scrutiny. According to The Wall Street Journal, a report by the Government Accountability Office found that at least six states, including California, Colorado, Florida and New York, have targeted alleged kickbacks and payments by title insurers to agents and others. Since 2003, title insurers, their agents or affiliates have paid more than $100 million in fines, penalties and settlement money in cases brought by state and federal regulators.

The New York title insurance fraud lawsuit alleges that such business practices have costs consumers in that state millions. It is a fact that New Yorkers pay some of the highest rates in the nation for title insurance. According to The Wall Street Journal, consumers in the state paid $1.2 billion for title insurance in 2006, more than four times the $260 million paid in 1996.

Imperial Sugar Co. Plant Still Burns, Workers Still Missing

Tue, 12 Feb 2008 00:00:00 -0800

The fire from the Imperial Sugar Co. plant explosion in Port Wentworth, Georgia, continued to burn today, five days after an explosion at the plant injured scores of workers and killed at least six. Two Imperial Sugar Co. workers are still unaccounted for, and the company is bringing in a fire suppression team to fight the fire in the plant’s sugar silos.

Imperial Sugar Co. is the manufacturer of Imperial, Holly and Dixie brand sweeteners. According to the company, the explosion occurred at 7:00 p.m. last Thursday in a silo where refined sugar is stored before being packaged. According to news reports, the Imperial Sugar Co. explosion was the result of a “sugar dust explosion”. Plants where a lot of sugar dust is present are classified by the U.S. Occupational Safety and Health Administration as "hazardous locations," the same classification as coal preparation plants and producers of plastics, medicines and fireworks, according to the OSHA Web site. When sugar dust is aerosolized, it can get ionically charged and ignite from just a bit of static electricity. Witnesses in neighboring towns and across the Savannah River in South Carolina reported seeing flames shoot up several stories and hearing the blast.

The search for the two missing Imperial Sugar Co. workers has been impeded by the continuing fire, as well as the wreckage from the explosion. Mounds of sugary sludge that poured out of two silos had solidified in places, making a sticky, concrete-like mixture that had to be cut with power tools. According to Port Wentworth emergency officials, the fire spread deeper into the sugar silos than first imagined, complicating efforts to put it out. It was initially thought that only the first 3 or 4 feet of sugar in the silo was on fire, but thermal imaging cameras were used to determine that the fire reaches down as deep as 10 or 12 feet. One major concern is that the silos could collapse, an event that would make the plant unsearchable.

According to the Associated Press, seventeen Imperial Sugar Co. workers remained hospitalized Monday, including 16 in critical condition with severe burns. The remains of some of the workers killed in the Imperial Sugar Co. explosion have not yet been identified, and dental records will be needed to make those identifications.

Imperial Sugar Co. – the major employer in Port Wentworth – has promised to rebuild the plant. The company has also promised to pay workers while the repairs take place.

Imperial Sugar Co. Explosion in Georgia Injures Dozens, Several Still Missing

Fri, 08 Feb 2008 00:00:00 -0800

The Imperial Sugar Co. plant near Savannah, Georgia exploded last night, injuring at least 42 people, some of them critically. At least six works are still unaccounted for as a result of the Imperial Sugar Co. plant explosion. The Imperial Sugar Co. refinery in Port Wentworth is the company’s largest plant, and about 100 workers were on site when the explosion occurred.

Imperial Sugar Co. is the manufacturer of Imperial, Holly and Dixie brand sweeteners. According to the company, the explosion occurred at 7:00 p.m. last night in a silo, where refined sugar is stored before being packaged. According to news reports, the Imperial Sugar Co. explosion was the result of a “sugar dust explosion”. Witnesses in neighboring towns and across the Savannah River in South Carolina reported seeing flames shoot up several stories and hearing the blast.

According to the Atlanta Journal Constitution, emergency personnel spent the first hour following the Imperial Sugar Company explosion pulling people out of the building and struggled to stop the spread of the fire.

"There was fire all over the building," Nakishya Hill, a machine operator at the Imperial Sugar Plant told the newspaper. Hill said she escaped from the third floor of the refinery, near the Savannah River.

The Atlanta Journal Constitution also reported that efforts to control the blaze started by the Imperial Sugar Company plant explosion where hampered by water pressure problems. At about 9 p.m., firefighters were reporting trouble with water pressure and were attempting to tap into a 500,000-gallon water tank on the refinery's property. About two hours later, with water pressure problems continuing, fire officials decided to divert water from homes along I-95. Tugboats on the nearby Savannah River converged and turned water cannons onto the blaze.

Those injured in the Imperial Sugar Co. explosion were been taken to local hospitals, the Sugar Land, Texas-based company said. Eight were flown to a burns center in Augusta, Georgia. Some of those injured had burns to their hands, while others had burns on 80-90% of their bodies.

The U.S. Coast Guard said it had closed the Savannah River around the port and that Coast Guard helicopters were searching the river for anyone who might have been thrown into the water. Ambulances and emergency workers from 12 counties had been called in to assist at the scene.

The Imperial Sugar Co. explosion damaged a large portion of the facility, and it has closed for the time being. The damage made it difficult for fire and rescue workers to enter much of the four-story plant, Savannah Fire Chief Charles Middleton., told CNN. "Right now, what we're dealing with is a very unstable structure,” he said.

The refinery, formerly locally owned Dixie Crystals, is based in Sugar Land, Texas, and is the major employer in the riverside town just northwest of Savannah.

Wachovia Lawsuit Alleges Bank Knew of Fraud

Fri, 08 Feb 2008 00:00:00 -0800

Wachovia Bank—the nation’s fourth largest—was accused of allowing fraudulent telemarketers to use the bank’s accounts to steal millions of dollars from unsuspecting victims in a 2007 lawsuit. Bank executives maintained that they were unaware of the thefts, but in newly-released documents from that lawsuit, Wachovia had both long known about allegations of fraud and had actually solicited business from companies it knew had been accused of telemarketing crimes.

Internal Wachovia email revealed high-ranking employees warned colleagues about telemarketing frauds routed through its accounts. Documents also indicate Wachovia was alerted by other banks and federal agencies about ongoing deceptions, but that it continued to provide banking services to companies that helped steal as much as $400 million from unsuspecting victims. Despite this, Wachovia continued processing fraudulent transactions, earning large fees every time a victim spotted a bogus transaction and demanded their money back. One company alone paid Wachovia about $1.5 million over 11 months. “We are making a ton of money from them,” wrote Linda Pera, a Wachovia executive, about a company later accused by federal prosecutors of helping steal up to $142 million.

The lawsuit alleges Wachovia accepted fraudulent, unsigned checks that withdrew funds from victims’ accounts, forwarding them to other banks unaware of the frauds, which then sent money to swindlers. A Wachovia spokeswoman said the bank was not currently working with telemarketers, would review future clients who work with telemarketers, and would reject any client solely focused on telemarketing.

In the last three years, government agencies have sued several companies accused of routing telemarketing thefts through at least nine banks, including Wachovia, the largest company named in those lawsuits. Wachovia and most other banks accused have never been publicly fined or prosecuted by federal regulators, so some victims have turned to private lawsuits.

The suit alleges Wachovia’s involvement with telemarketing thefts dates to 2003 when Wachovia was warned by another bank that AmeriNet tried to process over $100,000 in improper withdrawals. In 2005, a Wachovia fraud investigator wrote to colleagues that 79 percent of the checks submitted by Suntasia had been returned because of unauthorized withdrawals and other problems. Regulators say return rates over 2.5 percent indicate potential fraud. Wachovia continued doing business with Suntasia until last year when the company was shut down by court order. Executives at other banks, including Bank of America, Wells Fargo, Citizens Bank, the Social Security Administration, and the Justice Department Federal Credit Union warned Wachovia multiple times that its accounts were being used for fraud. In 2006, an executive at Citizens wrote that thieves were routing unauthorized checks through Wachovia that stole from Citizen, but Wachovia kept that account open until it was frozen by federal court.

A Wachovia spokeswoman said in every case where a bank complained, an investigation was opened and some accounts were closed. Court records show many of those accounts remained open for years after complaints were received. “These types of crimes only are possible because banks tolerate them,” said U.S. attorney Patrick L. Meehan, who prosecuted a payment processor accused of using Wachovia accounts to steal over $100 million.